Kenneth Rogoff

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pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

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Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, Carmen Reinhart, collapse of Lehman Brothers, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, mortgage debt, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional

Lansing, “Global Household Leverage, House Prices, and Consumption,” Federal Reserve Bank of San Francisco Economic Letter, January 11, 2010. 15. International Monetary Fund, “Chapter 3: Dealing with Household Debt,” in World Economic Outlook: Growth Resuming, Dangers Remain, April 2012. 16. Mervyn King, “Debt Deflation: Theory and Evidence,” European Economic Review 38 (1994): 419–45. 17. Carmen Reinhart and Kenneth Rogoff, “Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison,” American Economic Review 98 (2008): 339–44. 18. Carmen Reinhart and Kenneth Rogoff, This Time Is Different (Princeton, NJ: Princeton University Press, 2009). 19. Oscar Jorda, Moritz Schularick, and Alan M. Taylor, “When Credit Bites Back: Leverage, Business Cycles, and Crisis” (working paper no. 17621, NBER, 2011). 20. The IMF study also confirms this. They show that elevated household debt leads to more severe recession, even in the absence of a banking crisis.

We have been influenced heavily by the work of Robert Shiller for many of the ideas in this chapter. He has been a strong advocate for financial contracts that more equally share risk in the context of household and sovereign debt. See, for example, Stefano Athanasoulis, Robert Shiller, and Eric van Wincoop, “Macro Markets and Financial Security,” FRBNY Economic Policy Review, April 2009. Kenneth Rogoff has also advocated more equity-like instruments in the context of sovereign debt. See Kenneth Rogoff, “Global Imbalances without Tears,” Project Syndicate, March 1, 2011, http://www.project-syndicate.org/commentary/global-imbalances-without-tears. Lord Adair Turner has summarized excellently the problems with debt and advantages of equity finance. See Lord Adair Turner, “Monetary and Financial Stability: Lessons from the Crisis and from Classic Economics Texts” (speech at South African Reserve Bank, November 2, 2012), available at http://www.fsa.gov.uk/static/pubs/speeches/1102-at.pdf. 9.

This was analogous to the analysis that Glick and Lansing and the IMF researchers gave twenty years later for the Great Recession. Despite focusing on a completely different recession, King found exactly the same relation: Countries with the largest increase in household-debt burdens—Sweden and the United Kingdom, in particular—experienced the largest decline in growth during the recession. Another set of economic downturns we can examine are what economists Carmen Reinhart and Kenneth Rogoff call the “big five” postwar banking crises in the developed world: Spain in 1977, Norway in 1987, Finland and Sweden in 1991, and Japan in 1992.17 These recessions were triggered by asset-price collapses that led to massive losses in the banking sector, and all were especially deep downturns with slow recoveries. Reinhart and Rogoff show that all five episodes were preceded by large run-ups in real-estate prices and large increases in the current-account deficits (the amount borrowed by the country as a whole from foreigners) of the countries.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, 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, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

Watson coined the term ‘great moderation’ in ‘Has the Business Cycle Changed and Why?’, in Mark Gertler and Kenneth Rogoff, eds, NBER Macroeconomic Annual 2012, vol. 17 (Cambridge, MA: MIT Press, 2003), http://www.nber.org/chapters/c11075.pdf. 5. Bernanke, ‘The Great Moderation’. 6. Foremost among the economists whose views were widely ignored were the late Hyman Minsky and Charles Kindleberger. See, for example, Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven: Yale University Press, 1986), and Charles P. Kindleberger and Robert Z. Aliber, Manias, Panics and Crashes: A History of Financial Crises, 6th edn (London: Palgrave Macmillan, 2011). 7. See Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton and Oxford: Princeton University Press, 2009), pp. 231–2. 8.

Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton and Oxford: Princeton University Press,2010). Rajan, Raghuram. ‘A Step in the Dark: Unconventional Monetary Policy after the Crisis’, Andrew Crockett Memorial Lecture, Bank for International Settlement, 23 June 2013. http://www.bis.org/events/agm2013/sp130623.pdf. Reinhart, Carmen M. and Kenneth S. Rogoff. This Time is Different: Eight Centuries of Financial Folly (Princeton and Oxford: Princeton University Press, 2009). Reinhart, Carmen M. and Kenneth S. Rogoff. ‘Growth in a Time of Debt’, National Bureau of Economic Research Working Paper No. 15639, January 2010. www.nber.org. Report of the Parliamentary Commission on Banking Standards. Changing Banking for Good: Volume 1. Summary, and Conclusions and Recommendations, 12 June 2013. http://www.parliament.uk/business/committees/committees-a-z/joint-select/professional-standards-in-the-banking-industry/news/changing-banking-for-good-report.

The weakness of private demand within high-income countries has precluded that and, in particular, the loss of creditworthiness by many households. In all, the legacy of the crises includes deep practical challenges to policymaking almost everywhere. As a result of these unexpected economic developments, crisis-hit countries have been forced to struggle with worse fiscal positions than they had previously imagined. As the work of Carmen Reinhart and Kenneth Rogoff, both now at Harvard University, has shown, fiscal crises are a natural concomitant of financial crises, largely because of the impact on government revenue and spending of declining profits and economic activity, together with rising unemployment. These come on top of the direct fiscal costs of bank bailouts.7 As was to be predicted, in the current crisis the biggest adverse fiscal effects were felt in countries that suffered a direct hit from the financial crises, such as the US, the UK, Ireland and Spain, rather than in countries that suffered an indirect hit, via trade.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, joint-stock company, Kenneth Rogoff, labour market flexibility, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce

Koo, The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, rev. edn, New York, 2009. 12 Eamonn Butler, ‘Ludwig von Mises – A Primer’, IEA Occasional Paper 143, 2010. 13 Richard Duncan, The Corruption of Capitalism, Hong Kong, 2009. 14 Carmen Reinhart and Kenneth Rogoff, This Time Is Different, Princeton, 2009. 15 This policy might not have worked. Emerging markets might not have wanted to absorb so much foreign capital, and might have imposed restrictions on foreign investment; or the money might have flowed into speculative activity, as it did in the 1990s, and been lost. Still, there is the example of Norway, which has used its oil wealth to build a pool of assets to safeguard the interests of future generations. 16 Reinhart and Rogoff, This Time Is Different. 17 Carlo Cottarelli, Lorenzo Forni, Jan Gottschalk and Paolo Mauro, ‘Default in Today’s Advanced Economies: Unnecessary, Undesirable and Unlikely’, September 2010. An IMF staff paper is not the official position of the fund itself. 18 Kenneth Rogoff, ‘The Euro at Mid-crisis’, Project syndicate website. 19 Inflation eventually results in a currency crisis or in a deep recession if the central bank attempts to bring it back under control.

In John Galsworthy’s series of novels, the Forsyte Saga, the elderly family members relied on their income from Consols, a form of perpetual government debt. Britain has not formally defaulted since 1672, although this record does not apply to its European neighbours. In the nineteenth century, for example, the Austro-Hungarian Empire defaulted or rescheduled its debt five times. In their magisterial study of the subject, This Time Is Different,15 Carmen Reinhart and Kenneth Rogoff describe a cycle of sovereign defaults, with peaks in the Napoleonic Wars, the 1820s through to the 1840s, the 1870s to the 1890s and the Great Depression of the 1930s. Clearly, wars often played their part in this cycle, with defeated nations highly likely to renege on their debts. But economic and banking crises, often associated with the rise and fall of commodity prices, also played a big part.

As Jeremy Grantham of the fund management company GMO has written, ‘Individuals, as well as institutions, were fooled into believing that the market signals were real, that they truly were rich. They acted accordingly, spending too much or saving too little, all the while receiving less than usual from their overpriced holdings.’1 It is not just investors who are fooled. Policymakers can be too. As Carmen Reinhart and Kenneth Rogoff put it, ‘Debt-fuelled booms all too often provide false affirmation of a government’s policies, a financial institution’s ability to make outsized profits or a country’s standard of living. Most of these booms end badly.’2 FORTY YEARS OF BUBBLES The last forty years of economic history (since the collapse of Bretton Woods) have been remarkable. Not only have they seen an explosion in debt and in money creation, unprecedented swings in exchange rates and the massive growth of the financial sector.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

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Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, distributed ledger, Edward Snowden, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

THE CURSE OF CASH THE CURSE OF CASH KENNETH S. ROGOFF PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD Copyright © 2016 by Kenneth S. Rogoff Requests for permission to reproduce material from this work should be sent to Permissions, Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TR press.princeton.edu Jacket design by Faceout Studio Excerpt from The Collected Writings of John Maynard Keynes copyright © 1931, 1972, 2010, 2013 The Royal Economic Society. Reprinted with the permission of Cambridge University Press. All Rights Reserved Library of Congress Cataloging-in-Publication Data Names: Rogoff, Kenneth S., author.

Judson. 1996. “The Location of US Currency: How Much Is Abroad?” Federal Reserve Bulletin, October. Washington, DC. Reifschneider, David L., and John C. Williams. 2000. “Three Lessons for Monetary Policy in a Low-Inflation Era.” Journal of Money, Credit and Banking 32 (4): 936–66. Reinhart, Carmen M., Vincent Reinhart, and Kenneth S. Rogoff. 2015. “Dealing with Debt.” Journal of International Economics 96, suppl. 1 (July): S43–S55. Reinhart, Carmen M., and Kenneth S. Rogoff. 2002. “The Modern History of Exchange Rate Arrangements: A Reinterpretation.” NBER Working Paper 8963 (June). Cambridge, MA: National Bureau of Economic Research. ———. 2004. “The Modern History of Exchange Rate Arrangements: A Reinterpretation.” Quarterly Journal of Economics 119 (1): 1–48. ———. 2009. This Time Is Different: Eight Centuries of Financial Folly.

All Rights Reserved Library of Congress Cataloging-in-Publication Data Names: Rogoff, Kenneth S., author. Title: The curse of cash / Kenneth S. Rogoff. Description: Princeton : Princeton University Press, [2016] | Includes bibliographical references and index. Identifiers: LCCN 2016014943 | ISBN 9780691172132 (hardback : alk. paper) Subjects: LCSH: Paper money. | Money. | Currency question. | Monetary policy. Classification: LCC HG350 .R64 2016 | DDC 332.4—dc23 LC record available at https://lccn.loc.gov/2016014943 British Library Cataloging-in-Publication Data is available This book has been composed in Sabon LT Std with DIN Pro Display Printed on acid-free paper. ∞ Printed in the United States of America 10987654321 To my parents, June and Stanley Rogoff CONTENTS Preface ix Chapter 1: Introduction and Overview 1 PART I: The Dark Side of Paper Currency: Tax and Regulatory Evasion, Crime, and Security Issues Chapter 2: The Early Development of Coins and Paper Currency 15 Chapter 3: Size and Composition of Global Currency Supplies, and the Share Held Abroad 31 Chapter 4: Holdings of Currency in the Domestic, Legal, Tax-Paying Economy 48 Chapter 5: Currency Demand in the Underground Economy 58 Chapter 6: Seigniorage 80 Chapter 7: A Plan for Phasing Out Most Paper Currency 92 PART II: Negative Interest Rates Chapter 8: The Cost of the Zero Bound Constraint 119 Chapter 9: Higher Inflation Targets, Nominal GDP, Escape Clauses, and Fiscal Policy 147 Chapter 10: Other Paths to Negative Interest Rates 158 Chapter 11: Other Possible Downsides to Negative Nominal Policy Rates 175 Chapter 12: Negative Interest Rates as a Violation of Trust and a Step Away from Rule-Based Systems 182 PART III: International Dimensions and Digital Currencies Chapter 13: International Dimensions to Phasing Out Paper Currency 199 Chapter 14: Digital Currencies and Gold 208 Final Thoughts 217 Acknowledgments 221 Appendix 225 Notes 233 References 257 Index 273 PREFACE This book deals with an issue that might seem stupefyingly mundane, more of a minor irritant than a curse.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus

So Does “All That Debt” Not Matter? Actually, debt does matter. It’s a problem, and those arguing for austerity out of more than just an innate hatred of the state and all its works are not tilting at windmills. While we may not be “drowning in debt,” there are many folks out there who are concerned that we will do a bit more than just get our feet wet if we are not careful. Carmen Reinhardt and Kenneth Rogoff’s much-cited paper, “Growth in a Time of Debt,” argues that government debt above a critical threshold of 90 percent can become a substantial drag on the economy.17 This claim is not without its critics, but notwithstanding those criticisms, the basic point can be rephrased as, why would any state want to carry and pay for such a debt load if it didn’t have to?18 Looking to the longer term, Simon Johnson and James Kwak argue that “America does face a long-term debt problem” that breeds a political climate of “hysteria, demagoguery and delusion,” which over the long haul leads to cuts that most affect “the people who can afford it least.”19 The end result, assuming that the United States doesn’t suffer an interest-rate shock in the short run, is that “the United States will look like the stereotypical Latin American country, with the super-rich living in private islands … a comfortable professional class … and a large, struggling lower class.”20 One could observe cynically that we are pretty much already there, but the point is once again well taken.

In all cases, private-sector weaknesses ended up creating public-sector liabilities that European publics now have to pay for with austerity programs that make the situation worse rather than better. The fiscal crisis in all these countries was the consequence of the financial crisis washing up on their shores, not its cause. To say that it is the cause is to deliberately, and politically, confuse cause and effect. We really should know better. Carmen Reinhart and Kenneth Rogoff, no friends of Keynesian policy, note that a banking crisis is followed by a sovereign debt crisis 80 percent of the time.42 Reinhardt and Rogoff stop short of using the word “cause.” However, as Moritz Schularick and Alan Taylor have shown, sovereign debt crises are almost always “credit booms gone bust.”43 They develop in the private sector and end up in the public sector. The causation is clear.

Leigh Phillips, “ECB Austerity Drive Raises Fears for Democratic Accountability in Europe,” The Guardian, August 22, 2011; Mort Zuckerman, “America Has No Choice but to Enter Its Own Age of Austerity,” Financial Times, July 14, 2011, “The A-List” Commentary; Alberto Alesina, Silvio Ardagna, Roberto Perotti, and Fabiano Schiantarelli (2002), “Fiscal Policy, Profits, and Investment,” American Economic Review, 92(3): 571–589; Peter Coy, “What Good Are Economists Anyway?” Bloomberg Business Week, April 16, 2009, cover story. 17. Carmen Reinhardt and Kenneth Rogoff, Growth in a Time of Debt, National Bureau of Economic Research (hereafter, NBER) working paper 15639, Cambridge, MA, January 2010. 18. See, for example, John Irons and Josh Bivens, “Government Debt and Economic Growth: Overreaching Claims of Debt ‘Threshold’ Suffer from Theoretical and Empirical Flaws,” Economic Policy Institute, Briefing Paper 271, Washington DC, July 16, 2010. Irons and Bivens take the 90 percent threshold idea to task on grounds of reverse causation.


pages: 411 words: 114,717

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

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3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, Gini coefficient, global supply chain, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, Kenneth Rogoff, knowledge economy, labor-force participation, labour market flexibility, land reform, M-Pesa, Mahatma Gandhi, market bubble, megacity, Mexican peso crisis / tequila crisis, new economy, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, quantitative easing, reserve currency, Robert Gordon, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Watson beat the top human players on Jeopardy!, working-age population

Since 2008 total debt has risen from 115 to 170 percent of GDP, and the richer that China gets the less likely it is to be hard on itself. The growing ties between nations over the last decade have made every one of them less inclined to allow their trade partners to go under. For all the current discussion about debt defaults, stemming from the crisis in Greece, the reality is that default has largely disappeared from the international economic scene. In their book, This Time Is Different, Carmen Reinhart and Kenneth Rogoff chart how surprisingly commonplace default used to be: In a typical year between the 1920s and 2003, nations representing at least 5 to 10 percent of global income were in default, and that proportion spiked up to 40 percent during the Depression and World War II, and close to 15 percent in the late 1980s. But since 2003, when the synchronized global boom began, the share of defaulting nations has dropped from 5 percent in any year to zero.

Since the crisis of 2008, most Americans have grown accustomed to gloom. The high debt burden is indeed weighing on the long-term U.S. growth rate, which is widely believed to have fallen from 3.4 percent between 1950 and 2007 to 2 percent, which is slower than during the recovery phase of most postwar recessions. There is a widespread sense that America has lost its mojo. In a recent paper, however, Harvard economists Carmen Reinhart and Kenneth Rogoff point out that the relevant comparison is not previous U.S. recessions but the very different case of systemic financial crises. These are much more traumatic and rare, and by this standard the United States is recovering lost per capita output faster than it did following previous systemic crises, from the meltdown of 1873 through the Great Depression, and faster than most Western nations following the systemic crisis of 2008.

As Tyler Cowen points out, the United States is a leading exporter of products that lie in the “sweet spot” for future demand from the emerging world, including civilian aircraft, semiconductors, cars, pharmaceuticals, machinery and equipment, automobile accessories, and entertainment. Technology, Inequality, and the Debt Threat There is an undeniable and scary connection between technology and persistent or rising income inequality, an issue that has remarkable resonance everywhere I travel, from Chile to South Korea. Kenneth Rogoff has called inequality “the single biggest threat to social stability around the world,” and for good reason. A decade ago the technorati were predicting that a wireless, digital world would give working people a welcome windfall in leisure time, but the reality looks a lot less comfortable. As companies employ digital machines more efficiently, they need fewer people and will pay more for the relatively few people skilled in handling digital machines.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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bank run, banks create money, British Empire, capital controls, Carmen Reinhart, central bank independence, currency peg, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Long Term Capital Management, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

Ben Bernanke, Remarks before the National Economics Club, Washington, DC, Nov. 21, 2002, http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm 2. Carmen M. Reinhart, Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton and Oxford: Princeton University Press, 2009), pp. 204–207. 3. Board of Governors of the Federal Reserve System, http://www.federalreserve.gov/releases/h8/Current/ 4. Federal Reserve Statistical Release H.6 Money Stock Measures, http://www.federalreserve.gov/releases/h6/hist/ 5. Federal Reserve Bank of St. Louis, http://fraser.stlouisfed.org/publications/ERP/page/7254/download/46604/7254_ERP.pdf 6. Carmen M. Reinhart, Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, p. 207 7. Federal Reserve Bank of St. Louis, St. Louis Adjusted Monetary Base, http://research.stlouisfed.org/fred2/data/AMBNS.txt 8.

Gallarotti, The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880–1914. 18. For a historian’s account of these events, see Adam Ferguson, When Money Dies (London: Old Street Publishing, 2010/1975). 19. Peter Bernholz, Monetary Regimes and Inflation, p. 8. 20. Carmen M. Reinhart, Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, p. 112. 21. Milton Friedman/Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960, pp. 461–493. 22. Quoted from John Laughland, The Tainted Source, p. 41. 23. Carmen M. Reinhart, Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, pp. 204–206. Part Five: BEYOND THE CYCLE Paper Money Collapse Chapter 8 The Beneficiaries of the Paper Money System By now we have fully exposed the disadvantages and dangers of elastic money.

In a system of elastic money, credit cycles are being extended considerably, which means that the price distortions and resource misallocations become much bigger over time. The inevitable consequences of the new infrastructure and policy have become ever more manifest. Since 1971 the decline in the purchasing power of pound and dollar—two of the oldest currencies in the world—has been the steepest in their long history. Debt levels have risen sharply and the financial industry has greatly expanded. As economists Carmen Reinhart and Kenneth Rogoff demonstrated in their extensive study of financial crises, the number and intensity of international banking crises has risen markedly since 1971.2 Japan experienced an enormous money-driven housing boom in the 1980s and has still not recovered from the dislocations this created. The United States and Western Europe (with the exception of the Scandinavian countries) have, until recently, escaped major crises.


