capital controls

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pages: 356 words: 103,944

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

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

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

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

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: 868 words: 147,152

How Asia Works by Joe Studwell

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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, land reform, land tenure, large denomination, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, 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: 376 words: 109,092

Paper Promises by Philip Coggan

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

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.

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

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Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, 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, 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, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, 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: 233 words: 66,446

Bitcoin: The Future of Money? by Dominic Frisby

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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 blockchain, fiat currency, friendly fire, game design, Isaac Newton, Julian Assange, 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, quantitative easing, railway mania, Ronald Reagan, 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: 561 words: 87,892

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

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Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, 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, Francis Fukuyama: the end of history, full employment, 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, low skilled workers, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, 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 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: 381 words: 101,559

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

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

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: 233 words: 75,712

In Defense of Global Capitalism by Johan Norberg

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

The perspective of these rules is excessively short term. Chile was hit by a real economic crisis in 1981–82, with bank failures 250 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 251 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

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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, 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, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, 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, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, 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, working-age population

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: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

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

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: 363 words: 28,546

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

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asset allocation, Bretton Woods, 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, superstar cities, 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: 497 words: 143,175

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

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1960s counterculture, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, 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, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, 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.

Unhappy Union by The Economist, La Guardia, Anton, Peet, John

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bank run, banking crisis, Berlin Wall, Bretton Woods, 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, Flash crash, illegal immigration, labour market flexibility, labour mobility, 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.

Propaganda and the Public Mind by Noam Chomsky, David Barsamian

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Albert Einstein, Asian financial crisis, Bretton Woods, capital controls, deindustrialization, European colonialism, experimental subject, Howard Zinn, Hyman Minsky, interchangeable parts, labour market flexibility, labour mobility, Martin Wolf, 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: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

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accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, 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, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, 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, very high income, We are the 99%

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

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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 social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Jane Jacobs, land reform, loss aversion, 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, Washington Consensus, 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.


pages: 318 words: 77,223

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

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

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

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

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

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accounting loophole / creative accounting, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, capital asset pricing model, capital controls, central bank independence, corporate governance, 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, interest rate swap, Internet Archive, invisible hand, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, moral hazard, mortgage debt, mortgage tax deduction, oil shock, payday loans, pension reform, Plutocrats, plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, 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

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

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

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anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, 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, glass ceiling, hiring and firing, housing crisis, inflation targeting, investor state dispute settlement, James Dyson, laissez-faire capitalism, market fundamentalism, Monroe Doctrine, Mont Pelerin Society, moral hazard, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, open borders, Plutocrats, plutocrats, 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, 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.


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

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

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: 580 words: 168,476

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

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

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: 223 words: 10,010

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

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

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.


pages: 369 words: 94,588

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

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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, 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, 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, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, 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

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

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

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

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.

Hopes and Prospects by Noam Chomsky

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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, market fundamentalism, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, moral hazard, new economy, nuremberg principles, 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.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money: store of value / unit of account / medium of exchange, mortgage debt, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, 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, Wave and Pay, 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: 334 words: 98,950

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

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

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: 347 words: 99,317

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

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

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

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

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: 271 words: 52,814

Blockchain: Blueprint for a New Economy by Melanie Swan

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23andMe, Airbnb, altcoin, Amazon Web Services, asset allocation, banking crisis, 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 blockchain, fault tolerance, fiat currency, financial innovation, Firefox, friendly AI, Hernando de Soto, Internet Archive, Internet of things, Khan Academy, Kickstarter, litecoin, Lyft, M-Pesa, microbiome, Network effects, new economy, peer-to-peer lending, personalized medicine, post scarcity, prediction markets, 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, 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: 278 words: 82,069

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

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Asian financial crisis, banking crisis, Bretton Woods, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, 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, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, 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.


pages: 234 words: 63,149

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

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airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Julian Assange, labour mobility, Martin Wolf, Mikhail Gorbachev, mutually assured destruction, Nixon shock, nuclear winter, 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.


pages: 543 words: 147,357

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

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

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 capitalism, x, 148–9 Standard Oil, 130–1, 132 state, British: anti-statism, 20, 22, 233–4, 235, 311; big finance’s penetration of, 176, 178–80; ‘choice architecture’ and, 238, 252; desired level of involvement, 234–5; domination of by media, 14, 16, 221, 338, 339, 343; facilitation of fairness, ix–x, 391–2, 394–5; investment in knowledge, 28, 31, 40, 220, 235, 261, 265; need for government as employer of last resort, 300; need for hybrid financial system, 244, 249–52; need for intervention in markets, 219–22, 229–30, 235–9, 252, 392; need for reshaping of, 34; pluralism, x, 35, 99, 113, 233, 331, 350, 394; public ownership, 32, 240; target-setting in, 91–2; threats to civil liberty and, 340 steam engine, 110, 126 Steinmueller, W.


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

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3D printing, Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, 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 blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, Internet of things, inventory management, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, 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, underbanked, WikiLeaks, Y Combinator, Y2K, 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: 632 words: 159,454

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

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

Firstly, instead of each currency being directly convertible to gold, currencies would be pegged to the dollar, which remained convertible to gold, at the rate established by President Roosevelt in 1934 of $35 an ounce. This meant that the exchange rates of each currency were pegged indirectly to gold. The peg to the dollar was adjustable when what the negotiators at Bretton Woods called ‘fundamental disequilibrium’ took place. Secondly, capital controls were allowed to limit movements of international capital. The third new element was a new institution, the International Monetary Fund, which was designed, in the first instance, to stabilize the exchange rates set up by Bretton Woods.7 The World Bank would be the other institution associated with Bretton Woods and it would be largely a development bank. The discussions had been dominated, however, by the dispute between Keynes and White.

By contrast, he had noticed that the ‘atmosphere in the House of Lords yesterday [when he made his speech in support of the Bretton Woods proposals] was quite free’ from the rather antagonistic mood of the House of Commons.19 To modern analysts, however, Bretton Woods was a lot more similar to the pre-1914 gold standard than it would be to the world of freely floating exchange rates of the late twentieth century. Like the gold standard, the Bretton Woods system proposed a regime of fixed exchange rates, though it did allow for some devaluation, if ‘fundamental disequilibrium’ occurred. In many ways, Bretton Woods was even more rigid than the old gold standard, as it required capital controls, whereas the old system had not. Even more restrictive was the prohibition on exchanging currencies directly for gold. Under the gold standard anyone with a banknote could go to the central bank and exchange it for gold. This facility was precisely what was referred to when the Bank of England suspended ‘gold convertibility’ in 1797 and again in 1914. The United States’ position as the leading repository of gold ensured that, if gold was still to play a role in the international monetary system, the US dollar would be the chain binding international currencies to the precious metal.

‘With a large population and low wages,’ wrote Heckscher, ‘it was hoped to effect a large export surplus of manufactures and a large import surplus of gold and precious stones, and this desire became itself a part of the state’s policy of power.’5 To many critics and observers of Chinese economic policy, particularly in the United States, Heckscher’s account perfectly summarized Beijing’s approach to economic development. As late as December 2009, the Nobel Prize-winning economist Paul Krugman, a leftist commentator, asserted in his New York Times blog that ‘we know that China’s pursuing a mercantilist policy’. Having made his accusation, Krugman then explained what this policy entailed. The Chinese, he maintained, were ‘keeping the renminbi [the Chinese currency] weak through a combination of capital controls and intervention leading to trade surpluses’.6 He presented as accurately as Heckscher had done, almost eighty years previously, the essential logic of mercantilism, spelling out the link between keeping a currency weak and promoting exports. By keeping your currency undervalued against, for example, the US dollar, you would make your exports cheaper for Americans to buy. This undervaluation of a domestic currency compared to the currency of a trading partner would achieve the ‘large export surplus of manufactures’ which Heckscher believed to be the main object of mercantilism.


pages: 490 words: 117,629

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

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asset allocation, asset-backed security, 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, passive investing, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, technology bubble, the market place, transaction costs, Vanguard fund, yield curve

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: 411 words: 114,717

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

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

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: 1,088 words: 228,743

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

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

A mechanical carry strategy would always go long the highest yielding currency and would quietly follow a hyperinflation country to its demise. Holding just one Zimbabwe (the country with the worst recent hyperinflation) in your portfolio would mean losing virtually the whole investment in that country and missing any subsequent wealth recovery. Zimbabwe is not a very realistic example given its capital controls, but Argentina is a country without capital controls that has had hyperinflation, albeit not quite on the Zimbabwean scale. Argentina’s devaluation in early 2002 is thus a more plausible example, where international carry traders might have gotten their hands burned (although even here the impending troubles were very visible many months earlier). I checked the impact of including Argentina in my emerging market universe.

The dynamically re-ranked portfolio incorporates this time variation and thus offers a higher ex ante yield spread and a higher ex post return gap than the static carry portfolio. Comments on my baseline variant Selection biases. Note the hindsight in picking the currently active “G10” universe: USD–CAD–AUD–NZD–JPY–EUR–GBP–CHF–SEK–NOK. As in most other studies, I exclude currencies that were fixed or pegged to another currency, along with currencies that have or had significant capital controls. Due to this selection bias, I might overstate returns by excluding hyperinflated and/or defaulted markets that fell out of my universe. In practice, this has not been a major issue because the past two decades have been characterized by global disinflation and improving policy discipline. More likely, I may understate returns by excluding many emerging currencies (that performed especially well) as well as former EMU currencies.

