capital controls

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Global Governance and Financial Crises by Meghnad Desai, Yahia Said

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

There were also numerous regulations regarding minimum sums and ratings for bond and ADR issues on the external market.41 Figure 7.17 shows the Mexico, Korea and Brazil 141 US$ (1999) billions 12 10 8 Capital controls imposed FDI Capital controls strengthened 12 10 Port. ‘Other’ Exp. trend 8 6 6 4 4 2 2 0 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Figure 7.17 Chile: composition of net private capital inflows (WB), 1988–97. Notes Exp. trend simple exponential trend. Source and definitions of components of inflows as in Figure 7.12. level and composition of net private capital inflows in Chile before and during capital controls. As is fairly evident from the graph, in terms of levels, capital controls in Chile seem to have had a significant but rather short-term effect. By 1994, the 1991 reduction seems to have evaporated, and the reduction brought about by the 1995 strengthening of controls seems only to have lasted for one year.42 Of course, we will never know what levels these inflows would have reached had it not been for these controls, but the evidence seems to indicate that private inflows did bounce back after having been affected briefly by the imposition of controls.

Of course, this phenomenon is not independent from the level that these price controls actually reached (which, as mentioned earlier, although high for a standard Tobin-tax level, were lower than those of Colombia, and, in practice, much milder than Malaysia’s controls in 1994); unfortunately, there is no sufficient data from which to construct a proper measurement for the relevant elasticity. 142 Gabriel Palma 5.0 US$ (1999) billions 5.0 2.5 2.5 0 0 Capital controls imposed Capital controls strengthened –2.5 –2.5 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Figure 7.18 Chile: net equity securities and other investment (IMF), 1988–97. Source: IMF (2000b). See this source for definitions. Exchange rate (1988 = 100) 105 100 Capital controls imposed Reserves (US$ billions) 105 Capital controls strengthened 100 2 95 95 1 90 90 85 85 80 80 75 75 70 1988 1989 1990 1991 1992 1993 1994 1995 70 1996 1997 1998 Figure 7.19 Chile: real effective exchange rate and foreign exchange reserves, 1988–98. Note 1, real effective exchange rate and 2, level of foreign exchange reserves.

Then the strengthening of controls in 1995 had an immediate impact on this new bubble, bringing the index down considerably; and when it began to recover again in early 1997, with the new Mexico, Korea and Brazil 145 1,000 Capital controls imposed 1,000 Capital controls strengthened 800 800 600 600 1 400 400 2 200 200 0 0 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 Figure 7.21 Chile: quarterly stock market index, 1989–99, (US$ terms, 3/89 100). Source: Datastream. Note 1, Chile’s quarterly stock market index in US dollar terms and 2, Dow Jones. 1,200 Capital controls imposed Capital controls strengthened 1,000 1,200 1,000 800 800 600 600 400 400 200 200 0 0 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 Figure 7.22 Chile: quarterly real estate index, 1989–99 (local currency, 3/89 100).


pages: 356 words: 103,944

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

As Professor Rawi Abdelal of the Harvard Business School notes, the Treaty of Rome, which established the European Economic Community in 1957, treated capital flows as a distinctly second-class citizen.13 Most countries in Europe maintained capital controls well into the 1980s. Even though Germany favored greater openness to capital flows, opposition from France and others frustrated any move in that direction. The United States did not employ capital controls until the early 1960s, but neither did it pressure other countries to remove theirs. In 1963, faced with a capital outflow, the United States imposed a special tax on interest earnings on foreign deposits, a measure it maintained until 1974. In developing countries, of course, capital controls were very much the norm, with very rare exceptions. Capital controls were effective through the 1960s, and they worked as the architects of the Bretton Woods regime imagined they would, opening up space for domestic macroeconomic management.14 The Achilles’ heel of the Bretton Woods regime was that it did not address a fundamental conundrum for the international economy: What will play the role of international money in the system?

Treasury remained champions of capital account liberalization until the subprime crisis struck in 2008. The IMF continued to goad countries it dealt with to remove domestic impediments on international finance, and the United States pushed its partners in trade agreements to renounce capital controls. This signaled a momentous transformation in policy beliefs. We need to return to the original Bretton Woods agreement to appreciate its full significance. The Bretton Woods Consensus on Capital Controls It would be difficult to overstate the strength of the consensus in favor of capital controls in the immediate aftermath of World War II. As one American economist put it in 1946: “It is now highly respectable doctrine, in academic and banking circles alike, that a substantial measure of direct control over private capital movements, especially of the so-called ‘hot money’ varieties, will be desirable for most countries not only in the years immediately ahead but also in the long run as well.”11 The Bretton Woods arrangements fully reflected this consensus.

They considered the world of finance a casino instead of a driver of economic well-being. Trade, not short-term finance, needed promotion. Hence the paradox: reduced transaction costs in trade required higher transaction costs in international finance—in other words, capital controls. Free capital mobility was out and capital controls were in. The Bretton Woods regime championed the principle that national economies needed management to ensure full employment and adequate growth. This in turn required that they have sufficient “policy space” to conduct their monetary and fiscal policies. In addition to capital controls, there were two features of the new system geared toward providing that space. The first of these was the provision of short-term financing from the IMF to help countries weather temporary shortages of foreign currency and difficulties in external payments.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

It was simply a last resort when, by general assent, the effort to maintain par values or central rates seemed too difficult in the face of speculative movements of capital across the world’s exchanges.”49 Just as Volcker also explains the US imposition of an import surcharge in August 1971 as a bargaining counter to secure currency revaluation and agricultural tariff reductions from the Europeans (a tactic that would again and again be deployed as part and parcel of the US push for “free trade”),50 so were the Europeans’ calls for capital controls mainly tactical. Indeed, Volcker himself thought the Europeans had not pushed the option of extending capital controls nearly as much as they should have.51 Those among the German political elite who were in favor of the temporary use of capital controls were in fact the most conservative and monetarist and the least oriented to the guiding principles of Bretton Woods; German Keynesians (above all the social democratic finance minister, Karl Schiller) were at one with US economists like Galbraith and Kindleberger in viewing capital controls as antithetical to liberal internationalism.52 In fact, among the nine leading industrialized countries, by 1973 Germany’s financial system was already the most liberalized.53 The fact was that, by this time, the degree of financial interpenetration among the leading capitalist states was such that controls would have had to be very extensive—and they could only have been imposed against the strong opposition of the most powerful sections of the European and Japanese capitalist classes.

An already marked democratic deficit in Europe was further expanded, as the crisis in Greece and Italy ushered in “national unity” governments headed by central bank technocrats, whose mettle was supposed to be tested by whether they could calm German anxieties about “moral hazard”—which would itself largely depend on whether they could “get tough enough with the unions.”18 The real danger the eurozone crisis poses to global capitalism is that states that had sworn off capital controls forever may be forced by domestic class struggles into adopting them, not least as a way of coping with electoral outcomes that effectively narrow the democratic deficit while expanding economic contradictions. Against this, similar external pressures to those that led most developing states to abjure capital controls for pragmatic rather than ideological reasons in the wake of the Asian crisis (see Chapter 11) are being felt by states in Europe today. Whether changes in the balance of class forces as well as other pragmatic considerations—not only the concern with their own legitimacy, but the accumulating irrationalities of an orthodoxy that demands austerity without much prospect of growth through exports—will instead lead these states to opt for capital controls will be a key sign of whether the American empire is indeed unable to control the spirits it has called up by its spells.

The Ikeda system for providing cheap credit to industry was named after the finance minister during the crucial transition years of the late 1950s. 51 Moran, Politics of the Financial Services Revolution, p. 93. 52 Vogel, Freer Markets, p. 173. 53 In contrast to Susan Strange’s lament that Japan was opened up to the Western-style “casino capitalism,” Michael Moran points out that Japanese stock markets “have historically been, precisely, casinos—and, in British and American terms, casinos where trading took place in remarkably dishonest ways . . . The exchanges were privately controlled bodies whose purpose was to organize arenas for particular sorts of gambling, not to provide funds for industrial investment.” Politics of the Financial Services Revolution, pp. 112–13. 54 Iwami, “Removing Capital Controls,” p. 23. 55 See K. Osugi, “Japan’s Experience of Financial Deregulation since 1984 in an International Perspective,” BIS Economic Papers, no. 26 (January 1990); Iwami, “Removing Capital Controls,” p. 5; Goodman and Pauly, “The Obsolescence of Capital Controls?” p. 309. 56 Paul Volcker and Toyoo Gyohten, Changing Fortunes, New York: Times Books, 1992, p. 239. 57 R. Taggart Murphy, The Weight of the Yen, New York: Norton, 1996, pp. 144–5. 58 Ibid., p. 64. 59 Tett, Saving the Sun, p. 22. 60 In 1980 the US and Southeast Asia each accounted for 24 percent of Japanese exports, and Western Europe accounted for 17 percent; by 1984 Southeast Asia’s portion had fallen to 22 percent and Western Europe’s to 14 percent, while the US portion had risen to 35 percent.


pages: 322 words: 87,181

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

Presuming that free capital mobility is an ideal to which all will converge diverts us from the hard thinking that is needed. Capital controls by themselves are no panacea, and they may often create worse problems than they solve, such as corruption or delay of needed reforms. But this is no different than in any other area of government action. We live in a second-best world where policy action is almost always partial (and partially effective), and well-intentioned reforms in one area may backfire in the presence of distortions elsewhere in the system. Treating capital controls as the last resort, always and everywhere, has little rationale in such a world; in effect, it makes a fetish out of financial globalization. We need case-by-case, hard-headed pragmatism instead, recognizing that capital controls sometimes deserve a prominent place. Global Governance Light We are entering a new phase of the world economy, in which achieving global cooperation will become increasingly more difficult.

In a study on OECD countries, researchers found that when other countries reduce their average statutory corporate tax rate by 1 percentage point, the home country follows by reducing its tax rate by 0.7 percentage points.33 The study indicated that international tax competition takes place only among countries that have removed their capital controls. When such controls are in place, capital and profits cannot move as easily across national borders and there is no downward pressure on capital taxes. So, the removal of capital controls appears to be a factor in driving the reduction in corporate tax rates. On the other hand, there is scant evidence of similar races to the bottom in labor and environmental standards or in financial regulation. The geographically confined nature of the services (or public goods) offered by national jurisdictions often presents a natural restraint on the drive toward the bottom.

That would have been possible only if the negotiating texts were opened to public scrutiny. Global Capital Rules In a remarkable reversal, in 2012 the International Monetary Fund put its stamp of approval on capital controls, thereby legitimizing the use of taxes and other restrictions on cross-border financial flows. Not so long ago, the global institution had pushed hard for countries—rich or poor—to open up to foreign finance. Now it has endorsed the reality that financial globalization can be disruptive—inducing financial crises and inappropriate movements in the value of currencies. So here we are with yet another twist in the never-ending saga of our love-and-hate relationship with capital controls. Under the classical Gold Standard that prevailed until 1914, free capital mobility had been sacrosanct. The turbulence of the interwar period convinced many, including most famously John Maynard Keynes, that an open capital account is incompatible with macroeconomic stability.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

The major prerequisite of the system is that the government’s industrial policy targets are realistic and not too wasteful of funds – something made more achievable by the closure of state sector ‘zombie’ firms in the 1990s. Capital controls are the essential adjunct of a financial system that supports China’s development objectives because they prevent money leaving the country in search of better returns. The restrictions also prevent international investors from moving capital in and out of China at will, something which would make the government’s job of pointing the financial system at developmental targets much harder. Capital controls are policed by an enormous bureaucracy at the State Administration of Foreign Exchange, which falls under the control of the central bank. It is clear from national balance of payments data that the controls are leaky – crude estimates suggest that sums of money up to 8 per cent of China’s GDP move in and out of the country without permission each year.58 But the logic of capital controls is not that they provide a hermetic seal; rather that, for a developing country, they are infinitely preferable to a free market in the movement of money.

If one adds together different central government debts, local government debts for which Beijing is ultimately responsible and other near-term contingent liabilities (although not long-run liabilities like China’s huge state pension fund gap), then public debt is perhaps 80 per cent of GDP.62 However, some of this debt is offset by readily saleable assets, almost none is owed to foreigners, and capital controls mean that banks do not need to worry about insolvency (that is, their potential losses on bad loans exceeding their capital) because they always have cash on hand. Even as China’s structural inflation rate has crept up in recent years, and thereby pushed real deposit rates into negative territory, savings have not fled the banking system en masse.63 The lessons of north-east Asian finance – ones that were put to a much more extreme test in Korea – are borne out again in China. First, China shows that a financial system can be repressed to serve development policy without causing domestic panic or system instability. Second, this repressed financial system in combination with capital controls has allowed the country to run a high debt level to support development without either creating domestic instability or suffering speculative international attacks.

But governments directed the hefty investments this made possible to the wrong ends – to lower-yield, large-scale agriculture, and to companies that were either not focused on manufacturing or only on manufacturing for protected domestic markets. South-east Asian states then made their developmental prospects even worse by following rich country advice to deregulate banking, to open up other financial markets, and to lift capital controls. The same advice had been proffered to Japan, Korea, Taiwan and China in the early stages of their development, but they sensibly resisted for as long as possible. Premature financial deregulation in south-east Asia led to a proliferation of family-business-controlled banks which did nothing to support exportable manufacturing and which indulged in vast amounts of illegal related-party lending.


pages: 182 words: 53,802

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

Closing doors to footloose, speculative, mobile capital Keynes understood that under a bank-money system, not only was reliance on foreign capital over but that, in order to manage the economy, countries should actually close their borders to footloose, mobile international capital. To do so he advocated capital control: the taxing of cross-border capital flows. Capital controls are taxes, and differ from exchange controls. The latter place limits on the amount of a nation’s currency that can be taken abroad. Instead, the financial transaction tax or Tobin tax is a form of capital control, a tax on and ‘sand in the wheels’ of capital flows. Today’s excessively complex globalised financial system is very different from that of Keynes’s day. But given that complexity, and given the propensity of risk assessors, CEOs and the part-time members of globalised company boards to make catastrophic errors of judgement, a sound regulatory system is now an even greater imperative. Of course capital controls are often dismissed on the grounds that they can be evaded.

There are brave economists who have for many years argued that states should have the power to manage flows of capital. They include professors Dani Rodrik and Kevin P. Gallagher, and have lately been joined by some orthodox economists, including the highly respected Professor Hélène Rey, who has argued that the armoury of macroprudential tools should not exclude capital control. Until now their voices have been eclipsed by effective lobbying from financiers on Wall Street and the City of London. At the same time the arguments for capital control have not attracted support from the Left or from social democratic parties. On the contrary, most social democratic governments both accept and reinforce a form of hyperglobalisation. To bring global capital back onshore would be transformational of the global monetary order. Only then could we hope to restore stability, prosperity and social justice to a polarised and dangerously unequal world.

So, besides a wider understanding of the finance system, what is to be done to restore economic prosperity, financial stability and social justice? The answer in my view can be summed up in one line: bring offshore capitalism back onshore. For a regulatory democracy to manage a financial system in the interests of the population as a whole, and not just the mobile, globalised few, requires that offshore capital be brought back onshore by means of capital control. Only then will it be possible for central banks to manage interest rates and keep them low across the spectrum of lending – essential to the health and prosperity of any economy. It is also, as I explain later in the book, essential to the management of toxic emissions and the ecosystem. Only then will it be possible to manage credit creation, and limit the rise of unsustainable consumption and debts.


When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

On 1 September 1998, Bank Negara – the Malaysian central bank – released a statement announcing the imposition of capital controls, giving those holding ringgit offshore a month to bring their money back home. Later that day, Mahathir gave an interview to the media where he explained that: where the ringgit’s value is in an unstable situation, business could not be continued in a way that would be profitable . . . when the ringgit’s value is brought down, our income will be reduced . . . we have to fix the ringgit permanently . . . the currency traders . . . make huge profits, while at the same time impoverishing a whole country, regions and peoples. At the time, the imposition of capital controls led to howls of protest. After all, Mahathir’s decision was a direct challenge to the Washington Consensus. And it wasn’t long before the Consensus had its say. Some suggested that capital controls were merely a device to provide financial benefits to those Malaysian companies with strong ties to Mahathir.11 Others noted that both South Korea and Thailand managed to recover in 1998 without using capital controls, thereby suggesting that Mahathir’s decision was, at best, irrelevant.

Some suggested that capital controls were merely a device to provide financial benefits to those Malaysian companies with strong ties to Mahathir.11 Others noted that both South Korea and Thailand managed to recover in 1998 without using capital controls, thereby suggesting that Mahathir’s decision was, at best, irrelevant. Still others simply regarded capital controls as the devil’s work. In reality, the situation was more nuanced. While South Korea and Thailand were showing signs of financial recovery in the summer of 1998, the same couldn’t be said about Malaysia.12 Those who were theologically opposed to capital controls too often forgot that open international capital markets had both advantages and disadvantages: in effect, there was a trade-­off between efficient resource 199 4099.indd 199 29/03/13 2:23 PM When the Money Runs Out allocation – reducing the risk of cronyism by keeping capital markets ‘pure’ – and heightened vulnerability to financial crises – a reflection of increased dependency on ‘hot money’ inflows.13 Mahathir, however, was less concerned with an academic debate about the pros and cons of capital controls and much more focused on clinging on to power.

While South Korea and Thailand were showing signs of financial recovery in the summer of 1998, the same couldn’t be said about Malaysia.12 Those who were theologically opposed to capital controls too often forgot that open international capital markets had both advantages and disadvantages: in effect, there was a trade-­off between efficient resource 199 4099.indd 199 29/03/13 2:23 PM When the Money Runs Out allocation – reducing the risk of cronyism by keeping capital markets ‘pure’ – and heightened vulnerability to financial crises – a reflection of increased dependency on ‘hot money’ inflows.13 Mahathir, however, was less concerned with an academic debate about the pros and cons of capital controls and much more focused on clinging on to power. Suharto’s fall earlier in 1998 followed shortly after Indonesia’s adoption of a typically brutal IMF programme. For Mahathir, Suharto’s demise presented an opportunity to blame Asia’s woes on evil forces, both internal and external. The day after Malaysia adopted capital controls, Mahathir sacked Anwar Ibrahim, the Deputy Prime Minister, Minister of Finance and former Mahathir ally.14 Mahathir saved most of his ire, however, for foreigners, blaming the IMF, suggesting that speculators wanted ‘to see blood’, warning of the dangers associated with George Soros, the hedge fund manager, and, more generally, suggesting that mysterious foreign forces were conspiring to humiliate Malaysia and other parts of the Islamic world.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, 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 for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

Moreover, capital controls allowed countries to pursue bad domestic policies for too long, ultimately to their own detriment. Nevertheless, the abolition of capital controls has hardly been plain sailing. Some economists foresaw the problems associated with newly liberalized capital markets. James Tobin (1918–2002), for example, suggested in 1972 a (now-eponymous) tax – to be paid on foreign-exchange transactions – to limit speculative cross-border capital flows. He feared that the failures of Bretton Woods would be replaced by anarchy in the capital markets. On occasion, he was proved right. Enthusiasm for some kind of capital control has recently returned (as I wrote this book, capital controls were making a comeback: Brazil and Taiwan, for example, introduced capital controls in November 2009).

Either nations can attempt to hang on to their financial sovereignty by reintroducing capital controls or, instead, new institutions need to be developed which can pool financial sovereignty effectively. The idea of dampening down capital markets through capital controls has a long and rich history and was, of course, part of the post-war international financial consensus: if countries wanted to control simultaneously their exchange rates and their domestic inflation rates, they had no choice but to regulate capital inflows and outflows. As that consensus began to unravel in the 1970s with the failure of the Bretton Woods system of fixed but adjustable exchange rates, countries slowly moved away from capital controls to the world we’re now living in. In a world of constant financial innovation, it became increasingly difficult to impose capital controls successfully.

Soviet communism has gone and Chinese communism is not what it used to be. The British Empire has been replaced by American hegemony. As a substitute for the Gold Standard, more and more countries have embraced the case for sound money through, most obviously, the use of inflation targets and links to the US dollar. Meanwhile, in more recent times, cross-border capital flows have risen dramatically, reflecting in part the gradual abolition of capital controls and, for a while, a growing acceptance that cross-border capital flows subjected nations to useful market disciplines. Even as the Berlin Wall came down in 1989, many Western European countries still routinely used such controls. Only with the creation of the Single Market in 1992, just seven years before the creation of the euro, was a formal commitment made to free cross-border movements of capital within the European Union.


pages: 233 words: 66,446

Bitcoin: The Future of Money? by Dominic Frisby

3D printing, altcoin, bank run, banking crisis, banks create money, barriers to entry, bitcoin, blockchain, capital controls, Chelsea Manning, cloud computing, computer age, cryptocurrency, disintermediation, Ethereum, ethereum blockchain, fiat currency, fixed income, friendly fire, game design, Isaac Newton, Julian Assange, land value tax, litecoin, M-Pesa, mobile money, money: store of value / unit of account / medium of exchange, Occupy movement, Peter Thiel, Ponzi scheme, prediction markets, price stability, QR code, quantitative easing, railway mania, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, Stephen Hawking, Steve Jobs, Ted Nelson, too big to fail, transaction costs, Turing complete, War on Poverty, web application, WikiLeaks

China, for example, is the world’s second-largest economy, yet individuals may not withdraw more than $50,000 per annum from the country. The banking crisis in Cyprus in 2013 saw capital controls introduced there. Currently, cash withdrawals are limited to €300 a day, the cashing of cheques is banned and large cash transfers are vetted. Accounts with over €100,000 saw funds confiscated. Capital controls now seem to be being imposed in the Ukraine due to its current instability. Reports suggest nationals are finding it harder and harder to get their money out of Spain and other parts of impoverished Southern Europe, and the insolvency of Spain’s banks makes another banking crisis in the region look probable. The investment bank JP Morgan has declared it is ‘inevitable that capital controls and a capital freeze will be imposed’180 in Southern Europe; senior employees tell me many of their current strategies are based on this inevitability.

He decided he didn’t like what was happening in South Africa and in the 1970s became determined to leave. However, there were capital controls in those days. He could go, but he couldn’t take his money with him. The way he got round the problem, like his parents before him, was with gold. He bought 60 Krugerrands (about $80,000 in today’s money) and got on a flight to London. Those 60 Krugers were enough to get him started in his new life in the UK. But he had to take considerable risk. He could have lost those Krugers, or they might have been stolen or confiscated. There was also the possibility he would be caught and charged with smuggling. In the 1970s there were capital controls across the West. Until 1979 in the UK you had to get permission to take more than £25 – less than 50 dollars – abroad.179 Those controls may not exist to anything like the same extent now, but they do exist elsewhere.

The investment bank JP Morgan has declared it is ‘inevitable that capital controls and a capital freeze will be imposed’180 in Southern Europe; senior employees tell me many of their current strategies are based on this inevitability. Where there is an economic or political crisis, capital controls often follow. Innocent people are made to pay for the profligacies of their banks, their financial system or their governments. Bitcoin has been dubbed ‘money without government’ and ‘money without borders’. You can send money to another country as easily as you can an email, and nearly as instantly. There is no need to smuggle 60 Krugerrands in your pocket if you’re fleeing an oppressive regime. People are already starting to use Bitcoin in this way. When the Cypriot banking crisis hit during the spring of 2013 and fear of capital controls loomed across Southern Europe, the bitcoin price rose from about $15 to north of $200. In the latter part of 2013, the price ballooned again, rising from about $130 to over $1,000 due to Chinese interest.


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

Pension funds also own more government bonds these days under the guise of ‘liability matching’. As Reinhart and Sbrancia remark, financial repression may re-emerge in ‘the guise of prudential regulation’. Russell Napier, a financial historian, takes a similar line, writing: It is time to bring back capital controls. Only with such controls can government debt burdens be inflated away. With capital controls, private savings can be more easily forced into public sector debt. It was capital controls that ensured the UK’s gilt yields could be below its inflation rate in the 1970s.13 The post-1945 rules were difficult to evade thanks to the imposition of capital controls. In those days, payments took time to process, and rules were easier to enforce; British tourists were even limited in the amount of sterling they could take abroad. Now money can be moved with the click of a computer mouse.

However, the lure of independent monetary policy proved too strong. The main fear was a return of high unemployment rates and politicians wanted the flexibility to adjust monetary (and fiscal) policy to boost the economy. They no longer wanted the unemployed to be crucified on a ‘cross of gold’. Capital controls protected countries from the threat that speculators, alarmed by the direction of monetary policy, might undermine exchange rate targets. Many countries had already imposed capital controls during the war so it was not that difficult to extend them. The choice did attract contemporary criticism. Economist Frank Graham wrote: We should know that we must either forgo fixed exchange rates or national monetary sovereignty if we are to avoid the disruption of equilibrium in freely conducted international trade or the system of controls and inhibitions which is the only alternative when the internal values of independent currencies deviate – as they always tend to do.4 Graham added that the system contained ‘not even the slightest provision for the adoption, by the various participating countries, of the congruent monetary policies without which a system of fixed exchange rates simply does not make sense’.

In an ideal world, the managing directorship of the IMF would no longer be a sinecure for European politicians. 11 However, when Dominique Strauss-Kahn was forced to resign from his job as head of the IMF after his arrest on sexual assault charges he was quickly replaced by another French politician, Christine Lagarde. The emerging countries were unable to defeat the deal in the face of support for Lagarde from both Europe and the US. THE OUTLINES OF A SYSTEM Any target for exchange rates, or current-account surpluses, would have to be flexible. Fixed exchange rates require either subordination of monetary policy or capital controls to be effective. The Chinese, who already restrict investment, might favour capital controls, but it is hard to see the US, with its huge financial services industry, agreeing to a worldwide restriction. However, there is one factor that might persuade the US government to change its mind – its debt burden. As has already been discussed, reducing debt via an austerity programme is unpalatable, and outright default is almost unthinkable.


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

., 84, 112, 120, 152, 167–9, 236n31 and “on request” information, 167–9 tax loophole, 112 tax regulation, 120 Business and Investors Against Tax Haven Abuse, 15 Cain, P. J., 66 capital controls, 56–61, 63, 82, 84, 240n16,17, 246n11 “capital flight,” 20, 30, 53–4, 57–8, 93, 97, 110, 139–43, 160, 183, 250n26 European flight capital (1930s), 58 capital flows, 9, 18, 20–1, 28–30, 32, 50–61, 63, 75, 78, 80, 82, 84–5, 92–3, 108–9, 112, 127, 130–1, 138–40, 144, 164–5, 183, 217, 219, 221–2, 237n44, 240n16,17, 241n9, 246n4,11, 257n50 controls on: See capital controls and corporations, 29 free, 55–7, 219 inflows, 21, 30, 58–60, 109, 165, 237n44, 241n9 and Keynes, 50–61 and language, 30 outflows, 30, 75, 92, 112, 138–9, 183, 217, 237n44, 241n9 and social capital, 164–5 See capital controls capital gains tax, 155, 162–3 Capone, Al, 88 Carlisle, Rodney, 23 Carter, Jimmy, 114, 117, 200 Carteret, George, 106 Carville, James, 52 Cary, William, 124 “casino banking,” 67 Castle Bank and Trust (Cayman) Ltd., 100–1 Castro, Fidel, 88–9, 93, 99 Cato Institute, 150, 155, 163 Cayman Islands (British overseas territory), 6, 10, 12–13, 18–19, 23–4, 26–7, 44, 46, 74, 79, 82, 87, 90–6, 99–103, 106, 125–6, 128, 132–5, 161, 163, 165–7, 171–92, 211–12, 214–15, 223, 234n12, 235n22, 236n31, 243n59, 248n39, 256n40 British power structure within, 18, 94 and Confidential Relationships (Preservation) Law, 101–2 and denial of tax haven status, 12–13 and drug money, 101–2 employment in, 171–92 and Enron, 23 and hedge funds, 26 history of as tax haven, 90–6 “Star Trust,” 46 statistics on, 18 Cayman Islands Monetary Authority (CIMA), 214–15 Center for Freedom and Prosperity (CF&P), 150, 160 Center for International Policy (Washington, D.C.), 29 Central Bank of Philippines, 141 Chait, Jonathan, 170 Chang, Ha-Joon, 59 Charles II of England, 72–3, 104 Chase Manhattan, 107–8, 112, 114, 172, 197 Chase National Bank, 194–7, 200–1 chasse gardée, 3 Chenoweth, Neil, 7 Chicago, 36, 40–1, 61, 125 meatpackers, 36, 40–1 China, 1, 12, 14, 16, 27, 36–7, 60, 71, 81, 85, 88, 105–6, 121, 147–8, 164, 169, 217 and Britain, 105–6 statistics on oil, 1 Chirac, Jacques, 4 Christensen, John, 19, 103–4, 115–16, 146, 150, 170, 182–91, 207, 233n1 Churchill, Winston, 49 CIMA: See Cayman Islands Monetary Authority Cisco, 14 Citicorp (Citibank), 8, 80–1, 141–2, 152, 194–6, 201 Citigroup, 20, 68, 103 Citizens for Tax Justice, 112, 159, 170 City of London (England, U.K.), 17–19, 24, 26, 54–5, 61, 63–86, 87–8, 98, 103, 105–6, 109, 115, 129–30, 134, 136, 147–8, 182, 212, 222, 224, 235n18, 236n23,25,28, 239n13, 242n27,32,34, 243n36,37,42, 244n72 and Britain’s offshore spiderweb, 68–9 and the Caribbean, 87–106 central organization of, 70–4 See City of London Corporation and City Cash, 74 controlling role of, 45–6, 96–6 and “domicile” rule, 69 global reach of, 18 history of, 63–86, 87 See “Big Bang”; Euromarkets and international financial deregulation, 85–6 and lending, 76–8 and “London-grad,” 69 and loopholes, 67–8 as old boys network, 64–5 and “rehypothecation,” 68 and secrecy, 69 and Special Purpose Vehicles (SPVs), 26 tentacles of: See British Crown Dependencies; British overseas territories; British zones of influence and the U.S., 67–8, 78–84 City of London Corporation (Corporation of London), 70–4, 76, 85–6, 224, 242n25, 243n36–37, 244n72 head of: See Lord Mayor of London history of, 71–2 and voting rights, 71 civil society, 170 Clinton, Bill, 52, 119–20, 150, 160 Clinton, Hillary, 30, 58 Coalition for Tax Competition, 150 Cold War, 75, 109, 138 Coleman, Norm, 121 Colombia, 26, 101, 111, 133, 136 Medellin drug cartel, 101, 133 colonialism, 2–8, 20, 23, 65, 88–9, 93–5, 104–5, 117, 138, 147, 161, 184 Commodity Futures Trading Committee (CFTC), 68 Compact of Free Association, 22 comparative advantage theory, 16 competition, tax, 149–56 Confidential Relationships (Preservation) Law, 101–2 Congdon, Tim, 66 ConocoPhilips, 22 Cook, Geoff, 168 Cornfeld, Bernie, 97–8 corporate governance, 39, 85, 122–5, 201–2 corporate responsibility, 228–9 The Corporation (Bakan), 158 Corporation Trust (Delaware), 125–6 corruption, 126–8, 229 Corruption Perceptions Index (CPI), 126 country-by-country reporting, 222 Cowperthwaite, Sir John, 105 Craven, John, 81 credit cards, 193–201 criminal money See arms trafficking; bribes; drug money; mob/mafia; terrorist financing Crocodile Dundee, 33 Crook, Kenneth, 93–5 Cuba, 88–9, 93 currency trading, 63–4, 70 Cyprus, 10, 27, 33, 138, 238n52 Dai Xianglong, 86 Davison, Daniel, 81 Deepwater Horizon, 22 de la Torre, Lisandro, 36, 38, 46–7 de Rugy, Veronique, 150 deferrals, tax, 112–13 Delaware, 22, 26, 39–40, 120–1, 123–6, 150, 166, 193–201, 204, 207–12, 214, 222, 228, 247n31, 248n34,39,42, 254n3,4, 255n18, 256n40 Chancery Court, 124–5, 248n34 Corporation Trust office, 125–6 history of offshoring, 39–40, 123–6 and jurisdictions, 193–201, 204, 207–12, 214 and securitization/bundling, 26, 125 and usury, 193–5, 200, 204 Delaware Statutory Trust Act (1988), 201 DeLay, Tom, 160–1 Deloitte & Touche, 25, 202, 209 DeLong, Bradford, 49, 55, 158–9 democracy, 7–8, 13, 31, 33, 42, 56, 71, 82, 102, 113, 123, 129, 131, 144–8, 162, 164, 170, 182, 185, 189, 192, 195–6, 198, 206, 210, 212, 219, 222, 224 and taxation, 144–8 Democratic party, 31, 82, 123, 185, 195, 198, 254n4 Democratic Republic of Congo, 131 deregulation, 32, 52, 66, 74–6, 85, 87, 115, 129–30, 132, 155, 159, 182, 193, 200, 209–10, 212, 217 developing countries, 8, 28–30, 57–60, 91, 93, 97, 100, 108, 126, 129–48, 155–6, 164, 169, 183, 217, 222–5, 227, 229, 236n29, 237n44, 240n22, 246n13, 250n26 and blame-the-victim, 8, 29, 140–4 and capital, 57–60 and capital flight, 139–43 and mobile phone charges, 148 and the offshore system, 129–48 and reform, 223–4 and sovereign debt funds, 143–4 and tax, 144–8 and tax treaties, 147–8 See Bank of Credit and Commerce International Deviers-Joncour, Christine, 5 Dill, James B., 39 Disney, 7, 88 Double, Paul, 73 double taxation, 26, 41–2, 130, 146 defined, 26 “Double Irish,” 14 drug money, 6, 9, 18, 20, 22, 26–7, 29, 88, 101–2, 111, 120, 131–3, 136 du Pont, Pierre S.

Keynes’s answer was simple and powerful: control and constrain the flows of capital across borders and limit the trade in currencies through exchange controls. He believed that financing was usually best when it happens inside, rather than between, countries. Capital controls would give governments more room to pursue objectives like maintaining full employment: Instead of limiting the scope of democracy in the interests of speculators and financiers, the plan was to limit the international mobility of capital: Finance would be society’s servant, not its master. “Let goods be homespun whenever it is reasonably and conveniently possible,” he wrote. “Above all, let finance be primarily national.” The Bretton Woods plan, for all its faults, was designed to tame the forces of international finance.17 Capital controls can be hard to imagine for those who have not experienced them. To get foreign exchange for overseas trips, for example, you needed official permission.

The quarter century that then followed, from around 1949, in which Keynes’s ideas were widely put into place, has become known as the golden age of capitalism: an era of widespread, fast-rising, and relatively untroubled prosperity around the world. As Britain’s prime minister Harold Macmillan put it in 1957, “Most of our people have never had it so good.” From 1950 to 1973, annual growth rates amid widespread capital controls (and extremely high tax rates) averaged 4.0 percent in the United States and 4.6 percent in Europe. Not only that, but as the Cambridge economist Ha-Joon Chang notes, the per capita income of developing countries grew by a full 3.0 percent21 per year in the 1960s and 1970s, significantly faster than the record since then. And from the 1970s, as capital controls were progressively relaxed around the world, and as tax rates fell and the offshore system really began to flower, growth rates fell sharply. The countries that have grown most rapidly, the top-ranking economists Arvind Subramanian and Dani Rodrik explained in 2008, “have been those that rely least on capital inflows . . . financial globalisation has not generated increased investment or higher growth in emerging markets.”22 Average growth is one thing, but to get an idea of how well most people are doing, you need to look at inequality, too.


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

In extreme circumstances, it could be floated, but this would require the government to cede control over the currency to the global foreign exchange market, and a government for which ‘control’ is a lodestone seems very unlikely to do that. For now, China can sustain its monetary autonomy and its exchange rate system but only, of course, by maintaining the regime of tighter controls over capital leaving the country. Capital controls, though, can become quite porous when the confidence to keep capital at home dissipates and drives people to take it out of the country. Even though the capital flight of 2015–16 was stemmed, the steady trickle of money leaving China and of people queuing up for visas at the embassies of foreign countries are reminders that the better-off in China feel insecure. In any event, capital controls run counter to broader ambitions for the Renminbi to play a bigger role as a global currency and for its use in Belt and Road financing and funding. In the years ahead, it will not be possible for China to sustain a stable exchange rate and stable reserves, if banking system assets continue to grow significantly faster than reserves and GDP.

The main argument here centres around the incompatibility of a softly pegged exchange rate with a financial system that prints assets out of proportion to the currency reserves that back them. If this continues, the reserves will eventually be viewed as inadequate. Yet, whether this happens or not, eventually China will have to inflate or deflate its way out of debt, both of which would entail outcomes in which capital would most likely try to flee China. Since China is susceptible to capital flight in spite of capital controls, we should expect the Renminbi to be weaker in future. The existence of capital controls buys China time, but not in perpetuity. In any event, because a significant liberalisation of outward capital movements is unlikely, and an external balance of payments surplus will persist for the time being, the often propagated belief that the Renminbi will become a major international or even significant global reserve currency is another example of the triumph of rhetoric over reality.

For China, which came through the crisis more or less unscathed, the lesson was to make sure capital movements were closely controlled. Removing restrictions on outward capital movements has always lagged behind, therefore, and there has always been an unresolvable tension between managing an open capital account in which Chinese citizens and companies have full access to foreign markets and assets, and the control which the Party has never wanted to cede. After some protracted financial turbulence in 2015–16, Chinese capital controls were again tightened significantly. Financial reform Over time, China has broadened and deepened its financial system from what was originally a rigid, unsophisticated and doctrinaire means of financial control. Broadening refers to the growth of financial assets as a share of GDP, as well as to a wider universe of financial institutions and financial products on offer. Deepening refers to a rise in the range and size of claims on a diverse universe of borrowers.


pages: 339 words: 95,270

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, money market fund, mortgage debt, New Urbanism, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

That transfer discouraged domestic spending relative to domestic production and therefore minimized China’s reliance on foreign financing. Maintaining the peg was a challenge, however, because foreign savers were eager to invest in China. Capital controls kept some foreign money out, but more than enough was still coming in. Left unchecked, these flows would have pushed up China’s exchange rate and increased Chinese spending on goods and services. The Chinese government could have offset some of those foreign inflows by loosening its outbound capital controls and allowing Chinese savers to buy foreign assets. Liberalization, however, would have threatened the government’s control of the economy and financial system. Beijing therefore chose to buy trillions of dollars of foreign exchange reserves to sustain its currency peg.

Recycling the inflows, as in the 1950s, by buying an equivalent amount of foreign—in practice, European—assets would have been theoretically possible, but highly impractical and likely unprofitable. Taxes or regulations to discourage or prevent foreign purchases of U.S. assets might have helped but would have been fundamentally opposed by the intellectual consensus of the time. Moreover, any form of capital controls would have looked hypocritical in light of American advice to other countries in the 1990s. Even if capital controls had diverted inflows from the United States to Europe, they would not have addressed the underlying problem of excessive saving and insufficient demand. Similarly, trade protections against imports would, at best, have shifted the problem elsewhere rather than addressed the fundamental imbalances in the global economy. More likely, trade protections would have backfired by reducing foreign income available to buy American products.

BIS, “Effective Exchange Rate Indices,” https://www.bis.org/statistics/eer.htm; Central Bank of the Republic of Turkey, “Weighted Average Interest Rates for Banks’ Loans,” https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Interest+Rate+Statistics/Weighted+Average+Interest+Rates+For+Banks+Loans/. 21. Matthew C. Klein, “If Spain Didn’t Need Capital Controls, Why Would Anyone?,” FT Alphaville, July 15, 2016, https://ftalphaville.ft.com/2016/07/15/2168347/if-spain-didnt-need-capital-controls-why-would-anyone/; Bank of Spain, “Spanish Securities Markets,” https://www.bde.es/webbde/en/estadis/infoest/temas/sb_tiimerval.html; Bank of Spain, “Consumer Price Index (CPI) and Harmonised Index of Consumer Prices (HICP),” https://www.bde.es/webbde/en/estadis/infoest/temas/sb_ipc.html; Bank of Spain, “Economic Indicators,” https://www.bde.es/webbde/en/estadis/infoest/indeco.html; Bank of Spain, “Interest Rates and Exchange Rates,” https://www.bde.es/webbde/en/estadis/infoest/tipos/tipos.html; BIS, “Effective Exchange Rates,” https://www.bis.org/statistics/eer.htm; BIS, “Residential Property Prices: Detailed Series (Nominal),” https://www.bis.org/statistics/pp_detailed.htm. 22.


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

The collapse of Bretton Woods represented the final step away from a system of commodity money, which has been the norm for most of human history, and towards fiat and credit money, which now dominate all other forms of money. The implications of this change would be far more profound than anyone could have seen at the time.16 With the demise of Bretton Woods, capital was finally released from its cage. Many countries continued to maintain capital controls and strict financial regulation. But the glut of dollars that had emerged at the international level needed somewhere to go. Meanwhile, the capital that had been stored up within states like the UK under Bretton Woods was desperate to be released into the global economy. It pushed and strained against the continued existence of capital controls, finding ever more ingenious ways of getting around the system. Finance capital had returned with a vengeance, and it sought to remove all obstacles to its continued growth. But it would take a national crisis for the remnants of the post-war order finally to fall.

Whilst the negotiators at Bretton Woods were undoubtedly concerned with securing the profitability of their domestic banking industry — not least the emerging power of Wall Street — just one banker was invited to the summit by the US delegation.4 Between the eating, the drinking, and the flirting, delegates at the conference hammered out an historic agreement for a set of institutions that would govern the global economy during the golden age of capitalism. The world’s currencies would be pegged to the dollar at a pre-determined level, supervised by the Federal Reserve, and the dollar would be pegged to gold. Capital controls were implemented to prevent financiers from the kind of currency speculation that could cause wild swings in exchange rates. The system of exchange-rate pegging and controls on capital mobility served to hem in those powerful pools of capital that had wreaked such havoc in the global economy in the period before 1929. Bretton Woods was a significant step forward in reining in the rentier class.

Toyota, General Electric, and Volkswagen couldn’t afford to keep their subsidiaries across the globe insulated from one another — money had to be moved, even if that meant undermining the monetary architecture of the international economy. Technological change also facilitated direct transfers of capital between different parts of the world. All this meant that, despite the continued existence of capital controls, capital mobility had increased substantially by the 1970s. The combination of the emergence of the Eurodollar markets and the rise of the multinational corporation were beginning to place serious strain on Bretton Woods. But it was the US government — not the banks — that dealt the final blow to the system that it had helped to create. With the dollar as the reserve currency, the US had gained the “exorbitant privilege” of being able to produce dollars to finance its spending15.


pages: 381 words: 101,559

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

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

No doubt the Europeans and Japanese will be given receipts for their former gold, convertible into New Dollars at a new, higher price. Alternatively, the president may eschew a return to gold and use an array of capital controls and global IMF money creation to reliquify and stabilize the situation. This IMF global bailout will not be in old, nonconvertible dollars but in a newly printed global currency called the SDR. Life will go on but the international monetary system will never be the same. This isn’t far-fetched speculation. It has all happened before. Time and again, paper currencies have collapsed, assets have been frozen, gold has been confiscated and capital controls have been imposed. The United States has not been immune to these acts; in fact, America has been a leading advocate of dollar debasement from the 1770s to the 1970s, through the Revolution, the Civil War, the Great Depression and Carter-era hyperinflation.

Brazil is an important case because of its geographic, demographic and economic scale, but it is by no means the only country caught in the cross fire of a currency war among the dollar, euro and yuan. Other countries implementing or considering capital controls to stem inflows of hot money, especially dollars, include India, Indonesia, South Korea, Malaysia, Singapore, South Africa, Taiwan and Thailand. In every case, the fear is that their currencies will become overvalued and their exports will suffer as the result of the Fed’s easy money policies and the resulting flood of dollars sloshing around the world in search of high yields and more rapid growth. These capital controls took various forms depending on the preferences of the central banks and finance ministries imposing them. In 2010, Indonesia and Taiwan curtailed the issuance of short-term investment paper, which forced hot money investors to invest for longer periods of time.

From the end of World War II to the end of the Cold War, the world had been divided not only by the Iron Curtain separating the communist and capitalist spheres but also by restrictions imposed by capitalist countries themselves. These restrictions included capital controls that made it difficult to invest freely across borders and taxes that were imposed on cross-border payments made on investments. Stock markets limited membership to local firms and most banks were off-limits to foreign ownership. Courts and politicians tilted the playing field in favor of local favorites, and enforcement of intellectual property rights was spotty at best. The world was highly fragmented, discriminatory and costly for firms with international ambitions. By the late 1990s, these costs and barriers had mostly been removed. Taxes were reduced or eliminated by treaties. Capital controls were relaxed, and it became easy to move funds into or out of particular markets. Labor mobility improved and enforcement of legal rights became more predictable.


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

That this freedom was a cause of Chile’s crisis did not alter their view that it was also a remedy.52 Interestingly, the radicalization of the IMF was catalyzed by French socialists — not the conservative governments in the United States and Britain.53 The French finance minister Jacques Delors argued that capital controls mostly punished the middle class, since the wealthy simply evaded the rules. Ending the controls, he said, was a blow against inequality. West Germany had long shared Friedman’s aversion to capital controls, and for the same historical reasons.54 With the French on board, the European Community mandated an end to all controls in 1988. The next year, again at the behest of the French, the Organization for Economic Cooperation and Development (OECD), which seeks to coordinate the economic policies of developed nations with democratic governments, adopted an informal but influential commitment to eliminate capital controls. As the OECD began to add some emerging economies as members in the 1990s, it required those countries to eliminate their capital controls. But it didn’t have to press the issue — developing nations were eager to adopt the trappings of success.

“Nothing is more certain,” Keynes wrote in the 1940s, “than that the movement of capital funds must be regulated.”44 Ending those restrictions was a goal dear to Friedman and the financial industry. Friedman’s objections went beyond his normal distaste for government. He noted the Nazis had used capital controls to consolidate political power; in his view, it was one of the most powerful tools available “to enable the state to control its citizens.”45 Just as anything less than free trade was a step toward communism, anything less than the free flow of money moved society toward totalitarianism. As Keynesianism crumbled in the 1970s, capital controls crumbled, too — a victim of the change in the ideological weather and of practical difficulties in checking the resurgence of finance. In January 1974, Friedman’s friend, Treasury Secretary George Shultz, announced the elimination of America’s limits on capital flows.

“I rejoice,” he told investors, in the restoration of “the freedom to invest your funds where you think the prospects are most promising.”46 The first time Friedman met Margaret Thatcher, over dinner in 1978, he urged her to make elimination of Britain’s capital controls, in place since World War II, her first priority upon taking office. Thatcher suspended the controls in October 1979, a few months after she became prime minister. “Hooray for Margaret Thatcher!” Friedman said upon hearing the news.47 Chile was one of the first smaller countries to get rid of its capital controls — just as the Latin American debt boom was ramping up. The country also sharply reduced financial regulation, among other things allowing the nation’s two largest conglomerates to acquire the two largest banks. This had the unsurprising effect of significantly increasing borrowing.


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

Indeed, the evidence suggests that selling reserves to defend an overvalued exchange rate is generally ineffective, although once the exchange rate has fallen to a sustainable level such intervention can break market momentum and avoid “overshooting” of the exchange rate to excessively depreciated values. Capital controls are another self-insurance mechanism. They work best as a preemptive device, countering excessive inflows of debt from the rest of the world. However, such foresight is not a characteristic of past international financial crises. Rather, in the crises discussed in this chapter, policymakers and investors alike believed that the capital inflows reflected high returns combined with bright prospects for future growth. Imposing capital controls after a crisis has started is clearly much less effective. In addition, there is an issue of timing. Malaysia imposed capital controls in 1998 but most commentators agree that this only occurred after most of the footloose international money had already left.31 Discouraging Debt Outflows from Source Countries The most promising approach to making international capital flows safer is for source countries to encourage investors to use safer instruments.

While the charges for a single transfer between (say) the Deutsche mark and the French franc were only a few percentage points, they added up quickly if the same funds had to be transferred back and forth several times as would typically occur in a truly integrated cross-border bank. Capital controls added further headaches by disallowing some transactions and adding time, cost, and paperwork to others. Such controls were particularly prevalent in countries suffering from relatively high inflation, including major European Community countries such as France, Italy, and the United Kingdom. These controls reflected the strains these members faced in maintaining international competitiveness given the commitment to limiting exchange rate fluctuations contained in the European Exchange Rate Mechanism. Finally, every Community country except the United Kingdom required foreign-owned banks to raise local capital, adding costs that further fragmented the European banking system. Irritating as the costs of different currencies, capital controls, and local capital levies were for banks, the most permanent barrier to cross-country banking would turn out to be the informal barriers created by national regulators.

