Financial Instability Hypothesis

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Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

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accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

Keen, S. (1993a) ‘Use-value, exchange-value, and the demise of Marx’s labor theory of value,’ Journal of the History of Economic Thought, 15: 107–21. Keen, S. (1993b) ‘The misinterpretation of Marx’s theory of value,’ Journal of the History of Economic Thought, 15: 282–300. Keen, S. (1995) ‘Finance and economic breakdown: modeling Minsky’s “Financial Instability Hypothesis,”’ Journal of Post Keynesian Economics, 17(4): 607–35. Keen, S. (1996) ‘The chaos of finance: the chaotic and Marxian foundations of Minsky’s “Financial Instability Hypothesis,”’ Economies et Sociétés, 30(2/3): 55–82. Keen, S. (1998) ‘Answers (and questions) for Sraffians (and Kaleckians),’ Review of Political Economy, 10: 73–87. Keen, S. (2000) ‘The nonlinear dynamics of debt-deflation,’ in W. A. Barnett, C. Chiarella, S. Keen, R. Marks and H. Schnabl (eds), Commerce, Complexity and Evolution, New York: Cambridge University Press.

DotCom bubble double-entry bookkeeping Dow, Sheila Dow Jones Industrial Average, movements of dynamic analysis Dynamic Stochastic General Equilibrium model (DGSE); uselessness of earthquakes, theory of Econlit online service econometric models, large-scale economics: as pre-science; as science; different from true sciences; dumbing-down of textbooks; future of; loss of interest in; methodology of; need for revolution in; neoclassical see neoclassical economics; paradigm shifts in; teaching of economies of scale econophysics efficiency of markets efficient markets hypothesis; contradicted; failure of Ehrenberg, Andrew Einstein, Albert; Theory of Relativity emergent behavior emergent properties, concept of employment, theory of Engel curves entrepreneur, role of; as key actor entropy equilibrium; conflated with economic utopia; dismissed by Keynes; general (unreal assumptions of); in exchange rate of commodities; in Marx; in neoclassical theory; instability of; irrelevance of; partial equilibrium method; self-equilibrating economy; value of shares; Walrasian model of Escher drawings euphoric economy European Union (EU), and economic growth evolutionary school of economics exchange, in primitive societies exchange-value expectation; formation of; rational expected value, concept of experiments, importance of externalities ‘F-twist’ factories, built with excess capacity factors of production; fixed; flows of; variable failure to see crisis coming false equalities Fama, Eugene Federal Reserve Board; mismanagement of money supply feudalism finance sector; reform of financial assets: analysis of; pricing of Financial Crisis Inquiry Commission Financial Crisis Observatory Financial Instability Hypothesis see Minsky’s Financial Instability Hypothesis firm, theory of (neoclassical) Fisher, Irving; bankruptcy of; debt deflation paper; The Theory of Interest flat world analogy Fokker-Planck model fractal geometry Fractal Markets Hypothesis Fractional Reserve Banking Freakonomics freedom, and labor French, Kenneth freshwater v. saltwater macroeconomics Friedman, Milton; ‘assumptions don’t matter’; helicopter image; paper on methodology full employment Fullbrook, Edward Fullwiler, Scott Galbraith, J.

And so to battle. 1 | PREDICTING THE ‘UNPREDICTABLE’ A major motivation for writing the first edition of this book was my feeling in 2000 that a serious economic crisis was imminent, and that it was therefore an apt time to explain to the wider, non-academic community how economic theory was not merely inherently flawed, but had helped cause the calamity I expected. At the time, I thought that the bursting of the DotCom Bubble would mark the beginning of the crisis – though I was cautious in saying so, because my work in modeling Minsky’s Financial Instability Hypothesis (Keen 1995) had confirmed one aspect of his theory, the capacity of government spending to prevent a debt crisis that would have occurred in a pure credit economy. Statements that a crisis may occur were edited out of this edition, because the crisis has occurred – after the Subprime Bubble, which was in the background during the DotCom Bubble, finally burst as well.1 But these pre-crisis statements remain important, because they indicate that, without the blinkers that neoclassical economic theory puts over the eyes of economists, the crisis now known as the Great Recession was not an unpredictable ‘Black Swan’ event, but an almost blindingly obvious certainty.


pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

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bank run, banking crisis, banks create money, Basel III, Bretton Woods, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, seigniorage, shareholder value, short selling, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

Chiefly, the long-run dynamic implications of credit creation were ignored, such as the self-reinforcing nature of asset price bubbles, the long run implications of increasing debt, the speculative behaviour of individuals and businesses, and the potential for recessions, depressions, financial crises and debt deflations. This section corrects that omission by outlining Hyman Minsky’s Financial Instability Hypothesis. Minsky’s Financial Instability Hypothesis Hyman Minsky developed the ‘financial instability hypothesis’ as an explanation of how financial crises are endogenously created by a modern capitalist economy. Minsky’s fundamental insight was that periods of stability led to greater risk taking and debt – that is, that stability was itself destabilising. Furthermore this instability tended to be upwards – capitalism tended towards booms.

In effect profits are privatised and losses are socialised.9 Consequently, while the government may offset the worst of a financial crisis, its actions may have unintended consequences, namely increasing inflation and making a future crisis more likely: “the economic relations that make a debt deflation and a long-lasting deep depression like that of the 1930s unlikely in a Big Government economy can lead to chronic and, at times, accelerating inflation. In effect, inflation may be the price we pay for depression proofing our economy.” (Minsky, 1986, p. 165) The Financial Instability Hypothesis To sum up, the essence of the Financial Instability Hypothesis is that booms and busts, asset price bubbles, financial crises, depressions, and even debt deflations all occur in the normal functioning of a capitalist economy. What is more, periods of relative stability increase the likelihood of instability and crisis by increasing returns and thus the desirability of leverage. The banking sector, with its ability to create credit, facilitates this desire for leverage, which sets in train a series of events that culminate in recession and in some cases a financial crisis and depression.

3.1 The demand for credit Borrowing due to insufficient wealth Borrowing for speculative reasons Borrowing due to legal incentives 3.2 The demand for money Conclusion: the demand for money & credit 3.3 Factors affecting banks’ lending decisions The drive to maximise profit Government guarantees & ‘too big to fail’ Externalities and competition 3.4 Factors limiting the creation of money Capital requirements (the Basel Accords) Reserve ratios & limiting the supply of central bank reserves Controlling money creation through interest rates Unused regulations 3.5 So what determines the money supply? Credit rationing So how much money has been created by banks? ECONOMIC CONSEQUENCES OF THE CURRENT SYSTEM 4.1 Economic effects of credit creation Werner’s Quantity Theory of Credit How asset price inflation fuels consumer price inflation 4.2 Financial instability and ‘boom & bust’ Minsky’s Financial Instability Hypothesis The bursting of the bubble 4.3 Evidence Financial crises Normal recessions 4.4 Other economic distortions due to the current banking system Problems with deposit insurance & underwriting banks Subsidising banks Distortions caused by the Basel Capital Accords SOCIAL AND ENVIRONMENTAL IMPACTS OF THE CURRENT MONETARY SYSTEM 5.1 Inequality 5.2 Private debt 5.3 Public debt, higher taxes & fewer public services 5.4 Environmental impacts Government responses to the boom bust cycle Funding businesses Forced growth 5.5 The monetary system and democracy Use of ‘our’ money The misconceptions around banking The power to shape the economy Dependency Confusing the benefits and costs of banking PREVENTING BANKS FROM CREATING MONEY 6.1 An overview 6.2 Current/Transaction Accounts and the payments system 6.3 Investment Accounts 6.4 Accounts at the Bank of England The relationship between Transaction Accounts and a bank’s Customer Funds Account 6.5 Post Reform Balance Sheets for Banks and the Bank of England Commercial banks Central bank Measuring the money supply 6.6 Making payments 1.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

