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

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

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

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, break the buck, Bretton Woods, business cycle, 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, creative destruction, 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, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, 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, zero-sum game

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

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, business cycle, 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, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, 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 inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

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

Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, 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, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money market fund, 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, The Rise and Fall of American Growth, 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: 389 words: 87,758

No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, access to a mobile phone, additive manufacturing, Airbnb, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, autonomous vehicles, Bakken shale, barriers to entry, business cycle, business intelligence, Carmen Reinhart, central bank independence, cloud computing, corporate governance, creative destruction, crowdsourcing, demographic dividend, deskilling, disintermediation, disruptive innovation, distributed generation, Erik Brynjolfsson, financial innovation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Gini coefficient, global supply chain, global village, hydraulic fracturing, illegal immigration, income inequality, index fund, industrial robot, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, job automation, Just-in-time delivery, Kenneth Rogoff, Kickstarter, knowledge worker, labor-force participation, low skilled workers, Lyft, M-Pesa, mass immigration, megacity, mobile money, Mohammed Bouazizi, Network effects, new economy, New Urbanism, oil shale / tar sands, oil shock, old age dependency ratio, openstreetmap, peer-to-peer lending, pension reform, private sector deleveraging, purchasing power parity, quantitative easing, recommendation engine, Report Card for America’s Infrastructure, RFID, ride hailing / ride sharing, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart cities, Snapchat, sovereign wealth fund, spinning jenny, stem cell, Steve Jobs, supply-chain management, TaskRabbit, The Great Moderation, trade route, transaction costs, Travis Kalanick, uber lyft, urban sprawl, Watson beat the top human players on Jeopardy!, working-age population, Zipcar

This rapid expansion of buildings in turn fuels demand for resource-intensive infrastructure—utilities, roads, and transportation.21 These trends are likely to power through any short-term reversals. “The integration of 2.5 billion people (China and India alone) into the global economy is producing a demand shift that is likely to put far more upward pressure on commodity prices than any technology gains are likely to offset,” notes Kenneth Rogoff, professor of economics and public policy at Harvard University. “So, for at least the next 50 to 75 years, and perhaps until humans start mining on Mars sometime in the coming centuries, prices for many natural resources are headed up.”22 Resource prices have increased significantly since 2000 1 Based on arithmetic average of four commodity subindexes: food, nonfood agricultural items, metals, and energy.

In this new macroeconomic territory, a traditional view of supply and demand fundamentals may no longer be a sufficient indicator for the future cost of capital. As illustrated by the European Central Bank’s move in the spring of 2014 to lower its benchmark deposit interest rate below zero, ultralow interest rates may remain the norm over the coming years.43 As economists Carmen Reinhart and Kenneth Rogoff argued in a 2013 IMF paper, policy makers need to guard against overplaying the risks related to unconventional monetary support and limiting central banks’ room for policy maneuvering.44 HOW TO ADAPT As demand-supply dynamics change, business leaders need to be prepared to navigate both worlds. We have seen too many companies, households, and governments caught out by unexpected changes in the cost of capital.

“GE partners with the Millennium Challenge Corporation to provide $500 million in financing to Ghana 1000 project” (press release), August 5, 2014, http://allafrica.com/stories/201408061542.html; “GE to invest $2 billion in Africa by 2018” (press release), Business Wire, August 4, 2014, www.businesswire.com/news/home/20140803005030/en/GE-Invest-2-Billion-Africa-2018#.VDQoFvk7u-0. 48. Daniel Gross, “Coke applies supply-chain expertise to deliver AIDS drugs in Africa,” The Daily Beast, September 25, 2012, www.thedailybeast.com/articles/2012/09/25/coke-applies-supply-chain-expertise-to-deliver-aids-drugs-in-africa.html. 49. Kenneth Rogoff, “Can Greece avoid the lion,” Project Syndicate, February 3, 2010, www.project-syndicate.org/commentary/can-greece-avoid-the-lion-. 50. Stephen Hall, Dan Lovallo, and Reinier Musters, “How to put your money where your strategy is,” McKinsey Quarterly, March 2012. 51. Katy George, Sree Ramaswamy, and Lou Rassey, “Next-shoring: A CEO’s guide,” McKinsey Quarterly, January 2014. 52. Mike Doheny, Venu Nagali, and Florian Weig, “Agile Manufacturing for volatile times,” McKinsey & Company, 2012. 53. www.solarbrush.co. 54. www.shapeways.com. 55.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Lazear, Economic Imperialism, Hoover Institution and Graduate School of Business, Stanford University, May 1999. http://faculty-gsb.stanford.edu/lazear/personal/pdfs/economic%20imperialism.pdf. 2 John Maynard Keynes, General Theory of Employment, Interest and Money, Atlantic Publishers & Distributors (1936) 2006, p. 272. 3 Raghuram Rajan, “The Paranoid Style in Economics,” Project Syndicate, 8 August 2013. www.project-syndicate.org/commentary/the-declining-quality-of-public-economic-debate-by-raghuram-rajan. 4 G. K. Chesterton, Orthodoxy, Chapter VI, 1908. http://en.wikiquote.org/wiki/G._K._Chesterton. 5 Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009. 6 See Patrick Bernau, “‘Eine Hexenjagd’—Keneth Rogoff Über seinen Excel-Fehler,” Fazit, 22 October 2013. http://blogs.faz.net/fazit/2013/10/22/kenneth-rogoff-ueber-excel-fehler-hexenjagd-2818/. 7 Frederic Mishkin, “The Economist's Reply to the ‘Inside Job,’” Financial Times, 8 October 2010. 8 Quoted in Robert John, “Behind the Balfour Declaration: Britain's Great War Pledge to Lord Rothschild,” The Journal of Historical Review, vol. 6, no. 4 (Winter 1985–6), pp. 389–450. 9 See Neil Irwin, “With Consumers Slow to Spend, Businesses Are Slow to Hire,” Washington Post, 21 August 2010. 10 Tim Duy, “Yes, I Am Optimistic,” 30 November 2014. http://economistsview.typepad.com/timduy/2014/11/yes-i-am-optimistic-1.html. 11 Wynne Godley, “Macroeconomics without Equilibrium or Disequilibrium,” The Jerome Levy Economics Institute, Working Paper No. 205, August 1997. www.levyinstitute.org/pubs/wp205.pdf. 12 Olivier Blanchard, “Monetary Policy Will Never Be the Same,” IMF Direct, 19 November 2013. http://blog-imfdirect.imf.org/2013/11/19/monetary-policy-will-never-be-the-same/. 13 Fyodor Dostoyevsky, trans.

Similarly, expansionary fiscal policy in an environment of contracting private sector demand and reduction in debt can result in lower multipliers, as the government cannot fully offset the fall in private economic activity. Budget deficits must be financed, requiring governments to borrow. By 2009, there was increasing unease about rising government debt. Based on data from hundreds of years of financial crises, economists Carmen Reinhart and Kenneth Rogoff argued that sovereign debt levels above 60–90 percent of GDP affected growth.5 In 2013, in the academic equivalent of Fight Club, three economists from the University of Massachusetts in Amherst published a paper alleging that Reinhart and Rogoff had exaggerated the decline in growth at higher debt levels, due to unorthodox statistical choices and a spreadsheet error. Critics, whose concerns about the original research had been ignored, now pounced.

With their membership of the club of celebrity economists threatened, Reinhart and Rogoff mounted a desperate defense: they had not stressed any single number in their analysis; they had not implied causality; recalculation still supported their thesis. But in previous opinion pieces, speeches, and interviews, they had not mentioned these caveats, suggesting instead that the relationship held, and favoring cutting debt levels aggressively. Kenneth Rogoff darkly accused his critics of orchestrating a 1950s McCarthyist witch-hunt.6 Pressure for grant funding, the lure of lucrative commercial opportunities, and vanity have corrupted academic standards and reduced professional accountability. In his 2010 film Inside Job, Charles Ferguson interviewed former Federal Reserve vice chairman Frederic Mishkin, who was paid US$124,000 for a study on Iceland.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, 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, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, 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, zero-sum game

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.


Britannia Unchained: Global Lessons for Growth and Prosperity by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore, Elizabeth Truss

Airbnb, banking crisis, Carmen Reinhart, central bank independence, clockwatching, creative destruction, Credit Default Swap, demographic dividend, Edward Glaeser, eurozone crisis, fear of failure, glass ceiling, informal economy, James Dyson, Kenneth Rogoff, knowledge economy, long peace, margin call, Mark Zuckerberg, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, Neil Kinnock, new economy, North Sea oil, oil shock, open economy, paypal mafia, pension reform, price stability, profit motive, Ronald Reagan, Sand Hill Road, Silicon Valley, Stanford marshmallow experiment, Steve Jobs, Walter Mischel, wealth creators, Winter of Discontent, working-age population, Yom Kippur War

If it is really is impossible for countries to go bust, then it is strange that so many countries have failed to pay back their loans. From Edward III defaulting on his loans to Florence financiers in 134039 through to today’s Eurozone crisis, sovereign defaults have been a constant feature throughout history. In their definitive text, This Time is Different, economists Carmen M. Reinhart and Kenneth S. Rogoff list hundreds of examples of default through the last 800 years. Default is not just not unknown, it is endemic. Only a small number of countries – such as Australia, New Zealand, Canada, Denmark, Thailand and the United States40 – have never defaulted. The UK has been relatively fortunate in past centuries, but it too defaulted. In 1340 Edward III betrayed his Florence creditors and Charles II stopped the Exchequer in 1672, bankrupting many of the leading creditors.

The world economy was weak in the aftermath of 9/11 and the bursting of the dot com bubble. The whole purpose of the Golden Rule was to allow greater discretionary deficits in economic downturns; the Government could point to the surpluses it had already run since 1997. As long as its budget forecasts were reasonably accurate, Brown should meet his primary fiscal rule, to balance the budget ‘over the course of the cycle’. Even Kenneth Rogoff, then the Chief Economist of the IMF, gave the plans his cautious approval.67 He did, however, warn that deficits should not be allowed to rise above their currently forecast path. The forecasts did not prove to be accurate. The Government’s budget never moved back into structural surplus,68 let alone ran an actual surplus. The Treasury’s estimates proved systematically over-optimistic. Despite Brown and Ball’s new textbook economic framework, their forecasts proved as badly off as those of their predecessors in the 1970s.

Macaulay, History of England. 30. http://krugman.blogs.nytimes.com/2011/12/04/british-debt-history/ 31. http://krugman.blogs.nytimes.com/2011/11/30/bleeding-britain/ 32. http://johannhari.com/2011/03/29/the-biggest-lie-in-british-politics/ 33. http://www.ft.com/cms/s/0/a9042452-1a3c-11de-9f91-0000779fd2ac. html#axzz1gJPBneNS 34. http://www.newstatesman.com/blogs/david-blanchflower/2011/06/creditcard-cameron-basic 35. Niall Ferguson, The Cash Nexus: Money and Power in the Modern World, 1700–2000 (Penguin, 2001), p. 53. 36. Ferguson, The Cash Nexus, p. 129. 37. Ferguson, The Cash Nexus, p. 130. 38. Office for Budget Responsibility, Economic and Fiscal Outlook, March 2012. 39. Carmen Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2009). 40. Reinhart and Rogoff, This Time is Different. 41. http://www.thedailybeast.com/newsweek/2009/11/27/an-empire-at-risk.html 42. http://www.thedailybeast.com/newsweek/2009/11/27/an-empire-at-risk.html 43. Christina Romer, ‘Macroeconomic Policy in the 1960s: The Causes and Consequences of a Mistaken Revolution’, Lecture, Economic History Association Annual Meeting, 2007, p. 26. 44. http://voxeu.org/index.php?


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

3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business cycle, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, creative destruction, 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, land reform, M-Pesa, Mahatma Gandhi, Marc Andreessen, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, Nelson Mandela, 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, zero-sum game

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.


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

"Robert Solow", Alvin Roth, 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, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, 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, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, 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, Vilfredo Pareto, 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.”


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

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, market clearing, Martin Wolf, means of production, money market fund, 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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Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

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

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.


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

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

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

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, 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, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, 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, Vilfredo Pareto, 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.


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10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

Even if you, the politician, care deeply about increasing job growth and even if you’d be personally tempted to badger the central bank to go on lending sprees to help the economy (especially just before an election!), you’re still better off if you delegated the job of running monetary policy to a “conservative central banker,” one who only cares about a low, stable inflation rate and doesn’t care at all about the unemployment rate. This theory, created by former chess champion and current Harvard economist Kenneth Rogoff, goes something like this . . .¹⁰ The Conservative Central Banker: An Origin Story The only way to use monetary policy to boost the real economy is to surprise the citizens with cheap money. The cheap money gets people more spending and creates more jobs in the short run (before prices rise). But then eventually prices rise, goods don’t feel cheap any more, and the boom ends. But you can’t surprise the citizens that often.