As a result of this objective, the Maastricht Treaty left most major responsibilities outside of monetary policy with individual members, such as fiscal policy and structural reforms.11 The general philosophy was to focus on creating a monetary union within the existing institutional structure of the Union rather than adding further federal bells and whistles. In the case of banking, the broad regulatory structure was already defined centrally by the European Commission through Union-wide directives, including on capital controls, the services a bank could perform, and the size of capital buffers. The issue, therefore, was whether day-to-day supervision of these rules should remain a national responsibility.12 This question provoked a lengthy discussion in the Delors Committee, the group largely comprised of central bankers that provided the blueprint for the eventual Maastricht Treaty. Intriguingly, in the discussion of bank supervision, the traditional roles of the German and the British officials in discussions about European integration were reversed.


pages: 332 words: 106,197

The Divide: A Brief Guide to Global Inequality and Its Solutions by Jason Hickel

Andrei Shleifer, Asian financial crisis, Atahualpa, Bartolomé de las Casas, Bernie Sanders, Bob Geldof, Bretton Woods, British Empire, Cape to Cairo, capital controls, carbon footprint, clean water, collective bargaining, colonial rule, David Attenborough, David Graeber, David Ricardo: comparative advantage, declining real wages, dematerialisation, Doha Development Round, Elon Musk, European colonialism, falling living standards, financial deregulation, Fractional reserve banking, Francisco Pizarro, full employment, Hans Rosling, happiness index / gross national happiness, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Watt: steam engine, laissez-faire capitalism, land reform, land value tax, liberal capitalism, Live Aid, Mahatma Gandhi, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, Nelson Mandela, offshore financial centre, oil shale / tar sands, out of africa, plutocrats, Plutocrats, purchasing power parity, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scramble for Africa, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, structural adjustment programs, The Chicago School, The Spirit Level, trade route, transatlantic slave trade, transfer pricing, trickle-down economics, Washington Consensus, WikiLeaks, women in the workforce, Works Progress Administration

When this happens on a large scale, it drains the economy of much-needed capital, and only makes the problem worse. Slight downturns can become full-blown crises when investors flee en masse. Keynes’s system allowed countries to impose ‘capital controls’ that prevented this from happening. But free-trade reforms have gradually dismantled these capital controls, and investors and lenders have gained the ability to send massive amounts of capital around the world at lightning speed, putting money in and pulling it out wherever and whenever they please. For poor economies with not much capital base, this poses a serious danger, for even a little bit of unexpected capital flight can spin the economy into crisis. But it also has a more insidious effect. Abolishing capital controls has transferred an enormous amount of power to international investors. Think about it: if you are an investor – and assuming all you care about is profit – you’re going to channel your money into countries with what are euphemistically referred to as ‘business-friendly’ measures like low wages, low taxes, cheap resources, and so on.

Developing countries lose $875 billion through trade misinvoicing each year. A similarly large amount flows out annually through ‘abusive transfer pricing’, a mechanism that multinational companies use to steal money from developing countries by shifting profits illegally between their own subsidiaries in different countries.24 Usually the goal of these practices is to evade taxes, but sometimes they are used to launder money or circumvent capital controls. Three trillion dollars in total net outflows per year is twenty-four times more than the annual aid budget. In other words, for every dollar of aid that developing countries receive, they lose $24 in net outflows. Of course, this is an aggregate figure; for some countries the ratio is larger, while for others it is smaller. But in all cases net outflows strip developing countries of an important source of revenue and finance that could be used for development.

Three years later, they formed the G77 to advance their interests and vision at the United Nations, and founded the United Nations Conference on Trade and Development (UNCTAD), which would develop the principles for a fairer global economy. The South was rising, and leading the way to a better world for the planet’s majority. * One might think that Europe and the United States would be thrilled to watch this success unfold; after all, the new policies that global South countries were rolling out – tariffs, nationalisation, land reform, capital controls – were bringing about real development, and Western governments, in the spirit of Truman, claimed to be in favour of development. But they were not amused. Western states had become accustomed to having easy access to cheap labour, raw materials and consumer markets in global South countries, and the rise of developmentalism was beginning to restrict this access. Import substitution policies meant that Western exporters of consumer goods had to pay high tariffs to sell their products to global South markets.20 Sometimes they found that their products were blocked at customs altogether by nationalist governments intent on protecting local industries.


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

Any targeting of the exchange rate, even an exchange rate band or crawl, gives speculators a target to shoot at.41 This invites currency crises, of which there were plenty of examples in the 1990s in East Asia, Latin America, and Russia. Monetary autonomy would also be lost in the bargain. T h e R e q u i s i t e s of M a c r o e c o n o mic S ta b i l i t y [ 155 ] 156 India’s regime of ‘managed floating’ plus capital controls has been helpful in avoiding these various pitfalls. It has enabled the authorities to target the exchange rate from time to time to preserve trade competitiveness, while letting the market dictate the level of the exchange rate most of the time. At the same time, since the capital controls have been specific, not pervasive, they have allowed the economy to enjoy many of the benefits of free capital flows (while protecting it against movements of ‘hot money’). Foreign exchange reserves have also played a major role in buttressing the payments regime.

It appears that the RBI is no longer managing the exchange rate with an eye to trade competitiveness (or it would surely not have allowed the recent substantial real appreciation).48 Another concern is the strong trend since 2010 towards liberalization of capital controls on external commercial borrowing by companies and banks, and debt flows more generally, including inflows of foreign money into government securities. This kind of borrowing, unlike foreign direct and portfolio equity investment, makes the country more vulnerable to the roller-​coaster of capital movements. It also makes exchange rate management more difficult. Further liberalization of capital inflows into bank loans or bonds would be a bad idea at this juncture.49 The bottom line is that India should be wary of abandoning its tried and tested policy of managing the exchange rate to maintain export competitiveness, with the help of targeted capital controls,50 and sterilized intervention, as and when necessary. It would be unwise to change this policy framework until rapid export growth is more secure, and fiscal consolidation, financial regulation, and clean-​up of the banking system are much further advanced.

India should work towards mobilizing the emerging and developing countries in the IMF to amending the Articles so that all decisions that require 85 per cent super-​majorities can be taken with, say, 67 per cent super-​majorities instead. As things stand, the United States and the EU have a stranglehold on IMF decision-​making.30 The third problem with the IMS is volatility of capital flows, which has the potential to cause financial havoc. Capital controls are a measure that attacks this problem directly. They used to be regarded by the IMF as beyond the pale but India has maintained them, even after overall liberalization, to good effect. This is a case where the IMF’s position has moved closer to India’s over the years. The IMF now recognizes that capital controls may be necessary to defend national financial stability. The East Asian crisis of 1997 was partly responsible for the change of view. More recently, in the aftermath of the GFC, this was reinforced by the experience of the highly expansionary monetary policies (including so-​ called ‘quantitative easing’ [QE]) that were undertaken by central banks in the advanced countries.


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

The perspective of these rules is excessively short term. Chile was hit by a real economic crisis in 1981–82, with bank failures and a 90 percent devaluation. That crisis happened at the same time as its capital controls were at their most rigorous, when inflows of capital were prohibited unless the capital remained in the country for at least five and a half years. Wise from the crisis, Chile decided to reform and consolidated its chaotic banking sector, which is probably the main reason why it has avoided further crises. (Incidentally, Chile’s decision to cancel its capital regulations came at the height of the Asian crisis.)5 Capital controls often serve as a means of lulling investors and politicians into a false sense of security. A looming crisis covered up by market-distorting regulations only hits harder once the underlying problems are finally exposed.

The Asian crisis then struck hardest against Indonesia, South Korea, and eventually Russia, which had the stiffest capital regulations in any growth market. Those with the lightest regulations—Hong Kong, Singapore, and Taiwan—fared far better.6 Brazil too was hard hit; politicians there had thought that restrictions against short-term capital would steer them clear of the crisis. Sooner or later, mismanaged policy leads to crisis. And if capital controls make politicians believe that they are free to pursue any policy they like, the odds are that they will aggravate the crisis. In theory, temporary capital controls in a crisis could give the country breathing room to modernize its banking and finance sector, iron out problems in the budget, and liberalize the economy. Often, though, regulations are put to the opposite use, as a means of avoiding painful reforms. One sign of this avoidance is that countries with capital regulations have, on average, bigger budget deficits and higher inflation than those without.

We can compare the rapid recovery of many Asian states after the Asian crisis with Latin America’s crisis of the early 1980s, after which Latin American countries imposed controls on capital outflows and refrained from liberal reforms. The result was a lost decade of inflation, prolonged unemployment, and low growth. Compare Mexico’s rapid recovery after the ‘‘Tequila crisis’’ of 1995 with the same country’s prolonged depression after the debt crisis of 1982. Another problem with capital controls is that they are hard to maintain in a world of ever-improving, ever-faster communication. They are in practice an invitation to crime, and a great deal of investors’ time is devoted to circumventing the regulations. The longer a regulation has been in force, the less effective it becomes, because investors then have time to find ways around it. Besides, most regulations have their exceptions for particularly important or vulnerable enterprises.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

Those who had argued for stronger financial supervision were met with accusations that they were in favour of the ‘surveillance industry’. Ms Júlíusdóttir’s government has been fiscally austere, cutting a 14.6 per cent deficit down to 0.2 per cent in four years. But other shibboleths of the market have been dispensed with. As the króna tumbled, capital controls were introduced by the Central Bank as an emergency measure. Iceland has to move delicately in her plan to lift capital controls. About a quarter of the value of the entire economy in Icelandic króna is owned by foreigners, but trapped by capital controls, and waiting for a route off the island. The amount of capital that will potentially leave Iceland will surge once the likes of Kaupthing are unwound. The controls will be slowly lifted for individuals, but Iceland will need tools to control the potential outflow.

Shops and restaurants accepted credit-card transactions at their own risk. Exporters of halloumi cheese could not pay their suppliers. Economists normally say an economy has ‘stalled’ if it has stopped growing. In Cyprus the economy had stalled in the truest sense of the word. It had stopped. It had suffered a heart attack. Contingencies were being drawn up for capital controls in Cyprus, as they had been in Greece the year before. In essence Cyprus already had temporary capital controls with the announcement of multiple impromptu bank holidays. These six days of unplanned and two planned bank shutdowns – making for twelve consecutive days when the banks were closed, including weekends – were already an extraordinary development. The last time bank holidays had been announced in a European country in order to restore financial stability was in the wake of the collapse of the Austrian bank Creditanstalt in July 1933.

The banks had still not opened. Electronic transfers were blocked. The shutdown was the longest recorded by the IMF. Capital controls were being prepared, in contravention of the very point of the European Union single market. The Cypriot parliament had little choice. The ECB was holding a gun to its head. After a majority on the ECB governing council voted for a public threat, Frankfurt issued a statement announcing it would cut off Emergency Liquidity Assistance to Cypriot banks if a deal was not agreed with the EU and IMF within four days. On Day 12 of the crisis, plans were finally put in place to reopen the banks the following morning – subject to draconian new capital controls. And then, as dusk fell over Nicosia, the shouts of the increasingly irate protestors were drowned out as the air filled with the angry buzzing of helicopters and the deafening wail of police sirens.


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

The Americans also insisted that a global conference be convened. The process of meeting these two objectives led to sharp disputes, which lasted for almost two years. The major differences between the two plans concerned the nature of the initial quotas (whether these would be drawing rights on a bank, or subscription to a Fund’s capital); the role of the exchange market and the extent of capital controls; and, finally, the symmetry or asymmetry of compulsory adjustments. In Keynes’s view, capital controls had to be permanent, since floating exchange rates were not capable of leading to an economically satisfying equilibrium in the balances of payments. The Clearing Union would much more effectively take over this role, just as the banking principle had unified currencies within nations by eliminating the dualist system of the Middle Ages, as well as the confusion among different units of account that resulted from it.

N–1 countries had to advance an exchange-rate target and accumulate dollar reserves to this end. Capital controls were indispensable for neutralising the monetary impact of variations in reserves levels, for a purely monetary sterilisation could not alone suffice. But this constraint entered into conflict with American businesses’ desire to export their capital. They exerted pressure for controls to be lifted in the countries in which they planned to invest. The United States was in theory responsible for regulating the price of gold at thirty-five dollars an ounce. Yet this formal obligation did not play out in reality, because the foreign governments in the United States’ political and military orbit did not demand the gold conversion of their dollar monetary assets. When the capital controls were lifted, the system’s Achilles heel quickly revealed itself.

As we move from any given side towards the opposite point, we move away from the full realisation of the criterion that this side represents. The three medians and the opposite sides mark out three segments defining three types of IMS: one is dominated by capital controls (vertex A), the second by fixed exchange rates (B), and the third by the independence of monetary policies (C). We can say that the IMS is coherent if countries with convertible currencies choose to situate themselves within the same diamond. The Bretton Woods system is close to the line AB (fixed exchanges), with a staggered pattern of capital controls: these are low for the United States, high for France and very high for Japan. The large economic powers that had been close to the fixed exchange rate system (segment AB) have migrated towards segment BC by accepting greater capital mobility and thus floating exchanges.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

In a strong statement he proposed that “exchange control in time of peace should be considered an act of aggression and a violation of h ­ uman rights in international law.”72 By exchange control, Cortney meant what is better known as capital controls: the right to change money from one currency to another, specifically with the goal of transferring the money over a national border. The right to use capital controls was included in the framework of the IMF at Bretton Woods, a fact A W o r l d of Rights 135 that Heilperin condemned as one of its crucial failings. Though many observers felt that the flow of “hot money” being invested by speculators back and forth across the Atlantic in the 1920s had helped precipitate the crash, Heilperin turned the prob­lem around. “It is not the money that is ‘hot,’ ” he said, “but the place from which it takes flight.”73 If capital controls ­were removed, countries that had drawn investors would have to establish conditions hospitable enough to induce foreign capital to remain.

An early expression of doubt came from Joseph Stiglitz ­after the Asian financial crisis of 1997.9 World Bank chief economist from 1997 to 2000 and winner of the Nobel Memorial Prize in Economics, Stiglitz became a vocal critic of neoliberal globalization. In the late 1990s other critics declared that the un­regu­la­ted global ­free market was “the last utopia”—­and the international financial institutions partly agreed.10 They dropped their doctrinaire opposition to capital controls, the very subject of the 2016 Fortune article. The World Trade Organ­ization (WTO) underwent a similar facelift. ­After protests shut down its 1999 meeting, it pivoted to emphasize the h ­ uman side of globalization. Even though the policies described as neoliberal had long been criticized, the IMF report was still significant for recognizing the label “neoliberalism.” The term appeared poised for the mainstream, appearing in the Financial Times, the Guardian, and other newspapers.11 Also in 2016, the Adam Smith Institute, founded in 1977 and a source of guidance for Margaret Thatcher, “came out as neoliberals,” in their words, shedding their former moniker, “libertarian.”12 “Globalist in outlook” was one of the princi­ples they claimed for themselves.

As we ­w ill see, neoliberals argued against adding social and economic rights to the basic list of negative rights, even as they made the case for economic rights of their own—­ above all, the right to keep foreign investment safe and to move capital freely over borders. Like Hayek, they focused on the expropriation of foreign-­owned property and controls on capital movements as being the central violations of rights. They would help design institutions that would safeguard the “negative rights” of freedom from expropriation and capital control. To describe the par­tic­u­lar form of rights promoted by neoliberals, I call them “xenos rights,” borrowing a term from Hayek. In his last published work, Hayek spoke of the xenos, or guest-­friend, in early Greek history, “who was assured individual admission and protection within an alien territory.” Hayek suggests that this practice meant that “trade must have developed very much as a m ­ atter of personal relations.”14 Elsewhere he wrote that “rules are required which make it pos­si­ble at each moment to ascertain the boundary of the protected domain of each and thus to distinguish between the meum [that which is mine] and the tuum [that which is yours].”15 The category of xenos rights helps us think about individuals having protected rights to safe passage and unmolested owner­ship of their property and capital, regardless of the territory.


pages: 363 words: 28,546

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

But foreign investors had sizable stakes in many American companies. The second phase began in the Great Depression of the 1930s when capital controls were imposed by most countries and when many previously issued foreign securities went into default. Private international investing almost ceased for three decades thereafter.3 Many of the capital controls were left in place throughout the 1950s and 1960s, severely inhibiting international investing. During this period, financing was available primarily through loans from national governments and (in the postwar period) international agencies such as the World Bank. Even banks were wary of foreign lending. The third phase began in the early 1970s when capital controls began to be lifted. It was in this period that the so-called Bretton Woods system of fixed exchange rates came to an end.

This figure is obtained by aggregating the national bond markets and international bond markets as reported on the Bank for International Settlements web site (http://www.bis.org/statistics/secstats.htm). The Eurobond or international bond market was initially developed to allow U.S. and foreign companies to raise debt financing in foreign markets to fund their foreign operations. Since many countries had capital controls inhibiting the flow of financing from their domestic markets, the international bond market offered a way to finance the multinational operations of these companies. Capital controls have largely been abolished in the industrial countries, so this market is now closely integrated with the national bond market in the same currency. See Solnik and McLeavy (2004), Chapter 7. Recall that Chapter 6 analyzed the bonds of emerging markets. The countries adopting the Euro in 1999 included France, Germany, Belgium, Luxembourg, the Netherlands, Italy, Spain, Portugal, Ireland, Austria, and Finland.

This shift toward style investing was also driven by the discovery that value stocks provide a value premium over growth stocks and that small-capitalization stocks provide a small-cap premium over largecap stocks. These premiums will be analyzed in detail in Chapters 3 and 4. Chapter 3 will show how small-cap stocks fit into the overall stock market and will present evidence about whether there is a premium for small-caps. Chapter 4 will examine value and growth stocks and present evidence on the value premium. In the 1980s, investment in foreign equities gained favor. Capital controls had been lifted making it possible for investors in the industrial countries to spread their investments to other industrial countries. In doing so, investors were able to invest in a wider variety of firms and industries than would have been possible by sticking to U.S. stocks alone. And, because correlations between U.S. and foreign stocks were relatively low, investors were able to reduce risks in the overall portfolio.


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

The Popular Front increased wages, reduced working time, and reformed the structure of the Bank of France so that the Regents did not control the governing council.89 This was all very laudable, but it simply led to another round of capital flight, interest-rate increases, and more deflation. Reflationary policy, in the absence of effective capital controls, means that capital flight wins, especially when it is aided and abetted by the central bank. When the leader of the popular front Léon Blum suggested capital controls to make reflation and greater spending possible, he was forced out by the increasing capital flight that the Bank of France once again did nothing to forestall. Even when France eventually abandoned gold in September 1936, little improved. To mix metaphors, while devaluation can create room to move, spending must pick up the slack.

The new government couldn’t have been more different. The opposition Seiyukai party, now in power, appointed Takahashi Korekiyo as finance minister. Takahashi left the gold standard as quickly as possible and then cut the discount rate on commercial bills (the de facto lowest interest rate) from 6.57 percent in early 1932 to 3.65 percent in July 1934.74 He drastically increased the money supply and instituted capital controls to stop its flight. He instructed the Bank of Japan to underwrite long-term government bond issues.75 Government spending increased by an initial 34 percent, and by the end of 1932 it totaled an extra 10 percent of GDP.76 Prices rose, debt burdens fell, and the Japanese economy rocketed out of the depression, growing 4 percent a year in real terms each year between 1932 and 1936. When one considers that the rest of the world was deflating at that moment, and one also remembers that Japan was, and still is, an export led and import dependent economy, the result was all the more remarkable.

Continuing austerity will, as usual, only make things worse. Iceland, in many ways, was Ireland on crack. Its bank assets to GDP ratio in 2007 was nearly 1000 percent. So when Iceland got into trouble, it was going to be the mother of all banking crises. But there was one important difference. Where Ireland followed the mantra of austerity, slashed spending, and bailed its banks, Iceland let its banks go bankrupt, devalued its currency, put up capital controls, and bolstered welfare measures. A comparison of the two is as close to a natural experiment of the effects of austerity and bailouts as you are likely to find. Iceland’s transformation from a protectionist social democracy to a laissez faire center of international finance was fast and furious. By 2007, average yearly incomes had soared to the equivalent of almost USD 70,000. The value of the stocks of the fifteen firms listed on the Icelandic Stock Exchange increased sevenfold between 2002 and 2007, and the local real estate market more than doubled in value.19 The three Icelandic banks—Glitnir, Landsbanki, and Kaupthing—were behind this bubble.


pages: 354 words: 105,322

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

Big banks and institutional investors will now be treated the same as small savers when ice-nine is applied. They will be frozen in place. The ice-nine solution is not limited to individuals and institutions. It even applies to countries. Nations can freeze investor funds with capital controls. A dollar investor in a nondollar economy relies on the local central bank for dollars if she wants to withdraw her investment. A central bank can impose capital controls and refuse to allow the dollar investor to reconvert local currency and remit the proceeds. Capital controls were common in the 1960s even in developed economies. Later, these controls largely disappeared from developed economies, and were greatly reduced in emerging markets. The relaxation has been partly at IMF urging, and partly because floating exchange rates make local economies less vulnerable to a run on the bank.

Importantly, there was more to the Bretton Woods system than fixed exchange rates. The system would be administered by the International Monetary Fund, a de facto world central bank. IMF governance was structured in such a way that the United States maintained a veto over all important decisions. Bretton Woods participants were allowed to use capital controls to maintain dollar reserves and limit volatile capital flows in order to support their obligations under the fixed rate system. Capital controls in major Western economies were lifted in stages beginning in 1958. Full convertibility of all major currencies was not achieved until 1964. Currency pegs to the dollar were not immutable. Members could apply for exchange rate adjustments under IMF supervision. The IMF would first offer to make temporary funding available to the nation whose currency was under stress.

Cutting through the jargon, this is a call for coordination between capital “source countries” (mainly the United States) and “destination countries” (emerging markets) to change tax and banking rules to discourage short-term debt and encourage equity and long-term bonds instead. In a liquidity crisis, equity and long-term debt are easy to lock down by closing brokers and exchanges. Residual short-term debt can then be locked down with capital controls on countries. At the other end of the spectrum from big banks, institutional investors, and nations is the humble ATM. Consumers have been lulled into believing cash is readily available by swiping their bank cards at ubiquitous cash machines. Is it really? ATMs are already programed to limit withdrawals on a daily basis. You may be able to withdraw $800 or even $1,000 in a day. But have you tried to withdraw $5,000?


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

"Robert Solow", 1960s counterculture, activist lawyer, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Gunnar Myrdal, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, liberal capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

These speculative flows made it difficult for central banks to maintain exchange rates. Fixed rates married to the free movement of capital spelled trouble and made it difficult for countries to maintain independent monetary policies. Any attempt to set interest rates, say, below world levels because of a domestic slowdown would result in the movement of capital out of that country. Like all countries, the United States had used capital controls to stem the outflows of capital in the 1960s. President Kennedy instituted the Interest Equalization Tax, a 1 percent levy on foreign security issues in the United States, to level the cost of borrowing in the United States and Europe without raising long-term interest rates for domestic borrowers. President Johnson expanded the kinds of loans covered and started a voluntary program to restrain foreign loans and foreign direct investment.

These measures plugged some of the holes in the dike.38 Still, banks found ways to evade controls. In 1970, to counter the recession, the Fed reduced interest rates. The high U.S. interest rates of the late 1960s, set to restrain inflation, kept money at home. Now the low rates in the United States reversed the money stream, and capital flowed from the United States to Europe. (Nixon opposed capital controls.) Making matters worse, in 1971 the United States suffered its first merchandise trade deficit since 1893. U.S. dollars swelled world reserves in 1970 and 1971, and American gold reserves dwindled. The dollar was the sun around which the other currencies revolved, and now it was in trouble. Countries could demand gold for dollars under the rules of Bretton Woods. Anticipating that the dollar would be devalued, meaning its gold value would be reduced, nations might trade their dollars for gold.

In March 1969, before Connally’s appointment, even Treasury concluded that “Japan, along with Germany and other major surplus countries, must bear a very substantial part of the required payments adjustment.”75 There was a consensus. Everyone agreed that the overvalued dollar and the trade deficit eroded U.S. economic and thus its international power. No one argued that the current account should be balanced by deflating the economy, producing a recession to reduce imports. No one wanted to diminish the scope of foreign policy to rein in the outflow of dollars. No one advocated intensifying or expanding capital controls. No one supported outright devaluation because other countries would simply devalue their currencies.76 Connally did not create the idea that American foreign policy privileged strategic over economic interests and was not the first to discover the link between the domestic and international economy. But unlike the diplomats at State and Treasury, Connally did not sugarcoat his criticism.


Propaganda and the Public Mind by Noam Chomsky, David Barsamian

Albert Einstein, Asian financial crisis, Bretton Woods, business cycle, capital controls, deindustrialization, European colonialism, experimental subject, Howard Zinn, Hyman Minsky, interchangeable parts, liberation theology, Martin Wolf, one-state solution, Ralph Nader, RAND corporation, school vouchers, Silicon Valley, structural adjustment programs, Thomas L Friedman, Tobin tax, Washington Consensus

It’s like the Depression.49 Maybe it’ll somehow be patched together, but nobody can say and nobody knows what to do. There’s one possibility that Krugman rules out, and that is capital controls. He rules it out on theoretical grounds. He says capital controls leads to inefficient use of resources, and we can’t have that. That’s certainly true in a certain abstract model of the economy, the neoclassical model. Whether that model has anything to do with the real world is another question. The evidence doesn’t seem to support it. During the period in which some degree of capital controls were in place, there was substantial growth. The period of elimination of capital controls was one of slow growth and these crises we’re talking about. Maybe that’s an accident, maybe not. Also one has to ask the question, What is meant by “efficient use of resources”?

The government keeps raising the interest rate to try to keep the capital inside, and speculators are betting that they’re not going to be able to get it high enough. There is a way to stop it. The flow of capital is not like the flow of water, not like a tidal wave. It’s under human control. But you have to decide to stop it. Brazil alone couldn’t decide. Capital controls have to be at both ends. During the Bretton Woods era, the period of rapid growth of the world economy, when capital controls still worked, controls existed at both ends. So the recipient countries, the country from which the capital was flying, agreed to block capital flight. If there are a couple of rich countries like the United States that won’t play the game, then the game’s over. But these are social policies that are under potential control. There have been technical proposals around for twenty-five years, like the Tobin tax, that might slow down speculative capital flows.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency peg, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Martin Wolf, mittelstand, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, the payments system, too big to fail, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

The purpose of Gemeinwirtschaft is to turn that upside down.”7 In practice, however, the experience of interwar Germany showed that economic constraints also contributed to the erosion of intellectual, spiritual, and political freedoms. A widespread response to the great financial crisis of 1931 was the imposition of capital controls, which brought the state further into the micromanagement of economic activity. Economic planning, as Hayek recognized, was inherently discriminatory: “It cannot tie itself down in advance to general and formal rules which prevent arbitrariness. . . . It must constantly decide questions which cannot be answered by formal principles only, and in making these decisions it must set up distinctions of merit between the needs of different people.”8 The issue of arbitrariness applies in a particular way to the actual implementation of capital controls. They were implemented in both Austria and Germany from 1931, that is, before the onset of the political dictatorship (Hitler came to power in January 1933, and Austrian conservatives created the reactionary corporate state, or Ständestaat, in 1934).

The logical conclusion was that capital should flow freely and exchange rates should be left free to adjust, restoring the balance between countries. The French view was diametrically opposed, calling instead for even more active management of capital flows (through tighter capital controls) as well as inflationary policies in surplus countries. This is the spirit of Keynes, who back in the early 1940s called for the entire international monetary system to be structured so that countries running excessive surpluses would be penalized, while those in deficit were to be supported. The tightening of capital controls was related to the deep-seated French belief that exchange rates, if left to float freely, are excessively volatile, and similarly so are capital flows. Exchange rate overshooting and sizable international capital flows are then argued to actually be destabilizing.

International Economics Another important dimension of economic thinking along which the German and French philosophies differ markedly is international economic relations, in particular as regards cross-border capital flows. These disagreements also flared up during the negotiations preceding the ratification of the Maastricht Treaty in 1992. The German philosophy calls for free trade, fair (or undistorted) competition, and open international capital markets. Capital controls were considered as arbitrary, favoring certain industries, and inviting political lobbying. Thus, a world in which exchange rates are free to move, in which no coordinated multilateral interventions are necessary to deal with macroeconomic shocks, and in which capital can flow freely is very much in keeping with the German tradition. The French philosophy, in contrast, is much closer to the original Keynesian position (evolved as a response to the Great Depression) of fixing exchange rates, controlling capital flows, and fostering multilateral adjustment via inflationary policies in surplus countries.


pages: 267 words: 74,296

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed by John Peet, Anton La Guardia, The Economist

bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, market fundamentalism, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

The ECB would have flooded the financial system with liquidity to try to ensure that credit markets did not dry up, as they had done after the collapse of Lehman Brothers, and to forestall runs on both banks and sovereigns. Large quantities of banknotes would have been made available in the south to reassure anxious depositors especially if, as during the Cyprus crisis, banks were shut down and capital controls imposed. The ECB would probably have engaged in unprecedented bond-buying to hold down the borrowing costs of vulnerable countries. Loans to countries already under bail-out programmes would have been increased, and some kind of precautionary loan extended to Spain and Italy. The IMF would have helped Greece manage the reintroduction of the drachma. This would probably have required a transition period (perhaps as short as one month) involving a parallel currency, or IOUs akin to the “patacones” that circulated in Argentina after it left its dollar peg in 2000, though EU lawyers thought these would be illegal.

This would probably have required a transition period (perhaps as short as one month) involving a parallel currency, or IOUs akin to the “patacones” that circulated in Argentina after it left its dollar peg in 2000, though EU lawyers thought these would be illegal. The ECB would have dealt with the technicalities of adapting European electronic payment systems to the departure of a member. The Commission would introduce guidelines for capital controls. Greece might have needed additional aid to manage the upheaval, not least to buy essential goods. In what remained of the euro zone there would have been difficult decisions to take over the allocation of losses arising within the Eurosystem of central banks. National governments would have to decide who should be compensated for losses in case of default and the inevitable bankruptcies caused by the abrupt mismatch between assets and liabilities as the values of currencies shifted.

The Single European Act, approved and ratified in 1986–87, had paved the way for much greater use of qualified-majority voting (that is, a system of weighted majority as opposed to unanimity) on most directives and regulations. This was crucial to the adoption of the 1992 programme for completing the single market. With this step, what was about to become the European Union at last embraced, more or less in full, the four freedoms that had supposedly underpinned the project from its very beginnings: free movement of goods, services, labour and capital (the last remaining capital controls were abolished in 1990).12 The link between the single market and the single currency is not always clear, especially to Eurosceptics, who tend to prefer the first to the second. The reason it exists lies mostly in the fourth of the four freedoms: movement of capital. It is best summed up by the notion of the “impossible trinity” that became popular in the economics literature in the 1980s: the combination of free movement of capital, wholly national monetary policies and independent control of exchange rates was declared to be unworkable or even impossible because the three were likely to contradict each other.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

"Robert Solow", accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

But countries wishing to move in this direction could very well do so incrementally, starting at the regional level (in Europe, for instance). Unless something like this happens, a defensive reaction of a nationalist stripe would very likely occur. For example, one might see a return to various forms of protectionism coupled with imposition of capital controls. Because such policies are seldom effective, however, they would very likely lead to frustration and increase international tensions. Protectionism and capital controls are actually unsatisfactory substitutes for the ideal form of regulation, which is a global tax on capital—a solution that has the merit of preserving economic openness while effectively regulating the global economy and justly distributing the benefits among and within nations. Many people will reject the global tax on capital as a dangerous illusion, just as the income tax was rejected in its time, a little more than a century ago.

Since the financial crisis of 2008, serious doubts about the wisdom of this approach have arisen, and it is quite likely that the rich countries will have increasing recourse to capital controls in the decades ahead. The emerging world has shown the way, starting in the aftermath of the Asian financial crisis of 1998, which convinced many countries, including Indonesia, Brazil, and Russia, that the policies and “shock therapies” dictated by the international community were not always well advised and the time had come to set their own courses. The crisis also encouraged some countries to amass excessive reserves of foreign exchange. This may not be the optimal response to global economic instability, but it has the virtue of allowing single countries to cope with economic shocks without forfeiting their sovereignty. The Mystery of Chinese Capital Regulation It is important to recognize that some countries have always enforced capital controls and remained untouched by the stampede toward complete deregulation of financial flows and current accounts.

Chapter 13 examines what a “social state” suited to present conditions might look like. Chapter 14 proposes a rethinking of the progressive income tax based on past experience and recent trends. Chapter 15 describes what a progressive tax on capital adapted to twenty-first century conditions might look like and compares this idealized tool to other types of regulation that might emerge from the political process, ranging from a wealth tax in Europe to capital controls in China, immigration reform in the United States, and revival of protectionism in many countries. Chapter 16 deals with the pressing question of public debt and the related issue of the optimal accumulation of public capital at a time when natural capital may be deteriorating. One final word. It would have been quite presumptuous in 1913 to publish a book called “Capital in the Twentieth Century.”


pages: 207 words: 86,639

The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial exclusion, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, land reform, light touch regulation, loss aversion, mega-rich, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Vilfredo Pareto, Washington Consensus, wealth creators, working-age population

Doing so would dramatically increase their resource base and radically transform the way they operate, creating a positive upward spiral. 13 Improve checks and balances by introducing capital controls Re-regulating the international finance sector is an urgent priority, as is reducing its size in relation to the real economy, to prevent a repeat of the recent destructive distortions. This is a precondition to transforming both national economies and the global economy. Finance will have to be returned to its role as servant, not master, of the global economy, to dealing prudently with people’s savings and providing regular APPENDICES 169 capital for productive and sustainable investment. Regulation of finance, and the restoration of policy autonomy to democratic government, implies the reintroduction of capital controls. Governments need the freedom to use capital control as an active component of economic policy, to encourage certain types of capital flow and to discourage others.

The privileges given to the private and financial sectors are justified by the way their success is supposed to serve the interests of society. People’s worth is increasingly judged by the value they create in the economy contributing to GDP growth, a process that seems to have been internalized so that people often see material possessions as the main source of self-worth. Yet beyond a relatively low level of satisfying needs, we are no happier. Thanks to the deregulation of capital controls, the state itself is also increasingly subordinate to the needs of business and finance, and openly so. This is partly a logical consequence of the focus on income and profit growth: the business and financial sector are seen as the means through which this can be delivered, and so their needs are given priority. Also, the state’s tax revenue is, directly or indirectly, connected to the activities of these sectors, making their views influential.

Governments need the freedom to use capital control as an active component of economic policy, to encourage certain types of capital flow and to discourage others. The Asian financial crisis of the late 1990s made it very clear that countries with capital controls were both insulated from the crisis and retained policy autonomy to pursue their national economic priorities. The current crisis drives the final nail in the coffin of the idea that countries should simply abandon all interference with international financial markets. The logic for doing so is that allowing completely open access would bring major economic benefits – there is no evidence at all that this is what has happened, but plenty of evidence that the opposite is true. 14 Make taxation work In the new period of public resources being enormously stretched by support given to the banks, it will be vital to minimize corporate tax evasion by clamping down on tax havens and corporate financial reporting.


The Permanent Portfolio by Craig Rowland, J. M. Lawson

Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

Having a portion of your wealth in a foreign location makes the likelihood very low of a natural disaster affecting all of your wealth at once. Government Confiscation Governments have been known to react to emergencies by confiscating assets and/or implementing capital controls to prevent assets from leaving the country. It has even happened in the United States, with a sweeping gold confiscation in 1933 that was followed by controls on gold ownership that lasted until 1974. Other countries have implemented capital controls to prevent investors from removing assets from within a country's borders, nationalizing assets, and/or freezing bank accounts of all citizens. 1933 U.S. Gold Seizure The clipping in Figure 15.1 is from the New York Times in 1933. It shows the Secretary of the Treasury offering a less-than-truthful (actually, he was flat-out lying) explanation of the illegal gold seizure order by Franklin D.

These changes are making American citizens very unappealing as customers to overseas banks and much of the information written on this topic in prior years has become obsolete. The actions of the U.S. government in recent years can be interpreted in a number of ways. One interpretation is that a form of de facto capital controls are being put in place incrementally through red tape instead of overt legislation. The actions of the U.S. government in recent years can be interpreted in a number of ways. One interpretation is that a form of de facto capital controls are being put in place incrementally through red tape instead of overt legislation. One day it may no longer be possible to find a foreign financial institution that is willing to do business with U.S. citizens, even if it is still technically legal to hold assets outside of U.S. borders.

In the United States, investors spend and save in the form of dollars and have no need to hold a currency like the European Union's euro, the British pound, or the Japanese yen. One reason to avoid holding foreign currencies in the Permanent Portfolio is that, just like foreign bond holdings, a political decision in another country can put foreign currency holders at great risk. In a crisis, it is not uncommon for countries to implement capital controls in an attempt to control the situation by limiting the flows of money into or out of the country. These policies will adversely affect holders of that currency. Even the currencies perceived to be the safest in the world are not immune to political risk. In the summer of 2011, the Swiss National Bank surprised the markets by taking steps to control the value of the Swiss franc, which proceeded to lose almost 10 percent in comparison to the U.S. dollar in one week.


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

Not surprisingly, the IMF did not take kindly to these perspectives—and the response was personal and vituperative. The suggestion that under certain circumstances capital controls might be desirable was greeted with suggestions that I was trying to sell snake oil. Ten years later, the battlefield looks different. There has been a major change in perceptions, to which my book may have contributed, and there is a broad consensus on the need for governance reform—with some already under way, and more scheduled for the future. The IMF has admitted that capital controls may be desirable under certain circumstances.69 In some of its programs, such as that for Iceland, it has accepted capital controls and has pushed for much less austerity than was its wont. Behind the scenes, in some of the European countries in crisis, it pushed for debt restructurings—making creditors bear more of the costs, taxpayers less.

Indeed, even the IMF (the International Monetary Fund, the international agency responsible for ensuring global financial stability) has now recognized the dangers of unencumbered and excessive financial integration:22 a problem in one country can rapidly spread to another. In fact, fears of contagion have motivated bailouts of banks in the magnitude of tens and hundreds of billions of dollars. The response to contagious diseases is “quarantine,” and finally, in the spring of 2011, the IMF recognized the desirability of the analogous response in the financial markets. This takes the form of capital controls, or limiting the volatile movement of capital across borders, especially during a crisis.23 The irony is that in the crises that finance brings about, workers and small businesses bear the brunt of the costs. Crises are accompanied by high unemployment that drives down wages, so workers are hurt doubly. In earlier crises, not only did the IMF (typically with the support of the U.S. Treasury) insist on huge budget cuts from troubled nations, converting downturns into recessions and depressions, but it also demanded the fire sales of assets, and the financiers then swooped in to make a killing.

They cannot choose an intellectual property regime that reflects their view of what will best promote the advance of knowledge in their country, balancing concerns about access to knowledge and to life-saving medicines with the necessity of providing incentives for research and innovation; they have to choose a regime that conforms with the dictates of the WTO.56 Other examples abound. The United States, in its bilateral trade agreement with Singapore, attempted to restrict that country’s regulations concerning chewing gum: it was worried that they might discourage U.S. exports of one of our “major” export commodities, chewing gum. In its bilateral agreement with Chile, the United States attempted to prevent the imposition of capital controls, rules that the country had used successfully to stabilize its economy. Other agreements have tried to prevent countries from discouraging the purchase of gasoline-guzzling vehicles, because those are the kinds of cars in which America specializes. Chapter 11 of the North American Free Trade Agreement and other bilateral investment agreements (and other economic agreements that the United States and Europe have signed with developing countries) arguably provides compensation to firms for loss of profits incurred as a result of a regulatory change, something that both Congress and the U.S. courts have refused to do.


pages: 388 words: 125,472

The Establishment: And How They Get Away With It by Owen Jones

anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Boris Johnson, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, G4S, glass ceiling, hiring and firing, housing crisis, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Dyson, laissez-faire capitalism, light touch regulation, market fundamentalism, mass immigration, Monroe Doctrine, Mont Pelerin Society, moral hazard, Neil Kinnock, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, old-boy network, open borders, plutocrats, Plutocrats, popular capitalism, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, The Wealth of Nations by Adam Smith, transfer pricing, union organizing, unpaid internship, Washington Consensus, wealth creators, Winter of Discontent

The International Monetary Fund has long been a bulwark of international neo-liberalism, forcing economies to open themselves up to the forces of globalization, privatize industries, scrap regulations and abolish obstacles to the flows of capital. So there was a seismic shift when, in December 2012, the IMF dropped its blanket opposition to capital controls – or restrictions on the movement of capital in and out of a country’s borders, such as taxes – even if it believed they should be ‘targeted, transparent, and generally temporary’. Growing economies that have imposed such controls over the last few years include powerhouses such as Brazil, South Korea and India, and China never got rid of them. When Iceland was plunged into economic ruin by the financial collapse, capital controls were fundamental to its recovery. Brazil, for example, imposed a financial transactions tax that went up to 6 per cent, and was hailed by its government as a success because it prevented its exchange rate jumping too quickly.

Brazil, for example, imposed a financial transactions tax that went up to 6 per cent, and was hailed by its government as a success because it prevented its exchange rate jumping too quickly. Malaysia survived the 1997 Asian financial crisis better than competitor economies precisely because it had capital controls. Capital controls monitor the flow of money in and out of a given economy, guarding against asset bubbles and investors’ short-term interests that may be on a collision course with the interests of society as a whole. Capital can surge in, hiking up property prices and exchange rates, and then suddenly withdraw, precipitating a violent crash. A total of £490 billion was taken out of Britain in 2008, for example. Because of its large financial sector, the country faces a relentless threat of contagion: with such a globalized financial system, a state of crisis can jump like lightning from country to country. As the likes of George Soros profited from Black Wednesday in 1992, speculators can constantly seek to make money out of economic nightmares.5 But the flipside is also damaging: so-called ‘hot money’, or sudden surges of capital into the country with the hope of making a short-term buck, can also damage Britain’s social and economic infrastructure.

When it came to the City, Thatcher claimed, all previous governments did was place ‘barriers … in the way of its improvements’. Those barriers would be toppled.4 On the eve of Thatcher’s 1979 election victory, shares on the London Stock Exchange reached record levels in anticipation. ‘Shares Vote for Maggie!’ proclaimed the Evening Standard.5 She did not disappoint. Thatcher swiftly abolished capital controls, or taxes on the movement of capital, meaning that capital could be moved freely in and out of the country without restriction. It meant both a dramatic strengthening of the power of the financial markets, and a diminishing of the power of elected governments over the economy, because policies unpopular with the markets could suddenly trigger an unchecked and economically destructive flight of capital.


pages: 1,066 words: 273,703

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, break the buck, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, paradox of thrift, Peter Thiel, Ponzi scheme, predatory finance, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, structural adjustment programs, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

“The Never-Ending Story,” Economist, November 14, 2015. 13. On the global credit cycle see the highly influential paper by Hélène Rey, originally delivered in August 2013 at Jackson Hole, “Dilemma Not Trilemma: The Global Financial Cycle and Monetary Policy Independence” (NBER Working Paper 21162, May 2015). On the evolution of the IMF’s view on capital controls see IMF Survey, “IMF Adopts Institutional View on Capital Flows,” December 3, 2012, http://www.imf.org/en/News/Articles/2015/09/28/04/53/sopol120312a. 14. “Just in Case: Capital Controls Are Back as Part of Many Countries’ Financial Armoury,” Economist, October 13, 2013. 15. C. Jones, R. Wigglesworth and J. Politi, “Fed Fights Back Against ‘Feral Hogs,’” Financial Times, June 24, 2013. 16. P. da Costa and A. Bull, “Bernanke Says More Progress Needed Before Stimulus Pullback,” Reuters, May 22, 2013. 17.

After subprime and after eurozone sovereign debt, were emerging markets to be the next volume in the “trilogy” of debt crises?12 Not for nothing the financial officials of booming emerging markets like Brazil complained about the influx of hot money from the United States. At the G20 in Seoul in November 2010 they had lambasted Bernanke for adopting QE2, dropping US interest rates and allowing the dollar to slide. By 2013 many emerging markets had gone beyond the war of words to adopt capital controls. Brazil, South Korea, Thailand, Indonesia all took steps to slow the inflow of funds and curb the appreciation of their currencies. Fifteen years earlier in the heyday of the “Washington consensus” this would have put them beyond the pale. Restraining international capital movement was a retreat from the most fundamental liberalizing policy of the 1970s and 1980s. But the advocates of the market revolution had foreseen neither the emerging market crises of the 1990s nor monetary policy on the scale of QE.

Already in the spring of 2013, as markets began to worry about Bernanke’s next move, the emerging markets felt the pressure. For the emerging markets the funding boom was over. The exchange rates of what Morgan Stanley dubbed the “Fragile Five”—Turkey, Brazil, India, South Africa and Indonesia—declined precipitously. Western investors pulled their money.18 Interest rates went up to counter the “vacuum cleaner” effect of Fed policy.19 Capital controls put in place to curb excessive inflows did not prevent foreign money from leaving. But they limited the scale of the damage. As one Brazilian central banker remarked: “We knew this was going to come, and we prepared ourselves.”20 Stern American observers noted that the global credit cycle was not fate.21 Countries that had allowed their currencies to appreciate had been subject to a smaller inflow of funds.


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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

At one point the government was forced to close the banks for three weeks, set strict daily limits on ATM withdrawals, and impose capital controls. In all this, the question was not whether the major players involved were interested in keeping Greece within the Eurozone. They certainly were. The problem is that none of them took the type of decisive policy actions needed. To make things worse, each side had difficulties convincing the other of its seriousness. As such, the risk of a Graccident rose considerably, culminating in an economic “sudden stop” in June–July 2015—one in which a total breakdown in negotiations, amplified by acrimonious accusations and bitter personal attacks, led to a bank run that forced the disorderly closure of the banking system. Together with capital controls aimed at keeping whatever euros were left within Greece, the result was a collapse in economic activity, trade, and trust in the system.

Not surprisingly, citizens opted in the 2015 national elections for what they believed would be a completely different approach under a new government led by Syriza, the Coalition for the Radical Left. But even this new, energetic government, led by the charismatic and skilled prime minister Alexis Tsipras, found it hard to buck the system and deliver the needed policy pivot. After months of tortuous negotiations, capital controls, a national referendum, repeated games of chicken, and a three-week closure of Greek banks, the government was forced to do more of the same—the so-called extend-and-pretend approach. (Data from Thomson Reuters) Figure 6. Greece GDP (2008 = 100) Inadequate growth has also been a persistent problem for Italy and, of course, Japan (Figure 7). It is such a generalized problem that even countries that managed to implement reforms and avoid the lure of finance—such as Germany—are finding it hard not to be adversely affected by what is going on around them.

Geographically, these four global transitions need to interact with four historic policy transitions: • China, where the authorities are navigating the tricky middle-income transition in what has been an impressive multi-decade developmental process; • Europe, where governments are trying to complete the needed components of an historical economic integration project while avoiding fragmentation and dealing with the Graccident, which has already included the economic implosion of the economy, capital controls, closed banks, and debt arrears to the IMF, one of the world’s very few preferred and senior creditors; • Japan, where, having engaged the fiscal stimulus and gone quite far along the path of unconventional monetary policy, Prime Minister Shinzo Abe’s government is struggling to deploy the “third arrow” of structural reform to avoid a third consecutive lost decade; and • the United States, where the Fed is waiting for less political dysfunction to enable other policy-making entities to deploy their better-suited tools and hardwired solutions to make possible a robust economic recovery.


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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

The foreign claimant would be given a claim on Greek-euros, which could be used to purchase goods from others inside Greece. However, if the creditor wanted to convert the Greek-euros into ordinary or German euros, he would have to purchase the foreign exchange, using chits. Alternatively, the country could impose capital controls, paying the creditor in euros but not allowing the euros to leave the country. For instance, it could set up euro-bank accounts within the country, with money being able to move smoothly from one euro-bank account to another but not being able to be converted into currency or euros in a foreign euro account. Capital controls have been used in the context of crises in Iceland, Greece, and Cyprus. This proposal is, in effect, a more efficient and simplified way of implementing such constraints. 29 We may have underestimated the costs of bankruptcy: with many of the debts contracted under foreign law, as we have noted, redenomination may not be possible.