Page numbers in italics denote illustrations A Aalborg, Denmark, 290 Abbott, Anthony ‘Tony’, 31 ABCD group, 148 Abramovitz, Moses, 262 absolute decoupling, 260–61 Acemoglu, Daron, 86 advertising, 58, 106–7, 112, 281 Agbodjinou, Sénamé, 231 agriculture, 5, 46, 72–3, 148, 155, 178, 181, 183 Alaska, 9 Alaska Permanent Fund, 194 Alperovitz, Gar, 177 alternative enterprise designs, 190–91 altruism, 100, 104 Amazon, 192, 196, 276 Amazon rainforest, 105–6, 253 American Economic Association, 3 American Enterprise Institute, 67 American Tobacco Corporation, 107 Andes, 54 animal spirits, 110 Anthropocene epoch, 48, 253 anthropocentrism, 115 Apertuso, 230 Apple, 85, 192 Archer Daniels Midland (ADM), 148 Arendt, Hannah, 115–16 Argentina, 55, 274 Aristotle, 32, 272 Arrow, Kenneth, 134 Articles of Association and Memoranda, 233 Arusha, Tanzania, 202 Asia Wage Floor Alliance, 177 Asian financial crisis (1997), 90 Asknature.org, 232 Athens, 57 austerity, 163 Australia, 31, 103, 177, 180, 211, 224–6, 255, 260 Austria, 263, 274 availability bias, 112 AXIOM, 230 Axtell, Robert, 150 Ayres, Robert, 263 B B Corp, 241 Babylon, 13 Baker, Josephine, 157 balancing feedback loops, 138–41, 155, 271 Ballmer, Steve, 231 Bangla Pesa, 185–6, 293 Bangladesh, 10, 226 Bank for International Settlements, 256 Bank of America, 149 Bank of England, 145, 147, 256 banking, see under finance Barnes, Peter, 201 Barroso, José Manuel, 41 Bartlett, Albert Allen ‘Al’, 247 basic income, 177, 194, 199–201 basic personal values, 107–9 Basle, Switzerland, 80 Bauwens, Michel, 197 Beckerman, Wilfred, 258 Beckham, David, 171 Beech-Nut Packing Company, 107 behavioural economics, 11, 111–14 behavioural psychology, 103, 128 Beinhocker, Eric, 158 Belgium, 236, 252 Bentham, Jeremy, 98 Benyus, Janine, 116, 218, 223–4, 227, 232, 237, 241 Berger, John, 12, 281 Berlin Wall, 141 Bermuda, 277 Bernanke, Ben, 146 Bernays, Edward, 107, 112, 281–3 Bhopal gas disaster (1984), 9 Bible, 19, 114, 151 Big Bang (1986), 87 billionaires, 171, 200, 289 biodiversity, 10, 46, 48–9, 52, 85, 115, 155, 208, 210, 242, 299 as common pool resource, 201 and land conversion, 49 and inequality, 172 and reforesting, 50 biomass, 73, 118, 210, 212, 221 biomimicry, 116, 218, 227, 229 bioplastic, 224, 293 Birmingham, West Midlands, 10 Black, Fischer, 100–101 Blair, Anthony ‘Tony’, 171 Blockchain, 187, 192 blood donation, 104, 118 Body Shop, The, 232–4 Bogotá, Colombia, 119 Bolivia, 54 Boston, Massachusetts, 3 Bowen, Alex, 261 Bowles, Sam, 104 Box, George, 22 Boyce, James, 209 Brasselberg, Jacob, 187 Brazil, 124, 226, 281, 290 bread riots, 89 Brisbane, Australia, 31 Brown, Gordon, 146 Brynjolfsson, Erik, 193, 194, 258 Buddhism, 54 buen vivir, 54 Bullitt Center, Seattle, 217 Bunge, 148 Burkina Faso, 89 Burmark, Lynell, 13 business, 36, 43, 68, 88–9 automation, 191–5, 237, 258, 278 boom and bust, 246 and circular economy, 212, 215–19, 220, 224, 227–30, 232–4, 292 and complementary currencies, 184–5, 292 and core economy, 80 and creative destruction, 142 and feedback loops, 148 and finance, 183, 184 and green growth, 261, 265, 269 and households, 63, 68 living metrics, 241 and market, 68, 88 micro-businesses, 9 and neoliberalism, 67, 87 ownership, 190–91 and political funding, 91–2, 171–2 and taxation, 23, 276–7 workers’ rights, 88, 91, 269 butterfly economy, 220–42 C C–ROADS (Climate Rapid Overview and Decision Support), 153 C40 network, 280 calculating man, 98 California, United States, 213, 224, 293 Cambodia, 254 Cameron, David, 41 Canada, 196, 255, 260, 281, 282 cancer, 124, 159, 196 Capital Institute, 236 carbon emissions, 49–50, 59, 75 and decoupling, 260, 266 and forests, 50, 52 and inequality, 58 reduction of, 184, 201, 213, 216–18, 223–7, 239–41, 260, 266 stock–flow dynamics, 152–4 taxation, 201, 213 Cargill, 148 Carney, Mark, 256 Caterpillar, 228 Catholic Church, 15, 19 Cato Institute, 67 Celts, 54 central banks, 6, 87, 145, 146, 147, 183, 184, 256 Chang, Ha-Joon, 82, 86, 90 Chaplin, Charlie, 157 Chiapas, Mexico, 121–2 Chicago Board Options Exchange (CBOE), 100–101 Chicago School, 34, 99 Chile, 7, 42 China, 1, 7, 48, 154, 289–90 automation, 193 billionaires, 200, 289 greenhouse gas emissions, 153 inequality, 164 Lake Erhai doughnut analysis, 56 open-source design, 196 poverty reduction, 151, 198 renewable energy, 239 tiered pricing, 213 Chinese Development Bank, 239 chrematistics, 32, 273 Christianity, 15, 19, 114, 151 cigarettes, 107, 124 circular economy, 220–42, 257 Circular Flow diagram, 19–20, 28, 62–7, 64, 70, 78, 87, 91, 92, 93, 262 Citigroup, 149 Citizen Reaction Study, 102 civil rights movement, 77 Cleveland, Ohio, 190 climate change, 1, 3, 5, 29, 41, 45–53, 63, 74, 75–6, 91, 141, 144, 201 circular economy, 239, 241–2 dynamics of, 152–5 and G20, 31 and GDP growth, 255, 256, 260, 280 and heuristics, 114 and human rights, 10 and values, 126 climate positive cities, 239 closed systems, 74 coffee, 221 cognitive bias, 112–14 Colander, David, 137 Colombia, 119 common-pool resources, 82–3, 181, 201–2 commons, 69, 82–4, 287 collaborative, 78, 83, 191, 195, 196, 264, 292 cultural, 83 digital, 82, 83, 192, 197, 281 and distribution, 164, 180, 181–2, 205, 267 Embedded Economy, 71, 73, 77–8, 82–4, 85, 92 knowledge, 197, 201–2, 204, 229, 231, 292 commons and money creation, see complementary currencies natural, 82, 83, 180, 181–2, 201, 265 and regeneration, 229, 242, 267, 292 and state, 85, 93, 197, 237 and systems, 160 tragedy of, 28, 62, 69, 82, 181 triumph of, 83 and values, 106, 108 Commons Trusts, 201 complementary currencies, 158, 182–8, 236, 292 complex systems, 28, 129–62 complexity science, 136–7 Consumer Reaction Study, 102 consumerism, 58, 102, 121, 280–84 cooking, 45, 80, 186 Coote, Anna, 278 Copenhagen, Denmark, 124 Copernicus, Nicolaus, 14–15 copyright, 195, 197, 204 core economy, 79–80 Corporate To Do List, 215–19 Costa Rica, 172 Council of Economic Advisers, US, 6, 37 Cox, Jo, 117 cradle to cradle, 224 creative destruction, 142 Cree, 282 Crompton, Tom, 125–6 cross-border flows, 89–90 crowdsourcing, 204 cuckoos, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 currencies, 182–8, 236, 274, 292 D da Vinci, Leonardo, 13, 94–5 Dallas, Texas, 120 Daly, Herman, 74, 143, 271 Danish Nudging Network, 124 Darwin, Charles, 14 Debreu, Gerard, 134 debt, 37, 146–7, 172–3, 182–5, 247, 255, 269 decoupling, 193, 210, 258–62, 273 defeat device software, 216 deforestation, 49–50, 74, 208, 210 degenerative linear economy, 211–19, 222–3, 237 degrowth, 244 DeMartino, George, 161 democracy, 77, 171–2, 258 demurrage, 274 Denmark, 180, 275, 290 deregulation, 82, 87, 269 derivatives, 100–101, 149 Devas, Charles Stanton, 97 Dey, Suchitra, 178 Diamond, Jared, 154 diarrhoea, 5 differential calculus, 131, 132 digital revolution, 191–2, 264 diversify–select–amplify, 158 double spiral, 54 Doughnut model, 10–11, 11, 23–5, 44, 51 and aspiration, 58–9, 280–84 big picture, 28, 42, 61–93 distribution, 29, 52, 57, 58, 76, 93, 158, 163–205 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 goal, 25–8, 31–60 and governance, 57, 59 growth agnosticism, 29–30, 243–85 human nature, 28–9, 94–128 and population, 57–8 regeneration, 29, 158, 206–42 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 systems, 28, 129–62 and technology, 57, 59 Douglas, Margaret, 78–9 Dreyfus, Louis, 148 ‘Dumb and Dumber in Macroeconomics’ (Solow), 135 Durban, South Africa, 214 E Earning by Learning, 120 Earth-system science, 44–53, 115, 216, 288, 298 Easter Island, 154 Easterlin, Richard, 265–6 eBay, 105, 192 eco-literacy, 115 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 Ecological Performance Standards, 241 Econ 101 course, 8, 77 Economics (Lewis), 114 Economics (Samuelson), 19–20, 63–7, 70, 74, 78, 86, 91, 92, 93, 262 Economy for the Common Good, 241 ecosystem services, 7, 116, 269 Ecuador, 54 education, 9, 43, 45, 50–52, 85, 169–70, 176, 200, 249, 279 economic, 8, 11, 18, 22, 24, 36, 287–93 environmental, 115, 239–40 girls’, 57, 124, 178, 198 online, 83, 197, 264, 290 pricing, 118–19 efficient market hypothesis, 28, 62, 68, 87 Egypt, 48, 89 Eisenstein, Charles, 116 electricity, 9, 45, 236, 240 and Bangla Pesa, 186 cars, 231 Ethereum, 187–8 and MONIAC, 75, 262 pricing, 118, 213 see also renewable energy Elizabeth II, Queen of the United Kingdom, 145 Ellen MacArthur Foundation, 220 Embedded Economy, 71–93, 263 business, 88–9 commons, 82–4 Earth, 72–6 economy, 77–8 finance, 86–8 household, 78–81 market, 81–2 power, 91–92 society, 76–7 state, 84–6 trade, 89–90 employment, 36, 37, 51, 142, 176 automation, 191–5, 237, 258, 278 labour ownership, 188–91 workers’ rights, 88, 90, 269 Empty World, 74 Engels, Friedrich, 88 environment and circular economy, 220–42, 257 conservation, 121–2 and degenerative linear economy, 211–19, 222–3 degradation, 5, 9, 10, 29, 44–53, 74, 154, 172, 196, 206–42 education on, 115, 239–40 externalities, 152 fair share, 216–17 and finance, 234–7 generosity, 218–19, 223–7 green growth, 41, 210, 243–85 nudging, 123–5 taxation and quotas, 213–14, 215 zero impact, 217–18, 238, 241 Environmental Dashboard, 240–41 environmental economics, 7, 11, 114–16 Environmental Kuznets Curve, 207–11, 241 environmental space, 54 Epstein, Joshua, 150 equilibrium theory, 134–62 Ethereum, 187–8 ethics, 160–62 Ethiopia, 9, 226, 254 Etsy, 105 Euclid, 13, 15 European Central Bank, 145, 275 European Commission, 41 European Union (EU), 92, 153, 210, 222, 255, 258 Evergreen Cooperatives, 190 Evergreen Direct Investing (EDI), 273 exogenous shocks, 141 exponential growth, 39, 246–85 externalities, 143, 152, 213 Exxon Valdez oil spill (1989), 9 F Facebook, 192 fair share, 216–17 