central bank independence

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pages: 303 words: 75,192

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

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

Index Acemoglu, Daron: “Democracy Does Cause Growth”, 13 Akkerman, Mark, 168 Alemán, Eduardo: on elections years in Argentina, 36 Alesina, Alberto: on control of central banks, 42–43; on economic independence of central banks, 45–46; on income growth and central bank independence, 48, 49; on inflation and central bank independence, 45–47, 58–59; influence of, 49–50, 58; on political independence of central banks, 45–46, 47; on unemployment and central bank independence, 48 Almond, Gabriel: on education, 109 altruism, 28, 139 American Convention on Human Rights (1969): Article 23 of, 95–96 American Medical Association: on physicians treating themselves or immediate families, 115 Argentina: election years in, 36; term length of politicians in, 37–38 Aristotle: on democracy, 181, 183; on the mean, 182; on middle class and political power, 182, 183; on mixed form of government, 181; on oligarchy, 183; on polity, 183 Arkansas: redrawn legislative districts in, 38–39 Ash, Elliott: on opinions of appointed judges, 69, 72–73; on opinions of elected judges, 72–73 Asian Development Bank, 133 Asian financial crisis of 1997, 133 Athenian democracy, 13, 39, 181 austerity policies, 132, 141 Austro-Hungarian Empire: sovereign debt of, 125 autocracy vs. democracy, 18–19, 25–26, 145 Bade, Michael: on central bank independence (CBI), 44–45 Bank of England, 41, 71 Bank of Japan, 41 Barro, Robert: on economic growth and democracy, 21–23, 193n18; on economic growth and inflation, 23, 24 Bastiat, Frédéric: on bad vs. good economists, 29 Baumgartner, Frank, 37 Becker, Gary, 60 Beckman, Ludvig, 97 before-and-after comparisons, 12, 15, 22, 78–79 Bell, Mark: on peace and democracy, 15–16 Bentham, Jeremy: on rights, 103 Besley, Tim: on elected regulators and prices, 87; on elected vs. appointed electricity regulators, 83–84 Blackstone’s Commentaries on the Laws of England, 75 Blinder, Alan: Advice and Dissent, 92, 100; on central bank independence, 59–60, 61, 92; Central Banking in Theory and Practice, 59–60; on diminution of democracy, 92–94; on Federal Reserve, 63–64, 92, 94; “Is Government Too Political?”

See government debt/sovereign debt Spain: central bank in, 46; EU membership, 158; inflation in, 46; relations with EU, 155 Standard & Poor’s, 121 statistics: multivariate regression, 12 Stella, Andrea: on independent central banks and inflation, 58–59 Stockemer, Daniel, 107 Summers, Larry: on control of central banks, 42–43; on economic independence of central banks, 45–46, 50; on income growth and central bank independence, 48, 49; on inflation and central bank independence, 45–47; influence of, 49–50; on political independence of central banks, 45–46, 47; on unemployment and central bank independence, 48 sweet spots, 19–20, 21–22 Switzerland: independent central bank in, 45–46; inflation in, 45–46 Tabarrok, Alex: on elected judges and voters, 66–68 Tobin, James: on inflation and unemployment, 43 Taiwan, 22 Tammany Hall, 105, 137–38, 141, 143 tariffs, 32, 100, 105 Tawadros, George: on inflation and central banks, 47–48 taxation: Blinder on, 61, 92–94, 143; and democracy, 62; of imports, 32, 100, 105; and inflation, 23; of interest earnings, 23; tax rates, 19–20, 117, 118, 133 term lengths of politicians: increases in, 11, 22, 37–40; short terms and short-term thinking, 31–35.

Once monetary economists started looking into what kinds of government rules and government bureaucracies predicted economic success and which predicted economic tragedy, they found a repeated pattern: the more “independent” the nation’s central bank was from the political process, the better things typically turned out. Note the quotation marks: the area of research is known as the “central bank independence” literature, but that’s a euphemism. Good central banks tend to be independent, but independent from what? Mostly from voters. The lessons I drew from learning about the value of central bank independence? 1. If you want good government policies, you’ll often want them determined and enforced by anonymous bureaucrats, far from the reach of the voters. 2. If you want policy determined and enforced by anonymous bureaucrats—like judges, central bankers, or trade commissioners—don’t say you want oligarchic, undemocratic bureaucrats in charge.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, means of production, Money creation, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

So when my friend and former colleague, Bundesbank director Andreas Dombret suggested in the autumn of 2016 that central bank independence is not debatable, my immediate thought was that these institutions are among the last on earth that need “safe spaces” to protect them from criticism or verbal attack.13 Central Banking and the Regulatory State: The Issues Become Larger and Deeper Safe or not, the space they occupy has been enlarged. The earlier criticisms I recalled of central bank independence (CBI) concerned their role as an autonomous part of what I shall term the fiscal state, given their ability to change, even transform, the consolidated government’s liabilities and assets, and so its risks and income streams (chapters 4 and 22).

This is a facet of what has become known as embedded liberalism, comprising a system that incorporates measures to mitigate the costs to individuals or groups of free-market capitalism.27 CENTRAL BANK INDEPENDENCE AS A COROLLARY OF THE HIGH-LEVEL SEPARATION OF POWERS On this view, an independent monetary authority is a means to underpinning the separation of powers once the step to adopt fiat money has been taken. The regime is derivative of the higher-level constitutional structure and the values behind it. This is a substantively different kind of warrant for central bank independence from the welfarist and democratic tests incorporated into our Delegation Criteria.28 They are permissive, placing constraints on how much may legitimately be delegated to an IA (credible commitment, no big value judgments), whereas now we have a reason why monetary policy should be delegated.

We say a little about each here to pave the way into part IV. Politics and Central Banking It might seem, first of all, that we are taking for granted that since central banks should be independent authorities, they are or will be. But that does not remotely follow. None of our discussion of agency independence in general or our advocacy of a constitutional basis for monetary policy independence in particular is sufficient to explain why, in the real world, central bank independence is granted and sustained in practice. Politics intrudes, and must be brought into our story. In actual fact, two quite different models of central banking have prevailed over the past couple of hundred years.


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

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

However, there are two aspects to this problem, since being the scapegoat can also mean that a central bank may be held responsible for mistakes made in other policy areas. On the first point: it is true that when the Maastricht Treaty was drawn up the Deutsche Bundesbank, alongside one or two others, was the only major central bank to have the benefit, the advantage if you will, of independence. The Maastricht Treaty has now made central bank independence an important element in the institutional arrangements for European monetary policy under the single currency. However, that was not dictated by Germany but reflects the experience gained the world over. I am convinced that a decade ago this Statute of the European Central Bank would never have been approved by all twelve, and later fifteen, member states.

Members of the Executive Board have a term of office of eight years, with renewal explicitly excluded.7 When the question of the Statute of a future European Central Bank began to be discussed in the late 1980s, Germany was basically the only country whose central bank, the Deutsche Bundesbank, enjoyed independence. How did it come about that ultimately all EU 15 16 17 One way of nullifying central bank independence is to restrict the central bank’s financial resources or interfere in its internal powers of organisation. Removal from office would only be possible for reasons that have nothing to do with the exercise of the functions, for example in the case of criminal conduct.

This experience coincided with an increasing focus among economists on the role of expectations and of monetary policy credibility.8 While the topic of central bank independence had hardly been addressed at all (outside Germany), there was an obvious connection with recent research findings on the importance of monetary policy credibility: how could a central bank hope to win confidence in its policy if in its policy decisions it was obliged to a greater or lesser degree to act on the instructions of the government, the latter being guided not least by considerations of electoral tactics? 18 The literature on this topic has grown considerably over time. See, for example, A. Alesina and L. H. Summers, ‘Central bank independence and macroeconomic performance: some comparative evidence’, Journal of Money, Credit, and Banking, 25:2 (1993); O.


pages: 438 words: 84,256

The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival by Charles Goodhart, Manoj Pradhan

asset-backed security, banks create money, Berlin Wall, bonus culture, Boris Johnson, Branko Milanovic, business cycle, capital controls, central bank independence, coronavirus, corporate governance, COVID-19, deglobalization, demographic dividend, demographic transition, Deng Xiaoping, en.wikipedia.org, Fall of the Berlin Wall, financial independence, financial repression, fixed income, full employment, gig economy, Gini coefficient, housing crisis, income inequality, inflation targeting, interest rate swap, job automation, Kickstarter, long term incentive plan, longitudinal study, low skilled workers, manufacturing employment, Martin Wolf, mass immigration, non-tariff barriers, offshore financial centre, oil shock, old age dependency ratio, open economy, paradox of thrift, Pearl River Delta, pension reform, price stability, private sector deleveraging, quantitative easing, rent control, savings glut, secular stagnation, shareholder value, special economic zone, The Great Moderation, The Wealth of Nations by Adam Smith, total factor productivity, working poor, working-age population, yield curve, zero-sum game

Canada Cancer Capital Capital account Capital account liberalisation Capital accumulation Capital Adequacy Ratios (CARs) Capital control Capital costs, falling Capital flows, uphill Capital inflows Capitalism, ‘substantially broken’ Capitalist class Capitalist economies, governance problems Capitalist heaven Capital, misallocation of Capital, returns to Capital-labour Capital-labour ratios Capital misallocation Capital per worker in Japanese manufacturing, rising Capital stock Carbon tax Care, eligibility criteria for public funding Care homes Care(rs) Carers, cost of support by ‘Care Supplement’ Care workers Care workers, need for increase in Japan Caribbean Caring expenses, rising Caring services, hard to raise productivity Cash, abolition of Cash flow Cavendish, Camilla, Extra Time The Cavendish Review CBO Report Centenarians, high risk of dementia Central Bank Central Bank Independence (CBI) Central Bank Independence, a ‘paper tiger’ Central Bank Independence, a surety of financial rectitude Central Bank Independence, its glory years Central Bank Independence, populist backlash against Central Bank Independence, under threat Central banks, best friends of Ministers of Finance Central banks, constraints on raising interest rates Central banks, create money Central banks, inflation targets of Central banks, recently best friends of Ministers of Finance Central banks, reverting to normal policies Central bank inflation target Central Bank targets Certificate of Fundamental Care Changing life cycle Cheap labour Chief Executive Officer (CEO) Chief Executive Officer, has information and power Chief officers Child rearing, age of delayed Children Children, age of having Children, staying at home longer Chile China China’s ascent China’s ascent, benefiting AEs China, absence of welfare state China, administration China, ageing population China, ascent in 1990s China, bank deposits of China, big four state-owned banks China, capable of debt cancelation China, continuing strong investment China, corporate debt with lower risk of default China, credit growth unsustainable China, current account balance declining China, current account surplus peak China, debt conversion into equity China, debt is misguided the conventional wisdom China, debt less likely to lead to a crisis China, demographic reversal China, developed coastal regions of China, early stage of development China, educated labour force China, entry of foreign banks China, excess capacity China, financial markets China, focus on raising productivity China, growth decline China, growth decline in 2018/19 China, high personal sector saving China, internal migration, dominated by Eastern Region China, investment ratio China, labour force dynamics changing direction China, land subsidized China, leverage ratio China, low interest rates as a tax on households China, manufacturing sector China, no longer a deflationary force China, one child policy China, past contribution to global growth China population China, property sector China, rapidly ageing population China, remarkable demographic dynamics China, shrinking workforce China, social safety net insufficient China, special economic zones China, surging credit growth China, trade balance with USA China, under-developed interior regions China, unit labour costs China, upgrading technology China, urban savings reduced as interest rates fall China, WTO membership after long negotiations Chinese bonds Chinese elderly care Chinese, more than Americans Chinese seniors Civil Service Climate change Cognitive decline, a common story Cognitive impairment Colombia Commodity price Commodity price shocks Commodity prices, rising Commodity producers Commodity supercycle Communism The Communist Manifesto See alsoEngels, Friedrich; Marx, Karl Communist Party Comparative bargaining power Compertpay, R.

In almost every country, the central bank’s independence was brought about by an act of the legislature; the exception is Europe where the independence of the ECB is enshrined in a common Treaty. Whereas the independence of the ECB would be hard to revoke, the independence of other central banks can be reversed by a further Act. If the politicians find that central bank policies to achieve price stability get in their way of objectives for faster growth and lower taxes, they may seek to end, or sharply reduce the independence of central banks. If so, that vaunted independence might ultimately prove a somewhat weak reed as protection against a more inflationary future. 11.3.3 Renegotiation But the ECB’s independence is more solidly based.

Charles Goodhart Manoj Pradhan London, UK Abbreviations ACE Allowance for Corporate Equity ADL Activities of Daily Life AE Advanced Economies AEA American Economic Association AFD Alternative for Germany AGM Annual General Meeting AI Artificial Intelligence AIG American International Group BEPS Base Erosion and Profit Shifting BIS Bank of International Settlements BLS Bureau of Labour Statistics BoA Bank of America BoJ Bank of Japan CAR Capital Adequacy Ratio CBI Central Bank Independence CBO Congressional Budget Office CEO Chief Executive Officer CFAS Cognitive Function and Ageing Study CPI Consumer Price Index CSI Cyclically Sensitive Inflation DBCFT Destination-Based Cash Flow Taxation ECB European Central Bank ELB Effective Lower Bound ELSA English Longitudinal Study of Ageing EME Emerging Market Economies EQ Emotional Quotient FDI Foreign Direct Investment FRB Federal Reserve Board FRED Federal Reserve Economic Database FT Financial Times FTSE Financial Times Stock Exchange FX Forex G10 Group of 10 GDP Gross Domestic Product GFC Great Financial Crisis GFCF Gross Fixed Capital Formation GGM General Gaidar Model HH Household HIC High-Income Countries IBC Indian Bankruptcy Code ICE Intercontinental Exchange IMF International Monetary Fund LHS Left Hand Side LMIC Low- and Middle-Income Countries LTI Loan to Income LTIP Long-Term Incentive Plan LTV Loan to Value MAC Migration Advisory Committee METI [Japan] Ministry of Economy, Trade and Industry MFN Most Favoured Nation MITI [Japan] Ministry of International Trade and Industry MMSE Mini-Mental State Examination NAIRU Non-Accelerating Inflation Rate of Unemployment NBER National Bureau of Economic Research NFC Non-Financial Corporation NHS [British] National Health Service NICE Non-Inflationary with Continuous Expansion NLW National Living Wage NRU Natural Rate of Unemployment NUM [UK] National Union of Mineworkers OBR Office for Budget Responsibility OECD Organisation for Economic Cooperation and Development ONS Office for National Statistics O-FDI Outbound Foreign Direct Investment p.a.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

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

THE POLITICAL ECONOMY IMPORTANCE OF SEIGNIORAGE The development of much greater central bank independence in many countries over the past three decades has been perhaps the single most transformative change in global macroeconomic policy since the breakup of the Bretton Woods system of fixed exchange rates in the early 1970s. Therefore it is important that the central bank not be turned into a political punching bag in a currency phaseout, as its profits will sharply decrease. Aside from being a modest but nice source of income for the government, seigniorage revenue has an important political economy function in supporting central bank independence. It turns the central bank into a huge profit center that earns far beyond what it needs to operate, enabling it to remit the rest back to the national treasury.