., 266 Camdessus, Michel, 314 campaign contributions, 195, 355 Canada, 96 early 1990s expansion of, 209 in NAFTA, xiv railroad privatization in, 55 tax system in, 191 US’s free trade with, 45–46, 47 capital, 76–77 bank, 284–85 human, 78, 137 return to, 388 societal vs. physical, 77–78 tax on, 356 unemployment increased by, 264 capital adequacy standards, 152 capital budget, 245 capital controls, 389–90 capital flight, 126–34, 217, 354, 359 austerity and, 140 and labor flows, 135 capital flows, 14, 15, 25, 26, 27–28, 40, 116, 125, 128, 131, 351 economic volatility exacerbated by, 28, 274 and foreign ownership, 195 and technology, 139 capital inflows, 110–11 capitalism: crises in, xviii, 148–49 inclusive, 317 capital requirements, 152, 249, 378 Caprio, Gerry, 387 capture, 158–60 carbon price, 230, 260, 265, 368 cash, 39 cash flow, 194 Catalonia, xi CDU party, 314 central banks, 59, 354, 387–88 balance sheets of, 386 capture of, 158–59 credit auctions by, 282–84 credit creation by, 277–78 expertise of, 363 independence of, 157–63 inequality created by, 154 inflation and, 153, 166–67 as lender of last resort, 85, 362 as political institutions, 160–62 regulations and, 153 stability and, 8 unemployment and, 8, 94, 97, 106, 147, 153 CEO compensation, 383 Chapter 11, 259–60, 291 childhood poverty, 72 Chile, 55, 152–53 China, 81, 98, 164, 319, 352 exchange-rate policy of, 251, 254, 350–51 global integration of, 49–50 low prices of, 251 rise of, 75 savings in, 257 trade surplus of, 118, 121, 350–52 wages controlled in, 254 as world’s largest economy, 318, 327 chits, 287–88, 290, 299–300, 387, 388–389 Citigroup, 355 climate change, 229–30, 251, 282, 319 Clinton, Bill, xiv, xv, 187 closing hours, 220 cloves, 230 cognitive capture, 159 Cohesion Fund, 243 Cold War, 6 collateral, 364 collective action, 41–44, 51–52 and inequality, 338 and stabilization, 246 collective bargaining, 221 collective goods, 40 Common Agricultural Policy, 338 common regulatory framework, 241 communism, 10 Community Reinvestment Act (CRA), 360, 382 comparative advantage, 12, 171 competition, 12 competitive devaluation, 104–6, 254 compromise, 22–23 confidence, 95, 200–201, 384 in banks, 127 in bonds, 145 and structural reforms, 232 and 2008 crisis, 280 confirmation bias, 309, 335 Congress, US, 319, 355 connected lending, 280 connectedness, 68–69 Connecticut, GDP of, 92 Constitutional Court, Greek, 198 consumption, 94, 278 consumption tax, 193–94 contract enforcement, 24 convergence, 13, 92–93, 124, 125, 139, 254, 300–301 convergence criteria, 15, 87, 89, 96–97, 99, 123, 244 copper mines, 55 corporate income tax, 189–90, 227 corporate taxes, 189–90, 227, 251 corporations, 323 regulations opposed by, xvi and shutdown of Greek banks, 229 corruption, 74, 112 privatization and, 194–95 Costa, António, 332 Council of Economic Advisers, 358 Council of State, Greek, 198 countercyclical fiscal policy, 244 counterfactuals, 80 Countrywide Financial, 91 credit, 276–85 “divorce”’s effect on, 278–79 excessive, 250, 274 credit auctions, 282–84 credit bubbles, 122–123 credit cards, 39, 49, 153 credit creation, 248–50, 277–78, 386 by banks, 280–82 domestic control over, 279–82 regulation of, 277–78 credit default swaps (CDSs), 159–60 crisis policy reforms, 262–67 austerity to growth, 263–65 debt restructuring and, 265–67 Croatia, 46, 331, 338 currency crises, 349 currency pegs, xii current account, 333–34 current account deficits, 19, 88, 108, 110, 120–121, 221, 294 and exit from euro, 273, 285–89 see also trade deficit Cyprus, 16, 30, 140, 177, 331, 386 capital controls in, 390 debt-to-GDP ratio of, 231 “haircut” of, 350, 367 Czech Republic, 46, 331 debit cards, 39, 49 debtors’ prison, 204 debt restructuring, 201, 203–6, 265–67, 290–92, 372, 390 of private debt, 291 debts, xx, 15, 93, 96, 183 corporate, 93–94 crisis in, 110–18 in deflation, xii and exit from eurozone, 273 with foreign currency, 115–18 household, 93–94 increase in, 18 inherited, 134 limits of, 42, 87, 122, 141, 346, 367 monetization of, 42 mutualization of, 242–43, 263 place-based, 134, 242 reprofiling of, 32 restructuring of, 259 debt-to-GDP ratio, 202, 210–11, 231, 266, 324 Declaration of Independence, 319 defaults, 102, 241, 338, 348 and debt mutualization, 243 deficit fetishism, 96 deficits, fiscal, xx, 15, 20, 93, 96, 106, 107–8, 122, 182, 384 and balanced-budget multiplier, 188–90, 265 constitutional amendment on, 339 and exit from euro, 273, 289–90 in Greece, 16, 186, 215, 233, 285–86, 289 limit of, 42, 87, 94–95, 122, 138, 141, 186, 243, 244, 265, 346, 367 primary, 188 problems financing, 110–12 structural, 245 deficits, trade, see trade deficits deflation, xii, 147, 148, 151, 166, 169, 277, 290 Delors, Jacques, 7, 332 democracy, lack of faith in, 312–14 Democracy in America (Tocqueville), xiii democratic deficit, 26–27, 35, 57–62, 145 democratic participation, xix Denmark, 45, 307, 313, 331 euro referendum of, 58 deposit insurance, 31, 44, 129, 199, 301, 354–55, 386–87 common in eurozone, 241, 242, 246, 248 derivatives, 131, 355 Deutsche Bank, 283, 355 devaluation, 98, 104–6, 254, 344 see also internal devaluation developing countries, and Washington Consensus, xvi discretion, 262–63 discriminatory lending practices, 283 disintermediation, 258 divergence, 15, 123, 124–44, 255–56, 300, 321 in absence of crisis, 128–31 capital flight and, 126–34 crisis policies’ exacerbation of, 140–43 free mobility of labor and, 134–36, 142–44, 242 in public investment, 136–38 reforms to prevent, 243 single-market principle and, 125–26 in technology, 138–39 in wealth, 139–40 see also capital flows; labor movement diversification, of production, 47 Dodd-Frank Wall Street Reform and Consumer Protection Act, 355 dollar peg, 50 downsizing, 133 Draghi, Mario, 127, 145, 156, 158, 165, 269, 363 bond market supported by, 127, 200, 201 Drago, Luis María, 371 drug prices, 219 Duisenberg, Willem Frederik “Wim,” 251 Dynamic Stochastic Equilibrium model, 331 East Asia, 18, 25, 95, 102–3, 112, 123, 202, 364, 381 convergence in, 138 Eastern Europe, 10 Economic Adjustment Programme, 178 economic distortions, 191 economic growth, xii, 34 confidence and, 232 in Europe, 63–64, 69, 73–74, 74, 75, 163 lowered by inequality, 212–13 reform of, 263–65 and structural reforms, 232–35 economic integration, xiv–xx, 23, 39–50 euro and, 46–47 political integration vs., 51–57 single currency and, 45–46 economic rents, 226, 280 economics, politics and, 308–18 economic security, 68 economies of scale, 12, 39, 55, 138 economists, poor forecasting by, 307 education, 20, 76, 344 investment in, 40, 69, 137, 186, 211, 217, 251, 255, 300 electricity, 217 electronic currency, 298–99, 389 electronics payment mechanism, 274–76, 283–84 emigration, 4, 68–69 see also migration employment: central banks and, 8, 94, 97 structural reforms and, 257–60 see also unemployment Employment Act (1946), 148 energy subsidies, 197 Enlightenment, 3, 318–19 environment, 41, 257, 260, 323 equality, 225–26 equilibrium, xviii–xix Erasmus program, 45 Estonia, 90, 331, 346 euro, xiv, 325 adjustments impeded by, 13–14 case for, 35–39 creation of, xii, 5–6, 7, 10, 333 creation of institutions required by, 10–11 divergence and, see divergence divorce of, 272–95, 307 economic integration and, 46–47, 268 as entailing fixed exchange rate, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 143, 193, 215–16, 240, 244, 249, 252, 254, 286, 297 as entailing single interest rate, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 and European identification, 38–39 financial instability caused by, 131–32 growth promised by, 235 growth slowed by, 73 hopes for, 34 inequality increased by, xviii interest rates lowered by, 235 internal devaluation of, see internal devaluation literature on, 327–28 as means to end, xix peace and, 38 proponents of, 13 referenda on, 58, 339–40 reforms needed for, xii–xiii, 28–31 risk of, 49–50 weakness of, 224 see also flexible euro Eurobond, 356 euro crisis, xiii, 3, 4, 9 catastrophic consequences of, 11–12 euro-euphoria, 116–17 Europe, 151 free trade area in, 44–45 growth rates in, 63–64, 69, 73–74, 74, 75, 163 military conflicts in, 196 social models of, 21 European Central Bank (ECB), 7, 17, 80, 112–13, 117, 144, 145–73, 274, 313, 362, 368, 380 capture of, 158–59 confidence in, 200–201 corporate bonds bought by, 141 creation of, 8, 85 democratic deficit and, 26, 27 excessive expansion controlled by, 250 flexibility of, 269 funds to Greece cut off by, 59 German challenges to, 117, 164 governance and, 157–63 inequality created by, 154–55 inflation controlled by, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 250, 256, 266 interest rates set by, 85–86, 152, 249, 302, 348 Ireland forced to socialize losses by, 134, 156, 165 new mandate needed by, 256 as political institution, 160–62 political nature of, 153–56 quantitative easing opposed by, 151 quantitative easing undertaken by, 164, 165–66, 170, 171 regulations by, 249, 250 unemployment and, 163 as unrepresentative, 163 European Commission, 17, 58, 161, 313, 332 European Court of Human Rights, 45 European Economic Community (EEC), 6 European Exchange Rate Mechanism (ERM), 30, 335 European Exchange Rate Mechanism II (ERM II), 336 European Free Trade Association, 44 European Free Trade Association Court, 44 European Investment Bank (EIB), 137, 247, 255, 301 European Regional Development Fund, 243 European Stability Mechanism, 23, 246, 357 European Union: budget of, 8, 45, 91 creation of, 4 debt and deficit limits in, 87–88 democratic deficit in, 26–27 economic growth in, 215 GDP of, xiii and lower rates of war, 196 migration in, 90 proposed exit of UK from, 4 stereotypes in, 12 subsidiarity in, 8, 41–42, 263 taxes in, 8, 261 Euro Summit Statement, 373 eurozone: austerity in, see austerity banking union in, see banking union counterfactual in, 235–36 double-dip recessions in, 234–35 Draghi’s speech and, 145 economic integration and, xiv–xx, 23, 39–50, 51–57 as flawed at birth, 7–9 framework for stability of, 244–52 German departure from, 32, 292–93 Greece’s possible exit from, 124 hours worked in, 71–72 lack of fiscal policy in, 152 and move to political integration, xvi, 34, 35, 51–57 Mundell’s work on dangers of, 87 policies of, 15–17 possible breakup of, 29–30 privatization avoided in, 194 saving, 323–26 stagnant GDP in, 12, 65–68, 66, 67 structure of, 8–9 surpluses in, 120–22 theory of, 95–97 unemployment in, 71, 135, 163, 177–78, 181, 331 working-age population of, 70 eurozone, proposed structural reforms for, 239–71 common financial system, see banking union excessive fiscal responsibility, 163 exchange-rate risks, 13, 47, 48, 49–50, 125, 235 exchange rates, 80, 85, 288, 300, 338, 382, 389 of China, 251, 254, 350–51 and competitive devaluation, 105–6 after departure of northern countries, 292–93 of euro, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 215–16, 240, 244, 249, 252, 254, 286, 297 flexible, 50, 248, 349 and full employment, 94 of Germany, 254–55, 351 gold and, 344–45 imports and, 86 interest rates and, 86 quantitative easing’s lowering of, 151 real, 105–6 and single currencies, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 stabilizing, 299–301 and trade deficits, 107, 118 expansionary contractions, 95–96, 208–9 exports, 86, 88, 97–99, 98 disappointing performance of, 103–5 external imbalances, 97–98, 101, 109 externalities, 42–43, 121, 153, 301–2 surpluses as, 253 extremism, xx, 4 Fannie Mae, 91 farmers, US, in deflation, xii Federal Deposit Insurance Corporation (FDIC), 91 Federal Reserve, US, 349 alleged independence of, 157 interest rates lowered by, 150 mandate of, 8, 147, 172 money pumped into economy by, 278 quantitative easing used by, 151, 170 reform of, 146 fiat currency, 148, 275 and taxes, 284 financial markets: lobbyists from, 132 reform of, 214, 228–29 short-sighted, 112–13 financial systems: necessity of, xix real economy of, 149 reform of, 257–58 regulations needed by, xix financial transaction system, 275–76 Finland, 16, 81, 122, 126, 292, 296, 331, 343 growth in, 296–97 growth rate of, 75, 76, 234–35 fire departments, 41 firms, 138, 186–87, 245, 248 fiscal balance: and cutting spending, 196–98 tax revenue and, 190–96 Fiscal Compact, 141, 357 fiscal consolidation, 310 fiscal deficits, see deficits, fiscal fiscal policy, 148, 245, 264 in center of macro-stabilization, 251 countercyclical, 244 in EU, 8 expansionary, 254–55 stabilization of, 250–52 fiscal prudence, 15 fiscal responsibility, 163 flexibility, 262–63, 269 flexible euro, 30–31, 272, 296–305, 307 cooperation needed for, 304–5 food prices, 169 forbearance, 130–31 forecasts, 307 foreclosure proposal, 180 foreign ownership, privatization and, 195 forestry, 81 France, 6, 14, 16, 114, 120, 141, 181–82, 331, 339–40, 343 banks of, 202, 203, 231, 373 corporate income tax in, 189–90 euro creation regretted in, 340 European Constitution referendum of, 58 extreme right in, xi growth in, 247 Freddie Mac, 91 Freefall (Stiglitz), 264, 335 free mobility of labor, xiv, 26, 40, 125, 134–36, 142–44, 242 Friedman, Milton, 151, 152–53, 167, 339 full employment, 94–97, 379 G-20, 121 gas: import of, 230 from Russia, 37, 81, 93 Gates Foundation, 276 GDP-indexed bonds, 267 German bonds, 114, 323 German Council of Economic Experts, 179, 365 Germany, xxi, 14, 30, 65, 108, 114, 141, 181–82, 207, 220, 286, 307, 331, 343, 346, 374 austerity pushed by, 186, 232 banks of, 202, 203, 231–32, 373 costs to taxpayers of, 184 as creditor, 140, 187, 267 debt collection by, 117 debt in, 105 and debt restructuring, 205, 311 in departure from eurozone, 32, 292–93 as dependent on Russian gas, 37 desire to leave eurozone, 314 ECB criticized by, 164 EU economic practices controlled by, 17 euro creation regretted in, 340 exchange rate of, 254–55, 351 failure of, 13, 78–79 flexible exchange of, 304 GDP of, xviii, 92 in Great Depression, 187 growing poverty in, 79 growth of, 78, 106, 247 hours worked per worker in, 72 inequality in, 79, 333 inflation in, 42, 338, 358 internal solidarity of, 334 lack of alternative to euro seen by, 11 migrants to, 320–21, 334–35, 393 minimum wage in, 42, 120, 254 neoliberalism in, 10 and place-based debt, 136 productivity in, 71 programs designed by, 53, 60, 61, 202, 336, 338 reparations paid by, 187 reunification of, 6 rules as important to, 57, 241–42, 262 share of global employment in, 224 shrinking working-age population of, 70, 78–79 and Stability and Growth Pact, 245 and structural reforms, 19–20 “there is no alternative” and, 306, 311–12 trade surplus of, 117, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 “transfer union” rejected by, 22 US loans to, 187 victims blamed by, 9, 15–17, 177–78, 309 wages constrained by, 41, 42–43 wages lowered in, 105, 333 global financial crisis, xi, xiii–xiv, 3, 12, 17, 24, 67, 73, 75, 114, 124, 146, 148, 274, 364, 387 and central bank independence, 157–58 and confidence, 280 and cost of failure of financial institutions, 131 lessons of, 249 monetary policy in, 151 and need for structural reform, 214 originating in US, 65, 68, 79–80, 112, 128, 296, 302 globalization, 51, 321–23 and diminishing share of employment in advanced countries, 224 economic vs. political, xvii failures of, xvii Globalization and Its Discontents (Stig-litz), 234, 335, 369 global savings glut, 257 global secular stagnation, 120 global warming, 229–30, 251, 282, 319 gold, 257, 275, 277, 345 Goldman Sachs, 158, 366 gold standard, 148, 291, 347, 358 in Great Depression, xii, 100 goods: free movement of, 40, 143, 260–61 nontraded, 102, 103, 169, 213, 217, 359 traded, 102, 103, 216 Gordon, Robert, 251 governance, 157–63, 258–59 government spending, trade deficits and, 107–8 gravity principle, 124, 127–28 Great Depression, 42, 67, 105, 148, 149, 168, 313 Friedman on causes of, 151 gold standard in, xii, 100 Great Malaise, 264 Greece, 14, 30, 41, 64, 81, 100, 117, 123, 142, 160, 177, 265–66, 278, 307, 331, 343, 366, 367–68, 374–75, 386 austerity opposed by, 59, 60–62, 69–70, 207–8, 392 balance of payments, 219 banks in, 200–201, 228–29, 231, 270, 276, 367, 368 blaming of, 16, 17 bread in, 218, 230 capital controls in, 390 consumption tax and, 193–94 counterfactual scenario of, 80 current account surplus of, 287–88 and debt restructuring, 205–7 debt-to-GDP ratio of, 231 debt write-offs in, 291 decline in labor costs in, 56, 103 ECB’s cutting of funds to, 59 economic growth in, 215, 247 emigration from, 68–69 fiscal deficits in, 16, 186, 215, 233, 285–86, 289 GDP of, xviii, 183, 309 hours worked per worker in, 72 inequality in, 72 inherited debt in, 134 lack of faith in democracy in, 312–13 living standards in, 216 loans in, 127 loans to, 310 migrants and, 320–21 milk in, 218, 223, 230 new currency in, 291, 300 oligarchs in, 16, 227 output per working-age person in, 70–71 past downturns in, 235–36 pensions in, 16, 78, 188, 197–98, 226 pharmacies in, 218–20 population decline in, 69, 89 possible exit from eurozone of, 124, 197, 273, 274, 275 poverty in, 226, 261, 376 primary surplus of, 187–88, 312 privatization in, 55, 195–96 productivity in, 71, 342 programs imposed on, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 renewable energy in, 193, 229 social capital destroyed in, 78 sovereign spread of, 200 spread in, 332 and structural reforms, 20, 70, 188, 191 tax revenue in, 16, 142, 192, 227, 367–368 tools lacking for recovery of, 246 tourism in, 192, 286 trade deficits in, 81, 194, 216–17, 222, 285–86 unemployment in, xi, 71, 236, 267, 332, 338, 342 urgency in, 214–15 victim-blaming of, 309–11 wages in, 216–17 youth unemployment in, xi, 332 Greek bonds, 116, 126 interest rates on, 4, 114, 181–82, 201–2, 323 restructuring of, 206–7 green investments, 260 Greenspan, Alan, 251, 359, 363 Grexit, see Greece, possible exit from eurozone of grocery stores, 219 gross domestic product (GDP), xvii decline in, 3 measurement of, 341 Growth and Stability Pact, 87 hedge funds, 282, 363 highways, 41 Hitler, Adolf, 338, 358 Hochtief, 367–68 Hoover, Herbert, 18, 95 human capital, 78, 137 human rights, 44–45, 319 Hungary, 46, 331, 338 hysteresis, 270 Iceland, 44, 111, 307, 354–55 banks in, 91 capital controls in, 390 ideology, 308–9, 315–18 imports, 86, 88, 97–99, 98, 107 incentives, 158–59 inclusive capitalism, 317 income, unemployment and, 77 income tax, 45 Independent Commission for the Reform of International Corporate Taxation, 376–377 Indonesia, 113, 230–31, 314, 350, 364, 378 industrial policies, 138–39, 301 and restructuring, 217, 221, 223–25 Industrial Revolution, 3, 224 industry, 89 inequality, 45, 72–73, 333 aggregate demand lowered by, 212 created by central banks, 154 ECB’s creation of, 154–55 economic performance affected by, xvii euro’s increasing of, xviii growth’s lowering of, 212 hurt by collective action, 338 increased by neoliberalism, xviii increase in, 64, 154–55 inequality in, 72, 212 as moral issue, xviii in Spain, 72, 212, 225–26 and tax harmonization, 260–61 and tax system, 191 inflation, 277, 290, 314, 388 in aftermath of tech bubble, 251 bonds and, 161 central banks and, 153, 166–67 consequences of fixation on, 149–50, 151 costs of, 270 and debt monetization, 42 ECB and, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 255, 256, 266 and food prices, 169 in Germany, 42, 338, 358 interest rates and, 43–44 in late 1970s, 168 and natural rate hypothesis, 172–73 political decisions and, 146 inflation targeting, 157, 168–70, 364 information, 335 informational capital, 77 infrastructure, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 inheritance tax, 368 inherited debt, 134 innovation, 138 innovation economy, 317–18 inputs, 217 instability, xix institutions, 93, 247 poorly designed, 163–64 insurance, 355–356 deposit, see deposit insurance mutual, 247 unemployment, 91, 186, 246, 247–48 integration, 322 interest rates, 43–44, 86, 282, 345, 354 in aftermath of tech bubble, 251 ECB’s determination of, 85–86, 152, 249, 302, 348 and employment, 94 euro’s lowering of, 235 Fed’s lowering of, 150 on German bonds, 114 on Greek bonds, 4, 114, 181–82 on Italian bonds, 114 in late 1970s, 168 long-term, 151, 200 negative, 316, 348–49 quantitative easing and, 151, 170 short-term, 249 single, eurozone’s entailing of, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 on Spanish bonds, 114, 199 spread in, 332 stock prices increased by, 264 at zero lower bound, 106 intermediation, 258 internal devaluation, 98–109, 122, 126, 220, 255, 388 supply-side effects of, 99, 103–4 International Commission on the Measurement of Economic Performance and Social Progress, 79, 341 International Labor Organization, 56 International Monetary Fund (IMF), xv, xvii, 10, 17, 18, 55, 61, 65–66, 96, 111, 112–13, 115–16, 119, 154, 234, 289, 309, 316, 337, 349, 350, 370, 371, 381 and Argentine debt, 206 conditions of, 201 creation of, 105 danger of high taxation warnings of, 190 debt reduction pushed by, 95 and debt restructuring, 205, 311 and failure to restore credit, 201 global imbalances discussed by, 252 and Greek debts, 205, 206, 310–11 on Greek surplus, 188 and Indonesian crisis, 230–31, 364 on inequality’s lowering of growth, 212–13 Ireland’s socialization of losses opposed by, 156–57 mistakes admitted by, 262, 312 on New Mediocre, 264 Portuguese bailout of, 178–79 tax measures of, 185 investment, 76–77, 111, 189, 217, 251, 264, 278, 367 confidence and, 94 divergence in, 136–38 in education, 137, 186, 211, 217, 251, 255, 300 infrastructure in, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 lowered by disintermediation, 258 public, 99 real estate, 199 in renewable energy, 229–30 return on, 186, 245 stimulation of, 94 in technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 investor state dispute settlement (ISDS), 393–94 invisible hand, xviii Iraq, refugees from, 320 Iraq War, 36, 37 Ireland, 14, 16, 44, 113, 114–15, 122, 178, 234, 296, 312, 331, 339–40, 343, 362 austerity opposed in, 207 debt of, 196 emigrants from, 68–69 GDP of, 18, 231 growth in, 64, 231, 247, 340 inherited debt in, 134 losses socialized in, 134, 156–57, 165 low debt in, 88 real estate bubble in, 108, 114–15, 126 surplus in, 17, 88 taxes in, 142–43, 376 trade deficits in, 119 unemployment in, 178 irrational exuberance, 14, 114, 116–17, 149, 334, 359 ISIS, 319 Italian bonds, 114, 165, 323 Italy, 6, 14, 16, 120, 125, 331, 343 austerity opposed in, 59 GDP per capita in, 352 growth in, 247 sovereign spread of, 200 Japan, 151, 333, 342 bubble in, 359 debt of, 202 growth in, 78 quantitative easing used by, 151, 359 shrinking working-age population of, 70 Java, unemployment on, 230 jobs gap, 120 Juncker, Jean-Claude, 228 Keynes, John Maynard, 118, 120, 172, 187, 351 convergence policy suggested by, 254 Keynesian economics, 64, 95, 108, 153, 253 King, Mervyn, 390 knowledge, 137, 138–39, 337–38 Kohl, Helmut, 6–7, 337 krona, 287 labor, marginal product of, 356 labor laws, 75 labor markets, 9, 74 friction in, 336 reforms of, 214, 221 labor movement, 26, 40, 125, 134–36, 320 austerity and, 140 capital flows and, 135 see also migration labor rights, 56 Lamers, Karl, 314 Lancaster, Kelvin, 27 land tax, 191 Latin America, 10, 55, 95, 112, 202 lost decade in, 168 Latvia, 331, 346 GDP of, 92 law of diminishing returns, 40 learning by doing, 77 Lehman Brothers, 182 lender of last resort, 85, 362, 368 lending, 280, 380 discriminatory, 283 predatory, 274, 310 lending rates, 278 leverage, 102 Lichtenstein, 44 Lipsey, Richard, 27 liquidity, 201, 264, 278, 354 ECB’s expansion of, 256 lira, 14 Lithuania, 331 living standards, 68–70 loans: contraction of, 126–27, 246 nonperforming, 241 for small and medium-size businesses, 246–47 lobbyists, from financial sector, 132 location, 76 London interbank lending rate (LIBOR), 131, 355 Long-Term Refinancing Operation, 360–361 Lucas, Robert, xi Luxembourg, 6, 94, 142–43, 331, 343 as tax avoidance center, 228, 261 luxury cars, 265 Maastricht Treaty, xiii, 6, 87, 115, 146, 244, 298, 339, 340 macro-prudential regulations, 249 Malta, 331, 340 manufacturing, 89, 223–24 market failures, 48–49, 86, 148, 149, 335 rigidities, 101 tax policy’s correction of, 193 market fundamentalism, see neoliberalism market irrationality, 110, 125–26, 149 markets, limitations of, 10 Meade, James, 27 Medicaid, 91 medical care, 196 Medicare, 90, 91 Mellon, Andrew, 95 Memorandum of Agreement, 233–34 Merkel, Angela, 186 Mexico, 202, 369 bailout of, 113 in NAFTA, xiv Middle East, 321 migrant crisis, 44 migration, 26, 40, 68–69, 90, 125, 320–21, 334–35, 342, 356, 393 unemployment and, 69, 90, 135, 140 see also labor movement military power, 36–37 milk, 218, 223, 230 minimum wage, 42, 120, 254, 255, 351 mining, 257 Mississippi, GDP of, 92 Mitsotakis, Constantine, 377–78 Mitsotakis, Kyriakos, 377–78 Mitterrand, François, 6–7 monetarism, 167–68, 169, 364 monetary policy, 24, 85–86, 148, 264, 325, 345, 364 as allegedly technocratic, 146, 161–62 conservative theory of, 151, 153 in early 1980s US, 168, 210 flexibility of, 244 in global financial crisis, 151 political nature of, 146, 153–54 recent developments in theory of, 166–73 see also interest rates monetary union, see single currencies money laundering, 354 monopolists, privatization and, 194 moral hazard, 202, 203 mortgage rates, 170 mortgages, 302 multinational chains, 219 multinational development banks, 137 multinationals, 127, 223, 376 multipliers, 211–12, 248 balanced-budget, 188–90, 265 Mundell, Robert, 87 mutual insurance, 247 mutualization of debt, 242–43, 263 national development banks, 137–38 natural monopolies, 55 natural rate hypothesis, 172 negative shocks, 248 neoliberalism, xvi, 24–26, 33, 34, 98–99, 109, 257, 265, 332–33, 335, 354 on bubbles, 381 and capital flows, 28 and central bank independence, 162–63 in Germany, 10 inequality increased by, xviii low inflation desired by, 147 recent scholarship against, 24 Netherlands, 6, 44, 292, 331, 339–40, 343 European Constitution referendum of, 58 New Democracy Party, Greek, 61, 185, 377–78 New Mediocre, 264 New World, 148 New Zealand, 364 Nokia, 81, 234, 297 nonaccelerating inflation rate of unemployment (NAIRU), 379–80 nonaccelerating wage rate of unemployment (NAWRU), 379–80 nongovernmental organizations (NGOs), 276 nonperforming loans, 241 nontraded goods sector, 102, 103, 169, 213, 217, 359 North American Free Trade Agreement (NAFTA), xiv North Atlantic Treaty Organization (NATO), 196 Norway, 12, 44, 307 referendum on joining EU, 58 nuclear deterrence, 38 Obama, Barack, 319 oil, import of, 230 oil firms, 36 oil prices, 89, 168, 259, 359 oligarchs: in Greece, 16, 227 in Russia, 280 optimal currency area, 345 output, 70–71, 111 after recessions, 76 Outright Monetary Transactions program, 361 overregulate, 132 Oxfam, 72 panic of 1907, 147 Papandreou, Andreas, 366 Papandreou, George, xiv, 60–61, 184, 185, 220, 221, 226–27, 309, 312, 366, 373 reform of banks suggested by, 229 paradox of thrift, 120 peace, 34 pensions, 9, 16, 78, 177, 188, 197–98, 226, 276, 370 People’s Party, Portugal, 392 periphery, 14, 32, 171, 200, 296, 301, 318 see also specific countries peseta, 14 pharmacies, 218–20 Phishing for Phools (Akerlof and Shiller), 132 physical capital, 77–78 Pinochet, Augusto, 152–53 place-based debt, 134, 242 Pleios, George, 377 Poland, 46, 333, 339 assistance to, 243 in Iraq War, 37 police, 41 political integration, xvi, 34, 35 economic integration vs., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.

., 266 Camdessus, Michel, 314 campaign contributions, 195, 355 Canada, 96 early 1990s expansion of, 209 in NAFTA, xiv railroad privatization in, 55 tax system in, 191 US’s free trade with, 45–46, 47 capital, 76–77 bank, 284–85 human, 78, 137 return to, 388 societal vs. physical, 77–78 tax on, 356 unemployment increased by, 264 capital adequacy standards, 152 capital budget, 245 capital controls, 389–90 capital flight, 126–34, 217, 354, 359 austerity and, 140 and labor flows, 135 capital flows, 14, 15, 25, 26, 27–28, 40, 116, 125, 128, 131, 351 economic volatility exacerbated by, 28, 274 and foreign ownership, 195 and technology, 139 capital inflows, 110–11 capitalism: crises in, xviii, 148–49 inclusive, 317 capital requirements, 152, 249, 378 Caprio, Gerry, 387 capture, 158–60 carbon price, 230, 260, 265, 368 cash, 39 cash flow, 194 Catalonia, xi CDU party, 314 central banks, 59, 354, 387–88 balance sheets of, 386 capture of, 158–59 credit auctions by, 282–84 credit creation by, 277–78 expertise of, 363 independence of, 157–63 inequality created by, 154 inflation and, 153, 166–67 as lender of last resort, 85, 362 as political institutions, 160–62 regulations and, 153 stability and, 8 unemployment and, 8, 94, 97, 106, 147, 153 CEO compensation, 383 Chapter 11, 259–60, 291 childhood poverty, 72 Chile, 55, 152–53 China, 81, 98, 164, 319, 352 exchange-rate policy of, 251, 254, 350–51 global integration of, 49–50 low prices of, 251 rise of, 75 savings in, 257 trade surplus of, 118, 121, 350–52 wages controlled in, 254 as world’s largest economy, 318, 327 chits, 287–88, 290, 299–300, 387, 388–389 Citigroup, 355 climate change, 229–30, 251, 282, 319 Clinton, Bill, xiv, xv, 187 closing hours, 220 cloves, 230 cognitive capture, 159 Cohesion Fund, 243 Cold War, 6 collateral, 364 collective action, 41–44, 51–52 and inequality, 338 and stabilization, 246 collective bargaining, 221 collective goods, 40 Common Agricultural Policy, 338 common regulatory framework, 241 communism, 10 Community Reinvestment Act (CRA), 360, 382 comparative advantage, 12, 171 competition, 12 competitive devaluation, 104–6, 254 compromise, 22–23 confidence, 95, 200–201, 384 in banks, 127 in bonds, 145 and structural reforms, 232 and 2008 crisis, 280 confirmation bias, 309, 335 Congress, US, 319, 355 connected lending, 280 connectedness, 68–69 Connecticut, GDP of, 92 Constitutional Court, Greek, 198 consumption, 94, 278 consumption tax, 193–94 contract enforcement, 24 convergence, 13, 92–93, 124, 125, 139, 254, 300–301 convergence criteria, 15, 87, 89, 96–97, 99, 123, 244 copper mines, 55 corporate income tax, 189–90, 227 corporate taxes, 189–90, 227, 251 corporations, 323 regulations opposed by, xvi and shutdown of Greek banks, 229 corruption, 74, 112 privatization and, 194–95 Costa, António, 332 Council of Economic Advisers, 358 Council of State, Greek, 198 countercyclical fiscal policy, 244 counterfactuals, 80 Countrywide Financial, 91 credit, 276–85 “divorce”’s effect on, 278–79 excessive, 250, 274 credit auctions, 282–84 credit bubbles, 122–123 credit cards, 39, 49, 153 credit creation, 248–50, 277–78, 386 by banks, 280–82 domestic control over, 279–82 regulation of, 277–78 credit default swaps (CDSs), 159–60 crisis policy reforms, 262–67 austerity to growth, 263–65 debt restructuring and, 265–67 Croatia, 46, 331, 338 currency crises, 349 currency pegs, xii current account, 333–34 current account deficits, 19, 88, 108, 110, 120–121, 221, 294 and exit from euro, 273, 285–89 see also trade deficit Cyprus, 16, 30, 140, 177, 331, 386 capital controls in, 390 debt-to-GDP ratio of, 231 “haircut” of, 350, 367 Czech Republic, 46, 331 debit cards, 39, 49 debtors’ prison, 204 debt restructuring, 201, 203–6, 265–67, 290–92, 372, 390 of private debt, 291 debts, xx, 15, 93, 96, 183 corporate, 93–94 crisis in, 110–18 in deflation, xii and exit from eurozone, 273 with foreign currency, 115–18 household, 93–94 increase in, 18 inherited, 134 limits of, 42, 87, 122, 141, 346, 367 monetization of, 42 mutualization of, 242–43, 263 place-based, 134, 242 reprofiling of, 32 restructuring of, 259 debt-to-GDP ratio, 202, 210–11, 231, 266, 324 Declaration of Independence, 319 defaults, 102, 241, 338, 348 and debt mutualization, 243 deficit fetishism, 96 deficits, fiscal, xx, 15, 20, 93, 96, 106, 107–8, 122, 182, 384 and balanced-budget multiplier, 188–90, 265 constitutional amendment on, 339 and exit from euro, 273, 289–90 in Greece, 16, 186, 215, 233, 285–86, 289 limit of, 42, 87, 94–95, 122, 138, 141, 186, 243, 244, 265, 346, 367 primary, 188 problems financing, 110–12 structural, 245 deficits, trade, see trade deficits deflation, xii, 147, 148, 151, 166, 169, 277, 290 Delors, Jacques, 7, 332 democracy, lack of faith in, 312–14 Democracy in America (Tocqueville), xiii democratic deficit, 26–27, 35, 57–62, 145 democratic participation, xix Denmark, 45, 307, 313, 331 euro referendum of, 58 deposit insurance, 31, 44, 129, 199, 301, 354–55, 386–87 common in eurozone, 241, 242, 246, 248 derivatives, 131, 355 Deutsche Bank, 283, 355 devaluation, 98, 104–6, 254, 344 see also internal devaluation developing countries, and Washington Consensus, xvi discretion, 262–63 discriminatory lending practices, 283 disintermediation, 258 divergence, 15, 123, 124–44, 255–56, 300, 321 in absence of crisis, 128–31 capital flight and, 126–34 crisis policies’ exacerbation of, 140–43 free mobility of labor and, 134–36, 142–44, 242 in public investment, 136–38 reforms to prevent, 243 single-market principle and, 125–26 in technology, 138–39 in wealth, 139–40 see also capital flows; labor movement diversification, of production, 47 Dodd-Frank Wall Street Reform and Consumer Protection Act, 355 dollar peg, 50 downsizing, 133 Draghi, Mario, 127, 145, 156, 158, 165, 269, 363 bond market supported by, 127, 200, 201 Drago, Luis María, 371 drug prices, 219 Duisenberg, Willem Frederik “Wim,” 251 Dynamic Stochastic Equilibrium model, 331 East Asia, 18, 25, 95, 102–3, 112, 123, 202, 364, 381 convergence in, 138 Eastern Europe, 10 Economic Adjustment Programme, 178 economic distortions, 191 economic growth, xii, 34 confidence and, 232 in Europe, 63–64, 69, 73–74, 74, 75, 163 lowered by inequality, 212–13 reform of, 263–65 and structural reforms, 232–35 economic integration, xiv–xx, 23, 39–50 euro and, 46–47 political integration vs., 51–57 single currency and, 45–46 economic rents, 226, 280 economics, politics and, 308–18 economic security, 68 economies of scale, 12, 39, 55, 138 economists, poor forecasting by, 307 education, 20, 76, 344 investment in, 40, 69, 137, 186, 211, 217, 251, 255, 300 electricity, 217 electronic currency, 298–99, 389 electronics payment mechanism, 274–76, 283–84 emigration, 4, 68–69 see also migration employment: central banks and, 8, 94, 97 structural reforms and, 257–60 see also unemployment Employment Act (1946), 148 energy subsidies, 197 Enlightenment, 3, 318–19 environment, 41, 257, 260, 323 equality, 225–26 equilibrium, xviii–xix Erasmus program, 45 Estonia, 90, 331, 346 euro, xiv, 325 adjustments impeded by, 13–14 case for, 35–39 creation of, xii, 5–6, 7, 10, 333 creation of institutions required by, 10–11 divergence and, see divergence divorce of, 272–95, 307 economic integration and, 46–47, 268 as entailing fixed exchange rate, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 143, 193, 215–16, 240, 244, 249, 252, 254, 286, 297 as entailing single interest rate, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 and European identification, 38–39 financial instability caused by, 131–32 growth promised by, 235 growth slowed by, 73 hopes for, 34 inequality increased by, xviii interest rates lowered by, 235 internal devaluation of, see internal devaluation literature on, 327–28 as means to end, xix peace and, 38 proponents of, 13 referenda on, 58, 339–40 reforms needed for, xii–xiii, 28–31 risk of, 49–50 weakness of, 224 see also flexible euro Eurobond, 356 euro crisis, xiii, 3, 4, 9 catastrophic consequences of, 11–12 euro-euphoria, 116–17 Europe, 151 free trade area in, 44–45 growth rates in, 63–64, 69, 73–74, 74, 75, 163 military conflicts in, 196 social models of, 21 European Central Bank (ECB), 7, 17, 80, 112–13, 117, 144, 145–73, 274, 313, 362, 368, 380 capture of, 158–59 confidence in, 200–201 corporate bonds bought by, 141 creation of, 8, 85 democratic deficit and, 26, 27 excessive expansion controlled by, 250 flexibility of, 269 funds to Greece cut off by, 59 German challenges to, 117, 164 governance and, 157–63 inequality created by, 154–55 inflation controlled by, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 250, 256, 266 interest rates set by, 85–86, 152, 249, 302, 348 Ireland forced to socialize losses by, 134, 156, 165 new mandate needed by, 256 as political institution, 160–62 political nature of, 153–56 quantitative easing opposed by, 151 quantitative easing undertaken by, 164, 165–66, 170, 171 regulations by, 249, 250 unemployment and, 163 as unrepresentative, 163 European Commission, 17, 58, 161, 313, 332 European Court of Human Rights, 45 European Economic Community (EEC), 6 European Exchange Rate Mechanism (ERM), 30, 335 European Exchange Rate Mechanism II (ERM II), 336 European Free Trade Association, 44 European Free Trade Association Court, 44 European Investment Bank (EIB), 137, 247, 255, 301 European Regional Development Fund, 243 European Stability Mechanism, 23, 246, 357 European Union: budget of, 8, 45, 91 creation of, 4 debt and deficit limits in, 87–88 democratic deficit in, 26–27 economic growth in, 215 GDP of, xiii and lower rates of war, 196 migration in, 90 proposed exit of UK from, 4 stereotypes in, 12 subsidiarity in, 8, 41–42, 263 taxes in, 8, 261 Euro Summit Statement, 373 eurozone: austerity in, see austerity banking union in, see banking union counterfactual in, 235–36 double-dip recessions in, 234–35 Draghi’s speech and, 145 economic integration and, xiv–xx, 23, 39–50, 51–57 as flawed at birth, 7–9 framework for stability of, 244–52 German departure from, 32, 292–93 Greece’s possible exit from, 124 hours worked in, 71–72 lack of fiscal policy in, 152 and move to political integration, xvi, 34, 35, 51–57 Mundell’s work on dangers of, 87 policies of, 15–17 possible breakup of, 29–30 privatization avoided in, 194 saving, 323–26 stagnant GDP in, 12, 65–68, 66, 67 structure of, 8–9 surpluses in, 120–22 theory of, 95–97 unemployment in, 71, 135, 163, 177–78, 181, 331 working-age population of, 70 eurozone, proposed structural reforms for, 239–71 common financial system, see banking union excessive fiscal responsibility, 163 exchange-rate risks, 13, 47, 48, 49–50, 125, 235 exchange rates, 80, 85, 288, 300, 338, 382, 389 of China, 251, 254, 350–51 and competitive devaluation, 105–6 after departure of northern countries, 292–93 of euro, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 215–16, 240, 244, 249, 252, 254, 286, 297 flexible, 50, 248, 349 and full employment, 94 of Germany, 254–55, 351 gold and, 344–45 imports and, 86 interest rates and, 86 quantitative easing’s lowering of, 151 real, 105–6 and single currencies, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 stabilizing, 299–301 and trade deficits, 107, 118 expansionary contractions, 95–96, 208–9 exports, 86, 88, 97–99, 98 disappointing performance of, 103–5 external imbalances, 97–98, 101, 109 externalities, 42–43, 121, 153, 301–2 surpluses as, 253 extremism, xx, 4 Fannie Mae, 91 farmers, US, in deflation, xii Federal Deposit Insurance Corporation (FDIC), 91 Federal Reserve, US, 349 alleged independence of, 157 interest rates lowered by, 150 mandate of, 8, 147, 172 money pumped into economy by, 278 quantitative easing used by, 151, 170 reform of, 146 fiat currency, 148, 275 and taxes, 284 financial markets: lobbyists from, 132 reform of, 214, 228–29 short-sighted, 112–13 financial systems: necessity of, xix real economy of, 149 reform of, 257–58 regulations needed by, xix financial transaction system, 275–76 Finland, 16, 81, 122, 126, 292, 296, 331, 343 growth in, 296–97 growth rate of, 75, 76, 234–35 fire departments, 41 firms, 138, 186–87, 245, 248 fiscal balance: and cutting spending, 196–98 tax revenue and, 190–96 Fiscal Compact, 141, 357 fiscal consolidation, 310 fiscal deficits, see deficits, fiscal fiscal policy, 148, 245, 264 in center of macro-stabilization, 251 countercyclical, 244 in EU, 8 expansionary, 254–55 stabilization of, 250–52 fiscal prudence, 15 fiscal responsibility, 163 flexibility, 262–63, 269 flexible euro, 30–31, 272, 296–305, 307 cooperation needed for, 304–5 food prices, 169 forbearance, 130–31 forecasts, 307 foreclosure proposal, 180 foreign ownership, privatization and, 195 forestry, 81 France, 6, 14, 16, 114, 120, 141, 181–82, 331, 339–40, 343 banks of, 202, 203, 231, 373 corporate income tax in, 189–90 euro creation regretted in, 340 European Constitution referendum of, 58 extreme right in, xi growth in, 247 Freddie Mac, 91 Freefall (Stiglitz), 264, 335 free mobility of labor, xiv, 26, 40, 125, 134–36, 142–44, 242 Friedman, Milton, 151, 152–53, 167, 339 full employment, 94–97, 379 G-20, 121 gas: import of, 230 from Russia, 37, 81, 93 Gates Foundation, 276 GDP-indexed bonds, 267 German bonds, 114, 323 German Council of Economic Experts, 179, 365 Germany, xxi, 14, 30, 65, 108, 114, 141, 181–82, 207, 220, 286, 307, 331, 343, 346, 374 austerity pushed by, 186, 232 banks of, 202, 203, 231–32, 373 costs to taxpayers of, 184 as creditor, 140, 187, 267 debt collection by, 117 debt in, 105 and debt restructuring, 205, 311 in departure from eurozone, 32, 292–93 as dependent on Russian gas, 37 desire to leave eurozone, 314 ECB criticized by, 164 EU economic practices controlled by, 17 euro creation regretted in, 340 exchange rate of, 254–55, 351 failure of, 13, 78–79 flexible exchange of, 304 GDP of, xviii, 92 in Great Depression, 187 growing poverty in, 79 growth of, 78, 106, 247 hours worked per worker in, 72 inequality in, 79, 333 inflation in, 42, 338, 358 internal solidarity of, 334 lack of alternative to euro seen by, 11 migrants to, 320–21, 334–35, 393 minimum wage in, 42, 120, 254 neoliberalism in, 10 and place-based debt, 136 productivity in, 71 programs designed by, 53, 60, 61, 202, 336, 338 reparations paid by, 187 reunification of, 6 rules as important to, 57, 241–42, 262 share of global employment in, 224 shrinking working-age population of, 70, 78–79 and Stability and Growth Pact, 245 and structural reforms, 19–20 “there is no alternative” and, 306, 311–12 trade surplus of, 117, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 “transfer union” rejected by, 22 US loans to, 187 victims blamed by, 9, 15–17, 177–78, 309 wages constrained by, 41, 42–43 wages lowered in, 105, 333 global financial crisis, xi, xiii–xiv, 3, 12, 17, 24, 67, 73, 75, 114, 124, 146, 148, 274, 364, 387 and central bank independence, 157–58 and confidence, 280 and cost of failure of financial institutions, 131 lessons of, 249 monetary policy in, 151 and need for structural reform, 214 originating in US, 65, 68, 79–80, 112, 128, 296, 302 globalization, 51, 321–23 and diminishing share of employment in advanced countries, 224 economic vs. political, xvii failures of, xvii Globalization and Its Discontents (Stig-litz), 234, 335, 369 global savings glut, 257 global secular stagnation, 120 global warming, 229–30, 251, 282, 319 gold, 257, 275, 277, 345 Goldman Sachs, 158, 366 gold standard, 148, 291, 347, 358 in Great Depression, xii, 100 goods: free movement of, 40, 143, 260–61 nontraded, 102, 103, 169, 213, 217, 359 traded, 102, 103, 216 Gordon, Robert, 251 governance, 157–63, 258–59 government spending, trade deficits and, 107–8 gravity principle, 124, 127–28 Great Depression, 42, 67, 105, 148, 149, 168, 313 Friedman on causes of, 151 gold standard in, xii, 100 Great Malaise, 264 Greece, 14, 30, 41, 64, 81, 100, 117, 123, 142, 160, 177, 265–66, 278, 307, 331, 343, 366, 367–68, 374–75, 386 austerity opposed by, 59, 60–62, 69–70, 207–8, 392 balance of payments, 219 banks in, 200–201, 228–29, 231, 270, 276, 367, 368 blaming of, 16, 17 bread in, 218, 230 capital controls in, 390 consumption tax and, 193–94 counterfactual scenario of, 80 current account surplus of, 287–88 and debt restructuring, 205–7 debt-to-GDP ratio of, 231 debt write-offs in, 291 decline in labor costs in, 56, 103 ECB’s cutting of funds to, 59 economic growth in, 215, 247 emigration from, 68–69 fiscal deficits in, 16, 186, 215, 233, 285–86, 289 GDP of, xviii, 183, 309 hours worked per worker in, 72 inequality in, 72 inherited debt in, 134 lack of faith in democracy in, 312–13 living standards in, 216 loans in, 127 loans to, 310 migrants and, 320–21 milk in, 218, 223, 230 new currency in, 291, 300 oligarchs in, 16, 227 output per working-age person in, 70–71 past downturns in, 235–36 pensions in, 16, 78, 188, 197–98, 226 pharmacies in, 218–20 population decline in, 69, 89 possible exit from eurozone of, 124, 197, 273, 274, 275 poverty in, 226, 261, 376 primary surplus of, 187–88, 312 privatization in, 55, 195–96 productivity in, 71, 342 programs imposed on, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 renewable energy in, 193, 229 social capital destroyed in, 78 sovereign spread of, 200 spread in, 332 and structural reforms, 20, 70, 188, 191 tax revenue in, 16, 142, 192, 227, 367–368 tools lacking for recovery of, 246 tourism in, 192, 286 trade deficits in, 81, 194, 216–17, 222, 285–86 unemployment in, xi, 71, 236, 267, 332, 338, 342 urgency in, 214–15 victim-blaming of, 309–11 wages in, 216–17 youth unemployment in, xi, 332 Greek bonds, 116, 126 interest rates on, 4, 114, 181–82, 201–2, 323 restructuring of, 206–7 green investments, 260 Greenspan, Alan, 251, 359, 363 Grexit, see Greece, possible exit from eurozone of grocery stores, 219 gross domestic product (GDP), xvii decline in, 3 measurement of, 341 Growth and Stability Pact, 87 hedge funds, 282, 363 highways, 41 Hitler, Adolf, 338, 358 Hochtief, 367–68 Hoover, Herbert, 18, 95 human capital, 78, 137 human rights, 44–45, 319 Hungary, 46, 331, 338 hysteresis, 270 Iceland, 44, 111, 307, 354–55 banks in, 91 capital controls in, 390 ideology, 308–9, 315–18 imports, 86, 88, 97–99, 98, 107 incentives, 158–59 inclusive capitalism, 317 income, unemployment and, 77 income tax, 45 Independent Commission for the Reform of International Corporate Taxation, 376–377 Indonesia, 113, 230–31, 314, 350, 364, 378 industrial policies, 138–39, 301 and restructuring, 217, 221, 223–25 Industrial Revolution, 3, 224 industry, 89 inequality, 45, 72–73, 333 aggregate demand lowered by, 212 created by central banks, 154 ECB’s creation of, 154–55 economic performance affected by, xvii euro’s increasing of, xviii growth’s lowering of, 212 hurt by collective action, 338 increased by neoliberalism, xviii increase in, 64, 154–55 inequality in, 72, 212 as moral issue, xviii in Spain, 72, 212, 225–26 and tax harmonization, 260–61 and tax system, 191 inflation, 277, 290, 314, 388 in aftermath of tech bubble, 251 bonds and, 161 central banks and, 153, 166–67 consequences of fixation on, 149–50, 151 costs of, 270 and debt monetization, 42 ECB and, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 255, 256, 266 and food prices, 169 in Germany, 42, 338, 358 interest rates and, 43–44 in late 1970s, 168 and natural rate hypothesis, 172–73 political decisions and, 146 inflation targeting, 157, 168–70, 364 information, 335 informational capital, 77 infrastructure, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 inheritance tax, 368 inherited debt, 134 innovation, 138 innovation economy, 317–18 inputs, 217 instability, xix institutions, 93, 247 poorly designed, 163–64 insurance, 355–356 deposit, see deposit insurance mutual, 247 unemployment, 91, 186, 246, 247–48 integration, 322 interest rates, 43–44, 86, 282, 345, 354 in aftermath of tech bubble, 251 ECB’s determination of, 85–86, 152, 249, 302, 348 and employment, 94 euro’s lowering of, 235 Fed’s lowering of, 150 on German bonds, 114 on Greek bonds, 4, 114, 181–82 on Italian bonds, 114 in late 1970s, 168 long-term, 151, 200 negative, 316, 348–49 quantitative easing and, 151, 170 short-term, 249 single, eurozone’s entailing of, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 on Spanish bonds, 114, 199 spread in, 332 stock prices increased by, 264 at zero lower bound, 106 intermediation, 258 internal devaluation, 98–109, 122, 126, 220, 255, 388 supply-side effects of, 99, 103–4 International Commission on the Measurement of Economic Performance and Social Progress, 79, 341 International Labor Organization, 56 International Monetary Fund (IMF), xv, xvii, 10, 17, 18, 55, 61, 65–66, 96, 111, 112–13, 115–16, 119, 154, 234, 289, 309, 316, 337, 349, 350, 370, 371, 381 and Argentine debt, 206 conditions of, 201 creation of, 105 danger of high taxation warnings of, 190 debt reduction pushed by, 95 and debt restructuring, 205, 311 and failure to restore credit, 201 global imbalances discussed by, 252 and Greek debts, 205, 206, 310–11 on Greek surplus, 188 and Indonesian crisis, 230–31, 364 on inequality’s lowering of growth, 212–13 Ireland’s socialization of losses opposed by, 156–57 mistakes admitted by, 262, 312 on New Mediocre, 264 Portuguese bailout of, 178–79 tax measures of, 185 investment, 76–77, 111, 189, 217, 251, 264, 278, 367 confidence and, 94 divergence in, 136–38 in education, 137, 186, 211, 217, 251, 255, 300 infrastructure in, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 lowered by disintermediation, 258 public, 99 real estate, 199 in renewable energy, 229–30 return on, 186, 245 stimulation of, 94 in technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 investor state dispute settlement (ISDS), 393–94 invisible hand, xviii Iraq, refugees from, 320 Iraq War, 36, 37 Ireland, 14, 16, 44, 113, 114–15, 122, 178, 234, 296, 312, 331, 339–40, 343, 362 austerity opposed in, 207 debt of, 196 emigrants from, 68–69 GDP of, 18, 231 growth in, 64, 231, 247, 340 inherited debt in, 134 losses socialized in, 134, 156–57, 165 low debt in, 88 real estate bubble in, 108, 114–15, 126 surplus in, 17, 88 taxes in, 142–43, 376 trade deficits in, 119 unemployment in, 178 irrational exuberance, 14, 114, 116–17, 149, 334, 359 ISIS, 319 Italian bonds, 114, 165, 323 Italy, 6, 14, 16, 120, 125, 331, 343 austerity opposed in, 59 GDP per capita in, 352 growth in, 247 sovereign spread of, 200 Japan, 151, 333, 342 bubble in, 359 debt of, 202 growth in, 78 quantitative easing used by, 151, 359 shrinking working-age population of, 70 Java, unemployment on, 230 jobs gap, 120 Juncker, Jean-Claude, 228 Keynes, John Maynard, 118, 120, 172, 187, 351 convergence policy suggested by, 254 Keynesian economics, 64, 95, 108, 153, 253 King, Mervyn, 390 knowledge, 137, 138–39, 337–38 Kohl, Helmut, 6–7, 337 krona, 287 labor, marginal product of, 356 labor laws, 75 labor markets, 9, 74 friction in, 336 reforms of, 214, 221 labor movement, 26, 40, 125, 134–36, 320 austerity and, 140 capital flows and, 135 see also migration labor rights, 56 Lamers, Karl, 314 Lancaster, Kelvin, 27 land tax, 191 Latin America, 10, 55, 95, 112, 202 lost decade in, 168 Latvia, 331, 346 GDP of, 92 law of diminishing returns, 40 learning by doing, 77 Lehman Brothers, 182 lender of last resort, 85, 362, 368 lending, 280, 380 discriminatory, 283 predatory, 274, 310 lending rates, 278 leverage, 102 Lichtenstein, 44 Lipsey, Richard, 27 liquidity, 201, 264, 278, 354 ECB’s expansion of, 256 lira, 14 Lithuania, 331 living standards, 68–70 loans: contraction of, 126–27, 246 nonperforming, 241 for small and medium-size businesses, 246–47 lobbyists, from financial sector, 132 location, 76 London interbank lending rate (LIBOR), 131, 355 Long-Term Refinancing Operation, 360–361 Lucas, Robert, xi Luxembourg, 6, 94, 142–43, 331, 343 as tax avoidance center, 228, 261 luxury cars, 265 Maastricht Treaty, xiii, 6, 87, 115, 146, 244, 298, 339, 340 macro-prudential regulations, 249 Malta, 331, 340 manufacturing, 89, 223–24 market failures, 48–49, 86, 148, 149, 335 rigidities, 101 tax policy’s correction of, 193 market fundamentalism, see neoliberalism market irrationality, 110, 125–26, 149 markets, limitations of, 10 Meade, James, 27 Medicaid, 91 medical care, 196 Medicare, 90, 91 Mellon, Andrew, 95 Memorandum of Agreement, 233–34 Merkel, Angela, 186 Mexico, 202, 369 bailout of, 113 in NAFTA, xiv Middle East, 321 migrant crisis, 44 migration, 26, 40, 68–69, 90, 125, 320–21, 334–35, 342, 356, 393 unemployment and, 69, 90, 135, 140 see also labor movement military power, 36–37 milk, 218, 223, 230 minimum wage, 42, 120, 254, 255, 351 mining, 257 Mississippi, GDP of, 92 Mitsotakis, Constantine, 377–78 Mitsotakis, Kyriakos, 377–78 Mitterrand, François, 6–7 monetarism, 167–68, 169, 364 monetary policy, 24, 85–86, 148, 264, 325, 345, 364 as allegedly technocratic, 146, 161–62 conservative theory of, 151, 153 in early 1980s US, 168, 210 flexibility of, 244 in global financial crisis, 151 political nature of, 146, 153–54 recent developments in theory of, 166–73 see also interest rates monetary union, see single currencies money laundering, 354 monopolists, privatization and, 194 moral hazard, 202, 203 mortgage rates, 170 mortgages, 302 multinational chains, 219 multinational development banks, 137 multinationals, 127, 223, 376 multipliers, 211–12, 248 balanced-budget, 188–90, 265 Mundell, Robert, 87 mutual insurance, 247 mutualization of debt, 242–43, 263 national development banks, 137–38 natural monopolies, 55 natural rate hypothesis, 172 negative shocks, 248 neoliberalism, xvi, 24–26, 33, 34, 98–99, 109, 257, 265, 332–33, 335, 354 on bubbles, 381 and capital flows, 28 and central bank independence, 162–63 in Germany, 10 inequality increased by, xviii low inflation desired by, 147 recent scholarship against, 24 Netherlands, 6, 44, 292, 331, 339–40, 343 European Constitution referendum of, 58 New Democracy Party, Greek, 61, 185, 377–78 New Mediocre, 264 New World, 148 New Zealand, 364 Nokia, 81, 234, 297 nonaccelerating inflation rate of unemployment (NAIRU), 379–80 nonaccelerating wage rate of unemployment (NAWRU), 379–80 nongovernmental organizations (NGOs), 276 nonperforming loans, 241 nontraded goods sector, 102, 103, 169, 213, 217, 359 North American Free Trade Agreement (NAFTA), xiv North Atlantic Treaty Organization (NATO), 196 Norway, 12, 44, 307 referendum on joining EU, 58 nuclear deterrence, 38 Obama, Barack, 319 oil, import of, 230 oil firms, 36 oil prices, 89, 168, 259, 359 oligarchs: in Greece, 16, 227 in Russia, 280 optimal currency area, 345 output, 70–71, 111 after recessions, 76 Outright Monetary Transactions program, 361 overregulate, 132 Oxfam, 72 panic of 1907, 147 Papandreou, Andreas, 366 Papandreou, George, xiv, 60–61, 184, 185, 220, 221, 226–27, 309, 312, 366, 373 reform of banks suggested by, 229 paradox of thrift, 120 peace, 34 pensions, 9, 16, 78, 177, 188, 197–98, 226, 276, 370 People’s Party, Portugal, 392 periphery, 14, 32, 171, 200, 296, 301, 318 see also specific countries peseta, 14 pharmacies, 218–20 Phishing for Phools (Akerlof and Shiller), 132 physical capital, 77–78 Pinochet, Augusto, 152–53 place-based debt, 134, 242 Pleios, George, 377 Poland, 46, 333, 339 assistance to, 243 in Iraq War, 37 police, 41 political integration, xvi, 34, 35 economic integration vs., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.


