pushing on a string

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pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

bank run, banking crisis, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, Lao Tzu, margin call, market bubble, McMansion, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Borrowing can become prohibitively expensive even at zero percent interest as dollars borrowed this year must be paid back in next year’s dollars that are more dear. Consumers quit consuming when they discover that the dollar they don’t spend today buys more tomorrow. The situation is often likened to trying to “push on a string.” The Federal Reserve can monetize debt, purchase government bonds, and make reserves available to the banking system. But it can’t force businesses to borrow. If no one borrows, there is no stimulative effect in the economy. Deflation is a subject of special interest to many economists including Ben Bernanke, the current Federal Reserve chairman, who has written extensively about it. In a widely noted speech in 2002, Bernanke sought to answer the “pushing on a string” case for deflation, saying that the Fed and the government have sufficient means to ensure that any such interlude would be mild and brief. Bernanke provides a parable to illustrate the power of the printing press: Today an ounce of gold sells for $300, more or less.

For example, the Fed’s inflationary capacity is not limited by the stock of U.S. government debt. It can now monetize (buy) foreign government debt. Already the Fed is buying short-term corporate debt in the commercial paper market. It can even buy mortgages. Bernanke discusses several other means of countering deflation and concludes that the monetary and fiscal authorities “would be far from helpless in the face of deflation. . . .” Still this does not quite answer the “pushing on a string” argument of deflationists. What can the Fed do to be sure of generating public spending with its monetary policies? The answer: whatever it takes. The Fed will use any tool at its disposal to stop a threat of deflation. It will create new tools and assume heretofore unseen authority if need be. It is in this spirit that the Fed chairman won his nickname, “Helicopter Ben.” Anticipating Obama’s tax cuts, Bernanke suggested that a broad-based tax cut financed by inflation would almost certainly be effective.

See Gold coinage; Silver coinage Collectibles, precious metals as Command economy as anti-American bank nationalization currency controls features of financial behavior, reporting and poverty shortages and rationing wage and price controls Commodities as investment exchange-traded funds (ETFs) exchange-traded notes (ETNs) Rogers International Commodity Index (RICI) Consumer Price Index (CPI), core inflation rate as alternative Consumption, decline and deflation Core inflation rate Corzine, Jon Cost-push inflation Counterfeit, gold coins Countrywide Financial “Crack-up boom,” Credit, artificial and malinvestment Credit crisis Credit Suisse Currency controls, and monetary breakdown foreign. See Foreign currency as investment hard currencies DB Commodity Services LLC, Debt, federal. See Federal debt Debt securities exchange-traded notes (ETNs) U.S. government. See Treasury bonds Deflation bailout, effects on economic impact of myths about “pushing on a string” argument De Gaulle, Charles Deng Xiaoping Digital gold currencies GoldMoney Dollar as currency reserves deterioration, and oil-pricing alternatives devaluation and Fed overseas holdings Dollar standard benefits to U.S. global dumping of Economic collapse, signs of Economic crisis (2008- ) bailouts command economy threat credit crisis and dollar standard federal debt government actions.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

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

Ugly inflationary depressions arise in cases where policy makers allow faith in the currency to collapse and print too much money. 6) “Pushing on a String” Late in the long-term debt cycle, central bankers sometimes struggle to convert their stimulative policies into increased spending because the effects of lowering interest rates and central banks’ purchases of debt assets have diminished. At such times the economy enters a period of low growth and low returns on assets, and central bankers have to move to other forms of monetary stimulation in which money and credit go more directly to support spenders. When policy makers faced these conditions in the 1930s, they coined the phrase “pushing on a string.” One of the biggest risks at this stage is that if there is too much printing of money/monetization and too severe a currency devaluation relative to the amounts of the deflationary alternatives, an “ugly inflationary deleveraging” can occur.

A Template for Understanding BIG DEBT CRISES Ray Dalio Table of Contents A Template for Understanding Big Debt Crises Acknowledgements Introduction PART 1: The Archetypal Big Debt Cycle How I Think about Credit and Debt The Template for the Archetypal Long-Term/Big Debt Cycle Our Examination of the Cycle The Phases of the Classic Deflationary Debt Cycle The Early Part of the Cycle The Bubble The Top The “Depression” The “Beautiful Deleveraging” “Pushing on a String” Normalization Inflationary Depressions and Currency Crises The Phases of the Classic Inflationary Debt Cycle The Early Part of the Cycle The Bubble The Top and Currency Defense The Depression (Often When the Currency Is Let Go) Normalization The Spiral from a More Transitory Inflationary Depression to Hyperinflation War Economies In Summary PART 2: Detailed Case Studies German Debt Crisis and Hyperinflation (1918-1924) US Debt Crisis and Adjustment (1928–1937) US Debt Crisis and Adjustment (2007–2011) PART 3: Compendium of 48 Case Studies Glossary of Key Economic Terms Primarily Domestic Currency Debt Crises Non-Domestic Currency Debt Crises Appendix: Macroprudential Policies Acknowledgements I cannot adequately thank the many people at Bridgewater who have shared, and continue to share, my mission to understand the markets and to test that understanding in the real world.