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Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

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Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, invisible hand, Jean Tirole, joint-stock company, Kenneth Rogoff, knowledge economy, l'esprit de l'escalier, labor-force participation, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, payday loans, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, War on Poverty, Washington Consensus, We are the 99%, working poor

Team Regulation often has quipped a quick one-liner justification for its prescription: there were no financial crises (often left unstated: in the United States) from the 1940s to the mid-1980s; therefore, all we need do is reset all the dials back to that Golden Era. In subscribing to this notion, the left unconsciously accepts the key notion of the populist right and the neoclassical orthodoxy, that “nothing is substantially different between then and now.” Markets are timeless entities with timeless laws, they insist. Indeed, this is the identical premise of some of the most popular crisis books of the last few years, from Kenneth Rogoff and Carmen Reinhart’s This Time Is Different to David Graeber’s Debt: The First 5,000 Years.24 Yet that is precisely where the polemical divergence should originate on the left. Things are profoundly different about the economy, the society, and in the global political arena than they were during the Cold War: some recent neoliberal innovations have lent the current crisis its special bitter tang; understanding precisely how and where they are different is a necessary first step in developing a blueprint for a better world.

(The free flow of labor enjoys no similar right.97) Since that entails persistent balance-of-payments problems in a nonautarkic world, neoliberals took the lead in inventing all manner of transnational devices for the economic and political discipline of nation-states.98 They began by attempting to reintroduce what they considered to be pure market discipline (flexible exchange rates, dismantling capital controls) during the destruction of the Bretton Woods system, but over the longer term learned to appreciate that suitably staffed international institutions such as the WTO, the World Bank, the IMF, and other units are better situated to impose neoliberal policies upon recalcitrant nation-states. Initially strident demands to abolish global financial (and other) institutions on the part of early neoliberals such as Friedman and some denizens of the Cato Institute were subsequently tempered by others—such as Anne Krueger, Stanley Fischer, and Kenneth Rogoff—and as these neoliberals came to occupy these institutions, they used them primarily to influence staffing and policy decisions, and thus to displace other internationalist agendas. The role of such transnational organizations was recast to exert “lock-in” of prior neoliberal policies, and therefore to restrict the range of political options of national governments. Sometimes they were also used to displace indigenous “crony capitalists” with a more cosmopolitan breed of cronyism.

While both divergences could be traced to specific neoliberal triumphs in the teeth of the crisis—namely, the direct bailouts of large financial firms and their financialized counterparts in other sectors, combined with a ferocious resistance to any controls imposed upon capital flows and international trade—and as such might betoken further weakness down the line, journalists instead rapidly lost interest in the ways in which the current crisis might be “different” than the Great Depression. Indeed, they were rescued from having to seriously confront history by the intervention of a famous Harvard professor, and thus endorsed the convenient Kenneth Rogoff mantra that we could ignore anyone who insisted upon structural specificity in history, because every financial crisis was essentially the same.26 At that juncture, journalists just lost all interest in the Great Depression. * * * Figure 4.2: Index of World Equity Market Prices, Great Depression and Current Crisis * * * * * * Figure 4.3: Index Volume of World Trade, Great Depression and Current Crisis * * * * * * Source: voxeu.org This blasé line emanating from Harvard and the National Bureau of Economic Research committed the ultimate historical solecism by lumping together two centuries of credit crises as somehow “the same,” attempting to reduce them all to a few implausible quantitative indicators of sovereign debt to GNP and a “capital mobility index.”


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, 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, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, 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 Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

The question that needs to be asked about the Japanese experience is whether government support for struggling banks and overindebted borrowers caused the twenty years of stagnation or whether twenty years of economic stagnation prevented a recovery for weak borrowers and banks. A similar question must be asked about a fascinating and much-quoted historic study, coauthored by Carmen Reinhart and Kenneth Rogoff, the IMF’s former chief economist, which looked at the macroeconomic effect of financial crises in dozens of countries over the past six hundred years. This study concluded that recessions accompanied by banking crises are generally much longer and deeper than recessions in which banks avoid serious losses.12 The question is whether this historic evidence proves that banking crises cause particularly severe recessions or that particularly severe recessions cause banking crises, which then make these recessions even worse.

Available from http://krugman.blogs. nytimes.com/2009/01/27/a-dark-age-of-macroeconomics-wonkish/. 3 Best estimates for 2010 general government borrowing relative to GDP were: United States 10.7 percent, Japan 8.2 percent, Germany 5.3 percent, France 8.6 percent, Italy 5.4 percent, UK 13.3 percent, Canada 5.2 percent. Organisation for Economic Co-operation and Development (OECD), OECD Outlook 86 (November 2009). 4 There has been a long history of debt defaults by sovereign governments, and in every case creditors have been left with no legal or political redress. See Anatole Kaletsky, The Costs of Default, and Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly. 5 The figures for Treasury securities exclude the notional holdings owned by the federal government itself through the Social Security Trust Fund and other purely notional accounting entities. Federal Reserve Board, “Flow of Funds Accounts of the United States: Flows and Outstandings, Third Quarter 2009,” December 10, 2009. 6 Strictly speaking, the current account deficit is slightly different from the trade deficit, as explained in the text. 7 The current account deficit for the first three quarters of 2009, annualized, was $407 billion. 8 To be precise, real incomes sixty years from now will be 3.2 times higher if U.S. growth averages 1.96 percent per head, as it has since 1950, and 1.8 times higher if growth slows to 1 percent per head. 9 This assumes real economic growth of 3 percent real and 2 percent inflation. 10 International Monetary Fund, “Fiscal Implications of the Global Economic and Financial Crisis,” IMF Staff Position Note SPN/09/13, June 2009. 11 Japan suffered five recessions in the twenty years since 1990, while the United States had three recessions and Britain and the eurozone suffered two each. 12 Reinhart and Rogoff, This Time Is Different. 13 Kaletsky, The Costs of Default. 14 See “Continental Illinois and ‘Too Big to Fail,’” in FDIC Division of Research and Statistics, History of the Eighties—Lessons for the Future, vol. 1, 235-257.

This was followed by the Louvre Accord of February 22, 1987, which helped to stabilize the dollar-yen exchange rate for the next five years in the range of 125-150, but was subsequently blamed for contributing to the 1987 crash on Wall Street and the Japanese bubble economy of 1988-89. 24 A good summary of recent thinking is John Williamson, “The Choice of Exchange Rate Regime: The Relevance of International Experience to China’s Decision,” Lecture at the Central University of Finance and Economics in Beijing on September 7, 2004. Available from the Institute for International Economics, Washington, DC, at http://www.iie.com/publications/papers/williamson0904.pdf. A more detailed study is Kenneth Rogoff et al., “Evolution and Performance of Exchange Rate Regimes,” IMF Occasional Paper 229, May 2004. 25 Michal Kalecki, Political Aspects of Full Employment, Political Quarterly 14 (1943), reprinted in Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy. Chapter Seventeen 1 International Monetary Fund, “Fiscal Implications of the Global Economic and Financial Crisis.” 2 Ibid. 3 Ibid.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

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airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Edward Glaeser, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Washington Consensus, white flight

If government can be a force for good and intervene effectively, at least occasionally, then some kind of industrial policy should be favored. If instead government is hopelessly corrupt, industrial policy will likely make things worse. Note how, in this case, research has pushed the disagreement onto a domain—public administration—in which economists have no particular expertise. Models, Authority, and Hierarchy Two well-known economists, Carmen Reinhart and Kenneth Rogoff, published a paper in 2010 that would become fodder in a political battle with high stakes.18 The paper appeared to show that public-debt levels above 90 percent of GDP significantly impede economic growth. Conservative US politicians and European Union officials latched on to this work to justify their ongoing call for fiscal austerity. Even though Reinhart and Rogoff’s interpretation of their results was considerably more cautious, the paper became exhibit A in the fiscal conservatives’ case for reducing public spending despite the economic downturn.

Andrew Weiss, Efficiency Wages: Models of Unemployment, Layoffs, and Wage Dispersion (Princeton, NJ: Princeton University Press, 1990). 16. Itzhak Gilboa, Andrew Postlewaite, Larry Samuelson, and David Schmeidler, “Economic Models as Analogies” (unpublished paper, January 27, 2013), 6–7. 17. See, for example, my online debate for the Economist magazine with Harvard Business School professor Josh Lerner, July 12–17, 2010, http://www.economist.com/debate/debates/overview/177. 18. Carmen M. Reinhart and Kenneth S. Rogoff, Growth in a Time of Debt, NBER Working Paper 15639 (Cambridge, MA: National Bureau of Economic Research, 2010). 19. Thomas Herndon, Michael Ash, and Robert Pollin, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff” (Amherst: University of Massachusetts at Amherst, Political Economy Research Institute, April 15, 2013). 20. R. E. Peierls, “Wolfgang Ernst Pauli, 1900–1958,” Biographical Memoirs of Fellows of the Royal Society 5 (February 1960): 186. 21.

“The Liberalization and Management of Capital Flows: An Institutional View,” International Monetary Fund, November 14, 2012, http://www.imf.org/external/np/pp/eng/2012/111412.pdf. 14. Edward López and Wayne Leighton, Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change (Stanford, CA: Stanford University Press, 2012). 15. Francisco Rodríguez and Dani Rodrik, “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence,” in Macroeconomics Annual 2000, eds. Ben Bernanke and Kenneth S. Rogoff (Cambridge, MA: MIT Press for NBER, 2001). 16. Mankiw, “News Flash: Economists Agree.” 17. Mark R. Rosenzweig and Kenneth I. Wolpin, “Natural ‘Natural Experiments’ in Economics,” Journal of Economic Literature 38, no. 4 (December 2000): 827–74. 18. Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: W. W. Norton, 2011), chap. 6. See also Rodrik, “In Praise of Foxy Scholars,” Project Syndicate, March 10, 2014, http://www.project-syndicate.org/commentary/dani-rodrik-on-the-promise-and-peril-of-social-science-models.


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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Airbnb, balance sheet recession, bank run, barriers to entry, 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, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, 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

Five years ago, he was worried that the global economy might take years to regain its footing. Now El-Erian worries it could fall off a cliff. The good news from this book is that if policymakers get their act together, things could be a lot better. The bad news is that this seasoned and influential veteran isn’t at all sure this will happen. The Only Game in Town is simply a must-read for anyone trying to understand how the global economy might unfold in the next five years.” —Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy at Harvard University, and former chief economist and director of research at the International Monetary Fund “In his next book, The Only Game in Town, Mohamed El-Erian has done several important things superbly. First, he has presented the first really comprehensive assessment of the multiple challenges to sustainable and inclusive growth facing a wide range of countries and the global economy.

They avoided talking about debt reduction despite the fact that their emergency liquidity support to highly indebted countries was associated with growth rates that consistently undershot their own expectations and projections. And they underestimated the societal and political implications of a prolonged period of economic underperformance and financial insecurity. The harmful consequences have been material. As Carmen Reinhart and Kenneth Rogoff have noted, because the advanced economies have not been able to also use other options, such as debt restructuring and conversions, which were used in the 1930s, they have been undermined by a “forgotten lesson.”6 It is high time to change this. 4. GETTING THE ARCHITECTURE RIGHT (OR, AT LEAST, LESS WRONG) A. EUROPE Finally, there is the issue of the regional and global architecture.

Michael Spence, “Five Reasons for Slow Growth,” Project Syndicate, September 29, 2014, http://www.project-syndicate.org/commentary/slow-economic-growth-reasons-by-michael-spence-2014-12. 4. “The Fund’s Lending Framework and Sovereign Debt,” International Monetary Fund, Washington, D.C., June 2014, http://www.imf.org/external/np/pp/eng/2014/052214a.pdf. 5. See, for example, “Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative,” IMF Factsheet, Washington, D.C., September 2014, https://www.imf.org/external/np/exr/facts/hipc.htm. 6. Carmen M. Reinhart and Kenneth S. Rogoff, “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten,” IMF Working Paper, WP/13/266, December 2013, https://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf. 7. “Bleak Words and Difficult Homework from the IMF,” Financial Times, October 5, 2014, http://www.ft.com/intl/cms/s/0/53516aec-4af6-11e4-b1be-00144feab7de.html. 8. Mohamed A. El-Erian, “The New Isolationism: Why the World’s Richest Countries Can’t Work Together,” Atlantic, September 3, 2013, http://www.theatlantic.com/business/archive/2013/09/the-new-isolationism-why-the-worlds-richest-countries-cant-work-together/279282/.


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Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, means of production, Mikhail Gorbachev, millennium bug, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Washington Consensus, working poor, éminence grise

Portsmouth’s predicament compares starkly with the current approach favoured by its south-coast neighbours, Southampton, of building up the side over time. 3 Margot Finn (2003) The Character of Credit: Personal Debt in English Culture, 1740–1914, Cambridge University Press. 4 McKinsey Global Institute (2010) ‘Debt and Deleveraging: The Global Credit Bubble and its Economic Consequences’, report. 5 Carmen Reinhart and Kenneth Rogoff (forthcoming) ‘Growth in a Time of Debt’, prepared for the American Economic Review Papers and Proceedings. 6 McKinsey Global Institute (2010) ‘Debt and Deleveraging: The Global Credit Bubble and its Economic Consequences’, report. 7 Richard Koo (2008) The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, John Wiley & Sons. 8 Robert Chote, Carl Emmerson and Jonathan Shaw (eds) (2010) The Green Budget 2010, Institute for Fiscal Studies. 9 Ken Coutts and Robert Rowthorn (2009) ‘Prospects for the UK Balance of Payments’, University of Cambridge Centre for Business Research Working Paper No. 394. 10 Kenneth Rogoff (2003) ‘Globalisation and Global Disinflation’, presented to the Conference on Monetary Policy and Uncertainty: Adapting to a Changing Economy, Federal Reserve Bank of Kansas City. 11 Olivier Blanchard and John Simon, ‘The Long and Large Decline in US Output Volatility’, Brooklyn Papers on Economic Activity 1 (2001): 135–64. 12 On similar themes, see Jonathan McCarthy and Egon Zakrajsek (2003) ‘Inventory Dynamics and Business Cycles: What Has Changed?’

Equally problematic is determining a sustainable level of public debt, which is certain to rise to maintain economic activity in almost every country as private debt starts to fall. Most countries can handle public debt up to 90 per cent of GDP; above that level, the ratio of debt service to any reasonable level of tax receipts as a share of GDP starts to nudge above 10 per cent, which causes problems for most states over time. Carmen Reinhart and Kenneth Rogoff say that once ratios of public debt to GDP exceed 90 per cent, median growth rates fall by 1 per cent a year, but there is no association between growth and public debt below 90 per cent.5 Indeed, if rising public debt is associated with an increase in capital investment, it can even stimulate growth rates. In sum, the current levels of private debt, especially in Britain and Japan, are testing the limits of potential sustainability.

See also Julia Jones, Piyamas Nanork and Benjamin Oldroyd (2007) ‘The Role of Genetic Diversity in Nest Cooling in a Wild Honey Bee, Apis florea’, Journal of Comparative Physiology a-Neuroethology Sensory Neural and Behavioral Physiology 193 (2): 159–65. 55 Dean Amel, Colleen Barnes, Fabio Panetta and Carmelo Salleo (2004) ‘Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence’, Journal of Banking and Finance 28: 2493–519. 56 ACT Response to the Turner Review of Banking Regulation, at http://www.treasurers.org/reviewbankingregulation/actresponse/0609. 57 Peter Boone and Simon Johnson, ‘Bernanke on Banking’, Economix, 19 October 2009, at http://economix.blogs.nytimes.com/2009/10/29/bernankeon-banking/. 58 Manmohan Singh (2010) ‘Collateral, Netting and Systemic Risk in the OTC Derivatives Market’, IMF Working Paper No. 10/99. 59 Michael Lewis (2010) The Big Short: Inside the Doomsday Machine, Allen Lane. Chapter Eight: The £5 Trillion Mistake 1 Carmen Reinhart and Kenneth Rogoff (2010) This Time is Different, Princeton University Press. 2 HM Treasury (2009) Pre-Budget Report 2009: Securing the Recovery: Growth and Opportunity, HMSO. See also Martin Wolf, ‘Britain’s Dismal Choice: Sharing the Losses’, Financial Times, 15 December 2009, at http://www.ft.com/cms/s/0/f693b6a4-e9af-11de-9f1f-00144feab49a,s01=1.html. 3 OECD (2009) OECD Factbook, OECD, with Treasury figures and estimates for 2008 and 2009. 4 Robert Chote, Carl Emmerson and Jonathan Shaw (eds) (2010) The Institute for Fiscal Studies Green Budget, IFS. 5 Francesco Guerrera, ‘Welch Denounces Corporate Obsessions’, Financial Times, 13 March 2009, at http://www.ft.com/cms/s/0/3ca8ec2e-0f70-11de-ba10-0000779fd2ac.html. 6 Max Hastings, ‘The End of Britain’s Long Weekend’, Financial Times, 20 December 2009, at http://www.ft.com/cms/s/0/1e9f7cdc-ed8e-11de-ba12-00144feab49a.html. 7 Internal Cabinet Office analysis. 8 Chris Giles, ‘Manufacturing Fades under Labour’, Financial Times, 2 December 2009, at http://www.ft.com/cms/s/0/f32a3392-df7a-11de-98ca-00144feab49a.html. 9 Leonard Trelawny Hobhouse (1911) Liberalism, at socserv.mcmaster.ca/econ/ugcm/3ll3/hobhouse/liberalism.pdf. 10 Buffett, Gates and Simon are all cited in Gar Alperovitz and Lew Daly (2008) Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back, The New Press. 11 Antonio Afonso, Ludger Schuknecht and Vito Tanzi (2005) ‘Public Sector Efficiency: An International Comparison’, Public Choice 123 (3–4): 321–47.


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13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

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Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Gordon Gekko, greed is good, Home mortgage interest deduction, Hyman Minsky, income per capita, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, moral hazard, mortgage tax deduction, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, sovereign wealth fund, The Myth of the Rational Market, too big to fail, transaction costs, value at risk, yield curve

Quoted in Sorkin, Too Big to Fail, supra note 2, at 336. 24. Quoted in Wessel, In Fed We Trust, supra note 3, at 23. 25. Sorkin, Too Big to Fail, supra note 2, at 2. 26. Troubled Asset Relief Program Office of the Special Inspector General, Quarterly Report to Congress, April 21, 2009. 27. See Carmen M. Reinhart and Kenneth S. Rogoff, “Is the 2007 U.S. Subprime Crisis So Different? An International Historical Comparison,” American Economic Review 98 (2008): 339–44; and Carmen M. Reinhart and Kenneth S. Rogoff, “The Aftermath of Financial Crises” (paper presented at the meetings of the American Economic Association, January 3, 2009), available at http://www.aeaweb.org/annual_mtg_papers/2009/retrieve.php?pdfid=140. 28. Thomas Hoenig, “Troubled Banks Must Be Allowed a Way to Fail,” Financial Times, May 3, 2009, available at http://www.ft.com/cms/s/0/46e2f784–380b-11de-9211–00144feabdc0.html.

In January 2008, just as the economy was tipping into recession, the Congressional Budget Office (CBO) projected that, by the end of 2018, U.S. government debt would fall to $5.1 trillion, or 22.6 percent of GDP. Surveying the wreckage in August 2009, the CBO projected that debt at the end of 2018 would rise to $13.6 trillion, or 67.0 percent of GDP—a difference of $8.5 trillion.78 This should come as no surprise; Carmen Reinhart and Kenneth Rogoff have shown that, on average, modern banking crises lead to an 86 percent increase in government debt over the three years following the crisis.79 The financial crisis and the government’s emergency response also increased the likelihood of two bleak scenarios. First, the enormous amount of liquidity that the Federal Reserve poured into the economy created the long-term potential for high inflation; if the Fed cannot “mop up” that liquidity when the economy recovers, all that excess money could make dollars less valuable, driving up prices.