In theory, a lower inflation rate would help reduce relative price distortions that arise in a world of staggered price- and wage-setting, and it also would reduce the distortions created by the tax system. Seigniorage and Central Bank Independence This topic has been covered in chapter 6. After the transition, steps would need to be taken to ensure that central bank independence was not significantly compromised once the central bank was no longer viewed as a major profit center. This problem is handled easily enough. Indeed, if the global real interest rate rose sufficiently, the central bank might even pay interest on reserves that would be passed through to depositors, so that on average over time depositors earned a positive rate of return, even if rates were on occasion negative.

What happened instead is that central banks changed the way they did business, paying much more attention to long-run expectations. A key development that made this possible was a generalized move to make central banks more independent, sparked by academic research that explained why the ability to resist short-run political pressures to cut short-term interest rates was actually the key to keeping down long-term interest rates. Nowadays, many central banks around the world enjoy substantial independence, but that was not the case 30 years ago. Back in the early 1980s, it was really only the Bundesbank and the Federal Reserve that could claim significant independence among the major central banks.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

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

According to his own account, he explained that if France wanted agreement with the Germans, we had to accept that monetary policy would be a single policy and that national central banks would be members of a system of central banks where all would have to be independent of governments. The European Central Bank would work only if its policies were not subject to negotiations between governments.  . . . President Mitterrand did not answer specifically.  . . . I said to myself ‘I’m going to take that as giving me the green light.’25 With Governor de Larosière on board, the other central bank governors quickly agreed to an independent central bank. This was relatively easy as the necessary intermediate step of making the national central banks independent of the government gave them more power.

If it is appropriate to advocate a combination of monetary, fiscal, and structural policies to revive global growth, then surely it makes equal sense to push for the domestic equivalent. The complication here is the lingering distrust of policy integration as a result of the inflation of the 1970s and the focus on central bank independence that this engendered. In particular, central banks have jealously guarded an extreme definition of independence. They have been reluctant to suggest appropriate fiscal and structural policies for fear that governments will respond by openly questioning monetary policy decisions. This careful approach may have made sense in the 1980s and 1990s when central banks were involved in the economically painful and politically unpopular business of wringing excess inflation out of the economy.

Indeed, it was in response to persistent deflation that the US presidential candidate William Jennings-Bryan in 1896 made his famous pledge allow silver to be part of the US money supply so as not to be “crucified on a cross of gold”.5 Central bank independence does not necessarily imply that the banks cannot cooperate with finance ministers or engage in a debate over the appropriate mix of monetary, fiscal, financial, and structural policies. Indeed, in the 1960s and 1970s the independent US Federal Reserve and German Bundesbank accepted the prevailing orthodoxy that monetary and fiscal policy should be cooperative. This suggests that the fundamental issue is less about whether the central bank is independent and more about the receptiveness of central banks to the inevitable to-and-fro on the appropriate monetary stance that a more cooperative approach to policies implies.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

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

For a good introduction to the politics behind central bank independence, see Adam Posen, “Central Bank Independence and Disinflationary Credibility: A Missing Link,” Oxford Economic Papers 50, 3 (1998): 335–359; Ilene Grabel, “Ideology, Power, and the Rise of Independent Monetary Institutions in Emerging Economies,” in Monetary Orders: Ambiguous Economics, Ubiquitous Politics, ed. Jonathan Kirshner (Ithaca, NY: Cornell University Press, 2003); Sheri Berman and Kathellen McNamara, “Bank on Democracy,” Foreign Affairs 78, 2 (April/May 1999): 1–12. 68. Posen, “Central Bank Independence.” 69. Brian Barry, “Does Democracy Cause Inflation?

Banning democracy would be effective but might be unpopular. A second-best solution would be to have an institution that would effectively override such inflationary decision making. Luckily, such an institution already existed thanks to those ordoliberals, or neoliberals would have had to invent one: the independent central bank. Central Bank Independence Is the Solution During the Keynesian era, central banks almost everywhere were dependent creatures. That is, central banks were the financing agent for the national treasury: they cut the checks that the politicians said needed to be cut. As noted earlier, the one exception was Germany’s Bundesbank with its singular goal of stabilizing the price level, which was only made possible by its unique late-developer profile and equally unique ordoliberal instruction sheet.

But if politicians cannot, in the language that this literature spawned, “credibly commit” to a given policy, both voters and market agents will discount government policies and attempt to offset their effects, which will lead to greater economic instability and uncertainty. Kydland and Prescott argued that the key to solving this problem was for the central bank to be made independent from politicians and, in the manner of the Bundesbank, to be mandated to pay attention only to price stability. Critical here were a set of institutional reforms designed to shield the central bank from public scrutiny and central bankers from public recall or redress, while ensuring that these bankers are more conservative than the median voter to further protect the institution from populist demands.


pages: 334 words: 98,950

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

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

., March, 2003, World Bank, Washington, DC. 21 OECD Historical Statistics (OECD, Paris), Table 10.10. 22 There is no evidence that greater central bank independence has any association with lower inflation, higher growth, higher employment, better budget balance or even greater financial stability in developing countries. See the evidence presented in S. Eijffinger & J. de Haan (1996), ‘The Political Economy of Central-bank Independence’, Special Papers in International Economics, No. 19, Princeton University and B. Sikken & J. de Haan (1998), Budget Deficits, Monetization, and ‘Central-bank Independence in Developing Countries’, Oxford Economic Papers, vol. 50, no. 3. 23 http://en.wikipedia.org/wiki/Federal_Reserve_Board 24 On the evolution of IMF policy in Korea following the 1997 crisis, see S-J.

They branched out into areas like government budgets, industrial regulation, agricultural pricing, labour market regulation, privatization and so on. In the 1990s, there was a further advance in this ‘mission creep’ as they started attaching so-called governance conditionalities to their loans. These involved intervention in hitherto unthinkable areas, like democracy, government decentralization, central bank independence and corporate governance. This mission creep raises a serious issue. The World Bank and the IMF initially started with rather limited mandates. Subsequently, they argued that they have to intervene in new areas outside their original mandates, as they, too, affect economic performance, a failure in which has driven countries to borrow money from them.

Stanley Fischer argues: ‘A central bank given multiple and general goals may choose among them and will certainly be subject to political pressures to shift among its goals depending on the state of the electoral cycle’.7 The best way to prevent this from happening is to ‘protect’ the central bank from politicians (who do not understand economics very well and, more importantly, have short time-horizons) by making it ‘politically independent’. This orthodox belief in the virtues of central bank independence is so strong that the IMF often makes it a condition for its loans, as, for example, it did in the agreement with Korea following the country’s currency crisis in 1997. In addition to monetary discipline, neo-liberals have traditionally emphasized the importance of government prudence – unless the government lives within its means, the resulting budget deficits would cause inflation by creating more demands than the economy can meet.8 More recently, following the wave of developing country financial crises in the late 1990s and the early 2000s, it was recognized that governments do not have a monopoly in living beyond their means.


pages: 347 words: 99,317

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

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

., March, 2003, World Bank, Washington, DC. 21 OECD Historical Statistics (OECD, Paris), Table 10.10. 22 There is no evidence that greater central bank independence has any association with lower inflation, higher growth, higher employment, better budget balance or even greater financial stability in developing countries. See the evidence presented in S. Eijffinger & J. de Haan (1996),‘The Political Economy of Central-bank Independence’, ‘Special Papers in International Economics’, No. 19, Princeton University and B. Sikken & J. de Haan (1998), ‘Budget Deficits, Monetization, and Central-bank Independence in Developing Countries’, Oxford Economic Papers, vol. 50, no. 3. 23 http://en.wikipedia.org/wiki/Federal_Reserve_Board 24 On the evolution of IMF policy in Korea following the 1997 crisis, see S-J.

They branched out into areas like government budgets, industrial regulation, agricultural pricing, labour market regulation, privatization and so on. In the 1990s, there was a further advance in this ‘mission creep’ as they started attaching so-called governance conditionalities to their loans. These involved intervention in hitherto unthinkable areas, like democracy, government decentralization, central bank independence and corporate governance. This mission creep raises a serious issue. The World Bank and the IMF initially started with rather limited mandates. Subsequently, they argued that they have to intervene in new areas outside their original mandates, as they, too, affect economic performance, a failure in which has driven countries to borrow money from them.

Stanley Fischer argues: ‘A central bank given multiple and general goals may choose among them and will certainly be subject to political pressures to shift among its goals depending on the state of the electoral cycle’.7 The best way to prevent this from happening is to ‘protect’ the central bank from politicians (who do not understand economics very well and, more importantly, have short time-horizons) by making it ‘politically independent’. This orthodox belief in the virtues of central bank independence is so strong that the IMF often makes it a condition for its loans, as, for example, it did in the agreement with Korea following the country’s currency crisis in 1997. In addition to monetary discipline, neo-liberals have traditionally emphasized the importance of government prudence – unless the government lives within its means, the resulting budget deficits would cause inflation by creating more demands than the economy can meet.8 More recently, following the wave of developing country financial crises in the late 1990s and the early 2000s, it was recognized that governments do not have a monopoly in ‘living beyond one’s means’.


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

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

Where centralized bargaining and continuous consultation between the peak associations and government could no longer be relied upon for wage restraint, there was a pressing need to anchor inflationary expectations—to signal the unions that monetary policy would be nonaccommodating, implying that excessive wage demands would mean additional unemployment and not just inflation—by adopting an exchange-rate commitment and giving the central bank the independence to pursue it. Exchange-rate commitment (in one form or another) generally came first, in the 1980s; central bank independence followed in the 1990s (see figure 3.6); but the two were part of the same macroeconomic policy realignment. In addition, a credible commitment to exchange-rate stabilization and monetary nonaccommodation presupposed a solution to the fiscal problem; otherwise, central banks might come under pressure to inflate as a way of rescuing governments from their own debt liabilities.

By eliminating capital controls and making realignments more difficult, the EMS solidified the exchange-rate commitment and the credibility of the non-accommodating monetary policies needed to restrain wage demands in more decentralized labor markets. By making central-bank independence and fiscal retrenchment conditions for qualifying for monetary union, the Maastricht Treaty reinforced the credibility of that macropolicy stance. And the advent of monetary union itself, which handed the reins of monetary policy to a European Central Bank with unparalleled independence, residual doubts about the new direction of monetary policy waned. While decentralization in the industrial relations system was thus accompanied by a robust tightening of monetary and fiscal policies, it is important to note that it did not lead to institutional convergence.

The Determinants of Populist Voting in Six Countries with Significant Populist Parties 256 Figures 1.1 Measures of Distribution of Income, 2010 vs. 1985 24 1.2 Number of Patents per One Million People in the Working Age Population 27 1.3 The Distribution of Income in Advanced Democracies Compared to Nonadvanced Countries 36 2.1 Protocorporatist States and Industrial Relations Structuring 70 3.1 Average Union Density Rates and Wage Coordination in 18 Advanced Democracies 106 3.2 Average Density and Collective Bargaining Coordination in Four Advanced Democracies 107 3.3 The Vote Shares of Social Democratic and Center Parties 116 3.4 Male Wage Inequality 118 3.5 Average Industrial Employment as a Share of Total Civilian Employment in 18 Advanced Democracies 119 3.6 Central Bank Independence in 18 OECD Countries 122 3.7 The Responsiveness of Governments to Adverse Shocks in Different Political Systems 126 3.8 Voter Support for Populist Parties 130 4.1 Percent with Tertiary Degrees, by Age Group 147 4.2 Capital Market Openness and the Stock of FDI in Advanced Democracies 148 4.3 Financialization of Advanced Economies 150 4.4 Inflation Rates before and after Adoption of Inflation Targeting 153 4.5 The Strengthening of Product Market Competition Policies in ACDs 154 4.6 Number and Depth of Trade Agreements 155 4.7 A Strategic Complementarities Game of Reforms 162 4.8 Support for Government Intervention in Economy, by Policy Area 166 4.9 Summary of Causal Linkages in Big-City Agglomerations 200 5.1 The Great Gatsby Curve 221 5.2 The Link between the Transition to the Knowledge Economy and Populism 227 5.3 The Difference in Populist Values between the Old and New Middle Class 240 5.4 Educational Opportunity and Populist Values 242 5.5 The Rise of Populist Voting 245 5.6 The Difference in Populist Vote between the Old and New Middle Class 247 6.1 The Symbiotic Relationship 259 PREFACE This book started from our discussions of a paradox.


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

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

Two approaches to central banking have dominated monetary policy since the early 1990s: central bank independence and inflation targeting. They have jointly dictated the functioning of central banks in developed and developing countries, thus shaping the course of financialization. For a lengthy period in the 1990s and 2000s the inflation performance of developed countries improved significantly. The lowering of inflation was deemed a great success of monetary policy – the ‘Great Moderation’ – and was attributed by mainstream theorists to the new orthodoxy of central bank independence and inflation targeting.32 The crisis of 2007 put an end to this illusion, showing that money and finance continue to have a strongly disruptive role in contemporary capitalism.

Prescott, ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy 85:3, 1977; Robert Barro and David Gordon, ‘A Positive Theory of Monetary Policy in a Natural-Rate Model’, Journal of Political Economy 91:4, 1983; Barro and Gordon, ‘Rules, Discretion and Reputation in a Model of Monetary Policy’, Journal of Monetary Economics 12:1, 1983; Alberto Alesina and Guido Tabellini, ‘Rules and Discretion with Non-coordinated Monetary Policies’, Economic Enquiry 25:4, 1987; Kenneth Rogoff, ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics 100:4, 1985; Rogoff, ‘Reputational Constraints on Monetary Policy’, Carnegie-Rochester Conference Series on Public Policy 26, Spring 1987. For a critique see Bennett T. McCallum, ‘Two Fallacies Concerning Central Bank Independence’, American Economic Review 85:2, May 1995; and McCallum, ‘Crucial Issues Concerning Central Bank Independence’, Journal of Monetary Economics 39:1, 1997. From a political economy perspective, see Costas Lapavitsas, ‘The Political Economy of Central Banks: Agents of Stability or Source of Instability?’, International Papers in Political Economy 4:3, 1997, pp. 1–52. 34 John B.

Mayer, Colin, ‘The Assessment: Financial Systems and Corporate Investment’, Oxford Review of Economic Policy 3:4, 1987, pp. i–xvi. McCallum, Bennett T., ‘Crucial Issues Concerning Central Bank Independence’, Journal of Monetary Economics 39:1, 1997, pp. 99–112. McCallum, Bennett, ‘The Present and Future of Monetary Policy Rules’, International Finance, 3:2, (2000), pp. 273–286. McCallum, Bennett T., ‘Two Fallacies Concerning Central Bank Independence’, American Economic Review 85:2, May 1995, pp. 207–11. McCloud, Scott, ‘Misunderstanding Micropayments’, 11 September 2003, at scottmccloud.com. McCulley, Paul A., ‘Teton Reflections’, Global Central Bank Focus, September 2007, at pimco.com.


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

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

In November 1999, when a new Central Bank administration tightened monetary policy, some government officials questioned this approach, but respected the Central Bank’s independence. In January 2000, however, with the exchange rate depreciating sharply, the government announced dollarization despite the Central Bank’s opposition. The Central Bank president and several directors resigned. One lesson of these events is that central bank independence is difficult to maintain under the pressures of acute crisis.29 No less important, as a practical matter, central bank independence involves more than directors being able to ignore ministerial wishes. Because of the economy’s advancing spontaneous dollarization, and because the attempt to sterilize the monetary expansion over the course of 1999 led the institution heavily into short-term debt—indeed, decapitalized the institution—the Central Bank had simply lost the power to carry out exchange-rate and monetary policy.