* * * * There is also a glossary of economic terms at the start of Part 3, and for a general overview of many of the concepts contained in this study, I recommend my 30-minute animated video, “How the Economic Machine Works,” which can be accessed at www.economicprinciples.org. PART 1: The Archetypal Big Debt Cycle How I Think about Credit and Debt The Template for the Archetypal Long-Term/Big Debt Cycle Our Examination of the Cycle The Phases of the Classic Deflationary Debt Cycle The Early Part of the Cycle • The Bubble • The Top • The “Depression” • The “Beautiful Deleveraging” • “Pushing on a String” • Normalization Inflationary Depressions and Currency Crises The Phases of the Classic Inflationary Debt Cycle The Early Part of the Cycle • The Bubble • The Top and Currency Defense • The Depression (Often When the Currency Is Let Go) • Normalization The Spiral from a More Transitory Inflationary Depression to Hyperinflation War Economies In Summary How I Think about Credit and Debt Since we are going to use the terms “credit” and “debt” a lot, I’d like to start with what they are and how they work.


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, asset-backed security, bank run, barriers to entry, Basel III, Bernie Sanders, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, greed is good, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, liquidity trap, London Whale, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, negative equity, new economy, Northern Rock, obamacare, price stability, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

The Fed’s tradition of consensus was so powerful “in that context a ‘no’ vote represents a strong statement of disagreement,” Bernanke wrote in his memoir. “Too many dissents, I worried, could undermine our credibility.” But tradition be damned, Fisher refused to be a yes man. He always feared the consequences of “pushing on a string”—a phrase with a venerable history at the Fed. In 1935, Federal Reserve Chairman Marriner Eccles testified during hearings on the Banking Act that little could be done with monetary policy to stimulate growth. “You mean you cannot push on a string?” Congressman Alan Goldsborough said. “That is a very good way to put it, one cannot push on a string,” Eccles said. “We are in the depths of a depression and . . . beyond creating an easy money situation through reduction of discount rates . . . there is very little, if anything, that the [federal] reserve organization can do toward bringing about recovery.”

To encourage lending: FR: FOMC Statement, March 18, 2008, www.federalreserve.gov/newsevents/press/monetary/20080318a.htm. “I find myself conciliating”: Bernanke, The Courage to Act, 238. Kohn responded to Bernanke’s e-mail by pointing out that “after a honeymoon period of three meetings without dissent in 1987, the Maestro had faced dissents in nineteen of his next twenty-one meetings.” The Fed’s tradition of: Ibid. “You mean you cannot push on a string?”: John H. Wood, A History of Central Banking in Great Britain and the United States (Cambridge: Cambridge University Press, 2005), 231. “It’s really a question”: Sudeep Reddy, “Fisher: Fix the Credit System First,” Wall Street Journal, April 22, 2008. In mid-April 2008: Maurna Desmond, “IMF: Subprime Losses Could Hit $1 Trillion,” Forbes.com, April 8, 2008, www.forbes.com/2008/03/31/subprime-costs-writedowns-markets-equity-cx_md-0331markets21.html.


pages: 436 words: 98,538

The Upside of Inequality by Edward Conard

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

Paul Krugman, “The Conscience of a Liberal: Monetary Policy in a Liquidity Trap,” New York Times, April 11, 2013, http://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap. 54. Martin Wolf, “Lunch with the FT: Ben Bernanke,” Financial Times, October 23, 2015, http://www.ft.com/intl/cms/s/0/0c07ba88-7822-11e5-a95a-27d368e1ddf7.html. 55. “Pushing on a String,” Wikipedia, accessed December 18, 2015, https://en.wikipedia.org/wiki/Pushing_on_a_string. 56. Paul Krugman, “The Conscience of a Liberal: Rethinking Japan,” New York Times, October 20, 2015, http://krugman.blogs.nytimes.com/2015/10/20/rethinking-japan. 57. John Cochrane, “The Fed Needn’t Rush to ‘Normalize,’” Wall Street Journal, September 16, 2015, http://www.wsj.com/articles/the-fed-neednt-rush-to-normalize-1442441737.

Surely, the Fed could mistakenly allow inflation even if it intended not to. One explanation could be that the Fed can’t conduct monetary policy in a way that threatens price inflation, even if it wanted to. Borrowing and spending entail risk—by both lenders and borrowers. When the economy’s capacity and willingness to bear risk binds growth, savings and money sit unused. Increasing the monetary base just pushes on a string.55 Idle savings, the Fed’s inability to produce inflation, and the zero lower bound are all symptoms of the economy’s capacity and willingness to bear risk, binding growth. Krugman agrees that printing money, on its own, won’t create inflation. He insists that to produce inflation, the government must increase spending to tighten capacity utilization56 . . . assuming no corresponding private-sector dial-back, of course!


pages: 330 words: 77,729

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

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

Even Yale's James Tobin, a friendly critic, recognized its greatness: "This is one of those rare books that leaves their mark on all future research on the subject" (1965, 485). Friedman had a twofold mission in researching and writing Monetary History. First, he wanted to dispel the prevailing Keynesian notion that "money doesn't matter," that somehow an aggressive expansion of the money supply during a recession or depression cannot be effective, like "pushing on a string." Friedman and Schwartz showed time and time again that monetary policy was indeed effective in both expansions and contractions. Friedman's work on monetary economics became increasingly important and applicable as inflation headed upward in the 1960s and 1970s. His most famous line is "Inflation is always and everywhere a monetary phenomenon" (Friedman 1968, 105). Friedman Discovers the Real Cause of the Great Depression That money mattered was an important proof, but the research by Friedman and Schwartz revealed a deeper purpose.