Also see Vittorio Grilli, Donato Masciandaro, and Guido Tabellini, “Political and Monetary Institutions and Public Financial Policies in the Industrial Countries,” Economic Policy 6, no. 13 (1991): 341–392. 7. Alesina and Summers, “Central Bank Independence,” 159. 8. Alesina and Summers, “Central Bank Independence,” 159. 9. Alex Cukierman, “Central Bank Independence and Policy Results: Theory and Evidence,” lecture prepared for the Bank of Mexico international conference, “Stability and Economic Growth: The Role of the Central Bank,” Mexico City, 2005. 10. Kenneth Rogoff, “The Optimal Degree of Commitment to an Intermediate Monetary Target,” Quarterly Journal of Economics 100, no. 4 (1985): 1169–1189. 11. Finn E. Kydland and Edward C. Prescott, “Time to Build and Aggregate Fluctuations,” Econometrica (1982): 1345–1370. Also see John B. Long Jr. and Charles I. Plosser, “Real Business Cycles,” Journal of Political Economy 91, no. 1 (1983): 39–69. 12. Orson Scott Card, Ender’s Game (New York: Tor Books, 1985). 13.


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The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

On February 11, 2016, Federal Reserve chair Janet Yellen: Jon Hilsenrath, “Yellen Says Fed Should Be Prepared to Use Negative Rates if Needed,” The Wall Street Journal, February 11, 2016, accessed August 7, 2016, www.wsj.com/articles/yellen-reiterates-concerns-about-risks-to-economy-in-senate-testimony-1455203865. On February 16, 2016, former secretary of the treasury Larry Summers: See Lawrence H. Summers, “It’s Time to Kill the $100 Bill,” The Washington Post, February 16, 2016, accessed August 7, 2016, www.washingtonpost.com/news/wonk/wp/2016/02/16/its-time-to-kill-the-100-bill/?postshare=8671455627637815&tid=ss_tw. On August 30, 2016, Kenneth Rogoff: Kenneth S. Rogoff, The Curse of Cash (Princeton, NJ: Princeton University Press, 2016). On November 10, 2014, the Financial Stability Board: See “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” Financial Stability Board, November 10, 2014. On May 3, 2016, the Federal Reserve: “Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S.

On May 4, 2016, the European Central Bank announced it would phase out production of the €500 note by the end of 2018. Existing €500 notes would still be legal tender, yet would be in short supply. This ban raised the possibility of buyers’ paying a premium in digital money, say €502, for available €500 notes. A premium purchase amounts to a negative interest rate on physical cash, a heretofore unheard-of result. On August 30, 2016, Kenneth Rogoff, Harvard professor and former chief economist of the IMF, published a manifesto called The Curse of Cash, an elite step-by-step plan to eliminate cash entirely. The war on cash and the rush to negative interest rates are advancing in lockstep, two sides of the same coin. Before cattle are led to slaughter, they are herded into pens so they can be easily controlled. The same is true for savers.

The Open Society and Its Enemies: Volume 1, The Spell of Plato. Princeton, NJ: Princeton University Press: 1971. ———. The Open Society and Its Enemies: Volume 2, The High Tide of Prophecy: Hegel, Marx, and the Aftermath. Princeton, NJ: Princeton University Press, 1971. Rappleye, Charles. Herbert Hoover in the White House: The Ordeal of the Presidency. New York: Simon & Schuster, 2016. Reinhart, Carmen M., and Kenneth S. Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009. Ricardo, David. The Principles of Political Economy and Taxation. Mineola, NY: Dover Publications, 2004. Rickards, James. Currency Wars: The Making of the Next Global Crisis. New York: Portfolio/Penguin, 2011. ———. The Death of Money: The Coming Collapse of the International Monetary System.


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

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, business cycle, buy and hold, 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, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, Kenneth Rogoff, labor-force participation, 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 market fund, 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, undersea cable, 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.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

"Robert Solow", Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Berlin Wall, book scanning, Bretton Woods, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, premature optimization, price stability, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Shiller, short selling, Silicon Valley, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

Walters’s Ghost Takes Banks on a Lending Spree Padoa-​Schioppa was particularly proud that the ECB had successfully kept “inflation and inflation expectations stable and anchored to its very demanding definition of price stability.”76 Similarly, Jean-​Claude Trichet, who had succeeded Wim Duisenberg as ECB president on November 1, 2003, said that with its “steady posture” and “alertness,” the ECB had conveyed a message of calm and had thus achieved low and stable inflation with minimal activism.77 This self-​ congratulation missed the point. Sweden and the United Kingdom, having consciously stayed out of the eurozone, had also achieved irrational exuberance 173 low inflation rates. Even Poland, much poorer than euro-​area countries and hence more likely to experience bursts of inflation, had contained its inflation to near the euro-​area average. Indeed, inflation had rapidly come down throughout the world. As Kenneth Rogoff, then the IMF’s chief economist and director of its research department, explained, competition from Chinese and other Asian exporters had “put downward pressure” on prices.78 Inflation had come down everywhere, in large part because cheap Chinese manufactured goods were keeping a lid on prices. In fact, the euro area had a serious inflation problem. The average inflation rate, around 2 percent, hid a large and worrying divergence in inflation rates.

It was not too early, Gourinchas advised, for the Greek and Portuguese governments to tighten their fiscal belts and start saving up for the day when the bills would surely come due. Another Princeton economist, Christopher Sims, spoke next, and he had the same message: “Opening up capital markets in poor countries has often led initially to large inflows and later to financial problems.”137 Sims also warned of the risk of sovereign defaults. In August 2003, economists Carmen Reinhart and Kenneth Rogoff noted that Greece and Portugal belonged to the small club of “serial defaulters.”138 Both had defaulted on external creditors multiple times in the nineteenth century. Rogoff was still the IMF’s chief economist and Reinhart was one of his deputies. Together with their colleague, Miguel Savastano, they reported that serial defaulters had “weak fiscal structures and weak financial systems,” which persisted for years.

The two presidential candidates, Senators Barack Obama and John McCain, opposed pampering rich financiers. Many mocked Treasury Secretary Paulson as “Mr. Bailout.” And so, “Mr. Bailout” Paulson, feeling political heat, decided that this was the time to stand firm against rescuing Lehman.92 Without Bear Stearns-style protection for its creditors, there was no buyer for Lehman. On September 15, Lehman Brothers filed for bankruptcy. Stock prices declined. The stress in the interbank market rose. Kenneth Rogoff—​Harvard University economics professor, former chief economist of the IMF, and a man who had dropped out of high school to become a chess grand master—​was prominent among commentators who welcomed the decision to let Lehman fall. In an op-​ed piece for the Washington Post on September 16, Rogoff’s theme was “The Government is willing to let Wall Street firms fail. That’s good.” He acknowledged that the financial tumult since the Lehman bankruptcy announcement was unnerving and was likely to continue.


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

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

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

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, 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, endogenous growth, 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, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, 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, Paul Samuelson, 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 Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

Simon Johnson, 2009, “The Quiet Coup,” Atlantic Magazine, May, accessed 16 October 2012, http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/. 39. Nestor A. Espenilla Jr., 2009, “Regulatory Factors That Contributed to the Global Financial Crisis,” Asia-Pacific Social Science Review 9 (1): 35–40. 40. James H. Stock and Mark W. Watson, 2002. “Has the Business Cycle Changed and Why?,” in NBER Macroeconomics Annual, vol. 17, ed. Mark Gertler and Kenneth Rogoff (Cambridge, MA: MIT Press), 159–218. 41. Andrew G. Haldane, 2009, “Rethinking the Financial Network,” speech delivered to the Amsterdam Student Association, April, accessed 21 January 2013, http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech386.pdf. 42. Authors’ calculation based on data from Lucinda Maer and Nida Broughton, 2012, “Financial Services: Contribution to the UK Economy,” SN/EP/06193, House of Commons Library (Economics, Politics, and Statistics Section), p. 3, table 1, accessed 22 January 2013, http://www.parliament.uk/briefing-papers/SN06193.pdf. 43.

Theory and Society 38 (3): 217–243. Peters, Kai, and Narendra Laljani. 2009. “The Evolving MBA.” Global Study Magazine 4 (3): 36–49. Pongsiri, Monitira J., Joe Roman, Vanessa O. Ezenwa, Tony L. Goldberg, Hillel S. Koren, Stephen C. Newbold, Richard S. Ostfeld, Subhrendu K. Pattanayak, and Daniel J. Salkeld. 2009. “Biodiversity Loss Affects Global Disease Ecology.” BioScience 59 (11): 945–954. Prasad, Eswar S., Kenneth Rogoff, Shang-Jin Wei, and M. Ayan Kose. 2003. “Effects of Financial Globalization on Developing Countries: Some Empirical Evidence.” IMF Occasional Paper 220. International Monetary Fund, Washington, DC. Pritchett, Lant. 1997. “Convergence, Big Time.” Journal of Economic Perspectives 11 (3): 3–17. Pushpam, Kumar, ed. 2012. The Economics of Ecosystems and Biodiversity: Ecological and Economic Foundations.

Stern, Nicholas H. 2010. A Blueprint for a Safer Planet: How We Can Save the World and Create Prosperity. London: Vintage. Stiglitz, Jospeh E. 2006. Making Globalization Work. London: W. W. Norton. ———. 2012. The Price of Inequality. London: Allen Lane. Stock, James H., and Mark W. Watson. 2002. “Has the Business Cycle Changed and Why?” In NBER Macroeconomics Annual, vol. 17, ed. Mark Gertler and Kenneth Rogoff. Cambridge, MA: MIT Press, 159–218. Strasburg, Jenny, and Jacob Bunge. 2012. “Loss Swamps Trading Firm: Knight Capital Searches for Partner as Tab for Computer Glitch Hits $440 Million.” Wall Street Journal, 2 August. Accessed 21 January 2013. http://online.wsj.com/article/SB10000872396390443866404577564772083961412.html. Suez Canal Authority. 2011. Yearly Report. Ismailia, Egypt: Suez Canal Authority.


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Prosperity Without Growth: Foundations for the Economy of Tomorrow by Tim Jackson

"Robert Solow", bank run, banking crisis, banks create money, Basel III, basic income, bonus culture, Boris Johnson, business cycle, carbon footprint, Carmen Reinhart, Cass Sunstein, choice architecture, collapse of Lehman Brothers, creative destruction, credit crunch, Credit Default Swap, David Graeber, decarbonisation, dematerialisation, en.wikipedia.org, energy security, financial deregulation, Financial Instability Hypothesis, financial intermediation, full employment, Growth in a Time of Debt, Hans Rosling, Hyman Minsky, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, liberal capitalism, Mahatma Gandhi, mass immigration, means of production, meta analysis, meta-analysis, moral hazard, mortgage debt, Naomi Klein, new economy, offshore financial centre, oil shale / tar sands, open economy, paradox of thrift, peak oil, peer-to-peer lending, Philip Mirowski, profit motive, purchasing power parity, quantitative easing, Richard Thaler, road to serfdom, Robert Gordon, Ronald Reagan, science of happiness, secular stagnation, short selling, Simon Kuznets, Skype, smart grid, sovereign wealth fund, Steve Jobs, The Chicago School, The Great Moderation, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, universal basic income, Works Progress Administration, World Values Survey, zero-sum game

Online at www.oxfam.org/sites/www.oxfam.org/files/file_attachments/dp-a-safe-and-just-space-for-humanity-130212-en_5.pdf (accessed 30 March 2016). Reay, David, Colin Ramshaw and Adam Harvey 2008. Process Intensification: Engineering for Efficiency, Sustainability and Flexibility. Oxford: Butterworth-Heinemann. Reinhart, Carmen and Kenneth Rogoff 2013. ‘Financial and sovereign debt crises: some lessons learned and those forgotten’. IMF Working Paper WP/13/266. Washington, DC: International Monetary Fund. Reinhart, Carmen and Kenneth Rogoff 2010. ‘Growth in a time of debt’. American Economic Review: Papers and Proceedings 100: 573–578. Ridley, Matt 1996. The Origins of Virtue. London: Penguin Books. Ridley, Matt 1994. The Red Queen – Sex and the Evolution of Human Nature. London: Penguin Books. Ritzer, George 2004. The McDonaldization of Society.