Improving fundamentals in emerging countries and easy liquidity conditions in developed countries gave markets huge tailwinds and make this a biased sample. Indeed, the period since 1994 is so benign that the only indicator that works even better than carry is inflation: high-inflation currencies consistently outperformed low-inflation currencies, because inflation rates fell in countries with high initial inflation. Among reasonably liquid currencies without capital controls, there were no cases of countries drifting into sharp devaluation via hyperinflation. The 1997–1998 Asian devaluations, for example, occurred after a period of low inflation, were followed by a spike in inflation, and subsequently benefited from disinflation and real exchange rate appreciation. (I return later to the important point that no country in my universe suffered from hyperinflation during the period studied.)


pages: 708 words: 176,708

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

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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, 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, Mikhail Gorbachev, millennium bug, Mohammed Bouazizi, Monroe Doctrine, Naomi Klein, Northern Rock, 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, 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.

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

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banking crisis, banks create money, barriers to entry, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, 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, 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

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affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, capital controls, centre right, collective bargaining, 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, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, 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

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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 blockchain, fiat currency, Firefox, forensic accounting, global village, GnuPG, Google Earth, Haight Ashbury, Jacob Appelbaum, Kevin Kelly, Kickstarter, litecoin, M-Pesa, Marshall McLuhan, Oculus Rift, peer-to-peer lending, Ponzi scheme, prediction markets, ransomware, 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: 584 words: 187,436

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

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

Clamping down on speculators—guillotining them, as the French finance minister had urged—would have involved taming the waves of cross-border money on which the speculators surfed: It would have involved a return to Bretton Woods and the reimposition of capital controls. Most policy makers viewed this option with horror. If free trade in goods and services was beneficial, surely free flows of capital were good for the same reason; just as trade allowed car manufacturing to be concentrated in the countries that did it best, so cross-border capital flows funneled scarce savings to places that would invest them most productively. Moreover, capital controls might be impractical as well as intellectually suspect. In the week after the sterling crisis, Spain and Ireland tried to dampen speculative attacks on their currencies by restricting banks’ freedom to trade them. The controls were quickly circumvented. If capital controls were off the table, there was one remaining way to prevent speculative attacks on national currencies—abolish them.


pages: 843 words: 223,858

The Rise of the Network Society by Manuel Castells

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Apple II, Asian financial crisis, barriers to entry, Big bang: deregulation of the City of London, borderless world, British Empire, capital controls, complexity theory, computer age, Credit Default Swap, declining real wages, deindustrialization, delayed gratification, dematerialisation, deskilling, disintermediation, double helix, Douglas Engelbart, edge city, experimental subject, financial deregulation, financial independence, floating exchange rates, future of work, global village, Hacker Ethic, hiring and firing, Howard Rheingold, illegal immigration, income inequality, industrial robot, informal economy, information retrieval, intermodal, invention of the steam engine, invention of the telephone, inventory management, James Watt: steam engine, job automation, job-hopping, knowledge economy, knowledge worker, labor-force participation, labour market flexibility, labour mobility, laissez-faire capitalism, low skilled workers, manufacturing employment, Marshall McLuhan, means of production, megacity, Menlo Park, new economy, New Urbanism, offshore financial centre, oil shock, open economy, packet switching, planetary scale, popular electronics, post-industrial society, postindustrial economy, prediction markets, Productivity paradox, profit maximization, purchasing power parity, RAND corporation, Robert Gordon, Silicon Valley, Silicon Valley startup, social software, South China Sea, South of Market, San Francisco, special economic zone, spinning jenny, statistical model, Steve Jobs, Steve Wozniak, Ted Nelson, the built environment, the medium is the message, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, transaction costs, urban renewal, urban sprawl

These policies began in the United States in the mid-1970s, and in Britain in the early 1980s, spread throughout the European Union in the 1980s, and became the dominant policy in most countries in the world, and the common standard in the international economic system, in the 1990s.111 How and why it happened is a matter for historians. Yet, a few remarks on the genesis of the global economy could help to understand its contours in the twenty-first century. Although some important measures were adopted in the 1970s (for example, in the US cross-border capital controls were abolished, for all practical purposes, in 1974), there were two distinctive periods of government-led globalization. To simplify, I will differentiate between the 1980s and the 1990s. In the 1980s, the simultaneous arrival to power of staunch conservative, ideological free-marketeers in the United States (Reagan, elected in 1980) and in the UK (Thatcher, elected in 1979) signaled a turning point.

In the US, the options market established in Chicago in 1972 expanded rapidly, and ultimately developed into a multiproduct derivatives market. Britain abolished exchange controls in 1980, and the second financial futures exchange market, after Chicago, was established in London in 1982. France followed, setting up its own futures exchange, MATIF, in 1986. Germany remained more cautious about financial deregulation, although cross-border capital controls were eliminated in 1981. The Asian financial markets, particularly Hong Kong and Singapore, took advantage of their loosely regulated environment to attract financial transactions, winning market shares over a more regulated Tokyo stock-exchange market. The full deregulation of financial markets in the City of London in October 1987 opened a new era of financial globalization, in spite (or because?)

Gap Garcia, Alan Garratt, G. R. M. Garreau, Joel Gates, Bill GATT GDP: exports; home/global markets; information technologies; investment; world trade Gelb, Joyce Gelernter, David gender: employment; Internet use Genentech genetic engineering; centers for; computing power; ethics; gene-cloning reproduction genetic therapy Gereffi, Gary Gerlach, Michael L. Germany: cross-border capital controls; employment; Eurex; GDP/exports; industry classifications; labor relations; Meta Study; occupational structure; producer services; productivity; R&D; Schroeder; self-employment; skill levels Geroski, P. Gershuny, J. I. ghettos Ghosh, Alo Ghoshal, Sumantra Gibson, David G. Giddens, Anthony Gille, Bertrand Gitlin, Todd Glasgall, William Gleick, James global city global economy; capitalism; China; control centers; currency trading; developing countries; employment; exclusion; financial markets; G-countries; institutions; Internet; investment/GDP; Latin America; mega-cities; multinational corporations; politics; volatility globalization; capitalism; deregulation; European Union; FDI; financial markets; firms; information technologies; labor; liberalization; media; misery; national governments; politics; production productivity; regionalization; socialism; state GM–Saturn Complex Godard, Francis Gold, Thomas Goldsmith, William W.


pages: 662 words: 180,546

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

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

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

Because there was no obvious watershed linking policy to theory comparable to Bretton Woods, and the post-1980 infrastructure of international finance grew up piecemeal, the relationship between neoliberalism and the growth of shadow and offshore banking is only beginning to be a subject of interest. Evidence, by construction, is often inaccessible. However, the drive to offshore outsource manufacturing in the advanced economies, which was mutually symbiotic with the frustration of capital controls, was clearly a function of neoliberal doctrines concerning the unbounded benefits of freedom of international trade, combined with neoliberal projects to reengineer the corporation as an arbitrary nexus of contractual obligations, rather than as a repository of production expertise. The MPS member Anne Krueger was brought into dialogue with her fellow member Ronald Coase, and the offspring was the flight of capital to countries such as China, India, and the Cayman Islands.

The MPS member Anne Krueger was brought into dialogue with her fellow member Ronald Coase, and the offspring was the flight of capital to countries such as China, India, and the Cayman Islands. The role of China as beneficiary, but simultaneously as part-time repudiator of the neoliberal globalized financial system, is a question that bedevils all concerned. While freedom of capital flows have not generally been stressed by neoliberals as salient causes of the crisis, they do manage to unite in opposition to capital controls as one reaction to the crisis. [9] Neoliberals regard inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but a necessary functional characteristic of their ideal market system. Inequality is not only the natural state of market economies from a neoliberal perspective, but it is actually one of its strongest motor forces for progress. Hence the rich are not parasites, but a boon to mankind.


pages: 710 words: 164,527

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

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

Creditor nations like the United States should not leave gold and other monetary resources idle: if they did not wish to spend them on imports, they should make them available to others that “find a difficulty in paying for their imports, and will need time and resources before they can establish a re-adjustment.”49 The net result, he believed, would be more trade and more economic growth for all nations. Capital controls, Keynes argued, would also have to be made “a permanent feature of the post-war system,—at least so far as we [the British] are concerned.”50 His conceptual logic was that “the whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world. Capital control is a corollary to this.” This thinking has today become orthodox Keynesianism, advocated by globalization critics such as Joseph Stiglitz and opposed by global currency union advocates such as Robert Mundell. Writing to Roy Harrod in 1942, however, Keynes’s concern had overwhelmingly to do with Britain’s immediate situation.

Appointed Treasury Secretary in June of 1972, George Shultz, an opponent of fixed exchange rates, continued his predecessor’s blunt disownment of American obligations to the system: “Santa Claus is dead,” he pronounced.24 The president successfully bludgeoned Fed chairman Arthur Burns into cutting interest rates, which fueled monetary growth around the world. In January 1973, two months after his thumping defeat of Democratic challenger George McGovern, Nixon ended wage and price controls; dollar outflows resumed. Volcker secretly flew to Tokyo and Bonn to negotiate new parities, but Shultz opposed the administration undertaking any obligation to defend them, which would have interfered with his priority of eliminating capital controls. In tense multilateral discussions, the United States now took up the battle stance that Keynes and the British had adopted, and Harry White resolutely opposed, at Bretton Woods: surplus countries should be forced to reduce their surplus positions. Congressmen even demanded that the formerly hated scarce-currency clause be invoked against countries such as Germany and Japan. Whether surplus countries were prudent and responsible, or obstinate and selfish, it seemed, depended on whether one’s country was one.


pages: 489 words: 111,305

How the World Works by Noam Chomsky, Arthur Naiman, David Barsamian

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affirmative action, anti-communist, Ayatollah Khomeini, Berlin Wall, Bernie Sanders, Bretton Woods, British Empire, business climate, capital controls, clean water, corporate governance, deindustrialization, Fall of the Berlin Wall, feminist movement, glass ceiling, Howard Zinn, income inequality, interchangeable parts, Isaac Newton, joint-stock company, labour market flexibility, land reform, Monroe Doctrine, offshore financial centre, Plutocrats, plutocrats, race to the bottom, Ralph Nader, Ronald Reagan, Rosa Parks, single-payer health, strikebreaker, Telecommunications Act of 1996, transfer pricing, union organizing, War on Poverty, working poor

In the Third World, even wealthy and powerful people tend to have much more open minds. Why hasn’t foreign debt held back the developing countries of East Asia? Japan, South Korea and Taiwan not only controlled labor and the poor, but also capital and the rich. Their debt went for internal investment, not export of capital. Japan didn’t allow export of capital until its economy had already reconstructed. South Korea didn’t either, until forced to remove capital controls and regulation of private borrowing, largely under US pressure, in very recent years. (It’s widely recognized that this forced liberalization was a significant factor in South Korea’s 1997 liquidity crisis.) Latin America has the worst income inequality in the world, and East Asia has perhaps the least. Latin America’s typical imports are luxury goods for the wealthy; East Asia’s have been mostly related to capital investment and technology transfer.