One startling sentence in the entire 860-page book changed forever how economists and historians would view the cause of the most cataclysmic economic event of the 20th century: "From the cyclical peak in August 1929 to the cyclical trough in March 1933, the stock of money fell by over a third" (Friedman and Schwartz 1963, 299). For thirty years, an entire generation of economists did not really know the extent of the damage the Federal Reserve had inflicted on the U.S. economy from 1929 to 1933. They had been under the impression that the Fed had done everything humanly possible to keep the depression from worsening, but like "pushing on a string," were impotent in the face of overwhelming deflationary forces. According to the official apologia of the Federal Reserve System, it had done its best, but was powerless to stop the collapse. Friedman radically altered this conventional view. "The Great Contraction," as Friedman and Schwartz called it, "is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz 1963, 300).


pages: 488 words: 144,145

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

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

Meltzer added in the same portion of his landmark book that Eccles was not an apologist for deficits generally, but only to offset deficits in investment spending. He observes that despite the prominence of Keynes’s work at the time, Eccles claimed never to have read his books nor to have derived any of his own views on deficit spending from Keynes main work.61 Meltzer documents how Eccles came to be associated with the term “pushing on a string” in 1935 during testimony before the House Committee on Banking and Currency. He knew that monetary expansion did not work in the Depression because people were unwilling to spend or borrow. But Eccles went further than many of his contemporaries and attributed the excess of savings to inequitable income distribution. “Eccles differed from his predecessors in his belief that government had to take responsibility for the economy,” wrote Meltzer.

See U.S. dollar gold convertibility, Nixon cessation supply, visibility Domestic debt, reduction Domestic spending, increase (impact) Dow, Jones & Co. (Barron ownership) Dow Jones Industrial Average, decline (1929) Drew, Daniel Drysdale Government Securities, collapse Dunbar, Willis Dunkelberg, William Dunn, Susan du Pont, Pierre S. Durant, William Durant‘s Folly Earning power, assets (relationship, absence) Ebeling, Richard Eccles, Marriner Glass, opposition pushing on a string Truman anger Economic depression (1882-1884) Economic expansion, Burns limitation Economic growth, generation Economic output, WWI decline Economic Recovery Tax Act (1981) Economic Stabilization Act Economic stagnation, Nixon response Economy, American uncertainty/doubt Economy (angst), American political class (response) Einhorn, David Einstein, Albert Eisenhower, Dwight David defense industrial complex warning election Electrification, impact Embargos, removal (FDR support) Emergency Banking Act (1933) Emergency Banking Relief Act Employment Act (1946) passage Employment maximum, promotion Energy costs, impact Equity markets, decline Erie Railroad collapse control, theft Eurodollars deposits, dollar supply (visibility) Europe American imports, decline collapse credit, U.S. dependence deflation goods flow, American dependence unemployment (1873) WWI debt payment, failure/refusal WWII loans WWI loans European imports, WWI financing requirement European nations, U.S. trade deficit European style corporate statism, American version (FDR endorsement) European Union crisis (2010) emergence success Exchange medium Exchange Stabilization Fund (ESF) (1933) Executive Branch, power (growth) External deficits, increase (impact) Faris, Ralph Farley, James Farm cooperatives, formation Farm Credit Banks, usage Farmer’s Exchange Bank, failure Farm prices/wages, decline (continuation) Farm sector, commodity prices (collapse) Faulkner, Harold Federal debt (1945-1996) level (1974) shrinkage U.S. government servicing Federal deposit insurance, FDR support Federal Deposit Insurance Corporation (FDIC) idea, proposal panic role permanency Federal expenditures, Hoover avoidance Federal funds rate, increase Federal government greenback issuance, legality (debate) laissez faire role, return post-Civil War debt size (increase), FDR (impact) Federal Home Loan Bank Board, authorization Federal Home Loan Banks (FHLBs) authorization Hoover creation Federal Home Loan Mortgage Corporation (FHLMC) Federal insurance, access Federal Land Bank Federal Monetary Authority Federal National Mortgage Association (FNMA) creation Federal Open Market Committee (FOMC) capitulation federal funds rate, increase interest rate control Federal outlays (1968-1976) Federal outlays (1979-1988) Federal receipts (1929-1996) Federal Reserve Act (1913) amendment, banking lobby (impact) approval Bryan support compromise decentralized features evolution impact passage Byrd perspective political equation, shift Federal Reserve banks, National Monetary Commission organization Federal Reserve Money Federal Reserve System Board of Governors creation, McFadden Act (impact) original composition corportivist reform creation impact Jefferson/Jackson, cautionary views (confirmation) deflationary tone Durant complaints evolution Galbraith description High Tide imperfections independence, retention liquidity provider motivation (2000s) policies, questions rediscounting regulation changes, Warburg opposition RFC, relationship tunnel-vision policies, adoption warrants, purchase (Federal Reserve Act limitation) WWI actions Federal revenues, growth Federal spending, increase Federal Trade Act Fed of New York, discount rate (reduction) Feinberg, Robert Fessenden, William P.