Deficit for 2009 is from Congressional Budget Office, Budget Projections, available at http://cbo.gov/budget/budproj.shtml; historical deficit figures are from Office of Management and Budget, Historical Tables, available at http://www.whitehouse.gov/omb/budget/Historicals/. 78. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018, January 2008, available at http://cbo.gov/ftpdocs/89xx/doc8917/01–23–2008_BudgetOutlook.pdf; Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2009, available at http://cbo.gov/ftpdocs/105xx/doc10521/08–25-BudgetUpdate.pdf. 79. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), 231–32. 80. Maura Reynolds and Janet Hook, “Critics Say Bush Is Not Doing Enough,” Los Angeles Times, March 18, 2008, available at http://articles.latimes.com/2008/mar/18/nation/na-bush18; cited in Sorkin, Too Big to Fail, supra note 2, at 38. 81. “Executive Compensation: Vikram S. Pandit,” Equilar, available at http://www.equilar.com/CEO_Compensation/Citigroup_Vikram_S.


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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, correlation does not imply causation, 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, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, 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

Rising inequality may also have increased vulnerability to crisis.’47 Similar views were aired at the 2011 World Economic Forum, the influential gathering of the world’s political, economic and business elites held each year in the small Swiss ski resort of Davos. Here the question of the growing global divide became something of a theme in an agenda crowded with topics from stalling recovery to the tackling of mounting budget deficits. ‘Inequality is the big wildcard in the next decade of global growth’, Kenneth Rogoff, a leading authority on the history of financial crises, told one gathering at the Forum. At another session, Min Zhu, former Deputy Governor of the People’s Bank of China and a special adviser at the International Monetary Fund, told his audience: ‘The increase in inequality is the most serious challenge facing the world.’ Martin Sorrell, the chief executive of the advertising company WPP, and a selfmade member of Britain’s super-rich, warned another group that policy leaders had to address inequality.

Despite a series of economic, business and financial crises in the immediate postmillennium years—from the bursting of the dot-com bubble to the collapse of the energy-trading giant, Enron—the belief in markets proved remarkably resilient. Across the globe, regulators, politicians and financiers had come round to the view that, after a shaky decade and a half, the market model had finally triumphed. According to Kenneth Rogoff, chief economist at the IMF from 2001 to 2003, ‘the policy community has developed a smug belief that enhanced macroeconomic stability at the national level combined with continuing financial innovation at the international level have obviated any need to tinker with the (international financial) system’.206 The prophets of market ideology made grand claims for their beliefs. The medicine of the markets had at last overturned the failings of post-war welfare capitalism.

As Manchester University academics have described it, ‘The new Treasury doctrine is the impossibility of upsetting the City.’260 The forces that drove economic instability were not external shocks that could not have been foreseen, but ones implicit to the great shifts in policy direction instituted from the late 1970s. As the American international investor and a man who knows a little about speculation and destabilisation, George Soros, has put it, ‘the salient feature of the current financial crisis is that it was not generated by some external shock like OPEC… The crisis was generated by the system itself.’261 Notes 206 Kenneth Rogoff, ‘No Grand Plans, but the Financial System Needs Fixing’, Financial Times, 8 February 2007. 207 IMF, World Economic Outlook, Database, April 2009. 208 Ibid. 209 T Morgan, ‘No Way Out’, Tullett Prebon Strategy Note 23, 2011. 210 GDP adjusted for inflation. 211 R Skidelsky, Keynes: The Return of the Master, Allen Lane, 2009, p 118-120. 212 Annual change in GDP, chained volume measure, seasonally adjusted (Office for National Statistics, series ABMI); http://www.statistics.gov.uk/statbase/TSDdownload2.asp. 213 Ibid. 214 Glyn, Capitalism Unleashed, op. cit. p 131. 215 Ibid. 216 World Economic Forum, The Global Competitiveness Report, 2009-10, 2009. 217 G L Bernstein, The Myth of Decline, Pimlico, 2004, p 572. 218 ONS, output per job for whole economy (series LNNP).


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The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

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affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, joint-stock company, Kenneth Rogoff, labour market flexibility, labour mobility, land reform, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

was published in the flagship journal of the Economics Department at the University of Chicago—the seat of free market orthodoxy if there ever was one. Similarly, a paper I wrote calling into question the widely held view that freer trade has promoted growth around the world was published in a publication of the National Bureau of Economic Research, the premier network for applied economists—Francisco Rodriguez and Dani Rodrik, “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence” in Ben Bernanke and Kenneth S. Rogoff, eds., Macroeconomics Annual 2000 (Cambridge, MA: MIT Press for NBER, 2001). 20 Driskill, “Deconstructing the Argument for Free Trade,” p. 6. 21 Ibid., p. 2. 4. Bretton Woods, GATT, and the WTO 1 John Maynard Keynes, “National Self-Sufficiency,” The Yale Review, vol. 22, no. 4 (June 1933), pp. 755–69. This is the article in which the following famous quote appears: “I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations.

Calvo, “Explaining Sudden Stops, Growth Collapse and BOP Crises: The Case of Distortionary Output Taxes,” in his Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy? (Cambridge, MA: MIT Press, 2005). 30 Laeven and Fabian, “Systemic Bank Crises,” p. 25. 31 Charles P. Kindleberger, Manias, Panics and Crashes: A History of Financial Crises (New York: Basic Books, 1989). 32 Carmen M. Reinhart and Kenneth S. Rogoff, “This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises,” Unpublished paper, Harvard University, April 16, 2008, p. 7 (http://www.economics.harvard.edu/faculty/ rogoff/files/This_Time_Is_Different.pdf). 33 Research at the IMF has shown that the volatility of consumption in the developing economies rose under financial globalization—M. Ayhan Kose, Eswar S. Prasad, and Marco E.

Therefore it would curb financial transactions in pursuit of small short-term returns and would allow interest rates to diverge in different jurisdictions. 12 See Joseph E. Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2002). 13 Jagdish Bhagwati, “The Capital Myth: The Difference Between Trade in Widgets and Dollars,” Foreign Affairs, vol. 77, no. 3 (May–June 1998), pp. 7–12. 14 Jagdish Bhagwati, In Defense of Globalization (New York: Oxford University Press, 2004), p. 239. 15 M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei, “Financial Globalization: A Reappraisal,” IMF Staff Papers, vol. 56, no. 1 (April 2009), pp. 8–62. 16 Louise Story, Landon Thomas, Jr., and Nelson D. Schwartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” New York Times, February 13, 2010 (http://www.nytimes.com/2010/02/14/ business/global/14debt.html?emc=eta1). 17 The story comes via Ragnar Nurkse, a leading economist of the interwar era, and is quoted in Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century, p. 197. 18 The best evidence for this comes, somewhat paradoxically, from research done at the IMF.


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The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

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Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, Flash crash, floating exchange rates, forward guidance, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, invisible hand, jitney, Kenneth Rogoff, labor-force participation, labour mobility, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, Plutocrats, plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, uranium enrichment, Washington Consensus, working-age population, yield curve

Plugging these actual numbers into the PDS framework results in: (2.5 + 1) – 1.5 < 4, or 2 < 4 In this example, real growth plus inflation minus interest expense is less than the primary deficit, which means that debt as a percentage of GDP is increasing. This is the unsustainable condition. Again, what matters in this model is not the level but the trend, as played out in the dynamics of the BRITS and their interactions. Contrary to the oft-cited Carmen Reinhart and Kenneth Rogoff thesis, the absolute level of debt to GDP is not what triggers a crisis; it is the trend toward unsustainability. One beauty of PDS is that the math is simple. Starting with the identity as 2 < 4 means that to achieve sustainability, either the 2 must go up, the 4 must go down, or both. Real growth in the United States today is stuck at 2.5 percent, partly due to policy uncertainty. The U.S. primary deficit may decrease to 3 percent because of the 2013 tax increases and spending sequester, but otherwise the tax and spending stalemate seems set to continue.

The consequences of misguided monetary leadership will be on display in far fewer than ten years. CHAPTER 10 CROSSROADS I’m the fellow who takes away the punch bowl just when the party is getting good. William McChesney Martin Jr. Chairman of the Federal Reserve Board, 1951–70 The trouble is that this is no ordinary recession, and a lot of people have not had any punch yet. Kenneth Rogoff June 6, 2013 Developed countries have no reason to default. They can always print money. George Soros April 9, 2013 ■ The Inflation-Deflation Paradox Federal Reserve policy is at a crossroads facing unpleasant paths in all directions. Monetary policy around the world has reached the point where the contradictions embedded in years of market manipulation have left no choices that do not involve either contraction or catastrophic risk.

Taylor, and Volker Wieland, “New Keynesian Versus Old Keynesian Government Spending Multipliers,” National Bureau of Economic Research, Working Paper no. 14782, February 2009, http://www.nber.org/papers/w14782.pdf?new_window=1. the relationship of U.S. debt and deficits . . . : John H. Makin, “Trillion-Dollar Deficits Are Sustainable for Now, Unfortunately,” American Enterprise Institute, December 13, 2012, http://www.aei.org/outloook/trillion-dollar-deficits-are-sustainable-for-now-unfortunately. Contrary to the oft-cited . . . : Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in a Time of Debt,” National Bureau of Economic Research, Working Paper no. 15639, January 2010, http://www.nber.org/papers/w15639. “The Liquidation of Government Debt”: Carmen M. Reinhart and M. Belen Sbrancia, “The Liquidation of Government Debt,” National Bureau of Economic Research, Working Paper no. 16893, March 2011, http://www.nber.org/papers/w16893. “A . . . reason why forward guidance may be needed . . .”: Michael Woodford, “Methods of Policy Accommodation at the Interest-Rate Lower Bound,” paper presented at the Federal Reserve Bank of Kansas City Symposium, Jackson Hole, Wyo., August 31, 2012, p. 6, emphasis in the original, http://www.kc.frb.org/publicat/sympos/2012/mw.pdf.


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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

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accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, Plutocrats, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

Certainly by the end of that century, as a consequence of the highly conspicuous examples of French and American revolutionary finance, paper money was associated principally with indebtedness. Such eighteenth-century luminaries as Edmund Burke, Thomas Jefferson and David Hume were all fervent in their denunciations of paper money. Today government debt and deficits are arguably the greatest challenge facing the developed economies of the world. In a widely cited book, This Time is Different: Eight Centuries of Financial Folly, Carmen Reinhart and Kenneth Rogoff analysed the nature of government indebtedness over 800 years of ‘financial folly’. Debt crises have been punctuating world history for centuries, as governments continued to spend beyond their resources. This is the theme of Reinhart and Rogoff’s work.6 My book implicitly argues a rather different case. Britain during the nineteenth century and the United States for much of the twentieth century sustained a remarkable degree of fiscal equilibrium, largely backed by a commitment to ‘hard money’, to the gold standard.

The Greek crisis began, as a market crisis, in October 2009, but its origins lay in the decade preceding that unhappy month. As George Papandreou swept into power after the elections of 4 October 2009, he promised a new beginning. Behind the optimism and the vague and cloudy phrases lay the reality of 200 years of Greek financial history. ‘From 1800 to well after World War II, Greece found itself virtually in continual default,’ noted Carmen Reinhart and Kenneth Rogoff in their important history of financial crises, This Time is Different.40 Such a history would perhaps have disqualified Greece automatically from ever being considered as a full participant in the euro. But it became such a participant, because political considerations were paramount in the promotion of the European single currency; economics played only a minor part. The Greek panic began when Papandreou, to discredit his political rivals, the nominally centre-right New Democracy, soon after taking office revealed that the budget deficit had reached 12.5 per cent in 2009.

Williamson, ‘The Price of Gold, 1257–2011’, MeasuringWorth, 2012, http://www.measuringworth.com/gold Total world gold stock: ‘Thomson Reuters GFMS Historic Gold Stock’, in James Turk, The Aboveground Gold Stock: Its Importance and Its Size, GoldMoney Foundation, http://www.goldmoney.com/documents/goldmoney-gold-stock.xls Notes Introduction 1John Maynard Keynes, ‘Economic Possibilities for our Grandchildren’, in Essays in Persuasion, London, 1972 (1st edn 1931), p. 323. 2Joseph Schumpeter, The Crisis of the Tax State, Vienna, 1919. 3F. W. Maitland, Domesday Book and Beyond, Cambridge, 1907, p. 9. 4Ian Fleming, Goldfinger, London, 1959. 5Philip Coggan, Paper Promises: Money, Debt and the New World Order, London, 2011, p. 3. 6Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly, Princeton, 2009. 7B. R. Mitchell, British Historical Statistics, Cambridge, 1988, pp. 601–3. 8Niall Ferguson, The Cash Nexus, London, 2001, p. 126. 9A. J. P. Taylor, The Origins of the Second World War, London, 1961, p. 25. 10John Maynard Keynes, General Theory of Employment, Interest and Money, London, 2007 (1st edn 1936), p. 383. 11Peer Vries, Public Finance in China and Britain in the Long Eighteenth Century, London School of Economics, Working Papers no. 167/12, London, August 2012, p. 17. 12John Kenneth Galbraith, Money: Whence It Came, Where It Went, 2nd edn, London, 1995 (1st edn 1975), pp. 3–4.


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The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

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3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, invisible hand, Isaac Newton, Kenneth Rogoff, late fees, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor

Some economists may define this technically as a recovering and growing economy, but it certainly is not a healthy one. Moreover, much of this apparent growth has come about because of enormous injections of stimulus and bailout money from the Federal government. Subtract those, and the GDP growth of the past year or so almost disappears. On the basis of historical analysis of previous financial crises, economists Carmen Reinhart and Kenneth Rogoff conclude that the economic crisis of 2008 will have “. . .deep and lasting effects on asset prices, output and employment. Unemployment rises and housing price declines extend out for five and six years, respectively. On the encouraging side, output declines last only two years on average. Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt....

During the 20th century, global growth averaged about 3 percent per annum. See Stephen Broadberry et al., “British Economic Growth, 1270–1870,” University of Warwick, UK, published online December 6, 2010. 7. “GDP United States (Recent History),” Data360.org, data360.org/dsg.aspx?Data_Set_Group_Id=353&page=3&count=100. 8. “‘Great Recession’ Over, Research Group Says,” msnbc.msn.com, posted September 20, 2010. 9. Carmen M. Reinhart and Kenneth S. Rogoff, “The Aftermath of Financial Crises,” (presented at the meeting of the American Economic Association, San Francisco, CA, January 3, 2009). 10. In philosophy this is called the problem of induction. One cannot infer that a series of events will happen in the future just as they have in past. For example, if all the swans I’ve ever seen are white, I may conclude that all swans are white. However, consistently seeing white swans does not prove that all swans are white; it only adds to a series of observations.

James Galbraith, “Why We Don’t Need to Pay Down the National Debt.” The Atlantic, 9/21/2010theatlantic.com/business/archive/2010/09/why-we-dont-need-to-pay-down-the-national-debt/63273. 17. For a perspective on why US government debt may not face limits anytime soon, as long as the economy returns to growth, see James K. Galbraith, “Casting Light on ‘The Moment of Truth,’” The Huffington Post, posted December 3, 2010. 18. Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (New Jersey: Princeton University Press, 2009). 19. See Paul Krugman, “The burden of debt,” New Y Times. 4/28/2009. krugman.blogs. nytimes.com/2009/08/28/the-burden-of-debt/; Daniel Berger, “The Deficit: Size Doesn’t Matter” (2009). Roosevelt Institute. rooseveltinstitute.org/new-roosevelt/deficit-size-doesn-t-matter. 20. Michael J.


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The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

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Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, new economy, New Urbanism, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, women in the workforce, World Values Survey, Yom Kippur War, young professional

Financing an unknown foreigner to sail the unknown deep in three cockleshell boats in the hope of discovering a mythical Zipangu cannot, by the wildest exercise of language be called a ‘conservative investment.’” What’s more, whatever we do to prevent financial turmoil, we must acknowledge an important limitation: we are unlikely to stamp out bubbles and crashes entirely. Financial crises spawned by investment surges, credit booms, and asset bubbles appear to be a standard feature of the landscape of capitalism. Economists Carmen Reinhart and Kenneth Rogoff found that of the world’s sixty-six major economies—including developed nations and the largest developing countries—only Portugal, Austria, the Netherlands, and Belgium had avoided a banking crisis between 1945 and 2007. By the end of 2008 no country was unscathed. Every time investors become enthusiastic about some new investment proposition, they assure us that this time will be different.

Lansing, “Speculative Growth, Overreaction, and the Welfare Cost of Technology-Driven Bubbles,” Federal Reserve Bank of San Francisco Working Paper, August 2009 (www.frbsf.org/publications/economics/papers/2008/wp08-08bk.pdf, accessed 08/08/2010); and James Edward Meeker, The Work of the Stock Exchange (New York: The Ronald Press Company, 1922), p. 419. The tally of countries that have escaped banking crises is by Carmen Reinhart and Kenneth Rogoff, “Banking Crises: An Equal Opportunity Menace,” NBER Working Paper, December 2008. 236-239 What Rationality?: Eugene Fama’s quote is in Douglas Clement, “Interview with Eugene Fama,” The Region, Federal Reserve Bank of Minnesota, December 2007. Keynes’s quote is in John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt Brace and World, 1965), p. 161.


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, 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, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, 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

The unsustainable won’t be sustained; but governments and voters can either decide to respond to the pressures or just to let events unravel. And a mix of the various possibilities is likely. Higher growth would be terrific but is hard to achieve. Additional migration on a large scale is probably unlikely given that it has already reached such high levels compared with the recent past, although it will continue. According to Carmen Reinhardt and Kenneth Rogoff, default is a surprisingly common policy response to financial crisis, in a mix of the forms described above, and often described as “restructuring.” In their thorough study of the history of financial crises, they conclude that not only do crises commonly cause very large increases in public debt, but also that subsequent default on this wide definition is nearly universal.22 It seems only realistic in the light of their findings to expect many governments to take this route.

Faultlines: How Hidden Fractures Still Threaten the World Economy. Princeton: Princeton University Press. Rajan, Raghuram G., and Luigi Zingales. 2004. Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity. Princeton: Princeton University Press. Ramsey, Frank P. 1928. “A Mathematical Theory of Saving.” Economic Journal 38:4, pp 543–49. Reinhardt, Carmen M., and Kenneth Rogoff. 2010. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press. Rivoli, Pietra. 2005. The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade. New York: Wiley. Roach, Stephen S. 2009. “Whither Capitalism?” The Globalist, 5 March. Robinson, Robert, and Elton Jackson. 2002. “Is Trust in Others Declining in America?


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Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy by Daniel Gross

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop, illegal immigration, index fund, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, Zipcar

From his perch at Harvard, the historian Niall Ferguson, a nostalgist for the faded British Empire, repeated his case that the once mighty American dreadnought was dead in the water. The weight of history suggested that the United States, overextended and debt-ridden, was likely to suffer the same fate in the early twenty-first century that befell the British Empire in the mid-twentieth. “It’s not a thousand years that separates imperial zenith from imperial oblivion,” he said in a May 2010 speech. “It’s really a very, very short ride from the top to the bottom.”1 Kenneth Rogoff and Carmen Reinhart, economists who data-mined history in This Time Is Different, a comprehensive look at financial debacles going back to the 1300s, arrived at a similar conclusion. Centuries worth of data on finance-induced crises suggest the United States won’t be bouncing back any time soon, they concluded. The moment Barack Obama was sworn in as president, a wave of economic declinism swamped the political right.