Online at www.nature.com/nature/journal/v461/n7263/full/461472a.html (accessed 18 December 2015). Rogelj, Joeri, Michiel Schaeffer, Pierre Friedlingstein, Nathan Gillett, Detlef van Vuuren, Keywan Riahi et al. 2016. ‘Differences between carbon budget estimates unravelled’. Nature Climate Change 6: 245–252. doi:10.1038/nclimate2868. Rogoff, Kenneth 2015. ‘Oil prices and global growth. Project syndicate’. Online at www.project-syndicate.org/commentary/oil-prices-global-growth-by-kenneth-rogoff-2015-12?utm_source=Project+Syndicate+Newsletter&utm_campaign=c9ff3f432f-Rogoff_Oil_Prices_and_Global_Growth_12_20_2015&utm_medium=email&utm_term=0_73bad5b7d8-c9ff3f432f-104293997 (accessed 18 December 2015). Rose, Hilary and Stephen Rose 2000. Alas, Poor Darwin – Arguments Against Evolutionary Psychology. London: Jonathan Cape. Rosenbaum, E. 2015. ‘Zero growth and structural change in a post-Keynesian growth model’.


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

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, 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, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, 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, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, 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, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, 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

American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, break the buck, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, 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, information asymmetry, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, 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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What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

The outcome was revolution, a civil war, tumbrels, the guillotine, economic turmoil, and eventually, a military dictatorship and continent-wide war.37 Little wonder that Adam Smith, gazing on these events across the North Sea from Scotland, was a debt scold who would have been disgusted by the behavior of Reagan-era America. The discipline of the gold standard and prudence of American presidents produced some global fiscal stability in the post–World War II era. Between 1960 and the early 1980s, for example, severe sovereign credit crises involving default or restructuring afflicted fewer than 15 percent of countries. That was easily the lowest share since 1827. But, as economists Carmen Reinhart and Kenneth Rogoff document in their book, This Time is Different, the number of profligate nations that became severely indebted leaped in the Reagan era. By the end of Ronald Reagan’s Presidency, nearly 40 percent of nations across the globe had succumbed to his siren song of wildcat banking and were dealing with severe debt crises.38 America hopefully will not face a debt crisis in the years ahead. But, as we see in the next chapter, the serial budget deficits of the Reagan era are just one element of a much more wide-ranging collapse of prudent American credit management that occurred during this period.

The added responsibility the current system imposes on trade union and employer negotiators has had similar salutary effects on inflation in Australia.26 CHAPTER 18 GLOBALIZATION CAN BE A BOON OR A BANE “The positive conclusions of the cross-country study of inequality were that widening income gaps were not inevitable and technology forces driving incomes apart could be successfully countered with active government policies…. Globalisation had little impact on the gap between rich and poor.”1 Editorial, Financial Times, December 2011 “Germany has been the winner in the globalization process.”2 KENNETH ROGOFF, Der Spiegel, February 20, 2012 “67 percent of French employees believe globalization is ‘good for employment in France.’”3 ANNE RODIER, Le Monde, June 26, 2011 Globalization holds a potent lesson for America. But as we are learning, it isn’t the one you might anticipate: families in almost all other rich democracies benefited from the acceleration of international trade in recent decades.

Its share of US corporate profits has risen from around 16 percent at the election of President Reagan to over 40 percent in some recent years. In contrast, the profit share from manufacturing has slumped to a de minimus 10 or 12 percent. Easy credit and especially deregulation hastened growth in the financial sector, featuring rising bank leverage, opaque off-balance-sheet entities, and abuse of borrowers. The Harvard banking expert Kenneth Rogoff argues that this growth occurred because deregulation created vast new—if risky—opportunities for the financial sector to speculate: “How could financial services be a third of the economy? And the answer was that it was taking much bigger risks that it should have.”9 Peter Boone of the London School of Economics and Simon Johnson also finger deregulation: “Before 1935 and after 1980, however, the Fed’s financial regulation was and has been weak.


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

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, business cycle, 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, fixed income, 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, liberal capitalism, 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 inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, 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 Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Rachel, Lukasz and Thomas Smith (2015), ‘Drivers of Long-Term Global Interest Rates – Can Weaker Growth Explain the Fall?’ Bank Underground, Bank of England website. Rae, John (1895), The Life of Adam Smith, Macmillan and Co., London. Reddaway, W. Brian (1939), The Economic Consequences of a Declining Population, Allen and Unwin, London. Reinhart, Carmen M. and Kenneth S. Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, Princeton, New Jersey. Reinhart, Carmen, Vincent Reinhart and Kenneth Rogoff (2015), ‘Dealing with Debt’, Journal of International Economics, forthcoming. Ricardo, David (1816), Proposals for an Economical and Secure Currency, T. Davison, London. Roberts, Andrew (2014), Napoleon the Great, Allen Lane, London. Roberts, Richard (2013), Saving the City, Oxford University Press, Oxford.

So why, after the biggest monetary stimulus the world has ever seen, and six years after the end of the banking crisis, is the world recovery so slow? Some economists believe that we are experiencing what they call ‘secular stagnation’, a phrase coined by the American economist Alvin Hansen in his 1938 book Full Recovery or Stagnation?36 Today’s American economists, such as Ben Bernanke, Paul Krugman, Kenneth Rogoff and Larry Summers, have been using the more modern literary form of blogging to debate the issue. But it is not exactly clear what they mean by secular stagnation. Does it refer to stagnation of supply or of demand, or indeed both? Growth today seems possible only if interest rates are much lower than normal – at present the long-term real rate of interest is close to zero. The ‘natural’ real rate is the real rate of interest that generates a level of total spending sufficient to ensure full employment.


pages: 386 words: 122,595

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

"Robert Solow", affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, business cycle, buy and hold, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, 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, fixed income, 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, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, Malacca Straits, market bubble, microcredit, money market fund, 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, Sam Peltzman, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, 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, zero-sum game

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.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

"Robert Solow", banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

We also see that in this mechanism the self-regulating character of the financial markets disappears. Everyone is optimistic, euphoric even. This euphoria has a blinding effect, and few people notice the risks. Real estate prices and share prices continue to rise. The markets exercise no disciplining influence whatsoever on people’s behaviour. On the contrary, they lead the way to increased euphoria and an ever greater lack of discipline. As Carmen Reinhart and Kenneth Rogoff emphasize in their book This Time is Different,8 in periods of euphoria people tell tales which suggest that the price rises in shares or real estate are the result of fundamental developments. They believe that these high prices are the consequence of new technological developments and are completely justified. There is no question of a bubble. Then comes the crash. At some point it becomes abundantly clear that the euphoria has led to inflated share and real estate prices.

For a thorough analysis of scenarios see the report by the Intergovernmental Panel on Climate Change, , <http://www.ipcc.ch/report/ar/wg>. . See for example <http://www.iflscience.com/environment/climatologistarctic-carbon-release-could-mean-“were-fucked”>. . Jared Diamond, Collapse: How Societies Choose to Fail or Succeed (New York: Viking, ). . See Alan Greenspan, The Age of Turbulence: Adventures in a New World (London: Allen Lane, ). . Carmen M. Reinhardt and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, ). . Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (London: Allen Lane, ). . Kenneth J. Arrow, ‘Gifts and exchanges’, Philosophy and Public Affairs, / (), pp. –. . Ronald Coase, ‘ The Nature of the Firm’, Economica, / (November ), pp. –. .


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

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, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, 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, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, 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, stocks for the long run, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, undersea cable, 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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The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality by Brink Lindsey

"Robert Solow", Airbnb, Asian financial crisis, bank run, barriers to entry, Bernie Sanders, Build a better mousetrap, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, collective bargaining, creative destruction, Credit Default Swap, crony capitalism, Daniel Kahneman / Amos Tversky, David Brooks, diversified portfolio, Donald Trump, Edward Glaeser, endogenous growth, experimental economics, experimental subject, facts on the ground, financial innovation, financial intermediation, financial repression, hiring and firing, Home mortgage interest deduction, housing crisis, income inequality, informal economy, information asymmetry, intangible asset, inventory management, invisible hand, Jones Act, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, knowledge worker, labor-force participation, Long Term Capital Management, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass immigration, mass incarceration, medical malpractice, Menlo Park, moral hazard, mortgage debt, Network effects, patent troll, plutocrats, Plutocrats, principal–agent problem, regulatory arbitrage, rent control, rent-seeking, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, Silicon Valley, Silicon Valley ideology, smart cities, software patent, too big to fail, total factor productivity, trade liberalization, transaction costs, tulip mania, Uber and Lyft, uber lyft, Washington Consensus, white picket fence, winner-take-all economy, women in the workforce

The problem of regressive regulatory rents is much bigger than these specific instances, but we hope that a close look at these instances will suffice to give a well-grounded appreciation of how widespread and serious the problem has become. 3 FINANCE IN ANY SEARCH FOR POLICIES that slow growth and drive inequality, financial regulation is an obvious place to start. After all, the financial sector was Ground Zero for the worst economic crisis to hit this country since the Great Depression. As Harvard economists Carmen Reinhart and Kenneth Rogoff have documented, financial crises are terrible for growth because recoveries from them are generally slow and arduous.1 The US experience since the bursting of the housing bubble certainly jibes with Reinhart and Rogoff’s analysis, as the expansion in the aftermath of the Great Recession has been the slowest on record since World War II. According to the Federal Reserve Bank of Dallas, the total long-term cost of the financial crisis, including lost wealth and reduced output, exceeds 100 percent of current GDP.2 While the financial sector is prone to causing cataclysmic wealth destruction for the economy as a whole, it shows true virtuosity in bestowing riches on a favored few.

Journal of Law and Economics 51, no. 1 (February 2008): 1–23; Francine LaFontaine and Fiona Scott Morton, “State Franchise Laws, Dealer Terminations, and the Auto Crisis,” Journal of Economic Perspectives 24, no. 3 (Summer 2010): 233–50. 27.See Michael Mandel and Diana G. Carew, “Regulatory Improvement Commission: A Politically Viable Approach to U.S. Regulatory Reform,” Progressive Policy Institute Policy Memo, May 2013, http://www.progressivepolicy.org/wp-content/uploads/2013/05/05.2013-Mandel-Carew_Regulatory-Improvement-Commission_A-Politically-Viable-Approach-to-US-Regulatory-Reform.pdf. Chapter 3 1.See Carmen M. Reinhart and Kenneth S. Rogoff, This Time It’s Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2011). 2.See Tyler Atkinson, David Luttrell, and Harvey Rosenblum, “How Bad Was It? The Costs and Consequences of the 2007–09 Financial Crisis,” Federal Reserve Bank of Dallas Staff Paper no. 20, July 2013, https://dallasfed.org/assets/documents/research/staff/staff1301.pdf. 3.See Jon Bakija, Adam Cole, and Bradley T.


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

3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, 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, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Kenneth Rogoff, late fees, liberal capitalism, mega-rich, money market fund, 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, 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, WikiLeaks, working poor, zero-sum game

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

Alvin Roth, 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, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, longitudinal study, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Monkeys Reject Unequal Pay, new economy, New Urbanism, peer-to-peer, 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, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

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.


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

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 cycle, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, commoditize, creative destruction, 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 - Herbert Stein's Law, illegal immigration, index fund, intangible asset, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, money market fund, 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, zero-sum game, 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.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Robert Solow", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, housing crisis, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low skilled workers, market clearing, means of production, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Ponzi scheme, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

Summers argued that these trends could be attributed to a long-term fall in the amount of output that advanced economies could hope to produce, driven by slowing technological change and demographic shifts. The pre-crisis boom had merely disguised an underlying trend towards stagnation that had set in decades earlier. And since the crisis, the problem has only grown worse. Whilst GDP growth, wages, and employment have all fallen, Summers’ biggest worry was productivity — the long-term driver of economic growth in capitalist economies. Summers’ remarks have divided economists. Some, like Kenneth Rogoff, argue that slow growth and productivity are to be expected in the wake of a massive financial crisis.20 Households and businesses will all be attempting to deleverage at the same time, creating a Keynesian “paradox of thrift” — the kind of reverse economic multiplier caused when governments, households, or businesses cut their spending. This effect is exacerbated during what Richard Koo calls a “balance sheet recession”, caused by excessive lending.

In fact, through quantitative easing, the British state now owns as much as a third of its own debt, which has reduced the cost of borrowing to historic lows. The idea that the UK is on the verge of a sovereign debt crisis is laughable. If anything, investors are demanding more government bonds than states like the UK are willing to issue. The second argument for austerity is that high levels of debt curb economic growth. This argument has featured heavily in the debate about austerity thanks to Carmen Reinhart and Kenneth Rogoff, the authors of This Time Is Different: Eight Centuries of Financial Folly, the book used to justify George Osborne’s austerity agenda. This Time Is Different argues that above a particular level — 90% of GDP — government debt has a negative and statistically significant impact on growth. This argument has a long history. David Ricardo wrote that government borrowing never increases growth because perfectly rational, utility-maximising agents would respond to an expansion in government spending by saving because they anticipate tax hikes down the line.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

They were pretty clear about what that meant, too, adding, “We will avoid any premature withdrawal of stimulus.” Some economists howled in protest. The Italian economists Alberto Alesina and Silvia Ardagna published a study in October 2009 that said governments could spur economic growth by reducing budget deficits — in other words, by spending less money rather than more.6 A few months later, in January 2010, the American economists Carmen Reinhart and Kenneth Rogoff published a paper purporting to identify a kind of red line for government borrowing: they said that when debts exceeded 90 percent of a nation’s annual economic output, growth declined.7 The European Commission’s head of economic and monetary affairs, Olli Rehn, started talking about a “90-percent rule.” The chief economist of the International Monetary Fund called the 90 percent threshold “a good reference point.”