Novak, Robert O’Driscoll, Gerald Offshore market, dollar deposits Oil companies, asset choice Oil industry, deregulation Oil prices, shocks Oklahoma bank, FDIC assistance Open market operations control, centralization Orwell, George (1984) Outstanding consumer debt, increase Owen, Robert proposal Paine, Thomas Panic of 1873 Panic of 1893 Panic of 1897 Panic of 1901 Panic of 1907 social/economic effects Paper currency emission, Lincoln precedent legal tender acceptance manufacture, establishment value, speculation (tactics) Paper dollars, gold (relationship) Paper money American opposition market dynamic post-Civil War supply contraction, assumption preference supply, increase suspicion Paper notes, interest-free debt Past earnings, significance Patton, George Eisenhower opposition Paul, Ron Peace insurance Pearl Harbor, Japan attack Pecora, Ferdinand Pemex, oil monopoly Penn Central, bailout Penn Square Bank, collapse inevitability Pennsyvania Steel Trust, control Peter the Hermit (Crusades) Philippines, acquisition (Hobart involvement) Phillips, Kevin Ping, Luo Platt, Orville Platt, Tom business interests Plaza Accord Pollock, Alex Pomerene, Atlee Populist movement, rise Positive liberty Post-Civil War price deflation Post-War economy, increase Post-WWII periods, segments (Morga) Pre-WWI America, libertarian world view Price deflation (post-Civil War) Private banks notes, printing paper issuance, suspicion U.S. government, relationship (change) Private businesses, bankruptcy (1873) Private debt financing level, peak (1929) usage Private gold, confiscation Private investment rate, decline Private parties, foreign lending (problem) Private sector debt levels rise economy, depression public sector, relationship Production, promotion Progressives disappointment movement impact marginalization Prohibition, repeal (Smith support) Protectionism, attraction Protestant silverites, characterization Public debt financing Public debt, Hamilton advocacy Public-private partnership, creation Public sector debt, growth private sector, relationship Pujo, Arsene P. Pujo Committee focus investigation reopening political context report, publication Purchasing power, promotion Pushing on a string Railroads asset choice banks/commercial companies, comparison collapse dominance, cessation post-Civil War debt Railway Labor Act, Supreme Court (upholding) Rainsford, W.S. Rand, Ayn (Greenspan disciple) Raskob, John J. Rayburn, Sam Raynes, Sylvain Reading Railroad bankruptcy corporate instability, cause debt, interest (payment) Reagan, Ronald deregulation promise supporters White House entry Reaganomics Real economic growth, average (Reagan years) Real estate bust (2007) Real wages, impact Recession Reconstruction, financial opportunity Reconstruction Finance Corporation (RFC) authorization Baruch prediction Federal Reserve System, relationship government policy implementation Hoover creation intermediate credit facility control lending powers loans, usage Mills perspective operations, expansion parastatal corporation, Jones control role, importance Red Scare (1919-1920) Reed, John Reeves, Richard Reform, politics (Roosevelt/Wilson impact) Reinhart, Carmen (This Time It Is Different) Reis, Bernard J.


pages: 182 words: 53,802

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

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

Nevertheless, while monetary policies are important in shaping economic prosperity, they are most certainly not the whole answer. There are times, such as our own, when low rates of interest and other monetary policies are insufficient to stimulate the kind of investment needed to increase employment, improve productivity and generate income. That is when it is important for monetary policy to work hand in hand with fiscal policy. In other words, when monetary policy is like pushing on a string and the private sector is reluctant to invest and spend, then it is time for governments to initiate investment and spending – to create jobs, expand activity and income, and generate economic recovery, Austerity leads to shortages of safe assets Keynes understood that the rate of interest is a social variable, one that can be deliberately managed by the public authorities, while at the same time holding finance capital at bay.


pages: 524 words: 143,993

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

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

Keynesians argue that when short-term rates are close to zero, monetary policy is no longer very effective. Certainly, apparently reasonable monetary growth, measured by M2, did not generate a vigorous recovery, though it almost certainly stopped a far deeper recession. The difficulty, as we saw in Chapter Five, is that the economy suffers from a savings glut – desired savings exceed desired investment, despite the extremely low interest rates. In the well-known expression: money is pushing on a string.47 Moreover, though the short-term rate may be near to or at zero, it is impossible to bring the long-term rate that low, because of ‘liquidity preference’: at negligible long-term rates, the downside for holders is large (since investors would lose a fortune if yields returned to normal) and the upside negligible. So people will not hold the long-term bonds if the yield falls below a certain level.