See also Noriega, Manuel Canal changeover drug trafficking in economic sanctions on US aid to US invasion of US investment in Panama Deception, The Pannekoek, Anton “paradox of grace,” Paraguay Parks, Rosa Parry, Robert participatory democracy patents PBS (Public Broadcasting System) PC (political correctness) Peace Now (Israel) “peace process” doctrinal meaning of Israel and in Middle East Pechman, Joseph Penn Central Pentagon as conduit for high-tech investment increasing budget of media control by people’s views on public relations efforts of right-wing support of as subsidy for the rich Pentagon Papers Pentagon system capital controlled by end of Cold War and industrial policy masked by mask dropping from in Somalia Peretz, Martin Perot, Ross Perry, William “personal is political,” Personal Responsibility and Work Opportunity Act Peru petroleum. See oil pharmaceutical industry in India Philadelphia (PA) Philip Morris Philippines “philosophy of new nationalism,” Phnom Penh Pinkerton, Julie PKI PLO (Palestinian Liberation Organization).


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

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Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, Bretton Woods, capital controls, clean water, collateralized debt obligation, credit crunch, David Ricardo: comparative advantage, debt deflation, deindustrialization, delayed gratification, disintermediation, diversification, fiat currency, financial independence, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global supply chain, happiness index / gross national happiness, hydraulic fracturing, informal economy, invisible hand, Jane Jacobs, land tenure, Lao Tzu, liquidity trap, lump of labour, McMansion, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, new economy, oil shale / tar sands, Own Your Own Home, peak oil, phenotype, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail

They foster and protect the internal economy of their members, insulating it from external shocks and financial predation in the same way that local currencies do. Indeed, local currencies will never be able to expand beyond marginal status unless they have a credit mechanism that protects them from the speculative runs that numerous national currencies have suffered in the last twenty years. Local and regional credit-clearing organizations can exercise capital control functions similar to those that wiser nations imposed when developing their economies through import substitution. The most famous mutual-credit system, Switzerland’s WIR, provides a rather extreme model for this principle: once you buy into it, you are not permitted to cash out. On a local level, this would force foreign investors to source components locally. Less extreme but similar measures were applied by Taiwan, Japan, Singapore, and South Korea in the 1950s and 1960s, when they restricted foreign companies’ repatriation of profits.

It happened in Argentina in 2002; it almost happened in California in 2009; and with the likely breakup of the Economic and Monetary Union (EMU), a significant devolution of monetary sovereignty back to smaller nations may be happening in Europe. As the present crisis deepens, regional governments and smaller nations will have a chance to reclaim economic sovereignty by issuing currency and protecting it from global financial markets through capital controls, foreign-exchange transaction taxes, and so forth. Governments can also give preferential treatment to local businesses in allocating contracts. Finally, local and regional governments can reclaim their credit sovereignty from international finance by establishing public banks and other credit-generating institutions. Economic life: While many high-tech products and services are by their nature global, hidden subsidies and decades of policy have thrust many things that can and should be local into the global commodity economy.


pages: 497 words: 123,718

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

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airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

Electoral Victories Across the globe, peoples’ movements for global justice have swept in elected officials representing their views. These officials have then brought resistance into the institutions of corporate globalization. Walden Bello of Thailand’s Focus on the Global South describes how, in the midst of the East Asian financial crisis, public pressure led Prime Minister Mohamad Mahathir of Malaysia to break with the IMF and impose capital controls, saving the country from the worst effects of the crisis. According to Bello, Mahathir’s defiance of the IMF was not lost on Thaksin Shinawatra, who ran for prime minister of Thailand on an anti-IMF platform and won. He went on to push for large government expenditures, which stimulated the consumer demand that brought Thailand out of recession. Nestor Kirchner completed the humbling of the IMF when, upon being elected president of Argentina in 2003, he declared that his government would pay its private creditors only 25 cents for every dollar owed.

World Development Movement, www.wdm.org.uk. Lobbies decision makers to change policies, and researches and promotes positive alternatives. Networks with people’s movements in the developing world. Dirty Money and Offshore Banking Baker, Raymond. Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System. New York: John Wiley & Sons, 2005. Epstein, Gerald. Capital Flight and Capital Controls in Developing Countries. Northampton, Mass.: Edward Elgar, 2005. Epstein, Gerald, ed. Financialization and the World Economy. Northampton, Mass.: Edward Elgar, 2006. Hampton, Mark, and Jason Abbott. Offshore Finance Centres and Tax Havens: The Rise of Global Capital. London: Macmillan, 1999. Kochan, Nick. The Washing Machine: How Money Laundering and Terrorist Financing Soils Us. Mason, Ohio: Thomson, 2005.


pages: 386 words: 122,595

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

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

McDonald’s closed its doors in Iceland instead.11 The economic wreckage that results time after time as investors flee a country suggests an obvious fix: Maybe it should be harder to flee. Some countries have experimented with capital controls, which place various kinds of limits on the free flow of capital. Like many obvious fixes, this one has less obvious problems. If foreign investors can’t leave a country with their capital, they are less likely to show up in the first place. It’s a bit like trying to improve revenues at a department store by banning all returns. A group of economists studied fifty-two poor countries between 1980 and 2001 to examine the relationship between financial liberalization (making it easier to move capital in and out of the country) and economic performance. There is a tradeoff: Countries that impose some kind of capital controls also grow more slowly. The Economist summarized the study’s findings: “An occasional crisis may be a price worth paying for faster growth.”12 Okay, what if we all had the same currency?


pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

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Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

If institutional investors had reallocated just 1% of total assets under management toward the emerging markets, this shift would have constituted a capital flow of $200 billion. Third, the resurgence of capital flows also reflected the clear recognition by investors that the economic fundamentals in most emerging markets in the 1990s had vastly improved over those that prevailed in the late 1970s. Since 1987, both the direct barriers, such as capital controls, and the indirect barriers, such as difficulties in evaluating corporate information, that prevented the free flow of capital had gradually been reduced. As capital controls were gradually lifted, global investors with more diversified portfolios began to influence stock prices, particularly in emerging markets [422]. This trend of opening up financial markets meant that firms from emerging markets were able to raise capital, both domestically and internationally, at a lower cost.


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

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Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Many economists and institutions at the time blamed the Asia crisis on the openness of the global capital markets and the herd mentality of speculators. Malaysia’s prime minister, Dr. Mahathir Mohamad, publicly blamed George Soros for the economic ills that Malaysia suffered following the crisis and even considered currency speculation a crime. He shut down his country’s economy to so-called hot money by instituting draconian capital controls and fixing the Malaysian ringgit to the USD at 3.80. (See Figure 2.10.) As Scott Bessent recalls, it “was slightly worrying [because] it was the first time that someone had actually stopped paying lip service and actually shut down an economic system.” While Soros Fund Management returned 11.4 percent for the month 21 THE HISTORY OF GLOBAL MACRO HEDGE FUNDS 5 Ringgit per Dollar 4.5 4 3.5 Start of the Asia Crisis 3 Malaysia Pegs Ringgit to 3.80 per U.S.

Today, the global macro arena is populated with alumni of Soros,Tiger, and other big players from the early days of the strategy, as well as those T 31 32 INSIDE THE HOUSE OF MONEY from the global macro–oriented proprietary trading desks at Bankers Trust, Goldman Sachs, and Credit Suisse First Boston, who compete with a varied and diverse field.While there are no longer global macro hedge funds managing over $20 billion in assets, the capital controlled by macro fund managers today, in aggregate, is several times what it was 15 years ago (estimated by HFR at $116 billion in 2005 versus $39 billion in 1990). At the same time, the size and choice in global macro markets has expanded significantly with the growth in central bank assets and the development of various derivative instruments and emerging markets. FROM GLOBAL MACRO TO GLOBAL MICRO The days of breaking central banks or levering up to produce annual returns north of 100 percent seem to be over.The influx of capital to hedge funds by traditional investing institutions, including pension funds with public money under management, has decreased the appetite for risk in general.At the same time, many managers today are increasingly complaining about the increased difficulty of profiting in the markets and the shortage of opportunities.


pages: 466 words: 127,728

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

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

Historically the Chinese counted on large families and respect for elders to support them in their later years, but the one-child policy has eroded that social pillar, and now aging Chinese couples find that they are on their own. A high savings rate is a sensible response. But like savers in the West, the Chinese are starved for yield. The low interest rates offered by the banks, a type of financial repression also practiced in the United States, make Chinese savers susceptible to higher-yielding investments. Foreign markets are mostly off-limits because of capital controls, and China’s own stock markets have proved highly volatile, performing poorly in recent years. China’s bond markets remain immature. Instead, Chinese savers have been attracted by two asset classes—real estate and structured products. The bubble in Chinese property markets, especially apartments and condos, is well known, but not every Chinese saver is positioned to participate in that market.