These recessions were unusually shallow too, with 1.49 and 0.62 percent declines in output from peak to trough, respectively.7 The only contraction worse than the one we just lived through was the Great Depression, a forty-three-month doozy that ran from August 1929 to March 1933. Our balance sheets, bank accounts, egos, and psyches simply weren’t prepared for the depth and degree of shrinkage. Or for the slowness of the recovery. As Kenneth Rogoff and Carmen Reinhart document in This Time Is Different, not all recessions are created equal. Economies recover relatively quickly from downturns that are natural outcomes of the business cycle. Having produced too much or too exuberantly, companies idle capacity until inventories are worked down, and then reopen factories when demand rises again. By contrast, contractions precipitated by financial crises last longer, are slower to dissipate, and can retard economic growth for a decade.


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European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

Along with Alesina’s claptrap, another flawed economic study that was influential with eurozone policymakers, notably European Commission fiscal enforcer Olli Rehn, purported to show that the economy grinds to a halt once public debt exceeds 90 per cent of GDP.202 Since government debt in the eurozone as a whole was nearing that apparent threshold in 2010 – and had exceeded it in several countries – this appeared to warrant immediate, front-loaded austerity.203 But the “findings” in the paper published in January 2010 by Harvard economists Carmen Reinhart and Kenneth Rogoff were always dubious – and they were later discredited.204 Reinhart and Rogoff found that high public debt was associated with slow growth but did not establish that the former caused the latter. While high debt may lead to slow growth, it is more plausible that slow growth leads to high debt, and that a third factor may determine both. That is obvious in Europe today: in both Spain and Britain, for example, the recession caused public debts to soar, rather than public debts causing the recession.

In fact, the lurch towards austerity plunged the economy into deep recession, punching a hole in both banks’ balance sheets and the government’s. “Stability Programme for Spain, 2011–2014” http://ec.europa.eu/europe2020/pdf/nrp/sp_spain_en.pdf 200 http://www.cnbc.com/id/38987325/Austerity_Equals_Confidence_Trichet 201 http://www.ecb.int/pub/pdf/annrep/ar2010annualaccounts_en.pdf 202 For example, in a speech to the Council of Foreign Relations in Brussels on 1 June 2011, Olli Rehn said "Carmen Reinhart and Kenneth Rogoff have coined the ‘90 per cent rule’, that is, countries with public debt exceeding 90 per cent of annual economic output grow more slowly. High debt levels can crowd out economic activity and entrepreneurial dynamism, and thus hamper growth. This conclusion is particularly relevant at a time when debt levels in Europe are now approaching the 90% threshold, which the US has already passed." http://europa.eu/rapid/press-release_SPEECH-11-407_en.htm Even in February 2013, when the devastating consequences of austerity were apparent, Rehn wrote to EU finance ministers stating that "it is widely acknowledged, based on serious academic research, that when public debt levels rise above 90 per cent they tend to have a negative impact on economic dynamism, which translates into low growth for many years.

This conclusion is particularly relevant at a time when debt levels in Europe are now approaching the 90% threshold, which the US has already passed." http://europa.eu/rapid/press-release_SPEECH-11-407_en.htm Even in February 2013, when the devastating consequences of austerity were apparent, Rehn wrote to EU finance ministers stating that "it is widely acknowledged, based on serious academic research, that when public debt levels rise above 90 per cent they tend to have a negative impact on economic dynamism, which translates into low growth for many years. That is why consistent and carefully calibrated fiscal consolidation remains necessary in Europe.” http://ec.europa.eu/commission_2010-2014/rehn/documents/cab20130213_en.pdf 203 Eurostat, general government consolidated gross debt. Code: tsieb090. In the eurozone as a whole this was 85.4 per cent of GDP in 2010, 87.3 per cent in 2011 and 90.6 per cent in 2012. 204 Carmen Reinhart and Kenneth Rogoff, "Growth in a Time of Debt", NBER working paper 15639, January 2010 205 http://www.nextnewdeal.net/rortybomb/guest-post-reinhartrogoff-and-growth-time-debt 206 A point eloquently made by Adam Posen here: http://www.ft.com/cms/s/0/a6d94b02-a774-11e2-9fbe-00144feabdc0.html 207 Thomas Herndon, Michael Ash and Robert Pollin, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff", 15 April 2013.


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Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

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affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, lump of labour, Malacca Straits, market bubble, microcredit, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional

Without their support (and deadlines), this book would still be an unfinished manuscript scrawled on legal pads. Mary Ellen Moore and Danielle Kutasov offered excellent research assistance, finding the facts, figures, and anecdotes that had eluded me. Three accomplished economists were kind enough to take time from their busy schedules to read the first edition manuscript and make helpful comments: Burton Malkiel, Robert Willis, and Kenneth Rogoff. These three men are giants of the profession, and each had many other things that they might have done with their time. Robert Johnson was kind enough to read the international economics chapter that has been added to the second edition. I appreciate his willingness to share his expertise on the topic. I owe a debt to my former editors at The Economist. John Micklethwait was generous in allowing me to disappear for a stretch while I finished the first edition of this book and was also willing to read and make comments on the finished product.

In contrast, Brazil’s currency, the real, fell more than 50 percent between 1999 and the end of 2001. To the rest of the world, Brazil had thrown a giant half-price sale and Argentina could do nothing but stand by and watch. As the Argentine economy limped along, economists debated the wisdom of the currency board. The proponents argued that it was an important source of macroeconomic stability; the skeptics said that it would cause more harm than good. In 1995, Maurice Obstfeld and Kenneth Rogoff, economists at UC Berkeley and Princeton, respectively, had published a paper warning that most attempts to maintain a fixed exchange rate, such as the Argentine currency board, were likely to end in failure.7 Time proved the skeptics right. In December 2001, the long-suffering Argentine economy unraveled completely. Street protests turned violent, the president resigned, and the government announced that it could no longer pay its debts, creating the largest sovereign default in history.

Soros Made a Billion by Betting Against the Pound,” The Times of London, October 26, 1992 3. “Big Mac Currencies,” The Economist, April 25, 2002. 4. Sylvia Nasar, “Weak Dollar Makes U.S. World’s Bargain Bazaar,” New York Times, September 28, 1992. 5. Ian Rowley, “Why Japan Hasn’t Stopped the Yen’s Rise,” Business Week (online), January 15, 2009. 6. Paul Krugman, “Misguided Monetary Mentalities,” New York Times, October 12, 2009. 7. Maurice Obstfeld and Kenneth Rogoff, “The Mirage of Fixed Exchange Rates,” National Bureau of Economic Research Working Paper W5191, July 1995. 8. Anthony Ramirez, “Pepsi Will Be Bartered for Ships and Vodka in Deal With Soviets,” New York Times, April 9, 1990. 9. Peter Gumble, “Iceland: The Country That Became a Hedge Fund,” CNN Money.com, December 4, 2008. 10. “Cracks in the Crust,” The Economist, December 11, 2008. 11.


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The Ascent of Money: A Financial History of the World by Niall Ferguson

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Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, Corn Laws, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, interest rate swap, Isaac Newton, iterative process, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour mobility, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Naomi Klein, Nick Leeson, Northern Rock, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, value at risk, Washington Consensus, Yom Kippur War

It is a view that has been partially echoed by, among others, the economist and columnist Paul Krugman.65 There is no doubting the severity of the 1997-8 crisis. In countries such as Indonesia, Malaysia, South Korea and Thailand there was a very severe recession in 1998. Yet neither Stiglitz nor Krugman offers a convincing account of how the East Asian crisis might have been better managed on standard Keynesian lines, with currencies being allowed to float and government deficits to rise. In the acerbic words of an open letter to Stiglitz by Kenneth Rogoff, who became chief economist at the IMF after the Asian crisis: Governments typically come to the IMF for financial assistance when they are having trouble finding buyers for their debt and when the value of their money is falling. The Stiglitzian prescription is to raise . . . fiscal deficits, that is, to issue more debt and to print more money. You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable.

Others estimated costs of a trillion dollars or more: Pontell and Calavita, ‘Savings and Loan Industry’, p. 203. 51 For a vivid account, see Michael Lewis, Liar’s Poker (London, 1989), pp. 78-124. 52 Bernanke, ‘Housing, Housing Finance, and Monetary Policy’. 53 I am grateful to Joseph Barillari for his assistance with these calculations. Morris A. Davisa, Andreas Lehnert and Robert F. Martin, ‘The Rent-Price Ratio for the Aggregate Stock of Owner-Occupied Housing’, Working paper (December 2007). 54 Shiller, ‘Recent Trends in House Prices’. 55 Carmen M. Reinhart and Kenneth S. Rogoff, ‘Is the 2007 Sub-Prime Financial Crisis So Different? An International Historical Comparison’, Draft Working Paper (14 January 2008). 56 Mark Whitehouse, ‘Debt Bomb: Inside the “Subprime” Mortgage Debacle’, Wall Street Journal, 30 May 2007, p. A1. 57 See Kimberly Blanton, ‘A “Smoking Gun” on Race, Subprime Loans’, Boston Globe, 16 March 2007. 58 ‘U.S. Housing Bust Fuels Blame Game’, Wall Street Journal, 19 March 2008.

Chivvis, ‘Charles de Gaulle, Jacques Rueff and French International Monetary Policy under Bretton Woods’, Journal of Contemporary History, 41, 4 (2006), pp. 701-20. 61 Interview with Amy Goodman: http://www.democracynow.org/ article.pl?sid=04/11/09/1526251. 62 John Perkins, Confessions of an Economic Hit Man (New York, 2004), p. xi. 63 Joseph E. Stiglitz, Globalization and Its Discontents (New York, 2002), pp. 12, 14, 15, 17. 64 Abdelal, Capital Rules, pp. 50f., 57-75. 65 Paul Krugman, The Return of Depression Economics (London, 1999). 66 ‘The Fund Bites Back’, The Economist, 4 July 2002. 67 Kenneth Rogoff, ‘The Sisters at 60’, The Economist, 22 July 2004. Cf. ‘Not Even a Cat to Rescue’, The Economist, 20 April 2006. 68 See the classic study by Fritz Stern, Gold and Iron: Bismarck, Bleichröder and the Building of the German Empire (Harmondsworth, 1987). 69 George Soros, The Alchemy of Finance: Reading the Mind of the Market (New York, 1987), pp. 27-30. 70 Robert Slater, Soros: The Life, Times and Trading Secrets of the World’s Greatest Investor (New York, 1996), pp. 48f. 71 George Soros, The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means (New York, 2008), p. x. 72 Slater, Soros, p. 78. 73 Ibid., pp. 105, 107ff. 74 Ibid., p. 172. 75 Ibid., pp. 177, 182, 188. 76 Ibid., p. 10. 77 Ibid., p. 159. 78 Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It (New York, 2000), p. 92. 79 Dunbar, Inventing Money, pp. 168-73. 80 André F.


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After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial innovation, fixed income, friendly fire, full employment, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, market clearing, market fundamentalism, McMansion, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, price mechanism, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, working-age population, yield curve, Yogi Berra

Greece probably would soon have experienced an export boom, led by tourism, and the Greek recession might have ended right there. Instead, the euro kept Greece expensive, and antiausterity riots scared tourists away. The third critical difference between the United States and Europe is perhaps too obvious to state: They had to deal with Greece; we didn’t. The Greek situation is, if you’ll pardon the Latin, sui generis. Greece has a dismal fiscal history. Economists Carmen Reinhart and Kenneth Rogoff found that Greece has been in default on its public debt roughly 50 percent of the time since gaining independence in the 1830s! More recently, Greece’s budget deficits were large before the crisis and huge thereafter. The Greeks also turn out to be pretty poor tax collectors—some would say they hardly try. And while the government doesn’t collect taxes very well, it does keep lots of workers on its payroll—people who expect to be paid and to retire young.

.: Pew Research Center Publications, July 15, 2010. http://pewresearch.org/pubs/1668/political-news-iq-update-7-2010-twitter-tarp-roberts. Porfolio.com. “Portfolio’s Worst American CEOs of All Time.” CNBC, April 30, 2009. www.cnbc.com/id/30502091?slide=1. Pozsar, Zoltan, Tobias Adrian, Adam Ashcraft, and Hayley Boesky. “Shadow Banking.” Federal Reserve Bank of New York Staff Report 458 (July 2010). Protess, Ben. “Mortgage Executive Receives 30-Year Sentence.” New York Times, June 30, 2011. Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, N.J.: Princeton University Press, 2009. Rogers, Will. Sanity Is Where You Find It. Selected and edited by Donald Day. Boston, Mass.: Houghton Mifflin, 1955. Rogoff, Kenneth. “The Bullets Yet to Be Fired to Stop the Crisis.” Financial Times, August 8, 2011. Rubin, Robert E., and Jacob Weisberg. In an Uncertain World: Tough Choices from Wall Street to Washington.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

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Andrei Shleifer, asset-backed security, Bernie Madoff, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, en.wikipedia.org, endowment effect, equity premium, financial intermediation, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, late fees, loss aversion, Menlo Park, mental accounting, Milgram experiment, moral hazard, new economy, payday loans, Ponzi scheme, profit motive, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, wage slave

New York Review of Books, January 9, 2014. Ramey, Garey, and Valerie A. Ramey. “The Rug Rat Race.” Brookings Papers on Economic Activity (Spring 2010): 129–99. Raymond, Nate, and Jonathan Stempel. “Big Fine Imposed on Ex-Goldman Trader Tourre in SEC Case.” Reuters, March 12, 2014. Accessed March 15, 2015. http://www.reuters.com/article/2014/03/12/us-goldmansachs-sec -tourre-idUSBREA2B11220140312. Reinhardt, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press, 2009. Reyes, Sonia. “Ocean Spray Rides Diet Wave.” Adweek, February 6, 2006. Accessed November 18, 2014. http://www.adweek.com/news/advertising/ ocean-spray-rides-diet-wave-83901. Richert, Lindley B. “One Man’s Junk Is Another’s Bonanza in the Bond Market.” Wall Street Journal, March 27, 1975.

Taking the transaction costs as about 10 percent of the sale price (6 percent for real estate fees, 4 percent for closing costs), this means that for 60 percent of house closings, those costs were 50 percent or more of the buyer’s down payment. “Why Did Household Mortgage Leverage Rise from the Mid-1980s until the Great Recession?” (Massachusetts Institute of Technology, Center for Real Estate, January 2013, last accessed May 12, 2015, http://citeseerx.ist .psu.edu/viewdoc/download?doi=10.1.1.269.5704&rep=rep1&type=pdf. 22. See Carmen M. Reinhardt and Kenneth Rogoff, This Time Is Differ­ ent: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009). 23. John Kenneth Galbraith, The Great Crash, 50th anniversary ed. (New York: Houghton Mifflin, 1988), Kindle location 1943–45 out of 4151. 24. James Harvey Young, The Toadstool Millionaires: A Social History of Patent Medicines in America before Federal Regulation (Princeton: Princeton University Press, 1961), p. 248. 25.


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Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

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Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, New Journalism, oil shock, p-value, passive investing, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond

Reid, Jim; and Nick Burns (2010): Long-Term Asset Return Study: From the Golden to the Grey Age, Deutsche Bank Global Markets Research. Reinhart, Carmen M. (2010), “This time is different chartbook: Country histories on debt, default, and financial crises,” NBER working paper 15815. Reinhart, Carmen M.; and Kenneth S. Rogoff (2008), “This time is different: A panoramic view of eight centuries of financial crises,” NBER working paper 13882. Reinhart, Carmen M.; and Kenneth S. Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton, NJ: Princeton University Press. Reinhart, Carmen M.; and Kenneth S. Rogoff (2010), “From financial crash to debt crisis,” NBER working paper 15795, forthcoming in American Economic Review. Ribeiro, Ruy; and Jan Loeys (2006), “Exploiting cross-market momentum,” Investment Strategies 14, J.P. Morgan Securities.

The main drivers of pre-industrial European inflation were demographics (population expansions boosted demand and caused food and energy prices to rise) and wars (debt monetization was an alternative to debt default). Figure 17.4. Sustained inflation only became pervasive in the 20th century: Median inflation rate (5-year moving average) for all countries, 1500–2010. Sources: Carmen M. Reinhart and Kenneth S. Rogoff (2008), “This time is different: A panoramic view of eight centuries of financial crises,” NBER working paper 13882, March 2008. Carmen M. Reinhart (2010), “This time is different chartbook: Country histories on debt, default, and financial crises,” NBER working paper 15815. Reproduced by permission of Carmen M. Reinhart and Kenneth S. Rogoff. During the gold standard (Britain adopted it in 1717, other developed countries in the 19th century), inflations and deflations took turns with no persistence, and long-run inflation expectations were likely near zero most of the time.

Some quip that the riskless return in Treasuries has morphed into a returnless risk. After a quarter-century when bearing duration risk was amply rewarded, Treasuries may provide neither safety nor performance in the coming decade. Figure 27.6. Global perspective on inflation and external default histories. Source: Carmen M. Reinhart and Kenneth S. Rogoff (2008), “This time is different: A panoramic view of eight centuries of financial crises,” NBER working paper 13882. Reproduced by permission of Carmen M. Reinhart and Kenneth S. Rogoff. Figure 27.7. Sovereign CDS spreads, July 2007–July 2010. Source: Bloomberg. Finally, the last innings of the debt supercycle may arrive even before the demographic costs balloon. Market participants are turning their focus on the magnitude of the fiscal problem just when G7 economies face extraordinary borrowing needs and sharply rising debt/GDP ratios.


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The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

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3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

* I focused only on large economies because the current account in smaller ones can swing sharply with one big investment from abroad, skewing the results. Large is defined as an economy representing at least 0.2 percent of global GDP, which in 2015 would be an economy of more than $150 billion. † I say “of some kind” because this definition includes banking, currency, inflation, or debt crises as defined by Carmen Reinhart and Kenneth Rogoff. Data on these kinds of crises is available for 34 of the 40 cases, and 31 of them, or 91 percent, suffered at least one of these crises. ‡ The revival of savings is demonstrated, in technical terms, by the global correlation between domestic savings and domestic investment, which fell from 0.8 in 1980 to −0.1 in 2007 and has since climbed back up to 0.7. 9 THE KISS OF DEBT Is debt growing faster or slower than the economy?

† By 2015, I should note, some private financial industry researchers were publishing pieces on the connection between credit binges and slower economic growth, including “Untangling China’s Credit Conundrum” from Goldman Sachs that January and “Keeping a Wary Eye on the EM Credit Cycle” by JP Morgan that November. ‡ In most of these cases, GDP growth was strong during the five-year period when credit was growing dangerously fast, so credit growth was the main reason the credit/GDP ratio was rising § Here I use financial crisis to mean a banking crisis as defined by Carmen Reinhart and Kenneth Rogoff in This Time Is Different (2009), which captures bank runs that force a government to close, merge, bail out, or take over one or more financial institutions. ¶ In twenty-six of the thirty cases, the average annual rate of growth fell over the next five years. The other four—Malaysia, Uruguay, Finland, and Norway—experienced a serious contraction in the economy, but the recovery came soon enough to lift the average rate of growth for the next five years

Lombard Street Research, November 6, 2014. Peek, Joe, and Eric S. Rosengren. “Unnatural Selection: Perverse Incetives and the Misallocation of Credit in Japan.” National Bureau of Economic Research, Working Paper no. 9643, April 2003. Pettis, Michael. Avoiding the Fall: China’s Economic Restructuring. Washington, DC: Carnegie Endowment for International Peace, 2013. Reinhart, Carmen M., and Kenneth S. Rogoff. “Banking Crises: An Equal Opportunity Menace.” National Bureau of Economic Research, Working Paper no. 14587, December 2008. ——. “From Financial Crash to Debt Crisis.” National Bureau of Economic Research, Working Paper no. 15795, March 2010. ——. “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.” International Monetary Fund, December 24, 2013. “Risks to Growth from Build Ups in Public Debt.”


