Beyond Neo-Classical Economics - Global Financial Crisis

Current crisis is distinguished from previous ones and non-economic measures like social ostracism rather than economic ostracisms have been suggested. Rather then relying on consumption-led growth it is explored whether any lessons can be learned from China's strategy by focusing on investment-led growth in three phases: (i) Infrastructure spending, (ii) focus on rural areas to stimulate demand, and (iii) speeding up of economic growth in new regions, generating housing demand leading up to consumption led growth. This strategy made China a darling of both foreign direct investment and portfolio investment suggesting while the global equity markets were in turmoil, China has emerged as safe parking lot for the global funds. In contrast to perfect competition, theoretically allows “Invisible Hand” to guide market to efficiency regardless of moral beliefs of the traders, non-economic interference is important under adverse selection as it can be helpful instead of harmful. Dichotomy of government solutions introducing agency problem and the costly information problem that they solve by intervention will be addressed with probabilistic-strategic interaction to explain difference between complete and incomplete interbank markets leading to different outcomes