The statutory authority has existed since the Trading with the Enemy Act of 1917, which was expanded and updated by the International Emergency Economic Powers Act (IEEPA) of 1977. President Franklin Roosevelt used the Trading with the Enemy Act to confiscate gold from American citizens in 1933. He did not specify who the “enemy” was; presumably it was those who owned gold. Every president since Jimmy Carter has used IEEPA to freeze and seize assets in U.S. banks. In more dire future circumstances, gold could be confiscated, bank accounts frozen, capital controls imposed, and exchanges closed. Wage and price controls could be used to suppress inflation, and modern digital surveillance could be used to disrupt black markets and incarcerate black marketeers. The money riots would be squashed quickly. In the ontology of state power, order comes before liberty or justice. ■ Seven Signs Investors must be alert for the indications and warnings of which path the economy is traversing.


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

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1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day

Similarly, when Mexico in 2013 decided to raise corporate taxes on mining profits, several global companies declared they would no longer make major investments there, undermining the country’s mining boom by depriving it of essential foreign capital and technology. Countries will fail unless they are open to flows, but they need sensible frictions to gain the upside while minimizing the downside: capital controls on speculative investment, limited liberalization to ensure domestic industrial competitiveness, radiation scanners at ports, immigration quotas to avoid overburdening public services, passport scanners cross-checked with Interpol databases, Internet Service Providers (ISPs) scanning for computer viruses, and other measures. Governments should think of borders like traffic lights, calibrating the colors to manage the flows in and out of the country.

That is why all countries practice some form of “state capitalism” today, whether subsidizing strategic industries, restricting investments in key sectors, or mandating financial institutions to invest more at home. Such industrial policies are part of a cautious search for balance between local needs and global connectedness. Brazil, for example, now requires foreign car manufacturers to invest in local renewable energy research and has implemented capital controls to stem “hot money.” Countries such as Indonesia have stood their ground in raising corporate taxes and fees yet remain investment magnets because they ultimately control their geographic resources. India welcomes free trade in software services because it has a cost-effective and talented IT workforce but is more cautious about liberalizing agricultural imports that might undermine its farmers.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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

Moreover, I was quite sure that the elites governing Europe would cling stubbornly to their unification project, however divisive it might prove to be – which is exactly what happened. Yet since 2013, an astonishing number of voices have been heard in favour of a flexible currency regime, one that could enable democratic politics to even out imbalances through less destructive means than internal devaluations. The suggestions made range from a return to national currencies, via the temporary or permanent introduction of parallel currencies, together with capital controls, right through to a Keynesian two-tier currency system.37 No ‘nostalgia for the Deutschmark’ is required to see the urgent need for joint reflection on the reconstruction of the European single currency, in a way that might be beneficial for Europe, democracy and society. In principle, this theme might also emerge from the no less urgent search for a better global monetary system than exists at present – one that has become increasingly dysfunctional since the definitive dismantling of the Bretton Woods regime in the early 1970s, and almost brought the world economy to the point of collapse in 2008.

Subtle distinctions of the ‘varieties of capitalism’ sort do not apply here: post-war Japan had a trade union membership density of 80 to 90 per cent and a socialist government until it was removed by the American occupation; in Germany the country’s leading capitalists were in prison until they were freed by the Americans to be of help in the Korean War, and in the 1947 party manifesto of the Christian Democratic Union (CDU) capitalism was declared a threat to the ‘vital political and social interests of the German people’;8 in the United Kingdom a Labour government was voted in, which nationalized some 40 per cent of the country’s industrial capacity; and the United States was still the land of the New Deal, with extensive capital controls, a highly regulated financial sector, strong industrial trade unions, and ambitious social programmes to compensate its soldier-citizens for the sacrifices they had made for their country on the global battlefield.9 I cannot possibly discuss here in detail how this settlement – Wolfgang Merkel’s twice-embedded capitalist-democratic compound – broke up after it had held together, by and large, for roughly three decades.


pages: 537 words: 158,544

Second World: Empires and Influence in the New Global Order by Parag Khanna

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Admiral Zheng, affirmative action, anti-communist, Asian financial crisis, Bartolomé de las Casas, Branko Milanovic, British Empire, call centre, capital controls, central bank independence, cognitive dissonance, colonial rule, complexity theory, crony capitalism, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, Edward Glaeser, energy security, European colonialism, facts on the ground, failed state, flex fuel, Francis Fukuyama: the end of history, friendly fire, Gini coefficient, global reserve currency, global supply chain, haute couture, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Islamic Golden Age, Khyber Pass, knowledge economy, land reform, low skilled workers, means of production, megacity, Monroe Doctrine, oil shale / tar sands, oil shock, open borders, open economy, Pax Mongolica, pirate software, Plutonomy: Buying Luxury, Explaining Global Imbalances, Potemkin village, price stability, race to the bottom, RAND corporation, reserve currency, rising living standards, Ronald Reagan, Silicon Valley, Skype, South China Sea, special economic zone, stem cell, Stephen Hawking, Thomas L Friedman, trade route, trickle-down economics, uranium enrichment, urban renewal, Washington Consensus, women in the workforce

The former spice route sultanate of Malacca now blends Portuguese colonial architecture with computer assembly plants, while Kuala Lumpur residents can purchase gourmet foods at Carrefour, the paragon brand of first-world grocery shopping. Leadership can make much of the difference anywhere in the world, and while Venezuelans are stuck with Hugo Chávez, Malaysians had Mahathir bin Mohamad. Mahathir and his advisers were convinced that globalization was dangerous unless it was steered. During the Asian financial crisis, they bucked the international strictures that ravaged the Thai and Indonesian economies, instead imposing capital controls to keep the Malay ringgit afloat. As second-world leaders increasingly realize that globalization requires strong management to avoid uncontrollably exacerbating existing disparities, they are more likely to emulate Malaysia than Argentina. “Dr. M,” as Mahathir’s supporters call him, is a Muslim Lee Kuan Yew, second only to Lee as a defender of Asian values, who argues that there are common virtues between Islam and Confucianism, such as reciprocity and loyalty.

But even then, the second-world anti-imperial belt of Venezuela, Iran, Kazakhstan, Libya, Malaysia and others will continue to focus as much on building ties among themselves as with Washington, Brussels, or Beijing. Not only will these countries syncretize the best of what each superpower offers to achieve their own vision of success, they will also partner directly with one another to extract oil reserves, share intelligence, combat terrorism, reduce poverty, implement capital controls, and build modern infrastructure. They will use their sovereign wealth to buy Western banks, ports, and other strategic assests. Their regional groups will continue to construct their own economic zones, development banks, peacekeeping forces, and criminal courts. Airline connections have sprouted to connect Arabs, South Americans, and East Asians directly to one another. For the superpowers, having regional ambassadors will be more effective than working through global institutions.*62 But even as America confronts this seismic shift toward a non-American world, it must increasingly look inward, for the only direction from the apogee of power is down.


pages: 258 words: 63,367

Making the Future: The Unipolar Imperial Moment by Noam Chomsky

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Albert Einstein, Berlin Wall, Bretton Woods, British Empire, capital controls, collective bargaining, corporate governance, corporate personhood, deindustrialization, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Frank Gehry, full employment, Howard Zinn, Joseph Schumpeter, kremlinology, Long Term Capital Management, market fundamentalism, Mikhail Gorbachev, Occupy movement, oil shale / tar sands, precariat, RAND corporation, Ronald Reagan, structural adjustment programs, The Great Moderation, too big to fail, uranium enrichment, Washington Consensus, WikiLeaks, working poor

Free capital movement creates what some economists have called a “virtual parliament” of investors and lenders, who closely monitor government programs and “vote” against them if they are considered irrational: for the benefit of people, rather than concentrated private power. Investors and lenders can “vote” by capital flight, attacks on currencies and other devices offered by financial liberalization. That is one reason why the Bretton Woods system established by the United States and Britain after World War II instituted regulated currencies and permitted capital controls. The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working-class organization. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will—for some measure of democracy, that is. John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be establishment of the right of governments to restrict capital movement.


pages: 142 words: 45,733

Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel

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anti-communist, Bretton Woods, capital controls, Carmen Reinhart, David Graeber, declining real wages, full employment, Hyman Minsky, income inequality, late capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, mortgage debt, Occupy movement, peak oil, price stability, profit motive, savings glut, Slavoj Žižek, The Wealth of Nations by Adam Smith, transatlantic slave trade, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration

* The Polish economist Michal Kalecki (1899–1970) developed a “Keynesian” theory of business cycles, liquidity traps, and countercyclical spending independently of Keynes. In economics departments outside the US, he is usually given credit for this. But Kalecki’s politics were Marxist. * Keynes: “The whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world. Capital control is a corollary of this.” * The terror inspired by the notion of a “public option” attached to health care reform always indicated the bad faith behind familiar eulogies to the marvelous competitiveness of capital by comparison with the lumbering state. If the self-description of business were accurate, it would have nothing to fear from public competition. 4 David Graeber: In the Midst of Life We Are in Debt Most analysts divide postwar capitalism into two periods.