pages: 353 words: 81,436

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

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

An influential expert view is that 80 per cent of GDP is the threshold beyond which the public debt hinders future growth (C. Reinhart and K. Rogoff, Growth in a Time of Debt, NBER Working Paper No. 15639, Cambridge, MA: National Bureau of Economic Research, 2009). If this is true – like all econometric ‘laws’, it should be treated with utmost caution – many developed economies are already incapable of growth. 73 See a few thoughts on the subject in chapter 4 below. 74 In combination with low interest rates, capital controls and high inflation, this may add up to a public debt reduction strategy. The technical name for it is ‘financial repression’ (C. Reinhart and M. Sbrancia, The Liquidation of Government Debt, NBER Working Paper No. 16893, Cambridge, MA: National Bureau of Economic Research, 2011). 75 Systems to regulate state bankruptcies have often been proposed. For creditors, they would limit the freedom of debtor states in the event of a payment default, although they could never be sure that governments would agree to play by the rules.

In the internationally ‘embedded liberalism’29 of the 1950s and 1960s, the nation-states of the capitalist West had their own currencies and were able, within certain limits, to devalue them to compensate for a loss of external ‘competitiveness’ resulting from concessions to powerful trade unions and Communist parties. In this way, states and governments could distort markets and yield to domestic political demands for social justice, without being punished in their external economy. Capital flight could be prevented, or at least restricted, by means of capital controls, and this weakened the bargaining power of investors with respect to the minimum profit level they could demand from society in return for investing their, more or less captive, capital. Central to the Keynesian political economy were the corporatist interest associations of labour and capital, together with the negotiating system established between them.30 Supporting itself on these, government policy aimed to ensure full employment and a distribution acceptable to the working class, by means of negotiated tripartite incomes and, if possible, also price policy.

At first sight, this might look like a return to the beginning of the crisis cycle that started at the end of the postwar period. But in the social world one never steps into the same river twice. Unlike in the 1970s, inflation today would be driven not by the labour market but by central bank efforts to rescue lenders by bailing out debtors; it could therefore not as easily be ended as in the 1980s. And it would not mainly affect the owners of monetary assets – who, in a world without capital controls, can jump much more easily from one currency to another – but rather the, today, much larger numbers of pensioners and social assistance claimants. Workers too would suffer, since unlike in the 1970s trade unions are too weak now to ensure that wages keep pace with inflation. As an instrument for the taming of mass democracy, inflation would thus probably be used up much more quickly than in the past.


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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

These constraints on the inward and outward flow of money brought an end to the failed laissez faire policies and economic freedoms of the interwar years. Firms and individuals were heavily limited in depositing funds in overseas banks, purchasing foreign shares or even the setting up of factories overseas. Exchange controls—designed to support currency levels—and other limitations on financial services greatly constrained the role of finance. Capital controls and other regulations ushered in a new era of ‘boring banking’. After the War, with the weakness of sterling and the strength of the dollar, the City ceded its once pre-eminent status as the world’s international finance centre to New York. Globally, commerce took an increasingly back seat, wider controls kept a lid on the international concentration of wealth while the rich—on both sides of the Atlantic—were less concerned with building their wealth than hanging onto it.

Financial flows were much more closely tied to the nation state, indeed much more so than before the First World War. As finance was freed from the constraints of the past, money became nomadic. Surpluses, dividends and profits arising in one country could be recycled across the world, mostly through offshore intermediaries, to any of the world’s burgeoning number of financial ports. Not only have capital controls been abandoned, ‘we have now taken a full step again beyond that, into a world where capital is not only free to flow across borders, but is actively and artificially encouraged to move,’ writes Nicholas Shaxson in his study of the power of the offshore tax industry, ‘lured by any number of offshore attractions: secrecy, evasion of prudential banking regulations, zero taxes.’158 Soon international capitalism—‘financial liberalisation on steroids’, as Shaxson has described it159—was being driven by the demands of a tsunami of global footloose capital looking for the most lucrative home.

These funds generate $860 billion in income a year while the loss of global tax exceeds $255 billion annually.166 The extraordinary rise in the role of the offshore haven—a huge headache for the tax-raising ability of governments across the globe—has been made possible by the globalisation of money flows, the liberalisation of capital markets and the blind eye policies of national governments. Figure 4.2 shows the rapid acceleration in the amount held in bank deposits in Jersey alone following the removal of capital controls from the early 1980s. The explosion of tax havens: the case of Jersey (Figure 4.2) 167 Growth of bank deposits in Jersey , 1980 to 2005. With the opening up of capital markets, the world’s financial centres found themselves in a new global race. Huge profits were to be made from acquiring, managing and investing these footloose funds. Together, the City and the British authorities set out to woo the world’s super-rich and with such success that the lion’s share of this financial tidal wave was washed up on Britain’s shores.


Hopes and Prospects by Noam Chomsky

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, British Empire, capital controls, colonial rule, corporate personhood, Credit Default Swap, cuban missile crisis, David Ricardo: comparative advantage, deskilling, en.wikipedia.org, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, Howard Zinn, Hyman Minsky, invisible hand, liberation theology, market fundamentalism, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, moral hazard, Nelson Mandela, new economy, nuremberg principles, one-state solution, open borders, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ralph Waldo Emerson, RAND corporation, Ronald Reagan, structural adjustment programs, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, trade liberalization, uranium enrichment, Washington Consensus

We need not tarry on the force of their arguments, but the instincts of the classical economists were insightful.8 The post–World War II period conforms closely to these conclusions. There have been two phases. The first was under the economic regime established by the United States and Britain at Bretton Woods after the war, negotiated by Harry Dexter White for the United States and John Maynard Keynes for England. They shared the belief that economic sovereignty is a crucial factor in growth. The system they designed was based on capital controls and regulated currencies in order to protect economic sovereignty, and to permit state intervention to carry out social democratic measures. The regime lasted for about twenty-five years, and was extremely successful by historical standards. By the mid-1970s, the system was gradually replaced in parts of the world by neoliberal principles. The outcomes should surprise no one familiar with economic history.

Capital flow of course sharply increased, but “the flows have been transferring ownership but little real resources on balance.” Furthermore, “the growth of labor, capital, and total factor productivity have all fallen precipitously since the 1960s in the OECD [Organisation for Economic Co-operation and Development] countries.”11 In brief, the twenty-five years of economic sovereignty, state-coordinated economic growth, and capital controls under the Bretton Woods system led to better social and economic results than the following twenty-five years of neoliberalism, by just about every relevant measure, and by significant margins. It is important to stress that the results include social indicators. In the United States, for example, growth during the Bretton Woods period was not only the highest ever over a lengthy period, but was also egalitarian.

Their mentors collected their Nobel Prizes while the economy collapsed and had to be bailed out by the state, which by 1982 controlled more of the economy than under Allende; the process was called “the Chicago road to socialism,” international economist David Felix recalls. Economist Javier Santiso of the OECD Development Center terms it a “paradox” that “able economists committed to laissez-faire showed the world yet another road to a de facto socialized banking system”; no paradox, to those familiar with economic history. Chile did manage to recover, but by a complex mixture of market reliance and state intervention, including a form of capital control (violating the core principle of neoliberalism) and state ownership of the world’s largest copper producer, Codelco, another radical violation of neoliberal principles, and the source of much of Chile’s export earnings and the state’s fiscal revenues. As the Financial Times observes, after the “catastrophic banking crisis of 1982, the product in part of economic policies pursued by the radical free-marketers known as the Chicago boys, [Chile] cooled its ideological fervor” and by the 1990s “controlled its exposure to world financial markets and maintained its efficient copper company in public hands,” somewhat protecting itself from market disasters by these and other measures.23 It remains to look at the central doctrine of neoliberalism: financial liberalization, which began to take off from the early 1970s.


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

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

They're often represented as fresh approaches to old problems, when in fact they're really convention tarted up as innovation. I'm reminded of Karl Kraus's comment about psychoanalysis — that it's the disease of which it purports to be the cure. If old thinking can be successfully passed off as new, why not revive some better old ideas than the ones now being re-animated? Capital controls, for example, once a cornerstone of social democratic thinking, are now dismissed as hopelessly obsolete. But why? Why not require government approval of inbound and outbound foreign investment? It worked quite well for Japan and South Korea; why can't capital controls be put in service of an agenda more humane than the rapid growth in GDP and exports? To those who say that modern technology makes it easy to evade such restrictions one can easily reply that it also makes it easier to impose them. The principal obstacles aren't technical, but political (not that the political obstacles are minor).

., 0.182 and 0.965, respectively; and the U.S. and the U.K., 0.590 and 0.949 (Bank of England data, reported in Goldstein et al. 1994, p. 5).-^'' While it would be an exaggeration to say that there's now a single global credit market, we're definitely moving in that direction. Though all this seems as natural as the sunrise, this incarnation of globalism isn't all that old. Most countries imposed extensive capital controls well into the 1970s. Even now, the IMF Articles of Agreement (Article VI, Section 3) allow members to "exercise such controls as are necessary to regulate international capital movements," as long as they don't unduly WALL STREET interfere with routine payments that go with trade. Though official opinion of the 1950s urged a liberal regime, balance of payments imbalances in the 1960s led to a tightening of controls, with the U.S. trying to restrict capital outflows and several surplus countries trying to limit inflows.

Keynes, Investment Theory and the Economic Slowdown: The Role of Replacement Investment and q-Ratios. (London: Macmillan). — (1991). "Liquidity Demand and Investment," Review of Political Economy i, pp. 467-496. Pesaran, M. Hashem (1992). "Natural Rate Hypothesis." in Newman et al. (1992). Pickering, Margaret Hastings (1991). "A Review of Corporate Restructuring Activity, 1980- 90," Staff Study l6l (Washington: Federal Reserve Board, May). Pitelis, Christos (1987). Corporate Capital: Control. Ownership, Saving and Crisis (Cambridge and New York: Cambridge University Press). —, ed. (1993). Transaction Costs, Markets and Hierarchies (Oxford and Cambridge: Blackwell). Plosser, Charles I. (1984). "Money in a Theory of Finance," Carnegie-Rochester Conference WALL STREET Series on Public Policy 21. — (1989). "Understanding Real Business Cycles," Journal of Economic Perspectives 3 (Sum- mer), pp. 51-77.


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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

That makes them vulnerable to panic among investors, who may suddenly stop funding them.272 This is a major flaw in the global financial system. As I argued in Open World: the Truth about Globalisation, in the absence of a provider of emergency liquidity with deep enough pockets, economies need to be wary of borrowing too much from foreigners and impose capital controls to protect themselves if necessary.273 But within the eurozone, capital controls are meant to be illegal, while one of the major selling points of the single currency is that it ought to allow poorer countries to borrow freely from richer ones to fund catch-up growth and should promote integrated financial markets more generally. So by refusing to act as a lender of last resort, the ECB was not only threatening to allow eurozone governments to be forced unnecessarily to default, it was undermining the very basis of financial integration within the eurozone.

Countries also decided to merge their money in order to insulate themselves against currency crises. These had periodically struck Europe since the breakdown of the Bretton Woods system of exchange rates pegged to the US dollar in the early 1970s. Its replacement in Europe, the exchange-rate mechanism (ERM) of the European Monetary System (EMS), involved trying to limit currencies’ fluctuations around pegs to Germany’s Deutsche Mark. But after European governments lifted capital controls in the 1980s, allowing money to flow freely in and out of the economy, the ERM became increasingly vulnerable to destabilising speculation. In 1992 currency after currency was forced to devalue. That September, sterling was forced out of the ERM on Black Wednesday. In 1993 EU governments decided to greatly widen the bands within which currencies could fluctuate. In effect, the ERM had all but broken down.

Since eurozone governments were seen as safe ports in a storm, they were able to continue borrowing cheaply and provide a fiscal stimulus to limit the slump. Thus in Act One of the crisis, the euro acted as a shock absorber for member economies. Contrast Ireland’s initial experience with Iceland’s. When Iceland’s banks collapsed in September 2008, the country was cut off from global markets, saw interest rates skyrocket to 20 per cent, had to seek an IMF rescue loan and imposed capital controls to stop cash draining out of the economy. But when Ireland’s banks collapsed, its membership of the euro provided valuable breathing space: the government was able to continue borrowing from international markets and interest rates fell. Unfortunately, the Irish government squandered this advantage through its disastrous decision to guarantee all the debts of its collapsing banking system – thereby making taxpayers foot the bill for the huge losses of scoundrels such as Sean FitzPatrick at Anglo Irish Bank.


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The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

A land value tax would be, if set up right, unavoidable: even if the land were held under an impenetrable Cook Islands trust, if whoever owns or controls or benefits from it does not cough up the right amount of tax each year, the land (or a portion of it) would be forfeit and you can send the bailiffs in. These kinds of ‘smart capital controls’ would rebalance our housing markets, reduce housing booms and crashes and the number of empty homes, curb inequality, and keep potentially criminal elements out of our markets. Separately, we can find smart ways to discourage flows of money into Britain from the abusive private equity firms. If this inward investment serves as a crowbar for looting and hollowing out our productive economic base, then we are much better off without it. Smart capital controls would remove the tax breaks and incentives for looting, while leaving Britain open to genuine productive job-creating investment. A policy of smart capital controls may also discourage London from serving as an offshore hub for renminbi trading, not just because of its potential as a vector for CCP influence over British policymaking, but also because such trading tends to increase the size and influence of finance in the British economy, which the finance curse shows us is to our detriment.

A policy of smart capital controls may also discourage London from serving as an offshore hub for renminbi trading, not just because of its potential as a vector for CCP influence over British policymaking, but also because such trading tends to increase the size and influence of finance in the British economy, which the finance curse shows us is to our detriment. Smart capital controls would favour dramatically increased capital safety buffers at big banks, reducing City profits but making the banking sector more stable and less prone to gambling at the taxpayers’ expense, delivering overall benefits to our country. Smart capital controls would give the police the authority and resources to properly police criminal activity in the City, for the first time in many decades. Britain’s people would similarly benefit if we were to impose radical transparency on the British-controlled tax havens, and force them to stop creating regulatory and tax loopholes for global banks and multinationals.

Why do they tolerate all those ‘middleman monopolies’ where powerful interests park themselves on the crucial choke points in global supply chains, extracting wealth from all the players in the network, like Veblen’s smug toads snapping up passing flies? Change here will be immensely hard, of course – but without any organised counterforce, it will be impossible. Here’s another way we can think about tackling the finance curse. This is, in essence, the exact opposite of the Competitiveness Agenda, and you might call it ‘smart capital controls’. The aim here is not so much to try and control flows of capital out of our economy, but to be selective and careful about what flows in. These controls would usually not come in the form of barriers to flows of capital at the border, but instead in the form of policies designed to make the economy work better by protecting us from the more dangerous forms of global money. For example, billions of dollars of money flooding into our property market from former Soviet republics is not helping Britain as a whole: while it may make wealthier homeowners feel richer and deliver windfalls to estate agents and City bankers, it squeezes others out of the property market – and also poses many other dangers, such as feeding boom-and-bust economics, or serving as a vector for wealthy foreign owners to corrupt our politics.11 Policies to control these inflows could range from outright bans on certain kinds of investment in the property market; to radical transparency, forcing the names of the beneficial owners of all real estate in Britain into the public domain; to a land value tax, levied on the value of each square metre of underlying land, which could jimmy a stream of tax revenues out of wealthy foreigners who own land in the UK, and channel this towards compelling social priorities, such as a basic income.


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Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, declining real wages, European colonialism, fiat currency, financial innovation, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

The spot then eventually catches up after the currency is let go, and the fall in the spot exchange rate allows the interest differential to narrow, which mechanically causes the forward to rally relative to the spot. At this point in the cycle, capital controls are a third (often last ditch) lever that seldom works. They can seem attractive to policy makers, since they directly cause fewer people to take their capital out of the country. But history shows that they usually fail because a) investors find ways to get around them and b) because the very act of trying to trap people leads them to want to escape. The inability to get one’s money out of a country is analogous to one’s inability to get one’s money out of a bank: fear of it can lead to a run. Still, capital controls sometimes can be a temporary fix, though in no case are they a sustained fix. Usually, this currency defense phase of the cycle is relatively brief, in the vicinity of six months, with reserves drawn down about 10 to 20 percent before the defense is abandoned. 4) The Depression (Often When the Currency Is Let Go) As mentioned above, a country’s inflationary deleveraging is analogous to what happens when a family has trouble making payments—with one major difference.

The habit of reckoning in dollars, especially, has established itself, not only in firms’ internal accounting practice, but above all as the method of price quotation in trade, industry and agriculture.”100 In a desperate attempt to calm the inflationary spiral, on October 12 1922, the government stepped in to stop the ever-growing flight into foreign currency. Restrictions were put on German citizens purchasing foreign FX.101 Such capital controls are a classic lever to control inflationary depressions; they are rarely successful. The reasons for this are that a) capital controls have limited effectiveness at best because they are usually pretty easy to get around and b) trying to trap people typically leads them to want to escape even more. Not being able to get one’s money out of the country triggers a psychology that is analogous to the inability to get one’s money out of a bank: it produces fear that produces a run.

CLOSING EXTERNAL IMBALANCES WELL-MANAGED Tight monetary policy causes domestic demand to contract in line with the fall in incomes. Policy makers create incentives for investors to stay in the currency (i.e., higher interest rates that compensate for risk of currency depreciation). POORLY MANAGED Policy makers favor domestic conditions, and monetary policy is too loose, putting off domestic pain and stoking inflation. Policy makers attempt to stop the outflow of capital with capital controls or other restrictive measures. SMOOTHING THE DOWNTURN WELL-MANAGED Use reserves judiciously to smooth the withdrawal of foreign capital while working to close imbalances. POORLY MANAGED Rely on reserve sales to maintain higher levels of spending. MANAGING BAD DEBTS/DEFAULTS WELL-MANAGED Work through debts of entities that are over-indebted, making up the gap with credit elsewhere.


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China's Future by David Shambaugh

Berlin Wall, capital controls, demographic dividend, demographic transition, Deng Xiaoping, facts on the ground, financial intermediation, financial repression, Gini coefficient, high net worth, Kickstarter, knowledge economy, low skilled workers, market bubble, megacity, Mikhail Gorbachev, New Urbanism, offshore financial centre, open economy, Pearl River Delta, rent-seeking, secular stagnation, short selling, South China Sea, special drawing rights, too big to fail, urban planning, Washington Consensus, working-age population, young professional

China has the world’s highest household savings rate of 51 percent, which, if spent, could power the economy indefinitely. Yet the potential remains unrealized because Chinese consumers hedge against uncertainties of the future. The main uncertainty remains the necessity of saving for medical emergencies and retirement, which is the main factor accounting for China’s extraordinarily high household savings rate. Another factor is the limited options for investing. Because of capital controls Chinese citizens are severely limited from investing abroad or moving their savings to foreign banks, and the government rightly fears that if these controls were further relaxed the result would be massive capital out-flight. Money moved abroad is not money spent at home. Despite the nonconvertibility of the renminbi on capital account and government regulations on moving money out of the country, private Chinese capital is increasingly flowing overseas.

The global real estate market—from Europe to North America to Southeast Asia to South America and Africa—has boomed as a result of Chinese purchases of property. It is not just individuals investing abroad; Chinese corporations and government entities are also doing so.37 China’s non-financial outbound direct investment (ODI) totaled $121 billion in 2014, while President Xi Jinping has declared that China will invest a whopping $1.25 trillion worldwide by 2025. Despite the exodus of capital and the government’s relaxation of capital controls on a phased basis,38 Chinese consumers still have enormous potential to drive the next wave of economic growth if their anxieties about retirement, healthcare, and old age provision can be ameliorated. People’s Bank of China Governor Zhou Xiaochuan also signaled to the International Monetary Fund recently that China planned the “managed convertibility” of its currency in a step-by-step manner.39 On November 30, 2015 China succeeded in having the renminbi included in the IMF’s basket of currencies that enjoy “special drawing rights” (SDRs).

Index A Abou, Serge Acemoglu, Daron and Robinson, James adaptation authoritarian regimes “J-Curve” concept paradigm advocacy groups Africa aging population Air Force (PLA) air pollution / carbon dioxide emissions Allison, Graham architecture Asian Development Bank asset bubbles Association of Southeast Asian Nations (ASEAN) Australia authoritarian regimes development stages see also Hard Authoritarianism; Neo-Totalitarianism; Soft Authoritarianism B baby boomers Bangladesh bank deposit insurance system banking sector shadow banking state banks biaotai, act of billionaires/millionaires “Black Monday” Bremmer, Ian Brzezinski, Zbigniew Budget Amendment Act (2014) bureaucracies (“Iron Quadrangle”) C Cambodia capital controls carbon dioxide emissions Central Asian states chemical pollution of water resources China 2030 report Chinese Communist Party (CCP) and civil society and collapse of Soviet Union / Eastern Europe Conservatives vs. Political Reformers corruption Eighteenth Party Congress Fifteenth Party Congress Fourteenth Party Congress Fourth Plenums higher education internal and external threats international relations pathways to the future retrenchment and Hard Authoritarianism separation from government SOEs see also Politburo; Third Plenum reforms civil society Clarke, Donald class composition / social stratification Color Revolutions communist party states Leninist system see also Soviet Union / Eastern Europe, collapse of comparative communist theorists Conservatives vs.


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The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, Gunnar Myrdal, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, sharing economy, Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

Regulatory barriers of this sort kept most capitalist activity, except for large multinational companies, export-oriented firms and financial institutions, tightly confined within nation state borders during this period. When the fixed exchange rate system broke down at the end of the 1960s, capital controls gradually disappeared. The last time any major state seriously attempted to use them occurred when the socialist François Mitterrand came to power in France in 1981. He nationalised the French banks and sought to stem capital flight by imposing strict controls on the outflows of capital. There was, however, a near revolution when the French found they could not freely use their credit cards abroad. Controls were quickly abandoned. Malaysia, however, did go against conventional wisdom and successfully defended itself against the crash of 1997–8 by resorting to capital controls. The diversity of state responses to the current crisis is indicative of how different interpretations and theoretical frameworks can underpin not only an uneven geographical development in responses but potentially an uneven geographical development of impacts.

Index Numbers in italics indicate Figures; those in bold indicate a Table. 11 September 2001 attacks 38, 41–2 subject to perpetual renewal and transformation 128 A Abu Dhabi 222 Académie Française 91 accumulation by dispossession 48–9, 244 acid deposition 75, 187 activity spheres 121–4, 128, 130 deindustrialised working-class area 151 and ‘green revolution’ 185–6 institutional and administrative arrangements 123 ‘mental conceptions of the world’ 123 patterns of relations between 196 production and labour processes 123 relations to nature 123 the reproduction of daily life and of the species 123 slums 152 social relations 123 subject to perpetual renewal and transformation 128 suburbs 150 technologies and organisational forms 123 uneven development between and among them 128–9 Adelphia 100 advertising industry 106 affective bonds 194 Afghanistan: US interventionism 210 Africa civil wars 148 land bought up in 220 neocolonialism 208 population growth 146 agribusiness 50 agriculture collectivisation of 250 diminishing returns in 72 ‘green revolution’ 185–6 ‘high farming’ 82 itinerant labourers 147 subsidies 79 AIG 5 alcoholism 151 Allen, Paul 98 Allende, Salvador 203 Amazonia 161, 188 American Bankers Association 8 American Revolution 61 anarchists 253, 254 anti-capitalist revolutionary movement 228 anti-racism 258 anti-Semitism 62 après moi le déluge 64, 71 Argentina Debt Crisis (2000–2002) 6, 243, 246, 261 Arizona, foreclosure wave in 1 Arrighi, Giovanni: The Long Twentieth Century 35, 204 asbestos 74 Asia Asian Currency Crisis (1997–98) 141, 261 collapse of export markets 141 growth 218 population growth 146 asset stripping 49, 50, 245 asset traders 40 asset values 1, 6, 21, 23, 26, 29, 46, 223, 261 Association of South East Asian Nations (ASEAN) 200 Athabaska tar sands, Canada 83 austerity programmes 246, 251 automobile industry 14, 15, 23, 56, 67, 68, 77, 121, 160–61 Detroit 5, 15, 16, 91, 108, 195, 216 autonomista movement 233, 234, 254 B Baader-Meinhof Gang 254 Bakunin, Michael 225 Balzac, Honoré 156 Bangalore, software development in 195 Bangkok 243 Bank of England 53, 54 massive liquidity injections in stock markets 261 Bank of International Settlements, Basel 51, 55, 200 Bank of New England 261 Bankers Trust 25 banking bail-outs 5, 218 bank shares become almost worthless 5 bankers’ pay and bonuses 12, 56, 218 ‘boutique investment banks’ 12 de-leveraging 30 debt-deposit ratio 30 deposit banks 20 French banks nationalised 198 international networks of finance houses 163 investment banks 2, 19, 20, 28, 219 irresponsible behaviour 10–11 lending 51 liquidity injections by central banks vii, 261 mysterious workings of central banks 54 ‘national bail-out’ 30–31 property market-led Nordic and Japanese bank crises 261 regional European banks 4 regular banks stash away cash 12, 220 rising tide of ‘moral hazard’ in international bank lending practices 19 ‘shadow banking’ system 8, 21, 24 sympathy with ‘Bonnie and Clyde’ bank robbers 56 Baran, Paul and Sweezey, Paul: Monopoly Capital 52, 113 Barings Bank 37, 100, 190 Baucus, Max 220 Bavaria, automotive engineering in 195 Beijing declaration (1995) 258 Berlin: cross-border leasing 14 Bernanke, Ben 236 ‘Big Bang’ (1986) 20, 37 Big Bang unification of global stock, options and currency trading markets 262 billionaire class 29, 110, 223 biodiversity 74, 251 biomass 78 biomedical engineering 98 biopiracy 245, 251 Birmingham 27 Bismarck, Prince Otto von 168 Black, Fischer 100 Blackstone 50 Blair, Tony 255 Blair government 197 blockbusting neighbourhoods 248 Bloomberg, Mayor Michael 20, 98, 174 Bolivarian movement 226, 256 bonuses, Wall Street 2, 12 Borlaug, Norman 186 bourgeoisie 48, 89, 95, 167, 176 ‘boutique investment banks’ 12 Brazil automobile industry 16 capital flight crisis (1999) 261 containerisation 16 an export-dominated economy 6 follows Japanese model 92 landless movement 257 lending to 19 the right to the city movement 257 workers’ party 256 Bretton Woods Agreement (1944) 31, 32, 51, 55, 171 British Academy 235 British empire 14 Brown, Gordon 27, 45 Budd, Alan 15 Buenos Aires 243 Buffett, Warren 173 building booms 173–4 Bush, George W. 5, 42, 45 business associations 195 C California, foreclosure wave in 1, 2 Canada, tightly regulated banks in 141 ‘cap and trade’ markets in pollution rights 221 capital bank 30 centralisation of 95, 110, 113 circulation of 90, 93, 108, 114, 116, 122, 124, 128, 158, 159, 182, 183, 191 cultural 21 devalued 46 embedded in the land 191 expansion of 58, 67, 68 exploitations of 102 export 19, 158 fixed 191, 213 industrial 40–41, 56 insufficient initial money capital 47 investment 93, 203 and labour 56, 88, 169–70 liquid money 20 mobility 59, 63, 64, 161–2, 191, 213 and nature 88 as a process 40 reproduction of 58 scarcity 50 surplus 16, 28, 29, 50–51, 84, 88, 100, 158, 166, 167, 172, 173, 174, 206, 215, 216, 217 capital accumulation 107, 108, 123, 182, 183, 191, 211 and the activity spheres 128 barriers to 12, 16, 47, 65–6, 69–70, 159 compound rate 28, 74, 75, 97, 126, 135, 215 continuity of endless 74 at the core of human evolutionary dynamics 121 dynamics of 188, 197 geographic landscape of 185 geographical dynamics of 67, 143 and governance 201 lagging 130 laws of 113, 154, 160 main centres of 192 market-based 180 Mumbai redevelopment 178 ‘nature’ affected by 122 and population growth 144–7 and social struggles 105 start of 159 capital circulation barriers to 45 continuity of 68 industrial/production capital 40–41 inherently risky 52 interruption in the process 41–2, 50 spatial movement 42 speculative 52, 53 capital controls 198 capital flow continuity 41, 47, 67, 117 defined vi global 20 importance of understanding vi, vii-viii interrupted, slowed down or suspended vi systematic misallocation of 70 taxation of vi wealth creation vi capital gains 112 capital strike 60 capital surplus absorption 31–2, 94, 97, 98, 101, 163 capital-labour relation 77 capitalism and communism 224–5 corporate 1691 ‘creative-destructive’ tendencies in 46 crisis of vi, 40, 42, 117, 130 end of 72 evolution of 117, 118, 120 expansion at a compound rate 45 first contradiction of 77 geographical development of 143 geographical mobility 161 global 36, 110 historical geography of 76, 117, 118, 121, 174, 180, 200, 202, 204 industrial 58, 109, 242 internal contradictions 115 irrationality of 11, 215, 246 market-led 203 positive and negative aspects 120 and poverty 72 relies on the beneficence of nature 71 removal of 260 rise of 135, 192, 194, 204, 228, 248–9, 258 ‘second contradiction of’ 77, 78 social relations in 101 and socialism 224 speculative 160 survival of 46, 57, 66, 86, 107, 112, 113, 116, 130, 144, 229, 246 uneven geographical development of 211, 213 volatile 145 Capitalism, Nature, Socialism journal 77 capitalist creed 103 capitalist development considered over time 121–4 ‘eras’ of 97 capitalist exploitation 104 capitalist logic 205 capitalist reinvestment 110–11 capitalists, types of 40 Carnegie, Andrew 98 Carnegie foundation 44 Carnegie Mellon University, Pittsburgh, Pennsylvania 195 Carson, Rachel: Silent Spring 187 Case Shiller Composite Indices SA 3 Catholic Church 194, 254 cell phones 131, 150, 152 Central American Free Trade Association (CAFTA) 200 centralisation 10, 11, 165, 201 Certificates of Deposit 262 chambers of commerce 195, 203 Channel Tunnel 50 Chiapas, Mexico 207, 226 Chicago Board Options Exchange 262 Chicago Currency Futures Market 262 ‘Chicago School’ 246 Chile, lending to 19 China ‘barefoot doctors’ 137 bilateral trade with Latin America 173 capital accumulation issue 70 cheap retail goods 64 collapse of communism 16 collapse of export markets 141 Cultural Revolution 137 Deng’s announcement 159 falling exports 6 follows Japanese model 92 ‘Great Leap Forward’ 137, 138 growth 35, 59, 137, 144–5, 213, 218, 222 health care 137 huge foreign exchange reserves 141, 206 infant mortality 59 infrastructural investment 222 labour income and household consumption (1980–2005) 14 market closed after communists took power (1949) 108 market forcibly opened 108 and oil market 83 one child per family policy 137, 146 one-party rule 199 opening-up of 58 plundering of wealth from 109, 113 proletarianisation 60 protests in 38 and rare earth metals 188 recession (1997) 172 ‘silk road’ 163 trading networks 163 unemployment 6 unrest in 66 urbanisation 172–3 and US consumerism 109 Chinese Central Bank 4, 173 Chinese Communist Party 180, 200, 256 chlorofluoral carbons (CFCs) 74, 76, 187 chronometer 91, 156 Church, the 249 CIA (Central Intelligence Agency) 169 circular and cumulative causation 196 Citibank 19 City Bank 261 city centres, Disneyfication of 131 City of London 20, 35, 45, 162, 219 class consciousness 232, 242, 244 class inequalities 240–41 class organisation 62 class politics 62 class power 10, 11, 12, 61, 130, 180 class relations, radical reconstitution of 98 class struggle 56, 63, 65, 96, 102, 127, 134, 193, 242, 258 Clausewitz, Carl von 213 Cleveland, foreclosure crisis in 2 Cleveland, foreclosures on housing in 1 Clinton, Bill 11, 12, 17, 44, 45 co-evolution 132, 136, 138, 168, 185, 186, 195, 197, 228, 232 in three cases 149–53 coal reserves 79, 188 coercive laws of competition see under competition Cold War 31, 34, 92 Collateralised Bond Obligations (CBOs) 262 Collateralised Debt Obligations (CDOs) 36, 142, 261, 262 Collateralised Mortgage Obligations (CMOs) 262 colonialism 212 communications, innovations in 42, 93 communism 228, 233, 242, 249 collapse of 16, 58, 63 compared with socialism 224 as a loaded term 259–60 orthodox communists 253 revolutionary 136 traditional institutionalised 259 companies joint stock 49 limited 49 comparative advantage 92 competition 15, 26, 43, 70 between financial centres 20 coercive laws of 43, 71, 90, 95, 158, 159, 161 and expansion of production 113 and falling prices 29, 116 fostering 52 global economic 92, 131 and innovation 90, 91 inter-capitalist 31 inter-state 209, 256 internalised 210 interterritorial 202 spatial 164 and the workforce 61 competitive advantage 109 computerised trading 262 computers 41, 99, 158–9 consortia 50, 220 consumerism 95, 109, 168, 175, 240 consumerist excess 176 credit-fuelled 118 niche 131 suburban 171 containerisation 16 Continental Illinois Bank 261 cooperatives 234, 242 corporate fraud 245 corruption 43, 69 cotton industry 67, 144, 162 credit cards fees vii, 245 rise of the industry 17 credit crunch 140 Credit Default swaps 262 Crédit Immobilièr 54 Crédit Mobilier 54 Crédit Mobilier and Immobilier 168 credit swaps 21 credit system and austerity programmes 246 crisis within 52 and the current crisis 118 and effective demand problem 112 an inadequate configuration of 52 predatory practices 245 role of 115 social and economic power in 115 crises crises of disproportionality 70 crisis of underconsumption 107, 111 east Asia (1997–8) 6, 8, 35, 49, 246 financial crisis of 1997–8 198, 206 financial crisis of 2008 34, 108, 114, 115 general 45–6 inevitable 71 language of crisis 27 legitimation 217 necessary 71 property market 8 role of 246–7 savings and loan crisis (US, 1984–92) 8 short sharp 8, 10 south-east Asia (1997–8) 6, 8, 35, 49, 246 cross-border leasing 142–3 cultural choice 238 ‘cultural industries’ 21 cultural preferences 73–4 Cultural Revolution 137 currency currency swaps 262 futures market 24, 32 global 32–3, 34 options markets on 262 customs barriers 42, 43 cyberspace 190 D Darwin, Charles 120 DDT 74, 187 de-leveraging 30 debt-financing 17, 131, 141, 169 decentralisation 165, 201 decolonisation 31, 208, 212 deficit financing 35, 111 deforestation 74, 143 deindustrialisation 33, 43, 88, 131, 150, 157, 243 Deleuze, Gilles 128 demand consumer 107, 109 effective 107, 110–14, 116, 118, 221, 222 lack of 47 worker 108 Democratic Party (US) 11 Deng Xiaoping 159 deregulation 11, 16, 54, 131 derivatives 8 currency 21 heavy losses in (US) 261 derivatives markets creation of 29, 85 unregulated 99, 100, 219 Descartes, René 156 desertification 74 Detroit auto industry 5, 15, 16, 91, 108, 195, 216 foreclosures on housing in 1 Deutsches Bank 20 devaluation 32, 47, 116 of bank capital 30 of prior investments 93 developing countries: transformation of daily lives 94–5 Developing Countries Debt Crisis 19, 261 development path building alliances 230 common objectives 230–31 development not the same as growth 229–30 impacts and feedbacks from other spaces in the global economy 230 Diamond, Jared: Guns, Germs and Steel 132–3, 154 diasporas 147, 155, 163 Dickens, Charles: Bleak House 90 disease 75, 85 dispossession anti-communist insurgent movements against 250–51 of arbitrary feudal institutions 249 of the capital class 260 China 179–80 first category 242–4 India 178–9, 180 movements against 247–52 second category 242, 244–5 Seoul 179 types of 247 under socialism and communism 250 Domar, Evsey 71 Dongguan, China 36 dot-com bubble 29, 261 Dow 35,000 prediction 21 drug trade 45, 49 Dubai: over-investment 10 Dubai World 174, 222 Durban conference on anti-racism (2009) 258 E ‘earth days’ 72, 171 east Asia crash of 1997–8 6, 8, 35, 49, 246 labour reserves 64 movement of production to 43 proletarianisation 62 state-centric economies 226 wage rates 62 eastern European countries 37 eBay 190 economic crisis (1848) 167 economists, and the current financial crisis 235–6 ecosystems 74, 75, 76 Ecuador, and remittances 38 education 59, 63, 127, 128, 221, 224, 257 electronics industry 68 Elizabeth II, Queen vi-vii, 235, 236, 238–9 employment casual part-time low-paid female 150 chronic job insecurity 93 culture of the workplace 104 deskilling 93 reskilling 93 services 149 Engels, Friedrich 89, 98, 115, 157, 237 The Housing Question 176–7, 178 Enron 8, 24, 52, 53, 100, 261 entertainment industries 41 environment: modified by human action 84–5 environmental movement 78 environmental sciences 186–7 equipment 58, 66–7 equity futures 262 equity index swaps 262 equity values 262 ethanol plants 80 ethnic cleansings 247 ethnicity issues 104 Eurodollars 262 Europe negative population growth in western Europe 146 reconstruction of economy after Second World War 202 rsouevolutions of 1848 243 European Union 200, 226 eastern European countries 37 elections (June 2009) 143 unemployment 140 evolution punctuated equilibrium theory of natural evolution 130 social 133 theory of 120, 129 exchange rates 24, 32, 198 exports, falling 141 external economies 162 F Factory Act (1848) 127 factory inspectors 127 ‘failed states’ 69 Fannie Mae (US government-chartered mortgage institution) 4, 17, 173, 223 fascism 169, 203, 233 Federal Deposit Insurance Corporation (FDIC) 8 rescue of Continental Illinois Bank 261 Federal Reserve System (the Fed) 2, 17, 54, 116, 219, 236, 248 and asset values 6 cuts interest rates 5, 261 massive liquidity injections in stock markets 261 rescue of Continental Illinois Bank 261 feminists, and colonisation of urban neighbourhoods 248 fertilisers 186 feudalism 135, 138, 228 finance capitalists 40 financial institutions awash with credit 17 bankruptcies 261 control of supply and demand for housing 17 nationalisations 261 financial services 99 Financial Times 12 financialisation 30, 35, 98, 245 Finland: Nordic cris (1992) 8 Flint strike, Michigan (1936–7) 243 Florida, foreclosure wave in 1, 2 Forbes magazine 29, 223 Ford, Henry 64, 98, 160, 161, 188, 189 Ford foundation 44, 186 Fordism 136 Fordlandia 188, 189 foreclosed businesses 245 foreclosed properties 220 fossil fuels 78 Foucault, Michel 134 Fourierists 168 France acceptance of state interventions 200 financial crisis (1868) 168 French banks nationalised 198 immigration 14 Paris Commune 168 pro-natal policies 59 strikes in 38 train network 28 Franco-Prussian War (1870) 168 fraud 43, 49 Freddie Mac (US government-chartered mortgage institution) 4, 17, 173, 223 free trade 10, 33, 90, 131 agreements 42 French Communist Party 52 French Revolution 61 Friedman, Thomas L.: The World is Flat 132 futures, energy 24 futures markets 21 Certificates of Deposit 262 currency 24 Eurodollars 262 Treasury instruments 262 G G7/G8/G20 51, 200 Galileo Galilei 89 Gates, Bill 98, 173, 221 Gates foundation 44 gays, and colonisation of urban neighbourhoods 247, 248 GDP growth (1950–2030) 27 Gehry, Frank 203 Geithner, Tim 11 gender issues 104, 151 General Motors 5 General Motors Acceptance Corporation 23 genetic engineering 84, 98 genetic modification 186 genetically modified organisms (GMOs) 186 gentrification 131, 256, 257 geographical determinism 210 geopolitics 209, 210, 213, 256 Germany acceptance of state interventions 199–200 cross-border leasing 142–3 an export-dominated economy 6 falling exports 141 invasion of US auto market 15 Nazi expansionism 209 neoliberal orthodoxies 141 Turkish immigrants 14 Weimar inflation 141 Glass-Steagall act (1933) 20 Global Crossing 100 global warming 73, 77, 121, 122, 187 globalisation 157 Glyn, Andrew et al: ‘British Capitalism, Workers and the Profits Squeeze’ 65 Goethe, Johann Wolfgang von 156 gold reserves 108, 112, 116 Goldman Sachs 5, 11, 20, 163, 173, 219 Google Earth 156 Gould, Stephen Jay 98, 130 governance 151, 197, 198, 199, 201, 208, 220 governmentality 134 GPS systems 156 Gramsci, Antonio 257 Grandin, Greg: Fordlandia 188, 189 grassroots organisations (GROS) 254 Great Depression (1920s) 46, 170 ‘Great Leap Forward’ 137, 138, 250 ‘Great Society’ anti-poverty programmes 32 Greater London Council 197 Greece sovereign debt 222 student unrest in 38 ‘green communes’ 130 Green Party (Germany) 256 ‘green revolution’ 185–6 Greenspan, Alan 44 Greider, William: Secrets of the Temple 54 growth balanced 71 compound 27, 28, 48, 50, 54, 70, 75, 78, 86 economic 70–71, 83, 138 negative 6 stop in 45 Guggenheim Museu, Bilbao 203 Gulf States collapse of oil-revenue based building boom 38 oil production 6 surplus petrodollars 19, 28 Gulf wars 210 gun trade 44 H habitat loss 74, 251 Haiti, and remittances 38 Hanseatic League 163 Harrison, John 91 Harrod, Roy 70–71 Harvey, David: A Brief History of Neoliberalism 130 Harvey, William vii Haushofer, Karl 209 Haussmann, Baron 49, 167–8, 169, 171, 176 Hawken, Paul: Blessed Unrest 133 Hayek, Friedrich 233 health care 28–9, 59, 63, 220, 221, 224 reneging on obligations 49 Health Care Bill 220 hedge funds 8, 21, 49, 261 managers 44 hedging 24, 36 Hegel, Georg Wilhelm Friedrich 133 hegemony 35–6, 212, 213, 216 Heidegger, Martin 234 Helú, Carlos Slim 29 heterogeneity 214 Hitler, Adolf 141 HIV/AIDS pandemic 1 Holloway, John: Change the World without Taking Power 133 homogeneity 214 Hong Kong excessive urban development 8 rise of (1970s) 35 sweatshops 16 horizontal networking 254 household debt 17 housing 146–7, 149, 150, 221, 224 asset value crisis 1, 174 foreclosure crises 1–2, 166 mortgage finance 170 values 1–2 HSBC 20, 163 Hubbert, M.