Fama, Eugene, 68, 87 fascism, 234, 277 Federal Reserve, US, 87, 145, 146, 271, 282 feedback loops, 138–41, 143, 148, 155, 250, 271 feminist economics, 11, 78–81, 160 Ferguson, Thomas, 91–2 finance animal spirits, 110 bank runs, 139 Black–Scholes model, 100–101 boom and bust, 28–9, 110, 144–7 and Circular Flow, 63–4, 87 and complex systems, 134, 138, 139, 140, 141, 145–7 cross-border flows, 89 deregulation, 87 derivatives, 100–101, 149 and distribution, 169, 170, 173, 182–4, 198–9, 201 and efficient market hypothesis, 63, 68 and Embedded Economy, 71, 86–8 and financial-instability hypothesis, 87, 146 and GDP growth, 38 and media, 7–8 mobile banking, 199–200 and money creation, 87, 182–5 and regeneration, 227, 229, 234–7 in service to life, 159, 234–7 stakeholder finance, 190 and sustainability, 216, 235–6, 239 financial crisis (2008), 1–4, 5, 40, 63, 86, 141, 144, 278, 290 and efficient market hypothesis, 87 and equilibrium theory, 134, 145 and financial-instability hypothesis, 87 and inequality, 90, 170, 172, 175 and money creation, 182 and worker’s rights, 278 financial flows, 89 Financial Times, 183, 266, 289 financial-instability hypothesis, 87, 146 First Green Bank, 236 First World War (1914–18), 166, 170 Fisher, Irving, 183 fluid values, 102, 106–9 food, 3, 43, 45, 50, 54, 58, 59, 89, 198 food banks, 165 food price crisis (2007–8), 89, 90, 180 Ford, 277–8 foreign direct investment, 89 forest conservation, 121–2 fossil fuels, 59, 73, 75, 92, 212, 260, 263 Foundations of Economic Analysis (Samuelson), 17–18 Foxconn, 193 framing, 22–3 France, 43, 165, 196, 238, 254, 256, 281, 290 Frank, Robert, 100 free market, 33, 37, 67, 68, 70, 81–2, 86, 90 free open-source hardware (FOSH), 196–7 free open-source software (FOSS), 196 free trade, 70, 90 Freeman, Ralph, 18–19 freshwater cycle, 48–9 Freud, Sigmund, 107, 281 Friedman, Benjamin, 258 Friedman, Milton, 34, 62, 66–9, 84–5, 88, 99, 183, 232 Friends of the Earth, 54 Full World, 75 Fuller, Buckminster, 4 Fullerton, John, 234–6, 273 G G20, 31, 56, 276, 279–80 G77, 55 Gal, Orit, 141 Gandhi, Mohandas, 42, 293 Gangnam Style, 145 Gardens of Democracy, The (Liu & Hanauer), 158 gender equality, 45, 51–2, 57, 78–9, 85, 88, 118–19, 124, 171, 198 generosity, 218–19, 223–9 geometry, 13, 15 George, Henry, 149, 179 Georgescu-Roegen, Nicholas, 252 geothermal energy, 221 Gerhardt, Sue, 283 Germany, 2, 41, 100, 118, 165, 189, 211, 213, 254, 256, 260, 274 Gessel, Silvio, 274 Ghent, Belgium, 236 Gift Relationship, The (Titmuss), 118–19 Gigerenzer, Gerd, 112–14 Gintis, Herb, 104 GiveDirectly, 200 Glass–Steagall Act (1933), 87 Glennon, Roger, 214 Global Alliance for Tax Justice, 277 global material footprints, 210–11 Global Village Construction Set, 196 globalisation, 89 Goerner, Sally, 175–6 Goffmann, Erving, 22 Going for Growth, 255 golden rule, 91 Goldman Sachs, 149, 170 Gómez-Baggethun, Erik, 122 Goodall, Chris, 211 Goodwin, Neva, 79 Goody, Jade, 124 Google, 192 Gore, Albert ‘Al’, 172 Gorgons, 244, 256, 257, 266 graffiti, 15, 25, 287 Great Acceleration, 46, 253–4 Great Depression (1929–39), 37, 70, 170, 173, 183, 275, 277, 278 Great Moderation, 146 Greece, Ancient, 4, 13, 32, 48, 54, 56–7, 160, 244 green growth, 41, 210, 243–85 Greenham, Tony, 185 greenhouse gas emissions, 31, 46, 50, 75–6, 141, 152–4 and decoupling, 260, 266 and Environmental Kuznets Curve, 208, 210 and forests, 50, 52 and G20, 31 and inequality, 58 reduction of, 184, 201–2, 213, 216–18, 223–7, 239–41, 256, 259–60, 266, 298 stock–flow dynamics, 152–4 and taxation, 201, 213 Greenland, 141, 154 Greenpeace, 9 Greenspan, Alan, 87 Greenwich, London, 290 Grenoble, France, 281 Griffiths, Brian, 170 gross domestic product (GDP), 25, 31–2, 35–43, 57, 60, 84, 164 as cuckoo, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 and Environmental Kuznets Curve, 207–11 and exponential growth, 39, 53, 246–85 and growth agnosticism, 29–30, 240, 243–85 and inequality, 173 and Kuznets Curve, 167, 173, 188–9 gross national product (GNP), 36–40 Gross World Product, 248 Grossman, Gene, 207–8, 210 ‘grow now, clean up later’, 207 Guatemala, 196 H Haifa, Israel, 120 Haldane, Andrew, 146 Han Dynasty, 154 Hanauer, Nick, 158 Hansen, Pelle, 124 Happy Planet Index, 280 Hardin, Garrett, 69, 83, 181 Harvard University, 2, 271, 290 von Hayek, Friedrich, 7–8, 62, 66, 67, 143, 156, 158 healthcare, 43, 50, 57, 85, 123, 125, 170, 176, 200, 269, 279 Heilbroner, Robert, 53 Henry VIII, King of England and Ireland, 180 Hepburn, Cameron, 261 Herbert Simon, 111 heuristics, 113–14, 118, 123 high-income countries growth, 30, 244–5, 254–72, 282 inequality, 165, 168, 169, 171 labour, 177, 188–9, 278 overseas development assistance (ODA), 198–9 resource intensive lifestyles, 46, 210–11 trade, 90 Hippocrates, 160 History of Economic Analysis (Schumpeter), 21 HIV/AIDS, 123 Holocene epoch, 46–8, 75, 115, 253 Homo economicus, 94–103, 109, 127–8 Homo sapiens, 38, 104, 130 Hong Kong, 180 household, 78 housing, 45, 59, 176, 182–3, 269 Howe, Geoffrey, 67 Hudson, Michael, 183 Human Development Index, 9, 279 human nature, 28 human rights, 10, 25, 45, 49, 50, 95, 214, 233 humanistic economics, 42 hydropower, 118, 260, 263 I Illinois, United States, 179–80 Imago Mundi, 13 immigration, 82, 199, 236, 266 In Defense of Economic Growth (Beckerman), 258 Inclusive Wealth Index, 280 income, 51, 79–80, 82, 88, 176–8, 188–91, 194, 199–201 India, 2, 9, 10, 42, 124, 164, 178, 196, 206–7, 242, 290 Indonesia, 90, 105–6, 164, 168, 200 Indus Valley civilisation, 48 inequality, 1, 5, 25, 41, 63, 81, 88, 91, 148–52, 209 and consumerism, 111 and democracy, 171 and digital revolution, 191–5 and distribution, 163–205 and environmental degradation, 172 and GDP growth, 173 and greenhouse gas emissions, 58 and intellectual property, 195–8 and Kuznets Curve, 29, 166–70, 173–4 and labour ownership, 188–91 and land ownership, 178–82 and money creation, 182–8 and social welfare, 171 Success to the Successful, 148, 149, 151, 166 inflation, 36, 248, 256, 275 insect pollination services, 7 Institute of Economic Affairs, 67 institutional economics, 11 intellectual property rights, 195–8, 204 interest, 36, 177, 182, 184, 275–6 Intergovernmental Panel on Climate Change, 25 International Monetary Fund (IMF), 170, 172, 173, 183, 255, 258, 271 Internet, 83–4, 89, 105, 192, 202, 264 Ireland, 277 Iroquois Onondaga Nation, 116 Israel, 100, 103, 120 Italy, 165, 196, 254 J Jackson, Tim, 58 Jakubowski, Marcin, 196 Jalisco, Mexico, 217 Japan, 168, 180, 211, 222, 254, 256, 263, 275 Jevons, William Stanley, 16, 97–8, 131, 132, 137, 142 John Lewis Partnership, 190 Johnson, Lyndon Baines, 37 Johnson, Mark, 38 Johnson, Todd, 191 JPMorgan Chase, 149, 234 K Kahneman, Daniel, 111 Kamkwamba, William, 202, 204 Kasser, Tim, 125–6 Keen, Steve, 146, 147 Kelly, Marjorie, 190–91, 233 Kennedy, John Fitzgerald, 37, 250 Kennedy, Paul, 279 Kenya, 118, 123, 180, 185–6, 199–200, 226, 292 Keynes, John Maynard, 7–8, 22, 66, 69, 134, 184, 251, 277–8, 284, 288 Kick It Over movement, 3, 289 Kingston, London, 290 Knight, Frank, 66, 99 knowledge commons, 202–4, 229, 292 Kokstad, South Africa, 56 Kondratieff waves, 246 Korzybski, Alfred, 22 Krueger, Alan, 207–8, 210 Kuhn, Thomas, 22 Kumhof, Michael, 172 Kuwait, 255 Kuznets, Simon, 29, 36, 39–40, 166–70, 173, 174, 175, 204, 207 KwaZulu Natal, South Africa, 56 L labour ownership, 188–91 Lake Erhai, Yunnan, 56 Lakoff, George, 23, 38, 276 Lamelara, Indonesia, 105–6 land conversion, 49, 52, 299 land ownership, 178–82 land-value tax, 73, 149, 180 Landesa, 178 Landlord’s Game, The, 149 law of demand, 16 laws of motion, 13, 16–17, 34, 129, 131 Lehman Brothers, 141 Leopold, Aldo, 115 Lesotho, 118, 199 leverage points, 159 Lewis, Fay, 178 Lewis, Justin, 102 Lewis, William Arthur, 114, 167 Lietaer, Bernard, 175, 236 Limits to Growth, 40, 154, 258 Linux, 231 Liu, Eric, 158 living metrics, 240–42 living purpose, 233–4 Lomé, Togo, 231 London School of Economics (LSE), 2, 34, 65, 290 London Underground, 12 loss aversion, 112 low-income countries, 90, 164–5, 168, 173, 180, 199, 201, 209, 226, 254, 259 Lucas, Robert, 171 Lula da Silva, Luiz Inácio, 124 Luxembourg, 277 Lyle, John Tillman, 214 Lyons, Oren, 116 M M–PESA, 199–200 MacDonald, Tim, 273 Machiguenga, 105–6 MacKenzie, Donald, 101 macroeconomics, 36, 62–6, 76, 80, 134–5, 145, 147, 150, 244, 280 Magie, Elizabeth, 149, 153 Malala effect, 124 malaria, 5 Malawi, 118, 202, 204 Malaysia, 168 Mali, Taylor, 243 Malthus, Thomas, 252 Mamsera Rural Cooperative, 190 Manhattan, New York, 9, 41 Mani, Muthukumara, 206 Manitoba, 282 Mankiw, Gregory, 2, 34 Mannheim, Karl, 22 Maoris, 54 market, 81–2 and business, 88 circular flow, 64 and commons, 83, 93, 181, 200–201 efficiency of, 28, 62, 68, 87, 148, 181 and equilibrium theory, 131–5, 137, 143–7, 155, 156 free market, 33, 37, 67–70, 90, 208 and households, 63, 69, 78, 79 and maxi-max rule, 161 and pricing, 117–23, 131, 160 and rational economic man, 96, 100–101, 103, 104 and reciprocity, 105, 106 reflexivity of, 144–7 and society, 69–70 and state, 84–6, 200, 281 Marshall, Alfred, 17, 98, 133, 165, 253, 282 Marx, Karl, 88, 142, 165, 272 Massachusetts Institute of Technology (MIT), 17–20, 152–5 massive open online courses (MOOCs), 290 Matthew Effect, 151 Max-Neef, Manfred, 42 maxi-max rule, 161 maximum wage, 177 Maya civilisation, 48, 154 Mazzucato, Mariana, 85, 195, 238 McAfee, Andrew, 194, 258 McDonough, William, 217 Meadows, Donella, 40, 141, 159, 271, 292 Medusa, 244, 257, 266 Merkel, Angela, 41 Messerli, Elspeth, 187 Metaphors We Live By (Lakoff & Johnson), 38 Mexico, 121–2, 217 Michaels, Flora S., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org