M2 consists of (1) currency outside the US Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) travellers’ checks of non-bank issuers; (3) demand deposits; (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit-union share-draft accounts; (5) savings deposits (which include money-market deposit accounts, or MMDAs); (6) small-denomination time deposits (time deposits in amounts of less than $100,000); and (7) balances in retail money-market mutual funds (MMMFs). Definitions are available at http://research.stlouisfed.org/fred2. 47. http://en.wikipedia.org/wiki/Pushing_on_a_string. 48. See, among many other things, Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven: Yale University Press, 1986), and ‘Financial Instability and the Decline (?) of Banking: Future Policy Implications’, Working Paper No. 127, October 1994, The Jerome Levy Research Institute of Bard College, http://www.levyinstitute.org/pubs/wp127.pdf. 49. See ‘Chartalism’, http://en.wikipedia.org/wiki/Chartalism. 50.


pages: 482 words: 149,351

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

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

As John Maynard Keynes once put it, discussing financial globalisation and inequality in the oligarchical Gilded Age before the First World War (no relation of the Golden Age after the Second), ‘society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it’. This three-trillion-dollar fact poses a large question for the tax cutters to answer. Why would a corporate tax reduction – adding to already vast uninvested cash piles – spur corporations to invest? Corporate tax cutting is like pushing on a string. And, given how quickly cash piles have been growing – a hefty 6 per cent a year, at the last count – any research based on past evidence can’t take this factor into account.21 How can our diligent researcher incorporate all this stuff into a serious cost-benefit analysis? She can’t. No one can. The real experts in academia, government departments and think tanks – including those at the IFS – know all this.

For example, if large multinationals are sitting on trillion-dollar cash piles that they aren’t investing, why would any pro-multinational reform – whether cutting corporate taxes or financial regulations, but also reducing workers’ rights or wages, or relaxing environmental rules – suddenly encourage them to start? Such measures may quantifiably boost corporate profits, but in terms of attracting or stimulating real investment, they would be pushing on a string. And it’s worse than that, for the same reason I explained earlier. Because these measures take wealth out of the hands of workers and other less wealthy stakeholders in society – stakeholders who generally spend a greater share of any extra wealth that comes their way – this will tend to reduce overall demand, making it less likely that corporations will invest, inflicting a second round of damage.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, mega-rich, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

The expansion of credit might be controlled some by those at the helm of the Fed, but the animal spirits of those who would lend and borrow are equally important, as was proven back in the times when there was no Fed and gold was the monetary base. If the horse has been run too hot (as it was in the 1920s), loosening the reins may not be enough to entice it to speed up again after the race is over. To borrow from an old saying, the Fed governors could not “push on a string.” Fiat money, electronic or paper currency that is not redeemable into a hard asset, has dominated the modern financial era. Cultural and political change has trended against prudent management of credit growth for nearly a century. As a consequence, outside a few doomsayers, libertarians, and boldly curious economists or money managers, most observers in our time have little more than a theoretical conception of why a fiat currency system could come under stress, and whether the current crisis might be handled effectively or deepen to the point that the political demand for an alternative form of money 74 ENDLESS MONEY would emerge.

Those who rooted for the deflationist camp looked to the depression years and saw a consumer heavily laden with debt and a highly leveraged banking system wherein over half of its loans relate to real estate.6 They saw interest rates at generational lows already, with the Fed discount rate near zero by year-end 2008. With loan demand sated and a need for banks and consumers to deleverage, they saw any Fed action to inject reserves into the monetary system as “pushing on a string,” to use the phrase invented by the monetarist Friedman in his analysis of the Great Depression. From within the Fed in the days that the policy of quantitative easing became official, Philadelphia Federal Reserve Bank President Plosser alerted us that “(recent economic statistics) prompted some commentators to suggest that the United States is facing a threat of sustained deflation, as we did in the Great Depression or as Japan faced for a decade.


pages: 201 words: 64,545

Let My People Go Surfing by Yvon Chouinard

air freight, business process, clean water, Donald Trump, Doomsday Book, Mahatma Gandhi, pushing on a string, Ralph Waldo Emerson, Rubik’s Cube, urban sprawl

We do know that nature has already been disrupted, on a grand scale worldwide, in the form of global warming and climate change. However ingeniously adaptive and self-healing nature may be, human industry, especially during the past century, wreaks change far more quickly than nature can deal with it. Where we tip the balance, we yield desert, and at some point we may tip the balance planet-wide. At that point all mitigating human effort becomes, in Keynes’s memorable phrase, “like pushing on a string.” We are the last generation that can experience true wilderness. Already the world has shrunk dramatically. To a Frenchman, the Pyrenees are “wild.” To a kid living in a New York City ghetto, Central Park is “wilderness,” the way Griffith Park in Burbank was to me when I was a kid. Even travelers in Patagonia forget that its giant, wild-looking estancias are really just overgrazed sheep farms.


pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, margin call, market clearing, mass immigration, money market fund, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, plutocrats, Plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