Greenspan was appalled, writing, “The spectacle of American central bankers trying to press the inflation rate higher in the aftermath of the 2008 crisis is virtually without precedent.” He predicted, incorrectly, that the effort could end in a return to double-digit inflation. See Alan Greenspan, The Map and the Territory (New York: Penguin Press, 2013), 269. 111. The worldwide decline in inflation was driven in large measure by globalization, rather than the specific policy choices of central banks. See Kenneth S. Rogoff, “Globalization and Global Disinflation,” in Monetary Policy and Uncertainty: Adapting to a Changing Economy (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 2003), 81. 112. Greg Ip, “Is Bernanke an Inflation Dove? Yes, but . . .,” Wall Street Journal, October 31, 2005. 113. Lawrence H. Summers, “The Great Liberator,” New York Times, November 19, 2006. 114. Robert E. Lucas, “Macroeconomic Priorities,” American Economic Review 93, no. 1 (2003): 1–14.

,” June 30, 2008, Center for Responsible Lending. 79. Greenspan interview. 80. Alan Greenspan, “Testimony Before the Joint Economic Committee, June 9, 2005,” Joint Economic Committee. 81. By some estimates, the inflow of global savings reduced interest rates in the United States by as much as a full percentage point. For more on the interplay of trade imbalances and the financial crisis, see Maurice Obstfeld and Kenneth Rogoff, “Global Imbalances and the Financial Crisis: Products of Common Causes,” November 2009; available at https://eml.berkeley.edu/~obstfeld/santabarbara.pdf. 82. Much of the money came from Asia. In his book Crashed, Adam Tooze documents that Europe played a substantial role, too. Some economists argue the Fed could have limited the credit bubble by raising interest rates more sharply and quickly.


pages: 270 words: 73,485

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

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

See also Alan Greenspan, The Age of Turbulence, with a new epilogue (Penguin, New York, 2008). 7.Financial Services Authority, The Turner Review: A Regulatory Response to the Global Banking Crisis (Financial Services Authority, London, 2009), p. 39. 8.The case for the Keynesians is argued by Robert Skidelsky, Keynes: The Return of the Master (Penguin, London, 2009). 9.Milton Friedman and Anna Schwartz, A Monetary History of the United States 1867–1960 (Princeton University Press, Princeton, NJ, 1963). 10.For the background to the euro, see David Marsh, The Euro: The Battle for the New Global Currency (Yale University Press, New Haven, CT, 2009). 7 The Search for an Answer 1.Thomas Piketty, Capital in the Twenty-First Century (Belknap Press, Cambridge, MA, 2014), see figure 6.1, p. 200; figure 6.2, p. 201; figure 8.5, p. 291. 2.Meghnad Desai, “An Econometric Model of the Share of Wages in National Income: UK 1855–1965” (1984), republished in The Selected Essays of Meghnad Desai, vol. 1: Macroeconomics and Monetary Theory (Edward Elgar, Cheltenham, 1995). 3.Andrew Glyn and Robert Sutcliffe, “The Collapse of UK Profits,” New Left Review, 66 (Mar.–Apr. 1971). 4.Gerard Duménil and Dominique Lévy, “The Crisis of the Early 21st Century: Marxian Perspectives,” in R. Bellofiore and G. Vertova, eds, The Great Recession and the Contradictions of Contemporary Capitalism (Edward Elgar, Cheltenham, 2014). 5.Piketty, Capital in the Twenty-First Century, ch. 5. 6.Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton University Press, Princeton, NJ, 2009). 7.Lawrence Summers, “Why Stagnation May Prove to Be the New Normal,” Financial Times, Dec. 15, 2013. 8.Julia Leung, The Tides of Capital: How Asia Surmounted the Crisis and Is Now Guiding World Recovery (Official Monetary and Financial Institutions Forum, London, 2015). 9.Karl Marx, Preface to A Contribution to the Critique of Political Economy (1859), trans.

(i) Phillips curve (i), (ii), (iii), (iv), (v), (vi), (vii) Friedman’s challenge (i) Friedman’s version (i) Phillips’ historical study (i) Pigou, Arthur Cecil (i), (ii), (iii) equation (i) “The Classical Stationary State” (i) Piketty, Thomas (i), (ii) Pitt, William (younger) (i) point of maximum efficiency (i) policy, responses to (i) politics, effect of economic change (i) population aging (i), (ii) growth (i), (ii), (iii), (iv) Malthus’ law (i) portfolio selection (i) Post-Keynesians (i) postwar economic order, planning for (i) poverty, urban (i) precautionary motive (i) precious metals acquisition of (i) as indicators of wealth (i) predictive modeling (i), (ii) preemptive tax cut (i) preference shocks (i) price, as value (i) price levels, new classical model (i) price rises 1492 to 1589 (i) and inflation (i) post-World War I (i) vs. value (i) price takers, vs. price setters (i) price volatility, Smith’s theory (i) prices agricultural (i) determination (i) empirical analysis of asset prices (i) and productivity (i) sticky (i) Prices and Production (Hayek) (i) pricing, monopoly power (i) Prince, Chuck (i) Principle of Motion (i) Principles of Economics (Marshall) (i) private spending, control of (i) privatization (i) problems, concealment by accounting (i) productivity and price of goods (i) and prosperity (i) professionalization, of economics (i) profit (i) dependence on market (i) effects of progress (i) vs. interest (i) maximization (i) realization of (i) as unearned income (i) profit rates, and unrestricted movement of capital (i) profit squeeze (i) profitability (i) progress, effects on profit (i) Progressive Movement, United States (i) prospect of recovery (i) prosperity (i), (ii), (iii) protectionism (i), (ii) public debt (i) as intergenerational (i) Keynesian models (i) public policy, inflation targeting (i) purchasing power parity (PPP) theory (i) quantitative easing (i) see also liquidity injecting quantity theory of money (i), (ii), (iii) railroads (i), (ii) Rajan, Raghuram (i), (ii) random events (i), (ii), (iii) rate of profit, and unrestricted movement of capital (i) rates of return, ex ante/ex post calculations (i) rational expectations (RE) (i), (ii), (iii) ready cash (i) Reagan, Ronald (i) real balance effect (i) real interest parity (i) real wages (i), (ii), (iii), (iv), (v), (vi), (vii) see also money wages; wages recapitalization, banks (i) reconstruction (i), (ii) recovery, prospect of (i) redistribution (i) regulation of banks (i) financial and commodity markets (i) UK approach (i) Reinhardt, Carmen M. (i) “This Time is Different” (with Kenneth Rogoff) (i) relative value (i) Ricardo (i) religion, prohibition of usury (i) religious beliefs (i) rentier class (i) rents, as unearned income (i), (ii) research tradition, constraints of (i) reserve currency (i), (ii) residual (i) resource exploitation, effects of (i) resources, reactivation (i) restricted capital movements (i) retrenchment, post-World War I (i) return, and risk (i) Ricardian Equivalence (i), (ii) Ricardian theory, failure of (i) Ricardo, Abraham Israel (i) Ricardo, David (i) character and biography (i) context of writings (i) free trade (i) iron law of wages (i), (ii) pessimism (i) on population growth (i) on profit (i) relative value (i) on rents (i) significance of work (i), (ii) theory of depreciation (i) theory of equilibrium (i), (ii), (iii) theory of the markets (i) trade doctrine (i) right of revolt (i) right-wing politics (i), (ii) risk (i) management and pricing (i) perpetuation (i) and return (i) spreading (i) Roaring Twenties (i) Robinson, Joan (i) rocking horse analogy (i), (ii) Rogoff, Kenneth S.


pages: 497 words: 150,205

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

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, Boris Johnson, Bretton Woods, BRICs, British Empire, business cycle, 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, creative destruction, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, disruptive innovation, 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, Intergovernmental Panel on Climate Change (IPCC), Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, 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, peer-to-peer rental, 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.


pages: 554 words: 158,687

Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

"Robert Solow", Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low skilled workers, M-Pesa, market bubble, means of production, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

It probably arose independently of state authority yet, at least in the ancient Greek world, its minting and use were inextricably connected to state power. 42 Historians of Medieval Europe have shown that significant accounting costs used to result when coins of different state denominations were in concurrent circulation; see Frederic Lane and Reinhold Mueller, Money and Banking in Medieval and Renaissance Venice, vol. 1, Baltimore: Johns Hopkins University Press, 1985. 43 The return of credit money to its issuer is the ‘law of the reflux’ that was noted by Steuart and became a defining feature of the Banking School in Britain; see Costas Lapavitsas, ‘The Banking School and the Monetary Thought of Karl Marx’, Cambridge Journal of Economics 18:5, 1994, pp. 447–61. 44 Marx, Capital, vol. 1, p. 238. 45 This is a fundamental insight of the post-Keynesian tradition that is in broad agreement with Marxist monetary theory. 46 These issues are more fully discussed in Lapavitsas, Social Foundations of Markets, Money and Credit, ch. 4. 47 Some elements of this development are discussed in Chapter 5; see also Itoh and Lapavitsas, Political Economy of Money and Finance, ch. 1, 2, 3; and Lapavitsas, Social Foundations of Markets, Money and Credit, ch. 4. 48 Convertibility of sterling into gold was also suspended in 1797 as the Napoleonic Wars began in full earnest but the period of the ‘Restriction’ came to an end in 1819, after giving rise to the Bullion Controversy that ushered Ricardo into political economy. At the time neither the British, nor the world economy possessed sufficiently mature credit mechanisms to allow circulation to thrive on inconvertible credit money. 49 Banknotes also function in criminal, illicit or ‘grey’ transactions, and large volumes are typically held outside their country of issue; for evidence on the largest countries, see Kenneth Rogoff, ‘Blessing or Curse? Foreign and Underground Demand for Euro Notes’, Economic Policy 13:26, April 1998. This issue is also briefly considered in the following section. 50 As is clearly established in Charles Freedman, ‘Monetary Policy Implementation: Past, Present and Future’, International Finance 3:2, 2000. 51 This essential similarity creates technical problems of classification and presentation of figures, which are apparent, for instance, in the sudden jumps of the time series for Japan in Figures 4 and 5.

Prescott, ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy 85:3, 1977; Robert Barro and David Gordon, ‘A Positive Theory of Monetary Policy in a Natural-Rate Model’, Journal of Political Economy 91:4, 1983; Barro and Gordon, ‘Rules, Discretion and Reputation in a Model of Monetary Policy’, Journal of Monetary Economics 12:1, 1983; Alberto Alesina and Guido Tabellini, ‘Rules and Discretion with Non-coordinated Monetary Policies’, Economic Enquiry 25:4, 1987; Kenneth Rogoff, ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics 100:4, 1985; Rogoff, ‘Reputational Constraints on Monetary Policy’, Carnegie-Rochester Conference Series on Public Policy 26, Spring 1987. For a critique see Bennett T. McCallum, ‘Two Fallacies Concerning Central Bank Independence’, American Economic Review 85:2, May 1995; and McCallum, ‘Crucial Issues Concerning Central Bank Independence’, Journal of Monetary Economics 39:1, 1997.


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

"Robert Solow", Andrei Shleifer, asset-backed security, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, Silicon Valley, the new new thing, 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, Vilfredo Pareto, wage slave

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. Bokhari et al., “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 Different: 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.

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.


pages: 264 words: 115,489

Take the Money and Run: Sovereign Wealth Funds and the Demise of American Prosperity by Eric C. Anderson

asset allocation, banking crisis, Bretton Woods, business continuity plan, business process, buy and hold, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, fixed income, 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: 422 words: 113,830

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

algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, 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, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, 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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Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

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

Herman Daly was an early pioneer in the 1970s but his prescient call for creating ‘steady state’ economies fell on reluctant political ears. Today, an increasing number of governments in high-income countries face very real prospects of low or no GDP growth over the coming decades and, for the first time, some are quietly asking if economists have ideas about how to embrace that reality. Support for such thinking is emerging from the most unexpected of places, such as the influential mainstream US economist Kenneth Rogoff, whose career has spanned the IMF, the US Federal Reserve and Harvard University. ‘In a period of great economic uncertainty,’ he wrote in 2012, ‘it may seem inappropriate to question the growth imperative. But then again, perhaps a crisis is exactly the occasion to rethink the longer-term goals of global economic policy.’47 Let’s take up the opportunity of this prolonged crisis and start identifying the various ways – financial, political and social – in which today’s high-income economies, and others following their path, are locked into and addicted to pursuing GDP growth.