Thanks to financial deregulation, said US Federal Reserve Chair Alan Greenspan in 2004, ‘not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.’45 Four years later, the financial crash disproved that claim in a fairly decisive way. At the same time, Eugene Fama’s efficient-market hypothesis – that financial markets are inherently efficient – lost credibility and has been countered by Hyman Minsky’s financial-instability hypothesis – that financial markets are inherently volatile – as we will see in Chapter 4. Lastly, far from playing a supporting role to the productive economy, finance has come to dominate it. In many countries, a small financial elite – based in just a handful of banking and financial firms – controls the public good of money creation and profits handsomely from it, while too often destabilising much of the wider economy in the process.

In the decade running up to the crash, and oblivious to the build-up of systemic risk, the UK’s chancellor, Gordon Brown, hailed the end of boom and bust,26 while Ben Bernanke, Governor of the Federal Reserve Board welcomed what he called ‘the Great Moderation’.27 After 2008, when the boom went very bust, many started to search for insights in the long-ignored work of the economist Hyman Minsky, especially his 1975 financial-instability hypothesis, which put dynamic analysis at the heart of macroeconomics. Minsky had realised that – counter-intuitive though it sounds – when it comes to finance, stability breeds instability. Why? Because of reinforcing feedback loops, of course. During good economic times, banks, firms and borrowers all gain in confidence and start to take on greater risks, which pushes up the price of housing and other assets.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

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Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Bretton Woods, British Empire, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

In what was perhaps a poke at the efficient market hypothesis, Minsky described his thesis that capitalist economies inevitably progress from conservative finance to reckless speculation as the “financial instability hypothesis.” Minsky described it as an interpretation of Keynes’s General Theory, and he also credited the Austrian economist Joseph Schumpeter for influencing his views. “The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable,” he explained in 1992. “The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.” Although Minsky didn’t state it as such, the financial instability hypothesis is a theory of rational irrationality, with the individually rational actions of banks and other financial firms serving to destabilize the entire system.

.”: Hyman Minsky, Stabilizing an Unstable Economy (New York: McGraw-Hill, 2008), 4. 208 “leads to an expansion . . .”: Ibid., 199. 209 “Such loans impart . . .”: Ibid., 261. 209 “a spiral of declining investment . . .”: Ibid., 239. 209 “The first theorem . . .”: Hyman Minsky, “The Financial Instability Hypothesis,” Working Paper no. 74, Jerome Levy Economics Institute of Bard College, May 1992, 7–8. 210 “In a world with capitalist . . .”: Minsky, Stabilizing an Unstable Economy, 280. 212 “was part of the process that . . .”: Ibid., 265. 212 “Like all entrepreneurs . . .”: Minsky, “Financial Instability Hypothesis,” 6. 214 “The downside aspect . . .”: Paul Davidson, Financial Markets, Money and the Real World (Cheltenham, UK: Edward Elgar, 2002), 115–16. 215 “For a new era . . .”: Minsky, Stabilizing an Unstable Economy, 6. 216 Sweezy’s introduction to Marxist economics: Paul M.