Global Financial Crisis by Noah Berlatsky

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accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

It is time for African countries to make bold and decisive moves toward an alternative development paradigm. Everywhere, countries and regions are just doing that. In Asia and Latin America, they are taking monetary, fiscal and other measures to mitigate the impact of the financial turmoil on their economies. African countries should also heed this call and take any measures deemed necessary to protect their economies from external shocks. In this regard, African countries should move to restore capital controls and reverse liberalisation of the capital account [government should not allow the free flow of funds into and out of the country]. These policies opened the door to speculative capital flows, tax evasion and increased capital flight, thus contributing to lowering Africa’s domestic savings while increasing its dependence on external financing. African countries should also discard fiscal and monetary austerity as prescribed by the IMF, because these policies tend to choke off economic growth by limiting public investments in key sectors and by drastically reducing social spending.


pages: 226 words: 59,080

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

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

The historical record of free finance certainly presented plenty to worry about. The financial excesses under a previous era of financial globalization during the interwar period—the recurring financial panics and crashes, the painful economic adjustments that flowed from sudden movements in market sentiment, and the tight constraints placed on managing the ups and downs of the macroeconomy—had been foremost on Keynes’s mind when he argued for capital controls at the end of the Second World War. Fischer did not overlook these risks, but he thought they were worth taking. Free capital movement would enable greater efficiency in the global allocation of savings. Capital would flow from where it was plentiful to where it was scarce, thus increasing economic growth. Residents of poor nations would have access both to a larger pool of investible resources and to foreign capital markets to diversify their portfolios.


pages: 197 words: 60,477

So Good They Can't Ignore You: Why Skills Trump Passion in the Quest for Work You Love by Cal Newport

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Apple II, bounce rate, Byte Shop, Cal Newport, capital controls, cleantech, Community Supported Agriculture, deliberate practice, financial independence, follow your passion, Frank Gehry, job satisfaction, job-hopping, knowledge worker, Mason jar, medical residency, new economy, passive income, Paul Terrell, popular electronics, renewable energy credits, Results Only Work Environment, Richard Bolles, Richard Feynman, Richard Feynman, rolodex, Sand Hill Road, side project, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, web application, winner-take-all economy

Jane had discovered a hard truth of the real world: It’s really hard to convince people to give you money. “I agree that it would be ideal to continue to develop my vision,” she admitted. “However, I also need money in order to eat.” Without even a college degree to her name, finding this money was proving difficult. A commitment to dogsledding across Antarctica, it turns out, doesn’t read well on a résumé. Control Requires Capital Control is seductive. As I discovered at Red Fire Farm, this trait defines the type of dream jobs that keeps cubicle dwellers up at night. It was this appeal that convinced Jane to leave her comfortable life as a student and pursue adventure. In doing so, however, she fell into a trap that threatens many in their quest for control: The First Control Trap Control that’s acquired without career capital is not sustainable.


pages: 177 words: 50,167

The Populist Explosion: How the Great Recession Transformed American and European Politics by John B. Judis

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affirmative action, Affordable Care Act / Obamacare, Albert Einstein, anti-communist, back-to-the-land, Bernie Sanders, Bretton Woods, capital controls, centre right, collapse of Lehman Brothers, deindustrialization, desegregation, Donald Trump, eurozone crisis, financial deregulation, first-past-the-post, full employment, ghettoisation, glass ceiling, hiring and firing, illegal immigration, immigration reform, income inequality, invisible hand, laissez-faire capitalism, means of production, neoliberal agenda, obamacare, Occupy movement, open borders, Plutocrats, plutocrats, Post-materialism, post-materialism, rolodex, Ronald Reagan, Silicon Valley, War on Poverty, We are the 99%, white flight, Winter of Discontent

In France, this era was called les trente glorieuses, or 30 glorious years. But Europe began to suffer a downturn in the early ’70s. The principal cause, as in the United States, was a combination of a profit squeeze from a militant labor movement and the development of global overcapacity in key postwar industries like textiles and steel. But in Western Europe, the slowdown was aggravated by the abandonment of capital controls and America’s abandonment of a fixed and overvalued currency that had given Europeans a price advantage. The energy price hike that began in 1973 also hit oil-dependent Europe particularly hard. Growth slowed and unemployment rose. Comparing the period 1950 to 1973 with the period from 1973 to 1995, France’s average rate of growth fell from 5.1 to 2.7 percent; Germany’s from 6.0 to 2.7 percent; and Sweden’s from 4.1 to 1.5 percent.


pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

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accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, capital controls, corporate governance, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, Y2K

., p. 49) writes,"PoHtically, the easiest option for the national bourgeoisie was to suppress internal revolt by blaming the continuation of imperiaHst forms of domination of their countries, while masking their own compHcity in this domination." On the left, dependency theory gave this position some ideological cover, and today's debates are often filled with similar sentiments. Among NGOs and intellectuals working on development issues, there is talk of apartheid South Africa and Smith s Rhodesia as models of a possible autarkic dehnking from the world economy, and admiration for Mahathir's capital controls in Malaysia during the 1997-98 Asian financial crisis. It's often overlooked that Mahathir is a repressive bigot, and that the Southern African examples were part of strategies to sustain horrible societies. Any "progressive" alliance with national capitalism in the name of resistance to international capitaHsm can get very smelly. In the U.S., the Citizens Trade Campaign has taken support from the troglodytic textile tycoon Roger MiUiken.^ That's bad enough, but Na-derite trade rhetoric about how the World Trade Organization threatens U.S. sovereignty is pretty bad too; the world has sufiered from too much U.S. sovereignty and could do with a Uttle less.


pages: 193 words: 11,060

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

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accounting loophole / creative accounting, banking crisis, capital controls, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, index fund, invisible hand, margin call, moral hazard, Nick Leeson, Northern Rock, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail

First, based on research; second, based on control, or abuse; and third, based on the investment timescale, that is, how long an investment may be owned: • Research: a distinction is sometimes drawn between investment and speculation where investment has been considered to be based on some form of research, and aimed at securing a return without risking the value of the principal amount invested. Conversely, speculation has been considered to be based on a lack of research. By implication, speculation is considered a form of “gambling” rather than investment, hence the term “casino capitalism”. • Control: alternatively, speculation can be considered to be investment in securities where only a minority holding is acquired and where there is, therefore, no real management control of an enterprise. This type of investment is prevalent in the modern economy, among pension funds, mutual funds and private investors, and in the context of modern markets is difficult to see this as unethical. Ethical concerns about the position of minority shareholders, including those who trade actively, 92 Ethics in Investment Banking may, at least in part, be obviated by such investors exercising their shareholder rights (and duties) in terms of, for example, voting at company annual meetings (AGMs). • Investment horizon: taking the traditional idea of a speculator, it is difficult to make an ethical distinction between investment and speculation based primarily or exclusively on the length of time investors hold securities, if in all other aspects their behaviour is similar.

Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics by Francis Fukuyama

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Asian financial crisis, banking crisis, Berlin Wall, Bretton Woods, British Empire, capital controls, Carmen Reinhart, cognitive bias, cuban missile crisis, energy security, flex fuel, income per capita, informal economy, invisible hand, John von Neumann, Menlo Park, Mikhail Gorbachev, moral hazard, Norbert Wiener, oil rush, oil shale / tar sands, oil shock, packet switching, RAND corporation, Ray Kurzweil, reserve currency, Ronald Reagan, The Wisdom of Crowds, trade route, Vannevar Bush, Vernor Vinge, Yom Kippur War

Two other factors also helped to boost banker confidence in the East Asian countries despite the rapid growth of leverage. First, bankers perceived a close link between governments and business that they believed would lessen the risk that banks or private companies would go bankrupt. The data on the concentration of share ownership in various Asian countries illustrated the power of family groups. The share of stock market capitalization controlled by the top fifteen families was 62 percent in Indonesia, 38 percent in Korea, 28 percent in Malaysia, and 53 percent in Thailand. The banking system was also highly concentrated. The market share of the five leading banking institutions was 41 percent in Indonesia, 75 percent in Korea, 41 percent in Malaysia, and 70 percent in Thailand. The political links between business and government added a clear—but unrecognized—moral hazard dimension to the East Asian lending boom.


pages: 246 words: 74,341

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis by Johan Norberg

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accounting loophole / creative accounting, bank run, banking crisis, Bernie Madoff, Black Swan, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, moral hazard, mortgage tax deduction, Naomi Klein, new economy, Northern Rock, Own Your Own Home, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

Many banks refused even to transfer money there, and it became impossible to get hold of foreign currency5° "Kaupthing was the last, best hope of the Icelandic banking system, and it was killed there and then," explains Icelandic journalist Andres Magnusson. "This really was the last straw. A lot of Icelanders are asking, `Excuse me: who's the terrorist here? "'S1 In a single day, the Icelandic krona lost 27 percent of its value against the euro. The stock exchange was closed for three days. When it opened again, it fell 77 percent, reflecting the weight of the banks. Capital controls were introduced, meaning that nobody wanted to bring foreign currency into the country. Businesses could not renew their loans, and it became virtually impossible to import food, which is particularly devastating for a cold, barren country that does not really have an agricultural industry. At the end of the month, the central bank raised its benchmark rate from 12 to 18 percent to cushion the fall of the krona.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

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accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, Mont Pelerin Society, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, oil shock, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

The crisis passed without spreading to other borrowers, but another milestone was reached, as Wriston made a further serious dent in Regulation Q. Wriston was bailed out by the government on his reckless loans to Penn Central, and also won the ability to raise money on CDs with the change in Regulation Q. “It was the beginning of the end,” said one banker, meaning the demise of Regulation Q. The financial economists Henry Kaufman and Albert Wojnilower argued that the essential nature of finance had now changed as long-standing capital controls on lending were dismantled by Burns or circumvented through the negotiable CDs and Eurodollar deposits. The rationing of credit would be determined by rising and falling interest rates, not explicit financial controls. Unlike free market advocates like Wriston, both Kaufman and Wojnilower were skeptical that the level of interest rates alone could regulate and stabilize the system. Businesses in robust times were eager to borrow even as rates rose, and especially if inflation was raising the prices at which they could sell their goods and services.