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Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

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3D printing, accounting loophole / creative accounting, additive manufacturing, Airbnb, algorithmic trading, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, interest rate derivative, interest rate swap, Internet of things, invisible hand, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, knowledge economy, labor-force participation, labour mobility, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund

On top of this, it’s quantitatively increasing market volatility and risk of the sort that wiped out $16 trillion in household wealth during the Great Recession.59 Evidence shows that the number of wealth-destroying financial crises has risen in tandem with financial sector growth over the last several decades. In their book This Time Is Different: Eight Centuries of Financial Folly, academics Carmen Reinhart and Kenneth Rogoff describe how the proportion of the world affected by banking crises (weighed by countries’ share of global GDP) rose from some 7.5 percent in 1971 to 11 percent in 1980 and to 32 percent in 2007.60 And economist Robert Aliber, in updating one of the seminal books on financial bubbles, the late Charles Kindleberger’s Manias, Panics, and Crashes: A History of Financial Crises, issued a grave warning in 2005, well before the 2008 meltdown: “The conclusion is unmistakable that financial failure has been more extensive and pervasive in the last thirty years than in any previous period.”61 This is a startling illustration of how finance has transitioned from an industry that encourages healthy risk taking to one that simply creates debt and spreads unproductive risk in the market system as a whole.

Turner, Between Debt and the Devil. See also Atif Mian and Amir Sufi, House of Debt: How They (and You) Caused the Great Recession and How We Can Prevent It from Happening Again (Chicago: University of Chicago Press, 2014). 19. Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton, NJ: Princeton University Press, 2010), 21. 20. Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). 21. McKinsey Global Institute, “Debt and (Not Much) Deleveraging,” February 2015, 98–99. 22. Greenwood and Scharfstein, “The Growth of Finance,” 21. 23. Financial efficiency is defined here as the amount of money and engagement that finance provides to Main Street, rather than to the capital markets themselves. 24.

New York: Nation Books, 2014. Putnam, Robert D. Our Kids: The American Dream in Crisis. New York: Simon & Schuster, 2015. Rajan, Raghuram G. Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton, NJ: Princeton University Press, 2010. Reich, Robert B. Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. New York: Alfred A. Knopf, 2007. Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009. Roth, Alvin E. Who Gets What—and Why: The New Economics of Matchmaking and Market Design. Boston: Houghton Mifflin Harcourt, 2015. Rothkopf, David. Power, Inc.: The Epic Rivalry Between Big Business and Government—and the Reckoning That Lies Ahead. New York: Farrar, Straus and Giroux, 2012.


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Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

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Airbnb, bank run, banks create money, Bernie Madoff, bitcoin, Bretton Woods, Carmen Reinhart, correlation does not imply causation, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Mark Zuckerberg, market bubble, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Uber for X, War on Poverty, yield curve

FDR and Morgenthau had nicknamed him “Old Pink Whiskers.” It did not matter what the Federal Reserve said.1 In 1933, FDR made the decision to devalue the dollar from 1/20th of an ounce of gold to 1/35th of an ounce.2 Forgetting the lesson of the early 1920s, when the integrity of the dollar was maintained, Roosevelt devalued the dollar and thereby marked the first time the United States defaulted on its debt. As Carmen Reinhart and Kenneth Rogoff describe in This Time Is Different (2009), “The abrogation of the gold clause in the United States in 1933, which meant that public debts would be repaid in fiat currency rather than gold, constitutes a restricting of nearly all the government’s domestic debt.”3 With the United States heavily in debt thanks to spending that was logically failing to stimulate the economy, FDR reduced the value of the dollars being returned to holders of U.S. debt.

Hazlitt, Economics in One Lesson, 43. 3. John Balassi and Josie Cox, “Apple Wows Market with Record $17 Billion Bond Deal,” Reuters, April 30, 2013. 4. Smith, Dead Bank Walking, 163. 5. Ibid. CHAPTER TWENTY 1. Amity Shlaes, The Forgotten Man: A New History of the Great Depression (New York: HarperCollins, 2007), 147. My emphasis. 2. Lewis, Gold: The Once and Future Money. 3. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, N.J.: Princeton University Press, 2009). 4. Thiel, Zero to One, 44. 5. Shlaes, Forgotten Man, 148. 6. Eric Rauchway, The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Facism, and Secured a Prosperous Peace (New York: Basic Books, 2015). 7. Steil, Battle of Bretton Woods, 177. 8. Stephen Moore and John Tamny, “Weak Dollars, Weak Presidents,” American Spectator, December 2008–January 2009. 9.


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Take the money and run: sovereign wealth funds and the demise of American prosperity by Eric Curt Anderson

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asset allocation, banking crisis, Bretton Woods, business continuity plan, business intelligence, business process, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, floating exchange rates, housing crisis, index fund, Kenneth Rogoff, open economy, passive investing, profit maximization, profit motive, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, sovereign wealth fund, the market place, The Wealth of Nations by Adam Smith, too big to fail, Vanguard fund

Private sector bonds offered across the planet total about $24 trillion.21 Given the current and projected income available to sovereign wealth funds, State Street financial advisors estimate, “if [the funds] were to collectively allocate 60% of this capital to the FTSE Global All Cap index, they would own about 5.2% of each of the 8,009 companies in the index.”22 That’s right—5% of every major corporation on the planet. And that’s just the beginning of the story. But Should We Worry? Somewhat surprisingly, a majority of initial U.S.-based press commentary on the growth of sovereign wealth funds largely dismissed this new asset pool as much ado about nothing. According to Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund, sovereign wealth funds will be “managed inefficiently” and perhaps only garner an annual return of 8%.23 Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington, argues that “such funds are nothing for Americans or Europeans to fear.” Like Rogoff, Aslund concludes the average sovereign wealth fund manager can be counted on to behave in a “pernicious” manner that has made these funds a “lousy bargain for the countries that have them.”24 James Suowiecki of The New Yorker appears to have come to the same conclusion.

., “The Revived Bretton Woods System: Alive and Well,” Deutsche Bank, London, December 2004. 16. Dooley, et al., September 2003. 17. Ibid. 18. Ibid. 19. Ibid. 20. For more on Roubini and his economic foresight, see: Stephen Mihm, “Dr. Doom,” New York Times Magazine, 17 August 2008. Although Roubini and Setser were initially dismissed as unduly alarmist (“bearish” in Wall Street’s lingo), their predictions are now widely echoed. For instance, On 19 August 2008, Kenneth Rogoff, the IMF chief economist from 2001–2004, told an audience in Singapore, “we’re not just going to see mid-sized banks go Notes 243 under in the next few months, we’re going to see a whopper, we’re going to see a big one, one of the big investment banks or big banks” (Jan Dahinten, “Large U.S. Bank Collapse Seen Ahead,” Reuters, Singapore, 19 August 2008). Rogoff ’s warning struck close to home for investors.


pages: 414 words: 119,116

The Health Gap: The Challenge of an Unequal World by Michael Marmot

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active transport: walking or cycling, Affordable Care Act / Obamacare, Atul Gawande, Bonfire of the Vanities, Broken windows theory, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, centre right, clean water, congestion charging, correlation does not imply causation, Doha Development Round, epigenetics, financial independence, future of work, Gini coefficient, Growth in a Time of Debt, illegal immigration, income inequality, Indoor air pollution, Kenneth Rogoff, Kibera, labour market flexibility, lump of labour, Mahatma Gandhi, meta analysis, meta-analysis, microcredit, New Urbanism, obamacare, paradox of thrift, race to the bottom, Rana Plaza, RAND corporation, road to serfdom, Simon Kuznets, Socratic dialogue, structural adjustment programs, the built environment, The Spirit Level, trickle-down economics, urban planning, Washington Consensus, Winter of Discontent, working poor

As so often, what should be an informed debate about evidence is a none-too-veiled contest about prior political beliefs, or short-term low-level politics. It is difficult for a non-economist to penetrate the argument and form an independent judgement. It can be noted that the intellectual case for austerity has suffered a couple of recent blows. Austerians have cited, among others, the Harvard economists Carmen Reinhart and Kenneth Rogoff, who set out to show that when national debt climbs above 90 per cent of GDP, economic growth slows.30 They showed it, except that a graduate student checking their figures found elementary errors that cast considerable doubt on their conclusions.31 Second, the IMF, which arguably has wreaked great havoc globally with its universal prescription to cut government spending, has published new estimates that austerity has a bigger effect on slowing economic growth than it used to think.32 In Britain, the Office of Budget Responsibility says that it subscribes to the widely held assumption that fiscal contraction damages growth.

The second piece of background, more relevant to globalisation and health, is that Iceland had suffered a catastrophic economic meltdown in 2008. It had gone from being a well-organised society based on fishing and huge supplies of geothermal energy – hence aluminium smelting – to housing three private banks that represented everyone’s worst nightmare of what reckless cowboys can do when let loose on the global economy. In Chapter 6, I referred to the debate around the work of Harvard economists Carmen Reinhart and Kenneth Rogoff who showed that when national debt climbs above 90 per cent of GDP, economic growth slows.2,3 At its peak, Iceland’s debt was 850 per cent of GDP! Icelandic banks bought assets round the world, as though all curves go ever upwards without a day of reckoning. The butterfly that flapped its wings might have been the collapse of sub-prime mortgages in the USA, but it caused a hurricane in Iceland and, predictably, the castles in the air were reduced to rubble.

Investment: A History by Norton Reamer, Jesse Downing

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Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, Brownian motion, buttonwood tree, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, moral hazard, mortgage debt, Network effects, new economy, Nick Leeson, Own Your Own Home, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

To use the vernacular, the financial crisis was “right up there with the best of them”; nevertheless, the economic impact, while severe, was clearly contained. Given the still novel nature of many of the monetary responses and the almost accidental nature of some, but not all, of the fiscal support, it is unfortunate that a significant number of Americans seem to have drawn incorrect interpretations of the efficacy of what was done as well as the intended purpose. Not surprisingly, in view of the research published by Carmen Reinhart and Kenneth Rogoff, the recovery has been slow and not extraordinarily dynamic. Through an exhaustive historical compilation of past economic crises, Reinhart and Rogoff seem to have established that a serious recession accompanied by a financial crisis normally results in a slow, drawn-out recovery.50 In fact, that is what the United States appears to have experienced since 2009. The more important lesson to be learned is that there is a place for activist monetary and fiscal policy in the face of severe economic crises, and there is evidence that the primary focus of the activist policies undertaken by the Fed and both the Bush and Obama administrations was on stabilizing employment.

Stewart, “Volcker Rule, Once Simple, Now Boggles,” New York Times, October 21, 2011, http://www.nytimes.com/2011/10/22 /business/volcker-rule-grows-from-simple-to-complex.html. Ibid.; Dan Kedmey, “2 Years and 900 Pages Later, the Volcker Rule Gets the Green Light,” TIME.com, December 11, 2013, http://business.time .com/2013/12/11/2-years-and-900-pages-later-the-volcker-rule-gets -the-green-light. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2011), xliv–xlv and 238–239. 7. THE EMERGENCE OF INVESTMENT THEORY 1. Jean-Michel Courtault et al., “Louis Bachelier on the Centenary of Théorie de la Spéculation,” Mathematical Finance 10, no. 3 (July 2000): 342–343. 370 7. The Emergence of Investment Theory 2. Ibid., 341–344. 3. Ibid., 346–347. 4.

April 10, 2008. http://digitalcommons.ilr .cornell.edu/key_workplace/505. Qureshi, Anwar Iqbal. Islam and the Theory of Interest. Lahore: Shaikh Muhammad Ashraf, 1946. “Ranking America’s Top Money Managers.” Institutional Investor. August 1992, 75–101. Rathbone, Dominic. Economic Rationalism and Rural Society in ThirdCentury A.D. Egypt: The Heroninos Archive and the Appianus Estate. Cambridge: Cambridge University Press, 1991. Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2011. Ricketts, Lowell R. “Quantitative Easing Explained.” Liber8 Economic Information Newsletter (Federal Reserve Bank of St. Louis), April 2011. http://research.stlouisfed.org/pageone-economics/uploads/newsletter /2011/201104_ClassroomEdition.pdf. Rinehart, Jim. “U.S. Timberland Post-Recession: Is It the Same Asset?”


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

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algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, collateralized debt obligation, computer age, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, large denomination, Long Term Capital Management, market bubble, Martin Wolf, Menlo Park, mobile money, Monroe Doctrine, moral hazard, mortgage debt, new economy, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, The Chicago School, Thomas Malthus, too big to fail, trade route

Debt to foreigners expanded, as the enlargement of the annual U.S. current account deficit, in turn, required more and more foreign loans and investments to finance the things the United States needed to import—oil and manufactures—because our factories and oil fields no longer made or produced enough. The current account deficit had been $79 billion in 1990, then $420 billion in 2000, before mounting to $857 billion in 2006. Some economists thought that, too, constituted a potential menace. International economists Kenneth Rogoff and Maurice Obstfeld argued that “any sober policymaker or financial analyst ought to regard the United States’ current account deficit as a potential sword of Damocles hanging over the global economy.”22 Let me stipulate: there is a banal side to throwing around figures like $5 trillion or $6 trillion or even $857 billion. They lose their bite and capacity to scare, even when put into a comparative or real-world context.

Although OPEC’s recent take from high oil prices can be exaggerated by failure to recognize the erosion of the declining dollar, the annual receipts and estimates remain substantial: $506 billion in 2006, $508 billion in 2007, and $530 billion in 2008, according to the London-based Centre for Global Energy Studies. A different series issued by the U.S. Energy Information Administration put the 2007 figure at $658 billion and the 2008 estimate at $762 billion.50 “There’s never been anything like this on a sustained basis the way we’ve seen the last couple of years,” asserted Harvard economist Kenneth Rogoff. Oil prices “are not spiking; they’re just rising.”51 Over the next twenty years, and despite probable production plateaus or declines, the OPEC members in the Middle East, with most of the longer-lived reserves, can presumably expect receipts of $5 trillion to $10 trillion. FIGURE 5.3 Central Bank Reserves and Sovereign Wealth Funds: The Heavy Hitters, 2007 Source: International Monetary Fund official reserve assets.


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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, moral hazard, mortgage debt, paradox of thrift, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

The Road Not Taken Historically, financial crises have typically been followed by prolonged economic slumps, and U.S. experience since 2007 has been no different. Indeed, U.S. numbers on unemployment and growth have been remarkably close to the historical average for countries experiencing these kinds of problems. Just as the crisis was gathering momentum, Carmen Reinhart, of the Peterson Institute of International Economics, and Kenneth Rogoff, of Harvard, published a history of financial crises with the ironic title This Time Is Different (because in reality it never is). Their research led readers to expect a protracted period of high unemployment, and as the story unfolded, Rogoff would note that America was experiencing a “garden-variety severe financial crisis.” But it didn’t have to be like this, and it doesn’t have to stay like this.


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

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Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, Mark Zuckerberg, McMansion, mortgage debt, mortgage tax deduction, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

If anything, it weakens it, because it underlines that the real problem with finance lies not on the front line of innovation but in the journey that products take from idea to established market. 2. From Breakthrough to Meltdown The previous chapter described how breakthroughs in finance have helped to propel enterprise and realize ambitions throughout human history. But anyone who seeks to defend the industry must also recognize how often, and how badly, it goes wrong. In This Time Is Different, their excellent survey of debt crises across the centuries, Carmen Reinhart and Kenneth Rogoff analyze episodes of banking crises. Such meltdowns are depressingly common in both developed and emerging economies: Britain, America, and France have experienced twelve, thirteen, and fifteen episodes of banking crisis, respectively, since 1800, for example.1 The first bailout in the United States happened way back in 1792, when a bubble and then a slump in the price of the country’s federal debt helped spark widespread panic.

Everydata: The Misinformation Hidden in the Little Data You Consume Every Day by John H. Johnson

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Affordable Care Act / Obamacare, Black Swan, business intelligence, Carmen Reinhart, cognitive bias, correlation does not imply causation, Daniel Kahneman / Amos Tversky, Donald Trump, en.wikipedia.org, Kenneth Rogoff, labor-force participation, lake wobegon effect, Long Term Capital Management, Mercator projection, Mercator projection distort size, especially Greenland and Africa, meta analysis, meta-analysis, Nate Silver, obamacare, p-value, PageRank, pattern recognition, randomized controlled trial, risk-adjusted returns, Ronald Reagan, statistical model, The Signal and the Noise by Nate Silver, Tim Cook: Apple, wikimedia commons, Yogi Berra

Food and Drug Administration (FDA) F allows foods with less than half a gram of fat per serving to still be called “­fat-​­free.” So, if you eat more than one serving of a few “­fat-​­free” foods per day, you could easily be consuming a few grams of fat.27 n Tough ­cell—​­It was, as Bloomberg Business called it, “the Excel Error that Changed History.”28 Two Harvard University ­economists—​ ­Carmen Reinhart and Kenneth ­Rogoff—​­ended up in the headlines for all the wrong reasons when they made a spreadsheet mistake in a paper that examined the effects of government debt on economic growth. n 221158 i-xiv 1-210 r4ga.indd  97 2/8/16  5:58:50 PM 98 E V E R Y D ATA They forgot to include five rows in one of their calculations, which made a key result turn out to be ‑0.1 percent instead of +0.2 percent. (Economists have pointed out other errors that would make the calculation even further off base.)


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

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affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, invisible hand, John Harrison: Longitude, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, London Interbank Offered Rate, lone genius, low skilled workers, Mark Zuckerberg, market bubble, market fundamentalism, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, obamacare, offshore financial centre, paper trading, patent troll, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, women in the workforce

Basu uses the metaphor of a magic show to describe the way the discussion of economics on the political right draws attention to the conclusion of this theorem—that markets are efficient—and away from the very special and unrealistic conditions under which the conclusion holds—perfect markets. Like a good magician, a free-market economist succeeds by drawing spectators’ attention to what he wants them to see—the rabbit jumping out of the hat—while distracting their attention from other things—how the rabbit got into the hat in the first place. 6. Adam Smith, The Wealth of Nations (1776; New York: P. F. Collier, 1902), p. 207. 7. See Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009). 8. A derivative is just a financial instrument the return to which is derived on the basis of something else, e.g., the performance of a stock or the price of oil or the value of a bond. A few banks have profited enormously by keeping this market nontransparent, garnering for themselves an amount widely estimated at more than $20 billion a year. 9.

As we noted earlier, Adam Smith, the founder of modern economics, was far more skeptical about the ability of markets to lead to efficient outcomes than his latter-day followers; he was, for instance, concerned about monopolies and was aware of many of the other market imperfections to which modern economics has called attention. 55. In a study with Scott Wallstein prepared while I was chairman of President Clinton’s Council of Economic Advisers: “Supporting Research and Development to Promote Economic Growth: The Federal Government’s Role,” Council of Economic Advisers, October 1995. 56. As measured, e.g., by the UNDP Human Development Indicators. See the discussion in the final section of this chapter. 57. Kenneth Rogoff and Carmen M. Reinhardt, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), describe hundreds of financial crises in the last eight hundred years, eighteen banking crises in the developed world since World War II alone. Earlier, the late Charles Kindleberger of MIT described repeated crises in his classic Manias, Panics, and Crashes: A History of Financial Crises (New York: Basic Books, 1978). 58.