Morgan 142, 173, 219 ‘just-in-time’ principle 68 K Kay, Kenneth 53 Kerala, India, and remittances 38 Keynes, John Maynard 32, 53, 55, 87, 111, 160, 226, 237, 238 General Theory 114 Keynesian, Keynesians 168, 238, 255, 261 Kohl, Helmut 64 ‘Kondratieff cycles’ 96 Krieger, Andy 24–5 Krugman, Paul 235–6 kulaks 250 L labour and capital 56, 88, 169–70 casual 242 competition 61 costs 15, 16, 88 disempowered 16 divisions of 196, 213 exploitation of 94 feminisation of the global labour force 258 ‘floating’ army of laid-off workers 60 geographical mobility of 59–60, 213 guild 160 import of 14 integration of peasant populations into 58 laws 59, 103 living standards 88–9 massive reserves 64 and new technologies 60 organisations 61 and politics of populist outrage 55–6 power of 12, 14, 15, 40–41, 103, 172 quality requirements 93 regulation of conditions of 59 rights 251 scarcity of 12, 59, 60 social divisions of 67 supply 47, 121 supply and demand for 60 surplus 5, 15, 215 ultimate power of the workforce 63, 101–2 unionised 108 unrest 66 labour markets geographically segmented 59 local 63 regulating dynamics of 60 labour power demand of 115 released as a commodity into the market place 58 and standard of living 62–3 supply of 63, 65, 115 value of 64 labour process 105 collective 104 resistance or inefficiencies in 47 labour unions 256 laissez faire 128 land capital embedded in the 191 enclosures 48 fertility 82 Israeli dispossession of Palestinian land 247 land use degradation 77 reform 249 rights 88 speculation 187–8 values 181, 182, 183, 234 landlords 40 laptops 131 Las Vegas, foreclosure crisis in 2 Latin America anti-neoliberal struggles 226 bilateral trade with China 173 and the Catholic Church 254 land bought up in 220 population growth 146 Latin American Southern Cone group (MERCOSUR) 200 Latvian government 37 Lazard’s 11 lead-based paints 74 ‘learned societies’ 91 Lebanon economic stimulus 140 rebuilding of 202 Leeson, Nicholas 37, 100, 190 Lefebvre, Henri 128 legitimation crises 217 Lehman Brothers 2, 5, 12, 21, 37, 132, 211 Leipzig, Germany 142 Lenin, Vladimir 46, 136, 227 Leningrad 243 Leninism 134 lesbians, and colonisation of urban neighbourhoods 247 leveraged buy-outs 50 leveraging 30, 31 Leverhulme foundation 44 life expectancy 137, 152, 250 limited companies 49 liquidity crisis in 206 liquidity injections vii, 261 liquidity trap 111 surplus 5, 28, 30 living standards 10, 46, 62–3, 72, 88–9, 96, 120 Locke, John 90, 233 London, territorial organisation of 196 London School of Economics vii, 235 Long Term Capital Management crash and bail-out (1998) 8, 100, 261 ‘long waves’ 96 Luddite movement 60, 96 Luxemburg, Rosa 108, 116–17 luxury goods 70, 110 M McCarthyism 169 machinery 66, 113, 114, 127 Mackinder, Sir Halford 209–10 macroeconomics 237 McVeigh, Timothy 248 Maddison, Angus 26 Mahan, A.T.: The Influence of Sea Power upon History 209 maintenance failures 86 Malaysia: resorts to capital controls 198 Malthus, Thomas 72, 94 Manchester 27 Mao Zedong 59 Cultural Revolution 137 dialectical sense of how contradictions worked 136 Great Leap Forward 137, 138, 250 health care 137 recognised that a revolution had to be permanent or nothing at all 136–7 Maoism 133 Maoists 253 Marcos, Imelda 43 Marcuse, Herbert 169 market laws 198 market share 43 markets credit 2, 5, 37 export 141, 218 free 10, 90, 100, 128, 131 internal 109 market connections 162–3 niches 131, 175 see also derivatives markets; futures markets; labour markets; options markets Marshall, Arthur 162 ‘Marshallian’ industrial production districts 162 Marx, Karl 46–7, 98, 110, 160, 232–3 and Bakunin 225 on barriers 84, 88 the capitalist creed 103 capitalist development 117 changing the world 119–20 on the cotton industry 67 and falling profitability 94 goal of 238 on an ‘industrial reserve army’58 and Keynes 111 and limitless money 47 and Luddite movement 96 on Malthus and Ricardo 72 on the power of the labourer 101–2 on ‘primitive accumulation’58, 249 and rent 81 and reproduction schemas 70 on the rise of capitalism 135, 250 systematic critique of capitalism and its crisis tendencies 237 understanding and transparency 99, 100 on the world of high finance 54–5 Capital 53–4, 70, 89, 119, 126, 237 Grundrisse der Kritik des Politischen Ökonomie 47, 155 Marx, Karl and Engels, Friedrich: The Communist Manifesto 89, 115, 127, 157, 237, 259 Marxian theory 56, 183 Marxists 253 Meadows, Donella h.: Limits to Growth 72 meat-based diets 73, 74 Medicare 28–9, 224 Mellon, Andrew 11, 98 mercantilism 206 merchant capitalists 40 mergers 49, 50 forced 261 Merrill Lynch 12 Merton, Robert 100 methane gas 73 Mexico debt crisis (1982) 10, 19 northern Miexico’s proximity to the US market 36 peso rescue 261 privatisation of telecommunications 29 and remittances 38 standard of living 10 Mexico City 243 microcredit schemes 145–6 microeconomics 237 microenterprises 145–6 microfinance schemes 145–6 Middle East, and oil issue 77, 170, 210 militarisation 170 ‘military-industrial complex’ 91 minorities: colonisation of urban neighbourhoods 247, 248 Mitterrand, François 198 modelling of markets 262 modernism 171 monarchy 249 monetarism 237 monetisation 244 money centralised money power 49–50, 52 a form of social power 43, 44 limitlessness of 43, 47 loss of confidence in the symbols/quality of money 114 universality of 106 monoculture 186 Monopolies Commission 52 monopolisation 43, 68, 95, 113, 116, 221 Monsanto 186 Montreal Protocol (1989) 76, 187 Morgan Stanley 19 Morishima, Michio 70 Morris, William 160 mortgages annual rate of change in US mortgage debt 7 mortgage finance for housing 170 mortgage-backed bonds futures 262 mortgage-backed securities 4, 262 secondary mortgage market 173, 174 securitisation of local 42 securitisation of mortgage debt 85 subprime 49, 174 Moses, Robert 169, 171, 177 MST (Brazil) 257 multiculturalism 131, 176, 231, 238, 258 Mumbai, India anti-Muslim riots (early 1990s) 247 redevelopment 178–9 municipal budgets 5 Museum of Modern Art, New York 21 Myrdal, Gunnar 196 N Nandigram, West Bengal 180 Napoleon III, Emperor 167, 168 national debt 48 National Economic Council (US) 11, 236 national-origin quotas 14 nationalisation 2, 4, 8, 224 nationalism 55–6, 143, 194, 204 NATO 203 natural gas 188 ‘natural limits’ 47 natural resources 30, 71 natural scarcity 72, 73, 78, 80, 83, 84, 121 nature and capital 88 ‘first nature’ 184 relation to 121, 122 ‘the revenge of nature’ 185 ‘second nature’ 184, 185, 187 as a social product 188 neocolonialism 208, 212 neoliberal counter-revolution 113 neoliberalism 10, 11, 19, 66, 131, 132, 141, 172, 175, 197, 208, 218, 224, 225, 233, 237, 243, 255 Nepal: communist rule in 226 Nevada, foreclosure wave in 1 New Deal 71 ‘new economy’ (1990s) 97 New Labour 45, 255 ‘new urbanism’ movement 175 New York City 11 September 2001 attacks 41 fiscal crisis (1975) 10, 172, 261 investment banks 19, 28 New York metropolitan region 169, 196 Nicaragua 189 Niger delta 251 non-governmental organisations (NGOs) 35, 253–4 non-interventionism 10 North Africa, French import of labour from 14 North America, settlement in 145 North American Free Trade Association (NAFTA) 200 Northern Ireland emergency 247 Northern Rock 2 Norway: Nordic cris (1992) 8 nuclear power 188 O Obama, Barack 11, 27, 34, 210 Obama administration 78, 121 O’Connor, Jim 77, 78 offshoring 131 Ogoni people 251 oil cheap 76–7 differential rent on oil wells 83 futures 83, 84 a non-renewable resource 82 ‘peak oil’ 38, 73, 78, 79, 80 prices 77–8, 80, 82–3, 261 and raw materials prices 6 rents 83 United States and 76–7, 79, 121, 170, 210, 261 OPEC (Organisation of Oil-Producing Countries) 83, 84 options markets currency 262 equity values 262 unregulated 99, 100 Orange County, California bankruptcy 100, 261 Organisation for Economic Cooperation and Development (OECD) 51 organisational change 98, 101 organisational forms 47, 101, 121, 127, 134, 238 Ottoman Empire 194 ‘over the counter’ trading 24, 25 overaccumulation crises 45 ozone hole 74 ozone layer 187 P Pakistan: US involvement 210 Palley, Thomas 236 Paris ‘the city of light’ 168 epicentre of 1968 confrontations 177, 243 Haussmann’s rebuilding of 49, 167–8, 169, 171, 176 municipal budget crashes (1868) 54 Paris Commune (1871) 168, 171, 176, 225, 243, 244 Partnoy, Frank: Ubfectious Greed 25 patents 221 patent laws 95 patriarchy 104 pensions pension funds 4, 5, 245 reneging on obligations 49 Péreire brothers 49, 54, 98, 174 pesticides 185, 186, 187 petty bourgeois 56 pharmaceutical sector 129, 245 philanthropy 44 Philippines: excessive urban development 8 Phillips, Kevin 206 Pinochet, General Augusto 15, 64 plant 58 Poland, lending to 19 political parties, radical 255–6 politics capitalist 76 class 62 co-revolutionary 241 commodified 219 depoliticised 219 energy 77 identity 131 labour organizing 255 left 255 transformative 207 pollution air 77 oceanic 74 rights 21 ‘Ponts et Chaussées’ organisation 92 Ponzi schemes 21, 114, 245, 246 pop music 245–6 Pope, Alexander 156 population growth 59, 72, 74, 121, 167 and capital accumulation 144–7 populism 55–6 portfolio insurance 262 poverty and capitalism 72 criminalisation and incarceration of the poor 15 feminisation of 15, 258 ‘Great Society’ anti-poverty programmes 32 Prague 243 prices commodity 37, 73 energy 78 food grain 79–80 land 8, 9, 182–3 oil 8, 28, 37–8, 77–8, 80, 82–3, 261 property 4, 182–3 raw material 37 reserve price 81–2 rising 73 share 7 primitive accumulation 58, 63–4, 108, 249 private consortia 50 private equity groups 50 private property and radical egalitarianism 233, 234 see also property markets; property rights; property values privatisation 10, 28, 29, 49, 251, 256, 257 pro-natal policies 59 production expansion of 112, 113 inadequate means of 47 investment in 114 liberating the concept 87 low-profit 29 offshore 16 production of urbanisation 87 reorganisation and relocation of 33 revolutionising of 89 surplus 45 technologies 101 productivity agreements 14, 60, 96 agricultural 119 cotton industry 67 gains 88, 89 Japan and West Germany 33 rising 96, 186 products development 95 innovation 95 new lines 94, 95 niches 94 profit squeeze 65, 66, 116 profitability constrains 30 falling 94, 131 of the financial sector 51 and wages 60 profits easy 15 excess 81, 90 falling 29, 72, 94, 116, 117 privatising 10 rates 70, 94, 101 realisation of 108 proletarianisation 60, 62 property markets crash in US and UK (1973–75) 8, 171–2, 261 overextension in 85 property market-led Nordic and Japanese bank crises 261 property-led crises (2007–10) 10, 261 real estate bubble 261 recession in UK (after 1987) 261 property rights 69, 81–2, 90, 122, 179, 198, 233, 244, 245 Property Share Price Index (UK) 7 property values 171, 181, 197, 248 prostitution 15 protectionism 31, 33, 43, 211 punctuated equilibrium theory of natural evolution 130 Putin, Vladimir 29, 80 Q Q’ing dynasty 194 quotas 16 R R&D (research and development) 92, 95–6 race issues 104 racism 61, 258 radical egalitarianism 230–34 railroads 42, 49, 191 Railwan, rise of (1970s) 35 rare earth metals 188 raw materials 6, 16, 37, 58, 77, 101, 113, 140, 144, 234 RBS 20 Reagan, Ronald 15, 64, 131, 141 Reagan-Thatcher counter revolution (early 1980s) 71 Reagan administration 1, 19 Reagan recession (1980–82) 60, 261 Real Estate Investment Trusts (US) 7 recession 1970s 171–2 language of 27 Reagan (1980–82) 60, 261 Red Brigade 254 reforestation 184 refrigeration 74 reinvestment 43, 45, 66–7, 110–12, 116 religious fundamentalism 203 religious issues 104 remittances 38, 140, 147 rentiers 40 rents differential rent 81, 82, 83 on intellectual property rights 221 land 182 monetisation of 48, 109 monopoly 51, 81–2, 83 oil 83 on patents 221 rising 181 reproduction schemas 70 Republican Party (US) 11, 141 reserve price 81 resource values 234 Ricardo, David 72, 94 risks, socialising 10 robbery 44 Robinson, Joan 238 robotisation 14, 136 Rockefeller, John D. 98 Rockefeller brothers 131 Rockefeller foundation 44, 186 Roman Empire 194 Roosevelt, Franklin D. 71 Rothschild family 98, 163 Royal Society 91, 156 royalties 40 Rubin, Robert 98 ‘rule of experts’ 99, 100–101 Russia bankruptcy (1998) 246, 261 capital flight crisis 261 defaults on its debt (1998) 6 oil and natural gas flow to Ukraine 68 oil production 6 oligarchs 29 see also Soviet Union S Saddam Hussein 210 Saint-Simon, Claude Henri de Rouvroy, Comte de 49 Saint-Simonians 87, 168 Salomon Brothers 24 Samuelson, Robert 235, 239 Sandino, Augusto 189 Sanford, Charles 98 satellites 156 savings 140 Scholes, Myron 100 Schumer, Charles 11 Schumpeter, Joseph 46 Seattle battle of (1999) 38, 227 general strike (1918) 243 software development in 195 Second World War 32, 168–70, 214 sectarianism 252 securitisation 17, 36, 42 Sejong, South Korea 124–6 service industries 41 sexism 61 sexual preferences issues 104, 131, 176 Shanghai Commune (1967) 243 shark hunting 73, 76 Shell Oil 79, 251 Shenzhen, China 36 shop floor organisers (shop stewards) 103 Silicon Valley 162, 195, 216 Singapore follows Japanese model 92 industrialisation 68 rise of (1970s) 35 slavery 144 domestic 15 slums 16, 151–2, 176, 178–9 small operators, dispossession of 50 Smith, Adam 90, 164 The Wealth of Nations 35 social democracy 255 ‘social democratic’ consensus (1960s) 64 social inequality 224 social relations 101, 102, 104, 105, 119, 121, 122, 123, 126, 127, 135–9, 152, 240 loss of 246 social security 224 social services 256 social struggles 193 social welfarism 255 socialism 136, 223, 228, 242, 249 compared with communism 224 solidarity economy 151, 254 Soros, George 44, 98, 221 Soros foundation 44 South Korea Asian Currency Crisis 261 excessive urban development 8 falling exports 6 follows Japanese model 92 rise of (1970s) 35 south-east Asia: crash of 1997–8 6, 8, 49, 246 Soviet Union in alliance with US against fascism 169 break-up of 208, 217, 227 collapse of communism 16 collectivisation of agriculture 250 ‘space race’ (1960s and 1970s) 156 see also Russia space domination of 156–8, 207 fixed spaces 190 ‘space race’ (1960s and 1970s) 156 Spain property-led crisis (2007–10) 5–6, 261 unemployment 6 spatial monopoly 164–5 special drawing rights 32, 34 special economic zones 36 special investment vehicles 36, 262 special purpose entities 262 speculation 52–3 speculative binges 52 speed-up 41, 42 stagflation 113 stagnation 116 Stalin, Joseph 136, 250 Standard Oil 98 state formation 196, 197, 202 state-corporate nexus 204 ‘space race’ (1960s and 1970s) 156 state-finance nexus 204, 205, 237, 256 blind belief in its corrective powers 55 ‘central nervous system’ for capital accumulation 54 characteristics of a feudal institution 55 and the current crisis 118 defined 48 failure of 56–7 forms of 55 fusion of state and financial powers 115 innovation in 85 international version of 51 overwhelmed by centralised credit power 52 pressure on 54 radical reconstruction of 131 role of 51 and state-corporate research nexus 97 suburbanisation 171 tilts to favour particular interests 56 statistical arbitrage strategies 262 steam engine, invention of 78, 89 Stiglitz, Joseph 45 stimulus packages 261 stock markets crash (1929) 211, 217 crashes (2001–02) 261 massive liquidity injections (1987) 236, 261 Stockton, California 2 ’structural adjustment’ programmes vii, 19, 261 subcontracting 131 subprime loans 1 subprime mortgage crisis 2 substance abuse 151 suburbanisation 73, 74, 76–7, 106–7, 169, 170, 171, 181 Summers, Larry 11, 44–5, 236 supermarket chains 50 supply-side theory 237 surveillance 92, 204 swaps credit 21 Credit Default 24, 262 currency 262 equity index 262 interest rate 24, 262 Sweden banking system crash (1992) 8, 45 Nordic crisis 8 Yugoslav immigrants 14 Sweezey, Paul 52, 113 ‘switching crises’ 93 systematic ‘moral hazard’ 10 systemic risks vii T Taipei: computer chips and household technologies in 195 Taiwan falling exports 6 follows Japanese model 92 takeovers 49 Taliban 226 tariffs 16 taxation 244 favouring the rich 45 inheritance 44 progressive 44 and the state 48, 145 strong tax base 149 tax rebates 107 tax revenues 40 weak tax base 150 ‘Teamsters for Turtles’ logo 55 technological dynamism 134 technologies change/innovation/new 33, 34, 63, 67, 70, 96–7, 98, 101, 103, 121, 127, 134, 188, 193, 221, 249 electronic 131–2 ‘green’ 188, 221 inappropriate 47 labour fights new technologies 60 labour-saving 14–15, 60, 116 ‘rule of experts’ 99, 100–101 technological comparative edge 95 transport 62 tectonic movements 75 territorial associations 193–4, 195, 196 territorial logic 204–5 Thailand Asian Currency Crisis 261 excessive urban development 8 Thatcher, Margaret, Baroness 15, 38, 64, 131, 197, 255 Thatcherites 224 ‘Third Italy’, Bologna 162, 195 time-space compression 158 time-space configurations 190 Toys ‘R’ Us 17 trade barriers to 16 collapses in foreign trade (2007–10) 261 fall in global international trade 6 increase in volume of trading 262 trade wars 211 trade unions 63 productivity agreements 60 and US auto industry 56 trafficking human 44 illegal 43 training 59 transport costs 164 innovations 42, 93 systems 16, 67 technology 62 Treasury Bill futures 262 Treasury bond futures 262 Treasury instruments 262 TRIPS agreement 245 Tronti, Mario 102 Trotskyists 253, 255 Tucuman uprising (1969) 243 Turin: communal ‘houses of the people’ 243 Turin Workers Councils 243 U UBS 20 Ukraine, Russian oil and natural gas flow to 68 ultraviolet radiation 187 UN Declaration of Human Rights 234 UN development report (1996) 110 Un-American Activities Committee hearings 169 underconsumptionist traditions 116 unemployment 131, 150 benefits 60 creation of 15 in the European Union 140 job losses 93 lay-offs 60 mass 6, 66, 261 rising 15, 37, 113 and technological change 14, 60, 93 in US 5, 6, 60, 168, 215, 261 unionisation 103, 107 United Fruit Company 189 United Kingdom economy in serious difficulty 5 forced to nationalise Northern Rock 2 property market crash 261 real average earnings 13 train network 28 United Nations 31, 208 United States agricultural subsidies 79 in alliance with Soviet Union against fascism 169 anti-trust legislation 52 auto industry 56 blockbusting neighbourhoods 248 booming but debt-filled consumer markets 141 and capital surplus absorption 31–2 competition in labour markets 61 constraints to excessive concentration of money power 44–5 consumerism 109 conumer debt service ratio 18 cross-border leasing with Germany 142–3 debt 158, 206 debt bubble 18 fiscal crises of federal, state and local governments 261 health care 28–9 heavy losses in derivatives 261 home ownership 3 housing foreclosure crises 1–2, 4, 38, 166 industries dependent on trade seriously hit 141 interventionism in Iraq and Afghanistan 210 investment bankers rescued 261 investment failures in real estate 261 lack of belief in theory of evolution 129 land speculation scheme 187–8 oil issue 76–7, 79, 80, 121, 170, 210, 261 population growth 146 proletarianisation 60 property-led crisis (2007–10) 261 pursuit of science and technology 129 radical anti-authoritarianism 199 Reagan Recession 261 rescue of financial institutions 261 research universities 95 the reversing origins of US corporate profits (1950–2004) 22 the right to the city movement 257 ‘right to work’ states 65 savings and loan crisis (1984–92) 8 secondary mortgage market 173 ‘space race’ (1960s and 1970s) 156 suburbs 106–7, 149–50, 170 train network 28 unemployment 5, 6, 60, 168, 215, 261 unrestricted capitalist development 113 value of US stocks and homes, as a percentage of GDP 22 and Vietnam War 171 wages 13, 62 welfare provision 141 ‘urban crisis’ (1960s) 170 urban ‘heat islands’ 77 urban imagineering 193 urban social movements 180 urbanisation 74, 85, 87, 119, 131, 137, 166, 167, 172–3, 174, 240, 243 US Congress 5, 169, 187–8 US Declaration of Independence 199 US National Intelligence Council 34–5 US Senate 79 US Supreme Court 179 US Treasury and Goldman Sachs 11 rescue of Continental Illinois Bank 261 V Vanderbilt family 98 Vatican 44 Veblen, Thorstein 181–2 Venezuela 256 oil production 6 Vietnam War 32, 171 Volcker, Paul 2, 236 Volcker interest rate shock 261 W wage goods 70, 107, 112, 162 wages and living standards 89 a living wage 63 national minimum wage 63 rates 13, 14, 59–64, 66, 109 real 107 repression 12, 16, 21, 107, 110, 118, 131, 172 stagnation 15 wage bargaining 63 Wal-Mart 17, 29, 64, 89 Wall Street, New York 35, 162, 200, 219, 220 banking institutions 11 bonuses 2 ‘Party of Wall Street’ 11, 20, 200 ‘War on Terror’ 34, 92 warfare 202, 204 Wasserstein, Bruce 98 waste disposal 143 Watt, James 89 wealth accumulation by capitalist class interests 12 centralisation of 10 declining 131 flow of 35 wealth transfer 109–10 weather systems 153–4 Weather Underground 254 Weill, Sandy 98 Welch, Jack 98 Westphalia, Treaty of (1648) 91 Whitehead, Alfred North 75 Wilson, Harold 56 wind turbines 188 women domestic slavery 15 mobilisation of 59, 60 prostitution 15 rights 176, 251, 258 wages 62 workers’ collectives 234 working hours 59 World Bank 36, 51, 69, 192, 200, 251 ‘Fifty Years is Enough’ campaign 55 predicts negative growth in the global economy 6 World Bank Development Report (2009) 26 World Trade Organisation (WTO) 200, 227 agreements 69 street protests against (Seattle, 1999) 55 TRIPS agreement 245 and US agricultural subsidies 79 WorldCom 8, 100, 261 worldwide web 42 Wriston, Walter 19 X X-rays 99 Y Yugoslavia dissolution of 208 ethnic cleansings 247 Z Zapatista revolutionary movement 207, 226, 252 Zola, Émile 53 The Belly of Paris 168 The Ladies’ Paradise 168


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

From the 1940s to the 1970s, the Federal Reserve, Congress, and the White House intermittently rationed credit to dampen demand for autos and other big-ticket items, and used higher down-payment requirements to cool off the housing market. Inflation, deregulation, and financial innovation brought the quiet period to an end. Savers chafed against the limits and economists said they hurt growth. Capital controls force savers to accept inferior returns at home and deprive worthy investment projects of capital from abroad. They are also unfair: people with the right connections can usually find their way around them. And if legal detours aren’t available, illegal ones, such as the black market, are. By the 1970s, in wealthy countries, international capital controls had largely been dismantled and domestic controls on credit were heading the same way. As far back as 1952 bankers were vilifying credit controls as “a long step in the direction of Government planning.” By the 1970s, inflation was drawing savings from bank deposits to money market funds and eroding banks’ comfortable monopoly over people’s financial lives.

The same tradeoff between safety and freedom applies to finance. The decades after 1934 are sometimes called “the quiet period” because they had no financial crises. The quiet period was quiet in part because financial freedom was tightly circumscribed. For years after the Second World War, many countries limited how much money residents could take in or out of the country or invest in another country’s stocks and bonds. The purpose of these capital controls was to tamp down the big flows of money that made it harder to keep currencies pegged to one another, as the postwar monetary system required. They were also intended to force savers to fund investments at home by making it harder to seek better returns abroad. The strategy worked, but it was burdensome: for a while Britons couldn’t take more than £100 when they traveled abroad, and Americans paid a tax when they bought foreign stocks and Treasury bills.

In short, the era of repressed finance came to an end because we concluded that whatever benefits it was delivering in terms of reduced crises were not worth the loss of freedom. We could have that financial system back again. All forms of lending and borrowing outside of regulated banks could be banned or severely restricted. Financial innovations such as money market funds and derivatives could be outlawed or taxed so heavily that no one would use them. Capital controls could be reintroduced. Down-payment requirements could be raised dramatically for anyone interested in buying stocks or a house. Some economists have proposed the radical idea of forbidding banks to make loans at all; depositors’ money would instead be invested in government bonds or cash. Assume for a moment that this would work and that financiers could not find a way around these new rules.


pages: 471 words: 124,585

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

Unemployment reached a quarter of the civilian labour force, closer to a third if a modern definition is used. It was a global catastrophe that saw prices and output decline in nearly every economy in the world, though only the German slump was as severe as the American. World trade shrank by two thirds as countries sought vainly to hide behind tariff barriers and import quotas. The international financial system fell to pieces in a welter of debt defaults, capital controls and currency depreciations. Only the Soviet Union, with its autarkic, planned economy, was unaffected. Why did it happen? Some financial disasters have obvious causes. Arguably a much worse stock market crash had occurred at the end of July 1914, when the outbreak of the First World War precipitated such a total meltdown that the world’s principal stock markets - including New York’s - simply had to close their doors.

By the 1930s they were all but worthless.52 Despite the best efforts of the bankers, who indefatigably floated loans for such unpromising purposes as the payment of German reparations, it proved impossible to restore the old order of free capital mobility between the wars. Currency crises, defaults, arguments about reparations and war debts and then the onset of the Depression led more and more countries to impose exchange and capital controls as well as protectionist tariffs and other trade restrictions, in a vain bid to preserve national wealth at the expense of international exchange. On 19 October 1921, for example, the Chinese government declared bankruptcy, and proceeded to default on nearly all China’s external debts. It was a story repeated all over the world, from Shanghai to Santiago, from Moscow to Mexico City. By the end of the 1930s, most states in the world, including those that retained political freedoms, had imposed restrictions on trade, migration and investment as a matter of course.

Thus, for the next quarter century, did governments resolve the so-called ‘trilemma’, according to which a country can choose any two out of three policy options:1. full freedom of cross-border capital movements; 2. a fixed exchange rate; 3. an independent monetary policy oriented towards domestic objectives.57 Under Bretton Woods, the countries of the Western world opted for 2 and 3. Indeed, the trend was for capital controls to be tightened rather than loosened as time went on. A good example is the Interest Equalization Act passed by the United States in 1963, which was expressly designed to discourage Americans from investing in foreign securities. Yet there was always an unsustainable quality to the Bretton Woods system. For the so-called Third World, the various attempts to replicate the Marshall Plan through government-to-government aid programmes proved deeply disappointing.


pages: 550 words: 124,073

Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century by Torben Iversen, David Soskice

Andrei Shleifer, assortative mating, augmented reality, barriers to entry, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, centre right, cleantech, cloud computing, collateralized debt obligation, collective bargaining, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, deskilling, Donald Trump, first-past-the-post, full employment, Gini coefficient, hiring and firing, implied volatility, income inequality, industrial cluster, inflation targeting, invisible hand, knowledge economy, labor-force participation, liberal capitalism, low skilled workers, low-wage service sector, means of production, mittelstand, Network effects, New Economic Geography, new economy, New Urbanism, non-tariff barriers, Occupy movement, offshore financial centre, open borders, open economy, passive investing, precariat, race to the bottom, rent-seeking, RFID, road to serfdom, Robert Bork, Robert Gordon, Silicon Valley, smart cities, speech recognition, The Future of Employment, The Great Moderation, The Rise and Fall of American Growth, too big to fail, trade liberalization, union organizing, urban decay, Washington Consensus, winner-take-all economy, working-age population, World Values Survey, young professional, zero-sum game

To be sure, the implications of European integration have been complex, even contradictory. For some it has been seen as a way of introducing the chill winds of competition and intensifying the pressure to deregulate and eliminate the excesses of the welfare state, while for others it has been seen as a way of halting the race to the bottom. What is important here is that integration supported labor market decentralization. By eliminating capital controls and making realignments more difficult, the EMS solidified the exchange-rate commitment and the credibility of the non-accommodating monetary policies needed to restrain wage demands in more decentralized labor markets. By making central-bank independence and fiscal retrenchment conditions for qualifying for monetary union, the Maastricht Treaty reinforced the credibility of that macropolicy stance.

Compared to the highly centralized, vertically integrated, and hierarchically organized companies of the Fordist era, the organization of companies in the knowledge economy are rooted in clusters of highly skilled workers working with complementary and often very specialized technologies in geographically confined spaces. The opening-up of these skill clusters across the advanced world or triad to foreign direct investment (FDI) by knowledge-intensive companies has both been responding to and aiding this radical geographical specialization of knowledge competences. Capital controls and restrictions on FDI access have been eased, as captured in figure 4.2, and this has led to an exponential increase in the stock of FDI as percent of GDP, from about twenty percent in 1990 to about 120 percent in 2013, which has intensified national and regional specialization. Only the most knowledge-intensive firms can set up foreign subsidiaries (Helpman et al. 2004), and while MNCs benefit from local knowledge clusters they also contribute knowledge to these (Coe et al. 2009; Greenaway and Kneller 2007).

Second, given the requirement of open financial markets, and hence the absence of controls on capital movements, fixed exchange rates are problematic since markets can bet against them with little risk: the two effective options are therefore flexible rates or membership of a common currency. With floating rates, an independent central bank must provide the monetary policy anchor to stabilize exchange rates and prevent the build-up of inflationary pressures. The need for credible commitments to a low-inflation environment is itself an additional motivation to give up capital controls. In a currency union like the Eurozone, the common central bank sets policies for all, and it cannot be beholden to any government. Third, in an advanced world in which product market competition is through variety and innovation, and in which knowledge-based companies are frequently networks of international subsidiaries, inflation and exchange rate movements are particularly costly and low inflation targeting (or at last equal inflation across advanced economies) offers some guarantee of exchange stability (as well as by definition low inflation).


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

Airbnb, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, global reserve currency, high net worth, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, market bubble, market clearing, means of production, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, zero-sum game

Indians who woke up on November 8, 2016, to hear that their government had suspended the legal tender status of 500 and 1,000 rupee notes can certainly relate. In the blink of an eye, what was highly salable money lost its value and had to be exchanged at banks with very long lines. And as more of the world heads toward reducing its reliance on cash, more of people's money is being placed in government‐supervised banks, making it vulnerable to confiscation or capital controls. The fact that these procedures generally happen during times of economic crisis, when individuals need that money most, is a major impediment to the salability of government‐issued money. Government control of money has turned money from being the reward for producing value to the reward for obedience to government officials. It is impractical for anyone to develop wealth in government money without government acceptance.

For people who want to use bitcoin as a digital long‐term store of value, or for people who want to carry out important transactions without having to go through a repressive government, the high transaction fees are a price well worth paying. Saving in Bitcoin by its very nature will not require many transactions, and so a high transaction fee is worth paying for it. And for transactions that cannot be carried out through the regular banking system, such as people trying to get their money out of a country suffering inflation and capital controls, Bitcoin's high transaction fees will be a price well worth paying. Even at current low levels of adoption, the demand for digital cash and digital sound money has already raised transaction fees to the point where they cannot compete with centralized solutions like PayPal and credit cards for small payments. This has not stalled Bitcoin's growth, however, which indicates that the market demand for Bitcoin is driven by its use as a digital cash and digital store of value, rather than small digital payments.

Instead of the rising fees slowing Bitcoin's adoption, all that is happening is that the less important transactions are being moved off‐chain and the on‐chain transactions are growing in importance. The most important use cases of Bitcoin, as a store of value and uncensorable payments, are well worth the transaction fees. When people buy Bitcoin to hold it for the long‐term, a one‐off small transaction fee is to be expected and is usually dwarfed by the commission and the premium placed by the sellers. For people looking to escape capital controls or send money to countries facing economic difficulties, the transaction fee is well worth paying considering Bitcoin is the only alternative. As Bitcoin adoption spreads, and transaction fees rise high enough that they will matter to the people paying them, there will be economic pressure to utilize more of the above scaling solutions which can increase transaction capacity without making changes that compromise the rules of the network and force a chain split.


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, Bretton Woods, business cycle, capital controls, central bank independence, collective bargaining, COVID-19, Covid-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, Gini coefficient, global reserve currency, global supply chain, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, mortgage debt, Naomi Klein, new economy, New Urbanism, Nixon shock, obamacare, open economy, Paul Samuelson, Ponzi scheme, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

In the end, Volcker’s rate hikes drove many developing countries into crisis, fueling a rapid economic downfall from which some countries have yet to fully recover.27 Back when Bretton Woods was still in effect, the system established a host of international organizations, including the IMF, the World Bank, and the General Agreement on Tariffs and Trade (now the World Trade Organization or WTO). Within the Bretton Woods system, these organizations focused on actively governing the conditions of trade among countries. This involved a variety of tools, like tariffs and capital controls, aimed at keeping trade flows stable and national economies at least somewhat insulated from one another. When Bretton Woods ended, the global institutions it created remained. But over time, their governing philosophy shifted: the religion of free trade took over, and the tariffs and capital controls were relaxed in the name of trade liberalization. Western elites decided that fully exposing developing countries to global trade and to the in- and out-rushes of investor money would discipline their economies into becoming better. Protectionism and government intervention became dirty words.

Corporations around the world will keep feverishly chasing short-term profits, extracting scarce natural resources, polluting precious ecosystems, and ruthlessly firing desperate people, all in the name of maximizing shareholder value. Left unchecked, the situation is an open invitation for demagogues like Trump to come along, blaming “foreigners” and exacerbating tensions among the world’s people. In addition to South-South trade agreements, developing countries need to return to regulating financial transactions across borders. They may not be able to implement the classical form of capital controls that ruled during Bretton Woods and relied on global cooperation but they can certainly do better than they are now. Foreign investors should be limited in the ways they can invest in domestic assets and in their ability to sell out and create downward pressure on the exchange rate market. This will reduce the need to accumulate dollar reserves and help developing countries realize the benefits that a flexible exchange rate system can provide.

,” American Affairs 3, no. 1 (Spring 2019), americanaffairsjournal.org/2019/02/does-america-need-global-savings-to-finance-its-fiscal-and-trade-deficits/. 21. L. Randall Wray, “Twin Deficits and Sustainability,” Policy Note, Levy Economics Institute of Bard College, March 2006, www.levyinstitute.org/pubs/pn_3_06.pdf. 22. The 1997 Asian financial crisis, in particular, taught the world that pegging exchange rates is unwise if countries cannot maintain a stockpile of reserves, especially without capital controls. See Wray, “Twin Deficits and Sustainability.” 23. Scott Ferguson, Maxximilian Seijo, and William Saas, “The New Postcolonial Economics with Fadhel Kaboub,” MR Online, July 7, 2018, mronline.org/2018/07/07/the-new-postcolonial-economics-with-fadhel-kaboub/. 24. Noureddine Taboubi, “Strikes Overturn Wage Cuts, but IMF Blindness Risks Ruining Tunisia,” Bretton Woods Project, April 4, 2019, www.brettonwoodsproject.org/2019/04/strikes-overturn-wage-bill-but-imf-blindness-risks-ruining-tunisia/. 25.


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bernie Madoff, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, Hyman Minsky, index fund, intangible asset, interest rate swap, Isaac Newton, joint-stock company, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, merger arbitrage, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, purchasing power parity, quantitative easing, reserve currency, Right to Buy, Ronald Reagan, shareholder value, South Sea Bubble, sovereign wealth fund, technology bubble, time value of money, too big to fail, tulip mania, Washington Consensus, yield curve, zero-coupon bond

The 1970s saw the creation of the financial futures market in Chicago, which allowed traders to bet on the likely movement of exchange rates. Both developments were opportunities for financial companies. They could make money speculating on the markets and they could make money helping companies protect themselves from foreign-exchange risk. Both opportunities were taken. Floating exchange rates also had significant implications for governments. Think of three key elements of monetary policy: exchange rates, interest rates and capital controls. Under the Bretton Woods system, countries controlled their exchange rates and capital flows. However, if countries ran a substantial trade deficit, capital would still flow out of the country. Take the UK, a country which habitually runs a trade deficit. When a foreign company sells goods to the UK, it receives sterling in return. (Even if it asks for dollars, the UK buyer of the goods must sell sterling and buy dollars in order to make the payment.

Inflation was eventually brought to heel with the help of very high interest rates, which also prompted massive job losses in those sunset industries. This process caused much distress and protest at the time and would have been politically impossible without the economic chaos of the 1970s. At the same time (and to rather less fanfare), governments in the US and the UK relaxed the regulations on the financial sector and abolished capital controls. The idea was that the economy would function best when the markets, rather than bureaucrats, decided where to allocate capital. Suddenly, investors were free to invest anywhere in the globe. Instead of concentrating on old UK stalwarts such as Imperial Chemical Industries or Marks & Spencer, they were free to invest in the likes of Bayer of Germany or Wal-Mart of the US. These changes had enormous consequences for those who traded shares in the City.

Asian banks, which had lent heavily to the corporate sector, saw their finances deteriorate in the face of bad debts. Many south-east Asian economies plunged into recession; the IMF was called in to provide rescue financing packages. The whole issue cast doubt on the ‘Asian economic miracle’ and prompted a lot of debate about free-market regimes. Some countries and commentators argued that the system showed the instability of global capitalism, and the need for controls; Malaysia duly imposed capital controls in 1998. Free-market enthusiasts argued that it was the attempts of governments to track the dollar and their interference in the free running of their economies which caused the problem. The reaction of the Asian countries to this debacle set up a new phase in the currency markets. They decided that they must cease being dependent on foreign capital. That required them to build up trade surpluses, an economic policy that used to be dubbed mercantilism.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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

Terms that describe important components (but not equivalents) of total currency include the monetary base, the adjusted monetary base, base money, money base, high-powered money, reserve money, and narrow money. Then there are the distinct measures of money, such as M0, M1, M2, M3, and MZM. 9 The recent signal from the International Monetary Fund (IMF) of a softening of its position on capital controls suggests that this factor is changing after two decades of liberalization (“IMF drops opposition to capital controls,” Financial Times (London), December 3, 2012). 10 As Polillo writes in his recent study of the financial history of nineteenth century Italy and America: “Just as the political sociology of the state has moved beyond rigid characterizations of states and society to a more historically nuanced and locally focused understanding of the interaction between the two, the sociology of money should move beyond institutionalized typologies of the forms of monetary authority toward a similarly nuanced frame of analysis, attentive to variation.

Strictly speaking, transfers made under the plan were loans, not gifts: American suppliers were paid in U.S. dollars credited against ERP funds. The European recipients had to repay the monies in local currency, which was then deposited by the local government in a counterpart fund. The Marshall Plan was significant for the development of the international monetary system. It was instrumental in the establishment of the European Payments Union (EPU) in 1950, lifting the majority of capital controls in Europe while encouraging a system of fixed exchange rates and a degree of trade liberalization. Moreover, drawing rights connected to the EPU were supported by ECA funds and facilitated the process of establishing full convertibility under the Bretton Woods Agreement. Describing it as “an investment in the world’s interest,” Bataille saw the Marshall Plan as an answer to the fundamental problem of general economy, namely, excess.

And third, Balibar’s “Keynesian” interpretation of popular sovereignty involves (in the economic field) the principle of generating “fiscal” institutions that can mediate the relationship between state and civil society. These are institutions he describes as, first, protecting society internally from the savagery of capitalism from the outside, and second, mediating society’s class antagonisms. After the Cypriot banking crisis in March 2013, capital controls were introduced in Cyprus to circumvent the outflow of euros from local bank accounts (including what would be left of the larger accounts once the “bail-in” levy had been applied).46 From the end of March 2013, every bank account in Cyprus was subject to a monthly transfer limit of €5,000. To all intents and purposes, then, Cypriot euros are now a parallel currency. They are exchangeable with non-Cypriot euros at a rate of one to one only up to a limit.


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

Nursing large losses and a significant diminution of wealth as the peripheral nations default on their borrowings, survivors are likely to favor autarkical policies to restore economic health. Irrespective of its policy choices, Europe faces a very long period of economic stagnation as it works off its debt burden and undertakes major structural changes to correct imbalances. During this transition it will be forced to focus internally, husbanding savings and wealth to absorb the required large debt write-offs. Explicit or implicit capital controls and trade restrictions are natural policy measures to assist in this adjustment, marking a shift to a more closed economy. Weaknesses in China's recent mercantilist model are emerging as a result of the economic problems of its major trading partners. Given their lower level of growth, net exports can no longer drive Chinese activity. China will have to rely on domestic developments to generate the growth necessary to preserve social stability and the rule of the Communist Party.

Decreased availability of finance and higher funding costs will increase pressure on overextended borrowers, triggering banking problems that feed back into the real economy. Credit-rating and investment downgrades will extend the cycle through repeated iterations. Fundamental domestic weaknesses and a slow external environment limit policy options. Responses may compound the problems. Central bank currency purchases, money market intervention, or capital controls will reduce reserves or accelerate capital outflow. Higher interest rates, if used to support the currency and counter imported inflation, will reduce growth, exacerbating the problems of high debt. In 2013, India, Indonesia, Thailand, Brazil, Peru, and Turkey were forced to implement some of these measures. A weaker currency will affect the prices of staples—food, cooking oil, and gasoline.

When in 2013 the Bank of Japan and the European Central Bank began trying to weaken the yen and the euro in response to intensifying domestic economic difficulties, the US Fed expressed concern that the rapid rise of the US dollar was jeopardizing an uneven US economic recovery. Switzerland, Denmark, and Sweden imposed negative official interest rates to avoid large inflows of money seeking to escape weak currencies. Capital controls restricting movements of money were contemplated. It was similar to the 1930s, but instead of tariff barriers and trade wars, it was aggravated currency wars, low interest rates, QE, and competitive devaluations. German philosopher Immanuel Kant argued that the morality of an action can be judged by what would happen if it became a universal law; that is, if everybody acted in the same way.


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

9 dash line, Admiral Zheng, air freight, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, joint-stock company, Kickstarter, Long Term Capital Management, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, Plutocrats, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

The collapse of the Soviet Empire and its satellites allowed a large number of Eastern European countries to join the European Union: their citizens headed west, while capital from Western European countries headed east. Deng Xiaoping’s decision to open China for business was, in economic terms, even more momentous. Economic reforms also did their bit: as we saw in Chapter 4, the gradual abolition of capital controls in the 1980s and beyond meant that capital previously ‘trapped’ within national boundaries was suddenly free to go in search of the best combination of low wages, long hours and high productivity. The emerging-market revolution owes a great deal to this new-found cross-border movement of capital. Innovations in transportation also made a big difference. The container shipping revolution hugely reduced the costs of sea transport.

The US dollar, in turn, was supposedly fixed in value against gold: it wasn’t quite the gold standard, but it meant there was at least one paper currency in circulation that, until the Nixon Shock, had the attributes commonly associated with currencies in the gold standard era. For a while, the US dollar was ‘as good as gold’. Following the Nixon Shock, and thereafter the gradual abolition of exchange and capital controls, there was a danger that currency markets would become a ‘free for all’. European nations, however, had no enthusiasm for such an outcome: from the ‘currency snake’ of the European Exchange Rate Arrangement in the 1970s to the Exchange Rate Mechanism of the European Monetary System in the 1980s and 1990s and then, of course, the single currency, the majority of European nations have rejected the idea of currency chaos, preferring instead to limit their currency options to a greater or lesser extent.

Yanis Varoufakis, the former Greek finance minister and scourge of ‘conventional’ European politics, advocates what he calls a new, technologically advanced, green Bretton Woods.3 In a bid to kill off financial speculation and limit cross-border capital flows, he proposes the creation of an international clearing system based loosely on Keynes’ 1944 bancor. Unlike Keynes, however, he thinks currencies should be able to float against one another and that capital controls should be kept to a minimum. Nevertheless, the Varoufakis system is closely modelled on the Keynes plan. A new global currency – Kosmos – would be issued by the IMF, its volume linked to the size of world trade. Individual central banks would have Kosmos accounts in addition to their foreign exchange reserves. Those accounts would be subject to a varying levy depending on the size of their nation’s balance of payments surplus or deficit: the bigger the imbalance, the bigger the fine.


pages: 312 words: 93,836

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History by Alexis Stenfors

Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, bonus culture, capital controls, collapse of Lehman Brothers, credit crunch, Credit Default Swap, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, fixed income, game design, Gordon Gekko, inflation targeting, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, loss aversion, mental accounting, millennium bug, Nick Leeson, Northern Rock, oil shock, price stability, profit maximization, regulatory arbitrage, reserve currency, Rubik’s Cube, Snapchat, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Y2K

Despite the fact that the Eurodollar market was still growing, these changes led to a reduction in its relative importance as a funding source or investment outlet for the banks. Instead, Eurodollars gradually turned into the prime tool with which to speculate on short-term interest rates in an increasing range of currencies. This was an area where banks had a superior competitive, informational and economic advantage. Further, the abolishment of capital controls made it possible for any bank to become involved in the Eurodollar market by constructing ‘synthetic’ Eurodollars. According to the so-called ‘covered interest parity’, an FX swap could theoretically be seen as the difference in interest rates in two currencies. By entering into an FX swap, you effectively borrowed in one currency and lent in another. Therefore, if you believed that the interest rate would increase (or decrease) more in one currency than in another, the FX swap market presented itself as a perfect outlet for such speculation.