The International Monetary Fund came forward with a rescue package, supported by Rubin, who also urged all central banks to loosen monetary policy. The Fed, according to economists Alan Blinder and Janet Yellen, was “poised” to raise rates in 1997, but now Greenspan cut them instead to limit the crisis. A cause of the crisis was the deregulatory policy of the Clinton administration, which had insisted that nations like Korea end capital controls, which had until then restricted the inflow of international capital. This policy once again reflected the free market attitudes now ascendant in the major rich nations and international agencies like the International Monetary Fund, policies generally known as the Washington Consensus. But the capital flows reached speculative heights because interest rates offered in these nations were so high and, because their currencies were pegged to the dollar, there was no currency risk.


pages: 585 words: 165,304

Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

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barriers to entry, Berlin Wall, blue-collar work, business climate, capital controls, collective bargaining, corporate governance, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global village, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, labour market flexibility, labour mobility, land reform, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing

Upjohn Institute for Employment Research, 1990), p. 66, and also by Dore (1983), p. 463. 19On the inter-keiretsu “beer wars,” see Gerlach (1992), pp. xx-xxi. 20Whitley (1990), pp. 55-56. 21The mechanism of overloaning is described in Chalmers Johnson, MITI and the Japanese Miracle (Stanford: Stanford University Press, 1982), pp. 203-204. 22See Ken’ichi Imai, “The Corporate Network in Japan,” Japanese Economic Studies 16 (1987-1988): 3-37. 23For reasons that this should be so, see F. M. Scherer and David Ross, Industrial Market Structure and Economic Performance, 3d ed. (Boston: Houghton Mifflin, 1990), pp. 126-130. 24On this general point, see Dennis J. Encarnation, Rivals Beyond Trade: American versus Japan in Global Competition (Ithaca, N.Y: Cornell University Press, 1992). 25Mark Mason, American Multinationals and Japan: The Political Economy of Japanese Capital Controls, 1899-1980 (Cambridge: Council on East Asian Studies, Harvard University, 1992), pp. 205-207. 26Shumpei Kumon, “Japan as a Network Society,” in Kumon and Rosovsky (1992), p. 121. 27One member of a large automaker’s keiretsu network was told to cut prices for parts by fifteen percent over three years, or the parent firm could seek other suppliers. “Small Manufacturers Face Survival Fight,” Nikkei Weekly, June 13, 1994, pp. 1, 8. 28Thus, Nippon Steel sold $9.6 billion in holdings of various banks, and Matsushita Electric and Nissan sharply reduced their holdings of each other’s share.

., Accounting for Fundamentalisms: The Dynamic Character of Movements (Chicago: University of Chicago Press, 1994). -----, eds., Fundamentalisms and Society. Reclaiming the Sciences, the Family, and Education (Chicago: University of Chicago Press, 1993). Mason, Edward S., The Economic and Social Modernization of the Republic of Korea (Cambridge: Harvard University Press, 1980). Mason, Mark, American Multinationals and Japan: The Political Economy of Japanese Capital Controls, 1899-1980 (Cambridge: Harvard University Press, 1992). Mathias, Peter and Postan, M. M., eds., The Cambridge Economic History of Europe, Vol. VII: The Industrial Economies: Capital, Labour, and Enterprise. Part I: Britain, Prance, Germany, and Scandinavia (London: Cambridge University Press, 1978). Maurice, Marc, Sellier, Francois et. al, The Social Foundations of Industrial Power: A Comparison of France and Germany (Cambridge: MIT Press, 1986).


pages: 351 words: 96,780

Hegemony or Survival: America's Quest for Global Dominance by Noam Chomsky

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anti-communist, Berlin Wall, Bretton Woods, British Empire, capital controls, cuban missile crisis, declining real wages, Doomsday Clock, facts on the ground, Fall of the Berlin Wall, invisible hand, market fundamentalism, Monroe Doctrine, RAND corporation, Ronald Reagan, Search for Extraterrestrial Intelligence, Thomas L Friedman, uranium enrichment

It has been regularly observed that the extension of formal democracy in Latin America has been accompanied by increasing disillusionment about democracy. One reason, pointed out some years ago by Argentine political scientist Atilio Boron, is that the new wave of democratization in Latin America has coincided with neoliberal economic reforms, which undermine effective democracy.59 The postwar Bretton Woods system was based on capital controls and relatively fixed currencies, not only in the expectation of economic benefit, as proved to be the case, but also to allow governments space to carry out highly popular social democratic policies. It was understood that the kind of financial liberalization that opened the neoliberal era in the 1970s reduces the options for democratic choice, transferring decisions to the hands of a “virtual Senate” of investors and lenders.60 Governments now face a ” ‘dual constituency conundrum,’ which pits the interests of voters against foreign currency traders and hedge fund managers ‘who conduct a moment-to-moment referendum’ on the economic and financial policies of developing and developed nations alike,” and the competition is highly unequal.


pages: 310 words: 90,817

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

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

Via legislative and regulative intervention, the investment strategies of private pension funds will increasingly be influenced by state directive. Pension funds with insufficient ratios of current assets to claims will be bailed out by the state. This will be used as a precursor to more state-run pension schemes. Policy makers have already floated ideas regarding new taxes on financial transactions. This will be the first step on the path to outright capital controls, the introduction or reintroduction of which appears a question of time only. Private citizens will increasingly face hurdles when taking control of their own financial assets and, in particular, when moving assets abroad. A free market in capital is impossible in an advanced state fiat money system. As long as the state considers the provision of cheap credit and the avoidance of a deflationary correction at all cost its policy goals, it cannot allow market forces to intervene with its efforts.


pages: 430 words: 109,064

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

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

For the prevalence of political connections between powerful businesspeople and government, see Mara Faccio, “Politically Connected Firms,” American Economic Review 96 (2006): 369–86. Specific countries for which we have detailed data on the role of powerful business interests and their political clout include Thailand (Marianne Bertrand, Simon Johnson, Antoinette Schoar, and Krislert Samphantharak, “Mixing Family with Business: A Study of Thai Business Groups,” Journal of Financial Economics 88 [2008]: 466–98); Malaysia (Simon Johnson and Todd Mitton, “Cronyism and Capital Controls: Evidence from Malaysia,” Journal of Financial Economics 67 [2003]: 351–82; Edmund Terence Gomez and Jomo K. S., Malaysia’s Political Economy: Politics, Patronage, and Profits [Cambridge: Cambridge University Press, 1997]); and Pakistan (Asim I. Khwaja and Atif Mian, “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market,” Quarterly Journal of Economics 120 [2005]: 1371–1411). 27.


pages: 397 words: 112,034

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

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

The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. CAPACITY UTILIZATION: This metric measures the extent to which the nation’s capital is being used in the production of goods. The utilization rate rises and falls with business cycles. As production increases, capacity utilization rises, and vice versa. CAPITAL ACCOUNT: The component of a country’s balance of payments that records the nation’s outflow and inflow of financial securities. CAPITAL CONTROLS: When government restricts capital flows into or out of a country. CAPITAL FLOW: When investment money from one country goes to another country. CAPITAL GOODS: Durable goods that are used to produce other goods for consumption. CAPITAL REQUIREMENTS: Standardized requirements that determine how much liquidity is required to be held for a certain level of assets for banks and other depository institutions.


pages: 353 words: 98,267

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

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

At the end of the first decade of the new millennium, the prosperity boom experienced by many workers in the twentieth century looks like a flash in the pan. A BANKER’S PARADISE This reconfiguration of prosperity is not simply about changes in the way we pay for work. The entire set of rules governing American capitalism changed. Those that emerged over the past three decades hammered the middle class. Trade barriers fell during this period, and capital controls were done away with. Welfare payments were redesigned to force the unemployed to look for work. Large swaths of regulation were cast aside as misguided hindrances to business. The shift lifted many of the protections that had shielded American workers from some of the harshest economic forces. And it provided enormous opportunities to those able to seize them. Take banking. Finance today is one of the most lucrative industries for bright college graduates.


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

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accounting loophole / creative accounting, Bretton Woods, business climate, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, labour market flexibility, labour mobility, market fundamentalism, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

Since restrictions on capital movements are incompatible with common market principles – disregarding other major objections 13 14 15 See Szasz, The Road to European Monetary Union. See O. Issing, ‘Economic prospects and policy in Germany’, Institute of Economic Affairs, Economic Affairs, 15:1 (Winter 1994). O. Issing, Frankfurter Allgemeine Zeitung, 16 January 1993. 8 • Historical background such as the practicability of capital controls – the only choice remaining is between the other two objectives. The option of flexible exchange rates was never seriously entertained in the context of European integration.6 However, the regime of fixed exchange rates that were nonetheless subject to sudden upward or downward revaluations, as embodied in the EMS, had over time proven to be so vulnerable to crises that it appeared to be only a matter of time before another crisis entailed even bigger abrupt changes in exchange rates.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

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Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population, World Values Survey

Rejecting the post-Second World War ‘wet’ Tory compromise with Labour, Thatcher began a radical dismantling of the mixed economy, in the process earning the sobriquet ‘The Iron Lady’ for her uncompromising attitude. The Thatcher government lowered higher-rate income taxes, reduced government spending (especially in education, housing and transport), introduced laws reducing union power and abolished capital control (restriction on the cross-border movement of money). The most symbolic move was privatization – sales of SOEs to private investors. Gas, water, electricity, steel, airline, automobile and parts of public housing were privatized. Interest rates were raised in order to reduce inflation by dampening economic activities and thus demand. The high interest rate attracted foreign capital, driving up the value of the British pound, thus making British exports uncompetitive.