Once the crisis commenced, and depreciation intensified, monetary and exchange-rate policy finally became impotent. Dollarization, from this perspective, was simply the formal recognition of this reality. The crisis experience also offers lessons about central bank independence. The revised constitution that took effect in August 1998 made the Central Bank independent. In March 1999, however, the government overrode the Central Bank’s views and carried out the banking holiday and deposit freeze, leading to the resignations of the institution’s president and some directors. The Central Bank remained without a president in mid-1999, during the crucial months following the freeze.

In June 2000 the World Bank approved a US$150 million structural-adjustment loan with conditionality covering comprehensive tax reform, public-sector financial management, financial-sector reform, and social-sector expenditure protection. It also approved a US$10 million Financial Sector Technical Assistance Loan. 29. The decision to make the Central Bank independent in 1998 came at a bad moment, because the crisis conditions implied that financial markets were uncertain about whether the Central Bank would maintain its independence. Bibliography The word processed describes informally reproduced works that may not be commonly available through libraries. Arteta, Gustavo. 1999. “Opciones cambiarias para el Ecuador: El dilema de la elección.”


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

They’d take a vote on whether to raise or lower interest rates to hit the inflation target. Some economists even recommended linking the salaries of central bank governors to the rate of inflation. When New Zealand made its central bank independent it did something similar by saying that it could sack the governor if the bank missed the target for inflation. Many economists believe that central bank independence led to low inflation and steady growth. It was a big turnaround from the 1970s era of stagflation (high inflation and high unemployment). The talk was of a ‘Great Moderation’, a stable economy free from wild ups and downs.

In 1946 the Bank of England was taken into public ownership; Stafford Cripps, Britain’s chancellor of the exchequer in the late 1940s, used to call it ‘his’ bank. Central banks were used by governments to pursue Keynesian policies. They’d come under the thumb of the government to be used as politicians saw fit. A solution to the problem of time inconsistency is for the government to give up its power over the central bank. Make the central bank independent, so the argument goes, and monetary policy will no longer be in danger of manipulation by politicians. The heads of central banks aren’t elected by the voters and have nothing to gain by actions which might make them popular in the short run, so they’ll be able to carry out the rule of keeping inflation low.

The government could even appoint as its central banker someone who’s known for having a strong liking for low inflation and will do everything in their power to achieve it. It would be like the lenient teacher sending the lazy student to the office of a strict head teacher who everyone knows enjoys giving out detentions. In the 1990s many governments made their central banks independent. They’d set targets for inflation – to keep it between 2 and 3 per cent, say. The central banks’ job was to use the tools of monetary policy, now under their control, to hit the targets. The Banque de France was cut loose from the politicians in 1994, nearly 200 years after it was set up by Napoleon to restore financial order after the turmoil of the French Revolution.


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

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

It was not about creating a financial market that would lead to faster and more stable growth, and that was why what emerged was lower growth and increased instability.40 THE NEOLIBERAL ARGUMENT FOR CENTRAL BANK INDEPENDENCE The neoliberal argument for central bank independence—the argument that prevailed at the time the ECB was established—seemed to be predicated on three critically flawed assumptions: first, that all that mattered was inflation; secondly, that fighting inflation through monetary policy was a purely technocratic matter; and thirdly, that central bank independence would strengthen the fight against inflation. I have already explained what was wrong with the first two hypotheses.

., Rewriting the Rules of the American Economy. 41 In the past, some governments may have tried to manipulate the economy before elections through monetary policy. But there are long and uncertain lags, making monetary policy not a very good tool for these purposes. Fiscal policy is, in fact, more effective. Some have suggested that, in the past, some central banks that were not independent at least attempted this kind of manipulation. Even if that is the case, the cure—making central banks so independent that they can easily be captured by the financial sector—is worse than the disease. There is, in fact, a wide range of institutional arrangements between full independence and being just another department of government. The governance of the ECB goes too far in the former direction. 42 The heyday of monetarism at central banks was in the 1980s and ’90s; inflation targeting was first explicitly adopted by New Zealand in 1984, and subsequently spread around the world.

Of course, Europe has recognized this, and it has slowly but steadily been moving toward greater democratic accountability—except on one front: the monetary union. If the euro is to be successful, it has to be an economic project that is consistent with, and even reinforces, other fundamental values. It has to strengthen democracy. But the euro has done the opposite. The most powerful institution in the eurozone is the European Central Bank, which was constructed to be independent—not answerable to or guided by elected leaders—another neoliberal idea that was fashionable at the time of the construction of the euro. Though it remains fashionable in some quarters, it is increasingly being questioned. As we will see in chapter 6, the countries that performed best during the global financial crisis were those with more accountable central banks.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, Tax Reform Act of 1986, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

Developing states, for their part, would be required to make “substantive changes in the legislative framework and in the practical powers of supervisors,” while the BIS committed itself to “a significant increase” in the resources it devoted to the training programs it offered, often in conjunction with the IMF and World Bank, for developing states’ banking supervisors.64 The concern with increasing states’ regulatory yardsticks, and even their capacities, went hand in hand with the push for central bank independence. Whether this was seen as countering the tendency of elected governments to bow to democratic pressures, or of authoritarian ones to serve their own self-interest, or both, the goal was to establish a regime of monetary credibility by institutionally embedding within states at least some of the discipline that had once been imposed by the gold standard.65 Central bank independence in the making of monetary policy was designed primarily to insulate them from domestic pressures, but at the same time it meant less independence from the concerns of other central banks in the coordination of monetary policies oriented towards stabilizing global financial markets and promoting capital flows.

And insofar as the financial sector still had any lingering concerns that Keynesian commitments to the priority of full employment, and the use of fiscal deficits to that end, might prevail in the Treasury, they were allayed by the autonomy the Accord gave the Fed: “the pursuit of macroeconomic stabilization and price level stability [had become] the rationale for central bank independence.” The Accord was designed to ensure that “forces seen as more radical” within any administration would not be able to implement inflationary monetary policies.79 The roots of “monetarism”—understood not in the sense of policy determined by arcane measures of money supply, but in the sense of giving macroeconomic priority to “manipulating short-term interest rates to control aggregate demand and inflation”—thus really need to be located not in the 1970s but in the 1950s, during the supposed heyday of the Keynesian era.

But on this occasion it quickly and drastically reversed direction: its funds rate was reduced through the course of 1970 by five full points. The monetarists’ explanation of this volte-face as being due to the Fed’s lack of autonomy from the Nixon government and its short-term electoral calculations would leave a powerful ideological imprint, expressed as a generalized clarion call for “central bank independence”—a call that would become the touchstone for the restructuring of all states in the context of capitalist globalization. Yet what this episode really demonstrated was how trapped central banks had become by precisely the rapid development of financial markets which they had encouraged. With the realization that a tightening of monetary policy was having the effect of inducing a financial crisis, the central bank’s role as lender of last resort to keep the financial system afloat trumped the commitment to monetary restraint.


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

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

In France, until the mid-1990s, there was a general consensus that in a unitary republic an independent central bank was undesirable because it would escape from the control of the central political authority that directly reflected the will of the people. In the early 1990s, the Treasury director Christian Noyer (who later became governor of the Banque de France) stated that central bank independence was incompatible with France’s republican traditions in that the Republic was “one and indivisible.”9 Centralized states such as France or Japan (which as he pointed out had an excellent record in fighting inflation) exercised political control over central banks, while independent central banks were fundamentally suited to federal states such as Germany, Switzerland, and the United States (and hence also, presumably, although he did not point this out at the time, the European Community or European Union).10 But it was those models—largely the German and perhaps also the US one—that offered the most promising blueprint for how to construct a new European Central Bank.

A conservative central banker can credibly stick to a specific inflation target, as he would not be tempted to engineer an inflation surprise to temporarily boost the economy.5 An institutional separation of authority was seen as a commitment tool to overcome the time-inconsistency problem. CENTRAL BANK INDEPENDENCE AND GERMANY’S EXPERIENCE IN THE 1970S In countries with independent central banks, inflation was less of a problem during the 1970s stagflation decade. The German Bundesbank acquired a reputation for achieving monetary stability at a time when the economy had to overcome two oil price shocks.

The idea of the fathers of the EMU was to transfer the stellar reputation of the independent Bundesbank to the new European Central Bank so that all euro-member countries could enjoy the same low-interest rate environment. Legally, the ECB became one of the most independent central banks in the world. Its president and the executive board are elected for eight years, without the possibility of renewal. Chapter 15 describes the institutional features of the ECB in detail. MONETARY AND FISCAL DOMINANCE Central bank independence should shield the ECB from undue fiscal influence. Splitting up the euro-area authorities into a single monetary and multiple (currently nineteen) fiscal authorities was considered a safeguard against high inflation. If the fiscal debt burden started to mount, an independent central bank would refrain from inflating the debt away and force the fiscal authorities to cut expenditures or raise taxes.


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

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

Independence is a symbol that works if the central bank can adopt flexible policies to respond equitably to a variety of imbalances, without being suspected of threatening price stability. Central bank independence is by nature a symbolic guarantee, but its practice inserts it deep into the economy. For this reason, it is fundamentally important that a constitutional order is legally formalised that avoids any confusion between the levels of representation and of action. That is why we have to think about central bank independence in the form of an overlapping hierarchy. The central bank must be endowed with a mandate that guarantees its independent fulfilment of its mission, as well as the independence of its means.

The idea arose that in a universe that had become unmoored from metal convertibility, there needed to be some form of self-limitation on the power to issue money, in order to anchor confidence in the future development of money’s purchasing power. For this to be achieved, it was necessary to establish and preserve the independence of the central banks. The central bank’s independence guarantees it an external position on the basis of which it can exercise the monetary sovereignty of which it is the depository. It is this independence that makes the central bank appear as an impartial mediator between the opposing interests of society. Central bank independence does not postulate any particular form of political action. It establishes an attitude of constrained discretion, and draws on a variety of monetary doctrines in order to guide its action.

FROM THE INFLATIONARY GROWTH POLICIES UNDER ADMINISTERED FINANCE TO THE LOW-INFLATION POLICIES UNDER LIBERALISED FINANCE The transformations of finance have not only transformed the instruments of monetary control. They have also profoundly altered the key institution of monetary sovereignty, by ripening the ideological and political conditions that have underpinned central bank independence. Table 4.2. contrasts the regulatory consequences of administered and liberalised finance respectively. It is clear that the cyclical phenomena of the capitalist economy are not regulated in the same way. Administered finance has rigid interest rates. It is the inflation rate that fluctuates and regulates tensions on the markets of goods and credit.


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The People vs. Democracy: Why Our Freedom Is in Danger and How to Save It by Yascha Mounk

affirmative action, Affordable Care Act / Obamacare, Andrew Keen, basic income, battle of ideas, Boris Johnson, Branko Milanovic, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Cass Sunstein, central bank independence, centre right, clean water, cognitive bias, conceptual framework, David Brooks, deindustrialization, demographic transition, desegregation, disinformation, Donald Trump, en.wikipedia.org, Francis Fukuyama: the end of history, German hyperinflation, gig economy, Gini coefficient, Herbert Marcuse, Home mortgage interest deduction, housing crisis, income inequality, invention of the printing press, invention of the steam engine, investor state dispute settlement, job automation, Joseph Schumpeter, land value tax, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, mass immigration, microaggression, mortgage tax deduction, Naomi Klein, new economy, offshore financial centre, open borders, Parag Khanna, Plutocrats, plutocrats, post-materialism, price stability, ride hailing / ride sharing, rising living standards, Ronald Reagan, Rosa Parks, secular stagnation, sharing economy, Steve Bannon, Thomas L Friedman, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, universal basic income, upwardly mobile, World Values Survey, zero-sum game

That is exactly what eventually came to pass: “The ECB,” according to Daniel Gros, “was the Bundesbank 2.0, but even a bit stronger in terms of its independence.”41 The whole point of its institutional design, writes Christopher Alessi, was to ensure that it would be “governed by unelected technocrats who fell outside the purview of political accountability.”42 The influence of the Bundesbank goes even further: Over the course of the 1970s and 1980s, economists began to make more far-reaching arguments for central bank independence on the German model. Since politicians who are up for election at regular intervals have a strong incentive to create short-term booms, leading scholars like Robert Barro and Robert J. Gordon argued, dependent central banks would boost inflation in the short run without sustainably decreasing unemployment in the long run.43 Making central banks independent would put decisions about interest rates in the hands of people who are insulated from such short-term incentives, and thereby boost long-term economic performance.

Each of these changes has prompted a shift of power away from national parliaments. To deal with the need for regulation in highly technical fields, bureaucratic agencies staffed with subject-matter experts began to take on a quasi-legislative role. To set monetary policy and resist political pressure to create artificial booms in election years, more and more central banks became independent. Finally, to do everything from setting rules about trade to negotiating agreements regarding climate change, an array of international treaties and organizations came into being. This loss of power for the people’s representatives is not a result of elite conspiracy. On the contrary, it has occurred gradually, and often imperceptibly, in response to real policy challenges.

The whole trouble, Frau Limens told our group of confused nine-year-olds, had started because “politicians were making all the decisions about money.” That is why, after the war, “we made the Bundesbank independent. Nowadays, we wouldn’t have that problem.” The real history of inflation and central bank independence is a little more complicated than Frau Limens had led us to believe. Faced with huge debt from World War I and a set of debtors highly determined to extract what they could from the country they had just defeated, the German government was desperate to find ways to acquire foreign currency.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

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

Unfortunately, the switch from a fixed rule, such as the gold standard, to the use of unfettered discretion led to the failure to control inflation, culminating in the Great Inflation of the 1970s. Attention turned to the idea of delegating monetary policy to independent central banks with a clear mandate to achieve price stability. Central banks were not born with independence, they had it thrust upon them – literally, in the case of Germany when, after the Second World War, the Allies imposed the model of an independent central bank. The movement towards independence gathered pace in the 1990s as a reaction to the Great Inflation. The Bank of England and the Bank of Japan were made independent in 1997, the Swedish Riksbank in 1999, and in the same year the independent European Central Bank was set up, influenced by the track record of the Bundesbank in Germany which had, since its creation in 1957, achieved lower inflation than in other industrialised countries.16 Of course central banks may themselves be tempted to court popularity.

But post-war confidence that Keynesian ideas – the use of public spending to expand total demand in the economy – would prevent us from repeating the errors of the past was to prove touchingly naive. The use of expansionary policies during the 1960s, exacerbated by the Vietnam War, led to the Great Inflation of the 1970s, accompanied by slow growth and rising unemployment – the combination known as ‘stagflation’. The direct consequence was that central banks were reborn as independent institutions committed to price stability. So successful was this that in the 1990s not only did inflation fall to levels unseen for a generation, but central banks and their governors were hailed for inaugurating an era of economic growth with low inflation – the Great Stability or Great Moderation.