When I was having the previously mentioned conversation with the managing director about the possible ramifications of uncovering the truth of the FX market, he continued by saying: ‘On the other hand, the biggest manipulators of all are the central banks. They bully the market all the time.’ The fact that central banks, which are ultimately responsible for printing a country’s money, could use their foreign exchange reserves to intervene in the market, argue in favour of capital controls to prevent FX trading from taking place, or influence exchange rates by changing the interest rates or issuing biased press releases, he saw as evidence that the market would never be subject to a thorough investigation. If the banks were to be found guilty of putting grains of sand into the machinery of the free markets, surely the central banks should take some blame? If this ended up being classified as a conspiracy, surely it would go all the way to the top?

INDEX ABN Amro Bank, 59 Accenture, ‘rogue trading’ definition, 249 Accept, Breaker album, 110–11 ACI (Association Cambiste Internationale/Forex), 174, 181; ‘Dealing Certificates’, 216; Model Code, 227 actual funding rates, public knowledge, 97 Adoboli, Kweku, 250 Agius, Marcus, 77, 284 Almunia, Joaquín, 221 American Psycho, 239–40, 250 Aragon, 25 arbitarge, 31; opportunities, 27 Aros, 25 Asian financial crisis 1997, 260 ATM queues, image of, 109 average opinions, expectation of, 102 Bäckström, Urban, 117 Bailey, Andrew, 280 ‘banging the close’, 209 Bank of America, 2, 11, 153, 164, 188, 191, 223; Merrill Lynch rescue/takeover, 49, 67, 161–3, 193; rescue of, 10 Bank of England, 38, 55, 222; Exchange Joint Standing Committee, 179; inflation target, 39 Bank of Japan, 33, 81, 175–6 Bank of Tokyo-Mitsubishi, 153, 223 banking, competitive deregulation, 114; incentive structures literature, 252; post 2008 reforms, 254; risk taking essence, 281; staff ‘cost centres’, 95; see also, central banks; financial markets; money markets banks: access to money indicators, 96; cash hoarding, 45; change attempts post-scandals, 283; credit departments, 253; derivatives main users, 121; Eurodollar market made, 117, 125; fines, 236; LIBOR hiding, 105; LIBOR perceptions, 79; LIBOR quotes, 99; markets abuse, 14; profit maximizing, 80; public trust need, 284; reputational damage, 168; ‘special’ sector, 173; risk management systems, 46 Banque pour l’Europe du Nord, 113 Barclays Bank, 59, 98, 105, 153, 192–3, 210, 220, 223; Capital securities unit, 98; interest rate derivatives traders, 77; 2012 fines, 76; US dollar LIBOR trial, 139 Basel Accord 1988, 137; perverse effect, 138 BBA, banking lobby, 180, 183; BBAIRS creation, 118; big banks dominated, 107; -LIBOR trademark, 181 Bear Stearns, 49, 105, 272 ‘beating the market’, 267 Becker, Gary, 254 behavioural finance, study of, 196, 200–1, 255; ‘disruption effect’ concept, 258 benchmarks: financial instruments, 122; manipulation of, 14; manipulation criminalised, 282 Berlin Radio Show, 111 bid-offer spreads, 42–3, 62, 112, 132, 139, 146, 219, 223, 228–9; collusive practices, 223; FX market, 192; prices tight, 201; round figures, 218; secretly agreed, 220 BIS (Bank for International Settlements), 130 blame, individualised, 236; shifting, 68 Bloomberg, 50, 86, 88, 98, 151, 195, 283; indicative prices, 62 BNP Paribas, 193, 223; investment funds freeze redemptions, 50 Böll, Heinrich, 235 bonds selling, 21; trading desks, 215 bonuses, 164, 273; curbing partial solution, 280; stricter rules on, 280 ‘book’, traders, 26 Borough Market, London, 7, 101, 245 borrowing rates, low-balling, 99 bribes, forms of, 91 brokers, 143; best guess, 88; false information transmission, 89; role of, 141; traders pressure on, 90; -traders relation, 86–7, 89; use of, 132 Buffett, Warren, 15, 251 bulls/bears, early experiences formed, 31 Bush, George W., 45 buy and sell orders, 208 ‘call-outs’, 24; symptom assessing, 25 ‘Can do More’, 144 Canada: dollar, 33; Foreign Exchange Committee, 179 Canary Wharf, London, 6 Cantor Fitzgerald, London office, 264 capital controls, abolishment, 133 Carr Futures, World Trade Centre office, 264 cash markets, importance loss, 139 cash squeezes, year-end, 44 cash-settled derivatives; benchmark need, 122–3; made market, 133 cassettes, history of, 110–11 CDOs (collateralised debt obligations), 11 central bank, 151; -banks unique relationship, 173; foreign exchange interventions, 233; inflation rate target, 70; LIBOR key variable, 53, 151; LIBOR use, 152; money pumping, 50; power, 174; power overestimated, 49, 54; price stability goal, 51; repos, 175; tips, 176; transparency, 40, 166–7; unexpected interest rate moves, 41; weakening of, 114 Channel 4 News, 11 Chase Manhattan, 131 Chemical Bank (JPMorgan Chase), 30 CIBOR (Copenhagen Interbank Offered Rate), 28, 78–9 Citibank, 29, 30, 58, 101, 153, 155, 182, 188, 193, 220, 223; benchmark manipulation fine, 160; ‘Scandi’ desk, 33; Tokyo dealing room, 196 CME (Chicago Mercantile Exchange), 123, 1288; Eurodollar futures, 126 collateral types, central banks lowering, 50 competition law, UK and EU, 222 complex structured products, valuation inability, 50 compliance departments banks, 253; post-scandals increase, 283 Cooke, Mr Justice, 282 copycat behaviour, market making, 202–3 Cosmopolis, 250 counterparties, confirmations, 18 Countrywide, 49 CPI, Inflation index, 149 credit: default swap market, 99; officers, 95; rating agencies, 96; risk, 137; risk measure for, 55 Crédit Agricole Indosuez, 37, 44, 58–9, 134, 155 Crédit Suisse, 153, 193, 221, 223; First Boston, 127 creditworthiness: ‘image problem’, 51; judgments on, 225; signals, 98, 99 cross-currency basis swap, LIBOR-indexed, 62 CRSs, 129 Darin, Roger, 115 dealing relationships, informal reciprocal, 227 dealing rooms, internal monitoring increase, 283 deceptive behaviour, LIBOR banks, 105; quotes post-crisis pressure, 106 Del Missier, Jerry, 77 Den Danske bank, 178 derivatives, ‘abstract’, 123–4; benchmark use, 150; borrowing and lending idea, 138; concrete type, 121; growing market, 79; interest rates, 30; LIBOR-indexed, 28, 71, 80, 104, 129; new instruments, 18; textbook explanation, 119–20; trade tickets, 141’usefulness’ of, 131 derivatives market: benchmark need, 119; LIBOR importance, 37; Scandanavia, 27 Deutsche Bank, 153, 193, 223; LIBOR controls deceptions, 183; LIBOR fine, 83 Diamond, Bob, 77 Dillon Read, 49 ‘discount windows’ lowering, 50 ‘dishonesty’, 249 Donohue, Craig, 128 dot-com bubble, 104 downgrades, credit rating agencies, 96 Dresdner Bank, 17, 155, 197 Duffy, Terry, 128 Easton Ellis, Bret, American Psycho, 236 economic data releases, examples of, 38 efficient market hypothesis, 195, 200–1; unrealistic assumption, 196 ‘emerging markets’, trading desks, 37 ERM (European Exchange Rate Mechanism) crisis, 31–2 Ermotti, Sergio, 213 EURIBOR (Euro Interbank Offered Rate), 14, 76–8, 126, 130; derivatives, 145; new unpredictability, 62; pre-Euro, 148 euro, the: Eurozone crisis, 109; launch of, 36 eurocurrency market, 113; central bank weakening, 111; deregulated, 114; Eurodollars, see below; fast growth of, 112; LIBOR derivatives replaced, 134 Eurodollar market, 113, 133, 152; advantages, 112; banks made, 117, 125; contracts standard maturity dates, 126; financial deregulation prompt, 116; futures, see below; gradual reduction of, 136; history of, 111; LIBOR rate making, 117, 129; rapid growth of, 115 Eurodollar futures, 125, 128, 265; bets on, 146; rationale for, 129; success of, 127 Euromoney, 135 European Banking Federation, 180 European Central Bank (ECB), 50, 109, 145 European Commission, 221 Euroyen LIBOR futures contract, 127 ‘Events’ central bank meetings, 40 excessive lending, inflationary fears, 114 exclusivity, self-perception, 269 expectations, games of, 103; overpriced stock, 104 ‘expert judgments’, banks LIBOR quotes, 278 Fama, Eugene, 195 ‘fat fingers’ errors, 253 FBI, USA, 192–3 FCA (Financial Conduct Authority), 183–4, 188, 219, 282; Fair and Effective Markets Review, 222; prohibited individuals list, 285 fear, rumours of, 266 Federal Reserve, see USA FIBOR (Frankfurt Interbank Offered Rate), 19, 127 financial crisis, Asia 1997, 36 financial crisis 2007–8; decent culture erosion explanation, 279; familiar analysis of, 114; financial market illuminating, 275; -LIBOR implications, 52, 111; money markets freeze, 109 financial markets: cartels, 222; deregulation 115–16; instruments liquidity, 43; misconceptions, 236; self-regulated, 113, 171; see also, money markets Finers Stephens Innocent, 3 Finland: USSR collapse impact, 20; USSR Winter War, 65 ‘firm policy’, interbank spread choosing, 229 fixed exchange rates, sustainability, 32 flat switch, 92–5 flow traders, 143 Forex, 1995 exam, 223; reciprocity endorsed, 227 FRAs (forward rate agreements), 28, 75, 91, 129–30; growth of, 148 Friday dress policy, 135 FSA (Financial Services Authority), UK, 1–2, 67, 77, 98, 105, 124, 163, 180, 243; prohibition orders, 4; suspension, 5 ‘Full Amount’ call, weakness indicator, 143 funding costs:, averages, 104; LIBOR signalling, 97; -market liquidity relation, 44 futures contracts: agricultural, 120; cash-settled, 125; transparent exchanges, 63 FX (foreign exchange) market, 172, 196, 245; bank price influence, 212; big banks domination/market concentration, 193, 195, 210, 212, 223, 234; ‘clear the decks’, 210; ‘community’, 190; ethical problem, 213; global banks 2014 fines, 188; interbank spread survey, 228; interest rate markets joining, 31; Japanese banks borrowing, 33; London ‘banging the close’; 209; non-public information grey zone, 224; order books, 7; reciprocity, 224; scale of significance, 126, 192, 232; spot market desk, 214, 217; standardised norms, 194; swap market, see below; ‘The Cartel’, 220; traders, see below; turnover scale, 212 FX swap market, 134, 137, 145, 146; interest rate speculation, 133; Japanese traders, 34; lower credit risk, 137, 144; 9/11 trading, 265; spot-prices, 31, 227 FX traders, 191; club mentality, 269; desks, 30; respect among, 269; secret code us, 219; ‘techniques’, 204; varied backgrounds, 216 Gelboim, Ellen, 153 gentlemen’s agreements, 141 ‘getting married to your position’, trading attitude, 257–8 global merchandise exports, growth, 112 Goldman Sachs, 49, 140, 193, 223, 272 Goodhart, Charles, 173 Greece, 2015 ATM queues, 109 Greenspan, Alan, 15, 51, 173–4 Greenwald, Bruce, 225 guilt, feelings of, 78, 169, 243, 259 Häyhä, Simo (‘White Death’), 65 ‘Hambros’, 194 Harley, Dean, 231 Hayes, Tom, 8, 13, 72, 92–3, 115, 238; prison sentence, 12 HBOS, 183 headhunters, 160 HELIBOR (Helsinki Interbank Offered Rate), 28 Hester, Stephen, 284 Hintz, Brad, 10 HSBC, bank, 27, 153, 155, 188, 193, 208, 213, 223; FCA fine, 219; FX trading, 116, 187; Group Management Training College, 187; Stockholm, 31 Hull, John, 150 Hunger Games series, 255 Hyogo Bank default, 33 ICAP, 86, 101, 175; LIBOR fine, 85 ICMA (International Capital Market Association), 174 IKB bank, 50; rollover problems, 49 illiquidity, temporary, 43 Indonesia, financial crisis, 36 Industrial Bank of Japan, 34 ‘industry’, financial, 154–5 information: LIBOR delays problem, 49, 54; big banks superior, 210 instincts, 226 interbank money market, 38; central bank influence, 39; efficiency estimate change, 109; lending fall, 111; LIBOR, see below interest rate(s): benchmarks, 14; central banks forecasts, 166; changes impact of, 38; derivatives, 17, 174; hedging, 128; movement, 42; short-term, 28, 133; swaps sizes, 142 International Code of Conduct and Practice for the, 216 International Monetary Market (IMM), 72; contracts conventions, 126; LIBOR fixings, 73–4 investment banks, risk takers, 272 Ireland, Financial Regulator, 4, 168, 281 IRS, interest rate swap, 129–30; short-term, 140 ISDA (International Swaps and Derivatives Association), 174; fix, 14 Japan: bank sector/system: crisis, 47, 81; dollars difficulty period, 34; fear premium, 36; Financial Services Agency, 101; FX market concentration, 193; FX ‘premium’, 35–6; safe perception change, 33; unique derivatives market, 36; yen market, 8, 45 JP Morgan/JP Morgan Chase, 92, 105, 153, 178, 188, 192–3, 220–3 Kahneman, Daniel, 255 Kerviel, Jérôme, 250 Keynes, J.M., General Theory of Employment, 102 Kipling, Rudyard, 127 KLIBOR (Kuala Lumpur), 37 Knight, Angela, 107 Lapavitsas, Costas, 6–7 layering, 204 Leeson, Nick, 250 ‘legacy issues’, 236 Lehman Brothers, 2, 10, 48–9, 59, 105, 162, 272; bankruptcy filing, 160; collapse of aftermath, 96 Lewis, Ken, 164 LIBOR, 19, 28, 76–7, 104, 127, 130, 147, 209, 234, 265; anti-competitive process, 186; banking lobby regulated, 180–1; ‘barometer of fear’, 96; benchmark significance, 192, 225; central banks perfection assumption, 49; controls deception, 184; crisis-induced ‘stickiness’, 106; crucial price, 13; daily individual quotes, 97; derivatives, see below; ‘Eurodollar futures’ origin, 126; FCA regulated, 282; ‘fear’ index, 15; fixing panels, see below; future direction of, 38; inaccuracy possibilities, 74; interbank money market gauge, 39; jurisdiction issue, 115; manipulation, 7, 12, 14, 78; manipulation impossibility assumption, 81; market-determined perception, 88, 149; mechanism, 104; minute change importance, 73; new unpredictability, 62; 1980s invention, 111; objective process ‘evidence’, 148; perception of, 119; players as referees, 80; post 2007 interest, 53; pre-2013 unregulated, 118; predicting difficulty, 70; regulatory oversight lack, 179; retail credit impact, 277; sanctioned secrecy, 181–2; savings and borrowings dominance, 107; scandal breaking, 81; state measure use, 151; three-months, 71; ‘too big to fail’, 279; use of limited post-scandal, 278 LIBOR derivatives market, 8, 45, 137–8, 232; autonomous development of, 111; banks made, 125; ‘community’, 190; -FX connected, 189; imaginary money market, 148; increased abstraction of, 144–6 LIBOR panel banks, 74–5, 79, 98, 118, 172, 282; -LIBOR implications, 52 big banks dominated, 173, 179–80; fixing process, 75; membership criteria, 184–5; punishment idea, 108; post-scandal membership, 186 LIBOR scandal, 77, 152, 167, 245; correctness attempts, 277; post- definition unchanged, 278; breaking of, 81; Wall Street Journal on, 238 LIBOR-OIS spread(s), 51, 54–5, 99, 151 LIFFE, 126–7 liquidity: and credit crunch 2008, 2; credit issues, 45; informal norms need, 284; provision ‘duty’ 229; risk, 42–3, 55, 70 Lloyds Bank, 153, 183; LIBOR fine, 83 long/short positions, 26 Lukes, Steven, 186 makers, price, 24 Malaysia, financial crisis, 36 Mankell, Henning, 235 ‘marked to market’ trading books, 62 market, the financial: ‘colour’ 202; ‘conventions’, 228–33; ‘courtroom’, 171; interbank spread choosing ‘image’, 229; liquidity risk, 42–3; making, see below; perfections of, 15; relationships dependent, 225–6; risks limits management failure, 281 market makers/making, 24, 72, 117, 201, 206, 217, 226–7, 257; ‘ability’, 185; cash-settled derivatives, 133; failure to manage, 281; NIBOR IRS, 132; profession of, 200; two-way price quoting, 228; visibility of, 202 Martin Brokers, 85 Mathew, Jonathan, 139 McAdams, Richard, 231 McDermott, Tracey, 282 Meitan Tradition, 100, 175 Merita Bank, 56 Merrill Lynch, 2–3, 8–9, 12, 46, 49, 59–60, 62, 64, 69, 92–3, 96, 140, 153, 155, 160–1, 164, 188, 272, 285; Bank of America takeover, 67; bonuses, 10, 162–3; financial centre, 48; International Bank Limited Dublin, 4; mismarking, 68; risk taking encouraged, 281; silence rule, 242 Midland Montagu (Midland Bank Stockholm Branch), 20, 22–3, 27, 29; Stockholm, 22, 29 ‘Millenium bug’ fears, LIBOR impact, 44 mismarking, 9 mistakes, fear of, 26 Mollenkamp, Carrick, 98 ‘monetary transmission mechanism’, 39 money market(s): decentralised, 224; freeze, 110; international basis, 112; ‘risk premium’, 42; stable illusion-making, 106; -state link, 224 Moody’s, 96 morals, 66; morality, 69 Morgan Stanley, 49, 193, 223, 272 mortgage bonds, 21 NASDAQ stock exchange, transparency, 220 New York 2001 attacks, 263 New York Times, 4, 9, 11, 163, 241, 243 NIBOR (Norwegian Interbank Offered Rate), 28, 72, 130–1; fixing dates, 76; inaccurate fixing, 74; IRS market, 132; new unpredictability, 62; one month IRS market, 136 nicknames, use of, 25–6 Nordbanken, nationalised, 27 Nordic bank branches, 30 Norges Bank, NIBOR use, 152 Norinchukin Bank, 153 Northern Rock, Newcastle queues, 109 Norway, banking system, 131 ‘objective’ fact, LIBOR, 149 ‘off-balance-sheet’, trading, 137–8 official interest rate, predicting, 38 OIS (overnight index swap), 51; see also LIBOR-OIS one month IRS market, 136 OPEC (Organization of the Petroleum Exporting Countries), US dollar surpluses, 113 options desk, FX, 214 ‘over-the-counter’ trades, 63 derivatives, 129, 134; interest rate options, 130; markets, 227 Philippines, financial crisis, 37 Philips, cassette launch, 111 PIBOR (Paris Interbank Offered Rate), 19, 127 post scandals, reforms, 282 price(s), as interactions, 200; brokers indications role, 87; ‘resolution hypothesis’, 218 primary dealers, 175, 178 privacy, individual rights to, 167 Rabobank, LIBOR fine, 83, 153, 282 RBC, bank, 223 RBS, bank, 92, 153, 185, 188, 192, 220–1, 223, 284; LIBOR scandal fine, 83 reciprocity: -and trust, 226, 284; informal agreements, 228 regret, fear of, 258 regulatory arbitrage: Eurodollar market prompting, 118; platform for, 114 ‘reputation’, 185 respect, among traders, 267 Reuters, 19, 79, 151; Dealing, 41, 195, 260; Dealing 2000–2, 29, 34, 194; indicative prices, 62; screen price, 53 risk, 135; buzz of, 261–2; limits breaking, 274; ‘loss aversion’, 255; managers, 253; organizational limits, 250; pressures for, 63 risk taking: addictive, 262; enjoyment of, 260; fear control, 263; increase, 73; individualistic, 262; reward anticipation, 254; reward interpretation, 259; supervision need, 253 risk takers, 270; respect among, 268–9 Robert, Alain, 260 ‘rogue traders’, 1, 237; ‘bad apples’ narrative, 237, 240, 246, 279; fame, 252; fascination with, 246; losses, 259; ranking list, 250; risk list, 251; scandals, 258; stigma, 247 rogue trading, 274; definitions, 249; labelling, 248; risk link, 250 Royal Bank of Canada, 153 RP Martins, 153 rules of the game, loyalty to, 25 ‘run-throughs’, 87–9, 226–7 Russia, financial crisis, 36 Ryan, Ian, 3, 9, 68 Sanford C.


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

This story misrepresents the process of globalization among the rich countries during this period. These countries did significantly lower their tariff barriers between the 1950s and the 1970s. But during this period, they also used many other nationalistic policies to promote their own economic development – subsidies (especially for research and development, or R&D), state-owned enterprises, government direction of banking credits, capital controls and so on. When they started implementing neo-liberal programmes, their growth decelerated. In the 1960s and the 1970s, per capita income in the rich countries grew by 3.2% a year, but its growth rate fell substantially to 2.1% in the next two decades.15 But more misleading is the portrayal of the experiences of developing countries. The postwar period is described by the official historians of globalization as an era of economic disasters in these countries.

It ended in a terrible financial crash in 1982, which had to be resolved by the nationalization of the whole banking sector. Thanks to this crash, the country recovered the pre-Pinochet level of income only in the late 1980s.25 It was only when Chile’s neo-liberalism got more pragmatic after the crash that the country started doing well. For example, the government provided exporters with a lot of help in overseas marketing and R&D.26 It also used capital controls in the 1990s to successfully reduce the inflow of short-term speculative funds, although its recent free trade agreement with the US has forced it to promise never to use them again.More importantly, there is a lot of doubt about the sustainability of Chile’s development. Over the past three decades, the country has lost a lot of manufacturing industries and become excessively dependent on natural-resources-based exports.

That currency revaluation was an important cause of Japan’s huge asset bubble, whose bursting in the early 1990s (and the incompetent management of its aftermath) resulted in economic stagnation for a decade.As for my saying that China would join the OECD to celebrate the 100th birthday of its Communist Party, that was certainly said tongue-in-cheek. But countries can become over-confident when they are very successful, as the case of Korea shows. Until the late 1980s, Korea had skilfully used capital controls to great economic benefit. But, in the mid-1990s, it opened its capital market wide, and without careful planning. This was partly due to American pressure, but also because, after three decades of its economic ‘miracle’, the country had become too full of itself. It decided to join the OECD in 1996 and act like a rich country when it really wasn’t one. At the time, its per capita income was still only one-third that of most OECD member countries and one quarter that of the richest ones (or slightly above the level China is likely to reach by the mid-2020s).


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

OUTRIGHT CRIMINAL ACTIVITIES We next turn to the use of cash in outright criminal activities, both domestic and foreign. Criminal financing involves many modalities besides cash. As someone who has studied the history of under-invoicing and over-invoicing in international trade, I am keenly aware that there are many vehicles for moving money around, for example, by misreporting amounts on otherwise legal transactions. In the years after World War II, when all of Europe was locked down by intense capital controls, people would routinely get money out of the continent by, for example, striking deals that underreported the payments received for exports and overreported payments made for imports, with capital flight through this channel amounting to roughly 10% of reported trade for many countries and significantly more for a few of them.22 Even today, money moves in and out of countries like China and India through misreporting of trade.

Yes, in an ideal world, the rest of the G7 countries, and eventually even safe-haven countries with large notes (e.g., Switzerland, Singapore, and Hong Kong), would do the same. One benefit of coordinated action is that it might simply be easier to sell politically. It would also be the most effective means of addressing global crime. Global criminals could and would use alternative currencies, for example, yuan and rubles, but these are vastly less liquid (consider China’s capital controls) and are hardly a perfect substitute for the world’s key currencies. Moreover, China’s largest note, the 100 yuan, is equal to only $16 (although larger notes are reportedly being considered).5 Admittedly, some would argue that large US notes are a powerful force for good in countries like Russia, where paper dollars give ordinary citizens refuge from corrupt government officials. Realtors in Moscow think nothing of someone buying an apartment with a suitcase full of $100 bills.

., 246n26 Canada: corruption in, 71; currency/GDP ratio, 1995, 46; currency/GDP ratio, 2015, 36–37, 41; currency held by consumers in, 52; discount rate cuts in response to recent crises, 132; foreign holdings of currency, 42; interest rates near the zero bound, 131; large-denomination notes, 37; large-denomination notes, phaseout of, 95; paper currency phaseout, costs and benefits of, 89; revenue as a percentage of GDP, 2006–2015, 83–84; tax evasion in, 65–66; United States and, estimating foreign holdings of US currency by comparing, 41–43 Canzoneri, Matthew, 245n14 capital controls, 27, 202 Capone, Al, 61 Cebula, Richard J., 238n6 cell phones/smartphones: emergencies and, 110–11; free or subsidized for low-income individuals, 3, 48, 93–94; government monitoring of, 101; laundry, survival in, 112; transactions on, 5, 98 central bank independence, 90–91, 106, 190–91, 194–95, 231 Chakravorti, Sujit, 238n22 Chavez, Cesar, 75 Chicago plan, 86, 214 China: birth of paper currency in, 21–25; Marco Polo in, 15; origin of coinage in, 21; paper money printing and rice price in the Yuan dynasty, 24; transition from coinage to paper currency, 97, 100 China, People’s Republic of: Chinese currency, imagining supplanting US $100 bills with, 16; corruption in, 71; counterfeiting in, 78; cryptocurrencies in, 210; demand for gold jewelry in, 215; global criminals, unsuitability of yuan for, 202; paper currency phaseout, difficulties of, 204; revenue as a percentage of GDP, 2006–2015, 83 Christiano, Lawrence J., 255n10 Chung, Hess, 245n16, 247n28 Churchill, Winston, 29 coinage: debasement of, 19–20; gold-to-silver value, Alexander’s declaration of, 18–19; origin of, 21; technology in, 19 Colacelli, Mariana, 253n6 Colombia, 17, 69, 202–4 Comaneci, Nadia (gymnast), 162 commodity currencies, 17, 20–21 Congo, Democratic Republic of, 183–84 consumer cash holdings, 49–50 consumption taxes, 156–57 Correia, Isabelle, 250n18 corruption of public officials, 70–73, 205 cost in GDP of buying back all US paper currency, 217 counterfeiting/counterfeiters, 19, 77–78 criminal activities, 2, 67, 217–18; corruption of public officials, 70–73, 205; counterfeiting, 19, 77–78; human trafficking, human smuggling, and exploitation of migrants, 73–74; illegal immigration, 74–76; large-denomination euro notes and, 200–201; money laundering, 68–69, 76–77; tax evasion (see tax evasion); terrorism, 76–77 Croesus (king of Lydia), 18 cryptocurrencies: Bitcoin (see Bitcoin); European Commission rules regarding, 77; government and the future of, 16, 101; governments and, 208–14; less-cash world, not required for, 98; privacy and, 214; regulated after paper currency phaseout, 100; security and, 113, 210 currency: digital (see Bitcoin; cryptocurrencies); dual currency system, 167–76; entering or leaving the country, requirement to report large amounts of, 41; history of (see history of currency); paper (see paper currency, advantages of; paper currency, phasing out); private, government supplanting of, 16, 208–10; in the underground economy, issue of turning in, 87–89 Danmarks Nationalbank, 162 Davies, Stephen, 167–68, 171 Deaton, Angus, 76 Denmark: benefits paid electronically in, 99; cashless society, movement to, 107, 109; currency/GDP ratio, 1995, 36–37; currency/GDP ratio, 2015, 36–37; interest rates near the zero bound, 131; low-income individuals, accommodations for, 3; negative interest rates, computer software unprepared for, 162; negative interest rates, financial stability and, 178; negative interest rates in, 5, 123; prepaid card not requiring a PIN, option of, 111; restrictions on the use of cash, 64; unauthorized immigrants in, 75 developing countries.


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

This story misrepresents the process of globalization among the rich countries during this period. These countries did significantly lower their tariff barriers between the 1950s and the 1970s. But during this period, they also used many other nationalistic policies to promote their own economic development – subsidies (especially for research and development, or R&D), state-owned enterprises, government direction of banking credits, capital controls and so on. When they started implementing neo-liberal programmes, their growth decelerated. In the 1960s and the 1970s, per capita income in the rich countries grew by 3.2% a year, but its growth rate fell substantially to 2.1% in the next two decades.15 But more misleading is the portrayal of the experiences of developing countries. The postwar period is described by the official historians of globalization as an era of economic disasters in these countries.

It ended in a terrible financial crash in 1982, which had to be resolved by the nationalization of the whole banking sector. Thanks to this crash, the country recovered the pre-Pinochet level of income only in the late 1980s.25 It was only when Chile’s neo-liberalism got more pragmatic after the crash that the country started doing well. For example, the government provided exporters with a lot of help in overseas marketing and R&D.26 It also used capital controls in the 1990s to successfully reduce the inflow of short-term speculative funds, although its recent free trade agreement with the US has forced it to promise never to use them again. More importantly, there is a lot of doubt about the sustainability of Chile’s development. Over the past three decades, the country has lost a lot of manufacturing industries and become excessively dependent on natural-resources-based exports.

That currency revaluation was an important cause of Japan’s huge asset bubble, whose bursting in the early 1990s (and the incompetent management of its aftermath) resulted in economic stagnation for a decade. As for my saying that China would join the OECD to celebrate the 100th birthday of its Communist Party, that was certainly said tongue-in-cheek. But countries can become over-confident when they are very successful, as the case of Korea shows. Until the late 1980s, Korea had skilfully used capital controls to great economic benefit. But, in the mid-1990s, it opened its capital market wide, and without careful planning. This was partly due to American pressure, but also because, after three decades of its economic ‘miracle’, the country had become too full of itself. It decided to join the OECD in 1996 and act like a rich country when it really wasn’t one. At the time, its per capita income was still only one-third that of most OECD member countries and one quarter that of the richest ones (or slightly above the level China is likely to reach by the mid-2020s).


pages: 382 words: 100,127

The Road to Somewhere: The Populist Revolt and the Future of Politics by David Goodhart

Affordable Care Act / Obamacare, agricultural Revolution, assortative mating, Big bang: deregulation of the City of London, borderless world, Boris Johnson, Branko Milanovic, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, central bank independence, centre right, coherent worldview, corporate governance, credit crunch, deglobalization, deindustrialization, Donald Trump, Downton Abbey, Edward Glaeser, en.wikipedia.org, Etonian, European colonialism, eurozone crisis, falling living standards, first-past-the-post, gender pay gap, gig economy, glass ceiling, global supply chain, global village, illegal immigration, income inequality, informal economy, job satisfaction, knowledge economy, labour market flexibility, low skilled workers, market friction, mass immigration, mittelstand, Neil Kinnock, New Urbanism, non-tariff barriers, North Sea oil, obamacare, old-boy network, open borders, Peter Singer: altruism, post-industrial society, post-materialism, postnationalism / post nation state, race to the bottom, Richard Florida, Ronald Reagan, selection bias, shareholder value, Skype, Sloane Ranger, stem cell, Thomas L Friedman, transaction costs, trickle-down economics, ultimatum game, upwardly mobile, wages for housework, white flight, women in the workforce, working poor, working-age population, World Values Survey

(By 2013 China had captured 20 per cent of all global manufacturing exports, compared with just 2 per cent in 1991.)13 This second phase of post-war globalisation starting in the 1980s, and put on pause by the financial crisis, has been very different to the first Bretton Woods/GATT regime which governed the world economy from the 1950s to the 1970s. In the first phase trade liberalisation remained limited to manufactured goods, mainly between industrialised nations. Tariffs fell sharply and trade and investment flows grew rapidly. But capital controls remained in place and it was assumed that national preferences and national social contracts would remain undisturbed. Indeed, when imports of textiles and clothing from low-cost countries threatened jobs in rich countries special controls were introduced. This regime came to be seen as inadequate in the 1980s and a big push was made for what Dani Rodrik has called ‘hyperglobalisation’—the attempt to eliminate all transaction costs that hinder trade and capital flows.

There had been a long-standing interest in a single currency at the federalist margins, but German unification gave it a chance. A single currency linking economies at a similar level of development provides the obvious advantages of reduced transaction costs and greater predictability, especially in cross-border trade. Delors also believed Europe faced a particular problem that he thought a single currency would solve: he feared that the liberalisation of capital controls introduced by the single market would destabilise the ERM mechanism, which had since 1979 loosely linked EU currencies, which would in turn unravel the single market. (The ERM did, indeed, nearly fall apart in 1993.) Another worry was that Germany had become too dominant in the ERM system—whenever the Bundesbank shifted interest rates other countries had to follow suit whether it suited their economic conditions or not.

The benefit of having employees represented at the highest level in large German companies—something that the May government has been thinking about for Britain too—can also be seen in the more gradual pace of de-industrialisation in the heavy industrial Ruhr region of Germany in the 1980s and 1990s compared with most of Britain’s industrial regions. The pace of de-industrialisation in Britain picked up sharply in the early 1980s as the effect of North Sea oil sent the pound rocketing and Mrs Thatcher’s new free market government removed all capital controls, and in some cases sharply cut financial support to nationalised industries. (The closure of uneconomic coal mines led to the year long 1984/5 strike and the rapid subsequent rundown of the whole industry). Hundreds of thousands of industrial workers lost their jobs in the space of a few years as factory after factory closed permanently. Ambitious retraining schemes were announced for the unemployed workers but little came of them.


Corbyn by Richard Seymour

anti-communist, banking crisis, battle of ideas, Bernie Sanders, Boris Johnson, British Empire, call centre, capital controls, centre right, collective bargaining, credit crunch, Donald Trump, eurozone crisis, first-past-the-post, full employment, gender pay gap, housing crisis, income inequality, knowledge economy, land value tax, liberal world order, mass immigration, means of production, moral panic, Naomi Klein, negative equity, Neil Kinnock, new economy, non-tariff barriers, Northern Rock, Occupy movement, offshore financial centre, pension reform, Philip Mirowski, precariat, quantitative easing, race to the bottom, rent control, Snapchat, stakhanovite, Washington Consensus, wealth creators, Winter of Discontent, Wolfgang Streeck, working-age population, éminence grise

Now that Corbyn has, by depriving the Conservatives of their majority and setting Labour up for a future win, proved the critics wrong, what needs to be rethought? III The world, for a start. In the past few decades, it has been taken for granted among the majority of journalists and politicians that something miraculous was taking place: globalisation. The world was converging, under the relatively benign tutelage of Washington, toward a liberal world order. With the vast global expansion of trade availed by the global rollback of capital controls and tariffs, a series of institutions of global governance sprang up, as well as a patchwork of regional trading alliances rolling out property rights, and rolling back barriers to trade such as public ownership, and environmental or labour protections. It was, to coin a phrase, capitalism en marche: investor rights sans frontières. A post-democratic world system in which the US trade representative would potentially have more power than any national monarch or president.

World trade is still growing, but far less rapidly than before the credit crunch, and more slowly than global GDP. According to the World Trade Organization, the ratio of trade growth to GDP growth fell to 0.6:1 in 2016. Financial internationalism, wherein banks extend their reach increasingly globally, is slowing down. Protectionism is on the rise across the G20, and various governments – notably the Chinese – have imposed capital controls.2 This is a crisis of globalisation, and, with that, a crisis of all the taken-for-granted wisdom about globalisation. Economists have been changing their minds, and so have voters. The crisis has exposed layers of people who never particularly cared for ‘globalisation’, but who were submerged in the rising tide. In the backwash, the economy is being politicised once more. Many of the most prominent expressions of this are on the Right.

Notes Preface to the Second Edition 1Quoted in Nikil Saval, ‘Globalisation: the rise and fall of an idea that swept the world’, Guardian, 14 July 2017. 2James Meadway, ‘What if we’ve reached peak globalisation?’, Guardian, 28 September 2015; Shawn Doonan, ‘WTO warns on rise of protectionist measures by G20 economies’, Financial Times, 21 June 2016; ‘Press release 793: trade statistics and outlook’, World Trade Organization, 2017, at wto.org; Kevin Yao, ‘China capital outflows stabilized in first-quarter as capital controls bite’, Reuters, 20 April 2017. 3Gaby Hinsliff, ‘Labour still has to work out how it can speak for England’, Guardian, 4 February 2016; Vernon Bogdanor, ‘As a political force Englishness is on the rise – and Labour mustn’t forget it’, Guardian, 8 July 2013; John Harris, ‘Don’t let England be rebranded as a nation of bigots’, Guardian, 10 October 2016; Polly Toynbee, ‘Dismal, lifeless, spineless – Jeremy Corbyn let us down again’, Guardian, 25 June 2016; Andy Burnham, ‘Labour needs to take back control of the immigration debate’, Guardian, 16 December 2016. 4Anthony Bond and Steve Robson, ‘Revenge of the youth!


pages: 271 words: 52,814

Blockchain: Blueprint for a New Economy by Melanie Swan

23andMe, Airbnb, altcoin, Amazon Web Services, asset allocation, banking crisis, basic income, bioinformatics, bitcoin, blockchain, capital controls, cellular automata, central bank independence, clean water, cloud computing, collaborative editing, Conway's Game of Life, crowdsourcing, cryptocurrency, disintermediation, Edward Snowden, en.wikipedia.org, Ethereum, ethereum blockchain, fault tolerance, fiat currency, financial innovation, Firefox, friendly AI, Hernando de Soto, intangible asset, Internet Archive, Internet of things, Khan Academy, Kickstarter, lifelogging, litecoin, Lyft, M-Pesa, microbiome, Network effects, new economy, peer-to-peer, peer-to-peer lending, peer-to-peer model, personalized medicine, post scarcity, prediction markets, QR code, ride hailing / ride sharing, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, SETI@home, sharing economy, Skype, smart cities, smart contracts, smart grid, software as a service, technological singularity, Turing complete, uber lyft, unbanked and underbanked, underbanked, web application, WikiLeaks

Distributed Censorship-Resistant Organizational Models The primary argument for Blockchain 1.0 and 2.0 transactions is the economic efficiency and cost savings afforded by trustless interaction in decentralized network models, but freedom and empowerment are also important dimensions of the blockchain. Decentralized models can be especially effective at promoting freedom and economic transfer in countries with restrictive political regimes and capital controls. Freedom is available in the sense of pseudonymous transactions outside of the visibility, tracking, and regulatory purview of local governments. This can be a significant issue for citizens in emerging markets where local capital controls, government regulations, and overly restrictive economic environments make it much harder to engage in a variety of standard activities, including starting new businesses. State economic controls, together with a lack of trust in fiat currency, have been driving a lot of interest in cryptocurrencies.


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 is bizarre that this vast empowerment of the state could be considered as strengthening free markets and competitive capitalism. 38 That is not to say that capital account controls are not desirable, particularly controls over short-term flows. The post-Keynesian literature has long established the beneficial impact that controls would have on growth, particularly with regard to capital flight (Grabel 2003, 2006). It is remarkable that even the IMF has recently begun to realize that a degree of capital controls might be desirable (Ostry et al., 2010). Nonetheless, the feasibility of generalized capital control in the absence of reliable world money remains a moot point. 39 A point that Kregel notes in connection with the difficulty of returning to Glass-Steagall. Jan Kregel, ‘No Going Back: Why We Cannot Restore Glass-Steagall’s Segregation of Banking and Finance’, Public Policy Brief 107, Levy Economics Institute of Bard College, 2010 40 See, for instance, Adam S.

However, in the years of financialization, generic market-negating regulation has explicitly supported the profitability of private financial institutions. It has also been sharply different from regulation during the three decades after the Second World War, which was also market-negating but had the specific aim of controlling finance as a system. To this purpose systemic market-negating regulation included an array of mutually interacting measures, such as price and quantity controls, functional specialization of institutions, and capital controls. The underlying assumption was that the untrammelled operation of financial markets could potentially destabilize capitalist accumulation, and hence finance had to be controlled as a system. With the rise of financialization, systemic market-negating regulation has gone into retreat to be replaced by market-conforming regulation; during the same period, however, generic market-negating regulation has also become stronger, buttressing the private returns of finance.

For financial institutions active in the world market it became important to remove controls on international capital flows precisely to confront the risks generated by the new volatilities.10 Rising volatility of exchange rates and interest rates as well as the gradual lifting of financial controls encouraged financial innovation, a process that has transformed the conduct of banks in the period of financialization. Removing international capital controls and abolishing domestic regulations laid the ground for financial liberalization. An important step was the partial abolition of regulation Q in the US in the 1960s, thus freeing some interest rates on bank liabilities. Equally important was the introduction of Competition and Credit Control legislation in the UK in 1970s which began to dismantle international regulations constraining British banks.


pages: 767 words: 208,933

Liberalism at Large: The World According to the Economist by Alex Zevin

activist fund / activist shareholder / activist investor, affirmative action, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disruptive innovation, Donald Trump, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, global supply chain, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, John von Neumann, Joseph Schumpeter, Julian Assange, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, market bubble, Martin Wolf, means of production, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, Plutocrats, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Snapchat, Socratic dialogue, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

Starting in the late 1950s, some of the City’s leading merchant bankers joined Treasury and Bank regulators to encourage American, Asian and other multinational banks and corporations to come to London to tap these liquid markets in ‘offshore’ dollars – whose chief attraction was their unregulated status, operating outside Federal Reserve and Treasury oversight and capital controls established under Bretton Woods.54 Since Macrae was neither uncritical of the banks nor a conventional neoliberal, it is all the more striking that he too looked for a partial solution to British difficulties in the speculative innovations of London’s financial hub. Indeed, as Macrae contemplated the advantages of British membership of the European Economic Community (EEC), it was the prospects for the City that stood out: the end of fixed exchange rates and sterling area capital controls – which EEC entry demanded – meant that as ‘northern Europe starts exporting its manufacturing industries to the poor south and communist east’, British banks would boom, organizing the flexible holding, licensing and other investment and ownership strategies and structures of the post-industrial world.55 Britain into Europe, a collection of writings from the Economist staff, made the case for entry from this perspective in 1971 – arguing that it was high time for the City to abandon sterling’s reserve status (with the ‘awful record’ of ‘two devaluations, ten grisly postwar sterling crises, ten occasions on which Britain suffered a sharp drain on its gold and foreign exchange reserves’) and most commonwealth preferences in goods.56 The City should instead look to the ‘dollar and Eurocurrency markets’ of the future, becoming ‘the banking centre of the community, where the working dollar balances of Europe are kept – a new, more desired, very much more fruitful European version of the sterling balances used by Britain to finance its profitable investment abroad’.

The question of how freely to invest it abroad now set the Economist on a collision course with tariff reformers inside the City – not just over the effect of capital exports on Britain’s growing trade imbalance, or the price of consols, but over its power in the broadest sense.67 The opening salvo in this conflict was Lloyd George’s People’s Budget, which elicited hand-wringing over the ‘safety of capital’ from bankers like Lord Rothschild and other members of the Budget Protest League. The notion that ‘socialistic finance’ was ‘driving’ capital abroad furnished another rationale for tariffs, originating in the City but with a potent appeal extending up to the industrial North. Instead of allowing the unrestricted outflow of British savings, which funded – critics argued – the industrial and imperial expansion of rival powers, tariffs and capital controls could direct those savings to the home market, which was starved for investment and in need of modernization. The proof? German, American and even Japanese firms were now outcompeting their British counterparts on everything from pottery to steel, iron to chemicals.68 Here the Economist played its best card on behalf of a liberal empire – for no better authority on the ebb and flow of capital within it existed.

Keynes had gleefully laid traps for the Economist here and in the Nation and Athenaeum, in which he tried to show that industry and finance could be at odds, and that the management of the gold standard had needlessly deepened their divergence.64 It must be stressed again, however, that Keynes criticized the ‘mandarins’ in the Economist as much for the harm they had done to the City as to Britain’s industrial north: his support for ‘tied lending’ was meant to renew the virtuous mid-nineteenth century circle of foreign investment and exports – and to allow the City to compete with New York and Paris, which already engaged in similar breaches of free trade.65 And while Keynes may have outwitted the Economist, it was the latter that prevailed on the level of policy. A glance at the memoranda of Treasury officials makes clear how closely they relied on the Economist to combat not just capital controls but – going back to James Wilson’s writings on the 1840s railway mania, which still figured in the civil service exams – to loan-financed public works schemes in general, as ‘crowding out’ private investment.66 1929: Keynes, the Crash and Its Aftermath It was the anvil of events, not superior cleverness, which eventually decided many of these issues in favour of Keynes, as the Wall Street bubble finally burst in 1929, precipitating the Great Depression.


pages: 364 words: 112,681

Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back by Oliver Bullough

banking crisis, Bernie Madoff, bitcoin, blood diamonds, Bretton Woods, BRICs, British Empire, capital controls, central bank independence, corporate governance, cryptocurrency, cuban missile crisis, dark matter, diversification, Donald Trump, energy security, failed state, Flash crash, Francis Fukuyama: the end of history, full employment, high net worth, if you see hoof prints, think horses—not zebras, income inequality, joint-stock company, liberal capitalism, liberal world order, mass immigration, medical malpractice, offshore financial centre, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, rent-seeking, Richard Feynman, risk tolerance, Sloane Ranger, sovereign wealth fund, WikiLeaks

‘He was a person of interest to Scotland Yard.’ Don Mitchell is a veteran Anguillan lawyer who knew Herbert well, having worked alongside him for decades. In the 1970s and 1980s, he said, Anguilla had a strange and perhaps unique status as a free port, created by the fact it had revoked many of the St Kitts laws without bothering to replace them with anything else. This meant that, while much of the rest of the world had capital controls stopping the free movement of cash between jurisdictions, Anguilla had total freedom. ‘The banks in Anguilla prospered because of the number of Britons, Americans, Swiss people, not to mention innumerable West Indian businessmen, who flew into Anguilla with suitcases full of currency to deposit,’ he remembered. ‘There were no laws, none of the modern thinking that you might be bringing to the table about money laundering or the financing of terrorism.

There’s also money that has flowed out of economies like Russia, China or Venezuela which isn’t the fruit of a misdeed of any kind, but is instead owned by people who fear that the government might take it away from them if they kept it at home. And this ‘flight capital’ adds a whole new dimension to the amount of cash we’re talking about. According to one estimate, some $2.5 trillion fled China in the decade to 2017, despite the increasingly onerous capital controls erected by the government. Often this flight capital is hidden, visible only in what are called the ‘errors & omissions’ (E&O) in government figures, the entry that statisticians add to the columns of numbers to make them add up. Analysts from Deutsche Bank made the discovery when they looked at British investment figures, and realised that the E&O number was consistently positive over time.

Russian money appeared to make up around half of this total, with the rest sourced from elsewhere in the world, although even this was a guess, since the analysts were relying on discrepancies that could be masked by the far higher legal flows of capital. Sweden, meanwhile, has the opposite problem, and has leaked 1.5 trillion Swedish krona (around $180 billion) since the late 1980s, when the country abandoned capital controls and wealthy Swedes tried to reduce their exposure to their homeland’s high taxes. (‘This means that Sweden’s national statisticians underestimate Swedish foreign wealth by 100 percent,’ the report said.) If it is so hard to find accurate figures for the flows of money into and out of advanced economies, then it will be harder still to estimate global totals, since that would require relying on figures produced by less well resourced statistics agencies, as well as somehow circumventing the reticence of tax havens, which don’t like to reveal the inner workings of their financial systems even to their own statisticians.


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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

These private-sector companies are heavily protected yet extremely well run (again much like Mexico), and they are the source of whatever global economic success South Africa enjoys. Though South Africa has the most sophisticated financial market in the emerging nations—the World Economic Forum ranks it the fifth most sophisticated in the world—much of the money is trapped at home, a legacy of capital controls imposed by the apartheid regime to prevent money from fleeing the country. Even though those rules have been gradually relaxed since the 1990s, the pool of domestic financial savings is still huge, with $750 billion in assets under management in the insurance, pension, and mutual-fund industry, which is a sum roughly two times the GDP of South Africa, suggesting there is a lot of accumulated wealth in the economy.

Economist Andy Xie, a well-known expert on Asia, has created an interesting taxonomy of winners and losers after the crisis, citing South Korea for pushing perhaps the most aggressive reforms. Xie argues that if South Korea had not suffered a hard landing in 1998, it probably would not be a member of the Organisation for Economic Co-operation and Development—a club of leading industrial powers—today. On the other hand Malaysia imposed capital controls to avoid the brunt of the hit in 1998, never reformed its system, and is falling behind its neighbors. Xie is most critical of Japan, where, he says, “the greatest bubble in human history” burst in 1990 with no pain at all, like falling off Everest without breaking a bone. At its peak Japan accounted for 40 percent of all the property value on the planet, but instead of collapsing, the price of real estate slowly declined at a 7 percent annual rate for two decades, ultimately falling by a total of about 80 percent.