Home to over 550 million people and 25% of World GDP, these cities – and their economic vision – will be profoundly influential far beyond their city limits.66 New games help, but the compulsion of the old GDP game holds its grip because GDP brings both global market power and global military power. This geopolitical lock-in demands far more strategic attention. ‘An economic race for global power is certainly an understandable rationale for focusing on long-term growth,’ argues Kenneth Rogoff, ‘but if such competition is really a central justification for this focus, then we need to re-examine standard macroeconomic models, which ignore this issue entirely.’67 Beyond merely rewriting macroeconomic models, however, this lock-in highlights the need for innovative thinkers in international relations to turn their attention to strategies that could help to usher in a future of growth-agnostic global governance.


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

active measures, 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, longitudinal study, 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, twin studies, 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.


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

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

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?


pages: 580 words: 168,476

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

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, 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, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, 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%, wealth creators, women in the workforce, zero-sum game

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.


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

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, 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, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, 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, Satyajit Das, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, the new new thing, 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, zero-sum game

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

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, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, 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, G4S, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, 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, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, 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, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stocks for the long run, survivorship bias, 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, zero-sum game

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

"Robert Solow", Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, break the buck, 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, money market fund, 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.


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Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

It may also reignite long-dormant debates about the type of capitalism that produces the greatest prosperity. Economics Hijacked When the stakes are high, it is no surprise that battling political opponents use whatever support they can garner from economists and other researchers. That is what happened when conservative American politicians and European Union officials latched on to the work of two Harvard professors—Carmen Reinhart and Kenneth Rogoff—to justify their support of fiscal austerity.9 Reinhart and Rogoff had published a paper that appeared to show that public-debt levels above 90 percent of GDP do significant damage to economic growth. The paper was criticized by three economists from the University of Massachusetts at Amherst, who argued their findings were brittle.10 They had found a relatively minor spreadsheet error. But more importantly, they charged that Reinhart and Rogoff had made some questionable methodological assumptions that cast doubt on their results.

New York Times, Opinion Pages, January 26, 2016, https://www.nytimes.com/2016/01/26/opinion/whats-our-duty-to-the-people-globalization-leaves-behind.html?_r=2. 8. Fabrice Defever and Alejandro Riaño, “China’s Pure Exporter Subsidies,” Centre for Economic Performance Discussion Paper No. 1182, London School of Economics and Political Science, December 2012. 9. The original paper is Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in the Time of Debt,” NBER Working Paper No. 15639, January 2010. 10. 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, vol. 38(2), 2014: 257–279. 11. Alberto F. Alesina and Silvia Ardagna, “Large Changes in Fiscal Policy: Taxes Versus Spending,” NBER Working Paper No. 15438, October 2009. 12.


pages: 518 words: 128,324

Destined for War: America, China, and Thucydides's Trap by Graham Allison

9 dash line, anti-communist, Berlin Wall, borderless world, Bretton Woods, British Empire, capital controls, Carmen Reinhart, conceptual framework, cuban missile crisis, currency manipulation / currency intervention, Deng Xiaoping, disruptive innovation, Donald Trump, facts on the ground, Flash crash, Francis Fukuyama: the end of history, game design, George Santayana, Haber-Bosch Process, industrial robot, Internet of things, Kenneth Rogoff, liberal world order, long peace, Mark Zuckerberg, megacity, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, Nelson Mandela, one-China policy, Paul Samuelson, Peace of Westphalia, purchasing power parity, RAND corporation, Ronald Reagan, Scramble for Africa, selection bias, Silicon Valley, Silicon Valley startup, South China Sea, special economic zone, spice trade, the rule of 72, The Wealth of Nations by Adam Smith, too big to fail, trade route, UNCLOS, Washington Consensus, zero-sum game

Some observers claim the twenty-first century is so different from the past that lessons from previous experience are no longer relevant. To be sure, it is difficult to find precedents for current levels of economic integration, globalization, and ubiquitous worldwide communication, or global threats from climate disruption to violent Islamic extremism. But as my colleagues Carmen Reinhart and Kenneth Rogoff remind us in their analysis of 350 financial crises over the past eight centuries, many previous generations have imagined that This Time Is Different. 56 Reinhart and Rogoff side with Thucydides in reasoning that, as long as men are men, we can anticipate recurring patterns in human affairs. After all, one of the best-selling books in Europe in the decade before World War I was Norman Angell’s The Great Illusion.

For a definitive account of Soviet and American interventions in the Third World during this era, see Odd Arne Westad, The Global Cold War: Third World Interventions and the Making of Our Times (Cambridge: Cambridge University Press, 2005). For an illuminating narrative history of American covert operations in the Cold War that were aimed at foreign regime change, see Stephen Kinzer, Overthrow: America’s Century of Regime Change from Hawaii to Iraq (New York: Times Books, 2006), 111–216. [back] 56. Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). [back] 57. See Howard Weinroth, “Norman Angell and The Great Illusion: An Episode in Pre-1914 Pacifism,” Historical Journal 17, no. 3 (September 1974), 551–74. [back] 58. Harvard Nuclear Study Group, Living with Nuclear Weapons (Cambridge, MA: Harvard University Press, 1983), 43–44.


Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth by Stuart Ritchie

Albert Einstein, anesthesia awareness, Bayesian statistics, Carmen Reinhart, Cass Sunstein, citation needed, Climatic Research Unit, cognitive dissonance, complexity theory, coronavirus, correlation does not imply causation, COVID-19, Covid-19, crowdsourcing, deindustrialization, Donald Trump, double helix, en.wikipedia.org, epigenetics, Estimating the Reproducibility of Psychological Science, Growth in a Time of Debt, Kenneth Rogoff, l'esprit de l'escalier, meta analysis, meta-analysis, microbiome, Milgram experiment, mouse model, New Journalism, p-value, phenotype, placebo effect, profit motive, publication bias, publish or perish, race to the bottom, randomized controlled trial, recommendation engine, rent-seeking, replication crisis, Richard Thaler, risk tolerance, Ronald Reagan, Scientific racism, selection bias, Silicon Valley, Silicon Valley startup, Stanford prison experiment, statistical model, stem cell, Steven Pinker, Thomas Bayes, twin studies, University of East Anglia

Just as physicists would love to discover a new law (or a way to break the ones we already know), and just as mathematicians work endlessly to prove their theorems, many social scientists, particularly economists, long to discover a stylised fact that can be associated with their name – and that the people who make important decisions can easily keep in mind. When they published a major paper in 2010, the economists Carmen Reinhart and Kenneth Rogoff thought they’d hit the stylised-fact jackpot. For two years, politicians had been frantically trying to address the fallout of the 2008 financial crisis and the ensuing Great Recession. Amid all the conflicting advice, Reinhart and Rogoff’s paper, entitled ‘Growth in a Time of Debt’, was a godsend, providing strong evidence to recommend one particular course of economic action: austerity.2 Reinhart and Rogoff had studied the debt-to-GDP ratio – the relationship between what a country owes to its creditors (its public debt, which, perhaps confusingly, is also known as its government debt or its sovereign debt) and what new goods and services it can produce (its Gross Domestic Product).

My point here is that they can all bias our view of scientific results. 5: Negligence Epigraph: Charles Caleb Cotton, Lacon, or Many Things in Few Words (London, 1820). 1.  Daniel Hirschman, ‘Stylized Facts in the Social Sciences’, Sociological Science 3 (2016): pp. 604–26; https://doi.org/10.15195/v3.a26 2.  The study was an online ‘working paper’ for a while (as is normal in economics, as we’ll see in the final chapter), but it was eventually officially published as Carmen M. Reinhart and Kenneth S. Rogoff, ‘Growth in a Time of Debt’, American Economic Review 100, no. 2 (May 2010): pp. 573–78; https://doi.org/10.1257/aer.100.2.573 3.  Osborne: George Osborne, ‘Mais Lecture – A New Economic Model’, 24 Feb. 2010; https://conservative-speeches.sayit.mysociety.org/speech/601526; Republican members: United States Senate Committee on the Budget, ‘Sessions, Ryan Issue Joint Statement On Jobs Report, Call For Senate Action On Budget’, 8 July 2011; https://www.budget.senate.gov/chairman/newsroom/press/sessions-ryan-issue-joint-statement-on-jobs-report-call-for-senate-action-on-budget 4.  

Paul Krugman, ‘How the Case for Austerity Has Crumbled’, New York Review of Books, 6 June 2013; https://www.nybooks.com/articles/2013/06/06/how-case-austerity-has-crumbled/ 5.  Thomas Herndon et al., ‘Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff’, Cambridge Journal of Economics 38, no. 2 (April 2013): pp. 257–79; https://doi.org/10.1093/cje/bet075 6.  Reinhart and Rogoff admitted the Excel error, though they didn’t agree with the critics on many of their other points: Carmen M. Reinhart & Kenneth S. Rogoff, ‘Reinhart-Rogoff Response to Critique’, Wall Street Journal, 16 April 2013; https://blogs.wsj.com/economics/2013/04/16/reinhart-rogoff-response-to- critique/ 7.  Herndon et al., ‘High Public Debt’, p. 14. 8.  Betsey Stevenson & Justin Wolfers, ‘Refereeing Reinhart-Rogoff Debate’, Bloomberg Opinion, 28 April 2013; https://www.bloomberg.com/opinion/articles/2013-04-28/refereeing-the-reinhart-rogoff-debate 9.  


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

Age-related spending, pensions and healthcare Until now, we have considered how ageing affects the real, as opposed to the financial side of the economy. However, the almost fourfold rise in the old-age dependency ratio will subject China to a substantial fiscal burden. The development of coping mechanisms can help to mitigate the burden, but China will also have to make difficult decisions affecting taxation and spending to keep public debt on an even keel. In their seminal work in the wake of the financial crisis, Carmen Reinhart and Kenneth Rogoff asserted that economic growth slows sharply, or even falls, once the ratio of public debt to GDP breaches 90 per cent.17 While the mechanical implication here has been disputed, and may in any case be uncertain in a state-driven economy, economists are right to say that the debt to GDP ratio cannot increase continuously without important economic implications, even if precise thresholds of risk are hard to define.

‘China’s Rural Poor Bear the Brunt of the Nation’s Aging Crisis’, Bloomberg, 5 January 2017, <https://www.bloomberg.com/news/articles/2017-01-05/china-s-rural-poor-bear-the-brunt-of-the-nation-s-aging-crisis>. 15. ‘China Plans Immigration Agency to Lure Overseas Talent’, Bloomberg, 18 July 2016, <https://www.bloomberg.com/news/articles/2016-07-18/china-said-to-create-new-office-to-lure-overseas-work-talent>. 16. ‘China 2030’, World Bank and Development Research Center of the State Council, 2013. 17. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009. 18. IMF, ‘Older and Smaller’, Finance and Development, vol. 53, no. 1, March 2016. 19. IMF, Fiscal Monitor, October 2016. 20. Hu Jiye, China University of Political Science and Law, cited in Wynne Wang, ‘The Silver Age: China’s Aging Population’, Cheung Kong Graduate School of Business (CKGSB) Knowledge, 17 October 2016. 21.


pages: 268 words: 74,724

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

Airbnb, bank run, Bernie Madoff, bitcoin, Bretton Woods, buy and hold, Carmen Reinhart, corporate raider, correlation does not imply causation, creative destruction, 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, money market fund, 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, Travis Kalanick, 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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End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, 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, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

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: 250 words: 64,011

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

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, publication bias, QR code, randomized controlled trial, risk-adjusted returns, Ronald Reagan, selection bias, statistical model, The Signal and the Noise by Nate Silver, Thomas Bayes, Tim Cook: Apple, wikimedia commons, Yogi Berra

Food and Drug Administration (FDA) 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 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. 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: 416 words: 106,532

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond by Chris Burniske, Jack Tatar

Airbnb, altcoin, asset allocation, asset-backed security, autonomous vehicles, bitcoin, blockchain, Blythe Masters, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, disintermediation, distributed ledger, diversification, diversified portfolio, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial innovation, fixed income, George Gilder, Google Hangouts, high net worth, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, Marc Andreessen, Mark Zuckerberg, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, packet switching, passive investing, peer-to-peer, peer-to-peer lending, Peter Thiel, pets.com, Ponzi scheme, prediction markets, quantitative easing, RAND corporation, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, Uber for X, Vanguard fund, WikiLeaks, Y2K

Every bubble by definition deflates.”27 “THIS TIME IS DIFFERENT” When asset markets are taken over by mass speculation and prices reach nosebleed territory, a common refrain can often be heard: “This time is different.” Typically, the logic goes that the markets have evolved from more primitive years, and financial engineering innovations have led to robust markets that can’t possibly crash. Time and again this thesis has been refuted by subsequent market crashes. In their well-regarded book This Time Is Different: Eight Centuries of Financial Folly, Carmen Reinhart and Kenneth Rogoff deliver a 300-page tour de force to prove that this time is never different. They describe how “this time is different” thinking was used to justify the sustainability of jubilant markets prior to the 1929 crash that led to the Great Depression. Proponents of “this time is different” thinking claimed that business cycles had been cured by the creation of the Federal Reserve in 1913. The thinking was that the Federal Reserve could use monetary policy to boost economies when production and consumption were flagging, and they could reel in markets when they showed signs of overheating.