When the two oil shocks of the 1970s – in 1973, when an embargo by Arab countries led to a quadrupling of prices, and 1979, when prices doubled after disruption to supply following the Iranian Revolution – hit the western world, the result was the Great Inflation, with annual inflation reaching 13 per cent in the United States and 27 per cent in the United Kingdom.7 Economic experiments From the late 1970s onwards, the western world then embarked on what we can now see were three bold experiments to manage money, exchange rates and the banking system better. The first was to give central banks much greater independence in order to bring down and stabilise inflation, subsequently enshrined in the policy of inflation targeting – the goal of national price stability. The second was to allow capital to move freely between countries and encourage a shift to fixed exchange rates both within Europe, culminating in the creation of a monetary union, and in a substantial proportion of the most rapidly growing part of the world economy, particularly China, which fixed its exchange rates against the US dollar – the goal of exchange rate stability.


pages: 597 words: 172,130

The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin

"Robert Solow", Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, break the buck, Bretton Woods, business climate, business cycle, capital controls, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency peg, eurozone crisis, financial innovation, Flash crash, foreign exchange controls, George Akerlof, German hyperinflation, Google Earth, hiring and firing, inflation targeting, Isaac Newton, Julian Assange, low cost airline, market bubble, market design, Money creation, money market fund, moral hazard, mortgage debt, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, price stability, quantitative easing, rent control, reserve currency, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, Socratic dialogue, sovereign wealth fund, The Great Moderation, too big to fail, union organizing, WikiLeaks, yield curve, Yom Kippur War

The compromise that started to emerge seemed promising: Duisenberg would take the ECB presidency for some short length of time before handing it off to Trichet for a full eight-year term. Chirac suggested that Duisenberg retire on his sixty-fifth birthday, in June 2000. But the Dutch were angered at the idea of having their man forced out after a short period. So were the Germans, who saw it as an affront to the idea of central bank independence—after all, the whole purpose of giving the ECB president an eight-year nonrenewable term was so that politicians like Chirac couldn’t micromanage when a new leader takes over. “Who is this man who says we must waste all this time talking about a few weeks longer he stays in the job?” Chirac reportedly said at one tense point in the talks.

With the French threatening to veto Duisenberg, and the Dutch and Germans threatening to veto Trichet, Blair proposed a compromise: Duisenberg would make a personal and voluntary announcement that he would retire before his full term was out. (As it turned out, he stepped down and was replaced by Trichet in 2003.) The French would get their president within a reasonable time frame, and the Dutch and Germans would get at least the appearance of a central bank independent from politics. As he left the negotiations in Brussels that weekend, Helmut Kohl, among the great statesmen of the postwar period, looked bedraggled, and described the concluded talks as “the most difficult hours I have experienced in Europe.” • • • On January 1, 1999, the euro launched, first for electronic transactions, and three years later as a paper currency.

“Extreme policy mistakes were the primary cause of the Great Depression,” Bernanke said from the lectern at the Woodstock Inn. “And today in Japan one hears statements from policymakers that are eerily reminiscent of the 1930s. . . . There are strong reasons to believe that aggressive monetary expansion . . . could raise prices and stimulate recovery in Japan. But the downside of central bank independence is that, if for whatever reason the central bank seems determined not to take necessary policy measures, there is little that can be done, at least in the short run.” “Does the technical feasibility of preventing deflation imply that protracted deflation will never occur?” Bernanke asked, before giving his own answer.


pages: 355 words: 63

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

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

After all, a Polarized Peoples 279 society polarized by class or race will be less likely to create an independent central bank, an independent finance minister, and highquality institutions in the first place. But at least we have identified the incentives that government officials face in polarized societies as the root of bad policies. This is a big improvement over endless preaching at poor countries to change their policies. We know some institutional remedies that help matters, even if they are no panaceas. If only rule of law, democracy, independent central banks, independent finance ministers, and other good-quality institutions can be put place, in the endless cycle of bad policies and poor growth can come to an end.

In Africa, the interest group deadlock has still not been broken in many countries, as countries enter into their fourth decade after independence. Still, never at a loss for words, economists have proposed some institutional arrangements that will create incentivesfor the government to pursue betterpolicies. One, which is most relevant for countries struggling with high inflation, is central bank independence.Recall that a war of attrition between interest groups prolongs high inflation.A central bank that does not belongto either group is more likely to stand up to interest group pressure for the credit creation that fuels inflation. An independent central bank is morelikely to share the burdenof stabilization among interest groups.

Alesina, Alberto, and Roberto Perotti. 1995. ”Fiscal Expansions and Adjustments in OECD Countries.” Economic Policy 20:205-248. Alesina, Alberto, and Dani Rodrik. 1994. ”Distributive Politics and Economic Growth.” Quarterly Journal of Economics 109, no. 2 (May): 465-490. Alesina, Alberto, and Lawrence H. Summers. 1993. ”Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence.” Journal of Money, Credit and Banking 25 (May): 151-162. Alfiler,Ma., and P. Concepcion. 1986. ”The Process of Bureaucratic Corruption in Asia: Emerging Patterns.” In Ledivina V. Carino, ed., Bureaucratic Corruption in Asia: Causes, Consequences, and Controls.


pages: 547 words: 172,226

Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu, James Robinson

"Robert Solow", Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, banking crisis, Bartolomé de las Casas, Berlin Wall, blood diamonds, BRICs, British Empire, central bank independence, clean water, collective bargaining, colonial rule, conceptual framework, Corn Laws, creative destruction, crony capitalism, Deng Xiaoping, desegregation, discovery of the americas, en.wikipedia.org, European colonialism, failed state, Fall of the Berlin Wall, falling living standards, financial independence, financial innovation, financial intermediation, Francis Fukuyama: the end of history, Francisco Pizarro, full employment, household responsibility system, Ida Tarbell, income inequality, income per capita, indoor plumbing, invention of movable type, invisible hand, James Hargreaves, James Watt: steam engine, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kickstarter, land reform, mass immigration, Mikhail Gorbachev, minimum wage unemployment, Mohammed Bouazizi, Paul Samuelson, price stability, profit motive, Rosa Parks, Scramble for Africa, Simon Kuznets, spice trade, spinning jenny, Steve Ballmer, Steve Jobs, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, Washington Consensus, working poor

The theory was that independent central banks, just like the Bundesbank in Germany, would resist political pressure and put a lid on inflation. Zimbabwe’s president Mugabe decided to heed international advice; he declared the Zimbabwean central bank independent in 1995. Before this, the inflation rate in Zimbabwe was hovering around 20 percent. By 2002 it had reached 140 percent; by 2003, almost 600 percent; by 2007, 66,000 percent; and by 2008, 230 million percent! Of course, in a country where the president wins the lottery (this page–this page), it should surprise nobody that passing a law making the central bank independent means nothing. The governor of the Zimbabwean central bank probably knew how his counterpart in Sierra Leone had “fallen” from the top floor of the central bank building when he disagreed with Siaka Stevens (this page).

The governor of the Zimbabwean central bank probably knew how his counterpart in Sierra Leone had “fallen” from the top floor of the central bank building when he disagreed with Siaka Stevens (this page). Independent or not, complying with the president’s demands was the prudent choice for his personal health, even if not for the health of the economy. Not all countries are like Zimbabwe. In Argentina and Colombia, central banks were also made independent in the 1990s, and they actually did their job of reducing inflation. But since in neither country was politics changed, political elites could use other ways to buy votes, maintain their interests, and reward themselves and their followers.

In reality, such reforms were foisted upon these countries in contexts where politics went on as usual. Hence, even when reforms were adopted, their intent was subverted, or politicians used other ways to blunt their impact. All this is illustrated by the “implementation” of one of the key recommendations of international institutions aimed at achieving macroeconomic stability, central bank independence. This recommendation either was implemented in theory but not in practice or was undermined by the use of other policy instruments. It was quite sensible in principle. Many politicians around the world were spending more than they were raising in tax revenue and were then forcing their central banks to make up the difference by printing money.


pages: 454 words: 134,482

Money Free and Unfree by George A. Selgin

"Robert Solow", asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, centralized clearinghouse, Charles Lindbergh, credit crunch, Credit Default Swap, crony capitalism, disintermediation, fear of failure, fiat currency, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, foreign exchange controls, Fractional reserve banking, German hyperinflation, Hyman Minsky, incomplete markets, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, large denomination, liquidity trap, Long Term Capital Management, market microstructure, Money creation, money market fund, moral hazard, Network effects, Northern Rock, oil shock, Paul Samuelson, Plutocrats, plutocrats, price stability, profit maximization, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, Robert Gordon, Savings and loan crisis, savings glut, seigniorage, special drawing rights, The Great Moderation, the payments system, too big to fail, transaction costs, unorthodox policies, Y2K

Cross-sectionally, our argument predicts that independent central banks—serving the need for a commitment device—should be found more commonly in pluralistic democracies than in autocratic states where a ruling lineage has secure tenure. This prediction is broadly consistent with evidence from the 1980s. In Cukierman’s (1992) ranking of 46 central banks, the 14 most independent were found in liberal democracies, with the sole exception of Hungary’s. Of the remaining 32 less-independent banks, 16 were in countries that were authoritarian for the entire 1980s, and 6 more were in countries that were authoritarian at the start of the decade.15 The fiscal hypothesis suggests that central bank independence is unlikely to be absolute, and predicts that independence is most likely to be withdrawn during periods of heavy fiscal demand.

The decision to form an independent monetary authority is most likely to be made when rival political parties have little to lose by cooperating to restore a depressed inflation-tax base, such as immediately following an inflation-based capital levy that has greatly increased the public’s estimate of the likelihood of future high inflation. Historically, then, central banks are most likely to be given independence by democratic governments in the wake of relatively severe inflations. The Reichsbank, for example, gained independence at the end of the German hyperinflation. In the United States, the “accord” giving the Federal Reserve greater independence from the Treasury came in the wake of the post–World War II inflation.

Because most system currencies did not become fully convertible at the new par values established for them in 1946 until the close of 1958, the system only became fully operative at the latter date. The Bretton Woods system was supposed to reproduce the most desirable features of the classical gold standard while nevertheless allowing participating central banks some freedom to pursue independent monetary policies. For a time, it seemed to achieve its purpose, by reestablishing a system of stable exchange rates accompanied by low inflation. However, the system’s apparent stability masked serious inherent flaws that became especially serious once the dollar emerged as its only “key” currency.


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

Clearly, when its awesome power is put to good effect – as a lender of last resort to illiquid governments, for instance – it can be a force for good, but even so it urgently needs reform. The ECB is buttressed by a secular religion which holds that central-bank independence is sacred and ought to be inviolate. It is particularly beloved by federalists because it is a truly supranational European institution. Yet the general principle in a democracy is that power is exercised by elected authorities. When democratic authorities delegate power to unelected ones, that power ought to be exercised openly and accountably. Surely the ECB ought to be judged by its results? The conventional case for central-bank independence rests on three planks: common agreement that low inflation is a good thing; the absence of a trade-off between low inflation and other desirable goals such as low unemployment, high growth or financial stability; and the belief that independent central banks are better placed to deliver low inflation at lower cost than politicians are.

The panic in sovereign bond markets that resulted from the five policy mistakes revealed a major design flaw: that the ECB was not explicitly mandated to be a lender of last resort to governments in the EU treaties. It also revealed two important political constraints: a deep reluctance of the ECB to intervene to stabilise sovereign bond markets and a perception that a central bank that jealously guards its independence was in fact a prisoner of German politics. The overarching error was a misdiagnosis of the crisis as being primarily about excessive government borrowing and a lack of “competitiveness” in southern Europe for which the solution was immediate austerity and wage cuts. In fact, with the notable exception of Greece, it was primarily a banking crisis associated with excessive private borrowing for which the solution was bank restructuring, debt write-downs and policies to support investment and economic adjustment.

Last but not least, how does one prevent panic in government bond markets: will the ECB’s ad hoc, conditional OMT policy suffice, should it be formally mandated as a lender of last resort to illiquid but not insolvent governments, or is there another alternative? That brings us neatly to monetary policy. Most central banks now operate independently of governments day to day, but the ECB’s autonomy is exceptional. It decides both what its target should be – it has settled on consumer-price inflation of close to but under 2 per cent – and how it wants to try to achieve it. It can even choose to do nothing when it fails to meet its target: even though inflation has plunged to below 1 per cent, threatening deflation, it is sitting on its hands.


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, bond market vigilante , 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, Modern Monetary Theory, mortgage debt, Naomi Klein, National Debt Clock, new economy, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, open economy, Paul Samuelson, Ponzi scheme, Post-Keynesian economics, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, San Francisco homelessness, shareholder value, Silicon Valley, Tax Reform Act of 1986, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

To keep inflation stable, Milton Friedman wanted the central bank to follow a strict rule. His rule dictated that the money supply (M) should be permitted to grow only as fast as the real economy (Y); that way, prices (P) would remain stable given (V), the assumption of constant income velocity of money. 8. For a further discussion of central bank independence, see L. Randall Wray, “Central Bank Independence: Myth and Misunderstanding,” Working Paper No. 791, Levy Institute of Bard College, March 2014, www.levyinstitute.org/pubs/wp_791.pdf. 9. The Federal Reserve targets PCE. If it hits its target exactly, then the average price of the basket of goods used to construct the PCE will rise by 2 percent per year.

How We Fight Inflation Today Since 1977, the Federal Reserve has operated under what is commonly referred to as a dual-mandate from Congress. The dual-mandate directs the Fed to pursue maximum employment and stable prices. Basically, Congress put the Fed in charge of jobs and inflation. Congress doesn’t tell the Federal Reserve how many jobs it’s expected to support or how much inflation is considered too much. The central bank is treated as independent in the sense that it gets to pick its own inflation target and decide for itself what maximum employment means.8 Like most central banks, the Federal Reserve has chosen a 2 percent inflation target.9 To keep from overshooting that rate, the Fed aims to keep just the “right” amount of unemployment in the system, much like Friedman prescribed a half century ago.

Paul Davidson and Jan Kregel, Full Employment and Price Stability in a Global Economy (Cheltenham, UK: Edward Elgar, 1999), cas2.umkc.edu/econ/economics/faculty/Forstater/papers/BookChaptersEnclopediaEntries/GeneralFrameworkAnalysisOfCurrenciesCommidities.pdf. 30. The Fed began targeting in 1942. See Jessie Romero, “Treasury-Fed Accord, March 1951” (webpage), Federal Reserve History, November 22, 2013, www.federalreservehistory.org/essays/treasury_fed_accord. 31. For an MMT description of what is meant by Fed independence, see L. Randall Wray, “Central Bank Independence: Myth and Misunderstanding,” Working Paper No. 791, Levy Economics Institute of Bard College, March 2014, www.levyinstitute.org/pubs/wp_791.pdf. 32. Even some officials at the Federal Reserve are reportedly beginning to consider the possibility of explicitly targeting the longer end of the yield curve.


pages: 580 words: 168,476

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

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Savings and loan crisis, 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, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

My own views are set out in a lecture in memory of one of the great economists of the twentieth century, and the (first) Nobel Prize winner in economics, Jan Tinbergen, delivered at the Central Bank of Netherlands, “Central Banking in a Democratic Society,” De Economist 146, no. 2 (July 1998): 199–226, esp. 28. See also Alex Cukierman, Central Bank Strategy, Credibility, and Independence (Cambridge: MIT Press, 1992); and J. Furman, “Central Bank Independence, Indexing, and the Macroeconomy,” unpublished 1997 manuscript. 25. See chapter 3 for more details. 26. Edward M. Gramlich not only anticipated the bubble and its breaking but also argued forcefully that something should be done to avoid the foreclosures.

Indeed, as we shall explain later, most of its board members probably truly believed that its policies—lax regulation, fighting inflation, helping banks that are so essential to the functioning of our economy—would promote growth from which all would benefit. But that’s just testimony to the extent to which the Fed was “captured” by the perspectives and worldview of the bankers. TOWARD A MORE DEMOCRATIC CENTRAL BANK24 A central thesis of current conventional wisdom is that central banks should be independent. If they are subject to political forces, so the thinking goes, politicians will manipulate monetary policy for their short-run advantage at a long-run cost; they will stimulate the economy excessively before an election, with the price—higher inflation—to be paid after the election.