The latter part of Greenspan’s tenure was disastrous. Between 1998 and 2006, he presided over two of the biggest speculative bubbles in American history, one of which he bequeathed to his successor, along with a negative personal savings rate and a dangerously overextended financial system. In its entirety, Greenspan’s eighteen-and-a-half-year tenure at the Fed provides a classic confirmation of Minsky’s financial instability hypothesis: the forces of leverage and financial innovation gradually built up until they were on the verge of overwhelming the system. If Washington insiders had viewed Greenspan as a free market ideologue, he wouldn’t have survived for half as long as he did. His political career began in 1968, when he advised Richard Nixon on his successful presidential bid, and it didn’t end until January 31, 2006, when he retired from the Fed.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

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airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

His books are not, to say the least, user-friendly; nuggets of brilliant insight are strewn thinly across acres of turgid prose and unnecessary algebra. And he also cried wolf too often; to paraphrase an old joke by Paul Samuelson, he predicted around nine of the last three major financial crises. Yet these days many economists, yours truly very much included, recognize the importance of Minsky’s “financial instability hypothesis.” And those of us, again like yours truly, who were relative latecomers to Minsky’s work wish that we had read it much earlier. Minsky’s big idea was to focus on leverage—on the buildup of debt relative to assets or income. Periods of economic stability, he argued, lead to rising leverage, because everyone becomes complacent about the risk that borrowers might not be able to repay.

.: economic growth and, 225–26 of 2012, 226 emergency aid, 119–20, 120, 144, 216 environmental regulation, 221 Essays in Positive Economics (Friedman), 170 euro, 166 benefits of, 168–69, 170–71 creation of, 174 economic flexibility constrained by, 18, 169–73, 179, 184 fixing problems of, 184–87 investor confidence and, 174 liquidity and, 182–84, 185 trade imbalances and, 175, 175 as vulnerable to panics, 182–84, 186 wages and, 174–75 Europe: capital flow in, 169, 174, 180 common currency of, see euro creditor nations of, 46 debtor nations of, 4, 45, 46, 139 democracy and unity in, 184–85 fiscal integration lacking in, 171, 172–73, 176, 179 GDP in, 17 health care in, 18 inflation and, 185, 186 labor mobility lacking in, 171–72, 173, 179 1930s arms race in, 236 social safety nets in, 18 unemployment in, 4, 17, 18, 176, 229, 236 Europe, debt crisis in, x, 4, 40, 45, 46, 138, 140–41, 166–87 austerity programs in, 46, 144, 185, 186, 188, 190 budget deficits and, 177 fiscal irresponsibility as supposed cause of (Big Delusion), 177–79, 187 housing bubbles and, 65, 169, 172, 174, 176 interest rates in, 174, 176, 182–84, 190 liquidity fears and, 182–84 recovery from, 184–87 unequal impact of, 17–18 wages in, 164–65, 169–70, 174–75 European Central Bank, 46, 183 Big Delusion and, 179 inflation and, 161, 180 interest rates and, 190, 202–3 monetary policy of, 180, 185, 186 European Coal and Steel Community, 167 European Economic Community (EEC), 167–68 European Union, 172 exchange rates, fixed vs. flexible, 169–73 executive compensation, 78–79 “outrage constraint” on, 81–82, 83 expansionary austerity, 144, 196–99 expenditure cascades, 84 Fama, Eugene, 69–70, 73, 97, 100, 106 Fannie Mae, 64, 65–66, 100, 172, 220–21 Farrell, Henry, 100, 192 Federal Deposit Insurance Corporation (FDIC), 59, 172 Federal Housing Finance Agency, 221 Federal Reserve, 42, 103 aggressive action needed from, 216–19 creation of, 59 foreign exchange intervention and, 217 inflation and, 161, 217, 219, 227 interest rates and, 33–34, 93, 105, 117, 134, 135, 143, 151, 189–90, 193, 215, 216–17 as lender of last resort, 59 LTCM crisis and, 69 money supply controlled by, 31, 32, 33, 105, 151, 153, 155, 157, 183 recessions and, 105 recovery and, 216–19 in 2008 financial crisis, 104, 106, 116 unconventional asset purchases by, 217 Federal Reserve Bank of Boston, 47–48 Feinberg, Larry, 72 Ferguson, Niall, 135–36, 139, 160 Fianna Fáil, 88 filibusters, 123 financial crisis of 2008–09, ix, x, 40, 41, 69, 72, 99, 104, 111–16 Bernanke on, 3–4 Big Lie of, 64–66, 100, 177 capital ratios and, 59 credit crunch in, 41, 110, 113, 117 deleveraging in, 147 Federal Reserve and, 104, 106 income inequality and, 82, 83 leverage in, 44–46, 63 panics in, 4, 63, 111, 155 real GDP in, 13 see also depression of 2008–; Europe, debt crisis in financial elite: political influence of, 63, 77–78, 85–90 Republican ideology and, 88–89 top 0.01 percent in, 75, 76 top 0.1 percent in, 75, 76, 77, 96 top 1 percent in, 74–75, 74, 76–77, 96 see also income inequality financial industry, see banks, banking industry financial instability hypothesis, 43–44 Financial Times, 95, 100, 203–4 Finland, 184 fiscal integration, 171, 172–73, 176 Fisher, Irving, 22, 42, 44–46, 48, 49, 52, 163 flexibility: currency and, 18, 169–73 paradox of, 52–53 Flip This House (TV show), 112 Florida, 111 food stamps, 120, 144 Ford, John, 56 foreclosures, 45, 127–28 foreign exchange markets, 217 foreign trade, 221 Fox News, 134 Frank, Robert, 84 Freddie Mac, 64, 65–66, 100, 172, 220–21 free trade, 167 Friedman, Milton, 96, 101, 181, 205 on causes of Great Depression, 105–6 Gabriel, Peter, 20 Gagnon, Joseph, 219, 221 Gardiner, Chance (char.), 3 Garn–St.

Gregory, 227 manufacturing capacity, 16 marginal product, 78 markets: “efficient” hypothesis of, 97–99, 100, 101, 103–4 inflation and, 202 investor rationality and, 97, 101, 103–4 Keynes on, 97, 98 1987 crash in, 98 panic in, 4 speculative excess in, 97, 98 in 2008 financial crisis, 117 McCain, John, 113 McConnell, Mitch, 109 McCulley, Paul, 48 McDonald’s, 6, 7 Medicaid, 120, 120, 121 Medicare, 18, 172 Meltzer, Allan, 151–52 Mencken, H. L., 87 Miami, Fla., 112 Mian, Atif, 47 Minsky, Hyman: financial instability hypothesis of, 43–44, 47 renewed appreciation of, 41, 42–43 Minsky moments, 48, 111, 146 bank runs as, 58 MIT, Billion Prices Project of, 161 monetarism, 101, 135 monetary base, 31, 32, 188 Monetary Control Act (1980), 61 monetary policy, 39, 105, 207 deficit spending and, 135 expansionary, xi, 151, 185, 188 short-term interest rates in, 216–17 “Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis” (Sweeney and Sweeney), 26–27 money market funds, 62 money supply: in babysitting co-op example, 27, 29, 32–33 Federal Reserve and, 31, 32, 33, 105, 151, 153, 155, 157, 183 liquidity traps and, 152, 155 Montgomery Ward, 148–49 Moody’s, 113, 194 moral hazard, 60, 68 Morgan, J.


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

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activist fund / activist shareholder / activist investor, Airbnb, balance sheet recession, bank run, barriers to entry, break the buck, Bretton Woods, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game

“Rational bubble riding” became acceptable, and the incentive to do so was turbocharged by an industry that has become more short-term focused in assessing both absolute and relative performance, and in which capital can move quite quickly given that few end investors are willing to revise down their return expectations. To some, the behavior of financial markets once again showed insufficient heed paid to the important insights of Hyman Minsky, the American economist. Known for his “financial instability hypothesis,”7 Minsky argued that, in capitalist economies, periods of financial stability give rise to subsequent periods of great financial instability. The extent of underlying moral hazard became more and more notable. I remember being bemused in October 2014 by the extent to which the return of some modest market volatility caused some respected market participants to call for the Fed to come up with “QE4”—that is, yet another program of large-scale asset purchases in order to repress market volatility and artificially boost asset prices again.

There are already quite a few reasons that contribute to the repeated emergence of asset bubbles. The impact of information failures and market imperfections is accentuated by behavioral patterns that result in recurrent errors as well as principal-agent misalignments. Asset managers’ approach to business risk has also been shown to be a “strong motivator for institutional herding and rational bubble riding.”3 The Minsky financial instability hypothesis is also relevant here, reminding us that long periods of stability tend to encourage behaviors that then fuel instability. All these shifts have been turbocharged by the low interest rate environment. As Jaime Caruana, the general manager of the BIS, put it in a December 2014 speech in Abu Dhabi when commenting on the migration of risks to the nonbank sector: “It is likely, though not undisputed, that the search for yield in a low interest rate environment can contribute to the build-up of financial imbalances.