Edward Chancellor, Devil Take the Hindmost. 32. Ibid. Chapter 11 1. Edward Chancellor, Devil Take the Hindmost: A History of Financial Speculation (Farrar, Straus and Giroux, 1999). 2. http://www.thebubblebubble.com/mississippi-bubble/. 3. http://www.thebubblebubble.com/south-sea-bubble/. 4. Edward Chancellor, Devil Take the Hindmost. 5. Ibid. 6. Ibid. 7. Ibid. 8. Ibid. 9. Carmen M. Rinehart and Kenneth S. Rogoff, This Time Is Different (Princeton University Press, 2011). 10. https://www.washingtonpost.com/news/wonk/wp/2015/06/08/bitcoin-isnt-the-future-of-money-its-either-a-ponzi-scheme-or-a-pyramid-scheme/?utm_term=.39f7a8895637. 11. http://documents.worldbank.org/curated/en/660611468148791146/pdf/WPS6967.pdf. 12. https://cointelegraph.com/news/one-coin-much-scam-swedish-bitcoin-foundation-issues-warning-against-onecoin. 13. https://news.bitcoin.com/beware-definitive-onecoin-ponzi/. 14. https://www.fca.org.uk/news/news-stories/beware-trading-virtual-currencies-onecoin. 15. https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf. 16.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, 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, dogs of the Dow, 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, information asymmetry, 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, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, 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, survivorship bias, 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: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

These include Lord Adair Turner, W. Brain Arthur, Doyne Farmer, Andreas Antonopoulos, Satyajit Das, Joyce Appleby, Yanis Varoufakis, Patrick O’Sullivan, Nigel Allington, Mark Esposito, Sitabhra Sinha, Thomas Sowell, Niall Ferguson, Andy Stern, Alan Kirman, Neel Kashkari, Danny Dorling, David Graeber, Amir Sufi, Atif Mian, Vitalik Buterin, Andy Haldane, Gillian Tett, Martin Sandbu, Robert Reich, Kenneth Rogoff, Paul Beaudry, Michael Kumhof, Diane Coyle, Ben Dyson, Dirk Helbing, Guy Michaels, David Autor, Richard Gendal Brown, Tim Swanson, David Andolfatto, Paul Pfleiderer, Zoltan Pozsar, Frank Levy, Richard Murnane, César Hidalgo, and Robin Hanson, among others. An equal measure of thanks also needs to be given to all the academics and researchers whom I had the chance to meet via the Institute of New Economic Thinking.

Remember that a commercial bank can issue money via offering a consumer a loan. But the physical printing of cold hard cash is still the right of the government, and the revenues from paper currency are considerable enough to offer the biggest counterargument to moving to a cashless system. But in light of the costs of the illegal activities that cash facilitates, the profits earned by Seigniorage are a pittance in comparison. As stated by Kenneth Rogoff in The Curse of Cash (2016), The “profits” governments reap by blindly accommodating demand for cash are dwarfed by the costs of the illegal activity that cash, especially big bills, facilitates. The effect of curtailing paper currency on tax evasion alone would likely cover the lost profits from printing paper currency, even if tax evasion fell by only 10–15%. The effect on illegal activities is probably even more important.


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The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

That person cannot be someone who can be tainted even by an accusation of conflict of interest, which is inevitable with the “revolving door” that has too often been associated with the regulation of this sector. Nor should it be someone who suffers from “cognitive capture” by Wall Street. At the same time, the person has to have the confidence of the financial markets, and a deep understanding of those markets. Ms. Yellen has managed to do this—an impressive achievement in its own right. One might say that the country is fortunate to have two candidates who, as the Harvard economist Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, writes, are “brilliant scholars with extensive experience in public service.” But brilliance is not the only determinant of performance. Values, judgment, and personality matter, too. The choices have seldom been so stark, the stakes so large. No wonder that the choice of the Fed leader has stirred such emotion. Ms. Yellen has a truly impressive record in each of the jobs she has undertaken.

We are endangering our future because there will be a large coterie of people at the bottom who will not live up to their potential, who will not be able to make the contribution that they could have made, to the prosperity of the country as a whole. All of this exposes the Republicans’ argument in favor of these food policies—a concern for our future, particularly the impact of the national debt on our children—as a dishonest and deeply cynical pretense. Not only has the intellectual undergirding of debt fetishism been knocked out (with the debunking of work by the Harvard economists Carmen M. Reinhart and Kenneth S. Rogoff that tied slowed growth to debt-to-GDP ratios above 90 percent). The Republicans’ farm bill also clearly harms both America’s children and the world’s in a variety of ways. For these proposals to become law would be a moral and economic failure for the country. ______________ * New York Times, November 16, 2013. ON THE WRONG SIDE OF GLOBALIZATION* TRADE AGREEMENTS ARE A SUBJECT THAT CAN CAUSE THE eyes to glaze over, but we should all be paying attention.

Australian Prime Minister Tony Abbott’s recently elected government provides a case in point. As in many other countries, conservative governments are arguing for cutbacks in government spending, on the grounds that fiscal deficits imperil their future. In the case of Australia, however, such assertions ring particularly hollow—though that has not stopped Abbott’s government from trafficking in them. Even if one accepts the claim of the Harvard economists Carmen Reinhart and Kenneth Rogoff that very high public debt levels mean lower growth—a view that they never really established and that has subsequently been discredited—Australia is nowhere near that threshold. Its debt-to-GDP ratio is only a fraction of that of the U.S., and one of the lowest among the OECD countries. What matters more for long-term growth are investments in the future—including crucial public investments in education, technology, and infrastructure.


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

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, 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, creative destruction, 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, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, 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, Paul Samuelson, 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 Future of Employment, 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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Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, 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, endogenous growth, 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, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, 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 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, Thales of Miletus, 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.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

., Feminism and Anti-Feminism in Early Economic Thought, Edward Elgar 1992 Putnam, Hilary and Vivian Walsh (eds.), The End of Value-Free Economics, Routledge 2011 Raphael, D. D., The Impartial Spectator: Adam Smith’s Moral Philosophy, Oxford University Press 2007 Rasmussen, Dennis, The Infidel and the Professor: David Hume, Adam Smith, and the Friendship that Shaped Modern Thought, Princeton University Press 2017 Rawls, John, A Theory of Justice, Harvard University Press 1974 Reinhart, Carmen and Kenneth Rogoff, This Time is Different, Princeton University Press 2011 Ricardo, David, On the Principles of Political Economy, and Taxation, John Murray 1817 Ridley, Matt, The Rational Optimist, Fourth Estate 2010 Robbins, Lionel, An Essay on the Nature and Significance of Economic Science, Macmillan 1932 Roberts, Russ, How Adam Smith Can Change your Life, Penguin 2014 Rodrik, Dani, Economics Rules, Oxford University Press 2015 Rodrik, Dani, The Globalisation Paradox, Oxford University Press 2011 Rosling, Hans, Ola Rosling and Anna Rosling RÖnnlund, Factfulness: Ten Reasons We’re Wrong About the World—And Why Things Are Better Than You Think, Sceptre 2018 Rothbard, Murray, Economic Thought before Adam Smith: An Austrian Perspective, Edward Elgar 1995 Rothschild, Emma, Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment, Harvard University Press 2001 Samuelson, Paul, Economics, 19th edn, rev.

History of manias, bubbles and crashes: there is considerable controversy as to the correct explanation for different bubbles or manias. See e.g. Charles P. Kindleberger, Manias, Panics, and Crashes, 4th edn, John Wiley 2000; Robert Shiller, Irrational Exuberance, Princeton University Press 2000; Peter Garber, Famous First Bubbles: The Fundamentals of Early Manias, MIT Press 2000; and for finance, Carmen Reinhart and Kenneth Rogoff, This Time is Different, Princeton University Press 2011 Keynes’s beauty competition: J. M. Keynes, The General Theory of Employment, Interest and Money, Macmillan 1936 Asset markets and credit creation: see George Cooper, The Origin of Financial Crises, 2nd edn, Harriman House 2010 Hyman Minsky: see his Stabilizing an Unstable Economy, Yale University Press 1986. Minsky’s insistence on radical uncertainty, on the centrality of the financial sector to the modern economy and on the pro-cyclical nature of market dynamics is especially noteworthy US housing market and the 2008 crisis: Steven D.


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

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, break the buck, business cycle, 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, fixed income, George Akerlof, Growth in a Time of Debt, income inequality, information asymmetry, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Larry Wall, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Satyajit Das, 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.


Economic Origins of Dictatorship and Democracy by Daron Acemoğlu, James A. Robinson

Andrei Shleifer, British Empire, business cycle, colonial rule, conceptual framework, constrained optimization, Corn Laws, declining real wages, Edward Glaeser, European colonialism, Gunnar Myrdal, income inequality, income per capita, invisible hand, Jean Tirole, John Markoff, Kenneth Rogoff, land reform, minimum wage unemployment, Nash equilibrium, Nelson Mandela, oil shock, open economy, Pareto efficiency, rent-seeking, strikebreaker, total factor productivity, transaction costs, Washington Consensus, William of Occam, women in the workforce

Kuznets, Simon S. (1966) Modern Economic Growth: Rate, Structure, and Spread; New Haven: Yale University Press. Lang, Sean (1999) Parliamentary Reform, 1785–1928; New York: Routledge. 390 Bibliography Lapp, Nancy D. (2004) Landing Votes: Representation and Land Reform in Latin America; New York: Palgrave Macmillan. Leamer, Edward E. (1995) “International Trade Theory: The Evidence,” in James Levinson, Gene M. Grossman, and Kenneth Rogoff (eds.). The Handbook of International Economics, Volume III; Amsterdam: North-Holland. Leamer, Edward E. (1998) “In Search of Stolper–Samuelson Effects on U.S. Wages,” in Susan M. Collins (ed.). Imports, Exports, and the U.S. Worker; Washington, DC: Brookings Institution Press. Lee, Stephen J. (1994) Aspects of British Political History, 1815–1914; New York: Routledge. Legros, Patrick, and Andrew F.

Popkin, Samuel L. (1979) The Rational Peasant: The Political Economy of Rural Society in Vietnam; Berkeley: University of California Press. Bibliography 395 Potter, Anne L. (1981) “The Failure of Democracy in Argentina 1916–1930: An Institutional Perspective,” Journal of Latin American Studies, 13, 83–109. Powell, Robert (2004) “The Inefficient Use of Power: Costly Conflict with Complete Information,” American Political Science Review, 98, 231–41. Prasad, Eswar, Kenneth Rogoff, Shang-jin Wei, and M. Ayhan Kose (2002) “Effects of Financial Globalization on Developing Countries: Some Empirical Evidence,” International Monetary Fund: March 17, 2003. Available at: http://www.imf.org/external/np/res/docs/ 2003/031703.pdf. Price, Robert M. (1991) The Apartheid State in Crisis: Political Transformation in South Africa 1975–1990; New York: Oxford University Press. Price, Roger (1997) Napoleon III and the Second Empire; New York: Routledge.

Rodan, Gary (1998) “Singapore in 1997: Living with the Neighbours,” Asian Survey, 38, 177–82. 396 Bibliography Rodrik, Dani (1997) Has Globalization Gone Too Far? Washington, DC: Institute of International Economics. Rodrik, Dani (1999) “Democracies Pay Higher Wages,” Quarterly Journal of Economics, CXIV, 707–38. Rodrik, Dani, and Francisco Rodriguez (2000) “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence,” in Ben S. Bernanke and Kenneth S. Rogoff (eds.). NBER Macroeconomic Annual; Cambridge, MA: MIT Press. Roemer, John E. (1995) “Rationalizing Revolutionary Ideology: A Tale of Lenin and the Tsar,” Econometrica, 53, 85–108. Roemer, John E. (1998) “Why the Poor Don’t Expropriate the Rich in Democracies,” Journal of Public Economics, 70, 399–424. Rogowski, Ronald (1998) “Democracy, Capital, Skill, and Country Size: Effects of Asset Mobility and Regime Monopoly on the Odds of Democratic Rule,” in Paul W.


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The End of Wall Street by Roger Lowenstein

Asian financial crisis, asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, break the buck, 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, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, 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.