If they are subject to political forces, so the thinking goes, politicians will manipulate monetary policy for their short-run advantage at a long-run cost; they will stimulate the economy excessively before an election, with the price—higher inflation—to be paid after the election. Moreover, with an independent central bank committed to low inflation, markets will not build inflationary expectations into their behavior, so inflation will be contained, and there will be better overall economic performance. The failure of independent central banks The independent central banks of the United States and Europe didn’t perform particularly well in the last crisis. They certainly performed far more poorly than less independent central banks like those of India, China, and Brazil. The reason was obvious: America’s and Europe’s central banks had, in effect, been captured by the financial sector.


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, 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

And even though I have focused on large-scale policy innovations that changed the course of nations, one can easily come up with a long list of others that are less revolutionary: the income tax, old-age pensions, the most-favored-nation principle in international trade, bank deposit insurance, work requirements for welfare recipients, conditional cash transfers, central bank independence, and marketable pollution trading. What these all have in common is that they unblock resistance to change to allow society to move closer to the efficient frontier. In cases like these, does greater efficiency always justify helping elites? Policy Ideas for Dictators? It might seem obvious that economists should lend their expertise to help develop policy ideas for political leaders.

Roosevelt uttered a famous call for “bold, persistent experimentation” in 1932: “It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.”23 To a much lesser extent, the inflationary crisis of the 1970s played a similar role, preparing the groundwork for new ideas in macroeconomics such as rational expectations and central bank independence. The recent financial crisis has made taxation and control of international capital flows more palatable, although the extent to which financial interests have been weakened remains debated. While the association between crises and new ideas seems plausible, much remains to be explained.


pages: 263 words: 80,594

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

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

Of course, what the rise of the expert really meant was the capture of policy-making by the powerful.35 In the absence of any accountability to voters, decisions about macroeconomic policy could be based on the returns such policies would provide to the wealthy. Perhaps the best example of how rule-by-experts facilitates policy capture has been the move towards central bank independence. Neoclassical economists argued that politicians exhibited an “inflationary bias”, which made them poor economic managers. Failing to consider the long-term implications of their actions, politicians would reduce interest rates and increase spending today in order to boost growth and secure re-election.

Ultimately, however, this would damage the economy in the long-run by raising inflation, which would erode consumers’ incomes. The solution was clear: this powerful tool had to be placed on the top shelf, away from the prying hands of the political toddlers focused only on their own electoral prospects. Some argued that central bank independence was supposed to bring about high interest rates, which would damage industrial capital and promote the interests of finance capital — but under the conditions of financialisation, the situation is much more nuanced. Histori- cally, there has been an assumed dichotomy between the interests of finance capital and those of industrial capital.36 The former has been assumed to prefer high interest rates to maximise the returns on lending, whilst the latter are assumed to prefer low interest rates to allow them to borrow cheaply.


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

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

Capital Choices: Changing the Way America Invests in Industry CWsish-ington: Council on Competitiveness, and Cambridge, Mass.: Harvard Business School). Posen, Adam (1995a). "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," in Ben Bernanke and J. Rotenberg, eds., NBER Macroeconomics Annual 7995 (Cambridge: MIT Press). — (1995b). "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Federal Reser\'e Bank of New York Staff Report No. 1 (May). Poterba, James M., and Andrew A. Samwick (1995). "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Brookings Papers on Economic Activity 2, pp. 295-372.

Other analysts have argued that while ^ is a weak explanation of real investment, changes in stock prices do a better job (Barro 1990). But it may be that the stock market is simply a leading indicator of the business cycle, responding quickly to changes in interest rates and central bank policy, rather than being the independent cause of anything. Randall Morck, Andrei Shleifer, and Robert Vishny (1990) found that over the period 1960-1987, the stock market explained very little of the change in real investment once fundamentals like sales and profit growth were controlled for — relations that held for the stock market and economy taken as a whole, and for individual firms examined in detail.^° Introducing external financing — new stock and debt issues — added a bit of explanatory power to their equations, but not much, with new debt doing a better job than equity.

Unlike Britain and the United States, which suffer from loosely regulated financial systems and a shoot-from-the-hip stock market mentality, Japan and Germany have rather tightly regulated systems in which stock markets play a relatively unimportant role in both investment finance and corporate governance. Compared with these broader financial structures, the central bank's (in)dependence isn't quite so important. Populist critiques of the Fed tend to concentrate excessively on its autonomous powers while overlooking the influence of the financial markets on the central bankers: the Fed follows interest rate trends as well as leading them. The 1994 tightening offers a good example.


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

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

Index Compiled by Sue Carlton 9/11 terrorist attacks 29 Addison Lee minicabs 62, 63 Airbnb 98 Allensbach Institute 40 America see United States Amin, Idi 9 antisemitism 86 Antrobus, Lavern 75 AOL 81 Apple 60, 81, 91, 105 The Apprentice 75 apprenticeships 74 ArcelorMittal 73 Argentine military junta, defeat of (1982) 10 ARM 68 austerity measures 3, 36, 66 Australia 30, 32–3, 65, 88, 111 Bakewell, Joan 109–10 Balls, Ed 25–6, 27, 28, 29, 30, 31, 33 Balls, Michael 25 Bank of England independence 25 see also central banks bankruptcy 91, 92 see also business, and failure banks Australian 33 bailouts 12, 33 Canadian 4, 13, 33–5 Chinese 95 and mathematical knowledge 45, 47–8 Bar-Natan, Bernard 78–80, 84 Basel II regulations 47 Beleza Natural 103–4 Beuchler, Simone 102 Black Wednesday 25 Blair, Tony 17, 24, 27, 29, 115 Blanchflower, David 20 boom and bust, end of 25, 27, 30, 115 Branson, Richard 97 Brazil 5, 100–6, 112, 113, 115 crime 102–3, 105 democratic elections 104 demographics 104 education system 105 and global recession 101 and international investment 105 military coups 104 Olympic Games (2016) 101–2, 103 and optimism 5, 100–2, 103, 105, 106, 111 poverty and inequality 102, 104–5 productivity 105, 115 BRIC (Brazil, Russia, India, China) economies 10 see also emerging economies Britain see United Kingdom British Chamber of Commerce survey (2011) 87 British film industry 97 British Social Attitudes survey 109 Brittan, Samuel 20 Brown, Gordon 17, 24, 25, 26–9, 30, 33, 36 Buckley, Sir George 58 business 2, 3–4 enterprise zones 88 and failure 91–2, 95–6, 99 and informal economy 88–9 and regulation 87–8, 89 Callaghan, James 24, 114 Cameron, David 20 Campbell, Kim 16 137 138 Britannia Unchained Canada 4, 12, 13–19, 32, 33–7 banks 4, 13, 33–5 cutting deficits 4, 14–18, 30, 32, 37 diversified economy 34 education 36, 37 financial regulation 34–5 points-based immigration system 36 spending cuts 17–18 CDOs (collateralised debt obligations) 47, 48 CDSs (credit default swaps) 47 celebrity culture 4, 74–5, 76, 115 central banks independence 25, 27 see also Bank of England Centre for Economics and Business Research 101 Centre for Social Justice 67, 70, 73 Charles II, King of England 21 childcare, cost of 71 Chile 30, 32 China 10, 46, 53, 113, 115 aging population 106, 107 education 43, 44, 113 Chinese students in UK 58–9, 72 enterprise culture 95 informal economy 89 patent registration 54 Chrétien, Jean 16–18, 35, 36 chutzpah 81–2 Cidade de Deus slum 100 City of God (2002) 100 Clark, Joe 15 Clarke, Ken 27–8 Clinton, Bill 25 ComRes poll 87 Confederation of British Industry 74 Conservative Party (Canada) 35 consumer law 89 Cool Britannia 10, 115 Costa, Edivan 103 credit card debt 12, 30 Crosland, Anthony 26 Crow, Bob 63 Crowdcube 98 crowdfunding 98 Darling, Alistair 111 Day Care Trust 71 De Gaulle, Charles 8, 105–6 Deak, Lex 92 debt 10, 12, 19–24, 30–3, 115 debt delusion 19–20, 23 and default 21–2, 101 and economic growth 21, 22, 23–4 and financial crises 22–3 and future generations 67, 70 and responsible spending 24, 33 deficits 23–4 see also United Kingdom (UK), and deficit; Canada, cutting deficits; debt delayed gratification 71–2 demographics 106–11 population aging 32, 100, 101, 106–7 population growth 9, 113 Devey, Hilary 75–6 Dickson, Julie 35 Diefenbaker, John 15 dot com bubble 11, 29, 94 Dragons’ Den 75 Duncan, Arne 38 Duncan, Emma 57 Duncan-Smith, Iain 75 Dyson, , James 97 Economic Freedom of the World (Cato Institute) 36 economic growth 113 and demographic dividend 108 unsustainability of 9, 10 Economic Stabilisation Plan (Israel) 83 Edison, Thomas 91 education 4–5, 38–60 comparing school systems 38–41 cramming establishments 43–4 and graduate jobs market 44–5 and hard work 50, 57, 59 Index and parental aspiration 57, 59, 72–3 students choosing easier subjects 42–3, 45, 46–7 and work experience 43, 74 see also United Kingdom (UK), education; Programme for International Student Assessment (PISA) Edward III, King of England 21 emerging economies 3, 11, 113, 115 and scientific development 52, 53 and women 50 see also Brazil; China; India; Mexico; South Korea Enron 92 enterprise zones 88, 94 entrepreneurship Brazilian shantytowns 103–4 and courage 98–9 in US 90, 93–4, 96–7 and work ethic 67–8 see also Israeli entrepreneurial culture Erlich, Yigal 83, 84–5 Eurozone crisis 3, 12, 21, 37, 114 Exchange Rate Mechanism 24–5, 115 Facebook 55, 76, 95 failure as part of business 91–2, 95–6, 99 see also risk Famine, 1975!


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

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

Italy has a tradition of government by a strong central bank – one which Mario Draghi, governor of the Bank of Italy from 2006, after his time at Goldman Sachs, until his appointment as president of the ECB, continues today at EU level.3 In the 1990s, it should be noted, the extensive transfer of government powers from the discredited party system to a central bank independent of it was possible in part because fulfilment of the entry conditions for the European Monetary Union was seen as an overarching national interest. In Europe as in the United States, crisis therapy based on artificial money could be successful in the short run: that is, bankers’ bonuses and shareholders’ dividends might recover, and the risk premiums required by ‘the markets’ for the purchase of government securities might again be affordable after the central bank takes over the risk.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

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

He wrote that he had protested against the German obsession with fiscal “stability,” but his pushback “was not well-​received by the super-​orthodox Germans and Dutch.”122 The Germans also insisted that the new central bank be independent, a demand consistent with German tradition and the global trend at the time. The laudable goal was to minimize political interference in the central bank’s operations. But at Maastricht, in a significant departure from international practices, Europe’s proposed central bank was set up to be super-​independent. Elsewhere, even “independent” central banks are accountable to elected representatives. In the United States, the General Accounting Office has “wide latitude to review Fed operations,” and the US Congress exercises oversight of the Fed’s operations to ensure that monetary policy is conducted “reasonably and in the national interest.”123 In principle, Congress can also change the Fed’s mandate.

The Lamfalussy appendix to the Delors Report had laid out the problems and the implications of the system being set up (Lamfalussy 1989). Only an outsider could question such sweeping independence for the ECB. In 1997, Paul Volcker, the legendary former chairman of the Fed and himself an uncompromising advocate of central-​bank independence, emphasized that central banks needed nevertheless to be politically accountable. A central bank, he said, “must be able to justify its policies to the general public and to political leaders.”124 Volcker was, therefore, sympathetic to the French demand for regular communication between the ECB and an intergovernmental council; in such a forum, governments would convey their economic and political priorities to the ECB.

In an international context, where the countries adopting the single currency did not trust one another, the prime objective was to ensure that a member state could not hijack the central bank. On this matter, the Germans were unwilling to make concessions, especially as the French had made it clear that they would attempt to influence European monetary policy if they could. The German position won the day because there appeared to be no other legitimate option. The proposed central bank’s independence necessarily came with a simple rule to determine the conduct of monetary policy. Achieving price stability would be the only goal of the ECB. Unlike the Fed, which famously had a “dual mandate” of fostering both price stability and “maximum sustainable employment,” the ECB would not act specifically to improve employment prospects.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

T h e I n f l at ion P robl e m In 1984, the then British Chancellor, Nigel Lawson, announced that the object of macroeconomic policy was the ‘conquest of inflation’. This object came to be embodied in mandates given to nearly all central banks over the following years: to hit pre-set ‘inflation targets’ – usually in the region of 2 per cent annual inflation. To achieve these targets, central banks were given ‘operational independence’ over interest rates. Today, the urgent need is to ‘conquer under-employment’. In this situation, to be left with the ‘conquest of inflation’ as the only extant macro-policy aim is archaic, indeed nonsensical, when, for the last ten years, the problem has been deflation, not inflation.

Because fiscal policy is the more powerful weapon (and because governments, unlike central bankers, are accountable to voters), the government should be the senior partner in macro-policy. Specifically, the trade-off between inflation and unemployment at any one time, or over several years, should be a matter of political judgment. It cannot be outsourced to technicians, whose job should be to advise on the consequence of political choices, not to make them. 5. Central banks would lose their independent control of interest rates. Their mandates should be to support the economic policy of the government. They would advise governments on Bank Rate, not decide it, and they would, uniquely for a state agency, 360 r e i n v e n t i ng p ol i t ic a l e c onom y have the right to publish their dissent.

Hawtrey (1913), p. 260. Pigou (1913). Hawtrey (1925), p. 40. Ibid., p. 44. This would not be true if the government borrows funds which would otherwise have gone into foreign investment (p. 46), a view also championed by Keynes. Hawtrey’s argument presupposes that the central bank has it in its power to ‘create credit’ independently of the demand for credit. Winston Churchill, Budget speech of 1929, quoted in Peden (2004), p. 57. ‘The Means to Prosperity’, in Keynes (1978), pp. 335–66. Crafts and Mills (2013). One big difference between Nazi Germany and the UK was that Germany was much nearer to being a closed economy, from which the 402 No t e s 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 multiplier effect of public expenditure was prevented from seeping away through imports.


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How Will Capitalism End? by Wolfgang Streeck

accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, business cycle, 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, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal 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 Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

By providing its customers with liquidity, the financial industry establishes control over them, as is the very nature of credit. Financialization turns the financial sector into an international private government disciplining national political communities and their public governments, without being in any way democratically accountable. The power of money, wielded by central banks both independent from states and dependent for the success of their monetary policies on the cooperation of the private financial sector, takes the place of the power of votes, adding importantly to the decoupling of democracy from political economy that is the central requirement of the Hayekian model, if not of growth, then of profit growth.