See also Mohamed A. El-Erian, “The ECB Can Only Buy Time for Europe’s Politicians,” Financial Times, January 22, 2015, http://www.ft.com/intl/cms/s/0/957b9ddc-a241-11e4-bbb8-00144feab7de.html. 6. Tracy Alloway, “Markets’ Misplaced Faith in Central Banks,” Financial Times, January 23, 2015, http://www.ft.com/intl/cms/s/0/2ad516fa-a2d4-11e4-ac1c-00144feab7de.html. 7. Hyman Minsky, “The Financial Instability Hypothesis,” Working Paper No. 74, Levy Economics Institute of Bard College, 1992. 8. Mohamed A. El-Erian, “Beware of Calls for QE4,” Financial Times, October 17, 2014, http://blogs.ft.com/the-a-list/2014/10/17/beware-of-calls-for-qe4/. 9. Chris Giles, “Carney Warns on Low Interest Rates,” Financial Times, January 24, 2015, http://www.ft.com/intl/cms/s/0/c20266fe-a3fb-11e4-b90d-00144feab7de.html. 10.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane, John Muellbauer

agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

From 1976 to 2001, the credit conditions index is based on the data published in Fernandez-Corugedo and Muellbauer (2006) in a Bank of England working paper – see the data appendix from page 39 for sources. Before then, it is based upon unpublished work by John Muellbauer and uses regional loan-to-value mortgage rates for first-time buyers. After 2001, the estimates are based on dummy variables that help explain consumption, given all the other factors. Thanks to Professor John Muellbauer for making available the data. 12 See Minsky (1992) for a short and accessible summary of his ‘financial instability hypothesis’ and Minsky (1986) for a comprehensive account. 13 In 2014 the FPC put a limit on the proportion of mortgages a bank can issue at loan-to-income multiples above 4.5 to no more than 15% of a bank’s new lending for residential home purchases. At present, no bank exceeds this limit and the average level of lending above a 4.5 loan-to-income ratio is only 10%, so it is not binding on any lending.

D. Brown, M. Cunningham, and N. Sawyer. 2003. Rethinking Local Affordable Housing Strategies: Lessons from 70 Years of Policy and Practice. Washington, DC: Brookings Institution. Kay, John Anderson. 2009. Narrow Banking: The Reform of Banking Regulation. Tonbridge: Centre for the Study of Financial Innovation. Keen, Steve. 1995. ‘Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”’. Journal of Post Keynesian Economics 17 (4): 607–35. Keen, Steve. 2011. Debunking Economics: The Naked Emperor Dethroned? 2nd ed. London: Zed Books. Keen, Steve. 2013. ‘A Monetary Minsky Model of the Great Moderation and the Great Recession’. Journal of Economic Behavior and Organization 86: 221–35. Kemp, P. 2002. Private Renting in Transition. London: Chartered Institute of Housing.

Wood. 2014. ‘An Old Fashioned Banking Crisis: Credit Growth and Loan Losses in the UK 1997–2012’. In The Causes and Consequences of the Long UK Expansion, ed. J. S. Chadha, A. Chrystal, J. Pearlman, P. Smith, and S. Wright. Cambridge: Cambridge University Press. Minsky, Hyman. 1986. Stabilizing and Unstable Economy. New Haven, CT: Yale University Press. Minsky, Hyman P. 1992. ‘The Financial Instability Hypothesis’. The Jerome Levy Economics Institute Working Paper no. 74, May. Mirrlees, James, and Stuart Adam. 2011. Tax by Design: The Mirrlees Review. Vol. 2. Oxford: Oxford University Press. Modigliani, Franco, and Richard Brumberg. 1954. ‘Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data’. In Post-Keynesian Economics, ed. Kenneth Kurihara. New Brunswick, NJ: Rutgers University Press.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Louis, argued in the 1960s that long periods of economic stability would lead to conditions of financial overconfidence that would, in turn, promote leverage and exaggerate risk-taking and increase debt burdens throughout society. Minsky’s theories were ignored by the academic establishment from the 1980s onward but came back into prominence during the 2007 crisis and received widespread attention not only in the media but also in central banks and finance ministries around the world. A key feature of what Minsky called his Financial Instability Hypothesis was that economic stability would encourage banks to innovate. When economic conditions prove surprisingly benign, banks start accepting low-quality assets as collateral and find new ways of lending to ever-riskier borrowers. These processes eventually become unsustainable. But crucially, the unwinding of leverage does not occur in a gradual way that would bring the system back into equilibrium, as assumed by mainstream academic economics.

The point of inflection in this cycle, when lenders suddenly realize that they were dangerously overoptimistic in their lending decisions and their original assumptions about asset values, is often described as a Minsky Moment. A classic such moment occurred during the Russian government default and hedge fund crisis of 1998.5 According to many analysts, the 2007-09 credit crunch was a Minsky Moment writ large. George Soros’s Theory of Reflexivity can be seen as a generalization of Minsky’s Financial Instability Hypothesis and Keynes’s theory of animal spirits. Soros puts both on a different philosophical basis by emphasising the two-way interaction between people’s perceptions and the events perceived. Soros argues that miscalculations made by both lenders and borrowers result from the gap that inevitably exists between reality and human understanding. Human thinking consists of two potentially discordant elements—a cognitive function, which tries to understand reality, and a manipulative function, which tries to change reality.6 These functions can interfere with one another.

Right on “moral righteousness” and panic/loss of confidence predictions of global collapse preventing scenarios regulation and trend/cycle relationship Financial crisis of 2007-09 causes conservatives on deregulation financial institutions debt-chains lack of government guarantees and lack of government intervention mark-to-market accounting/effects market fundamentalism new classical school on political ideology political mismanagement standard view/flaws See also Lehman Brothers collapse; Paulson, Henry/financial crisis (2007-09) Financial Instability Hypothesis (boom-bust cycle theory) Fitoussi, Paul Fooled by Randomness (Taleb) Fool’s Gold (Tett) Ford, Henry Frank, Barney Free to Choose (Friedman) Friedman, Milton Capitalism and economics transformation and on Great Depression inflation monetarism “natural-rate hypothesis,” Frydman, Roman Future scenario of American breakdown See also Capitalism 4.0; Economy of future G20 economies Galbraith, J.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

To grasp the significance of this difference for money, I want to turn to the arguments of Hyman Minsky and Susan Strange. MINSKY’S HALF-CENTURY Hyman Minsky was a doctoral student of Joseph Schumpeter and Wassily Leontief at Harvard during the 1940s. Whereas Schumpeter had drawn attention to banks’ importance in the business cycle, Minsky’s main focus was on the effect of financial markets on the wider economy (Minsky 1993a, 1993b). During the 1970s, Minsky developed the financial instability hypothesis, in which he argued that speculative bubbles and spells of financial market instability are part of the normal life cycle of the economy (Minsky 1992). It is a fundamental characteristic of capitalism, he said, that the economy swings between episodes of robustness and fragility. It befalls to governments to try to alleviate the worst effects of such swings, but it would be naive and mistaken to believe that they can be eradicated.

“On the Origin of Money.” The Economic Journal 2: 239–477. Messori, M. (1997). “The Trials and Misadventures of Schumpeter’s Treatise on Money.” History of Political Economy 29: 639–73. Minsky, H. P. (1975). John Maynard Keynes, New York, Columbia University Press. Minsky, H. P. (1986). Stabilizing an Unstable Economy, New Haven, CT, Yale University Press. Minsky, H. P. (1992). “The Financial Instability Hypothesis.” Jerome Levy Economics Institute, Working Paper No. 74, Annandale-on-Hudson, NY, Levy Economics Institute of Bard College. www.levyinstitute.org/pubs/wp74.pdf. Minsky, H. P. (1993a). “Finance and Stability: The Limits of Capitalism.” Jerome Levy Economics Institute, Working Paper No. 93, Annandale-on-Hudson, NY, Levy Economics Institute of Bard College. www.levyinstitute.org/pubs/wp93.pdf.

See state fiat money fiction, and economic expectations, 16; and language, 36; and the free market, 338; and money, 6, 235, 317; and monetary policy, 110; in Simmel, 317; and truth, 36 fictitious capital, 55, 56, 58, 62, 65, 68–69, 70, 83, 194, 243; Marx’s definition of, 57n16; in Ricardo, 59n finance, etymology, 201; versus money, 61–62, 66, 125; social study of, 295 finance capital, 60, 64, 68, 74, 232, 249 financial engineering, 124 financial expropriation, 79 financial innovation, 121 financial instability hypothesis, 117, 124 financial repression, 69 financial system, 3; and crisis formation, 69; expansion of, 114; relationship to GDP, 114. See also capitalism; Wall Street system financialization, 10, 36, 61n22, 66–67, 391; and banking, 114; and the Eurozone crisis, 79; of money, 245, 298; as privatized Keynesianism, 76 First World War, 50, 59, 103, 225, 245, 256, 356, 362 fiscal cliff, 90, 386 fiscus, 261–62 Fisher, Irving, 120n41, 314; on the paradox of thrift, 347; on stamp scrip, 314, 349 Fisher, Mark, 193 floating money, 191, 244 flow, 227, 232, 233–34, 244; and financial markets, 233n Fond-des-Nègres marketplace, 302 Foster, William, 347 Foucault, Michel, 25, 238, 239, 391; death of “man,” 389–90; desire, 229; on homo economicus, 390; on Nietzsche, 389–90, 391; The Order of Things, 228 Fourcade, Marion, 91 Fourier, Charles, 324 fractional reserve lending, 95, 111, 113, 116, 199n26 Frank, Thomas, 315 Frankfurt School, 322, 326–27 Franklin, Benjamin, 176 fraud, 113, 117n, 120, 132, 137, 199, 313, 368 Freddie Mac, 123 free credit, 352 free labor, 98 free market money, 360, 362 free money, 348 free trade 281 Freicoin, 348n, 349n, 370–71 French Revolution, 84, 355 Freud, Sigmund, 150, 228, 332, 334; Civilization and Its Discontents, 152; on money and saving, 151, 336 Friedman, Milton, 131, 330–31 Frisby, David, on Nietzsche, 136–37, 141–42; on Simmel, 137 Fromm, Erich, 14, 85n45, 345, 356, 372, 382; on economic democracy, 338–39; Escape from Freedom, 331; on having versus being, 315, 331–38; on hoarding, 336, 340–41, 350–51; on the humanistic utopia, 315, 333–34, 338–39, 374; on language, 332; Man for Himself, 331, 341; on Marx, 339; “Medicine and the Ethical Problem of Modern Man,” 340; on Messianic time, 335, 338; on money, 334, 339–40, 341, 346; on the Shabbat, 334–35, 338; on spiritual poverty, 334; To Have or To Be?