The boom in housing that was based on cheap mortgages allowed people to make up their losses in the tech bubble burst that preceded it. So, even when effective, the availability cheap money is always dangerous. However, sometimes the problem is deeper, and even very cheap money doesn’t restore market confidence. Low interest rates are like a string the central bank can use to draw entrepreneurs and investors back into taking the kind of risks that produce jobs and generate wealth. As has often been noted, you can’t push on a string. Flooding the market with cheap money is totally ineffective if risks outweigh any obvious opportunities to make money. Cheap money is useless if nobody wants to use it or if those who want to use it no longer should have it because of the risk they represent. It is like pumping more and more air into a balloon that has burst. Unless you can find a way to patch it, you are wasting time and energy.


pages: 270 words: 73,485

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

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

The British had also abandoned the Gold Standard and hence devalued their currency. It was these monetary policy moves which aided the recovery. A recovery that was faster in the UK than in the US. This historical experience was somewhat ignored by the postwar fashion of simplifying Keynes’s message, leading to the rigid conclusion drawn by the earlier generation of Keynesians that monetary policy was ineffective in engineering a recovery. The adage was: “You cannot push on a string.” Yet the injection of a large quantity of liquidity has not revived the economies of the US and UK. The best you can say is that the recession was not deepened thanks to the regime of low interest rates. What is also surprising is that the enormous amount of money injected into the economy has not caused inflation, as was the doctrine of the monetarists during the 1970s. But then the monetarists also had a closed economy model and the world has become open and globalized.


pages: 278 words: 82,069

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

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

Massive losses piled up at places like Citigroup, Coun-trywide, Merrill Lynch and Morgan Stanley, and cascaded back into the insurance companies. At the end of February, the huge insurer American International Group reported the largest quarterly loss, $5 billion, since the company started in 1919. After some delay, the Federal Reserve Board last summer started lowering interest rates on loans to the banks. But in a phrase from the bank crisis of the 1930s, it was like “pushing on a string.” The bankers’ problem was not that money was too expensive to lend out; it was that they were afraid they wouldn’t get their money back. When they did lend, they jacked up the rates to compensate for the higher perceived risks—even to solid customers. The Port Authority of New York and New Jersey suddenly had to borrow money at 20 percent. The State of Pennsylvania couldn’t finance its college student loan program.


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, plutocrats, Plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, wealth creators, working poor, yield curve

Economists and people who speak money argue all the time about things like inflation, not just in terms of what to do about it and its practical consequences but actually in terms of the very essence of what it is and how it works and how best to define it. Here is the range of views, as summarized by Wikipedia: Some economists maintain that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply, while others take the view that under the conditions of a liquidity trap, large injections are “pushing on a string” and cannot cause significantly higher inflation. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or to changes in available supplies such as during scarcities, as well as to changes in the velocity of money supply measures—in particular the MZM (money zero maturity) supply velocity.


pages: 310 words: 90,817

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

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

This is bound to change as the channels through which money is injected broaden, and as more sectors become recipients of the central banks’ flow of money, either by directly receiving money from the central bank or by receiving central bank funded state transfers. The response of broader price level indices to this money printing will be more in accordance with what standard economic theory predicts: there will be rises in standard inflation measures. For some time inflationary policy may appear like “pushing on a string,” but there will be a point at which it will gain traction. The decline in money’s purchasing power will accelerate when the public realizes to what extent income streams, asset prices, and the solvency of the banks and state institutions rest on the ongoing printing of money. The rush out of paper money will then accelerate dramatically. Second, as ever-larger sections of the economy depend on low rates and ongoing money creation it will be politically ever more difficult for the central bank to change policy, to slow the flow of money or even stop it entirely.


pages: 327 words: 90,542

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

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

Fearful of losing market share, businesses everywhere lacked pricing power, contributing to low inflation. In November 2012, IMF chief economist Olivier Blanchard admitted that the impact of the unconventional monetary measures was both limited and uncertain. He acknowledged the minimal effect of the policies on business and consumer confidence, consumption, employment, and growth in incomes or credit.12 It was Keynes's liquidity trap, where policy is largely ineffective, analogous to pushing on a string. But central banks continued with the failed policies. In January 2015, the European Central Bank announced its own version of QE after over two years of prevarication. No one was convinced that it would create growth or inflation. Board members felt that they had to do something. Launching their umpteenth round of ineffective monetary stimuli, Japanese central bankers resorted to marketing, rebranding QE as QQE (qualitative and quantitative expansion).


pages: 322 words: 87,181

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

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

We will see whether Greeks’ evident desire to remain in the eurozone (or their fears of the alternative) will prove sufficient counterweight to the pain that the country has yet to endure. As desirable as broad structural reforms may be in the medium to long run, they do very little to solve the short‐run problem of inadequate demand. Dealing with this problem through supply‐side reforms aimed at increasing productivity is like pushing on a string. What is needed instead is some good old‐fashioned Keynesianism: policies to boost eurozone–wide demand and stimulate greater spending in creditor countries, especially Germany. Back to Politics and Democracy At the heart of this economic misdiagnosis is also the absence of EU‐wide democratic accountability. As long as the costs of harsh policies are borne primarily by the debtor countries with high unemployment, there is little prospect that the German electorate will change its mind and give up on austerity.