., where it is hard to see what neoliberal ‘reforms’ still remain to be implemented. 7See Armin Schäfer and Wolfgang Streeck, eds, Politics in the Age of Austerity, Cambridge: Polity 2013. 8Walter Korpi, The Democratic Class Struggle, London: Routledge and Kegan Paul 1983; and Crouch, Post-Democracy. 9This is the Public Choice view of fiscal crisis, as powerfully put forward by James Buchanan and his school; see for example Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann Arbor: University of Michigan Press 1962. 10One often forgets that most central banks, including the BIS, have long been or still are partly under private ownership. For example, the Bank of England and the Bank of France were nationalized only after 1945. Central bank ‘independence’, as introduced by many countries in the 1990s, may be seen as a form of re-privatization. 11Of course, as Colin Crouch has pointed out, neoliberalism in its actually existing form is a politically deeply entrenched oligarchy of giant multinational firms; see Crouch, The Strange Non-Death of Neoliberalism. 12See Daniel A.


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

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, 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

This was a reaction to the excess inflation of the 1970s, a period during which central banks were too often required to do the bidding of their political masters. For a while, inflation was endemic, leading to losses for those on fixed monetary incomes – most obviously pensioners – and huge distortions to the price mechanism – Adam Smith's ‘invisible hand’. By making central banks independent, and thus no longer subject to the temptations of the electoral cycle, the hope was that inflation would eventually be brought back under control, leaving the world a much happier place. The financial crisis has destroyed this separation of monetary church from state. By altering the yield on government debt, quantitative easing has, in effect, brought governments and central banks back together again.

The likely result is a rise in government bond yields as the central bank's underwriting comes to a conclusion. If, however, the economy is still weak, the rise in bond yields will surely be regarded as a threat to economic recovery. The government will then blame the central bank for undermining the nation's economic health and the central bank's independence will then be under threat. Far better, then, simply to continue with quantitative easing or even, perhaps, to expand the central bank's remit. There are two ways of doing so. The first is for the central bank to buy a much wider range of assets – not just government paper but also asset backed-securities, corporate bonds, foreign currency or maybe even equities.

Darling, Back from the Brink (Atlantic Books, London, 2011). 23. R. Paul, ‘Our Central Bankers Are Intellectually Bankrupt’, Financial Times, 2 May 2012. 24. M. Draghi, Introductory statement to the press conference (with Q&A) following the Governing Council meeting of the European Central Bank, Barcelona, 3 May 2012. 25. Although Scottish independence might change all that. 26. See my article ‘Rouble Poses Worrying Parallels for Euro Crisis’, Financial Times, 9 Aug. 2011. CHAPTER 5: THE LIMITS TO STIMULUS: LESSONS FROM HISTORY 1. J. M. Keynes, ‘The Economy Bill’ (Sept. 19, 1931)’, in Essays in Persuasion (Norton, New York, 1963). 2.


pages: 408 words: 108,985

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity by Joseph E. Stiglitz

Airbnb, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, basic income, Berlin Wall, bilateral investment treaty, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, deindustrialization, discovery of DNA, diversified portfolio, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, Francis Fukuyama: the end of history, full employment, gender pay gap, George Akerlof, gig economy, Gini coefficient, hiring and firing, housing crisis, Hyman Minsky, income inequality, independent contractor, inflation targeting, informal economy, information asymmetry, intangible asset, investor state dispute settlement, invisible hand, Isaac Newton, labor-force participation, liberal capitalism, low skilled workers, market fundamentalism, mini-job, moral hazard, non-tariff barriers, offshore financial centre, open economy, patent troll, pension reform, price mechanism, price stability, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, shareholder value, Silicon Valley, sovereign wealth fund, TaskRabbit, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, tulip mania, universal basic income, unorthodox policies, zero-sum game

The issue of governance becomes even more important as central banks have taken on roles that go well beyond simply setting interest rates, such as we have seen in the context of the interventions in the euro crisis. Other countries have had independent central banks, but their central bank governors have realized that even though independent, there has to be some degree of political accountability and sensitivity. Echoing this sentiment, Paul Volcker, chairman of the Federal Reserve from 1979 to 1987, famously said, “Congress has created us, and Congress can un-create us.” Both during the crisis and in the run-up to it, some of the best-performing central banks included those with less independence, such as in India and Brazil. Here, what matters is not only de jure independence, but also how central bankers and governments behave (the norms and customs).

Moreover, the idea that good macroeconomic outcomes could be achieved without close coordination between fiscal and monetary policies, as well as between policies conducted at the European and the national levels, was also based on simplistic and unrealistic models. Deficiencies in ECB Governance There was another idea that was fashionable at the time that infected the governance of the ECB: a central bank should be “independent,” which in practice meant “free of political control.” The idea was to give the ECB a clear mandate (price stability) and leave the rest to technocrats. It also followed that if those lacking specialized knowledge would simply step aside, people trained in the task could steer monetary policy in an optimum direction.

Decisions are made by a council consisting of the six executive board members and, on a monthly rotating basis, the heads of four of the five largest Eurozone countries’ and 11 of the 14 smaller countries’ central banks. The executive board members, in turn, are appointed by the heads of government of the Eurozone countries for an eight-year, nonrenewable term. Each of the central banks within each country is required to be independent. The ECB was ensconced in Frankfurt, away from the hurly-burly of Brussels, with its politicians and Eurocrats. The bank assumed new quarters in a handsome twin-skyscraper construction designed by an avant-garde Austrian architect. The 1992 Maastricht Treaty legally ticked all the boxes to fence off the ECB from political pressure.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

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

It was in this shake-out that Chung Ju Yung’s Hyundai obtained control of Kia and, with it, unassailable dominance of the automotive sector.29 What was different to every preceding crisis was that on this occasion the Korean government heeded IMF advice about structural changes to the financial system. The country acquired north-east Asia’s most ‘orthodox’ financial system, with an independent central bank, wholly independent commercial banks, large foreign-controlled banks and much increased rights for independent investors in stock and other markets. Despite a financial sector wobble over increased consumer debt in the early 2000s, so far the deregulated system has not produced another crisis. However it remains to be seen precisely how well timed Korea’s transition to an Anglo-Saxon financial system was.

They funded whatever activities their owners saw fit – usually their own. Indonesia’s political and economic conditions deteriorated in the 1950s and Sukarno declared martial law in 1957, promising a more focused, state-led developmental effort. He removed remaining legal guarantees of central bank independence (just as Park Chung Hee would in 1961). He made the state banks almost completely dominant in the allocation of credit and focused them on supporting businesses that he nationalised from the Dutch. Bank Indonesia was told both to lend directly to favoured projects and to rediscount aggressively to the banking system.

The Nikkei 225 Index was 3.1 times higher at its peak of just under 39,000 at the end of 1989 than in September 1985. The Urban Land Price Index peaked in September 1990 at just under four times the September 1985 level. 15. See Woo, Race to the Swift, p. 43. It was the US advisers who also oversaw the creation of an independent central bank which Park made very un-independent. 16. The consumer price index increased an average 17 per cent annually in the 1960s and 19 per cent annually in the 1970s. The peak of rediscounting was during the HCI drive in the late 1970s. 17. See Woo, Race to the Swift, pp. 113 and 157. She cites a 1980 survey which suggests that 70 per cent of household savings at that point were kept with illegal kerb lenders.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

However, as the price for carrying the German government with him, the ECB’s president, Mr Mario Draghi, also announced that these ‘operations’ (which are now known as outright monetary operations, or OMT) would be conditional on further austerity, vouched for by inspectors. Thus, surreptitiously, Europe’s central bank sacrificed, on the altar of keeping on Germany’s ‘right side’, its most prized principle: central bank independence.13 Many a reader may protest that I left out of my short list of significant changes the June 2012 Summit Agreement according to which Europe’s leaders, at the insistence of the Italian and Spanish prime ministers, agreed to separate the continent’s banking crisis from the debt crisis. How would that separation be achieved?

Mr Mario Draghi’s choice of words, by which to signal unambiguously that he was talking about the Eurozone’s dismantling, was that there was now a serious ‘convertibility risk’ – by which he meant that there was a risk that all prices in the eurozone would be ‘converted’ to other, new, national (one presumes) currencies! 13. This loss becomes clear the moment one realises that the ECB has chosen to conduct monetary operations that will stop not when the ECB judges they must but when Brussels or the IMF say it should cease and desist. This is, if nothing else, ample proof that the fabled central bank independence was never a real principle but, rather, a pretext for never financing anyone other than ‘needy’ bankers. Postscript 1. These words were conveyed to us by Ron Suskind in his article in the New York Times Magazine, October 2004. Though not attributed, many believe they were spoken in the summer of 2002 by Karl Rove, a senior aide to President George W.


pages: 475 words: 155,554

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

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

Is Britain’s economic predicament credibly consistent with a target inflation exceeded for most of the past half-decade. Can the target be altered without igniting inflationary expectations? And does Bank of England independence really mean anything now it’s the largest purchaser and holder of UK government debt? Fiscal dominance is in fact more the norm than full central bank independence. The independent central bank doggedly pursuing an inflation target may turn out to be a two-or-three decade fad. QE is a policy that is massive, controversial, remarkably redistributive, uncertain in its effect, and is now resulting in a myriad unintended consequences. There are diplomatic and political impacts.

Germany’s sensitivity about its history in the first half of the twentieth century does much to explain its reluctance to assume an imperium in Europe in the early years of the twenty-first. German government officials point out that the main player in the crisis, the European Central Bank, although based in Frankfurt, is independent, not an organ of the German state. ‘We are not in the Troika,’ they insist, when asked if they are fed up with Greece. Ironically, no Germans today seem to remember the period of deflation and political extremism that accompanied Chancellor Brüning’s austerity policies of 1929–32, although there is a small exhibit on this at the Bundesbank museum.

Both nations had descended into financial bedlam, despite mainly sticking to the euro’s Stability Pact. The problems had come in the banking system. The ECB was willing to step up. Yet it had absolutely no experience of banking supervision. Suddenly the ECB’s democratic deficit threatens to turn into a chasm. The origins of the need for central-bank independence over monetary policy have strong foundations. But is a strong political independence appropriate when the central bank is the driving force behind labour-reform policies, fiscal plans, and now continent-wide banking policy? By 2014, the ECB will face its first of a series of huge new tests.


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, Bear Stearns, 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, tail risk, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

But the “secret” loans made to Wall Street’s big banks in the aftermath of the financial crisis engendered deep suspicion. Paul’s bill would allow the GAO to question the Fed’s decision-making process. “I want to be completely clear. I strongly oppose ‘Audit the Fed,’” Yellen told Congress. “Central bank independence in conducting monetary policy is considered a best practice for central banks around the world. Academic studies, I think, establish beyond the shadow of a doubt that independent central banks perform better.” Can’t argue with those “academic studies.” (Except that devilish detail that most can’t be replicated.)

Central banking around the world has become a growth industry, populated with PhD economists and a few former investment bankers. These unelected men—and a few women, most notably Yellen—control the world’s economic system. They are arguably more powerful than the world’s political leaders chosen by voters. Under the banner of “central bank independence,” they manipulate the monetary system based on their models and their connections. And they are increasingly scary. In May 2016, Vitas Vasiliauskas, a Governing Council member of the ECB, told Bloomberg that central bankers still had tools to handle economic shocks despite negative interest rates.


pages: 82 words: 24,150

The Corona Crash: How the Pandemic Will Change Capitalism by Grace Blakeley

asset-backed security, basic income, bond market vigilante , Bretton Woods, business cycle, capital controls, central bank independence, coronavirus, corporate governance, Covid-19, COVID-19, creative destruction, credit crunch, crony capitalism, debt deflation, decarbonisation, deindustrialization, don't be evil, financial deregulation, Francis Fukuyama: the end of history, full employment, gig economy, global pandemic, global value chain, income inequality, informal economy, invisible hand, Jeff Bezos, liberal capitalism, light touch regulation, Martin Wolf, Modern Monetary Theory, moral hazard, move fast and break things, move fast and break things, Network effects, North Sea oil, Northern Rock, offshore financial centre, pensions crisis, Philip Mirowski, price mechanism, quantitative easing, regulatory arbitrage, rent control, reshoring, savings glut, secular stagnation, shareholder value, structural adjustment programs, too big to fail, universal basic income, unorthodox policies, Washington Consensus, yield curve

As we have seen, the foundation of this ideology is the separation between politics and economics.21 For this ideology to retain its credibility, certain areas of economic policy must be naturalised and their distributive implications hidden to support the fiction that outcomes in these areas are the inevitable result of the operation of market forces – for example, the idea that there is a ‘natural’ rate of interest determined by the demand for and supply of money has been a powerful force for legitimating central bank independence and the technocratic determination of monetary policy.22 But retaining this distinction has become much harder in an era where state intervention is necessary to ensure the continued functioning of markets. When states are targeting asset prices, providing wholesale bailouts to private corporations and buying up substantial portions of their own debt, it becomes far harder to argue that interventions to promote the public good are undesirable because they might disrupt the operation of the market mechanism.


pages: 290 words: 82,871

The Hidden Half: How the World Conceals Its Secrets by Michael Blastland

air freight, Alfred Russel Wallace, banking crisis, Bayesian statistics, Berlin Wall, central bank independence, cognitive bias, complexity theory, Deng Xiaoping, Diane Coyle, Donald Trump, epigenetics, experimental subject, full employment, George Santayana, hindsight bias, income inequality, manufacturing employment, mass incarceration, meta-analysis, minimum wage unemployment, nudge unit, oil shock, p-value, personalized medicine, phenotype, Ralph Waldo Emerson, random walk, randomized controlled trial, replication crisis, Richard Thaler, selection bias, the map is not the territory, the scientific method, The Wisdom of Crowds, twin studies

Some economists whose formative experience was in this second period of rampant inflation during the 1970s acquired, said Sir Terry, a different searing memory and theoretical faith: that inflation was the first evil. Never again, they said. One result was a movement for independent central banks charged with controlling inflation.22 These independent central banks – like the European Central Bank, which committed a whole continent to an independent monetary policy enshrined in treaty, the Bank of Japan and the Bank of England – seemed to help in the fight against inflation. Where inflation had been high, it tended to fall sharply and stay low. . . which contributed, according to one account of the period, to falling interest rates on government securities. . . which caused a chase for returns on other investments. . . which led money to pour into sub-prime mortgages (which had also taken off as interest rates had fallen), and. . . well, you know the rest: a global banking crisis in 2008–9 and a deep recession.

Location shifts seem to be about time, not place (confusingly), and are sometimes used in the critique of economic models that try to take all relevant information today to form a ‘rational expectation’ of tomorrow, or to put a ‘present value’ on what might happen in future. Those models will be less valid, the thinking goes, if there is a location shift. 21 Mervyn King, The End of Alchemy, London, Little, Brown, 2016. 22 New Zealand’s Central Bank became independent in 1989. The European Central Bank was established in 1998. The Bank of England took independent control of UK monetary policy in 1997. 23 John L. Comaroff and Paul C. Stern, ‘New Perspectives on Nationalism and War’, Theory and Society, vol. 23, no. 1, 1994, pp. 35–45. 24 As Daniel Boorstin has written: ‘Much of what passes for history is a description in the past tense of the ghosts of the future.’


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, bond market vigilante , 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, Money creation, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, Post-Keynesian economics, 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

It is part of, and dependent on, the public infrastructure that makes up a nation’s monetary, economic, taxation, legal and criminal justice systems. In the first place, as explained above, all money is based on a currency, valued, authorised and issued by a country’s central bank, and backed by taxpayers via their government. While some central banks may be deemed ‘independent’ of the government or public sector, in reality all central banks depend, for their power and authority, and for the value of the currency, on the support of taxpayers within their sovereign boundaries. Central bankers also have different mandates. Some use their mandates to prioritise the interests of the private banking sector; the European Central Bank (ECB) is the most prominent in this regard.

