Economic systems can be analyzed from different viewpoints. They distribute goods and services efficiently and keep most people employed, as long as the goods and services market, the labor markets, and the financial markets work together in order to create a dynamic balance between the economic system and society at large. Under conditions of capitalism, however, the system is lopsided: financial markets massively outweigh all other sectors of the economy. Take the example of the United States: In 2018, it has a GDP of roughly 19.5 trillion US Dollars. Labor's share of GDP is declining (roughly from 50% of GDP to 44% of GDP since 2000, according to US Bureau of Economic Analysis). Corporate Profits, as a share of GDP, has been rising from roughly 9% to 13% over the same period. The financial derivatives market, however, is much larger than the total GDP or the labor share of GDP, or corporate profits.
Take for instance Derivatives markets: A derivative is something that derives its value from an underlying financial security, like a mortgage contract. The main purpose of derivatives is to get leverage and speculate without putting down too much money. (i.e. high leverage). A “market” is basically an exchange mechanism for Bids and Asks.
So a derivatives market is the bid and ask for a derivative at any given point in time.
The basic derivatives are Options, Futures, Swaps & may be Forex Spreads. And within each of these there are sub-categories, such as European Options, American Options, Exotic Options, Forwards, Commodity Futures, Currency Futures, Energy Futures, Futures Options, Credit Default Swaps, Interest Rate Swaps etc.
There is a concept of “notional value” in derivatives and this indicates the full size of the derivative market based on the contract specifications.
Here is the interesting part, the total size of the derivatives market in notional value is $300 to $900 trillion. Where as the total size of the global economy is less than $72 trillion.
Why is this ? The answer is “leverage” which can be as much as 10 to 100 times.
Because most of the Options contracts expire worthless. Most of the Futures contracts never result in physical delivery. And most of the Swaps and Forex spreads cancel each other out even if the sum total of the notional value is extremely high.
Mainstream economics has no inherent capacity to make sense of full-fledged breakdowns in equilibrium. Radical political economy, on the other hand, expects economic crises. But this is because it does not expect markets to be inherently stable, efficient and rational. However, mainstream economics and its quantitative analysis ("quants") refuse to acknowledge the possibility of phenomena that violate the predictions their equilibrium generate. Indeed, after the stock market crash of 1987, two quants offered a proof that it was statistically impossible -i.e. that what had happened could not have happened!