., 177 Bradford, 212 brand management, 53–54, 90, 159, 162, 165, 167 Brazil, 59–72 agriculture in, 64, 66, 232 assets of, 59 banking in, 62, 69–70 billionaires in, 71, 78 budget limits in, 66, 70–71 capital markets in, 69, 70–71 China compared with, 61, 62, 63–64, 65, 66, 68–70, 71 constitution of, 64 consumer prices in, 12, 42, 59–61, 62, 66, 67–68, 71, 138, 232 currency of (real), 12, 13–14, 59–61, 62, 66, 67, 68–69, 232, 233 economic reforms in, 62–63, 66–67, 71–72 economy of, 12–13, 28, 61–72, 226 education in, 63, 65 as emerging market, 3–4, 7, 59–61, 63, 65–66, 67, 69–71, 85, 106, 113, 176, 253 factories in, 67, 68 financial crises in, 61–62 foreign investment in, 59, 63, 64, 66, 68–72 foreign trade of, 59, 61, 62, 67–68, 72, 159, 220, 223, 226, 232, 233–34 GDP of, 3–4, 63, 65, 66, 67, 72 in global economy, 68–71 government of, 42, 59, 63, 65, 66–67, 70–71, 72, 210, 248 government spending in, 42, 63, 65, 66–67, 70–71, 72 growth rate of, 3–4, 7, 11, 12–13, 14, 15, 61–64, 66, 67, 68–71, 88, 207, 235, 244, 246 health care in, 63 high-context society in, 39–40 hotels and restaurants in, 12, 59–61, 65 housing prices in, 61 immigration to, 95 income levels of, 8, 61, 63, 72, 75, 113 India compared with, 10, 39–43, 61, 70 inflation rate in, 42, 62, 66, 68–69, 248, 249 infrastructure of, 61, 64, 65, 69 interest rates in, 62, 67, 68–70 labor market in, 64–65 leadership of, 59, 61, 63, 66–67, 70–72, 210 loan defaults by, 61–62, 66 media coverage in, 70–71 Mexico compared with, 71, 75 “momento magico” of, 59 national debt of, 61–62, 66 natural resources of, 10, 59, 61, 63, 67–68, 69, 133, 159, 220, 226, 232, 233–34, 235 oil industry of, 63, 67–68 political situation in, 66–69 poverty in, 41, 66 productivity of, 63–64, 68 social stability in, 61–64, 66, 67, 71, 72 stock market of, 10, 59, 69–71, 233 taxation in, 63 transportation in, 64, 69, 85, 212–13 “trilemma” of, 68–69 unemployment in, 64–65 U.S. compared with, 12–13, 61, 66, 72 wage levels in, 42, 62, 65 wealth in, 12–13, 71 welfare programs of, 41, 42, 61, 63, 72 breakout nations, vii–x, 2, 10–16, 38–39, 49, 61, 89–90, 113, 244–46 see also specific nations bribes, 93, 137 BRICS, 253 bridges, 51, 195 bubbles, investment, 2–6, 107, 223–39 Budapest, 97 Buddhism, 199 budgets, x, 66, 70–71, 139–40 Buffett, Warren, 163 Bulgaria, 100, 109, 187 “bulldozer leadership,” 161 Bumiputeras people, 148–49 Burj Al Arab, 219 Burma, 10 Burundi, 209 Busan, 136 Bush, George W., 4–5 business cycles, 2, 5–6, 11, 223 Cairo, 128 Calderón, Felipe, 78, 79–80, 82 California, 24 Çalik, Ahmet, 123 call centers, 141 Cambodia, 188 cameras, 237 Cameroon, 89 Canada, 26, 180, 215, 223 Canal Istanbul, 116 Cape Town, 171, 175 Cap Ferrat, 94 capital controls, 178, 189–90, 252 Capital Economics, 21 capital flows, viii, x, 4, 69, 70–71, 93–94, 107, 131, 178, 189–90, 201, 228–30, 236, 238, 252 capitalism, 8–9, 10, 17–18, 25, 26–30, 38–39, 42, 46–47, 49, 50–51, 58, 62, 69–70, 71, 77, 106, 117, 118–19, 136, 141, 174, 197, 200–202, 218, 228–30, 252 “cappuccino economy,” 182 Cardoso, Fernando Henrique, 66 cargo ships, 200–201 cartels, 74, 75–76, 79–80, 208 Carter, Jimmy, 248 casinos, 201 Cayman Islands, 160 cement, 75, 135, 137, 139, 213 CEMEX, 75 , 81 Central Asia, 95, 113, 123, 166 Central Intelligence Agency (CIA), 30 Chaayu Blu resort, 196 chain stores, 53 change agents, 2–3 Chaser, The, 167 Chávez, Hugo, 190, 215 Chechnya, 85, 89, 96 checking accounts, 62 Chery, 161 Chhattisgarh, 46 Chiang Kai-shek, 165 chief executive officers (CEOs), 2, 60, 64, 72, 224 children, x, 21–22, 169 Chile, 41, 75 China, 15–34 agriculture in, 9, 17–18, 21, 22, 27, 41–42 auto industry of, 161 baby-boom generations in, 21–22, 37–38 banking in, 24, 25, 26, 92, 252 billionaires in, 25, 45, 91 Brazil compared with, 61, 62, 63–64, 65, 66, 68–70, 71 capitalist reforms in, 8–9, 17–18, 25, 26–30, 62, 69–70, 71, 106, 117, 118–19, 197, 200–202, 252 Communist regime of, 21–22, 25, 26–30, 117, 202–3, 247 consumer prices in, 16, 18, 22–23, 24, 25, 31–32, 53 credit market in, 32 currency of (yuan), 32–33, 68, 131, 132, 246–47, 254 demographics of, 17–18, 21–22, 37–38, 53 economic slowdown in, 17, 18–21, 32–34, 233–35, 241–42 economy of, 15–34, 197, 204, 227, 236, 241–42 as emerging market, 3–4, 7, 10, 87, 153, 164, 231, 253 emigration from, 82, 95 export-manufacturing zones in, 28 factories in, 17–18, 22–23, 28, 132, 230 five-year plans of, 20, 27 forecasts on, 2, 17, 18, 31–32 foreign currency reserves of, 26, 32–33 foreign investment in, 9, 18, 20, 32, 68–70, 183, 225 foreign trade of, 18, 20–21, 23, 26, 28, 29, 31, 32–33, 120, 148 GDP of, 1, 3–4, 17, 18, 20, 26, 32, 65, 85, 139, 236, 243, 252 “ghost cities” in, 16, 24–25 as global economy, 1, 2, 18–19, 230, 233–36, 241–42 growth rate of, 3–4, 7, 8–9, 11, 12, 16–21, 26, 29–34, 51, 58, 61, 62, 63–64, 68–69, 87, 118–19, 132, 133, 136, 187, 201–2, 204, 223, 224, 233–35, 241–42, 245, 254 Han population of, 53 as high-context society, 41 highways in, 17, 20, 21, 65, 231 housing market in, 16, 18, 24–25, 28–29, 31, 32 income levels of, 8, 11, 16–21, 24–25, 58, 86 India compared with, 1, 10, 19, 25, 36, 37–38, 41, 45, 47, 52, 53, 56, 57, 58 Indonesia compared with, 132–33, 135, 136 inflation rates in, 17, 22, 23, 24, 25, 31, 33, 248 infrastructure of, 20–21, 62, 65, 236 Japan compared with, 18, 20, 22, 24, 31, 32–33 labor market in, 17, 21–23, 27, 32, 47, 164, 170, 246–47 labor unrest in, 17, 22–23, 32, 47 leadership of, 8–9, 17, 26–28, 32, 33, 47, 71, 132, 200–203, 248 manufacturing sector of, 17–18, 22–23, 28, 132, 230, 235 media coverage of, 21, 22–23 Middle Kingdom of, 199 migrant workers in, 22–23, 27 national debt of, 17, 18, 252 natural resources imported by, 19, 61, 229, 230, 231, 233–36 one-child policy of, 21–22 population of, 17–18, 19, 21–22, 37–38, 53, 56, 57, 82 ports of, 20–21, 62, 65, 200–201 privatization in, 24–25, 252 productivity of, 63–64, 68, 80 public transportation in, 15–16, 20, 21, 22–23, 65, 231 residency permits (hukou) in, 27, 29 rural areas of, 17–18, 21, 22–23, 27, 41–42, 57 Russia compared with, 19, 25, 85, 86, 87, 88, 91, 92 savings rate in, 31, 62, 119 social unrest in, 24–26, 27, 28, 31–32, 47 South Korea compared with, 158–59, 161 state-owned enterprises in, 69, 88, 252 stock market of, 26, 69–70, 88, 189 Taiwan compared with, 155, 164, 169–70 telecommunications in, 207, 237, 238, 239 Thailand compared with, 39 Turkey compared with, 117, 118–20, 122 unemployment in, 32, 62 urban areas of, 21, 22–25, 31, 33, 57 U.S. compared with, 17, 18, 24, 237, 238, 239, 241–42, 246–47 Vietnam compared with, 30, 199, 200–203, 204 wage levels in, 21, 22, 23, 24, 25, 29, 45, 80, 91, 132 wealth in, 25, 31–32, 236 women in, 21, 24, 31 Chinese language, 53 Chinese Nationalists, 165 Chissano, Joaquim, 195, 206 Christianity, 123, 211 Chrysler, 75 Chung Ju Young, 161 Chung Mong Koo, 162 Churchill, Winston S., 49 Cinnamon Lodge resort, 196 Citibank, 91 Ciudad Juárez, 79 Clinton, Bill, 225–26 CLSA, 238 CNBC, 70–71 coal, 133, 135, 170, 180, 225 Coca-Cola, 75 coffee, 67, 69, 232 Cold War, 86, 87, 134 Coleman, 247 college endowments, viii Collor de Mello, Fernando, 66 Colombo, 191, 192 Commission on Growth and Development, 235 “commodity.com” illusion, 223–39 “commodity supercycle,” 223 Commonwealth Games, 42 Communism, 4, 21–22, 25, 26–30, 83, 84, 85, 86, 89, 97, 102, 103, 104, 111, 117, 170, 175, 199–200, 202–3, 247 computers, 158, 164, 203–4, 236–39 Confucianism, 199 conglomerates, 125–26, 134, 138, 161–63, 167–69, 178 Congo, Democratic Republic of, 205, 209 Congo, Republic of, 4 Congress of South African Trade Unions (COSATU), 175, 181 Congress Party, 39, 41–42, 47–49, 55–56, 174, 176 conspicuous consumption, 6 construction industry, 123, 166, 213 consumer electronics, 147–48 consumer prices, 6, 12, 16, 18, 22–23, 24, 25, 31–32, 38, 39, 42, 49, 52–54, 57, 59–61, 62, 66, 67–68, 71, 75–76, 83–84, 86, 87, 94, 121, 126, 137–38, 157, 179, 232, 235 container vessels, 200–201 contracts, labor, 17 Coolidge, Calvin, 39 copper, 19, 120, 141, 223, 224, 229, 231 Cornerstone Analytics, 227 corporate governance, 134 corporate taxes, 63, 76, 126–27, 214–15, 254 corruption, 25, 76–77, 89, 91, 93, 107, 117–18, 134–35, 137, 151, 204–5, 206, 209, 210, 217 see also graft counterrevolution, 111, 118, 125–26 creative destruction, 46 credit, 8, 32, 38, 42, 43–44, 45, 46–47, 49–51, 58, 150, 157, 202 credit cards, 8, 157 Credit Suisse, 50 crime rate, 71, 78, 181, 211 “crony capitalism,” 10, 25, 38, 42, 46–47, 49, 50–51, 58, 131, 139 Cuba, 191 cuisine, 52–53 currencies, 4–5, 9, 12, 13–14, 26, 28, 32–33, 59–61, 62, 66, 67, 68–69, 73, 80, 92–93, 100–108, 115, 120, 131, 132, 146–47, 149, 159–60, 178, 179, 196, 209, 232, 233, 243, 246–47, 254 “czarist mentality,” 96 Czech Republic: auto industry of, 103 banking in, 103, 105–7 as breakout nation, 99–100 currency of (koruna), 108 as emerging market, 106, 110 as Eurozone candidate, 11, 99–100, 106–8, 109, 254 GDP of, 100 growth rate of, 97, 99–104, 244–45 inflation rate of, 249 national debt of, 105–6 population of, 106 post-Communist era of, 97, 102, 104, 111 Dae Jang Geum, 167 Daewoo, 160, 162 day traders, 220, 224 debt, national, 4, 5–6, 8, 17, 18, 24, 57, 61–62, 66, 76, 80–81, 85, 86, 92–93, 100, 105–6, 119–22, 134–35, 170, 176, 177, 231, 252 debt, personal, 8, 57–58, 157, 182–83 defaults, 61–62, 66, 252–53 deficits, x, 109–10, 147, 254 Delhi, vii–viii, 43 Dell, 158 democracy, 29–30, 48–49, 50, 55–56, 58, 77, 89, 96, 114, 118, 119, 123, 127, 143, 156, 173–76, 194, 205 Democratic Alliance Party, 175–76 Democratic Republic of Congo, see Congo, Democratic Republic of “demographic dividend,” 37–38, 55–56, 58, 126 demographics, 17–18, 21–22, 37–38, 55–56, 58, 126, 225, 231–32 Deng Xiaoping, 8–9, 17, 25, 26–28, 199, 200–201 dependency ratio, 37–38 Detroit, 162 devaluations, currency, 62, 108, 132 developing countries, vii–x, 2, 7, 10–16, 20, 28, 38–39, 42, 44, 49, 61, 65, 68, 89–90, 113, 123, 158, 184–91, 204–8, 233–39, 242–4 commodity exports of, 204, 223–39 see also breakout nations diamonds, 176, 205 dictatorships, 29–30, 127, 173, 246 Disney, 3 DMK, 48 Dogus family, 125 dollar, 7, 13–14, 18, 32–33, 59, 67, 70, 73, 103, 131, 132, 232, 233, 234, 243 “domestic content” rules, 213 Domino’s Pizza, 53 dotcom bubble, 3, 6, 157, 164, 189, 223–24, 225, 227, 230 Dow Jones Industrial Average, 9, 47 dowries, 145 “Dr.


pages: 234 words: 63,149

Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, creative destruction, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Julian Assange, Kickstarter, Martin Wolf, mass immigration, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, Nixon shock, nuclear winter, Parag Khanna, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

Many types of firms will find themselves competing with a much wider range of potential commercial rivals. Governments will rely increasingly on state-backed companies to extend their geopolitical and economic power. Some multinational corporations will be unprepared to face state-backed competitors, and they will be slow to react when governments of both established and emerging powers use market access, currency policy, capital controls, and more subtle tools to shape the commercial landscape within their borders and across their regions. Despite the advantages provided by governments, not all state-owned companies are well designed for competition. Some of them will miss market signals, because they’re weighed down by political bureaucracy or by the operational limits that sometimes come with government backing. As they become less competitive, they will lose state support to other government-backed firms.

., China’s Growth and Integration into the World Economy: Prospects and Challenges, Occasional Paper 232 (Washington, DC: International Monetary Fund, 2004), http://prasad.dyson.cornell.edu/doc/books/ChinasGrowthAndIntegrationWithTheWorldEconomy-ProspectsAndChallenges_IMFOP232_2004.pdf. 43. When Deng Xiaoping died in 1997, China’s foreign-exchange reserves stood just below $140 billion. By 2004, they were estimated above $650 billion. Eswar Prasad and Shang-Jin Wei, “The Chinese Approach to Capital Inflows: Patterns and Possible Explanations,” in Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, Consequences, ed. Sebastian Edwards (Chicago: University of Chicago Press, 2007), http://prasad.dyson.cornell.edu/doc/PrasadWeiChinaKFLowsNBERFinal.pdf. 44. Ian Bremmer, The End of the Free Market: Who Wins the War between States and Corporations? (New York: Portfolio, 2010). 45. Charles Riley, “China: U.S. Debt Fight ‘Dangerously Irresponsible,’” CNN Money, July 29, 2011, http://money.cnn.com/2011/07/29/news/international/china_debt_ceiling/index.htm.


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China's Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business by Edward Tse

3D printing, Airbnb, Airbus A320, Asian financial crisis, barriers to entry, bilateral investment treaty, business process, capital controls, commoditize, conceptual framework, corporate governance, creative destruction, crowdsourcing, currency manipulation / currency intervention, David Graeber, Deng Xiaoping, disruptive innovation, experimental economics, global supply chain, global value chain, high net worth, industrial robot, Joseph Schumpeter, Lyft, money market fund, offshore financial centre, Pearl River Delta, reshoring, rising living standards, risk tolerance, Silicon Valley, Skype, Snapchat, sovereign wealth fund, special economic zone, speech recognition, Steve Jobs, thinkpad, trade route, wealth creators, working-age population

To realize this goal, the Chinese government sees itself as playing a vital and continuing role. Through the 1990s and 2000s, it supported development by funding China’s build-out of essential infrastructure. Today, urbanization has taken over as the key driver of growth. The state also has no intention of surrendering control over a range of key economic levers. Although the Chinese government plans ultimately to liberalize financial markets, for now it will continue to maintain capital controls that prevent money from flowing into or out of the country in destabilizing volumes, a managed exchange rate that allows it to support export industries, and officially set interest rates that give banks the cheap money they need to make policy loans. And, as I explore further in the next chapter, it will continue to pour enormous resources into scientific and technological research. For now, official China’s priority is maintaining stability.

But these companies, as well as reacting to the wealth that is being created in China by finding ways of offering services that bring benefits to the country’s new rich, are also shaping things. These start-ups, while gently forcing the government’s hand, are almost certain to be allowed to continue. Thanks to its control over China’s main macroeconomic levers, the government retains the power to act whenever necessary. It can support exporters by manipulating the value of the yuan; through its capital controls, it can prevent money entering or leaving the country in destabilizing volumes; and, if necessary, it can stimulate short-term growth by making funding freely available through the state-owned banking system. Beyond this, it willingly allows private companies a largely free hand. Doing so promotes goals that the government wants to realize in the long run. By creating new products and services, consumers get both more choice and the opportunity of higher returns.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, buy and hold, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

Quality of securities legislation ranges from poor to good, enforcement of regulations varies from inadequate to adequate, and fidelity of managements to shareholders interests falls all over the lot. Caveat emptor. Government policies sometimes interfere with investor interests, occasionally in dramatic fashion. In 1998, during the Asian crisis, Malaysia restricted the convertibility of the ringgit, effectively prohibiting foreign investors from repatriating funds. Because of bad behavior regarding capital controls, MSCI removed Malaysia from one of the firm’s emerging-market indices. Not until Malaysia removed capital controls in late 1999 did the country reestablish its credentials as a full-fledged member of the MSCI world. In emerging markets corporate actions resemble, at times, the Wild West. One market observer suggested that equity investors put money in Russian enterprises where management attempts grand theft and avoid commitments to companies where management engages in petty larceny.

Since investors operate in an environment with less-evolved frameworks for the definition and resolution of legal and regulatory issues, the resulting uncertainty forces sensible investors to seek premium returns. Governments of emerging markets occasionally drive wedges between the interests of shareholders and managements. Controls on the ownership and voting rights of local shares sometimes lead to the creation of two classes of share owners, with attendant problems for the second-class foreign investor. Capital controls, although infrequently imposed, interfere with the ability of foreign investors to transfer funds freely. Government regulation in the emerging markets contains the potential to harm the interests of foreign investors. In other instances, corporate managements fail to act in shareholder interests. A particularly prevalent problem in many Asian countries involves family-controlled companies satisfying family desires at the expense of external minority-shareholder wishes.


pages: 708 words: 176,708

The WikiLeaks Files: The World According to US Empire by Wikileaks

affirmative action, anti-communist, banking crisis, battle of ideas, Boycotts of Israel, Bretton Woods, British Empire, capital controls, central bank independence, Chelsea Manning, colonial exploitation, colonial rule, corporate social responsibility, credit crunch, cuban missile crisis, Deng Xiaoping, drone strike, Edward Snowden, energy security, energy transition, European colonialism, eurozone crisis, experimental subject, F. W. de Klerk, facts on the ground, failed state, financial innovation, Food sovereignty, Francis Fukuyama: the end of history, full employment, future of journalism, high net worth, invisible hand, Julian Assange, Kickstarter, liberal world order, Mikhail Gorbachev, millennium bug, Mohammed Bouazizi, Monroe Doctrine, Nelson Mandela, Northern Rock, Philip Mirowski, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea, statistical model, structural adjustment programs, too big to fail, trade liberalization, trade route, UNCLOS, UNCLOS, uranium enrichment, Washington Consensus, WikiLeaks, zero-sum game, éminence grise

In this period, the US intervened frequently in Latin American affairs, but much less through the traditional military means than through covert CIA-coordinated interventions to bolster the national security apparatuses of friendly governments, and to sabotage movements and governments that threatened US interests. The third phase was signaled by the collapse of the Bretton Woods system amid a global economic crisis, and the American adaptation to defeat in Vietnam and a series of related crises in its rule. The outcome, following a protracted and violent process of reorganization, was a form of rule predicated on the liberalization of markets, capital controls, and regulations on finance and labor. Rather than encouraging the state-coordinated development of industry, the IMF pursued “structural adjustment,” using debt as a mechanism to incorporate Latin American states into the global economy. Market dependency would exert its own disciplinary mechanisms, as unfriendly policies could be “punished” by capital flight, or ruled out of bounds by global institutions.

It was nonetheless highly convenient, inasmuch as it allowed the Politburo to follow the Gorbachev administration in embracing privatization and pro-market policies. And in short order, since Vietnam owed over $1 billion in debt, the IMF offered its services and, of course, recommended the same policy mix as it recommends to all would-be debtors: cut subsidies, remove price controls, remove exchange and capital controls, privatize and let the market rip. The classic debt trap was initiated. The more Vietnam borrowed from the IMF, the more it needed to borrow, and its rate of indebtedness soared. The more it adopted “free market” policies, the more dependent it was on markets and the less able it was to apply controls. The United States had visited an apocalypse on Vietnam to avert the danger of “communism,” and failed.

But in the Cold War era, under the reign of Bretton Woods, the US expressly preferred that Latin American governments de-dollarize and maintain their own stable currencies. This was partly because US policy-makers recognized the major lesson of the interwar period, which was that a monetary system where currencies were pegged to a single value could actually exacerbate international instability. It also constituted a recognition that, in order for these countries to develop a solid industrial base, they would need to make use of capital controls and deploy monetary policy to encourage economic growth. The millennial turn to aggressive “full dollarization”—in which the dollar replaced the local currency entirely, at the high point of neoliberal transformation—was a significant moment. It meant national governments giving up control of monetary and exchange policy—important instruments for democratic intervention in market economies—in the interests of countering inflation, which had ravaged the Ecuadoran economy in the 1990s, and maintaining stable investment conditions for finance.


pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey

Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, buy and hold, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, intangible asset, Internet of things, inventory management, Joi Ito, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Nelson Mandela, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, Pearl River Delta, peer-to-peer, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, QR code, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, underbanked, WikiLeaks, Y Combinator, Y2K, zero-sum game, Zimmermann PGP

A Caribbean dollar remains a pipe dream. Because of this, shifting money around the region’s island nations requires constant and costly currency exchanges, which further undermines trade relationships that are already constrained because their tourism-, finance-, and commodity-heavy economies compete with rather than complement each other. To make matters worse, a number of central banks impose capital controls on their citizens. Barbadians such as Ifill, for instance, are limited in the amount of foreign currency they can buy. That Barbados, the Cayman Islands, the Bahamas, and other Caribbean nations serve as tax havens for hedge funds and other foreign financial institutions is an irony not lost on the region’s tightly controlled residents. This mix of monetary systems and financial regulations, and the frustration that it breeds, make the sunny islands of the Caribbean ripe for bitcoin—or so says Gabriel Abed.

Firms such as San Francisco–based BitPagos will take the dollars received by hotels and other tourism-industry clients in Buenos Aires and deliver them bitcoins in return. In almost every speech bitcoiners make about the potential for cryptocurrencies in the developing world, Argentina receives top billing. The hope is not only that bitcoin succeeds there; it’s that the South American country demonstrates how cryptocurrencies can provide an escape route for people who are trapped by capital controls into using untrusted and unwanted national currencies. BitPagos’s service is so attractive to many businessmen in Argentina because it gets them a much more favorable exchange rate. In mid-June 2014, every dollar received from credit-card purchases had to be processed through the Argentine banking system, where it would pay out 8.15 pesos, an official rate that values the Argentine currency at roughly twelve cents.

When you start contemplating ideas such as a digital dollar, secondary effects and other far-reaching implications arise. The most profound of these is what it means for the nation-state, that ultimate arbiter of power that defines the global economic and political order. Without a doubt, if a digital dollar or any other cryptocurrency were to rise to such global dominance that it poured across borders and challenged national currencies, states would see it as a threat. The greater the extent of capital controls already in existence, the greater the perceived danger to the government, which means China, India, South Korea, Taiwan, Argentina, Venezuela, and various other emerging-market countries would be among those to react most aggressively. But all nations, even those in the West with internationalized currency markets, would to some degree be unsettled by such a fluid monetary situation. How might they react?


pages: 459 words: 138,689

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives by Danny Dorling, Kirsten McClure

Affordable Care Act / Obamacare, Berlin Wall, Bernie Sanders, Boris Johnson, British Empire, business cycle, capital controls, clean water, creative destruction, credit crunch, Donald Trump, drone strike, Elon Musk, en.wikipedia.org, Flynn Effect, full employment, future of work, gender pay gap, global supply chain, Google Glasses, Henri Poincaré, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, James Dyson, jimmy wales, John Harrison: Longitude, Kickstarter, low earth orbit, Mark Zuckerberg, market clearing, Martin Wolf, mass immigration, means of production, megacity, meta analysis, meta-analysis, mortgage debt, nuclear winter, pattern recognition, Ponzi scheme, price stability, profit maximization, purchasing power parity, QWERTY keyboard, random walk, rent control, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Scramble for Africa, sexual politics, Skype, Stephen Hawking, Steven Pinker, structural adjustment programs, the built environment, Tim Cook: Apple, transatlantic slave trade, trickle-down economics, very high income, wealth creators, wikimedia commons, working poor

The people with the most money want more profit than anyone else: in their eyes, 2 percent or 4 percent growth a year is unacceptable. They want to see their fortune grow by at least 10 percent a year, in real terms. And they can afford “the best advice,” which is supposed to be you. In 2018, as the futility of the ever-more-desperate search for ever-greater profits became more obvious in an era of slowdown, some economists were calling for the judicious application of capital controls, limiting the money to enter or leave the country.37 Capital controls are a heresy for those who worship Profit. But knowing any of this would have been of little use to you in 1996. So there you are, sitting at your desk in America almost a quarter of a century ago. To imagine this you have to forget what we have learned most recently. You are working before the first serious calls to curb speculation were made, long before China was considered a potential economic rival to the United States.

See also fertility Black Death, 147, 174 Blade Runner, 214 Blaiklock, Katherine, 281 Boltzmann, Ludwig, 32 books, 72–85; European explosion in book publishing, 72–74; importance of, 80–81; increasing literacy and production of, 77; Netherlands production and consumption, 73, 74–77, 75, 81–85, 83; and obsolescence, 77–80, 81; oldest, 65 Booth, Charles, 186 boredom, 17–18, 322–23 Brazil: car production, 115, 118; fertility rates, 225, 228; slavery, 8 Bread, 287 Brexit, 279–80 Brexit Party, 281 Bricker, Darrell, 140, 141, 296 British Empire, 145, 279–80 British Isles: emigration from, 162; population, 161–65, 164. See also England; United Kingdom Brunner, John, 314, 324 Buchanan, Emily, 163 Bush, George W., 61, 278, 279, 356n18 Canada, 177–79, 178 capital controls, 256 capitalism: Haque on, 319; as transitional/temporary, 10–11, 188, 230–32, 235–37, 283, 284, 317–18; trickle-down effect, 259, 358n44 carbon emissions, 90–119; acceleration of (1884–World War I), 94–96, 100; automobiles and, 101–2, 112–16, 118; China and, 98, 98–99; and global warming, 110, 112, 119 (see also temperature rise); Industrial Revolution and, 90–94, 100; population growth and, 102–3, 106–9, 107; postwar consumption and, 104–5; recessions and depressions and, 93–94, 99, 101, 101, 104; reduction of, 116–19, 136–37; timelines, 100, 108, 111; war and, 102–4 carbon taxes, 304 Caribbean Islands, 177–79, 178 cars.


pages: 278 words: 82,069

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

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

View from Asia WA L D E N B E L L O September 24, 2008 Manila Many Asians absorb what is happening in Wall Street with a combination of déjà vu, skepticism and “I-told-you-so.” For many, the Wall Street crisis is a replay, though on a much larger scale, of the 1997 Asian financial crisis, which brought down the red-hot “tiger economies” of the East. The shocking absence of Wall Street regulation brings back awful memories of the elimination of capital controls by East Asian governments, which were under pressure from the International Monetary Fund and the U.S. Treasury Department. That move triggered a tsunami of speculative capital onto Asian markets that sharply receded after sky-high land and stock prices came tumbling down. Treasury Secretary Paulson’s proposed massive bailout of Wall Street’s tarnished titans reminds people here of the billions the I.M.F. hustled up after ’97 in the name of assisting them—money that was used instead to rescue foreign investors.

With so much of Asia’s wealth relying on the stability of the U.S. economy, there is not likely to be any precipitate move to abandon Wall Street securities and U.S. Treasury bills. At home, however, there are growing worries, and consumer advocates, NGOs and academics are demanding more transparency about how much the local banking system is exposed to Wall Street’s toxic assets. In the Philippines, there are calls from civil society groups for the banning of derivatives trading, the return of capital controls and the renegotiation of the country’s massive foreign debt now that the international banks are in a weak position. There is, moreover, resignation throughout Asia about the in evitability of a deep U.S. recession and its likely massive impact on the East: the United States is China’s top export destination, while China imports raw materials and intermediate goods from Japan, Korea and Southeast Asia to shape into the products it sends to the United States.


Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

Velasco was then elected President for the fifth time, winning a plurality of votes cast among five candidates. For three years, his government struggled in the face of inadequate legislative support and low banana export receipts to maintain a populist spending program. In June 1970 he assumed dictatorial powers, dissolving the Congress and dismissing the Supreme Court. Two months later he devalued the sucre from 18 to 25 per dollar (the rate of 18 had stood for nearly a decade), instituted capital controls, and decreed tax and tariff increases. In February 1972, however, largely to head off the election of a populist candidate for president they disliked, the military removed Velasco and assumed power. Earlier, in 1964, the government had granted prospecting and development concessions for the Amazon basin to several foreign oil companies, several of which made significant discoveries within several years.

This result derives at least in part from the absence of exchange-rate uncertainty and the low level of price-level uncertainty. The adoption of the dollar enabled Panama to develop a valuable and stabilizing service activity. In 1970, a new banking law established Panama as an international financial center. More than 120 banks now operate within the country. The liberalized legal structure, free entry, and the absence of capital controls enabled the banking sector to operate at a ECUADOR UNDER DOLLARIZATION: OPPORTUNITIES AND RISKS 87 Table 3.1. Panama: Selected Macroeconomic Indicators, 1970–99 Period averages 1970– 74 1975– 79 1980– 84 1985– 89 1990– 94 1995– 99 Growth rates (percent) Gross domestic product (GDP) at market prices 5.8 6.9 2.6 –1.0 6.8 3.3 Per-capita GDP 2.6 4.1 –0.3 –2.9 4.8 1.5 Consumer prices (year-average) 6.7 5.3 5.8 0.5 0.9 1.3 Per-capita U.S. dollars at prices and exchange rate of 1998 Gross domestic product (GDP) $2,382.9 $2,511.2 $2,922.0 $2,771.9 $2,916.4 $3,230.3 Nongovernment consumption $1,359.0 $1,462.2 $1,566.6 $1,546.1 $1,644.1 $1,769.0 National accounts (percentage of GDP) Gross fixed-capital formation 28.1 25.9 21.7 13.4 17.8 27.2 National saving 34.9 34.8 32.4 6.3 18.3 35.0 Domestic saving 33.2 32.2 25.7 2.9 12.8 29.2 Net imports of goods and nonfactor services (resource gap) –5.1 –6.3 –4.0 10.5 5.0 –1.9 External accounts (percentage of GDP) (1977–79) Current-account surplus –9.0 –5.0 5.3 –1.1 –8.5 Merchandise trade –20.2 –7.8 –2.8 –4.7 –10.6 Merchandise exports 17.0 51.8 47.7 72.9 69.8 Merchandise imports –37.2 –59.7 –50.5 –77.5 –80.4 Other current account 11.2 2.8 8.1 3.6 2.1 Capital-acct., net err. and omissions 9.7 3.9 –15.2 –2.9 7.8 Gross foreign-exchange reserves (mos. of imports of goods, nonfactor services) 1.1 0.6 0.4 1.0 1.3 (1975–79) Bilateral real-effective exchange rate vis à vis the U.S.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The subsequent drive towards neoliberalization after 1980 entailed little material change in their impoverished condition. In the advanced capitalist countries, redistributive politics (including some degree of political integration of working-class trade union power and support for collective bargaining), controls over the free mobility of capital (some degree of financial repression through capital controls in particular), expanded public expenditures and welfare state-building, active state interventions in the economy, and some degree of planning of development went hand in hand with relatively high rates of growth. The business cycle was successfully controlled through the application of Keynesian fiscal and monetary policies. A social and moral economy (sometimes supported by a strong sense of national identity) was fostered through the activities of an interventionist state.

The alternative view of the crisis was that impetuous financial deregulation and the failure to construct adequate regulatory controls over unruly and speculative portfolio investments lay at the heart of the problem. The evidence for this latter view is substantial: those countries that had not liberated their capital markets—Singapore, Taiwan, and China—were far less affected than those countries, such as Thailand, Indonesia, Malaysia, and the Philippines, that had. Furthermore, the one country that ignored the IMF and imposed capital controls— Malaysia—recovered faster.10 After South Korea likewise rejected IMF advice on industrial and financial restructuring it also staged a faster recovery. Why the IMF and the US Treasury continues to insist on neoliberalization is an apparent mystery. The victims increasingly propose a conspiratorial answer: The IMF first told countries in Asia to open up their markets to hot short-term capital.


pages: 296 words: 86,610

The Bitcoin Guidebook: How to Obtain, Invest, and Spend the World's First Decentralized Cryptocurrency by Ian Demartino

3D printing, AltaVista, altcoin, bitcoin, blockchain, buy low sell high, capital controls, cloud computing, corporate governance, crowdsourcing, cryptocurrency, distributed ledger, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, fiat currency, Firefox, forensic accounting, global village, GnuPG, Google Earth, Haight Ashbury, Jacob Appelbaum, Kevin Kelly, Kickstarter, litecoin, M-Pesa, Marc Andreessen, Marshall McLuhan, Oculus Rift, peer-to-peer, peer-to-peer lending, Ponzi scheme, prediction markets, QR code, ransomware, Ross Ulbricht, Satoshi Nakamoto, self-driving car, Skype, smart contracts, Steven Levy, the medium is the message, underbanked, WikiLeaks, Zimmermann PGP

It could, however, be used as an intermediate step and allow people to store their savings in the dollar, gold, or silver, or in a number of other commodities that can be bought using Bitcoin. And this could be accomplished without having to reach the minimum purchase levels, which are typically extremely high, or, as was the case in Greece, be beholden to laws limiting what you can do with the money. It wasn’t simply that the Greek government was unconcerned about what Bitcoin would do to their capital controls; it was also that it couldn’t do much if it wanted to. With bitcoins easily transferable on cell phones, it would have taken a physical and digital embargo to prevent tech-friendly Greeks from moving their euros outside of the country in the form of bitcoins. As recently as a few years ago, precious metal investment was overwhelmingly limited to the wealthy and connected. With Bitcoin, nearly anyone can store their wealth in nearly any form they want.

Accessed June 22, 2015. http://www.bloomberg.com/bw/articles/2014-05-15/halsey-minor-returns-bearing-bitcoins-via-bitreserve. 5 DeMartino, Ian M. “Halsey Minor’s Bitreserve Is Designed To Fix Bitcoin Volatility, But It Is Doing Much More.” CoinTelegraph. November 21, 2014. Accessed June 22, 2015. http://cointelegraph.com/news/112966/halsey-minors-bitreserve-is-designed-to-fix-bitcoin-volatility-but-it-is-doing-much-more. 6 Kelly, Jemima. “Fearing Return to Drachma, Some Greeks Use Bitcoin to Dodge Capital Controls.” Reuters. July 3, 2015. Accessed January 14, 2016. http://www.reuters.com/article/us-eurozone-greece-bitcoin-idUSKCN0PD1B420150703. Section III: What Can Bitcoin Do for Me? Chapter 18: Remittance More than 215 million people around the world live outside of the countries they call home. But most families that rely on remittances operate outside of the world’s financial system as well.


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

See Pierre-Richard Agénor, Leonardo Gambacorta, Enisse Kharroubi, and Luiz Awazu Pereira da Silva, “The Effects of Prudential Regulation, Financial Development and Financial Openness on Economic Growth” (BIS Working Papers 752, Bank for International Settlements, 5 October 2018), https://www.bis.org/publ/work752.htm. This research shows that good financial regulations improve growth, but that they do so less when the financial systems are more open. The authors suggest this is because of “greater opportunities to borrow abroad or increased scope for cross-border leakages in regulation.” 22. Eric Monnet, “Macroprudential Tools, Capital Controls, and the Trilemma: Insights from the Bretton Woods Era,” VoxEU, 13 June 2018, https://voxeu.org/article/macroprudential-tools-capital-controls-and-trilemma. 23. Hélène Rey, “International Channels of Transmission of Monetary Policy and the Mundellian Trilemma” (Mundell-Fleming Lecture, Fifteenth Jacques Polak Annual Research Conference, International Monetary Fund, Washington, DC, 13–14 November 2014), https://www.imf.org/external/np/res/seminars/2014/arc/pdf/Rey.pdf. 24.


pages: 286 words: 87,168

Less Is More: How Degrowth Will Save the World by Jason Hickel

air freight, Airbnb, basic income, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, cognitive dissonance, coronavirus, corporate governance, corporate personhood, COVID-19, David Graeber, decarbonisation, declining real wages, deindustrialization, dematerialisation, Elon Musk, energy transition, Fellow of the Royal Society, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, gender pay gap, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, land reform, liberal capitalism, longitudinal study, Mahatma Gandhi, Mark Zuckerberg, McMansion, means of production, meta analysis, meta-analysis, microbiome, moral hazard, mortgage debt, Naomi Klein, new economy, offshore financial centre, oil shale / tar sands, out of africa, passive income, planetary scale, plutocrats, Plutocrats, quantitative easing, rent control, rent-seeking, Ronald Reagan, Scramble for Africa, secular stagnation, shareholder value, sharing economy, Simon Kuznets, structural adjustment programs, the scientific method, The Spirit Level, transatlantic slave trade, trickle-down economics, universal basic income

During the debt crisis of the 1980s, they leveraged their power as creditors and used their control over the World Bank and the International Monetary Fund (IMF) to impose ‘structural adjustment programmes’ across Latin America, Africa and parts of Asia (with the exception of China and a few others). Structural adjustment forcibly liberalised the economies of the global South, tearing down protective tariffs and capital controls, cutting wages and environmental laws, slashing social spending and privatising public goods – all to break open profitable new investments for foreign capital and multinational companies.7 Neoliberal globalisation fundamentally reshaped the economies of the South. Governments were forced to abandon their focus on human welfare and economic independence and focus instead on creating the best possible conditions for capital accumulation.

In order to pay interest on bonds, governments have to generate revenues, which usually means pursuing growth. When economies slow down, governments can’t pay their debts, triggering a crisis that can quickly spiral out of control: bonds lose their value, and in order to sell them governments have to promise higher interest rates, putting them yet further into debt. The only way to get out of such a crisis is to start slashing any ‘barriers’ to growth – labour laws, environmental protections, capital controls, anything to give investors the ‘confidence’ they need to keep buying bonds. Just like companies, governments face a stark choice: grow the economy or collapse. On top of all this, governments pursue growth because GDP is the currency of international political power. This is clearest in military terms: the bigger your GDP, the more tanks, missiles, aircraft carriers and nuclear weapons you can buy.


pages: 543 words: 147,357

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

Margaret Thatcher successfully attacked the unions’ privileged position, but then allowed the financiers to take their place – although the latter’s colonisation of the state was more subtle. When Thatcher took office in 1979, bank assets were one and a half times Britain’s annual output; over the subsequent thirty years that proportion more than trebled. British bankers took the opportunity afforded by the abolition of exchange and capital controls, globalisation, Britain’s historic strength in financial services and the prevailing free-market ideology to build a position of influence in the British state that was much more formidable than any that had been enjoyed by the trade unions. The City reclaimed ancient privileges to restore its nineteenth-century position as an international financial centre, although this was now built upon proprietary trading in financial derivatives and securitisation.

They instantly all lent more money to homebuyers, relaxed credit-worthiness terms and saw house prices rocket. Then, just two years later, came the bust. The consensus was that the OPEC-inspired quadrupling of oil prices and the aggressive trade unions were to blame; the crash had little to do with those nice middle-class professionals in the City. When the Tories were re-elected in 1979, they immediately initiated more deregulation – lifting exchange and capital controls, and scrapping the requirement that banks should hold a proportion of their liabilities in cash at the Bank of England (so-called reserve requirements). The deep 1979–81 recession mitigated the consequences, so it would be later in the decade before a first-class property boom would develop for the same reasons as the previous one. It ended, just as inevitably, in the 1989–91 bust. The Americans had their own mirror-image experience, removing the interest-rate caps from lightly regulated savings and loan associations – specialist mortgage lenders, rather like old-style British building societies – who then lent at uncompetitive rates, having borrowed expensively in the newly deregulated market for savings.

