Firms have been telling us that they are producing more with existing capacity rather than investing in new productive capital. Growth over the last few quarters has been mainly fuelled by a pickup in labour productivity. It has not been due to a material improvement in employment (Chart 2).
Governments and Central Banks had to step in to bailout many financial institutions to protect the systemic stability. Greed and fear played a big role in the way markets behaved much against the lines predicted by the mathematical models. The behavioural economics do succeed in explaining the recent market distortions driven by these two human traits.