pages: 357 words: 99,684

Why It's Still Kicking Off Everywhere: The New Global Revolutions by Paul Mason

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back-to-the-land, balance sheet recession, bank run, banking crisis, Berlin Wall, capital controls, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency manipulation / currency intervention, currency peg, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, Francis Fukuyama: the end of history, full employment, ghettoisation, illegal immigration, informal economy, land tenure, low skilled workers, means of production, megacity, Mohammed Bouazizi, Naomi Klein, Network effects, New Journalism, Occupy movement, price stability, quantitative easing, race to the bottom, rising living standards, short selling, Slavoj Žižek, Stewart Brand, strikebreaker, union organizing, We are the 99%, Whole Earth Catalog, WikiLeaks, Winter of Discontent, women in the workforce, working poor, working-age population, young professional

Some countries resisted. Brazil responded to a 40 per cent rise of the real against the dollar with a tax designed to suppress the flow of capital into Brazil. It spent tens of billions of dollars in the foreign exchange markets buying its own currency to depress the exchange rate, and slapped a ban on short-selling the dollar inside Brazil. But other countries could not, or would not, use capital controls. The outcome speaks for itself: the UN’s global Food Price Index, which had been set at 100 in 2004, rocketed from 180 in July 2010 to an all-time high of 234 in February 2011. In spring 2011, after Bernanke vigorously denied that QEII had had the slightest impact on the Arab Spring, UK economist Andrew Lilico produced a graph showing the almost exact correlation between Federal Reserve money-printing operations and global commodity prices.


pages: 363 words: 107,817

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

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

This was the Bretton Woods agreement. Nations agreed to manage their currencies to maintain a fixed exchange rate against the dollar, and America agreed to fix the dollar against gold. Maintenance of the Bretton Woods exchange rates shifted focus onto the flow of capital into and out of countries. To prevent these flows interfering with the fixed exchange rates, the UK used a combination of capital controls (to limit the outflows due to the acquisition of foreign assets), quantitative and qualitative restrictions on bank lending, and control of interest rates (to limit the availability and demand for domestic credit which could fuel imports). Despite the huge government deficits run up during the war, the destruction of large swathes of Europe, and a highly repressed financial system, from 1945 to 1971 growth was uniformly high and unemployment very low.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

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Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business process, butterfly effect, call centre, capital controls, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kevin Kelly, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, payday loans, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, wages for housework, women in the workforce

It would be more sensible to combine controlled debt write-offs with a ten- to fifteen-year global policy of ‘financial repression’: that is, to stimulate inflation, hold interest rates lower than the inflation rate, remove people’s ability to move money into non-financial investments or offshore, and thus inflate away the debts, writing off the part that remained. To be brutally clear, this would reduce the value of assets in pension funds, and thus the material wealth of the middle classes and the old; and by imposing capital controls you would be partially deglobalizing finance. But this is only a controlled way of doing what the market will do via chaos if, as S&P predicts, 60 per cent of all countries see their debt reduced to junk by 2050. In conditions of near-stagnation and long-term zero interest rates, the income generated by pension fund investments is in any case already minimal. But the state is not even half of the story.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

The Minotaur’s four charismas Reserve currency status While the Global Plan lasted, it did not matter much which currency one held, since the exchange rates against the dollar were more or less fixed and the exchange rate between the dollar and gold was welded at $35 to an ounce of the gleaming metal. Nevertheless, oil magnates, German industrialists, French winemakers and Japanese bankers preferred to store their cash in dollars simply because of capital controls – that is, restrictions on how much cash one could convert to dollars or other currencies at any one time. Once Bretton Woods was no longer, the psychological shock occasioned by the idea that currencies would soon be allowed to float freely created a stampede toward the dollar. To this day, whenever a crisis looms, capital flees to the greenback. This is exactly why the Crash of 2008 led to a mass inflow of foreign capital to the dollar, even though the crisis had begun on Wall Street.

All About Asset Allocation, Second Edition by Richard Ferri

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asset allocation, asset-backed security, barriers to entry, Bernie Madoff, capital controls, commodity trading advisor, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, Long Term Capital Management, Mason jar, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sharpe ratio, too big to fail, transaction costs, Vanguard fund, yield curve

Emerging countries also have organized securities exchanges that trade stocks and bonds of large enterprises domiciled in that country. Foreigners are allowed to own those securities either directly or indirectly through a fund. An investible emerging market is defined by a number of factors, including gross domestic product per capita, local government regulations, perceived investment risk, foreign ownership limits, and capital controls. The MSCI Emerging Markets Index covers 22 investible countries. It is a market-weighted index that uses the float-adjusted value of each company to reflect restrictions on foreign investment. Some countries have much larger stock markets than others. Consequently, at times an emerging market index can be dominated by a few countries. In an effort to reduce market dominance in the MSCI Emerging Markets Index, the Dimensional Fund Advisors (DFA) created an equal-weighted emerging index.


pages: 265 words: 15,515

Nomad Citizenship: Free-Market Communism and the Slow-Motion General Strike by Eugene W. Holland

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capital controls, cognitive dissonance, Colonization of Mars, complexity theory, deskilling, Firefox, Frederick Winslow Taylor, full employment, informal economy, invisible hand, Jane Jacobs, means of production, microcredit, money: store of value / unit of account / medium of exchange, Naomi Klein, New Urbanism, peak oil, price mechanism, Richard Stallman, Ronald Coase, slashdot, The Death and Life of Great American Cities, The Wisdom of Crowds, transaction costs, Upton Sinclair, urban renewal, wage slave, working poor

., rights, labor contracts) to resist political oppression and economic exploitation, even if the main objective of nomad citizenship is to develop superior weap­ ons (abilities, autonomy) outside the ambit of the State. In a somewhat different but related sense, nomadology construes so-called primitive ac­ cumulation as the outside of the capitalist mode of production and seeks to displace capital-controlled “free markets” with truly free ones. This is not a kind of neoliberalism: the point is to rescue market exchange, not perpetuate capitalism, and to enable noncapitalist markets to coordinate socialized production on a global scale, with an eye to the Common Good, by freeing them precisely from capitalist control. Categorically distinguishing nomad citizenship and free-market com­ munism from libertarianism and neoliberalism is important and neces­ sary because both sets of conceptions of political and economic life have a single underlying utopian impulse in common: freedom.


pages: 357 words: 95,986

Inventing the Future: Postcapitalism and a World Without Work by Nick Srnicek, Alex Williams

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3D printing, additive manufacturing, air freight, algorithmic trading, anti-work, back-to-the-land, banking crisis, battle of ideas, blockchain, Bretton Woods, call centre, capital controls, carbon footprint, Cass Sunstein, centre right, collective bargaining, crowdsourcing, cryptocurrency, David Graeber, decarbonisation, deindustrialization, deskilling, Doha Development Round, Elon Musk, Erik Brynjolfsson, Ferguson, Missouri, financial independence, food miles, Francis Fukuyama: the end of history, full employment, future of work, gender pay gap, housing crisis, income inequality, industrial robot, informal economy, intermodal, Internet Archive, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, late capitalism, low skilled workers, manufacturing employment, market design, Martin Wolf, means of production, minimum wage unemployment, Mont Pelerin Society, neoliberal agenda, New Urbanism, Occupy movement, oil shale / tar sands, oil shock, patent troll, pattern recognition, post scarcity, postnationalism / post nation state, precariat, price stability, profit motive, quantitative easing, reshoring, Richard Florida, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Slavoj Žižek, social web, stakhanovite, Steve Jobs, surplus humans, the built environment, The Chicago School, Tyler Cowen: Great Stagnation, universal basic income, wages for housework, We are the 99%, women in the workforce, working poor, working-age population

France undertook a neoliberal turn during the Mitterrand administration in the early 1980s, and the major economies of Europe became bound by the neoliberal policies embodied in the constitution of the European Union. In the United States and UK, a wave of systematic attacks were launched against the power of labour. Piece by piece, trade unions were demolished and labour regulations dismantled. Capital controls were loosened, finance was deregulated, and the welfare state began to be scavenged for profitable parts. Outside Europe and North America, neoliberalism had already been forced on Chile and Argentina in the aftermath of military coups in the 1970s. The developing world debt crisis of the 1980s acted as a key moment to break traditional proto-socialist hegemonies and institute a turn to neoliberalism across the world.53 Moreover, with the breakdown of the USSR, Eastern Europe saw a wave of neoliberalising trends that were spurred on by Western economic advisors.


pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

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Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, Plutocrats, plutocrats, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent

The all-powerful market that always knows best is finished.”29 Sarkozy’s remarks were just a taste of the international assault on the free-market beliefs that, to a great extent, all the world’s major powers had subscribed to over the previous thirty years. Since the opening of China in 1978 and the Thatcher and Reagan revolutions of 1979 and 1980, the state had been in retreat in almost every major economy across the world. The mantras of the Age of Optimism were deregulation, free trade, the abolition of capital controls, and the encouragement of cross-border investment. But in the wake of the economic and financial crisis, the state was resurgent across the world as governments stepped in to save their economies. The extent of the intellectual reversal after the crash of 2008 was extraordinary. The collapse of Lehman Brothers sparked immediate fears of a global financial meltdown, and so prompted governments all over the world to pour money into their banks.