If they had all moved to a flexible exchange rate system, would that, by itself, have been sufficient to restore the global economy to prosperity? I doubt it. 42. For a discussion of these bubbles and the repeated financial crises that are often associated with the bursting of the bubbles, see Charles Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises (New York: Basic Books, 1978), and Kenneth Rogoff and Carmen M. Reinhardt, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009). 43. Or, similarly, increasing margins in the purchase of stock (which act like a house down payment). Interestingly, in the tech bubbles of the 1990s, the possibility of increasing margin requirements was briefly discussed, but then evidently dismissed: perhaps the free marketers that dominated the Fed didn’t like this kind of interference with the wonders of the market.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

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accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business process, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, corporate governance, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, ultimatum game, union organizing, women in the workforce, Y2K, yield management

National income is the sum of employee, proprietor, rental, corporate, interest, and government income less the subsidies paid by government to any of those groups. Analysis of the percentage of gross domestic product shows the same trends: corporate profits after tax hit an all-time high as a percentage of GDP (over 10%), while the share of GDP going to wages and salary fell to an all-time low of 44%. 47. Kenneth Rogoff and Carmen Reinhart have objected that the term “Great Recession” itself is unhelpful since it implies that the recent recession is similar to typical downturns, just a particularly deep one. Instead, they refer to it as the “second great contraction” (the first being the Great Depression). See Reinhart and Rogoff (2009). 48. Empirical research on the relation of employment and output growth in the 1970s and 1980s tended to show lower employment response to increases in output than expected by macroeconomic models.

Industrial Relations 34, no. 1: 40–57. Rebitzer, James, and Lowell Taylor. 2011. “Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets.” Handbook of Labor Economics. Amsterdam: Elsevier. Reich, Michael, David Gordon, and Richard Edwards. 1973. “A Theory of Labor Market Segmentation.” American Economic Review 63, no. 2: 359–365. Reinhart, Carmen, and Kenneth Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press. Rogers, Brishen. 2010. “Toward Third-Party Liability for Wage Theft.” Berkeley Journal of Employment and Labor Law 30, no. 1: 1–64. Rosen, Sherwin. 1988. “Implicit Contracts: A Survey.” Journal of Economic Literature 25, no. 4: 1144–1175. Ruckelshaus, Cathy. 2008. “Labor’s Wage War.”


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

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Admiral Zheng, agricultural Revolution, Albert Einstein, BRICs, British Empire, butterfly effect, Carmen Reinhart, clockwork universe, computer age, Corn Laws, dark matter, David Ricardo: comparative advantage, Donald Trump, Edward Lorenz: Chaos theory, European colonialism, experimental economics, financial innovation, Fractional reserve banking, full employment, George Akerlof, germ theory of disease, Gini coefficient, greed is good, Howard Zinn, income per capita, interchangeable parts, invention of agriculture, invention of air conditioning, invention of writing, invisible hand, Isaac Newton, James Watt: steam engine, John Maynard Keynes: technological unemployment, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, means of production, Naomi Klein, New Economic Geography, New Urbanism, purchasing power parity, rent-seeking, road to serfdom, Robert Gordon, Ronald Coase, Ronald Reagan, Scientific racism, Scramble for Africa, Shenzhen was a fishing village, Simon Kuznets, Slavoj Žižek, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, tulip mania, union organizing, Upton Sinclair, urban renewal, V2 rocket, very high income, working poor, World Values Survey, Yogi Berra

The National Debt is a very Good Thing and it would be dangerous to pay it off, for fear of Political Economy.”37 That the British state did not then use the wealth acquired by such a Good Thing to obstruct economic growth and destroy political liberty — as so many states enriched by, say, drilling for oil have done — had nothing to do with the imitation under William III of bourgeois, Dutch methods of drilling for loans, and building the Bank of England to refine them in. An historian of Parliament noted of its transcendent power, “despotic power was only available intermittently before 1688, but it was always available thereafter.”38And as the economists Carmen Reinhart, and Kenneth Rogoff put the point, “It is not clear how well the institutional innovations noted by North and Weingast would have fared had Britain been a bit less fortunate in the many wars it fought in subsequent years.”39 Britain got a military-financial complex up and running in the 1690s and had the good fortune of Churchills and Clives and Wolfes and Nelsons and Wellesleys in its operation. Good on them.

Eighteenth-Century Plays. New York: Random House. Ransom, Roger L. 1970. “Social Returns from Public Transport Investment: A Case Study of the Ohio Canal.”Journal of Political Economy 78 (September/October): 1041- 1060. Rawls, John. 1971. A Theory of Justice. Cambridge: Harvard University Press. Rawls, John. 1993. Political Liberalism. New York: Columbia University Press. Reinhart, Carmen M., and Kenneth Rogoff. 2008. “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.” At http://www.publicpolicy.umd.edu/news/This_Time_Is_Different_ 04_16_2008%20REISSUE.pdf Reiter, Paul. 2000. “From Shakespeare to Defoe: Malaria in England in the Little Ice Age.” Merging Infectious Diseases 6 (Jan/Feb). Coordinating Center for Infectious Diseases, Centers for Disease Control and Prevention, Atlanta, GA. http://www.cdc.gov/ncidod/EID/vol6no1/reiter.htm Richards, John F.


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The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

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asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, Kenneth Rogoff, Long Term Capital Management, margin call, market bubble, Nick Leeson, Northern Rock, offshore financial centre, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve

By the end of 2010, Ireland was forced into using the new facility, with Portugal anticipated to follow suit. The creeping malaise caused by too much debt was never going to be easy to fix. What was clear by the end of summer 2010 was that a crisis forged in the workshops of investment bank financial innovators had metamorphosed into a crisis all too familiar to economic historians. As Carmen Reinhart and Kenneth Rogoff point out in their book, This Time Is Different, there is a clear pattern to the credit booms that have bankrupted banks and nation states over the past eight centuries.5 What was different in 2010 was the global scale of the problem, and how regulators in the world’s developed countries, led by the United States and Britain, were ill suited to handle the burden of their failed consumer finance and banking systems.

For example, see the report Global Banks—Too Big to Fail?, published by J.P. Morgan Chase in February 2010, www.jpmorgan.com. 2. See U.K. Office of Budget Responsibility prebudget report, June 2010, http://budgetresponsibility.independent.gov.uk/index.html. 3. James Sassoon, interview by author, November 2009. 4. Nicholas Dunbar, “Revealed: Goldman Sachs’ Mega-Deal for Greece,” Risk, July 2003, 20. 5. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). Acknowledgments Someone who fits Amartya Sen’s description of a rational fool would be fairly close to a psychopath. The economic world is full of these psychopaths: they are corporations. Corporations don’t have emotions . . . they have PR departments that make up accounts of the company’s motivations to fit a situation . . .


pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

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Berlin Wall, Bernie Madoff, Carmen Reinhart, Celtic Tiger, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, fiat currency, full employment, German hyperinflation, Irish property bubble, Kenneth Rogoff, offshore financial centre, pension reform, Ponzi scheme, Ronald Reagan, Ronald Reagan: Tear down this wall, South Sea Bubble, tulip mania, women in the workforce

“Here’s the only way I think things can work out for these countries,” Bass said. “If they start running real budget surpluses. Yeah, and that will happen right after monkeys fly out of your ass.” Still, he wondered if perhaps he was missing something. “I went looking for someone, anyone, who knew something about the history of sovereign defaults,” he said. He found the leading expert on the subject, a professor at Harvard named Kenneth Rogoff, who, as it happened, was preparing a book on the history of national financial collapse, This Time Is Different: Eight Centuries of Financial Folly, with fellow scholar Carmen Reinhart. “We walked Rogoff through the numbers,” said Bass, “and he just looked at them, then sat back in his chair, and said, ‘I can hardly believe it is this bad.’ And I said, ‘Wait a minute. You’re the world’s foremost expert on sovereign balance sheets.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

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Asian financial crisis, asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, fixed income, high net worth, Hyman Minsky, interest rate derivative, invisible hand, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, Martin Wolf, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

The “others” were China and other countries, many from the Third World—once profligate but lately transformed into paragons of thrift. Bernanke argued that their dollars had to flow somewhere, and the United States was merely an attractive destination. The curious financing of rich nations by poor ones reversed a long tradition. During previous eras, the U.S. had loaned money to developing nations, and had often come to rue the day. This time, as two professors, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard, put it, “a large chunk of money had been recycled to a developing economy that exists within the United States’ own borders [emphasis added].”8 Surplus credit was flowing not to weak borrowers overseas, but to a Subprime Nation inside the United States. Generally, it is the job of the Fed to mitigate potentially destabilizing financial currents. And Bernanke was well aware that the global savings glut was making its presence felt in the bubbly market for real estate—in particular, he noted, “as low mortgage rates have supported record levels of home construction and strong gains in housing prices.”

ACCT=104&STORY=/www/story/02-04-2003/0001885208&EDATE=. 3 David Andrukonis, e-mail, September 7, 2004. 4 Mortgage Bankers Association. 5 Meredith Whitney, Oppenheimer equity research report, December 11, 2008. Household growth was 2.5 percent. 6 Martin Wolf, “Asia’s Revenge,” Financial Times, October 9, 2008, and also Martin Wolf, “Seeds of Its Own Destruction,” Financial Times, March 9, 2009. 7 Ben S. Bernanke, Sandridge Lecture, Virginia Association of Economics, Richmond, March 10, 2005. 8 Carmen M. Reinhart and Kenneth S. Rogoff, draft of “Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison,” February 5, 2008; subsequently published in American Economic Review, May 2009. 9 Fannie Mae found 932 articles in a Google search of “housing bubble” in the first four months of 2005, and 1,248 such articles in just the next two months—a sharp acceleration. See “Strategic Crossroads,” 19. 10 Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (New York: Farrar, Straus and Giroux, 1932), 89-97. 11 “Strategic Crossroads,” 39.


pages: 483 words: 134,377

The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly

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air freight, Andrei Shleifer, battle of ideas, Bretton Woods, British Empire, business process, business process outsourcing, Carmen Reinhart, clean water, colonial rule, correlation does not imply causation, Daniel Kahneman / Amos Tversky, Deng Xiaoping, desegregation, discovery of the americas, Edward Glaeser, en.wikipedia.org, European colonialism, Francisco Pizarro, fundamental attribution error, germ theory of disease, greed is good, income per capita, invisible hand, James Watt: steam engine, Jane Jacobs, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, M-Pesa, microcredit, Monroe Doctrine, oil shock, place-making, Ponzi scheme, risk/return, road to serfdom, Silicon Valley, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, Thomas L Friedman, urban planning, urban renewal, Washington Consensus, World Values Survey, young professional

When financial markets and institutions mobilize savings from disparate households to invest in these promising projects, this represents a second crucial step in fostering growth.33 There may indeed be more scope in finance than in goods markets for activities that generate private returns that are not social returns, such as deception, embezzlement, and outright Ponzi schemes. As explained by the great book satirically titled This Time Is Different, by Carmen Reinhart and Kenneth Rogoff, cheating in finance did not start with the horrific financial crisis of 2007 to 2008; it has been happening for centuries.34 Yet somehow, despite the cheating, finance keeps providing the essential services without which large-scale success would not be possible. ADAM SMITH AND DEVELOPMENT In 1986, just as Hyundai was cracking the US market, the Journal of Political Economy, one of the most prestigious journals in economics, published an article titled “Increasing Returns and Long-Run Growth.”

Ross Levine, “In Defense of Wall Street: The Social Productivity of the Financial System,” in The Role of Central Banks in Financial Stability: How Has It Changed? eds. Douglas Evanoff, Cornelia Holthausen, George Kaufman, and Manfred Kremer (Singapore: World Scientific Publishing Company, 2013), 2011 working paper available at http://faculty.haas.berkeley.edu/ross_levine/Papers/2011_ChicagoFed_DefenseofWallStreet.pdf, accessed September 12, 2013. 34. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). CHAPTER 12: TECHNOLOGY: HOW TO SUCCEED WITHOUT KNOWING HOW 1. Broadband Commission, The State of Broadband 2012: Achieving Digital Inclusion for All (Geneva, Switzerland: International Telecommunication Union, 2012), 5, 35, 43. Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf, accessed August 31, 2013. 2.


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The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

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bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, investor state dispute settlement, invisible hand, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

But such analyses have no bearing in a postcrisis world experiencing massive unemployment—in the eurozone, unemployment stands at 10.2 percent as this book goes to press.59 In fact, when there is already a high level of unemployment, there is a “multiplier”—that is, reductions in government spending can lead to reductions in GDP that are a multiple of the cutbacks.60 Another strand of academic work cited by austerity advocates focuses on the consequences of the debt that arises when government spending is financed by borrowing. Kenneth Rogoff and Carmen Reinhardt argued that countries with debt-to-GDP ratios in excess of 80 percent would grow more slowly.61 Upon closer scrutiny, there were major “spreadsheet” and other technical mistakes in their work. More significantly, however, Rogoff and Reinhart failed to test whether growth was lower at higher debt ratios in a way that was statistically significant, and whether this was true always or only under certain conditions.

Brown (Chicago: University of Chicago Press, 2010), pp. 35–68. 57 See, for example, Dean Baker, “The Myth of Expansionary Fiscal Austerity,” Center for Economic and Policy Research, October 2010, available at http://cepr.net/documents/publications/austerity-myth-2010-10.pdf; and Arjun Jayadev and Mike Konczal, “The Boom Not The Slump: The Right Time For Austerity,” Roosevelt Institute, 2010, available at http://scholarworks.umb.edu/cgi/viewcontent.cgi?article=1026&context=econ_faculty_pubs. 58 See, for example, International Monetary Fund, “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation,” chapter 3 in 2010 World Economic Outlook. 59 Eurostat figures for the eurozone for March 2016. 60 See, for example, International Monetary Fund, “Will It Hurt?” 62 Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in a Time of Debt,” American Economic Review 100, no. 2 (May 2010): 573–78. 62 By now, there is a large literature on the subject. See, for example, Thomas Herndon, Michael Ash, and Robert Pollin, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” Cambridge Journal of Economics 38, no. 2 (2014): 257–79; Ugo Panizza and Andrea F. Presbitero, “Public Debt and Economic Growth: Is There a Causal Effect?


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, Bernie Sanders, Bretton Woods, business climate, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, 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, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, 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 presumption that ‘the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms’ had proved incorrect.8 Contrary to the claims of the ‘efficient markets hypothesis’ which underpinned that assumption, financial markets had systematically mispriced assets and risks, with catastrophic results.9 The financial crash of 2008 was the most severe since that of 1929. But as Carmen Reinhart and Kenneth Rogoff have pointed out, since most countries undertook financial liberalisation in the 1970s and 1980s, there has been a marked increase in the frequency of banking crises (see Figure 1).10 Globally, in the period 1970 to 2007, the International Monetary Fund has recorded 124 systemic bank crises, 208 currency crises and 63 sovereign debt crises.11 For modern capitalism instability has become, not the exception, but a seemingly structural feature.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

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Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, California gold rush, Carmen Reinhart, central bank independence, conceptual framework, corporate governance, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, payday loans, Plutocrats, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

“Instead, every such loan has been subjected to major currency devaluation, rolled over, suspended, rescheduled, or otherwise restructured, repudiated, reduced, cancelled, or forgiven. The more drastic steps, leading to eventual, partial or complete cancelation of debt have been surprisingly frequent.”39 The views of researchers such as Walker Todd and Gerry O’Driscoll on foreign lending are confirmed in the more recent work of Carmen Reinhart and Kenneth Rogoff, This Time it is Different: Eight Centuries of Financial Folly. The book is another monumental research effort in the fine tradition of Freidman and Schwartz’s Monetary History of the United States and Allan Meltzer’s updates of that work, albeit focused on the foreign debt component of the economic story. Reinhart and Rogoff nicely document the fact that foreign lending between sovereign states or private parties has always been problematic, but in the post-WWII era the fiscal and external imbalances of the United States have become the key factor.


pages: 300 words: 77,787

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

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Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, cleantech, compound rate of return, credit crunch, diversification, diversified portfolio, equity premium, estate planning, fixed income, high net worth, implied volatility, index fund, invisible hand, Kenneth Rogoff, market bubble, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, Robert Shiller, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

If you have a longer investment horizon, then match the investment horizon with the maturity of your minimal risk bond portfolio. You will have to accept interest rate risk even if you avoid inflation risk by buying inflation-adjusted bonds. 1 For those who don’t think government bonds can default I would encourage you to read This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff (Princeton University Press, 2011). The authors make a mockery of the belief that governments rarely default and that we are somehow now protected from the catastrophic financial events of the past. 2 There are cases where the yield curve is reversed and shorter-term bonds yield more than longer-term ones, but these cases are less frequent. 3 Imagine the scenario where you want to hold one-month government bonds.


pages: 726 words: 172,988

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It by Anat Admati, Martin Hellwig

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversified portfolio, en.wikipedia.org, Exxon Valdez, financial deregulation, financial innovation, financial intermediation, George Akerlof, Growth in a Time of Debt, income inequality, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, sovereign wealth fund, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

Sinn (2010, Chapter 1) points out that without government intervention, output losses would have been even greater. Jordà et al. (2011) and Schularick and Taylor (2012) show that historically, recessions that have been associated with credit booms gone bust and with subsequent financial crises have been much larger and costlier than other types of recessions. On the slow recovery from the financial crisis in the United States, see Carmen Reinhart and Kenneth Rogoff, “Sorry, U.S. Recoveries Really Aren’t Different,” Bloomberg, October 15, 2012, and Martin Wolf, “A Slow Convalescence under Obama,” Financial Times, October 24, 2012. 20. For example, according to the Federal Reserve Bank of St. Louis, from February 2008 to September 2009, total nonfarm employment declined by 8.138 million. Subsequent gains have totaled only 3.36 million. See Better Markets (2012). 21.

“What Do We Know about Capital Structure? Evidence from International Data.” Journal of Finance 50 (5): 1421–1460. ———. 1998. “Debt Folklore and Cross-Country Differences in Financial Structure.” Journal of Applied Corporate Finance 10: 102–107. Rajan, Uday, Amit Seru, and Vikrant Vig. 2010. “The Failure of Models to Predict Models.” Working paper. University of Chicago, Chicago. Reinhart, Carmen M., and Kenneth Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press. ———. 2010. “Growth in a Time of Debt.” American Economic Review 100 (2): 573–578. Reiss, Peter. 1990. “Economic and Financial Determinants of Oil and Gas Exploration Activity.” In Asymmetric Information, Corporate Finance and Investment, ed. R. Glenn Hubbard. Chicago: University of Chicago Press.

Making Globalization Work by Joseph E. Stiglitz

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affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, inventory management, invisible hand, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus

See Table A.24 of World Bank, Global Development Finance: The Development Potential of Surging Capital Flows (Washington, DC: World Bank, 2006); available at http://siteresources.worldbank.org/INTGDF2006/Resources/GDF06 _complete.pdf. See UNDP, Making Global Trade Work for People (London and Sterling, VA: Earthscan Publications, 2003). See Oxfam, "Running into the Sand: Why Failure at the Cancun Trade Talks Threatens the World's Poorest People," Oxfam Briefing Paper 53, September 2003. Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose, "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence," 296 14. 15. 16. 17. NOTES TO PAGES 17-29 IMF Occasional Paper 220, March 2003. Even the Economist, long a committed advocate of deregulated markets in general and capital market liberalization in particular, conceded the issue in their excellent article "A Fair Exchange?

Warner, "Economic Reform and the Process of Global Integration," in Brookings Papers on Economic Activity 1995, vol. 1, Macroeconomics, ed. William C. Brainard and George L. Perry (Washington, DC: Brookings Institution Press, 1995), pp. 1-95. A compelling critique of the econometric studies is provided by Dani Rodrik and Francisco Rodriguez, "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence" in NBER Macroeconomics Annual 2000, ed. Ben S. Bernanke and Kenneth S. Rogoff (Cambridge, MA: MIT Press, 2001), pp. 261325. 23. There is a large "fair trade" movement, which has been particularly influential in Europe. It focuses on a slightly different set of questions: it worries that farmers in the developing world get such a small share of the ultimate price paid by consumers, with middlemen taking most of the money____ a tiny percentage of the cost of the cup of coffee actually goes to the coffee grower—and it seeks ways to ensure that the farmers are treated more fairly.


pages: 584 words: 187,436

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

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Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Kenneth Rogoff, Long Term Capital Management, margin call, market bubble, market clearing, market fundamentalism, merger arbitrage, moral hazard, natural language processing, Network effects, new economy, Nikolai Kondratiev, pattern recognition, pre–internet, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, technology bubble, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs

Dornbusch’s argument did not hinge on the trend following by speculators that Soros emphasized; instead, he explained that currencies overshoot in response to monetary shocks because of the interplay between sticky prices for goods and fast-adjusting capital markets. However, Dornbusch’s sticky-price assumption was a minority view within academic macroeconomics through the 1980s. On this point, see Kenneth Rogoff, “Dornbusch’s Overshooting Model After Twenty-Five Years,” IMF Working Paper No. 02/39. Presented at the Second Annual Research Conference, International Monetary Fund (Mundell-Fleming Lecture), November 30, 2001, revised January 22, 2002. Given that Dornbusch represented a minority view, Soros was not attacking a straw man. On the other hand, other hedge-fund managers were won over to Soros’s view.