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23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

The fact is that the world has become more stable only if we regard low inflation as the sole indicator of economic stability, but it has not become more stable in the way most of us experience it. One sense in which the world has become more unstable during the last three decades of free-market dominance and strong anti-inflationary policies is the increased frequency and extent of financial crises. According to a study by Kenneth Rogoff, a former chief economist of the IMF and now a professor at Harvard University, and Carmen Reinhart, a professor at the University of Maryland, virtually no country was in banking crisis between the end of the Second World War and the mid 1970s, when the world was much more unstable than today, when measured by inflation. Between the mid 1970s and the late 1980s, when inflation accelerated in many countries, the proportion of countries with banking crises rose to 5–10 per cent, weighted by their share of world income, seemingly confirming the inflation-centric view of the world.


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The Scandal of Money by George Gilder

Affordable Care Act / Obamacare, bank run, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, Claude Shannon: information theory, Clayton Christensen, cloud computing, corporate governance, cryptocurrency, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, Deng Xiaoping, disintermediation, Donald Trump, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, glass ceiling, Home mortgage interest deduction, index fund, indoor plumbing, industrial robot, inflation targeting, informal economy, Innovator's Dilemma, Internet of things, invisible hand, Isaac Newton, Jeff Bezos, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, Law of Accelerating Returns, Marc Andreessen, Mark Zuckerberg, Menlo Park, Metcalfe’s law, money: store of value / unit of account / medium of exchange, mortgage tax deduction, obamacare, Paul Samuelson, Peter Thiel, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, reserve currency, road to serfdom, Robert Gordon, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, secular stagnation, seigniorage, Silicon Valley, smart grid, South China Sea, special drawing rights, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, time value of money, too big to fail, transaction costs, trickle-down economics, Turing machine, winner-take-all economy, yield curve, zero-sum game

“Bankers used leverage to increase profitability and exploited the backstop of public guarantees. The profits largely flow to the employees [i.e., the bankers], while the losses are defrayed by the taxpayers and shareholders and even retirees (through artificially low interest rates). The Fed also provided $1.2 trillion in loans to banks (mostly secret at the time).” 4.Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2011). 5.Mark Skousen, Vienna & Chicago, Friends or Foes? A Tale of Two Schools of Free-Market Economics (Washington, DC: Capital Press, 2005). Skousen superbly covers the canonical sources of Austrian and Chicago economic thought. See also Robert P. Murphy and Donald J. Boudreaux, Choice: Cooperation, Enterprise and Human Action (Oakland, CA: Independent Institute, 2015).


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The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

The transfer of economic power away from public authority to private wealthy elites had placed key financiers beyond the reach of the law, of regulators or politicians. This loss of democratic power hollowed out democratic institutions – parliaments and congresses – while ‘privatisation’ diminished whole sectors of the economy that had been subject to democratic oversight. Source: This Time is Different: A Panoramic View of Eight Centuries of Financial Crises by Carmen M. Reinhart, University of Maryland and NBER; and Kenneth S. Rogoff, Harvard University and NBER. Fig. 1. Financial crises during periods of high capital mobility after financial liberalisation. The economics profession and the universities stood aloof, as enormous power was concentrated in the hands of small groups of reckless financiers. Academic economists tended to focus myopically on microeconomic issues and lose sight of the macroeconomy. To this day, the academic economics profession remains distanced from the crisis, and almost irrelevant to its resolution.

But debts have to be repaid from income, whether the form of income comes as wages, salaries, profits or tax revenues. If rates of interest are too high, debtors have to raise the funds for debt repayment by increasing rates of profit, and by the further extraction of value. Source: This Time is Different: A Panoramic View of Eight Centuries of Financial Crises by Carmen M. Reinhart, University of Maryland and NBER; and Kenneth S. Rogoff, Harvard University and NBER. Fig. 2. Illustrations of different growth patterns. These pressures to increase income at exponential rates for the repayment of debt implies that both labour and the land (defined broadly) have to be exploited at ever-rising rates. Those who labour by hand or brain work harder and longer to repay rising, real levels of mortgage or credit card debt. It is no accident therefore that the deregulation of finance led to the deregulation of working hours, and the abolition of Sunday as a day of rest.


Firefighting by Ben S. Bernanke, Timothy F. Geithner, Henry M. Paulson, Jr.

Asian financial crisis, asset-backed security, bank run, Basel III, break the buck, Build a better mousetrap, business cycle, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Doomsday Book, financial deregulation, financial innovation, housing crisis, Hyman Minsky, income inequality, invisible hand, Kenneth Rogoff, labor-force participation, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, pets.com, price stability, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, savings glut, short selling, sovereign wealth fund, special drawing rights, The Great Moderation, too big to fail

McConnell, and Phillip Swagel, “Evidence on Outcomes,” in Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson, Jr., with Nellie Liang, eds., First Responders: Inside the U.S. Strategy for Fighting the 2007–2009 Global Financial Crisis (New Haven: Yale University Press, forthcoming). U.S. strategy was able to limit the damage: Data for 63 financial crises in advanced economies, 1857 to 2013, were taken from Carmen Reinhart and Kenneth Rogoff, “Recovery from Financial Crises: Evidence from 100 Episodes,” American Economic Review: Papers & Proceedings 104(5) (2014): 50–55, https://scholar.harvard.edu/files/rogoff/files/aer_104-5_50-55.pdf. Based on Nellie Liang, Margaret M. McConnell, and Phillip Swagel, “Evidence on Outcomes,” in Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson, Jr., with Nellie Liang, eds., First Responders: Inside the U.S.


pages: 483 words: 134,377

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

"Robert Solow", 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, creative destruction, 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, Gunnar Myrdal, income per capita, invisible hand, James Watt: steam engine, Jane Jacobs, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, 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, WikiLeaks, 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.


pages: 515 words: 142,354

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

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, business cycle, buy and hold, 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, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, 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 Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, 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: 518 words: 147,036

The Fissured Workplace by David Weil

accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business cycle, business process, buy and hold, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, commoditize, corporate governance, corporate raider, Corrections Corporation of America, 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, information asymmetry, 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, Paul Samuelson, 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, 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: 350 words: 103,270

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

asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, 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, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

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: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, hiring and firing, housing crisis, inflation targeting, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Robert Shiller, Rubik’s Cube, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

Stiglitz (2016): Joseph E. Stiglitz: The Euro: How a Common Currency Threatens the Future of Europe, W. W. Norton, New York and London, 2016. Stock and Watson (2003): James H. Stock and Mark W. Watson, “Has the Business Cycle Changed and Why?”, in Mark Gertler and Kenneth Rogoff (eds), NBER Macroeconomics Annual 2002, Vol. 17, MIT Press, Cambridge, MA, 2003. Svensson (2016): Lars E. Svensson, “A Simple Cost-Benefit Analysis of Using Monetary Policy for Financial Stability Purposes”, in Olivier J. Blanchard, Raghuram G. Rajan, Kenneth S. Rogoff, and Lawrence H. Summers (eds), Progress and Confusion: The State of Macroeconomic Policy, MIT Press, Cambridge, MA, 2016. Tarullo (2008): Daniel K. Tarullo, Banking on Basel: The Future of International Financial Regulation, Peterson Institute for International Economics, Washington DC, 2008.


pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

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, financial thriller, 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, the new new thing, 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: 370 words: 102,823

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

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

The 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: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World by Sandra Navidi

activist fund / activist shareholder / activist investor, assortative mating, bank run, barriers to entry, Bernie Sanders, Black Swan, Blythe Masters, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversification, East Village, Elon Musk, eurozone crisis, family office, financial repression, Gini coefficient, glass ceiling, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, John Meriwether, Kenneth Arrow, Kenneth Rogoff, knowledge economy, London Whale, Long Term Capital Management, longitudinal study, Mark Zuckerberg, mass immigration, McMansion, mittelstand, money market fund, Myron Scholes, NetJets, Network effects, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, rolodex, Satyajit Das, shareholder value, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, women in the workforce, young professional

He excelled at academics, graduating from Harvard University and earning a PhD at the Massachusetts Institute of Technology (MIT). Stanley Fischer, who later became the governor of the Bank of Israel and thereafter Vice Chairman of the Federal Reserve, was his thesis adviser. While at Harvard, his path crossed with many who would later become key figures in the crisis: Lloyd Blankfein, CEO of Goldman Sachs; Kenneth Rogoff of Harvard University; and Paul Krugman, Nobel laureate and Princeton professor. Both Bernanke and Larry Summers earned degrees at MIT. Bernanke went on to become a professor at Stanford Business School and a visiting professor at New York University before receiving tenure at Princeton University. His studies focused on the Great Depression, and his papers and speeches eerily foreshadow the crisis management job that awaited him years later in his career.


pages: 239 words: 69,496

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return by Mihir Desai

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, assortative mating, Benoit Mandelbrot, Brownian motion, capital asset pricing model, carried interest, Charles Lindbergh, collective bargaining, corporate governance, corporate raider, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, follow your passion, George Akerlof, Gordon Gekko, greed is good, housing crisis, income inequality, information asymmetry, Isaac Newton, Jony Ive, Kenneth Rogoff, longitudinal study, Louis Bachelier, moral hazard, Myron Scholes, new economy, out of africa, Paul Samuelson, Pierre-Simon Laplace, principal–agent problem, Ralph Waldo Emerson, random walk, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, Steve Jobs, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, transaction costs, zero-sum game

“Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics 13, no. 2 (1984): 187–221. For debt overhang, in particular, see Ishiguro, Kazuo. The Remains of the Day. New York: Knopf, 1989; Myers, Stewart. “Determinants of Corporate Borrowing.” Journal of Financial Economics 5, no. 2 (1977): 147–75. For an application of these ideas to sovereign debt, see Bulow, Jeremy, and Kenneth Rogoff. “Cleaning Up Third-World Debt Without Getting Taken to the Cleaners.” Journal of Economic Perspectives 4 (1990): 31–42. On the importance of regret, see Roese, Neal J., and Amy Summerville. “What We Regret Most . . . and Why.” Personality and Social Psychology Bulletin 31, no. 9 (September 2005): 1273–85; and Parker-Pope, Tara. “What’s Your Biggest Regret?” New York Times (blog), March 23, 2011. http://well.blogs.nytimes.com/2011/03/23/whats-your-biggest-regret/?


pages: 281 words: 69,107

Belt and Road: A Chinese World Order by Bruno Maçães

active measures, Admiral Zheng, autonomous vehicles, Branko Milanovic, BRICs, cloud computing, deindustrialization, demographic dividend, Deng Xiaoping, different worldview, Donald Trump, energy security, European colonialism, eurozone crisis, Francis Fukuyama: the end of history, global supply chain, global value chain, industrial cluster, industrial robot, Internet of things, Kenneth Rogoff, land reform, liberal world order, Malacca Straits, one-China policy, Pearl River Delta, smart cities, South China Sea, sovereign wealth fund, special economic zone, trade liberalization, trade route, zero-sum game

Chien-peng Chung and Thomas J. Voon, “China’s Maritime Silk Road Initiative: Political-Economic Calculations of Southeast Asian States”, Asian Survey, 2017, p. 422. 24. 印度洋海权格局与中国海权的印度洋拓展, 《太平洋学报》2014年5期 作者: 李剑 陈文文 金晶. 3. THE BELT AND ROAD AND THE WORLD ECONOMY 1. Richard Baldwin, The Great Convergence: Information Technology and the New Globalization (Harvard University Press, 2016), p. 161. 2. Kenneth Rogoff, “Will China Really Supplant US Economic Hegemony?,” Project Syndicate, April 2, 2008. 3. Wang Jisi, “North, South, East, and West—China is in the ‘Middle’: A Geostrategic Chessboard,” China International Strategy Review, p. 39. 4. Interconnected Economies: Benefiting from Global Value Chains, OECD, 2013. 5. Baldwin, The Great Convergence, p. 146. 6. “There’s a Global Race to Control Batteries—and China Is Winning,” Wall Street Journal, February 11, 2018. 7.


pages: 401 words: 109,892

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, bitcoin, blockchain, business cycle, business process, buy and hold, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, gig economy, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, Vilfredo Pareto, zero-sum game

TABLE 13.1 Top Ten Global Firms, Spring 2018 Company Country Market value ($ billion) Apple US 926.9 Amazon US 777.8 Alphabet US 766.4 Microsoft US 750.6 Facebook US 541.5 Alibaba China 499.4 Berkshire Hathaway US 491.9 Tencent Holdings China 491.3 JPMorgan Chase US 387.7 ExxonMobil US 344.1 These companies are stars, undoubtedly. But there have always been stars in the economy. Are these stars different? Carmen Reinhart and Kenneth Rogoff (2009) have famously shown that thinking “this time is different” is the shortest way to a financial crisis. In macroeconomics, there is no such thing as “this time is different.” But, perhaps, matters could be different where the internet is concerned. There are some technological reasons to believe this time might be different. Internet firms can grow very quickly. It took Snapchat only eighteen months to reach the $1 billion valuation that it took Google eight full years to achieve, a feat that, on average, takes twenty years for a Fortune 500 company.


pages: 741 words: 179,454

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

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, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, 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, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, 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, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, 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, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, 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 Thaler, Right to Buy, 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, Satyajit Das, 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, survivorship bias, 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 new new thing, 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, zero-sum game

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: 584 words: 187,436

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

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, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, 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, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, market clearing, market fundamentalism, merger arbitrage, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, pattern recognition, Paul Samuelson, pre–internet, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, 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: 488 words: 144,145

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

Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, 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, Paul Samuelson, 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: 233 words: 75,712

In Defense of Global Capitalism by Johan Norberg

anti-globalists, Asian financial crisis, capital controls, clean water, correlation does not imply causation, creative destruction, 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, income per capita, informal economy, Joseph Schumpeter, Kenneth Rogoff, land reform, Lao Tzu, liberal capitalism, market fundamentalism, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, open economy, prediction markets, profit motive, race to the bottom, rising living standards, 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, zero-sum game

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: 300 words: 77,787

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

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, intangible asset, invisible hand, Kenneth Rogoff, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, Robert Shiller, selection bias, 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.