Economic orthodoxy, Keynes and the Great Depression As of the 1919 Versailles conference after the First World War, financial interests dictated the economic terms for peace. With scarcely any recognisable difference from the gold standard, finance’s ‘economic terms’ back then were made up of the usual orthodoxies familiar today. They included a requirement that central banks remain independent, that government spending should be restrained, that the mobility of capital be unfettered, and that high real rates of interest should prevail. As soon as 1923, with Weimar hyperinflation, the economic arrangements collapsed with a rapidity and severity that is astonishing. Depression began first in Germany and then moved to include the United States after the Crash of 1929.

In other words, while governments may provide the backbone to public money, and be beneficiaries of the ‘People’s QE’, they are not in the driving seat. Central bankers are. These proposals place great power in the hands of these technocrats when, to my mind, elected representatives should be masters of this process with the central bank as servant – albeit an independent, open-minded and well-qualified servant. Donald Trump and ‘helicopter money’: the economic, social and political consequences It is also not acceptable, in my view, for central bankers or government representatives to be granted money-printing powers without clear, transparent checks and balances.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Bob Noyce, bond market vigilante , Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, 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 Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, you are the product, zero-sum game

In the US, the inflation rate rose from 5.8% in 1970 to 11.1% in 1974 and 13.5% in 1980.77 In Britain the annual inflation rate rose from 6.5% in 1970 to 22.7% in 1975, and did not fall below 5% until 1983.78 In Japan, inflation reached 23% in 1974.79 What caused these price rises? This was an era before central banks had independence, and Arthur Burns, the chairman of the Federal Reserve, found it difficult to tighten monetary policy in the face of opposition from President Nixon. US money supply growth was above 12% in 1971 and 1972, while real short-term rates were negative (inflation was higher than the interest rate) from 1973 to 1979.

Consumers and business had to believe that the central bank could deliver low inflation. As a result, they would ask for limited wage rises and would only push the prices of products up slowly. The result would be that the target was delivered. State of independence Credibility required making central banks more independent, a trend that started with New Zealand in 1989 and saw Britain, Japan and the euro zone all following suit. These banks were given an inflation target and left to get on with the job of meeting it. Central banks hired vast hordes of economists, sought out new data, interviewed businesses and consumers for evidence of their outlook, and published detailed forecasts for growth, unemployment and inflation.

Nevertheless, to a prudent central banker, this sounds like the “monetisation” of budget deficits and is the sort of thing that leads to the hyperinflation seen in Weimar Germany, and, more recently, in Zimbabwe and Venezuela. If ever a government in a developed nation decides to pursue this theory, expect to see either a conflict with the central bank or (more likely) the end of central-banking independence. There is a fundamental problem about turning over policy decisions to central banks on the grounds of their expertise. Economics is a social science. Making precise forecasts is not possible in the way that it is in chemistry. There are too many variables to analyse, not least that the mere act of publicising economic forecasts can alter people’s behaviour.


pages: 566 words: 163,322

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

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

In the late 1990s and 2000s, a new generation of leaders brought a new ethos of government spending responsibility and accountability to the emerging world. They began investing more wisely, including in supply networks, and stealing less. They also granted central banks more political independence, which they need to fend off easy-money populists. This movement got little public notice or support. There were no public movements to “Free the Central Banks!” Yet no single act could have done more to control basic prices for the man on the street. And now central bank independence has become an important measure of a national commitment to containing inflation. For much of the postwar era, in the political battles over central banks and easy money, the cause of fighting inflation often lost.

For much of the postwar era, in the political battles over central banks and easy money, the cause of fighting inflation often lost. Even in many emerging countries where the central bank was nominally independent—and the central bankers well understood the threat of inflation—they were not independent enough to resist public or private political pressure to keep interest rates and borrowing costs low. But the crises of the 1970s showed political leaders how painful inflation can be, particularly for poor- and middle-class voters, who are hit hardest by rising prices for basic staples. Those crises turned many politicians into anti-inflation warriors.

The global revolution that freed central banks to target inflation began in tiny New Zealand. As described by the journalist Neil Irwin, it was triggered by a kiwi fruit farmer turned central banker named Don Brash, who had seen his uncle’s life savings wiped out by inflation in the 1970s and ’80s. New Zealand passed a law in 1989 granting its central bank independence from the political process and directing it to set a target for inflation. Unions screamed that the move could destroy jobs if large businesses were not able to borrow at cheap rates. Manufacturers called it “undemocratic.” One real estate developer demanded to know Brash’s weight so he could test a rope to hang him on.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Why such a private institution can be in charge of disbursing trillions of taxpayers’ dollars with no political oversight is another matter. That such an institution should be put in charge of consumer protection in the banking business is hard to understand unless Congress has been captured by the interests of the banking industry. A key ingredient of any meaningful and lasting reform is to make central banks more independent from the private banking sector. MONEY IS POWER 89 Otherwise, it is only a matter of time until the politically independent technocrats at the central banks help the banking sector to undo or circumvent the restrictions that fleeting public outrage has prevented them from blocking. Farhi and Tirole (2009) chide their fellow economists for having forgotten to push for the independence of central banks from banking interests over their successful campaign to reduce the governments’ control over central banks.

There certainly was a time when autocratic governments might be less trusted than private banks to provide a stable supply of a paper currency, and therefore they had to cooperate with private bankers. Times have changed. Today, governments need not be dependent on the good will of financiers. Governments observe the rule of the law. They made their central banks independent and gave them a clear and credible mandate to limit inflation. If fulfillment of this mandate is currently in question, this is not because governments have decided to cheat, but rather because excessive credit creation by the private banking sector has caused a major crisis that ruined public finances.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Plutocrats, plutocrats, private military company, Republic of Letters, Richard Feynman, Robert Shiller, Robert Shiller, Savings and loan crisis, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

Henceforth, governments should therefore confine their role to establishing a reasonable inflation target, and then delegate the job of setting interest rates to an independent central bank staffed by able technicians.26 On such grounds, the Bank of England was granted its independence and given a mandate to target inflation in 1997, and the European Central Bank was founded as an independent, inflation-targeting central bank in 1998. There is little doubt that under most circumstances, low and stable inflation is a good thing for both the distribution of wealth and income, and the stimulation of economic prosperity. But in retrospect, it is clear that “monetary stability” alone was far too narrow a policy objective as it was pursued from the mid-1990s to the mid-2000s.

So yes: I think the time has come to abandon the cult of inflation-targeting and revert to a broader idea of what monetary policy has to achieve—and to allow the central bankers a larger set of tools to attempt these more difficult goals.” “Give a bunch of unaccountable bureaucrats an even larger set of tools? Only a socialist could come up with that!” “Not so—that brings us to the second policy. Central banks shouldn’t be independent. Or at least, not like they are now. “On the alternative view of money, the question of who decides who should issue money and on what standard is, as we discovered, a vital one. And since money is the ultimate technology for the decentralised organisation of society, there is only one answer that works—the one given by Solon.

Mehrling cites this as an example of how diametrically opposed the worldviews of academic macroeconomics and academic finance had become by the mid-1990s, calling it “[f]or a macroeconomist … a shocking statement.” 25. High and volatile inflation is a macroeconomic ill in New Keynesian models essentially because in the presence of sticky prices, it generates inefficient relative price changes which reduce output to below its potential. 26. The idea of central-bank independence, unlike inflation targeting, is not associated specifically with New Keynesian theory—its origins lie in an earlier literature, notably Rogoff, 1985—though it was only once the New Keynesian approach had become the most widely used framework for policy-making that it achieved a concrete institutional impact. 27.


Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, creative destruction, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus, zero-sum game

How each formal set of institutional rules plays out in practice is thus highly dependent on the local social context, tradition, history, and the like. The fact that we cannot specify an optimal set of formal institutions does not mean that we have no knowledge of the likely impact of changes to formal institutional rules. A number of institutional reforms, like a central bank or judicial independence,33 have a clear logic and are broadly accepted as being desirable. Changes in electoral rules have broadly predictable effects. For example, there are a number of recent cases where electoral reform has produced desired results: • Chile, which always had a coherent party system, has been operating since 1988 under an electoral system that was designed to force the country’s four or five large parties into two broad Left-Right coalitions, which has in fact happened. 210 Institutional Factors in Latin America’s Development • Japan changed its single nontransferable vote (SNV) system to a mixture of single-member constituencies and proportional representation in 1994.

It was noted earlier that few Latin American countries have sought to return to the poor monetary and fiscal policies of the 1970s and 1980s; this has been underpinned by greatly increased institutional capacity both on the part 284 Conclusion of central banks and on the part of finance ministries and budgeting authorities. Central bank independence has increased; the professionalism and levels of education of economic policy officials are in general substantially higher than a generation ago. Decentralization and Federalism Many countries, including Bolivia, Venezuela, Colombia, Peru, Argentina, and Brazil, have undertaken major reforms to shift responsibility and authority from central governments to local, municipal, and state governments.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

3D printing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, credit crunch, crony capitalism, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, Garrett Hardin, gig economy, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, income inequality, independent contractor, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, James Watt: steam engine, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, mini-job, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, Plutocrats, plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Tragedy of the Commons, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

So it should be no surprise that, throughout history, banks have been vehicles for amoral behaviour, fraud and corruption. However, three new features have emerged in the globalisation era. First, governments have ended democratic control of central banks and monetary policy. Since 1980, dozens of countries have given their central bank independence. Indeed, among the triumphs of neo-liberalism was persuading even social democratic governments to privatise their central banks in all but name. One of Gordon Brown’s first acts on becoming Chancellor in 1997 was to give the Bank of England independence to set monetary policy. The surprise decision was greeted with delight by the Conservative opposition and the City of London.


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, Bear Stearns, 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, Post-Keynesian economics, 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 task of the monetary authority was to regulate the money supply so that, given aggregate supply, the price level would not show any sustained inflationary tendency. This was the policy package of the Great Moderation. The anti-inflation stance of the Central Bank entailed making it independent of the fiscal authority. Central Bank independence became a mark of the sincerity of a government. Gordon Brown, on taking office as Chancellor in the New Labour government in 1997, immediately gave the Bank of England autonomy in determining interest rates in pursuit of an inflation target. We had come a long way from the euthanasia of the rentier.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, 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, foreign exchange controls, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, Money creation, 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, risk free rate, Savings and loan crisis, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

The Rentenbank faced a difficult challenge as it attempted to gain credibility in the fall of 1923, but it succeeded because its fundamentals were solid. 4) Ending Monetization In order to build confidence in a new currency, countries in inflationary deleveragings need to stop monetizing debt. As long as the government can force the central bank to print to cover its liabilities, there is a risk that the new currency will be debased and its supposedly hard backing abandoned. That is one of the reasons it is important that central banks be independent of the political system. Reassurance that monetization would stop came in the form of two major announcements—one initially private and one quite public. First, on August 18, 1923, the Reichsbank informed the Weimar government that, beginning in 1924, it would not discount any additional government debt.145 Though this memo was private, it quickly circulated among the industrial elite, and it spurred policy makers to seriously reconsider the need for fiscal reforms.146 The second piece of reassuring news came on October 15, 1923, when central bank officials publicly stated that the new Rentenbank would cap total government credits (in this case at 1.2 billion rentenmarks).

After all, the Rentenbank lent the government the entirety of its 1.2 billion rentenmark allocation almost immediately.148 And, by December 1923, the government had already requested an additional 400 million rentenmarks.149 When officials at the Rentenbank stood firm, however, they successfully signaled the beginning of a new era of central bank independence—and the end of a long period of unchecked monetization. 5) Closing the Deficit When the central bank stops monetizing debts during an inflationary deleveraging, the government can either find new creditors to finance its deficits, close those deficits, or take control over the central bank and continue monetizing debt.

Ultimately, these high debts and Turkey’s dependence on foreign financing created an unsustainable situation. The Depression Phase Eventually the cycle turned, producing a self-reinforcing bust and a balance of payments/currency crisis, which ran from 1993 to 1994. High debt levels left Turkey vulnerable to a shock—which came in the form of moves by the govern- ment to undermine central bank independence. Turkey suffered a fall in foreign funding (with capital inflows falling by 8% of GDP), leading to a tightening (policy makers hiked short rates by 203%) and a meaningful decline in the currency (real FX fell by 26%)—which coincided with self-reinforcing declines in GDP (falling by 12%), and in stock prices (falling by 70%).


pages: 726 words: 172,988

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

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

The relevance of this risk is made all too clear by the data that Reinhart and Rogoff present. The government debt crises in the euro area provide a vivid example. There the debt is denominated in euros. The euro is the currency of the member states of the euro area, but this currency is issued (“printed”) by the European Central Bank, a supranational institution that is independent of national governments. If the government can pay its debt by means of money creation, there is no risk of default, but the money creation is likely to cause inflation that will make the money itself lose value in real terms. The risk of inflation might lead investors to prefer real estate or stocks.

Reinhart and Rogoff (2009) emphasize the use of the printing press and the inflation it induces as a means by which governments can devalue their domestic debt. 39. Some of these safeguards and rules concern the status of the central bank, others the kinds of securities that central banks are allowed to accept as collateral or to buy. The most important institutional safeguard is to make the central bank independent of the government (see, e.g., Grilli et al. 1991, and Alesina and Summers 1993). Rules of conduct involve, for example, prohibitions against direct lending to governments, against buying shares in the stock market, or against lending to banks without collateral. The independence of the ECB and of the national central banks that are members of the European System of Central Banks, as well as a prohibition of direct central bank lending to governments, are central elements of the European Monetary Union, laid down in Articles 130 and 123 of the Treaty on the Functioning of the European Union.

“The Market for “Lemons”: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics 84 (3): 488–500. Akerlof, George A., and Paul M. Romer. 1993. “Looting: The Economic Underworld of Bankruptcy for Profit.” Brookings Papers on Economic Activity 1993 (2): 1–73. Alesina, Alberto, and Lawrence J. Summers. 1993. “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence.” Journal of Money, Credit, and Banking 25 (2): 151–162. Alessandri, Piergiorgio, and Andrew G. Haldane. 2009. “Banking on the State.” Paper presented at the Federal Reserve Bank of Chicago’s 12th Annual International Banking Conference, September 25.


pages: 356 words: 103,944

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

affirmative action, Asian financial crisis, bank run, banking crisis, Bear Stearns, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, Savings and loan crisis, 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

It wasn’t enough to slash import tariffs and eliminate barriers to trade; open trade policies had to be underpinned by extensive reforms in public administration, by labor market “flexibility,” and by international trade agreements. Macroeconomic stability had to be cemented by reforming fiscal institutions, giving central banks independence, and of course by better politics. Property rights required extensive reforms in governance and legal regimes. Free capital flows added their own long list of regulatory, supervisory, and macroeconomic prerequisites. Policy makers received a veritable laundry list of reforms, many of which required institutional changes that had taken developed countries decades, if not centuries, to accomplish.


pages: 488 words: 144,145

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

Albert Einstein, bank run, banking crisis, Bear Stearns, 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 creation, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, 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, Savings and loan crisis, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

While the 12 regional reserve banks had been chartered by the Congress in 1913, it was only with the creation of the Board of Governors of the Fed in 1927 that the central bank became a permanent fixture in Washington among the other agencies of the federal government. Once the Board was made part of the incestuous political community that is Washington, any notion that the central bank was independent of the Executive Branch of Government was quickly dispelled. And given the significant degree of political influence that the large New York banks have exercised over the political workings of Washington, the Fed Board quickly became entirely politicized. The significance of this development for the central bank and the independence of U.S. monetary policy will be discussed further in Chapter 6. A final point with respect to the Federal Reserve during this period has to do with the influence of the House of Morgan and its de facto agent Benjamin Strong, who served as the first governor of the Federal Reserve and chief executive of the Federal Reserve Bank of New York from 1914 until his death in 1928.