pages: 338 words: 104,684

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

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

As Nobel Prize–winning economist William Vickrey put it, when the number of jobs is insufficient, “attempts to push [the unemployed] into jobs is simply a game of musical chairs in which local agencies instruct their clients in the art of rapid sitting.”17 The truth is, we have placed far too much responsibility on central banks, not just in the US but around the world. They cannot alter taxes or spend money directly into the economy, so the best they can do to promote employment is to try to establish financial conditions that will give rise to more borrowing and spending. Lower interest rates might work to induce enough new borrowing to substantially lower unemployment. But they might not. As Keynes famously observed, “You can’t push on a string.” What he meant was that the Fed can make it cheaper to borrow, but it cannot force anyone to take out a loan. Borrowing money puts companies and individuals on the hook for the debts they incur. Loans must be repaid out of future income, and there are good reasons why the private sector might be reluctant to increase its indebtedness at various stages of the business cycle. Remember, households and businesses are currency users, not currency issuers, so they do need to worry about how they’re going to make their payments.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

"Robert Solow", airport security, banking crisis, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, Paul Samuelson, Philip Mirowski, price mechanism, pushing on a string, road to serfdom, Robert Bork, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

Meanwhile, the Federal Reserve continued buying back government bonds to keep long-term interest rates low, causing the dollar’s value to diminish. Adding to the nation’s supply of money when companies were already awash with cash only confirmed the admonition by Marriner Eccles, Franklin Roosevelt’s Federal Reserve chairman, about the impotence of monetary policy as a stimulus; “You cannot push on a string,” that is, however much money you make available, you cannot force businesses to make investments. EIGHTEEN And the Winner Is . . . Avoiding the Great Recession, 2008 Onward So, eighty years after Hayek and Keynes first crossed swords, who won the most famous duel in the history of economics? For a number of decades Keynes appeared to emerge from the scuffle a little battered but triumphant, yet it was hardly a decisive victory.


pages: 461 words: 128,421

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

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

Keynesianism was more a tweaking of Marshall’s neoclassical teachings than a complete overturning of them. Through the 1920s, Keynes and Irving Fisher had been on a similar economic wavelength, sharing the belief that misguided monetary policies caused most economic problems. During the Depression, Keynes took things a step further. The remedy Fisher prescribed was to print more money. Keynes despaired that this would amount merely to “pushing on a string,” and argued that government needed to spend money to get the economy moving again. As a matter of economic policy, this was a big difference. In terms of economic theory, not so much. The doctrine that took Keynes’s name came to consist of the mathematical economics of rational individual choice (that is, Fisher’s economics), combined with a few less-than-elegant additions that attempted to represent the maladies of the national economy known as recession and depression.17 “This was not a perfect bicycle,” recalled one of the young Keynesians, Paul Samuelson, “but it was the best wheel in town.”18 The perfect bicycle that was mathematical equilibrium economics remained intact.


pages: 497 words: 150,205

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

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

As early as March 2009, the Bank of England cut the interest rate at which it lends to banks to a record low of 0.5 per cent. By 2011 inflation averaged 4.5 per cent, so real interest rates were minus 4 per cent. One might have expected such exceptionally generous borrowing terms to have sparked a recovery. But they didn’t, because when banks, households and companies all want to hoard money not part with it, monetary policy becomes largely ineffective. In a liquidity trap, it is like pushing on a string. Normally, when the Bank of England cuts its bank lending rate, the rate at which banks can borrow more generally also falls.428 Banks then tend to lend to people and companies more cheaply, which generally encourages both to borrow more and in time to spend or invest more. Lower interest rates also tend to push up the prices of shares, bonds, property and other assets, making investors feel wealthier and therefore more likely to spend.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

accounting loophole / creative accounting, Albert Einstein, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, Boris Johnson, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, Kickstarter, labour market flexibility, laissez-faire capitalism, land value tax, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, Plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

The banks used the opportunity to ‘deleverage’, that is, pay off debts and build up reserves, while of course keeping themselves in the manner to which they were accustomed as regards pay and bonuses. They failed to increase their already low level of lending for productive investment by businesses. Meanwhile, aggregate demand was depressed by austerity policies, rising unemployment and people cutting back on spending to pay off their debts. From the point of view of economic regeneration, the bailouts were about as successful as ‘pushing on a string’.135 Governments that had to fund substantial bailouts put themselves at risk. Stagnant or shrinking economies also mean increased government debt, because revenues from taxes decline and welfare expenditure goes up as unemployment rises, all of which increase the risk of default. When this predictably resulted in a worsening of the credit rating of those countries, the financial elite demanded more cuts, particularly cuts borne by ordinary taxpayers.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, break the buck, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, Nate Silver, negative equity, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, selection bias, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