Making Globalization Work by Joseph E. Stiglitz

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, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, new economy, 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, zero-sum game

See OECD, “Preliminary Official Development Assistance (ODA) by Donor in 2004, as Announced on April 11, 2005,” at www.oecd.org/document/7/0,2340, en_2649_34485_35397703_1_1_1_1, 00.html. 9.See HM Treasury, “G-8 Finance Ministers’ Conclusions on Development, London 10–11, June 2005,” at www.hm-treasury.gov.uk/otherhmtsites/g7/news/ conclusions_on_development_110605.cfm. 10.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. 11.See UNDP, Making Global Trade Work for People (London and Sterling, VA: Earthscan Publications, 2003). 12.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. 13.Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose, “Effects of Financial Globalization on Developing Countries: Some Empirical Evidence,” 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?,” September 30, 2004. 14.The term “Washington Consensus” was originally coined by a distinguished economist, John Williamson, to describe policy reforms in Latin America.

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 Rodríguez, “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. 261–325. 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: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, failed state, financial deregulation, financial innovation, Fractional reserve banking, full employment, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Long Term Capital Management, Martin Wolf, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, The Spirit Level, too big to fail, transfer pricing, Washington Consensus

Nor is this just a story about growth and inequality. Another famous study found that between 1940 and 1971, a period mostly covering the time of the golden age, developing countries suffered no banking crises and only sixteen currency crises, whereas in the quarter century after 1973 there were 17 banking crises and 57 currency crises. A major new study in 2009 by the economists Carmen Reinhardt and Kenneth Rogoff, looking back over eight hundred years of economic history, concluded that, as reviewer Martin Wolf put it, “Financial liberalisation and financial crises go together like a horse and carriage.”23 We cannot infer too much from these very different episodes. Other reasons exist for the high growth rates during the golden age, not least postwar rebuilding and productivity improvements during the war.


pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

The World Economic Forum talks about ‘natural identity networks’ (World Economic Forum 2016) based not only on traditional national or geographic networks but also on affiliations ‘with a supervisory entity’ (i.e. the replacement for the central bank, in this context), industries and asset classes (and here I include Ringland’s speculation about demographic asset classes). Here comes the smarter money The money created by the communities of the future will be very different from the money of today because it will be smart money. Economist Kenneth Rogoff put this nicely in his The Curse of Cash, noting that digital currencies offer the capacity for more complex kinds of transactions because they enable so much more information, including a history of transactions. While early experiments with Bitcoin and smart contracts give us a sense of the direction of travel, it is hardly wild speculation to assume that as new technologies connect with these basic building blocks of smart money, a new smarter money will emerge in the fusion of reputation, authentication, identification, machine learning and artificial intelligence.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

active measures, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, endogenous growth, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, mortgage debt, Myron Scholes, negative equity, new economy, Northern Rock, paper trading, Paul Samuelson, 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, WikiLeaks, 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: 322 words: 84,580

The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All by Martin Sandbu

"Robert Solow", Airbnb, autonomous vehicles, balance sheet recession, bank run, banking crisis, basic income, Berlin Wall, Bernie Sanders, Boris Johnson, Branko Milanovic, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, centre right, collective bargaining, debt deflation, deindustrialization, deskilling, Diane Coyle, Donald Trump, Edward Glaeser, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, future of work, gig economy, Gini coefficient, hiring and firing, income inequality, income per capita, industrial robot, intangible asset, job automation, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liquidity trap, longitudinal study, low skilled workers, manufacturing employment, Martin Wolf, meta analysis, meta-analysis, mini-job, mortgage debt, new economy, offshore financial centre, oil shock, open economy, pattern recognition, pink-collar, precariat, quantitative easing, race to the bottom, Richard Florida, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, social intelligence, TaskRabbit, total factor productivity, universal basic income, very high income, winner-take-all economy, working poor

Olivier Blanchard, “Public Debt and Low Interest Rates” (presidential address, American Economic Association, January 2019), https://www.aeaweb.org/aea/2019conference/program/pdf/14020_paper_etZgfbDr.pdf. Chapter 9. A Smarter Financial System 1. For a view of why this was, see Martin Sandbu, “Talking ’bout a Revolution,” Financial Times, 19 April 2013, https://www.ft.com/content/91a3782a-a80f-11e2-b031-00144feabdc0. 2. See, for example, Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton, NJ: Princeton University Press, 2009; 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, 2015; and Valerie Cerra and Sweta Saxena, “Growth Dynamics: The Myth of Economic Recovery,” American Economic Review 98, no. 1 (2008): 439–57, https://doi.org/10.1257/aer.98.1.439. 3.


pages: 441 words: 136,954

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

addicted to oil, 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, creative destruction, 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, Intergovernmental Panel on Climate Change (IPCC), job automation, Kenneth Rogoff, knowledge economy, Lean Startup, low skilled workers, Mark Zuckerberg, market design, mass immigration, 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: 829 words: 186,976

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

"Robert Solow", airport security, availability heuristic, Bayesian statistics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Swan, Broken windows theory, business cycle, buy and hold, 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, global pandemic, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), 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, Laplace demon, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, negative equity, new economy, Norbert Wiener, PageRank, pattern recognition, pets.com, Pierre-Simon Laplace, 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 Bayes, 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: 442 words: 94,734

The Art of Statistics: Learning From Data by David Spiegelhalter

Antoine Gombaud: Chevalier de Méré, Bayesian statistics, Carmen Reinhart, complexity theory, computer vision, correlation coefficient, correlation does not imply causation, dark matter, Edmond Halley, Estimating the Reproducibility of Psychological Science, Hans Rosling, Kenneth Rogoff, meta analysis, meta-analysis, Nate Silver, Netflix Prize, p-value, placebo effect, probability theory / Blaise Pascal / Pierre de Fermat, publication bias, randomized controlled trial, recommendation engine, replication crisis, self-driving car, speech recognition, statistical model, The Design of Experiments, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus

He can perhaps say what the experiment died of.’3 When it comes to collecting Data, common problems include excessive missing responses, people dropping out of the study, recruitment being much slower than anticipated, and simply getting everything coded up efficiently. All these issues should have been foreseen and avoided by careful piloting. The easiest way for Analysis to go wrong is simply to make a mistake. Many of us will have made errors in coding or spreadsheets, but perhaps not with the consequences of the following examples: Prominent economists Carmen Reinhart and Kenneth Rogoff published a paper in 2010 which strongly influenced attitudes to austerity. A PhD student later found that five countries had been inadvertently left out of their main analysis due to a simple spreadsheet error.fn2 4 A programmer for AXA Rosenberg, a global equity investment firm, incorrectly programmed a statistical model so that some of its calculated risk elements were too small by a factor of ten thousand, leading to $217 million in losses to clients.


pages: 309 words: 95,495

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

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, business cycle, 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, lateral thinking, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

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: 327 words: 103,336

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

active measures, affirmative action, Albert Einstein, Amazon Mechanical Turk, Black Swan, business cycle, butterfly effect, Carmen Reinhart, Cass Sunstein, clockwork universe, cognitive dissonance, coherent worldview, 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, George Santayana, happiness index / gross national happiness, high batting average, hindsight bias, illegal immigration, industrial cluster, 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, Laplace demon, 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, Pierre-Simon Laplace, planetary scale, prediction markets, pre–internet, RAND corporation, random walk, RFID, school choice, Silicon Valley, social intelligence, 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: 334 words: 98,950

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

affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, 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, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, 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: 436 words: 98,538

The Upside of Inequality by Edward Conard

affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Albert Einstein, assortative mating, bank run, Berlin Wall, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Climatic Research Unit, cloud computing, corporate governance, creative destruction, Credit Default Swap, crony capitalism, disruptive innovation, diversified portfolio, Donald Trump, en.wikipedia.org, Erik Brynjolfsson, Fall of the Berlin Wall, full employment, future of work, Gini coefficient, illegal immigration, immigration reform, income inequality, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, Kodak vs Instagram, labor-force participation, liquidity trap, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass immigration, means of production, meta analysis, meta-analysis, new economy, offshore financial centre, paradox of thrift, Paul Samuelson, pushing on a string, quantitative easing, randomized controlled trial, risk-adjusted returns, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, selection bias, Silicon Valley, Simon Kuznets, Snapchat, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, total factor productivity, twin studies, Tyler Cowen: Great Stagnation, University of East Anglia, upwardly mobile, War on Poverty, winner-take-all economy, women in the workforce, working poor, working-age population, zero-sum game

order=wbapi_data_value_2013%20wbapi_data_value%20wbapi_data_value-last&sort=desc. 13. “Global Wealth Report 2015,” Credit Suisse Research, October 2015, https://publications.credit-suisse.com/tasks/render/file/?fileID=F2425415-DCA7-80B8-EAD989AF9341D47E. 14. Chris Gaither and Dawn Chmielewski, “Fears of Dot-Com Crash, Version 2.0,” Los Angeles Times, July 16, 2006, http://articles.latimes.com/2006/jul/16/business/fi-overheat16. 15. Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). 16. Lawrence Summers, “The Future of Work in the Age of the Machine: A Hamilton Project Policy Forum,” National Press Club, February 19, 2015, http://www.hamiltonproject.org/events/the_future_of_work_in_the_age_of_the_machine. 17. Robert McIntyre, Richard Phillips, and Phineas Baxandall, “Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies,” Citizens for Tax Justice, 2015, http://ctj.org/pdf/offshoreshell2015.pdf. 18.


pages: 347 words: 99,317

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

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, business cycle, 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, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, 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: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

Tepper makes a compelling case that the government’s failure to rein in tech titans and other corporate behemoths is at the root of perhaps the most troubling macroeconomic trends of our time, including rising inequality and slowing productivity. Clear and highly accessible, the book takes no prisoners, arguing that monopolists’ funding and sloppy thinking has corrupted every aspect of the system, from politicians to regulators to academics.” —Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, author of the bestselling book This Time is Different “Slowing growth and rising inequality have become a toxic combination in western economies, notably including the US. This combination now threatens the survival of liberal democracy itself. Why has this happened? Some blame an excess of free-market capitalism.


How to Be a Liberal by Ian Dunt

4chan, Alfred Russel Wallace, bank run, battle of ideas, Big bang: deregulation of the City of London, Boris Johnson, bounce rate, British Empire, Brixton riot, Carmen Reinhart, centre right, David Ricardo: comparative advantage, Dominic Cummings, Donald Trump, eurozone crisis, experimental subject, feminist movement, Francis Fukuyama: the end of history, full employment, Growth in a Time of Debt, illegal immigration, invisible hand, John Bercow, Kenneth Rogoff, liberal world order, Mark Zuckerberg, mass immigration, means of production, Mohammed Bouazizi, Northern Rock, old-boy network, Paul Samuelson, Peter Thiel, price mechanism, profit motive, quantitative easing, recommendation engine, road to serfdom, Ronald Reagan, Saturday Night Live, Scientific racism, Silicon Valley, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Winter of Discontent, working poor, zero-sum game

When governments took on too much debt and their deficits became too large, the argument went, markets panicked. They started to treat traditionally safe government bonds – the IOUs issued for national borrowing – as uncertain. That drove up interest rates on borrowing, which would in turn plunge countries further into the red, trapping them in debt servitude. This argument was given additional potency in 2010 by the publication of a research paper by two former IMF economists, Carmen Reinhart and Kenneth Rogoff, called Growth in a Time of Debt. It contained an alarming finding. Once public debt passed 90 per cent of GDP, it said, something happened. Economic growth slowed. The economy couldn’t get out from under the sheer weight of state borrowing. Government revenue dwindled, more and more money was spent on servicing the debt, and hopes of ever paying it off vanished. The country started to sink.


pages: 358 words: 106,729

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

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, 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, fixed income, 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, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, 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: 338 words: 106,936