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

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3D printing, balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income

The black line in Figure 2 shows the private sector’s financial balance, defined as the difference between private income and private spending, or equivalently between saving and investment (S-I). As the data show, the private sector’s financial balance deteriorated over much of the 1990s, and by 1997 it had forsaken its habitual state of surplus as it began spending in excess of its income (i.e. running deficits) for the first time in generations. The pattern that led to the crisis was strikingly similar to that theorised by Minsky’s ‘financial instability hypothesis’.12 During the boom, private actors—especially households and banks, in this case—started piling up debt at an increasing rate. Then, suddenly, after a fall in house prices, the speculative fever was reversed, generating systemic financial distress and pushing most private actors to try to reduce their indebtedness simultaneously. In other words, when the housing bubble burst, the private sector looked to deleverage by spending less, saving more and paying down debt.

During a boom, tax revenues automatically rise, while unemployment benefits decrease, thus decreasing the government deficit and moderating the boom. 10 P. Krugman, ‘Deficits saved the world’, New York Times, 15 July 2009, http://krugman.blogs.nytimes.com/2009/07/15/deficits-saved-the-world/ (accessed 4 May 2016). 11 See W. Godley, Money, Finance and National Income Determination: An Integrated Approach, Levy Economic Institute Working Paper No. 167, June 1996. 12 See for example H. Minsky, The Financial Instability Hypothesis, Levy Economics Institute Working Paper No. 74. 13 Richard Koo of Nomura Research has popularised this dynamic as a ‘balance sheet recession’. See R. Koo, ‘The world in balance sheet recession: causes, cure, and politics’, Economic Review, issue 58, http://www.paecon.net/PAEReview/issue58/Koo58.pdf (accessed 4 May 2016). 14 J. M. Keynes, The General Theory of Employment, Interest and Money, London, Macmillan, 1965 [1936]. 15 Krugman, ‘Deficits saved the world’. 16 State and local government budgets also moved sharply into deficit, accounting for the additional rise seen in Figure 2.


pages: 278 words: 82,069

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

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Asian financial crisis, banking crisis, Bretton Woods, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, John Meriwether, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, money market fund, mortgage debt, Naomi Klein, new economy, offshore financial centre, payday loans, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, sovereign wealth fund, structural adjustment programs, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

Minsky’s writings, and the post-Keynesian tradition more generally, are highly critical of free-market capitalism and its defenders in the economics profession—among them Milton Friedman and other Nobel Prize–winning economists who for a generation have claimed to “prove,” usually through elaborate mathematical models, that unregulated markets are inherently rational, stable and fair. For Friedmanites, regulations are harmful most of the time. Minsky, by contrast, explained throughout his voluminous writings that unregulated markets will always produce instability and crises. He alternately termed his approach “the financial instability hypothesis” and “the Wall Street paradigm.” For Minsky, the key to understanding financial instability is to trace the shifts that occur in investors’ psychology as the economy moves out of a period of crisis and recession (or depression) and into a phase of rising profits and growth. Coming out of a crisis, investors will tend to be cautious, since many of them will have been clobbered during the just-ended recession.


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

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Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

According to Keynes's model, the classical model only applies when the economy reaches full employment (Qj), while the Keynesian general theory applies at any point along the AS curve where it intersects with the AD curve. Who's to Blame? Irrational Investors! Keynes blamed the instability of capitalism on the bad behavior of investors. The General Theory creates a macroeconomic model based essentially on a financial instability hypothesis. As Keynesian economist Hyman P. Minsky declares, "The essential aspect of Keynes's General Theory is a deep analysis of how financial Figure 5.1 Aggregate Supply (AS) and Aggregate Demand (AD) Model from a Keynesian Perspective p Source: Byrns and Stone (1987: 311). Reprinted by permission of Scott, Foresman and Co. forces—which we can characterize as Wall Street—interact with production and consumption to determine output, employment, and prices" (1986,100).

Global Governance and Financial Crises by Meghnad Desai, Yahia Said

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Asian financial crisis, bank run, banking crisis, Bretton Woods, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

P. (1989) Manias, Panics and Crashes: A History of Financial Crises, 2nd edition, Macmillan, London. Kindleberger, C. P. and Laffargue, J.-P. (eds) (1982), Financial Crises: Theory, History and Policy, Cambridge University Press, Cambridge. Lowenstein, R. (2000) When Genius Failed: The Rise and Fall of Long-Term Capital Management, Random House, New York. Marx, K. (1867/1884) Capital Vol. 1 (various editions). Minsky, H. P. (1982) ‘The financial-instability hypothesis: capitalist processes and the behaviour of the economy’, in C. P. Kindleberger and L.-P. Laffargne (eds), Financial Crises: Theory, History and Policy, Cambridge University Press, Cambridge, pp. 13–39. Schumpeter, J. A. (1982 reprinted) Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, Porcupine Press, Philadelphia. Shiller, R. J. (2000) Irrational Exuberance, Princeton University Press, Princeton, NJ. 18 Meghnad Desai Skott, Peter (1995) ‘Financial innovation, deregulation and Minsky cycles’, in G.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

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3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Mankind thus inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem arises only when the material conditions for its solution are already present or at least in the course of formation.9 Perhaps he was right on this one observation. We shall solve the problems yet. No one can say just how. NOTES Introduction: Unraveling the Threads 1.The definition is from Raymond Goldsmith, “Comment on Hyman P. Minsky, ‘The Financial Instability Hypothesis,’” in C. P. Kindleberger and J. P. Lafargue, eds, Financial Crises: Theory, History and Policy (Cambridge University Press, Cambridge, 1982), p. 42. 2.See Timothy Geithner, Stress Test: Reflections on Financial Crises (Random House Business Books, London, 2014). 3.Raghuram Rajan, “Has Financial Development Made the World Riskier?” NBER Working Paper No. 11728 (National Bureau of Economic Research, Cambridge, MA, 2005); and his Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton University Press, Princeton, NJ, 2010). 4.Robert Lucas, “In Defence of the Dismal Science,” The Economist, August 6, 2009. 5.I have dealt with the theories of Marx and Hayek in Meghnad Desai, Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism (Verso, London, 2002). 6.Lord Overstone, “Reflections Suggested by a Perusal of Mr.


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus

Meadows, Donella H., Meadows, Dennis and Randers, Jorgen (1972), The Limits to Growth, New York: Universe Books. Mensch, Gerhard (1979), Stalemate in Technology, Cambridge, MA: Ballinger. Michie, Ranald C. (1987), The London and New York Stock Exchanges 1850– 1914, London: Allen & Unwin. Minsky, Hyman (1975), John Maynard Keynes, New York: Columbia University Press. Minsky, Hyman (1982), ‘The Financial-Instability Hypothesis: Capitalist Processes and the Behavior of the Economy’, in Kindleberger and Laffargue (eds), pp. 13–39. Minsky, Hyman (1986), Stabilizing an Unstable Economy, New Haven and London: Yale University Press. Mowrey, Mark A. (2000), ‘Web Companies Find 1999 Venture Capital Windfall’, The Industry Standard, February 7. Negroponte, Nicholas (1995), Being Digital, New York: Alfred A. Knopf.


pages: 223 words: 10,010

The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

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banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

The chiefs were more ‘knaves than fools’.389 Two decades earlier, long before the tsunami of new financial instruments, the American economist, Hyman Minsky—who died in 1996—had warned that deregulated financial markets would intensify the tendency of market economies to speculation and instability. Minsky was a post-Keynesian economist and critic of the free-market school who developed what he called the ‘financial instability hypothesis’ that integrated the role of finance into the Keynesian framework. In Stabilizing an Unstable Economy, published in 1986, he argued that Wall Street and other financial centres would generate destabilizing forces, making the behaviour of the economy incoherent and subjecting economies to serious threats of financial and economic instability. Because success would breed excess, financiers—sitting on the prospect of ever higher profits—would find ways of gearing their performance to generate even higher returns, irrespective of the risks being played with the economy.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