., 29–30, 65–6, 71, 253 apprenticeships, 10, 295 Arculus, Sir David, 180 Argentina, 368 Aristotle, 39, 274 ‘arms race’ effects, 105 Arup Group, 66, 67, 93 Asda, 93 Ashcroft, Lord, 344 Ashdown, Paddy, 141 Asian Tiger exports, 149, 208, 355 AT & T, 133–4 Atari, 30 BAA, 8, 257–8 baby boomer generation, 34, 372–3 ‘Baby P’ case, 10, 325–6 Bagehot, Walter, 156–7 Bailey, Bob, 16, 25 Baker, Kenneth, 276 Baldacci, Emanuele, 367 Baldwin, Stanley, 315 Balls, Ed, 138, 147, 338 Bank of America, 152, 158, 175, 192 Bank of England, 4, 7–8, 129, 148, 180, 208, 250, 339, 359; lender-of-last-resort function, 157, 158, 160; Monetary Policy Committee, 185, 186, 264; reserve requirements scrapped (1979), 161, 208 Bank of International Settlements (BIS), 169, 182 Bank of Scotland, 186, 251 bankers, 4–5, 25–6, 62, 63–4, 180, 188; errors that caused the crash, 188–96, 197–204; gambling culture, 7, 8; pay see pay of executives and bankers Bankers Trust (New York), 140, 167 banking and banks: see also under entries for individual organisations; bail-out of, 3, 7–8, 19, 24, 138, 152–3, 172, 175, 176, 181, 204–5, 210, 389, 392; balance sheets, 7, 160, 164, 165, 191, 208, 210; bank runs, 9, 156–7, 158, 175–6, 202; borrow short and lend long principle, 154, 155–6, 157, 158–9; capital ratios, 151, 158, 162–3, 169, 170, 207, 208; credit-rating agencies and, 151, 196, 207; deposit insurance and, 158, 160; diversification, 154–5, 157, 165, 199, 354; fairness/desert and, 64, 206–7; interbank money markets, 164, 170, 176, 187–8, 202, 204; investment banks, 6, 28, 42, 101, 103, 150–1, 158, 165, 166, 170, 172–6, 195–6, 207; maturity transformation, 155–6, 157, 158–9; need for network of specialist banks, 251–2, 265, 371; nineteenth-century collapses, 156–7; post-crunch deleverage pressures, 359; principles and strategies, 154–6, 157; regulation of see regulation; relationship finance, 244, 251–2, 256–7; remoteness of management, 173–4; required reforms of, 205–10, 251–2, 371; short-term structure of lending, 33; banking and banks – continued socially vital role of, 155, 157; subsidiaries and special purpose vehicles, 181; unproductive entrepreneurship and, 28, 101, 103; vast assets/loans/profits, 32, 138, 147, 170, 172, 201; zero loyalty of front-line staff, 174 Barclay brothers, 327 Barclays, 24, 176, 177–8, 181, 215, 296, 363 Barker, Kate, 185 Basel system, 158, 160, 163, 169, 170–1, 196, 385 Baumol, William, 101, 111, 116, 253, 256 Bayerische Landesbank, 196 Bear Stearns, 150, 152, 158–9, 166, 173–4, 187 Bebchuk, Lucian, 198 Becht, Bart, 82–3 Beckwith, John Lionel, 179 behavioural psychology, 44, 47–50, 59–61 Bekar, Clifford, 108, 263 Bell, Alexander Graham, 221 Ben & Jerry’s, 266 Benz, Matthias, 86 Berlusconi, Silvio, 317, 328 Bettelheim, Bruno, 86 Better Government Initiative, 313, 336–7 Better Regulation Task Force, 180 Bhagwati, Jagwad, 163 Big Bang (1986), 90, 162 bin Mahfouz, Khalid Salim, 333 biotechnology, 109, 229, 240, 263, 268 Birt, John, 324 Bischoff Inquiry, 178 BISTRO (broad index secured trust offering), 169, 170, 196 Black, Fisher, 191 Blair, Tony, 5, 17, 138, 141–3, 144, 148–9, 276–7, 313, 328, 342; centralisation of power, 14–15, 313, 334, 337, 341; Iraq War and, 14, 36, 144; Rupert Murdoch and, 318; neo-conservative economics and, 388; ‘third-way’ as enthronement of resignation, 389–90; welfare reforms, 81 Blanchflower, Danny, 264–5 Blanden, Jo, 283–4 Blankfein, Lloyd, 42, 63, 168 BMW, 91 Boeing, 136, 256 Bologna University, 261 Born, Brooksley, 182–3 Bowen, Jeremy, 323 Boyle, Susan, 314 BP, 216–17, 392 Branson, Richard, 30 Brazil, 354–5, 385 Bretton Woods system, 159 Brinkley, Ian, 233 Briscoe, Simon, 294 Bristol University, 263 British Airways (BA), 30, 91 British Broadcasting Company (BBC), 321, 322, 323, 329, 330–1, 350, 389 British National Party (BNP), 16, 24–5, 82 Britishness, 15–16, 124, 392–3, 395 Brompton folding bicycle, 103, 105 Brooks, Clem, 281, 282 Brown, Gordon, 5, 12, 141, 178, 302, 314, 328; centralisation of power, 14, 334, 337, 341; as Chancellor, 138, 143, 145–8, 215, 245; deal with Blair (1994), 148; Gillian Duffy blunder by, 394; general election (2010) and, 20, 378, 394; neo-conservative economics and, 144–8, 388; as visionless, 391; Where There is Greed: Margaret Thatcher and the Betrayal of Britain’s Future (1989), 144 Browne, John, 216 Brunel, Isambard Kingdom, 126 Buffett, Warren, 116, 173, 222 Building Schools for the Future programme, 371 building societies, demutualisation of, 156, 186 Buiter, Wilhelm, 172 Burrows, Paul, 59 Buscombe, Baroness, 332 Bush, George W., 17, 36, 135, 177 Cabinet Office, 218–19, 336, 337 Cable, Vincent, 220 Cambridge University, 9, 363 Cameron, David, 20, 179, 233–4, 235, 318, 338, 342; ‘Big Society’ policy, 19–20, 234, 271, 280 Campbell, Alastair, 141, 142, 224, 312 Canada, 121, 354, 358–9, 383 capital controls, abolition of, 32, 161 capitalism: see also entrepreneurs; innovation; amorality of, 16–19; ‘arms race’ effects, 105; boom and bust cycle, 181–7, 392; deregulation (from 1970s), 159–63, 388; fairness and, ix, x, 23–7, 41, 106, 122–3, 206–7, 210, 249, 385, 386, 394; as immutable force of nature, ix, 23, 40–2; incumbent firms, 29–30, 31, 105, 106, 110, 111–12, 253–5, 257, 297; interconnectedness of markets, 200–2, 204; knowledge-entrepreneurship dynamic, 27–8, 31, 103, 110–11, 112–13; liquidity as totemic, 199, 200, 202, 240, 243; need for ‘circuit breakers’, 197, 199, 202, 203; network theory and, 199–204, 206; required reforms of, 205–9, 215–16; stakeholder, x, 148–9; undue influence of, 32–3 Carlaw, Kenneth, 108, 263 Carnegie, Andrew, 195, 303 cars, motor, 91, 108, 109, 134, 269 Castells, Manuel, 317 Cayne, Jimmy, 173–4 CCTV cameras, 10 celebrity culture, 282, 314 central banks, 154, 157, 158, 160, 182, 185, 187, 208; see also Bank of England; Federal Reserve, 169–70, 176, 177, 183 Cerberus Capital Management, 177 Cervantes, Miguel de, 274 Channel 4, 330, 350 Charles I, King of England, 124–5 Charter One Financial, 150 chavs, mockery of, 25, 83, 272, 286–8 child poverty, 12, 21, 74–5, 83, 278, 279, 288–90, 291 China, x, 101, 112, 140, 144, 160, 226, 230, 354–5, 385; consumption levels, 375–6, 379, 380, 381; economic conflict with USA, 376–7, 378–80, 381, 382, 383; export led growth, 36, 169, 208, 226, 355–6, 375–7, 379–81, 382–3; rigged exchange rates, 36, 169, 355, 377, 378–9; surpluses of capital and, 149, 154, 169, 171, 208, 226, 375; unfairness of world system and, 383, 385 Christianity, 53, 54, 352, 353 Church of England, 128 Churchill, Winston, 138, 273, 313 Churchill Insurance, 150 Cisco, 253 Citigroup, 152, 158, 172, 177, 184, 202, 203, 242, 247 city academies, 278, 307 City of London, 34, 137, 138, 178–9, 252, 359; as incumbent elite, 14, 26, 31, 32–3, 210, 249, 355; in late nineteenth-century, 128–30; light-touch regulation of, 5, 32, 138, 145, 146–7, 151, 162, 187, 198–9; New Labour and, x–xi, 5, 19, 22, 142, 144–5, 355; remuneration levels see pay of executives and bankers civic engagement, 86, 313 civil service, 13, 221, 273, 312, 343 Clasper, Mike, 178 Clayton Act (USA, 1914), 133 Clegg, Nick, 22, 218, 318, 327–8, 342, 391 Clifton, Pete, 321 Clinton, Bill, 140, 177, 183 coalition government (from May 2010), 14, 20, 22, 37, 307, 311, 343, 346, 390–2; abolition of child trust fund, 302; capital spending cuts, 370–1; deficit reduction programme, xi, 19, 34, 214, 227, 357, 360–1, 364, 369–71, 373, 390–2; emergency budget (June 2010), 369–70; market fundamentalism and, 370; political reform commitment, 35, 341, 343–4, 346, 350, 390, 391; proposed financial reforms, 208, 209, 245, 252, 371; repudiation of Keynesian economics, xi, 390–1 Cohan, William, 158–9 Cohen, Ronald, 12, 245 collapse/crash of financial system, x, xi, 4, 9, 41, 144, 146, 152–4, 158–9, 168; costs of, 7, 19, 138, 152–3, 172, 214–15; errors responsible for, 136, 187–96, 197–204; global interconnectedness, 375, 382–3; lessening of internationalism following, 376–83; need to learn from/understand, 36–7; predictions/warnings of, 148, 153, 180, 182–5; recommended policy responses, 215–16; results of previous credit crunches, 358, 359–60, 361–2 collateralised debt obligations (CDOs), 155, 167–8, 174 colonialism, 109, 124 Commodity Future Trading Commission, 182–3 communism, collapse of in Eastern Europe, 16, 19, 135, 140, 163 competition, 29, 30, 33, 51, 156, 185, 186, 207–8, 251; see also ‘open-access societies’; City of London and, 160, 178, 179, 198–9; deregulated banking and, 160, 161, 163, 164, 178, 179, 181; European Union and, 251, 258, 259; fairness and, 89–90, 99, 272; incumbent elites/oligarchs and, 104, 114, 129–30, 131–4, 257; innovation and, 40, 114, 257–60; national authorities/regimes, 201–2, 257–60, 316, 318; state facilitation of, 31 Competition Commission, 257–8 computer games, 233 Confederation of British Industry (CBI), 4, 6–7 Conservative Party, xi, 5, 11, 14, 97–8, 220, 343, 378; broken Britain claims, 16, 227, 271; budget deficit and, 19, 224, 357, 360–1, 368, 379; City/private sector funding of, 179, 257, 344; decline of class-based politics, 341; deregulation and, 32, 160, 161; fairness and, 83, 302, 374, 390; general election (1992) and, 140–1; general election (2010) and, 20, 97, 227, 234, 271, 357, 374, 379, 390; Conservative Party – continued government policies (1979-97), 32, 81, 275–6, 290; inheritance/wealth taxes and, 74, 302–3; market fundamentalism and, 5, 17, 138, 147, 160, 161; poverty and, 21, 279; reduced/small state policy, 20, 22, 233–4, 235 construction industry, 5, 33, 268 consumer goods, types of, 266–7 Continental Illinois collapse, 152, 162 Convention on Modern Liberty, 340 Cook, Robin, 142 Cootner, Paul, 194–5 Copenhagen climate change talks (2009), 226, 231, 385 Corporate Leadership Council, US, 93 Corzine, Jon, 177 county markets, pre-twentieth-century, 90 Coutts, Ken, 363 Cowell, Simon, 314, 315 ‘creative destruction’ process, 111, 112, 134 creative industries, 11, 71, 355 credit cards, 64, 354 credit crunch: see collapse/crash of financial system credit default swaps, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207 Crédit Lyonnais collapse, 152 credit-rating agencies, 151, 165, 175, 196, 197, 248, 269, 362, 388; funding of, 151, 196, 207 criminal activity/allegations, 7, 101, 103, 104–5, 138, 167–8 Crosby, James, 178 Cuba, 61 culture, British, 12, 187, 282, 314 Dacre, Paul, 324, 326, 329 Daily Mail, 218, 286, 288, 315, 324, 325–7, 339, 342 Daily Telegraph, 288, 317, 319, 327 Darling, Alistair, 149, 204, 252 Darwin, Charles, 31 Data Monitor, 186 Davies, Howard, 198 Davies, Nick, Flat Earth News, 319, 321, 323–4, 326, 331–2 de Gaulle, Charles, 65 debt, 33, 155, 209, 351–63; corporate/commercial, 8, 29, 181, 245, 248, 352, 354, 359, 363, 374; moral attitudes towards, 351–4, 357, 360–1; necessity of, 155, 351, 353, 354; private, 5, 186, 187, 210, 226, 279–80, 354–7, 359, 363, 373; public, 9, 34, 164, 166, 167, 182, 203, 214, 224–6, 356–7, 362–3, 375, 388, 393; sustainable level of, 356–7, 368–9 Defence Advanced Research Projects Agency (DARPA), 265 defence and armed forces, 34, 372 deficit, public, 4, 34, 213, 224–6, 335, 364–74; coalition’s reduction programme, xi, 19, 34, 214, 227, 357, 360–1, 364, 369–71, 373, 390–2, 393; need for fiscal policy, 224–5, 226, 357–8, 364, 365–9, 370, 374; speed of reduction of, 213, 224–5, 360–1, 368, 371 Delingpole, James, 287 Delong, Brad, 27, 106 democracy, 13–15, 235, 310–16, 333–48; centralisation of power and, 14–15, 35, 217, 313, 334, 337, 342; fair process and, 86, 89, 96–9; incumbent elites and, 35, 99; industrial revolution and, 128; media undermining of, 315–16, 317–18, 321–9, 333, 350; ‘open-access societies’ and, 136, 314 Democratic Party, US, 18, 140, 183, 379 Demos, 289 Deng Xiao Ping, 140 Denham, John, 21 deprivation and disadvantage, 10, 34, 288–93, 307–8, 393; low-earning households, 11–12, 13, 291, 361; weight of babies and, 13; young children and, 74–5, 83, 288–90 derivatives, 140, 145, 150–1, 164–8, 171, 175, 188, 207, 209; City of London and, 32, 137, 150–1, 157, 199; mathematical models (‘quants’) and, 188, 191; regulation and, 183, 197–8, 199 desert, due, concept of, 4, 24, 38–43, 45–7, 50–63, 64–8, 73–7, 80–2, 223, 395; see also effort, discretionary; proportionality; big finance and, 40–2, 82, 167, 174, 176, 210; debt and, 351–2; diplomacy/international relations and, 385–6; Enlightenment notions of, 53–6, 58–9, 112; luck and, 70, 73–7, 273; poverty relief systems and, 80–2, 277–8; productive entrepreneurship and, 102–3, 105–6, 112, 222, 392–3; taxation and, 40, 220, 266 Deutsche Bank, 170 developing countries, 71–2, 160, 354–5, 375, 376, 385 Diamond, Bob, 24 Dickens, Charles, 353 digitalisation, 34, 231, 320, 349, 350 Doepke, Matthias, 115–16 dot.com bubble, 9, 193 Drugs Advisory Panel, 11 Duffy, Gillian, 394 Durham University, 263 Dworkin, Ronald, 70 Dyson, James, 28, 33 East India Company, 130 Easyjet, 28, 233 eBay, 136 economic theory, 43–4, 188–9, 366; see also Keynesian economics; market fundamentalism economies of scale, 130–1, 254–5, 258 The Economist, 326, 330, 349 economy, British: see also capitalism; financial system, British; annual consumption levels, 375; balance of payments, 363–4; as ‘big firm’ economy, 254; change in landscape of trading partners, 230–1; coalition capital spending cuts, 370–1; collapse of tax base, 224, 368; cumulative loss of output caused by crash, 138, 153, 172, 214–15; desired level of state involvement, 234–5; domination of market fundamentalism, 16–17; economic boom, 3–4, 5–6, 12, 143, 173, 181–7, 244–5; fall in volatility, 365; fiscal deficit, 368; fiscal policy, 208, 224–5, 226, 357–8, 364–9, 370, 374; growth and, 9–10, 214–15, 218–19, 224, 359, 363; inefficient public spending, 335; investment in ‘intangibles’, 232–3; in late nineteenth-century, 128–30; ‘leading-edge’ sectors, 218–19; need for engaged long term ownership, 240–4, 249–51; as non-saver, 36, 354; potential new markets/opportunities, 231–3; public-private sector interdependence and, 219–22, 229–30, 261, 265–6, 391, 392; required reforms of, 20, 239–44, 249–52, 264–6, 371–4 see also national ecosystem of innovation; ‘specialising sectors’, 219; urgent need for reform, 36–7; volatility of, 297–8; vulnerability of after credit crunch, 358–64 economy, world: acute shortfall of demand, 375–6; Asian and/or OPEC capital surpluses and, 149, 153–4, 169, 171, 208, 226, 354, 375; conflicts of interest and, 137, 138; deregulation (from 1970s), 159–63; emerging powers’ attitudes to, 226; entrenched elites and, 137–8, 210; fall in volatility, 365; international institutions as unfair, 383, 385; London/New York axis, 149, 150–1, 157–8, 160, 187, 202; need for international cooperation, 357–8, 379–80, 381–3, 384, 385–6; post-crunch deleverage pressures, 359–60, 374–5; protectionism dangers, 36, 358, 376–7, 378, 379, 382, 386; savers/non-savers imbalance, 36, 169, 208, 222, 355, 356, 375–6, 378–83; shift of wealth from West to East, 36, 383–4; sovereign debt crises, 167, 203, 214; unheeded warnings, 182–5; wrecking of European ERM, 140, 144 Edinburgh University, 145 education, 10, 20–1, 128, 131, 272–4, 276, 278, 292–5, 304–8, 343; Building Schools for the Future programme, 371; cognitive and mental skills, 288–90, 304–6; private, 13, 114, 264–5, 272–3, 276, 283–4, 293–5, 304, 306 effort, discretionary, 50, 53, 54–5, 58–60, 80, 90–1, 114, 134; see also desert, due, concept of; fair process and, 91–4; indispensability and, 65–7; innovation and invention, 62, 65, 102–3, 105–6, 112, 117, 131, 223, 262–3, 392–3; luck and, 26–7, 65, 67, 70, 71, 73–4, 75–7; productive/unproductive, 43, 46–7, 51–2, 62, 64–5, 102–3, 392–3; proportionate reward for, 26, 39–40, 44, 47, 61, 74, 76–7, 84, 122, 272, 273, 2 84 egalitarianism, 27, 53–4, 55–6, 61, 75, 78–80, 144, 341, 343; Enlightenment equal worth concept, 53, 55, 59–60 Ehrenfeld, Rachel, 333 Eisman, Steve, 207 electoral politics: see also general election (6 May 2010); general elections, 97, 138, 277, 315; fair process and, 96–9; franchise, 128; general election (1992), x, 138, 140–1, 144, 148, 277; general election (1997), x, 138, 141 electricity, 134, 228, 256 electronic trading, 105 elites, incumbent, 23, 31–3, 99, 131; City of London, 14, 26, 31, 32–3, 210, 249, 355; competition and, 104, 113, 114, 129–30, 131–4, 257; democracy and, 35, 99; Enlightenment and, 122; history of (from 1880s), 131–4; history of in Britain (to 1900), 124–30; innovation and, 29–30, 110, 111–12, 113, 114, 115, 116; modern big finance and, 135, 137–8, 180, 210, 387–9; in ‘natural states’, 111, 113, 114–15, 116, 123–4, 127; New Labour’s failure to challenge, x–xi, 14, 22, 388, 389–90; world economy and, 137–8, 210 EMI, 28, 247, 248 employment and unemployment, 6, 75, 291–3, 295, 300, 373, 393; employment insurance concept, 298–9, 301, 374; lifelong learning schemes, 300, 301; lifelong savings plans, 300; unemployment benefit, 81, 281 Engels, Friedrich, 121–2 English language as lingua franca, 124 Enlightenment, European, 22, 30–1, 146, 261, 314–15; economics and, 104, 108–9, 116–17, 121–3; notions of fairness/desert, 53–6, 58–9, 112, 122–3, 394; science and technology and, 31, 108–9, 112–13, 116–17, 121, 126–7 Enron affair, 147 entrepreneurs: see also innovation; productive entrepreneurship; capitalist knowledge dynamic, 27–8, 31, 110–11, 112–13; challenges of the status quo, 29–30; Conservative reforms (1979-97) and, 275; private capital and, 241; public-private sector interdependence and, 219–22, 229–30, 261, 265–6, 391, 392; rent-seeking and, 61–2, 63, 78, 84, 101, 105, 112, 113–14, 116, 129, 135, 180; unproductive, 28–9, 33, 61–2, 63, 78, 84, 101–2, 103–5, 180 environmental issues, 35–6, 71–2, 102, 226, 228, 231, 236, 385, 390, 394; due desert and, 68; German Greens and, 269 Erie Railroad Company, 133 Essex County Council, 325, 332 European Commission, 298 European Exchange Rate Mechanism (ERM), 140, 144, 166 European Union (EU), 11, 82, 179, 379–80, 383–4, 385; British media and, 15, 328, 378; Competition Commissioner, 251, 258, 259; scepticism towards, 15, 36, 328, 377, 378, 386 eurozone, 377 Fabian Society, 302–3 factory system, 126 fairness: see also desert, due, concept of; proportionality; abuse/playing of system and, 24–5, 27; asset fairness proposals, 301–3, 304; behavioural psychology and, 44, 47–50, 59–61; Blair’s conservative view of, 143; Britishness and, 15–16, 392–3, 395; capitalism and, ix, x, 23–7, 41, 106, 122–3, 206–7, 210, 249, 385, 386, 394; challenges to political left, 78–83; coalition government (from May 2010) and, 22, 37; commonly held attitudes, 44, 45–7; deficit reduction and, 226, 227, 374; economic and social determinism and, 56–8; Enlightenment notions of, 53–6, 58–9, 112, 122–3, 394; fair process, 84–94, 96, 98–9, 272; as foundation of morality, 24, 26, 45, 50; individual responsibility and, 39, 78–9; inequality in Britain, 78, 80, 275–6, 277–8, 342; international relations and, 226, 385–6; ‘Just World Delusion’, 83; luck and, 72–7; management-employee relationships, 90–2; models/frameworks of, 43–58; need for shared understanding of, 25, 37, 43; partisanship about, 42–3; politicians/political parties and, 22, 83, 271–2, 302–3, 374, 391–2; popular support for NHS and, 75, 77, 283; pre-Enlightenment notions, 52–3; shared capitalism and, 66, 92–3; state facilitation of, ix–x, 391–2, 394–5; welfare benefits to migrants and, 81–2, 282, 283, 284 Farnborough Sixth Form College, 294 Federal Reserve, 169–70, 176, 177, 183 Fees Act (1891), 128 Fertile Crescent, 106 feudalism, European, 53–4, 74, 104, 105 financial instruments, 103, 148, 157, 167–8 Financial Services and Markets Act (2001), 198 Financial Services Authority (FSA), 24, 147, 162, 178, 198–9, 208 financial system, British: see also capitalism; economy, British; Asian and/or OPEC capital surpluses and, 149, 154, 354; big finance as entrenched elite, 136, 137–8, 176, 178–80, 210, 387–9; declining support for entrepreneurship, 241; deregulation (1971), 161; fees and commissions, 33; importance of liquidity, 240, 243; lack of data on, 241; London/New York axis, 149, 150–1, 157–8, 160, 187, 202; massive growth of, 137, 138, 209, 219; need for tax reform, 209–10; regulation and see regulation; required reforms to companies, 249–50; savings institutions’ share holdings, 240–1; short termism of markets, 241, 242–3; unfairness of, 138, 210 Financial Times, 12, 149, 294, 330, 349, 361 Fink, Stanley, 179 fiscal policy, 208, 224–5, 226, 357–8, 364–9, 374; coalition rejection of, 370 fish stocks, conservation of, 394 Fitch (credit-rating agencies), 248 flexicurity social system, 299–301, 304, 374 Forbes’ annual list, 30 Ford, Henry, 195, 302 foreign exchange markets, 32, 161, 164, 165, 168, 363, 367; China’s rigged exchange rate, 36, 169, 355, 377, 378–9; currency options, 166, 191; eurozone, 377 foreign takeovers of British firms, 8, 388 Fortune magazine, 94 Foster, Sir Christopher, 313 foundation schools, 307 France, 51–2, 123–4, 163, 372, 375, 377 free trade, 163, 334, 379 Frey, Bruno, 60, 86 Friedman, Benjamin, 282–3 Fukuyama, Francis, 140 Fuld, Dick, 192 Future Jobs Fund, 373 G20 countries, 209, 358, 368, 374 Galliano, John, 143 Gardner, Howard, 274, 305–6 gated communities, 13 Gates, Bill, 71 Gates, Bill (Senior), 222 Gaussian distribution, 190–1, 194 ‘gearing’, 6 general election (6 May 2010), 97, 142, 179, 214, 217, 227, 234, 271, 314, 318, 327–8, 334, 378; Gillian Duffy incident, 394; result of, xi, 20, 345–6, 390 ‘generalised autoregressive conditional heteroskedasicity’ (GARCH), 194 genetically modified crops, 232 Germany, 36, 63, 244, 262, 269, 375–6, 379, 380; export led growth, 355–6, 375, 381–2; Fraunhofer Institutes, 252, 264; Greek bail-out and, 377; pre-1945 period, 128, 129, 134, 382, 383 Gieve, Sir John, 339–40 Gilligan, Andrew, 329 Gladwell, Malcolm, 76–7 Glasgow University, 323 Glass-Steagall Act, 162, 170, 202–3 Glastonbury festival, 143 globalisation, 32, 98, 140, 143, 144, 153–4, 163, 182, 297, 363, 366, 380 Goldman Sachs, 42, 63, 103, 150, 167–8, 174, 176, 177, 205 Goodwin, Sir Fred, 7, 150, 176, 340 Google, 131, 136, 253, 255, 258, 262 Goolsbee, Austin, 52 Gorbachev, Mikhail, 140 Gough, Ian, 79 Gould, Jay, 133 Gould, Philip, 142 government: see also democracy; political system, British; cabinet government, 312, 334, 337; centralisation of power, 14–15, 35, 217, 313, 334, 337, 341, 342; control of news agenda, 14, 224, 313; disregard of House of Commons, 14–15, 223, 339, 345; Number 10 Downing Street as new royal court, 14, 337, 338, 346, 347; press officers/secretaries, 14, 180, 224, 312; Prime Ministerial power, 337, 344, 345, 346 GPS navigation systems, 233, 265 Gray, Elisha, 221 Great Depression, 159, 162, 205, 362 Greece: classical, 25, 26, 38, 39, 44–5, 52–3, 59, 96, 107, 108; crisis and bail-out (2010), 167, 371, 377, 378 Green, Sir Philip, 12, 29, 33 Green Investment Bank, proposed, 252, 371 Greenhead College, Huddersfield, 294 Greenspan, Alan, 145–6, 165, 177, 183, 184, 197–8 Gregory, James, 277 growth, economic: Britain and, 9–10, 214–15, 219, 221, 359, 364; education and, 305–6; export led growth, 36, 169, 208, 226, 355–6, 375–7, 378–83; social investment and, 280–1 GSK, 219, 254 the Guardian, 319, 330, 349 Gupta, Sanjeev, 367 Gutenberg, Johannes, 110–11 Habsburg Empire, 127 Haines, Joe, 312 Haji-Ioannous, Stelios, 28 Haldane, Andrew, 8, 151, 153, 193, 214, 215 the Halifax, 186, 251 Hamilton, Lewis, 64, 65 Hammersmith and Fulham, Borough of, 167 Hampton, Sir Philip, 173 Hands, Guy, 28, 178, 246–8 Hanley, Lynsey, 291, 293, 302 Hanushek, Eric, 305–6 Hart, Betty, 289 Harvard University, 47, 62, 198 Hashimoto administration in Japan, 362 Hastings, Max, 217–18 Hauser, Marc, 47–50 Hawley, Michael, 65–6 Hayward, Tony, 216–17 HBOS, 157, 158, 178, 251 health and well-being, 9, 75, 77, 106, 232, 233, 290–1; see also National Health Service (NHS) Heckman, James, 290 hedge funds, 6, 21, 103, 157–8, 167–8, 172, 203, 205, 206, 240; collapses of, 152, 173–4, 187, 202; as destabilisers, 166–7, 168; destruction of ERM, 140, 144, 166; near collapse of LTCM, 169–70, 183, 193, 200–1 hedging, 164, 165–6 Heinz, Henry John, 302 Hermes fund management company, 242 Herrman, Edwina, 179 Herstatt Bank collapse, 152 Hetherington, Mark, 84 Hewitt, Patricia, 180 Hewlett-Packard, 30 Hills Report on social housing, 290 Hilton, Paris, 304 Himmelfarb, Gertrude, 146 Hirst, Damien, 12 history, economic, 121–36, 166, 285–6, 353–4 Hobhouse, Leonard, 220, 222, 234, 235, 261, 266 Hobsbawm, Eric, 100 Hoffman, Elizabeth, 60 Holland, 113, 124, 230 Honda, 91, 269 Hong Kong, 168 Hopkins, Harry, 300 Horton, Tim, 277 House of Commons, 14–15, 223, 312–13, 337–9, 345 House of Lords, 15, 128, 129, 312, 334, 344, 346–7 housing, social, 10, 289, 290–1, 292, 308–9 housing cost credits, 308–9 HSBC, 181, 251 Huhne, Chris, 346 Hunt family, sale of cattle herds, 201 Hurka, Thomas, 45–6 Hutton, Will, works of, x; The State We’re In, x, 148–9 IBM, 29, 164, 254 Iceland, 7, 138 ICT industry, 9, 29–30, 109, 134, 135–6, 182, 229 immigration, 11, 143, 326, 328, 342, 343, 386, 394; from Eastern Europe, 82, 281–2, 283; welfare state and, 81–2, 281–2, 283, 284 incapacity benefit, 27 the Independent, 93, 330 Independent Safeguarding Authority, 339 India, 144, 226, 230, 254, 354–5 individual responsibility, 17, 38, 39, 78–9 individualism, 54, 57, 66, 111, 221, 281, 341, 366; capitalism/free market theories and, ix, 17, 19, 27, 40, 145, 221, 234–5 Indonesia, 168 Industrial and Commercial Finance Corporation (now 3i), 250 industrial revolution, 28, 112, 115, 121–3, 124, 126–8, 130, 315 inflation, 6, 32, 355, 364, 365; targets, 163, 165, 208, 359 Ingham, Bernard, 312 innovation: see also entrepreneurs; national ecosystem of innovation; as collective and social, 40, 131, 219–22, 261, 265–6, 388; comparisons between countries, 67; competition and, 40, 114, 257–60; development times, 240, 243; discretionary effort and, 62, 65, 102–3, 105–6, 131, 222, 392–3; dissemination of knowledge and, 110–11, 112–13, 219–22, 265–6; due desert and, 40, 62, 67, 112, 117; ‘financial innovation’, 63–4, 138, 147, 149, 153–4, 182; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; high taxation as deterrent, 104, 105; history of, 107–17, 121–7, 131–4, 221; increased pace of advance, 228–9, 230, 266–7; incremental, 108, 254, 256; incumbent elites and, 29–30, 104, 106, 109, 111–12, 113, 114, 115, 116, 257; large firms and, 251–2, 254–5; as natural to humans, 106–7, 274; need for network of specialist banks, 251–2, 265, 371; in ‘open-access societies’, 109–13, 114, 116–17, 122–3, 126–7, 131, 136, 315; patents and copyright, 102, 103, 105, 110, 260–1, 263; private enterprise and, 100–1; regulation and, 268–70; risk-taking and, 6, 103, 111, 189; short term investment culture and, 33, 242–3, 244; small firms and, 252, 253–4, 255–6; universities and, 261–5 Innovation Fund, 21, 251, 252 Institute of Fiscal Studies, 275–6, 363, 368–9, 372 Institute of Government, 334, 335, 337, 343 insurance, 165–6, 187, 240, 242 Intel, 255, 256 intellectual property, 260–1 interest rates, 164, 191, 352–3, 354, 357, 359, 360, 361, 362, 367, 380 internal combustion engine, 28, 109, 134 International Monetary Fund (IMF), 9, 152–3, 177–8, 187, 207, 226, 383, 384; Asian currency crisis (1997) and, 168–9; proposed bank levy and financial activities tax, 209; support for fiscal policy, 367 internet, 11, 28, 52, 109, 134, 227, 256, 265; news and politics on, 316–17, 321, 349; pay-walls, 316, 349; as threat to print media, 324, 331, 349 iPods, 105, 143 Iraq War, 14–15, 18, 36, 144, 329 Ireland, 138 iron steamships, 126 Islam, 352, 353 Islamic fundamentalism, 283, 384 Israel, 251, 322–3 Italy, 101, 103, 317, 328 ITN, 330, 331 James, Howell, 180 Japan, 36, 67, 140, 163, 168, 244, 369, 375, 376, 385, 386; credit crunch (1989-92), 359–60, 361–2, 382; debt levels, 356, 362, 363; incumbent elites in early twentieth-century, 134; Tokyo Bay, 254; Top Runner programme, 269 Jenkins, Roger, 296 Jobcentre Plus, 300 Jobs, Steve, 29–30, 65–6, 71 John Lewis Group, 66, 67, 93, 246 Johnson, Boris, 179 Johnson, Simon, 177 Jones, Tom, 242 Joseph Rowntree Foundation, 21, 278–9 journalism, 318–21, 323–4, 326–7 Jovanovic, Boyan, 256 JP Morgan, 169, 191–2, 195–6 judges, 15 justice systems, 30–1, 44–5, 49; symbolised by pair of scales, 4, 40 Kahneman, Daniel, 94–5 Kant, Immanuel, 73, 112, 274 Kay, John, 175 Kennedy, Helena, 340 Keynesian economics, x, xi, 184, 190, 196–7, 354, 362, 390–1 Kindleberger, Charles, 184 King, Mervyn, 213 Kinnock, Neil, 142 kitemarking, need for, 267 Klenow, Peter, 52 Knetsch, Jack, 94–5 Knight, Frank, Risk, Uncertainty and Profit (1921), 189, 191, 196–7 knowledge: capitalist advance of, 27–8, 31, 110–11, 112–13; public investment in learning, 28, 31, 40, 131, 220, 235, 261, 265 knowledge economy, 8, 11–12, 34, 135–6, 229–33, 258, 273–4, 341, 366; credit growth and, 355; graduate entry to, 295; large firms and, 251–2, 254–5; small firms and, 252, 253–4, 255–6, 261; state facilitation of, 219–22, 229–30 Koizumi administration in Japan, 362 Koo, Richard, 360, 361–2 Kuper, Simon, 352 Kwak, James, 64, 177 labour market, 52, 62, 83, 95; flexibility, 5, 275, 276, 299, 364–5, 387 laissez-faire ideology, 153, 198–9, 259 Laker, Freddie, 30 Lambert, Richard, 6–7 language acquisition and cognitive development, 288, 289 Large Hadron Collider, 263 Latin American debt crisis, 164 Lavoisier, Antoine, 31 Lazarus, Edmund, 179 Leahy, Sir Terry, 295 Learning and Skills Council, 282, 300 left wing politics, modern, 17, 38, 78–83 Lehman Brothers, 150, 152, 165, 170, 181, 192, 204 lender-of-last-resort function, 155, 158, 160, 187 Lerner, Melvin, 83 leverage, 6, 29, 154–6, 157, 158, 172, 179, 180, 198, 204, 209–10, 254, 363; disguised on balance sheet, 181, 195; effect on of credit crunches, 358, 359, 360, 361, 374–5; excess/massive levels, 7, 147–8, 149, 150–1, 158, 168, 170, 187, 192, 197, 203; need for reform of, 206, 207, 208; private equity and, 245–6, 247 Lewis, Jemima, 282, 287 Lewis, Joe, 12 libel laws, 332–3, 348–9 Liberal Democrats, xi, 11, 98, 141, 343, 360–1, 368; general election (2010) and, 97, 142, 179, 271, 390 libertarianism, 234 Likierman, Sir Andrew, 180 limited liability (introduced 1855), 353–4, 363 Lind, Allan, 85 Lindert, Peter, 280–1 Lipsey, Richard, 108, 263 Lisbon earthquake (1755), 54 Lisbon Treaty Constitution, 328 literacy and numeracy, 20–1 livestock fairs, pre-twentieth-century, 90 Lloyds Bank, 176, 178, 186, 202, 204, 251, 259 Lo, Andrew, 195 loan sharks, illegal, 291 local government, 307, 347–8 Locke, John, 54–5, 59 London School of Economics (LSE), 246 London Stock Exchange, 90, 162 London Underground, financing of, 336, 389 lone parent families, 292 Long Term Capital Management (LTCM), 169–70, 183, 193, 194, 200–1 long-term incentive plans (LTIPs), 6 Loomes, Graham, 59 luck, 23, 26–7, 38, 39, 40, 41, 67, 68, 69–77, 222, 273, 393–4; diplomacy/international relations and, 385–6; disadvantaged children and, 74–5, 83, 288–90; executive pay and, 138; taxation and, 73–4, 75, 78, 303 Luxembourg, 138 MacDonald, Ramsey, 315 Machiavelli, Niccolo, 62 Machin, Steve, 283–4 Macmillan Committee into City (1931), 179 Madoff, Bernie, 7 mafia, Italian, 101, 104–5 Major, John, 138, 180, 279, 334 Malaysia, 168 malls, out-of-town, 143 Mandelbrot, Benoit, 194, 195 Mandelson, Peter, 21, 24, 142, 148, 220 manufacturing sector, decline of, 5, 8, 219, 272, 292, 341, 363 Manza, Jeff, 281, 282 Marconi, 142–3 market fundamentalism, 9–19, 32–3, 40–2, 366; belief in efficiency of markets, 188–9, 190, 193, 194, 235–9, 366; coalition government (from May 2010) and, 370; collapse of, 3–4, 7–9, 19, 20, 219–20, 235, 392; Conservative Party and, 5, 17, 138, 147, 160, 161; domination of, 5–6, 14, 16–17, 163, 364–5, 387–90; likely resurgence of, 5, 8; New Labour and, x–xi, 5, 19, 144–9, 388, 389–90; post-communist fiasco in Russia, 135; rejection of fiscal policy, 224–5, 364–5, 367 mark-to-market accounting convention, 175 Marland, Lord Jonathan, 179 Marquand, David, 328 Marsh, Jodie, 64, 65 Marx, Karl, 56–8, 121–2 Maslow’s hierarchy of needs, 232, 274–5 mass production, 109, 134, 182 Masters, Blythe, 196 mathematical models (‘quants’), 105, 149, 151, 152, 165, 169, 188, 190–6, 203; extensions and elaborations, 194; Gaussian distribution, 190–1, 194; JP Morgan and, 195–6 Matthewson, Sir George (former chair of RBS), 25 Maude, Francis, 180 Mayhew, Henry, 285–6 McCartney, Paul, 247 McGoldrick, Mark, 174 McKinsey Global Institute, 253, 358–9, 360, 363 McQueen, Alexander, 143 media, mainstream, 6, 35, 312, 315–20, 321–32, 348–50; commoditisation of information, 318–20, 321; communications technology and, 316, 320, 349; domination of state by, 14, 16, 223–4, 338, 339, 343; fanatical anti-Europeanism, 15, 328, 378; foreign/tax exile ownership of, 218; hysterical tabloid campaigns, 10–11, 298, 319–20; ‘info-capitalism’, 317–18, 327, 328, 342; lauding of celebrity, 281, 314; modern 24/7 news agenda, 13, 224, 321, 343; regional newspapers, 331; as setter of agenda/narrative, 327–31, 342; television news, 330–1; undermining of democracy, 315–16, 317–18, 321–9, 333, 350; urgent need for reform, 35, 218, 344, 348–50, 391; view of poverty as deserved, 25, 53, 83, 281, 286; weakness of foreign coverage, 322, 323, 330 Mencken, H.L., 311 mergers and takeovers, 8, 21, 33, 92, 245, 251, 258, 259, 388 Merkel, Angela, 381–2 Merrill Lynch, 150, 170, 175, 192 Merton, Robert, 169, 191 Meucci, Antonnio, 221 Mexico, 30, 385 Meyer, Christopher, 332 Michalek, Richard, 175 Microsoft, 71, 114, 136, 253, 254, 258–9 Milburn, Alan, 273 Miles, David, 186–7 Milgram, Stanley, 200 millennium bug, 319 Miller, David, 70, 76, 77 minimum wage, 142, 278 Minsky, Hyman, 183, 185 Mirror newspapers, 319, 329 Mlodinow, Leonard, 72–3 MMR vaccine, 327 mobile phones, 30, 134, 143, 229, 349 modernity, 54–5, 104 Mokyr, Joel, 112 monarchy, 15, 312, 336 Mondragon, 94 monetary policy, 154, 182, 184, 185, 208, 362, 367 monopolies, 74, 102, 103, 160, 314; history of, 104, 113, 124, 125–6, 130–4; in the media, 30, 317, 318, 331, 350; modern new wave of, 35, 135–6, 137–8, 201–2, 258–9; ‘oligarchs’, 30, 65, 104 Monopolies and Mergers Commission, 258, 318 Moody’s (credit-ratings agency), 151, 175 morality, 16–27, 37, 44–54, 70, 73; see also desert, due, concept of; fairness; proportionality; debt and, 351–4, 357, 360–1 Morgan, JP, 67 Morgan, Piers, 329 Morgan Stanley, 150 Mulas-Granados, Carlos, 367 Murdoch, James, 389 Murdoch, Rupert, 317–18, 320, 327 Murphy, Kevin, 62, 63 Murray, Jim ‘Mad Dog’, 321 Myners, Paul, 340 Nash bargaining solution, 60 National Audit Office, 340 National Child Development Study, 289–90 national ecosystem of innovation, 33–4, 65, 103, 206, 218, 221, 239–44, 255–9, 374; state facilitation of, 102, 219–22, 229–30, 233, 251–2, 258–66, 269–70, 392 National Health Service (NHS), 21, 27, 34, 92, 265, 277, 336, 371–2; popular support for, 75, 77, 283 national insurance system, 81, 277, 302 national strategy for neighbourhood renewal, 278 Navigation Acts, abolition of, 126 Neiman, Susan, 18–19 neo-conservatism, 17–18, 144–9, 387–90 network theory, 199–201, 202–4, 206; Pareto curve and, 201–2 New Economics Foundation, 62 New Industry New Jobs strategy, 21 New Labour: budget deficit and, 224, 335, 360, 368, 369; business friendly/promarket policies, x–xi, 139–40, 142, 145, 146–7, 162, 198–9, 382; City of London and, x–xi, 5, 19, 22, 142–3, 144–5, 355; decline of class-based politics, 341; failure to challenge elites, x–xi, 14, 22, 388, 389–90; general election (1992) and, 138, 140–1, 144, 148, 277; general election (2005) and, 97; general election (2010) and, 20, 271, 334, 374, 378; light-touch regulation and, 138, 145, 146–7, 162, 198–9; New Industry New Jobs strategy, 21; one-off tax on bank bonuses, 26, 179, 249; record in government, 10–11, 19, 20–2, 220, 276–80, 302, 306, 334–6, 366–7, 389–90; reforms to by ‘modernisers’, 141; responses to newspaper campaigns, 11 New York markets, 140, 152, 162; Asian and/or OPEC capital surpluses and, 169, 171, 354; London/New York axis, 149, 150–1, 157–8, 160, 188, 202 Newsweek, 174 Newton, Isaac, 31, 127, 190 NHS Direct, 372 Nicoli, Eric, 13 non-executive directors (NEDs), 249–50 Nordhaus, William, 260 Nordic countries, 262; Iceland, 7, 138; Norway, 281; Sweden, 264, 281 North, Douglas, 113, 116, 129–30 Northern Rock, 9, 156, 157, 158, 186, 187–8, 202, 204, 251, 340–1 Norton Publishing, 93 Nozick, Robert, 234, 235 nuclear non-proliferation, 226, 384, 394 Nussbaum, Martha, 79 Obama, Barack, 18, 183, 380, 382–3, 394–5 the Observer, 141, 294, 327 Office for Budget Responsibility, 360 Office of Fair Trading (OFT), 257, 258 OFSTED, 276 oil production, 322; BP Gulf of Mexico disaster (2010), 216–17, 392; finite stocks and, 230, 384; OPEC, 149, 161, 171; price increase (early 1970s), 161; in USA, 130, 131, 132 Olsen, Ken, 29 Olympics (2012), 114 open markets, 29, 30, 31, 40, 89, 92, 100–1, 366, 377, 379, 382, 384; see also ‘open-access societies’; as determinants of value, 51–2, 62; fairness and, 60–1, 89–91, 94–6; ‘reference prices’ and, 94–6 ‘open-access societies’, 134, 135, 258, 272, 273, 275, 276, 280–1, 394; Britain as ‘open-access society’ (to 1850), 124, 126–7; democracy and, 136, 314; Enlightenment and, 30–1, 314–15, 394; innovation and invention in, 109–13, 114, 116–17, 122–3, 126–7, 131, 136, 315; partial political opening in, 129–30; US New Freedom programme, 132–3 opium production, 102 options, 166, 188, 191 Orange County derivatives losses, 167 Organisation for Economic Co-operation and Development (OECD), 180, 337, 373 Orwell, George, 37 Osborne, George, 147, 208, 224, 245, 302, 338 Overend, Gurney and Co., 156–7 Oxbridge/top university entry, 293–4, 306 Oxford University, 261 Page, Scott, 204 Paine, Tom, 347 Pareto, Vilfredo, 201–2 Paribas, 152, 187 Parkinson, Lance-Bombardier Ben, 13 participation, political, 35, 86, 96, 99 Paulson, Henry, 177 Paulson, John, 103, 167–8 pay of executives and bankers, 3–4, 5, 6–7, 22, 66–7, 138, 387; bonuses, 6, 25–6, 41, 174–5, 176, 179, 208, 242, 249, 388; high levels/rises of, 6–7, 13, 25, 82–3, 94, 172–6, 216, 296, 387, 393; Peter Mandelson on, 24; post-crash/bail-outs, 176, 216; in private equity houses, 248; remuneration committees, 6, 82, 83, 176; shared capitalism and, 66, 93; spurious justifications for, 42, 78, 82–3, 94, 176, 216 pension, state, 81, 372, 373 pension funds, 240, 242 Pettis, Michael, 379–80 pharmaceutical industry, 219, 255, 263, 265, 267–8 Phelps, Edmund, 275 philanthropy and charitable giving, 13, 25, 280 Philippines, 168 Philippon, Thomas, 172–3 Philips Electronics, Royal, 256 Pimco, 177 piracy, 101–2 Plato, 39, 44 Player, Gary, 76 pluralist state/society, x, 35, 99, 113, 233, 331, 350, 394 Poland, 67, 254 political parties, 13–14, 340, 341, 345, 390; see also under entries for individual parties political system, British: see also democracy; centralised constitution, 14–15, 35, 217, 334; coalitions as a good thing, 345–6; decline of class-based politics, 341; devolving of power to Cardiff and Edinburgh, 15, 334; expenses scandal, 3, 14, 217, 313, 341; history of (to late nineteenth-century), 124–30; lack of departmental coordination, 335, 336, 337; long-term policy making and, 217; monarchy and, 15, 312, 336; politicians’ lack of experience outside politics, 338; required reforms of, 344–8; select committee system, 339–40; settlement (of 1689), 125; sovereignty and, 223, 346, 347, 378; urgent need for reform, 35, 36–7, 218, 344; voter-politician disengagement, 217–18, 310, 311, 313–14, 340 Pommerehne, Werner, 60 population levels, world, 36 Portsmouth Football Club, 352 Portugal, 108, 109, 121, 377 poverty, 278–9; child development and, 288–90; circumstantial causes of, 26, 283–4; Conservative Party and, 279; ‘deserving’/’undeserving’ poor, 276, 277–8, 280, 284, 297, 301; Enlightenment views on, 53, 55–6; need for asset ownership, 301–3, 304; political left and, 78–83; the poor viewed as a race apart, 285–7; as relative not absolute, 55, 84; Adam Smith on, 55, 84; structure of market economy and, 78–9, 83; view that the poor deserve to be poor, 25, 52–3, 80, 83, 281, 285–8, 297, 301, 387; worldwide, 383, 384 Power2010 website, 340–1 PR companies and media, 322, 323 Press Complaints Commission (PCC), 325, 327, 331–2, 348 preventative medicine, 371 Price, Lance, 328, 340 Price, Mark, 93 Prince, Chuck, 184 printing press, 109, 110–11 prisoners, early release of, 11 private-equity firms, 6, 28–9, 158, 172, 177, 179, 205, 244–9, 374 Procter & Gamble, 167, 255 productive entrepreneurship, 6, 22–3, 28, 29–30, 33, 61–2, 63, 78, 84, 136, 298; in British history (to 1850), 28, 124, 126–7, 129; due desert/fairness and, 102–3, 105–6, 112, 223, 272, 393; general-purpose technologies (GPTs) and, 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384 property market: baby boomer generation and, 372–3; Barker Review, 185; boom in, 5, 143, 161, 183–4, 185–7, 221; bust (1989-91), 161, 163; buy-to-let market, 186; commercial property, 7, 356, 359, 363; demutualisation of building societies, 156, 186; deregulation (1971) and, 161; Japanese crunch (1989-92) and, 361–2; need for tax on profits from home ownership, 308–9, 373–4; property as national obsession, 187; residential mortgages, 7, 183–4, 186, 356, 359, 363; securitised loans based mortgages, 171, 186, 188; shadow banking system and, 171, 172; ‘subprime’ mortgages, 64, 152, 161, 186, 203 proportionality, 4, 24, 26, 35, 38, 39–40, 44–6, 51, 84, 218; see also desert, due, concept of; contributory/discretionary benefits and, 63; diplomacy/ international relations and, 385–6; job seeker’s allowance as transgression of, 81; left wing politics and, 80; luck and, 73–7, 273; policy responses to crash and, 215–16; poverty relief systems and, 80–1; profit and, 40, 388; types of entrepreneurship and, 61–2, 63 protectionism, 36, 358, 376–7, 378, 379, 382, 386 Prussia, 128 Public Accounts Committee, 340 Purnell, James, 338 quantitative easing, 176 Quayle, Dan, 177 race, disadvantage and, 290 railways, 9, 28, 105, 109–10, 126 Rand, Ayn, 145, 234 Rawls, John, 57, 58, 63, 73, 78 Reagan, Ronald, 135, 163 recession, xi, 3, 8, 9, 138, 153, 210, 223, 335; of 1979-81 period, 161; efficacy of fiscal policy, 367–8; VAT decrease (2009) and, 366–7 reciprocity, 43, 45, 82, 86, 90, 143, 271, 304, 382; see also desert, due, concept of; proportionality Reckitt Benckiser, 82–3 Regional Development Agencies, 21 regulation: see also Bank of England; Financial Services Authority (FSA); Bank of International Settlements (BIS), 169, 182; Basel system, 158, 160, 163, 169, 170–1, 196, 385; big as beautiful in global banking, 201–2; Big Bang (1986), 90, 162; by-passing of, 137, 187; capital requirements/ratios, 162–3, 170–1, 208; dismantling of post-war system, 149, 158, 159–63; economists’ doubts over deregulation, 163; example of China, 160; failure to prevent crash, 154, 197, 198–9; Glass-Steagall abolition (1999), 170, 202–3; light-touch, 5, 32, 138, 151, 162, 198–9; New Deal rules (1930s), 159, 162; in pharmaceutical industry, 267–8; as pro-business tool, 268–70; proposed Financial Policy Committee, 208; required reforms of, 267, 269–70, 376, 377, 384, 392; reserve requirements scrapped (1979), 208; task of banking authorities, 157; Top Runner programme in Japan, 269 Reinhart, Carmen, 214, 356 Repo 105 technique, 181 Reshef, Ariell, 172–3 Reuters, 322, 331 riches and wealth, 11–13, 272–3, 283–4, 387–8; see also pay of executives and bankers; the rich as deserving of their wealth, 25–6, 52, 278, 296–7 Rickards, James, 194 risk, 149, 158, 165, 298–302, 352–3; credit default swaps and, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207; derivatives and see derivatives; distinction between uncertainty and, 189–90, 191, 192–3, 196–7; employment insurance concept, 298–9, 301, 374; management, 165, 170, 171, 189, 191–2, 193–4, 195–6, 202, 203, 210, 354; securitisation and, 32, 147, 165, 169, 171, 186, 188, 196; structured investment vehicles and, 151, 165, 169, 171, 188; value at risk (VaR), 171, 192, 195, 196 Risley, Todd, 289 Ritchie, Andrew, 103 Ritter, Scott, 329 Robinson, Sir Gerry, 295 Rogoff, Ken, 214, 356 rogue states, 36 Rolling Stones, 247 Rolls-Royce, 219, 231 Rome, classical, 45, 74, 108, 116 Roosevelt, Franklin D., 133, 300 Rothermere, Viscount, 327 Rousseau, Jean-Jacques, 56, 58, 112 Rousseau, Peter, 256 Rowling, J.K., 64, 65 Rowthorn, Robert, 292, 363 Royal Bank of Scotland (RBS), 25, 150, 152, 157, 173, 181, 199, 251, 259; collapse of, 7, 137, 150, 158, 175–6, 202, 203, 204; Sir Fred Goodwin and, 7, 150, 176, 340 Rubin, Robert, 174, 177, 183 rule of law, x, 4, 220, 235 Russell, Bertrand, 189 Russia, 127, 134–5, 169, 201, 354–5, 385; fall of communism, 135, 140; oligarchs, 30, 65, 135 Rwandan genocide, 71 Ryanair, 233 sailing ships, three-masted, 108 Sandbrook, Dominic, 22 Sands, Peter (CEO of Standard Chartered Bank), 26 Sarkozy, Nicolas, 51, 377 Sassoon, Sir James, 178 Scholes, Myron, 169, 191, 193 Schumpeter, Joseph, 62, 67, 111 science and technology: capitalist dynamism and, 27–8, 31, 112–13; digitalisation, 34, 231, 320, 349, 350; the Enlightenment and, 31, 108–9, 112–13, 116–17, 121, 126–7; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; increased pace of advance, 228–9, 253, 297; nanotechnology, 232; New Labour improvements, 21; new opportunities and, 33–4, 228–9, 231–3; new technologies, 232, 233, 240; universities and, 261–5 Scotland, devolving of power to, 15, 334 Scott, James, 114–15 Scott Bader, 93 Scott Trust, 327 Second World War, 134, 313 Securities and Exchanges Commission, 151, 167–8 securitisation, 32, 147, 165, 169, 171, 186, 187, 196 self-determination, 85–6 self-employment, 86 self-interest, 59, 60, 78 Sen, Amartya, 51, 232, 275 service sector, 8, 291, 341, 355 shadow banking system, 148, 153, 157–8, 170, 171, 172, 187 Shakespeare, William, 39, 274, 351 shareholders, 156, 197, 216–17, 240–4, 250 Sher, George, 46, 50, 51 Sherman Act (USA, 1890), 133 Sherraden, Michael, 301 Shiller, Robert, 43, 298, 299 Shimer, Robert, 299 Shleifer, Andrei, 62, 63, 92 short selling, 103 Sicilian mafia, 101, 105 Simon, Herbert, 222 Simpson, George, 142–3 single mothers, 17, 53, 287 sixth form education, 306 Sky (broadcasting company), 30, 318, 330, 389 Skype, 253 Slim, Carlos, 30 Sloan School of Management, 195 Slumdog Millionaire, 283 Smith, Adam, 55, 84, 104, 112, 121, 122, 126, 145–6 Smith, John, 148 Snoddy, Ray, 322 Snow, John, 177 social capital, 88–9, 92 social class, 78, 130, 230, 304, 343, 388; childcare and, 278, 288–90; continued importance of, 271, 283–96; decline of class-based politics, 341; education and, 13, 17, 223, 264–5, 272–3, 274, 276, 292–5, 304, 308; historical development of, 56–8, 109, 115–16, 122, 123–5, 127–8, 199; New Labour and, 271, 277–9; working-class opinion, 16, 143 social investment, 10, 19, 20–1, 279, 280–1 social polarisation, 9–16, 34–5, 223, 271–4, 282–5, 286–97, 342; Conservative reforms (1979-97) and, 275–6; New Labour and, 277–9; private education and, 13, 223, 264–5, 272–3, 276, 283–4, 293–5, 304; required reforms for reduction of, 297–309 social security benefits, 277, 278, 299–301, 328; contributory, 63, 81, 283; flexicurity social system, 299–301, 304, 374; to immigrants, 81–2, 282, 283, 284; job seeker’s allowance, 81, 281, 298, 301; New Labour and ‘undeserving’ claimants, 143, 277–8; non-contributory, 63, 79, 81, 82; targeting of/two-tier system, 277, 281 socialism, 22, 32, 38, 75, 138, 144, 145, 394 Soham murder case, 10, 339 Solomon Brothers, 173 Sony, 254–5 Soros, George, 166 Sorrell, Martin, 349 Soskice, David, 342–3 South Korea, 168, 358–9 South Sea Bubble, 125–6 Spain, 123–4, 207, 358–9, 371, 377 Spamann, Holger, 198 special purpose vehicles, 181 Spitzer, Matthew, 60 sport, cheating in, 23 stakeholder capit