Graeme Smith is affiliated with The Open University's Department of Accounting and Finance.
Graeme worked for many years in the IT sector on software systems to support financial management. He holds first degrees in Engineering and Business Studies with a masters degree in Information Systems Engineering. The Great Financial Crisis of 2008 rekindled his interest in economics so, as a ‘refresher’, he completed the OU’s ‘Diploma in Economics’ and has just finished an MSc in Quantitative Finance from the University of London.
The research centres on the interactions between the Financial Sector and the ‘real economy’ leading up to and following the Global Financial Crisis.
In a recent special report of the Economist newspaper on financial risk, it was argued that ‘the idea that markets can be left to police themselves turned out to be the world’s most expensive mistake.’ This remark reflects the fundamental inability of mainstream economic theory to understand and interpret crucial aspects of modern industrial/financial economies. A key problem with mainstream approaches (such as general equilibrium theory) is that they treat the economy as if it were a system of barter exchange in which money is neutral and finance perfectly efficient.
The modern period of economic history has consisted of intervals where one economic paradigm has held sway with transitions between these intervals marked by major upheavals - the great depression of the 1930s eventually led to a transition from classical economics to the mixed market economy of the post-war period, the stagflation of the 1970s marked the end of that interval and the reversion to laissez-faire economics which has dominated since the 1980s and, it could be argued, ultimately led to the Global Financial Crisis. In the aftermath that we are living through, the field of macroeconomics is in disarray with widely diverging explanations of the cause and prescriptions for the way ahead. The political argument seems to be being won by the advocates of a return to ‘business as usual’, but what are the economic implications of this strategy? This research project is directed at this question.
The research approach will be both theoretical and empirical. It will start by taking stock of the current theory on the interdependencies between finance and the ‘real economy’ guided by the insights of post-keynesian economic theory. The empirical work will then proceed by the construction of economic models using stock-flow analysis based on the approach developed by Wynne Godley . Various economic scenarios will be modelled using real data from the National Income accounts. In this way, new understanding of the consequences of various policy choices will be able to be elaborated and compared.
The results of the research will be a progression of increasingly ‘realistic’ models (i.e. incorporating greater degrees of real-world complexity) together with intensive interpretive analyses of the outcomes of the various scenarios and their consequences.
GODLEY, W. & LAVOIE, M. 2007. Monetary Economics, Palgrave Macmillan.