Milanovic, Branko. 2005. Worlds Apart: Measuring International and Global Economy. Princeton: Princeton University Press. Miles, Nicholas, Charu Wilkinson, Jakob Edler, Mercedes Bleda, Paul Simmonds, and John Clark. 2009. “Wider Conditions for Innovation.” Pamphlet. London: National Endowment for Science, Technology and the Arts. Mill, J. S. 1863. Utilitarianism. Minsky, Hyman P. 1992. “The Financial Instability Hypothesis.” Working Paper No. 74 (May). Annandale on Hudson, NY: Jerome Levy Economics Institute, Bard College. Musgrave, Richard A., and Peggy B. Musgrave. 1973. Public Finance in Theory and Practice. New York: McGraw Hill. Nannicini, Tommaso, Andrea Stella, Guido Tabellini, and Ugo Troiano. 2010. “Social Capital and Political Accountability.” Discussion Paper No. 7782. London: Centre for Economic Policy Research.


pages: 382 words: 92,138

The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato

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Apple II, banking crisis, barriers to entry, Bretton Woods, California gold rush, call centre, carbon footprint, Carmen Reinhart, cleantech, computer age, creative destruction, credit crunch, David Ricardo: comparative advantage, demand response, deskilling, endogenous growth, energy security, energy transition, eurozone crisis, everywhere but in the productivity statistics, Financial Instability Hypothesis, full employment, G4S, Growth in a Time of Debt, Hyman Minsky, incomplete markets, information retrieval, intangible asset, invisible hand, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, natural language processing, new economy, offshore financial centre, Philip Mirowski, popular electronics, profit maximization, Ralph Nader, renewable energy credits, rent-seeking, ride hailing / ride sharing, risk tolerance, shareholder value, Silicon Valley, Silicon Valley ideology, smart grid, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, total factor productivity, trickle-down economics, Washington Consensus, William Shockley: the traitorous eight

‘Corporate Taxpayers & Corporate Tax Dodgers 2008–10’. Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Available online at http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf (accessed 25 July 2012). Mia, H. et al. 2010. ‘A Survey of China’s Renewable Energy Economy’. Renewable and Sustainable Energy Reviews 14: 438–45. Minsky, H. P. 1992. ‘The Financial Instability Hypothesis’. Jerome Levy Economics Institute Working Paper no. 74, May. Mirowski, P. 2011. Science-Mart. Cambridge, MA: Harvard University Press. MIT (Massachusetts Institute of Technology). 2013. A preview of the MIT production in the ‘Innovation Economy Report’, edited by Richard M. Locke and Rachel Wellhausen, mit.edu, 22 February. Available from http://web.mit.edu/press/images/documents/pie-report.pdf (accessed 25 February 2013).


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

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bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Plutocrats, plutocrats, private military company, Republic of Letters, Richard Feynman, Richard Feynman, Robert Shiller, Robert Shiller, Scientific racism, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

The idea of central-bank independence, unlike inflation targeting, is not associated specifically with New Keynesian theory—its origins lie in an earlier literature, notably Rogoff, 1985—though it was only once the New Keynesian approach had become the most widely used framework for policy-making that it achieved a concrete institutional impact. 27. Turner, 2012. 28. Minsky, H., “The Financial Instability Hypothesis: Capitalist Processes and the Behaviour of the Economy,” in Kindleberger and Laffargue, 1982. 29. King, M., 2002, pp. 162 and 173. 30. Ibid. 14 How to Turn the Locusts into Bees 1. See http://​en.​wikipedia.​org/​wiki/​Locust_​(finance). The term became widely used in political debate in the run-up to the September 2005 federal elections in Germany. 2. See chapter 8. 3. The title of Novi, E., 2012, La dittatura dei banchieri: l’economia usuraia, l’eclissi della democrazia, la ribellione populista. 4.


pages: 309 words: 95,495

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

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Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

Nobody dismissed the potential for further crises. The fact was, however, that crises had come and gone while leaving surprisingly little mark on the economy. Markets had not been so turbulent since the 1930s, noted Paul Krugman, yet the economy had chugged along for seven years “without either turning into a runaway boom or stalling into a recession.” Minsky’s message was that the good times would not last. “The financial instability hypothesis is pessimistic,” he warned. “Capitalism is flawed in that thrusts to financial and economic crises are endogenous phenomena.” Despite his inclusion in the program, Minsky was still a relative outsider among these academic celebrities, and he drew little attention. Volcker was a different matter. Though out of office he still commanded huge respect. He was an inveterate worrier, with reason: he had already dealt with more crises than anyone else in the room.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

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accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, Plutocrats, plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

"Central Banking and Money Market Changes," Quarterly Journal of Economics 1\ (May), reprinted in Minsky (1982a), pp. 162-178. — (1964). "Longer Waves in Financial Relations: Financial Factors in the More Severe Depres- sions," reprinted in Thomas Mayer, ed., International Library of Critical Writings in Economics, 7 (1990) (Aldershot, U.K. and Brookfield, Vt.: Edward Elgar, pp. 352-363. — {1975). John Alaynard Keynes (Ne-w York: Columbia University Press). — (1978). "The Financial Instability Hypothesis: A Restatement," Thames Papers in Politi- cal Economy, reprinted in Minsky (1982a), pp. 90-116. — (1982a). Can "It" Happen Again? (Kmionk, NY.: M.E. Sharpe, Inc.). — (1982b). "Debt Deflation Processes in Today's Institutional Environment," Banca Nazionale del Lavoro Review 143 (December), pp. 375-393. — (1986). Stabilizing an Unstable Economy (New Haven: Yale University Press).


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

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activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, South Sea Bubble, statistical model, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

He suggests on the next page that Jevons be the one to do the educating: “[T]he Cobden chair of Political Economy at Owens College, at present so ably filled, might become a centre from which should radiate the remedial influences which I venture to suggest.” 7. A notable exception was MIT economist Charles Kindleberger. But Kindleberger’s 1978 history, Manias, Panics and Crashes: A History of Financial Crises (New York: Basic Books, 1978), which drew heavily on Minsky’s theories, also seemed to draw far more readers from trading floors than economics seminar rooms. 8. Hyman P. Minsky, “The Financial Instability Hypothesis: A Restatement,” Thames Papers in Political Economy (Autumn 1978). Reprinted in Can “It” Happen Again: Essays on Instability and Finance (Armonk, N.Y.: M. E. Sharpe, 1982), 106. 9. Mark Zandi, “Where are the Regulators?” Moody’s Economy.com, Nov. 1, 2005, www.economy.com/home/article.asp?cid=18664. 10. Peter Thal Larsen, “Goldman pays the price of being big,” Financial Times, Aug. 13, 2007. 11.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

See also Barry Eichengreen, The European Economy since 1945: Coordinated Capitalism and Beyond, Princeton: Princeton University Press, 2008, Chapter 8. 53 Quoted in Robert Flanagan, David Soskice, and Lloyd Ulman, Unionism, Economic Stabilization and Incomes Policies, Washington, DC: Brookings Institution, 1983, pp. 141–2. 54 Eichengreen, Globalizing Capital, p. 128. 55 Giovanni Arrighi, “The Social and Political Economy of Global Turbulence,” New Left Review I/20 (March–April 2003), pp. 35–6. 56 Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, Table 3.1. Available at bea.gov. 57 Edwin Dickens, “A Political-Economic Critique of Minsky’s Financial Instability Hypothesis: The Case of the 1966 Financial Crisis,” Review of Political Economy 11: 4 (1999), pp. 392–3. 58 “In addition to limiting the buildup of dollar assets in foreign official hands, these goals included easing Treasury financing operations, limiting financial disintermediation, promoting the growth of bank credit, especially mortgage loans, discouraging inflation, and clearly the top priority, encouraging a more complete utilization of the nation’s [resources].”


pages: 620 words: 214,639

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

asset-backed security, call centre, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Deng Xiaoping, diversification, Financial Instability Hypothesis, fixed income, Hyman Minsky, Irwin Jacobs, John Meriwether, Long Term Capital Management, margin call, merger arbitrage, money market fund, moral hazard, mortgage debt, mutually assured destruction, Myron Scholes, New Journalism, Northern Rock, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, savings glut, shareholder value, sovereign wealth fund, too big to fail, traveling salesman, Y2K, yield curve

Without the uptick rule, stocks are susceptible to “bear raids,” where short sellers can overwhelm a stock in huge surges of selling that intimidate buyers from stepping in. This creates a panic that can spiral ever downward. For banks and securities firms, where the confidence of counterparties is essential, the death spiral can indeed be irreversible. To Schwartz, the near-collapse of the global financial system was caused by many factors, from Hyman Minsky's financial instability hypothesis—which suggests that whenever the economy is stable for a long period, the financial markets create their own instability—to the dramatic and unprecedented surge of global wealth. “If you go back to the period from 1970 to 1974,” he told his friends, “there was a doubling of commodity prices. Commodity producers got rich, the rest of the world got poor. When they doubled again, the world got poorer.