Who Rules the World? by Noam Chomsky

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Albert Einstein, anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, capital controls, corporate governance, corporate personhood, cuban missile crisis, deindustrialization, Donald Trump, Doomsday Clock, Edward Snowden, en.wikipedia.org, facts on the ground, failed state, Fall of the Berlin Wall, Howard Zinn, illegal immigration, invisible hand, Malacca Straits, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, nuclear winter, Occupy movement, oil shale / tar sands, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, Ralph Waldo Emerson, Ronald Reagan, South China Sea, Stanislav Petrov, structural adjustment programs, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trade route, union organizing, uranium enrichment, wage slave, WikiLeaks, working-age population

They trace back to the 1970s, when the national political economy underwent major transformations, bringing to an end what is commonly called “the golden age of [state] capitalism.” Two major elements of this shift were financialization and the offshoring of production, both related to the decline in the rate of profit in manufacturing and the dismantling of the postwar Bretton Woods system of capital controls and regulated currencies. The ideological triumph of “free market doctrines,” highly selective as always, administered further blows as these doctrines were translated into deregulation, rules of corporate governance linking huge CEO rewards to short-term profits, and other such policy decisions. The resulting concentration of wealth yielded greater political power, accelerating a vicious cycle that has led to extraordinary wealth for a tiny minority while for the large majority real incomes have virtually stagnated.

Rogue States by Noam Chomsky

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anti-communist, Asian financial crisis, Berlin Wall, Branko Milanovic, Bretton Woods, capital controls, collective bargaining, colonial rule, cuban missile crisis, declining real wages, deskilling, Edward Snowden, experimental subject, Fall of the Berlin Wall, floating exchange rates, labour market flexibility, labour mobility, land reform, Mikhail Gorbachev, Monroe Doctrine, new economy, oil shock, RAND corporation, Silicon Valley, strikebreaker, structural adjustment programs, Tobin tax, union organizing, Washington Consensus

Nor would it do to mention that the generosity was largely bestowed by US taxpayers upon the corporate sector, which was duly appreciative, recognizing years later that the Marshall Plan “set the stage for large amounts of private US direct investment in Europe,”6 establishing the basis for the modern transnational corporations, which “prospered and expanded on overseas orders, . . . fueled initially by the dollars of the Marshall Plan” and protected from “negative developments” by “the umbrella of American power.”7 Furthermore, “Marshall Plan aid was also crucial in offsetting capital flight from Europe to the United States,” political economist Eric Helleiner alleges, a matter of which “American policymakers were in fact keenly aware,” preferring that “wealthy Europeans” send their money to New York banks because “cooperative capital controls had proven unacceptable to the American banking community.” “The enormity of Marshall Plan aid thus did not so much reflect the resources required to rebuild Europe, . . . but rather the volume of funds that were needed to offset the ‘mass movements of nervous flight capital’” predicted by leading economists, a flow that apparently “exceeded” the Marshall Plan aid provided by US taxpayers—effectively, to “wealthy Europeans” and New York banks.8 The “prevailing orthodoxy” has sometimes been subjected to explicit test, on the obvious terrain.


pages: 344 words: 93,858

The Post-American World: Release 2.0 by Fareed Zakaria

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affirmative action, agricultural Revolution, airport security, anti-communist, Asian financial crisis, battle of ideas, Berlin Wall, Bretton Woods, BRICs, British Empire, call centre, capital controls, central bank independence, centre right, collapse of Lehman Brothers, conceptual framework, Credit Default Swap, currency manipulation / currency intervention, delayed gratification, Deng Xiaoping, double entry bookkeeping, failed state, Fall of the Berlin Wall, financial innovation, global reserve currency, global supply chain, illegal immigration, interest rate derivative, knowledge economy, Mahatma Gandhi, Martin Wolf, mutually assured destruction, new economy, oil shock, open economy, out of africa, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, The Great Moderation, Thomas L Friedman, Thomas Malthus, trade route, Washington Consensus, working-age population, young professional

Some developing countries worried about becoming rapacious capitalists, and Sachs recalls explaining to them that they should debate long and hard whether they wanted to end up more like Sweden, France, or the United States. But, he would add, they didn’t have to worry about that decision for a while: most of them were still much closer to the Soviet Union. The financial force that has powered the new era is the free movement of capital. This, too, is a relatively recent phenomenon. The post–World War II period was one of fixed exchange rates. Most Western countries, including France and Italy, had capital controls restricting the movement of currency in and out of their borders. The dollar was pegged to gold. But as global trade grew, fixed rates created frictions and inefficiencies and prevented capital from being put to its best use. Most Western countries removed controls during the 1970s and 1980s. The result: a vast and ever-growing supply of capital that could move freely from one place to the next.


pages: 1,335 words: 336,772

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow

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bank run, banking crisis, Big bang: deregulation of the City of London, Bolshevik threat, Boycotts of Israel, Bretton Woods, British Empire, California gold rush, capital controls, collective bargaining, Etonian, financial deregulation, German hyperinflation, index arbitrage, interest rate swap, margin call, Monroe Doctrine, North Sea oil, oil shale / tar sands, paper trading, Plutocrats, plutocrats, Robert Gordon, Ronald Reagan, short selling, strikebreaker, the market place, the payments system, too big to fail, transcontinental railway, Yom Kippur War, young professional

ADRs permitted American investors to buy foreign stocks in the United States with a minimum of difficulty. They would actually buy receipts against shares held in a foreign bank vault. The coopera-ting American bank would convert dividends into dollars and spare the investor foreign-exchange problems. In the spring of 1960, Regis Moxley of Morgan Guaranty, an evangelist for ADRs, visited Japan to preach their virtues. Afraid ADRs would breach the nation’s capital controls, the Ministry of Finance warily consented to an ADR for Sony, the first ever for a Japanese stock. Setsuya Tabuchi, chairman of Nomura Securities, later said, “If there was a single milestone in the internationalization of the Japanese financial market, it came in 1961 when Sony issued American depositary receipts in the U.S.”49 As with Schwab, Morgan Guaranty, long absent from foreign markets, inadvertently stirred up local ire.

Preston, the tough, witty ex-marine who steered the Morgan bank back toward investment banking 81. 60 Wall Street, the new Morgan bank headquarters; more space and computers, but less poetry and mystery The advent of Phillips helped Morgan Guaranty solve its Morgan Stanley problem. To overcome any lingering Japanese doubts about the Morgan banks, John Meyer kept urging John Young of Morgan Stanley to open a Tokyo office. With the imposition of U.S. capital controls, Morgan Stanley needed to find money around the world for its clients, and Japan was becoming too big to ignore. So in 1970, Morgan Stanley agreed to set up a Tokyo representative office on two conditions—that it get space adjoining a new World Bank liaison office in Tokyo and that David Phillips head the office. Morgan Guaranty obliged on both counts. So remarkable was Phillips’s work for Morgan Stanley that in 1977 he became its first nonwhite managing director.

Both Morgan Grenfell and Morgan Stanley would later plead, with some justice, that they were provoked into aggressive takeovers by their clients and that their metamorphosis into merger artists didn’t occur in a financial vacuum. In the 1960s, the bankers were still more the instruments than the engines of takeovers. The Morgan Stanley-Morgan Grenfell team flew off to the City to mount the most vigorous operation in London Stock Exchange history, fortified by a $150-million credit led by Morgan Guaranty. Stymied by LBJ’s capital controls, American Tobacco could afford only a partial bid, and this enforced economy led to the controversy. All over the City, insurance companies, pension funds, and other underwriters sat with unwanted, depressed Gallaher shares, gnashing their teeth at Morgan Grenfell. At a Sunday night meeting, the takeover team plotted its strategy with Sir Antony Hornby, senior partner of Cazenove and Company, who was assigned to handle the Stock Exchange operation.


pages: 892 words: 91,000

Valuation: Measuring and Managing the Value of Companies by Tim Koller, McKinsey, Company Inc., Marc Goedhart, David Wessels, Barbara Schwimmer, Franziska Manoury

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air freight, barriers to entry, Basel III, BRICs, business climate, business process, capital asset pricing model, capital controls, cloud computing, compound rate of return, conceptual framework, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, distributed generation, diversified portfolio, energy security, equity premium, index fund, iterative process, Long Term Capital Management, market bubble, market friction, meta analysis, meta-analysis, new economy, p-value, performance metric, Ponzi scheme, price anchoring, purchasing power parity, quantitative easing, risk/return, Robert Shiller, Robert Shiller, shareholder value, six sigma, sovereign wealth fund, speech recognition, technology bubble, time value of money, too big to fail, transaction costs, transfer pricing, value at risk, yield curve, zero-coupon bond

This means that there is a single, real-terms risk-free rate and that the market risk premium and beta should be measured against a global market portfolio and not against a local (foreign or domestic) market portfolio. We recommend this approach because capital markets have become global, in the sense that a considerable share of all equity trades is now international, and global traders, primarily large institutional investors, draw their capital from and invest it all around the world. For investors and companies in markets facing capital controls that prevent them from freely investing abroad, we recommend using a so-called local ESTIMATING THE COST OF CAPITAL 495 CAPM. By definition, they can invest in domestic assets only and should estimate the cost of capital from a domestic perspective, measuring market risk premium and beta versus a (diversified) domestic portfolio. The following sections provide further background for our recommendations and practical guidelines for estimating the cost of capital in foreign currency.

Mauboussin, Credit Suisse Global Investment Returns Yearbook 2014 (London: Credit Suisse Research Institute, 2014). reference to estimate the cost of capital. As a result, valuations in such restricted markets can be out of line with those in global markets—which is what we have encountered in the past for valuations in, for example, the Indian and mainland Chinese stock markets. Estimating Market Risk Premium in Global CAPM In the absence of capital controls for investors, the global market risk premium should be based on a global index that includes most of the world’s investment assets. As explained in Chapter 13, the market risk premium for an index can be estimated from its historical returns, from current financial ratios, or from forward-looking models, which, by and large, lead to similar results. Global indexes rarely go far back in time, so long-term estimates of