Thus, in November 1984, a fall in U.S. interest rates had been followed after a short pause by a jump in the dollar. The market’s logic was that if the dollar did not drop in response to falling interest rates, the upward trend must be robust and it was time to buy the life out of the currency. 19. In this conclusion, Soros anticipated the views of the economics profession. Writing in 2002, Kenneth Rogoff, a Harvard professor then serving as the International Monetary Fund’s chief economist, commented, “If there is a consensus result in the empirical literature, it has to be that nothing, but nothing, can systematically explain exchange rates between major currencies with flexible exchange rates.” See Rogoff, “Dornbusch’s Overshooting Model.” 20. Soros noted the stock market’s weakness as a reason to short the dollar and noted that other currencies were testing the upper limits of their trading ranges, suggesting that a breakout might be coming.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

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affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial independence, financial innovation, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, labour market flexibility, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, merger arbitrage, Mikhail Gorbachev, Milgram experiment, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Naomi Klein, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, pets.com, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Richard Thaler, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond

To monetize his celebrity status, Roubini rebrands his consulting service as roubini.com, rather than RGE Monitor. Detractors argue that Roubini predicted a different kind of crisis for a long time, switching in late 2006 to warnings about U.S. housing and a global recession, adroitly fitting his narrative to events.7 Financial people believe strongly in their superior intelligence. On July 22, 2001, in an open letter to the economist Joseph Stiglitz, Kenneth Rogoff wrote: “One of my favourite stories...is a lunch with you...you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, ‘Ken, you used to work for Volcker at the Fed. Tell me, is he really smart?’ I responded something to the effect of ‘Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century.’

Alex Preda (2009) Framing Finance, University of Chicago Press, Chicago and London. Nomi Prins (2004) Other People’s Money: The Corporate Mugging of America, The New Press, New York. John Quiggin (2010) Zombie Economics: How Dead Ideas Still Walk Among Us, Princeton University Press, Princeton and Oxford. Raghuram G. Rajan (2010) Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton University Press, Princeton and Oxford. Carmen Reinhart and Kenneth Rogoff (2010) This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, Princeton and Oxford. Barry Ritholtz (2009) Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook The World Economy, John Wiley, New Jersey. David Roche and Bob McKee (2008) New Monetarism, Independent Strategy Publications, London. John Rolfe and Peter Troob (2000) Monkey Business: Swinging Through the Wall Street Jungle, Warner Business Books, New York.


pages: 441 words: 136,954

That Used to Be Us by Thomas L. Friedman, Michael Mandelbaum

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3D printing, Affordable Care Act / Obamacare, Albert Einstein, Amazon Web Services, American Society of Civil Engineers: Report Card, Andy Kessler, Ayatollah Khomeini, bank run, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business process, call centre, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, Climatic Research Unit, cloud computing, collective bargaining, corporate social responsibility, Credit Default Swap, crowdsourcing, delayed gratification, energy security, Fall of the Berlin Wall, fear of failure, full employment, Google Earth, illegal immigration, immigration reform, income inequality, job automation, Kenneth Rogoff, knowledge economy, Lean Startup, low skilled workers, Mark Zuckerberg, market design, more computing power than Apollo, Network effects, obamacare, oil shock, pension reform, Report Card for America’s Infrastructure, rising living standards, Ronald Reagan, Rosa Parks, Saturday Night Live, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, the scientific method, Thomas L Friedman, too big to fail, University of East Anglia, WikiLeaks

As the annual deficits accumulated, the total national debt grew, although its proportion of the growing American economy did not increase rapidly. It stood at $5.6 trillion in 2001, but over the next nine years it increased dramatically. By 2011, it had reached $14 trillion—the equivalent of the country’s GDP—with the prospect of increasing to $16 trillion by 2012 without countervailing steps. “Total American general government debt today is at a phenomenal level,” said Kenneth Rogoff, a professor of economics and public policy at Harvard University and formerly the chief economist at the International Monetary Fund. Rogoff is also the co-author with Carmen Reinhart of This Time Is Different: Eight Centuries of Financial Folly, which surveys the history of debt and financial crises. “By our benchmark,” Rogoff added, “when you take local, state, and federal government debt together we are at our all-time high—above 119 percent of GDP.


pages: 327 words: 103,336

Everything Is Obvious: *Once You Know the Answer by Duncan J. Watts

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affirmative action, Albert Einstein, Amazon Mechanical Turk, Black Swan, butterfly effect, Carmen Reinhart, Cass Sunstein, clockwork universe, cognitive dissonance, collapse of Lehman Brothers, complexity theory, correlation does not imply causation, crowdsourcing, death of newspapers, discovery of DNA, East Village, easy for humans, difficult for computers, edge city, en.wikipedia.org, Erik Brynjolfsson, framing effect, Geoffrey West, Santa Fe Institute, happiness index / gross national happiness, high batting average, hindsight bias, illegal immigration, interest rate swap, invention of the printing press, invention of the telescope, invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, lake wobegon effect, Long Term Capital Management, loss aversion, medical malpractice, meta analysis, meta-analysis, Milgram experiment, natural language processing, Netflix Prize, Network effects, oil shock, packet switching, pattern recognition, performance metric, phenotype, planetary scale, prediction markets, pre–internet, RAND corporation, random walk, RFID, school choice, Silicon Valley, statistical model, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, The Death and Life of Great American Cities, the scientific method, The Wisdom of Crowds, too big to fail, Toyota Production System, ultimatum game, urban planning, Vincenzo Peruggia: Mona Lisa, Watson beat the top human players on Jeopardy!, X Prize

“The Death and Life of the Great American School System.” New York: Basic Books. Rawls, John. 1971. A Theory of Justice. Cambridge, MA: Belknap Press. Raynor, Michael. 2007. The Strategy Paradox: Why Committing to Success Leads to Failure. New York: Doubleday. Reid, T. R. 2009. “The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care.” New York: Penguin. Reinhart, Carmen M., and Kenneth Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press. Rescher, Nicholas. 2005. Common-Sense: A New Look at Old Tradition. Milwaukee, WI: Marquette University Press. Rice, Andrew. 2010. “Putting a Price on Words.” New York Times Magazine, May 10. Riding, Alan. 2005. “In Louvre, New Room with View of ‘Mona Lisa.’ ” New York Times, April 6.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

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accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, market bubble, Martin Wolf, medical malpractice, microcredit, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

Some in the economics community wrote articles or convened conferences to examine how they could have gotten it so wrong; others engaged in a full-throated defense of their profession.1 For many who were hostile to the fundamental assumptions of mainstream economics, the crisis was proof that they had been right all along: the emperor was finally shown to have no clothes. Public confidence in authority was badly shaken. Of course, it is incorrect to say that no one saw this crisis coming. Some hedge fund managers and traders in investment banks put their money instead of their mouths to work. A few government and Federal Reserve officials expressed deep concern. A number of economists, such as Kenneth Rogoff, Nouriel Roubini, Robert Shiller, and William White, repeatedly sounded warnings about the levels of U.S. house prices and household indebtedness. Niall Ferguson, a historian, drew parallels to past booms that ended poorly. The problem was not that no one warned about the dangers; it was that those who benefited from an overheated economy—which included a lot of people—had little incentive to listen.


pages: 334 words: 98,950

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

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affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Bordo (2002), ‘Crises Now and Then:What Lessons from the Last Era of Financial Globalisation’, NBERWorking Paper, no. 8716, National Bureau of Economic Research (NBER), Cambridge, Massachusetts. 14 This is the title of chapter 13 of J. Bhagwati (2004), In Defense of Globalization (Oxford University Press, New York). 15 The new, more nuanced view of the IMF is set out in detail in two papers written by Kenneth Rogoff, a former chief economist of the IMF (2001–2003), and three IMF economists. E. Prasad, K. Rogoff, S-J. Wei & A. Kose (2003), ‘Effects of Financial Globalisation on Developing Countries: Some Empirical Evidence’, IMF Occasional Paper, no. 220, International Monetary Fund (IMF), Washington, DC, and Kose et al. (2006). 16 Kose et al. (2006), pp. 34–5. The full quote is: ‘premature opening of the capital account without having in place well-developed and well-supervised financial sectors, good institutions, and sound macroeconomic policies can hurt a country by making the structure of the inflows unfavourable and by making the country vulnerable to sudden stops or reversals of flows’. 17 World Bank (2003), Global Development Finance, 2003 (World Bank, Washington, DC.), Table 1.1. 18 World Bank (2006), Table A.1. 19 L.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

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affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, invisible hand, Just-in-time delivery, Kenneth Rogoff, labour market flexibility, labour mobility, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, women in the workforce, yield curve

The two IEA scenarios that we have referred to are associated with respective oil import prices of $90 and $100 in 2020 and $90 and $115 in 2030 (in 2008 dollars). A Reuters poll of twenty-five leading crude oil analysts that was taken at the end of November 2009 foresaw an average price of $75.40 per barrel in 2010, and forecasts for the early spring of 2010 did not differ by much.39 As Harvard’s Kenneth Rogoff observed, the price range at which oil prices had stabilized for half a year by spring 2010 could be seen as a “sweet spot” for both the oil markets—providing incentives to invest—and for the global economy as a whole, as they did not threaten a still-fragile OECD recovery or discourage investment in alternative energy sources. Paper Barrels The forecasts above assume that the speculative demand for oil will not get out of hand one way or another.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, mortgage debt, new economy, Northern Rock, paper trading, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, Yom Kippur War

These words were written by Karl Marx in 1844, in the text entitled Economic and Philosophical Manuscripts. Chapter 2 1. See Jared Diamond (2006) Guns, Germs and Steel, New York: Norton. 2. Ibn Khaldun (1967) The Muqaddimah: An introduction to history, trans. Franz Rosenthal, Bollingen Series XLIII, Princeton, NJ: Princeton University Press. 3. For a good account of such calamities, see Carmen Reinhart and Kenneth Rogoff (2009) This Time Is Different: Eight centuries of financial folly, Princeton, NJ: Princeton University Press. 4. Once all your music, films, applications, addresses, etc. are on iTunes and readily accessible by any Apple product (iPod, iPhone, iPad, etc.), the opportunity cost of buying a Nokia or a Sony device is huge (even if these companies bring a better device to market) – you need to spend literally hours setting the new gadget up.


pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

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Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Asian financial crisis, bank run, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, butterfly effect, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, collateralized debt obligation, collective bargaining, dark matter, Edward Lorenz: Chaos theory, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial innovation, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, John Nash: game theory, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, martingale, new economy, Paul Lévy, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, The Chicago School, The Myth of the Rational Market, tulip mania, V2 rocket, volatility smile

New York: John Wiley and Sons. Pynchon, Thomas. 1973. Gravity’s Rainbow. New York: Viking Press. Radelet, Steven, and Jeffrey D. Sachs. 2000. “The Onset of the East Asian Financial Crisis.” In Currency Crises, ed. Paul Krugman, 105–62. Chicago: University of Chicago Press. Rajan, Raghuram G. 2010. Faultlines. Princeton, NJ: Princeton University Press. Reinhart, Carmen M., and Kenneth Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press. Rhodes, Richard. 1995. The Making of the Atomic Bomb. New York: Simon & Schuster. Rogers, Simon. 2010. “NASA Budgets: US Spending on Space Travel Since 1958.” The Guardian, February 1. Available at http://www.guardian.co.uk/news/datablog/2010/feb/01/nasa-budgets-us-spending-space-travel.


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, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, 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 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

But the unusual persistence of the current crisis has provoked a deeper interest amongst economists in the longer-term incidence of debt crises. Readers rushed to consult the great financial historian, Charles Kindleberger.1 To learn of his discovery that “financial crises have tended to appear at roughly ten-year intervals for the last 400 years or so” was either disturbing or comforting, depending on one’s perspective.2 Within a couple of years, however, the economists Carmen Reinhart and Kenneth Rogoff had published an even more comprehensive investigation into the history of financial crises. Its ominous subtitle warned the reader to expect not just four but “Eight Centuries of Financial Folly.”3 And as Tactitus’ account of the credit crunch under the Emperor Tiberius shows, monetary society has been prone to the problem of growing indebtedness ending in a crisis of solvency for much longer even than that.


pages: 355 words: 63

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics by William R. Easterly

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Andrei Shleifer, business climate, Carmen Reinhart, central bank independence, clean water, colonial rule, correlation does not imply causation, financial repression, Gini coefficient, Hernando de Soto, income inequality, income per capita, inflation targeting, interchangeable parts, inventory management, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, large denomination, manufacturing employment, Network effects, New Urbanism, open economy, Productivity paradox, purchasing power parity, rent-seeking, Ronald Reagan, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade liberalization, urban sprawl, Watson beat the top human players on Jeopardy!, Yogi Berra, Yom Kippur War

.: World Bank. 326 References and Further Reading Nelson, Richard R. 1956. “A Theory of the Low-Level Equilibrium Trap in Underdeveloped Economies,” American Economic Review 46, no. 5 (December): 894-908. Nordhaus, William. 1994, “Do RealOutput and Real Wage Measures Capture Reality? The History of Lighting Suggests Not.” Yale Cowles Foundation discussion paper: 1078, September. Obstfeld, Maurice, and Kenneth Rogoff.1996. economics. Cambridge, Mass.: MIT Press. Foundations of InternationalMacro- Ogaki, Masao, Jonathan D. Ostry, and Carmen M. Reinhart. 1995. ”Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison.” IMF Working Paper WP/95/3. Pack, Howard, and John M. Page, Jr. 1994. “Accumulation, Exports, and Growth in the High-Performing Asian Economies.” Carnegie-Rochester Conference Series on Public Policy 40 (June): 199-250.


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, 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, moral hazard, 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

The Causes of the Foreclosure Crisis,” Federal Reserve Bank of Boston Public Policy Discussion Paper, July 2012, available at http://www.bostonfed.org/economic/ppdp/2012/ppdp1202.pdf. 8 Greenspan took office in 1987: The events involving Alan Greenspan are based primarily on interviews I conducted with him after his retirement, his speeches, testimony, and books, and my reporting. 9 inflation slid further, to below 3 percent: This is based on the consumer price index, excluding food and energy. 10 “the Great Moderation”: From James H. Stock and Mark W. Watson, “Has the Business Cycle Changed and Why?,” in NBER Macroeconomics Annual 2002, 17, Mark Gertler and Kenneth Rogoff, eds., available at http://www.nber.org/chapters/c11075.pdf. The term may have been used earlier, but Stock and Watson are generally credited with popularizing it. 11 the more investors will pay: A standard valuation model calculates a present value of a stream of income by discounting future cash flow by some discount rate, which is a function of both interest rates and perceived risk. Lower interest rates and lower risk both reduce the discount rate, which raises the present value of a given stream of future income. 12 The historical average ratio: See Jonathan R.


pages: 347 words: 99,317

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity by Ha-Joon Chang

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affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Bordo (2002), ‘Crises Now and Then: What Lessons from the Last Era of Financial Globalisation’, NBER Working Paper, no. 8716, National Bureau of Economic Research (NBER), Cambridge, Massachusetts. 14 This is the title of chapter 13 of J. Bhagwati (2004), In Defense of Globalization (Oxford University Press, New York). 15 The new, more nuanced view of the IMF is set out in detail in two papers written by Kenneth Rogoff, a former chief economist of the IMF (2001–2003), and three IMF economists. E. Prasad, K. Rogoff, S-J. Wei & A. Kose (2003), ‘Effects of Financial Globalisation on Developing Countries: Some Empirical Evidence’, IMF Occasional Paper, no. 220, International Monetary Fund (IMF), Washington, DC, and Kose et al. (2006). 16 Kose et al. (2006), pp. 34–5. The full quote is: ‘premature opening of the capital account without having in place well-developed and well-supervised financial sectors, good institutions, and sound macroeconomic policies can hurt a country by making the structure of the inflows unfavourable and by making the country vulnerable to sudden stops or reversals of flows’. 17 World Bank (2003), Global Development Finance, 2003 (World Bank, Washington, DC.), Table 1.1. 18 World Bank (2006), Table A.1. 19 L.


pages: 233 words: 75,712

In Defense of Global Capitalism by Johan Norberg

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Asian financial crisis, capital controls, clean water, correlation does not imply causation, Deng Xiaoping, Edward Glaeser, Gini coefficient, half of the world's population has never made a phone call, Hernando de Soto, illegal immigration, income inequality, informal economy, Joseph Schumpeter, Kenneth Rogoff, land reform, Lao Tzu, manufacturing employment, market fundamentalism, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, open economy, profit motive, race to the bottom, rising living standards, school vouchers, Silicon Valley, Simon Kuznets, structural adjustment programs, The Wealth of Nations by Adam Smith, Tobin tax, trade liberalization, trade route, transaction costs, trickle-down economics, union organizing

I don’t know why we insist on having fixed exchange rates for Korea and Thailand and so on. But that creates crises . . .’’ See also James Tobin, ‘‘Financial Globalization: Can National Currencies Survive?’’ (paper presented at the Annual World Bank Conference on Development Economics, April 20–21, 1998, Washington), http://www.worldbank.org/html/rad/abcde/tobin.pdf. 14. Concerning variable exchange rates, see Radelet and Sachs, p. 13. Fixed exchange rates: Maurice Obstfeld and Kenneth Rogoff, ‘‘The Mirage of Fixed Exchange Rates,’’ Journal of Economic Perpectives 9, no. 4 (Fall 1995): 73–96. 15. In China the advocates of WTO membership were critics of the regime, reformists and liberals, while the opponents were to be found among the big corporations, the security service, and the army. John Pomfret and Michael Laris, ‘‘Chinese Liberals Welcome WTO Bid,’’ Washington Post, November 18, 1999.


pages: 126 words: 37,081

Men Without Work by Nicholas Eberstadt

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Carmen Reinhart, centre right, deindustrialization, financial innovation, full employment, illegal immigration, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labor-force participation, low skilled workers, moral hazard, Ronald Reagan, secular stagnation, Simon Kuznets, War on Poverty, women in the workforce, working-age population

See Congressional Budget Office, “Budget and Economic Data: Potential GDP and Underlying Inputs,” https://www/cbo.gov/about/products/budget_economic_data#6. It is possible that the anemic state of the U.S. macroeconomy is being exaggerated by measurement issues—productivity improvements from information technology, for example, have been oddly elusive in our officially reported national output—but few today imagine that such concealed gains would totally transform our view of the real economy’s true performance. 4.Carmen M. Reinhart and Kenneth S. Rogoff, “Recovery from Financial Crises: Evidence from 100 Episodes,” American Economic Review: Papers and Proceedings 104, no. 5: 50–55. http://scholar.harvard.edu/files/rogoff/files/aer_104-5_50-55.pdf. 5.Cf. Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton, NJ: Princeton University Press, 2016); see for example, Lawrence H. Summers, “U.S.


pages: 829 words: 186,976

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't by Nate Silver

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airport security, availability heuristic, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Swan, Broken windows theory, Carmen Reinhart, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Freestyle chess, fudge factor, George Akerlof, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, new economy, Norbert Wiener, PageRank, pattern recognition, pets.com, prediction markets, Productivity paradox, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, wikimedia commons

“Now we have too much fear and too little greed.” Act III: This Time Wasn’t Different Once the housing bubble had burst, greedy investors became fearful ones who found uncertainty lurking around every corner. The process of disentangling a financial crisis—everyone trying to figure out who owes what to whom—can produce hangovers that persist for a very long time. The economists Carmen Reinhart and Kenneth Rogoff, studying volumes of financial history for their book This Time Is Different: Eight Centuries of Financial Folly, found that financial crises typically produce rises in unemployment that persist for four to six years.86 Another study by Reinhart, which focused on more recent financial crises, found that ten of the last fifteen countries to endure one had never seen their unemployment rates recover to their precrisis levels.87 This stands in contrast to normal recessions, in which there is typically above-average growth in the year or so following the recession88 as the economy reverts to the mean, allowing employment to catch up quickly.