But the financial system is the conduit between the Fed and the economy, and the financial system was broken. In an epic financial crisis that followed a major credit boom, easy money had much less power. Interest rates were already effectively zero; most banks had little ability and even less desire to lend; businesses had little desire to borrow; and consumers already had too much debt. As central bankers say, it felt like the Fed was pushing on a string. It had begun the first round of quantitative easing, or QE1, buying GSE mortgage bonds to help reduce the cost and increase the availability of mortgages. This was an innovative way to do monetary stimulus at a time when short-term rates were as low as they could go; the Fed would later expand the program to Treasuries to try to drive down long-term rates more generally. It was helpful at a time when the economy was still struggling, but it would not be enough on its own.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

In these conditions, a fiscal stimulus should have been expected to have less of a positive impact on the economy, while the removal of structural obstacles, which in some of those countries were major impediments to the efficient use of productive resources and to new investments, should have appeared to be more desirable. In many countries there have been far fewer genuine structural reforms than would have been desirable. At the same time the public debts have continued to grow (see Tanzi, 2016b). As mentioned earlier, in the last three decades the attitude toward the role of monetary policy in promoting economic stabilization has changed. It has changed from the earlier view, that “you cannot push on a string” or “you can take a horse to the river but you cannot make it drink,” to one that believes monetary policy can bring “great moderation” and that those who conduct monetary policy have become accomplished “maestros” who know how to use the right policy instruments. Central banks have come to be expected to play a growing role, with their monetary actions, in the stabilization of national economies.


pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, full employment, German hyperinflation, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, money market fund, moral hazard, new economy, open economy, plutocrats, Plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, the market place

At the stroke of a pen the gold shortage was lifted, allowing the Fed to embark on a massive program of open market operations, injecting a total of $1 billion of cash into banks. The two new measures combined—the infusion of additional capital into the banking system and the injection of reserves—allowed the Fed finally to pump money into the system on the scale required. But Meyer had left it too late. A similar measure in late 1930 or in 1931 might have changed the course of history. In 1932 it was like pushing on a string. Banks, shaken by the previous two years, instead of lending out the money used the capital so injected to build up their own reserves. Total bank credit kept shrinking at a rate of 20 percent a year. Bankers and financiers, the heroes of the previous decade, now became the whipping boys. No one provided a better target than Andrew Mellon. In January 1932, a freshman Democratic congressman from Texas, Wright Patman, opened impeachment hearings for high crimes and misdemeanors against the man once hailed as the “greatest Secretary of the Treasury since Alexander Hamilton.”


pages: 827 words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite by Duff McDonald

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, barriers to entry, Bayesian statistics, Bernie Madoff, Bob Noyce, Bonfire of the Vanities, business cycle, business process, butterfly effect, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate raider, corporate social responsibility, creative destruction, deskilling, discounted cash flows, disintermediation, disruptive innovation, Donald Trump, family office, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global pandemic, Gordon Gekko, hiring and firing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, new economy, obamacare, oil shock, pattern recognition, performance metric, Peter Thiel, plutocrats, Plutocrats, profit maximization, profit motive, pushing on a string, Ralph Nader, Ralph Waldo Emerson, RAND corporation, random walk, rent-seeking, Ronald Coase, Ronald Reagan, Sam Altman, Sand Hill Road, Saturday Night Live, shareholder value, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, survivorship bias, The Nature of the Firm, the scientific method, Thorstein Veblen, union organizing, urban renewal, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

The School has of late added a course on Leadership and Corporate Accountability, and the description of the topics for examination within it sound like a direct repudiation of Jensen: “decisions that involve responsibilities to each of a company’s core constituencies—investors, customers, employees, suppliers, and the public,” with discussions on insider trading rules, the fall of Enron, human character, employee responsibilities, labor laws, corporate citizenship, socially responsible investing, and serving the public interest. But in this, its influence can clearly be seen as akin to pushing on a string. “[While] the average firm has assiduously applied the agency theory principles that increase corporate entrepreneurialism and risk,” write Frank Dobbin and Jiwook Jung in their 2010 paper, “The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Might Do It Again,” “it has not applied the principles that bolster monitoring and foster executive self-restraint.


pages: 992 words: 292,389

Conspiracy of Fools: A True Story by Kurt Eichenwald

Asian financial crisis, Burning Man, computerized trading, corporate raider, estate planning, forensic accounting, intangible asset, Irwin Jacobs, John Markoff, Long Term Capital Management, margin call, Negawatt, new economy, oil shock, price stability, pushing on a string, Ronald Reagan, transaction costs, value at risk, young professional

If Enron had to return the money when prices dropped, so be it. Its finance team would deal with that later. In early January 2001, Skilling and Baxter stood on the ground level of an Enron parking garage, smoking. Baxter dropped the butt to the ground, crushing it with his foot. He was cranky and frustrated, like he’d been most days in the months since the end of Project Summer. Every other sales effort had bombed out. “This is like pushing on a string, Jeff,” he said. “I’m not getting anywhere.” “We’re going to have to keep plugging,” Skilling replied. The international projects had to be sold. Baxter shook his head. “You don’t need me to do this,” he said. “I’m not having any fun doing this.” He breathed deeply. “Jeff, I think it’s probably time for me to go,” he said. “I want to spend more time with my family, just do something new.”