Eventually, though, even the most spendthrift oenophiles are priced out, so the positive feedback does not continue indefinitely. 85. Per interview with George Akerlof. “You may know what to pay for House A versus House B versus House C because you can say one has a kitchen with gadgets that is worth $500 more than House B, which has a kitchen with no gadgets. But you don’t know what the price of a house should be.” 86. Carmen M. Reinhart and Kenneth S. Rogoff, “The Aftermath of the Financial Crisis,” Working Paper 14656, NBER Working Paper Series, National Bureau of Economic Research, January 2009. http://www.bresserpereira.org.br/terceiros/cursos/Rogoff.Aftermath_of_Financial_Crises.pdf. 87. Carmen M. Reinhart and Vincent R. Reinhart, “After the Fall,” presentation at Federal Reserve Bank of Kansas City Jackson Hole Symposium, August 2010. http://www.kcfed.org/publicat/sympos/2010/reinhart-paper.pdf. 88.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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accounting loophole / creative accounting, 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, 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, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, 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

Although Arrighi derided the statement, it was proved far more right than wrong. 77 See Japanese External Trade Organization (jetro.go.jp.en.reports). 78 Murphy, “A Loyal Retainer?” and Weight of the Yen, pp. 236, 263. 79 See especially Richard Katz, Japan: The System that Soured, New York: M.E. Sharpe, 1998. 80 Paul Burkett and Martin Hart-Landsberg, Development, Crisis and Class Struggle, New York: St. Martin’s, 2000, p. 127. 81 M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei, “Financial Globalization: A Reappraisal,” National Bureau of Economic Research, Working Paper 12484, August 2006, Table I; Peter Dicken, Global Shift: Reshaping the Global Economic Map in the 21st Century, New York: Guilford, 2003, pp. 34–42. See generally IMF (imf.org), UNCTAD (stats.unctad.org) and WTO (stat.wto.org). 82 For the classic early recognition of this, see Folker Fröbel, Jürgen Heinrichs, and Otto Kreye, The New International Division of Labour: Structural Unemployment in Industrialised Countries and Industrialisation in Developing Countries, Cambridge: CUP, 1980. 83 Vivek Chibber, Locked in Place: State-Building and Late Industrialization in India, Princeton: Princeton University Press, 2003, pp. 234–5. 84 Ibid., p. 238.

Chapters 2 and 3. The quotation here is from the full transcript of the interview with Rubin for the PBS 2002 documentary The Commanding Heights, available at pbs.org. 5 Robert Litan, with Jonathan Roach and a Preface by Robert Rubin, American Finance for the 21st Century, Washington, DC: Brookings Institute, 1998, p. 5. 6 Quoted in Blustein, The Chastening, p. 295. 7 Carmen M. Reinhart and Kenneth S. Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,” NBER Working Paper No. 13882, March 2008, Table A.3. 8 Pauly, Who Elected the Bankers? esp. p.121. See also Michael Bordo, Ashoka Mody, and Nienke Oomes, “Keeping the Capital Flowing: The Role of the IMF,” IMF Working Paper WP/04/197, October 2004; and Barry Eichengreen and Richard Portes, “Managing the Next Mexico,” in Peter Kenen, ed., From Halifax to Lyon: What Has Been Done about Crisis Management?


pages: 401 words: 112,784

Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

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Affordable Care Act / Obamacare, British Empire, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, mortgage debt, new economy, Northern Rock, obamacare, oil shock, Plutocrats, plutocrats, price stability, quantitative easing, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

Niall Ferguson, ‘A long shadow’, Financial Times, 22 September 2008, at: www.ft.com/cms/s/0/aeb88d8a–8800–11dd-b114–0000779fd18c.html#axzz2WahpoyYx 4. One analysis of post-war financial crises estimates that unemployment rises by an average of 7 percentage points, while output falls an average of 9%, the latter taking place over the course of two years; whereas the average ‘non-financial’ recession lasts less than a year. See Carmen M. Reinhart and Kenneth S. Rogoff, ‘The aftermath of financial crises’, American Economic Review, 99:2 (2009), pp. 466–72, at: www.ems.bbk.ac.uk/for_students/msc_ec­on/ETA2_EMEC025P/GZrhein.pdf 5. The 2001 census recorded a UK population of 59,113,500, whereas the 2011 census recorded a total of 63,285,100. That implies population growth of around 1.25% a year. The Office for National Statistics is currently revising its estimates for intermediate years, but the last published numbers suggest no appreciable recession effect.

Research in Economic History, JAI Press, Greenwich, CT, 1992. Rawls, John. A Theory of Justice, Harvard University Press, Cambridge, MA, 1971. Rector, Robert. How Poor are America's Poor? Examining the ‘plague’ of poverty in America, Heritage Foundation, Washington, DC, 2007, available at: www.heritage.org/research/reports/2007/08/how-poor-are-americas-poor-examining-the-plague-of-poverty-in-america Reinhart, Carmen M. and Kenneth S. Rogoff. ‘The aftermath of financial crises’, American Economic Review, 99:2 (2009), pp. 466–72, available at: www.ems.bbk.ac.uk/for_stude­nts/msc_econ/ETA2_EMEC025P/GZrhein.pdf Resolution Foundation. Gaining from Growth, Resolution Foundation, London, 2012, available at: www.resolutionfoundation.org/media/media/downl­oads/Gaining_from_growth_-_The_final_rep­ort_of_the_Commission_on_Living_Standards.pdf Rosenzweig, M. and O.


pages: 436 words: 141,321

Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness by Frederic Laloux, Ken Wilber

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Albert Einstein, augmented reality, blue-collar work, Buckminster Fuller, call centre, carbon footprint, conceptual framework, corporate social responsibility, crowdsourcing, failed state, future of work, hiring and firing, index card, interchangeable parts, invisible hand, job satisfaction, Johann Wolfgang von Goethe, Kenneth Rogoff, meta analysis, meta-analysis, pattern recognition, post-industrial society, quantitative trading / quantitative finance, randomized controlled trial, shareholder value, Silicon Valley, the market place, the scientific method, Tony Hsieh

Hope can come also from the millennial generation: it used to be that people shifted to a Teal perspective mostly in their 40s or 50s; more and more millennials make the shift in their 20s and 30s. We seem increasingly ready and hungry for change. On a small scale, Buurtzorg gives a hopeful example of an entire industry—neighborhood nursing in the Netherlands—that in less than 10 years transitioned smoothly from Orange to Teal, breathing truth into the affirmation of Harvard economist Kenneth Rogoff: “Systems often hold longer than we think, but they end up by collapsing much faster than we imagine.” Teal Organizations in a Teal society The Teal Organizational model described in Part 2 of this book is derived from early pioneers that operate in a predominantly Amber/ Orange world. Let’s assume for a minute that some of the commonly made predictions about future Teal societies summarized earlier in this chapter do play out.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, winner-take-all economy, Wolfgang Streeck

On 23 March 2014, the Frankfurter Allgemeine Zeitung reported that since the beginning of the financial crisis, American banks alone have been fined around one hundred billion dollars. CHAPTER TWO 1An earlier version of this chapter was given as the 2011 Max Weber Lecture at the European University Institute, Florence. I am grateful to Daniel Mertens for his research assistance. Published in: New Left Review 71, September/October 2011, pp. 5–29. 2For the term ‘Great Recession’, see Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton, NJ: Princeton University Press 2009. 3The classic statement is Buchanan and Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy. 4See Edward Thompson, ‘The Moral Economy of the English Crowd in the Eighteenth Century’, Past & Present, vol. 50, no. 1, 1971; and James Scott, The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia, New Haven, CT: Yale University Press 1976.

The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good by William Easterly

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airport security, anti-communist, Asian financial crisis, bank run, banking crisis, Bretton Woods, British Empire, call centre, clean water, colonial exploitation, colonial rule, Edward Glaeser, European colonialism, failed state, farmers can use mobile phones to check market prices, George Akerlof, Hernando de Soto, income inequality, income per capita, Indoor air pollution, invisible hand, Kenneth Rogoff, laissez-faire capitalism, land reform, land tenure, microcredit, moral hazard, Naomi Klein, purchasing power parity, randomized controlled trial, Ronald Reagan, Scramble for Africa, structural adjustment programs, The Fortune at the Bottom of the Pyramid, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Xiaogang Anhui farmers

And a big thanks to those who generously gave of their time to read some or all of previous drafts and give enormously helpful feedback: Maryam Abolfazli, Emma Aisbett, Alberto Alesina, Nava Ashraf, Donald Boudreaux, Gerald Caprio, Ron Clark, Michael Clemens, Ravina Daphtary, Jess Diamond, Paul Dower, William Duggan, Kareen El Beyrouty, Stanley Engerman, Helen Epstein, Daphne Eviatar, Kurt Hoffman, Patricia Hoon, Roumeen Islam, Charles Kenny, Peter Lindert, Janina Matuszeski, Taye Mengistae, Edward Miguel, Josepa Miguel-Florensa, Frederic Mishkin, Jonathan Morduch, Stewart Parkinson, Elizabeth Potamites, S. Ramachandran, James Rauch, Kenneth Rogoff, Xavier Sala-i-Martin, Julia Schwenkenberg, Richard Sylla, Leonard Wantchekon, Dennis Whittle, Geoffrey Williams, Michael Woolcock, and Treena Wu. I benefited greatly from discussions with some really smart people on topics covered by this book: Daron Acemoglu, Carol Adelman, Martha Ainsworth, Abhijit Banerjee, Reza Baqir, Robert Barro, William Baumol, Jess Benhabib, Arne Bigsten, Nancy Birdsall, Peter Boettke, Robert Borens, Eduardo Borensztein, Bruce Bueno de Mesquita, Craig Burnside, Charles Calomiris, Stephen Cohen, Susan Collins, Kevin Davis, Allan Drazen, Esther Duflo, Steven Durlauf, Marcel Fafchamps, Niall Ferguson, Raquel Fernandez, Ricardo Ffrench-Davis, Stanley Fischer, Paul Glewwe, April Harding, Ann Harrison, Ricardo Hausmann, Peter Heller, Arye Hillman, Judith Justice, Boyan Jovanovic, Ravi Kanbur, Devesh Kapur, Hiro Kohama, Lawrence Kotlikoff, Michael Kremer, Mari Kuraishi, Ruben Lamdany, Adam Lerrick, Ruth Levine, David Levy, Dyan Machan, Bertin Martens, John McMillan, Allan Meltzer, Janvier Nkurunziza, Yaw Nyarko, José Antonio Ocampo, Mead Over, Sandra Peart, Guillermo Perry, Adam Przeworski, Dilip Ratha, Shamika Ravi, Sergio Rebelo, Ritva Reinikka, Ariell Reshef, Mario Rizzo, David Roodman, Dani Rodrik, Claudia Rosett, Frederic Sautet, Anya Schiffrin, Paul Smoke, T.


pages: 859 words: 204,092

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

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Admiral Zheng, Asian financial crisis, Berlin Wall, Bretton Woods, BRICs, British Empire, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, Malacca Straits, Martin Wolf, Naomi Klein, new economy, New Urbanism, open economy, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Xiaogang Anhui farmers

The significance of the dollar’s decline, moreover, is not confined to the financial world but has much larger ramifications for Washington’s place on the international stage. Flynt Leverett, a former senior National Security Council official under President George W. Bush, has argued that: ‘What has been said about the fall of the dollar is almost all couched in economic terms. But currency politics is very, very powerful and is part of what has made the US a hegemon for so long, like Britain before it.’48 Similarly Kenneth Rogoff, former chief economist at the International Monetary Fund, wrote: ‘Americans will find global hegemony a lot more expensive if the dollar falls off its perch.’49 The consequences of a falling dollar could be manifold: nations will prefer to hold a growing proportion of their reserves in currencies other than the dollar; countries that previously pegged their currency to the dollar, including China, will choose no longer to do so; the US will find that economic sanctions against countries like Iran and North Korea no longer carry the same threat because access to dollar financing has less significance for them; countries will no longer be so willing to hold their trade surpluses in US Treasury bonds; US military bases overseas will become markedly more expensive to finance; and the American public may be less prepared to accept the costs of expensive overseas military commitments.


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

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banking crisis, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, late capitalism, means of production, moral hazard, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

Rademacher, Inga, National Tax Policy in the EMU: Some Empirical Evidence on the Effects of Common Monetary Policy on the Distribution of Tax Burdens, unpublished thesis, social sciences faculty, Frankfurt/Main, 2012. Raithel, Thomas et al. (eds), Auf dem Weg in eine neue Moderne? Die Bundesrepublik Deutschland in den siebziger und achtziger Jahren, Munich: Oldenbourg Wissenschaftsverlag, 2009. Rappaport, Alfred, Creating Shareholder Value, New York: The Free Press, 1986. Reinhart, Carmen M. and Kenneth S. Rogoff, Growth in a Time of Debt, NBER Working Paper No. 15639, Cambridge, MA: National Bureau of Economic Research, 2009. Reinhart, Carmen M. and M. Belen Sbrancia, The Liquidation of Government Debt, NBER Working Paper No. 16893, Cambridge, MA: National Bureau of Economic Research, 2011. Rose, Richard, ‘Inheritance Before Choice in Public Policy’, Journal of Theoretical Politics, vol. 2/3, 1990, pp. 263–91. ———. and Phillip L.


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A Beautiful Mind by Sylvia Nasar

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Al Roth, Albert Einstein, Andrew Wiles, Brownian motion, cognitive dissonance, Columbine, experimental economics, fear of failure, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Rogoff, linear programming, lone genius, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, prisoner's dilemma, RAND corporation, Ronald Coase, second-price auction, Silicon Valley, Simon Singh, spectrum auction, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile

., p. 155. 16. John Nash, Les Prix Nobel 1994, op. cit., pp. 276–77. 17. The sketch of Bart Hoselitz is based on an interview with his friend Sherman Robinson, professor of economics, University of Chicago, 7.95, and questionnaires, letters, and a curriculum vitae from Carnegie-Mellon University archives. 18. This bit of history about international trade theory after World War II was supplied by Kenneth Rogoff, professor of economics, Princeton University, interview. 19. John Nash, Les Prix Nobel 1994, op. cit., pp. 176–77. 20. Nash told Myerson that he was inspired by a problem posed by Hoselitz. Roger Myerson, professor of economics, Northwestern University’, interview, 8.7.97. 21. Myerson, e-mail, 8.11.97. 22. Letter from John Nash to Martin Shubik, undated (written in 1950 or 1951). 23. Harold Kuhn was for many years convinced that Nash had mailed a copv of his first draft to von Neumann while he was still at Carnegie.


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Who Stole the American Dream? by Hedrick Smith

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Affordable Care Act / Obamacare, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, full employment, global supply chain, Gordon Gekko, guest worker program, hiring and firing, housing crisis, Howard Zinn, income inequality, index fund, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mortgage debt, new economy, Occupy movement, Own Your Own Home, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Steve Jobs, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K

Some quick symbolic steps such as closing corporate tax loopholes, raising taxes on the rich, and imposing new fees on Wall Street’s stock transactions and executive stock options could help restore government’s credibility with ordinary people. But a more central long-term yardstick of fairness to the middle class is how the Congress and the White House handle housing, since homes are the heart of the American Dream and the cornerstone of middle-class wealth. As Harvard economist Kenneth Rogoff noted, “There is widespread agreement among economists that housing debt is at the heart of the slow recovery, and that finding a way to bring it down faster would accelerate the recovery.” The biggest debt now overhangs twenty-two million families stuck in homes that are “under water.” Like the big Wall Street banks, which were bailed out not only with $700 billion in taxpayer funds, but with $7.7 trillion in loans from the Federal Reserve, these creditworthy homeowners desperately need help with rewriting and refinancing their mortgages, and smart economists have spelled out steps to speed massive refinancing—steps that would be a shot in the arm to the whole nation.


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

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Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, capital controls, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

Foreign Affairs 86 (3). ———. July 11, 2011. “Central Banks Can’t Paper Over the Economy.” Financial News. Stein, Herbert. 1996. The Fiscal Revolution in America: Policy in Pursuit of Reality. Washington, D.C.: American Enterprise Institute. Stock, James H., and Mark W. Watson. 2002. “Has the Business Cycle Changed and Why?” In NBER Macroeconomics Annual 2002, Volume 17, ed. Mark Gertler and Kenneth Rogoff. Cambridge, Mass.: MIT Press. Summers, Lawrence H. Mar. 23, 2004. “The United States and the Global Adjustment Process.” Speech at the Third Annual Stavros S. Niarchos Lecture, Peterson Institute for International Economics, Washington, D.C. Available at http://www.iie.com/publications/papers/paper.cfm?researchid=200. Sunday Globe. Aug. 1, 1948. “White Denies He Gave Secret Information.” Tanenhaus, Sam. 1997.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money: store of value / unit of account / medium of exchange, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, open economy, paradox of thrift, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus

———. Fractal Market Analysis: Applying Chaos Theory to Investment and Economics. New York: Wiley, 1994. Rajan, Raghuram G. Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton: Princeton University Press, 2010. Ray, Christina. Extreme Risk Management: Revolutionary Approaches to Evaluating and Measuring Risk. New York: McGraw-Hill, 2010. Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press, 2009. Roett, Riordan. The New Brazil. Washington, D.C.: Brookings Institute Press, 2010. Rothbard, Murray N. The Case Against the Fed. Auburn, AL: Ludwig von Mises Institute, 1994. ———. A History of Money and Banking in the United States: The Colonial Era to World War II. Auburn, AL: Ludwig von Mises Institute, 2005. ———.

The Power Surge: Energy, Opportunity, and the Battle for America's Future by Michael Levi

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American energy revolution, Berlin Wall, British Empire, Carmen Reinhart, crony capitalism, deglobalization, energy security, Exxon Valdez, full employment, global supply chain, hiring and firing, hydraulic fracturing, Kenneth Rogoff, manufacturing employment, oil shale / tar sands, oil shock, peak oil, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea

In recent decades, though, economic growth has not translated into higher wages for most, suggesting that one ought to be cautious in expecting this phenomenon to increase the total number of U.S. jobs. 45. Alex Kowalski, “Trade Deficit of U.S. Unexpectedly Surges on Increase in Crude-Oil Imports,” Bloomberg, July 12, 2011, http://www.bloomberg.com/ news/2011-07-12/trade-deficit-of-u-s-unexpectedly-surges-on-increasein-crude-oil-imports.html. 46. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, N.J.: Princeton University Press, 2009). 47. Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon & Schuster, 1991), 613. 48. Clifford Krauss and Eric Lipton, “U.S. Inches Toward Goal of Energy Independence,” New York Times, March 22, 2012. 49. Blake Clayton and Michael Levi, “The Surprising Sources of Oil’s Influence,” Survival, January/February 2013. 228 • NOTES FOR PAGES 79–85 50.


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