But Fed Chairman Thomas McCabe, who had replaced Marriner Eccles in 1948 when Truman declined to reappoint Eccles as Fed chairman, refused and thereby won back the independence of the central bank.9 The heroic faceoff between Eccles and McCabe against the populist political bullying from Treasury Secretary Snyder and Harry Truman was one of the great standup moments of the American central bank as an independent agency. Eccles in particular bore the full brunt of Truman’s populist anger, but refused to resign as a Fed governor. Though not reappointed as chairman, Eccles remained on the board and fought for the Fed’s independence during the remainder of his term as governor until he resigned in 1951.


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, Bear Stearns, 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, Nixon triggered the end of the Bretton Woods system, 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 and loan crisis, 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

Unlike Britain and the United States, which suffer from loosely regulated financial systems and a shoot-from-the-hip stock market mentality, Japan and Germany have rather tightly regulated systems in which stock markets play a relatively unimportant role in both investment finance and corporate governance. Compared with these broader financial structures, the central bank’s (in)dependence isn’t quite so important. Populist critiques of the Fed tend to concentrate excessively on its autonomous powers while overlooking the influence of the financial markets on the central bankers; the Fed follows interest rate trends as well as leading them. For example, creditors began selling their bonds, driving up long-term interest rates, several months before the Fed jacked up the short-term rates last February.


pages: 661 words: 185,701

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance by Eswar S. Prasad

access to a mobile phone, Adam Neumann (WeWork), Airbnb, algorithmic trading, altcoin, bank run, barriers to entry, Bear Stearns, Ben Bernanke: helicopter money, Bernie Madoff, bitcoin, Bitcoin Ponzi scheme, blockchain, Bretton Woods, business intelligence, buy and hold, capital controls, carbon footprint, cashless society, central bank independence, cloud computing, coronavirus, Covid-19, COVID-19, Credit Default Swap, cryptocurrency, deglobalization, disintermediation, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, eurozone crisis, fault tolerance, fiat currency, financial independence, financial innovation, financial intermediation, Flash crash, floating exchange rates, full employment, gig economy, global reserve currency, index fund, inflation targeting, informal economy, information asymmetry, Internet Archive, Jeff Bezos, Kenneth Rogoff, Kickstarter, light touch regulation, liquidity trap, litecoin, loose coupling, Lyft, M-Pesa, Mark Zuckerberg, mobile money, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, offshore financial centre, open economy, passive investing, payday loans, peer-to-peer, peer-to-peer lending, Peter Thiel, Ponzi scheme, price anchoring, profit motive, QR code, quantitative easing, RAND corporation, random walk, Real Time Gross Settlement, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, risk/return, Ross Ulbricht, Satoshi Nakamoto, seigniorage, Silicon Valley, Silicon Valley startup, smart contracts, special drawing rights, the payments system, too big to fail, transaction costs, uber lyft, unbanked and underbanked, underbanked, WeWork, wikimedia commons, Y Combinator, zero-sum game

There are good reasons for fiscal and monetary policy to be pulling in the same direction, especially amid a deep recession or financial crisis. Nevertheless, the longer-term costs of becoming seen as an agent of government policies might undercut the very features that have made central banks effective—their independence, credibility, and willingness to take actions not swayed by shifting political winds. Other Advantages of a CBDC Beyond its monetary policy implications, a CBDC offers a variety of advantages relative to cash; some are common to both rich and poor economies, while others tend to be relevant to specific types of economies.

A central bank becoming directly involved in operations to counter corruption, money laundering, or terrorism financing that involves the usage of a CBDC would make it harder to maintain an arm’s-length relationship with the government. Moreover, an expanded monetary policy tool kit enabled by a CBDC might lead government officials to impose even greater burdens, in terms of both economic and social policies, on central banks. This would be corrosive to a central bank’s independence and effectiveness in discharging its core functions. In Chapter 7 I will review how central banks that are experimenting with CBDC are striving to mitigate these risks. Later in the book (Chapter 9), I will analyze some additional complications that CBDC, and new financial technologies more broadly, could introduce in the conduct of monetary policy and maintenance of financial stability.

Currencies that are dominant stores of value, such as the US dollar, will remain so because that dominance rests not just on the issuing country’s economic size and financial market depth but also on a strong institutional foundation that is essential for maintaining investors’ trust. For all its flaws, the US institutional framework—including a trusted and autonomous central bank, an independent judiciary that maintains the rule of law, and a system of checks and balances that restrains the unbridled power of any branch of government—has stood the test of time. While the dollar’s dominance as a payment currency might erode, it will remain the dominant global safe-haven currency for a long time to come.


pages: 210 words: 65,833

This Is Not Normal: The Collapse of Liberal Britain by William Davies

Airbnb, basic income, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, central bank independence, centre right, Chelsea Manning, coronavirus, corporate governance, Covid-19, COVID-19, credit crunch, deindustrialization, disinformation, Dominic Cummings, Donald Trump, double entry bookkeeping, Edward Snowden, family office, Filter Bubble, Francis Fukuyama: the end of history, ghettoisation, gig economy, global pandemic, global village, illegal immigration, Internet of things, late capitalism, liberal capitalism, loadsamoney, London Interbank Offered Rate, mass immigration, moral hazard, Neil Kinnock, Northern Rock, old-boy network, postnationalism / post nation state, precariat, prediction markets, quantitative easing, recommendation engine, Robert Mercer, Ronald Reagan, sentiment analysis, sharing economy, Silicon Valley, Slavoj Žižek, statistical model, Steve Bannon, Steven Pinker, surveillance capitalism, technoutopianism, The Chicago School, Thorstein Veblen, transaction costs, universal basic income, web of trust, WikiLeaks, Yochai Benkler

This problem has been especially acute in the era of neoliberal globalisation that emerged after the 1970s, as nation states have constantly sought to reassure international investors that they will stick to predictable regulatory, monetary and fiscal frameworks. Various instruments have been invented to achieve this, from central bank independence, which removes monetary policy from the domain of democratic politics, to the ‘stability and growth pact’ that has limited European Union member states’ fiscal freedoms since 1999, to Gordon Brown’s self-imposed ‘Golden Rule’, which stipulated public borrowing limits. Business investors can cope with various models of capitalism, involving a wide range of tax rates, corporate governance systems and regulatory frameworks.


pages: 100 words: 31,338

After Europe by Ivan Krastev

affirmative action, bank run, Berlin Wall, central bank independence, clean water, conceptual framework, creative destruction, deindustrialization, Donald Trump, eurozone crisis, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, illegal immigration, job automation, mass immigration, moral panic, open borders, post-work, postnationalism / post nation state, Silicon Valley, Slavoj Žižek, too big to fail, Wolfgang Streeck, World Values Survey, Y Combinator

Despite the deep public mistrust of politicians, it is perplexing why people are nonetheless ready to elect parties eager to dismantle any constraints on government power. This is the conundrum that will help us unpack the Central European paradox. The decision of the populist governments in Hungary and Poland to take control over their respective constitutional courts, to curb the independence of central banks, and to declare war on independent media and civil society organizations should be alarming for those who are mistrustful of their politicians. But contrary to expectations, the vast majority of Hungarians and a sizable number of Poles were not concerned by their governments’ decisions to concentrate power in the hands of each country’s executive.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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

According to Goodhart, for example, the Eurozone project was shaped by assumptions about the nature of money that were consistent with (and arguably, derived from) Menger’s theory from the outset. By design, the euro entailed breaking up the relationship between money and political authority by assigning the task of monetary creation to a central bank that would be rigorously independent (Goodhart 1998: 425). This method is meant to treat money as if it were a commodity: a creature of the market, not of sovereignty, law, or society. According to Goodhart, the euro’s design was informed by the theory of “optimal currency areas,” in which it is assumed—consistent with Menger’s theory—that money’s spatial domain can evolve on the basis of the progressive minimization of transaction costs (Goodhart 1998: 419).

Writing in the wake of the Bretton Woods collapse, Aglietta suggested that gold—specifically—had been the monetary analogue to religion.42 In this sense, Nixon’s decision to decouple the dollar from gold could be seen as an act of desacralization. Without a religious analogue such as gold, the global monetary system could not operate well because it is built on sovereignty, and therefore the threat of violence. Once gold loses its key role and money is desacralized, the central bank’s independence is judged in terms of its distance from private interests (creditors and debtors). Stable money depends on the central bank, whose role is to conceal the arbitrary nature of the monetary sign (Grahl 2000). According to Carlo Tognato, money retained its quasisacred character even after the demise of gold.

Indeed, the ideal of stable money whose value is objective and above any such struggle is only ever a working fiction whose construction and maintenance is the outcome of a complex configuration of institutional and epistemological arrangements. Monetary policy and policy makers, central banks, and economists must appear to operate independently of political and class conflict. In other words, they must do everything in their power to obscure the social life of money: to wit, by acting as if the prevailing monetary standard were an objective thing. So who exactly are the creditors and debtors involved in this struggle?


pages: 280 words: 74,559

Fully Automated Luxury Communism by Aaron Bastani

"Robert Solow", autonomous vehicles, banking crisis, basic income, Berlin Wall, Bernie Sanders, Bretton Woods, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, computer age, computer vision, David Ricardo: comparative advantage, decarbonisation, dematerialisation, Donald Trump, double helix, Elon Musk, energy transition, Erik Brynjolfsson, financial independence, Francis Fukuyama: the end of history, future of work, G4S, housing crisis, income inequality, industrial robot, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, James Watt: steam engine, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Kuiper Belt, land reform, liberal capitalism, low earth orbit, low skilled workers, M-Pesa, market fundamentalism, means of production, mobile money, more computing power than Apollo, new economy, off grid, pattern recognition, Peter H. Diamandis: Planetary Resources, post scarcity, post-work, price mechanism, price stability, private space industry, Productivity paradox, profit motive, race to the bottom, RFID, rising living standards, Second Machine Age, self-driving car, sensor fusion, shareholder value, Silicon Valley, Simon Kuznets, Slavoj Žižek, stem cell, Stewart Brand, technoutopianism, the built environment, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transatlantic slave trade, Travis Kalanick, universal basic income, V2 rocket, Watson beat the top human players on Jeopardy!, Whole Earth Catalog, working-age population

The primary site for this is central banks, however, whose decisions – despite claims to being impartially technocratic – are based on political priorities for inflation, employment and asset prices. Private banks perform something similar on a smaller scale, deciding what projects are to receive a share of society’s resources and enforce the ‘judgement of the market’ on those which lose money. The claim of central bank ‘independence’, a favoured policy at the apogee of capitalist realism during the 2000s, is as absurd a conjecture as the end of history itself. Here the pivotal actors within modern capitalist economies, who make specific choices that privilege certain groups at the cost of others, think of themselves as neutral with ‘common sense’ prevailing rather than ideology.


pages: 290 words: 76,216

What's Wrong With Economics: A Primer for the Perplexed by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mahbub ul Haq, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, Modern Monetary Theory, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, sunk-cost fallacy, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

Economics, say Marxists, serves the interests of the capitalist class by disguising the true nature of things by means of its scientific pretension. This causes people to think of it not as connected to ideology or politics but to something objective like physics or chemistry. It is surely no coincidence that the policy of central bank independence depends largely on the acceptance that economics is a science, and thus the decisions of a central bank are technical, rather than political, in nature. The idea of a technocratic ruling group, above ‘class’ and ruling in the interests of the whole society, is strongly challenged by those in the Marxist tradition.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

The growing number of urban workers and factory owners had interests very different from those of the wheat growers and sugar barons who had traditionally dominated political life, and the conflict grew explosive. Seeing himself as an apolitical specialist in economic policy, Prebisch failed to understand that his diplomatic activities associated him with a government widely accused of electoral fraud and corruption. In 1943, following a coup d’état, the central bank’s independence from the government proved illusory. Prebisch, accused of being too close to the United States and too hostile to Germany, was driven from office.14 With no personal wealth and no income, the famed central banker was forced to sell his Packard, rent out his house, and move into a small cottage.

Quelling inflation, which was running at a 12 percent rate, previously experienced only when wartime price controls were removed, seemed likely to require much higher interest rates than the United States had ever known. If the Fed openly made interest rates the target of its policy, announcing that it was raising short-term rates to 15 or 20 percent, then auto dealers, construction workers, and corporate executives would cry foul and enraged members of Congress might strip the central bank of its independence. If, however, high interest rates were merely the byproduct of its much-praised shift to the monetary policy rules the monetarists were demanding, the Fed would have some protection from its critics. As Volcker put it to his colleagues at that Saturday meeting, “It’s an easier political sale.”3 “WHO’S PAUL VOLCKER?”


pages: 286 words: 82,970

A World in Disarray: American Foreign Policy and the Crisis of the Old Order by Richard Haass

access to a mobile phone, anti-communist, Berlin Wall, Bretton Woods, carbon footprint, central bank independence, colonial rule, cuban missile crisis, currency manipulation / currency intervention, deindustrialization, Doha Development Round, Donald Trump, Edward Snowden, energy security, European colonialism, failed state, Fall of the Berlin Wall, floating exchange rates, global pandemic, global reserve currency, hiring and firing, immigration reform, invisible hand, Mikhail Gorbachev, Monroe Doctrine, moral hazard, mutually assured destruction, open economy, quantitative easing, RAND corporation, reserve currency, Ronald Reagan, South China Sea, special drawing rights, Steven Pinker, UNCLOS, UNCLOS, uranium enrichment, Yom Kippur War

What also occurred was a falling off of domestic political support for trade pacts in the United States and many other countries, casting uncertainty over future efforts to promote a more open world trading system. There was arguably less formal governance but still significant coordination on the monetary side. The principal characteristics of the era were floating exchange rates, central bank independence, and dollar dominance. The IMF assessed (“surveilled”) economies and gave them public report cards but had no power to insist on reforms other than when it was involved in extending loans to governments in financial difficulty. In the banking arena, the so-called Basel Committee established standards (for example, for the amount of capital required to be kept on hand) that banks were encouraged to follow.


pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

In order to benefit from making credible commitments, it may be necessary for a person to shed some power. Being able to make commitments was an instance of enlightened self-interest. Fancily expressed, a ‘commitment technology’ solved the ‘time-inconsistency problem’: the discoverers received the Nobel Prize. The commitment technology to solve inflation was to give central banks independence; that which solved child-rearing was marriage. Paradoxically, over the same period that Western societies were establishing the commitment technology that tamed inflation, they were systematically tearing up the commitment technology that had defended the right of children to be brought up by the people who conceived them.


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

Import duties and import restrictions on goods, in general, were gradually reduced, in part due to trade agreements and the action of the World Trade Organization. Controls over financial market operations were reduced, and financial capital was allowed to move more freely, within and across countries, than in the past. Controls over the use of deposits by banks and other financial activities in general were also reduced. Central banks became more independent from direct political influences. Government controls over wages and over the prices of particular goods and services became rare, and rationing became a policy of the past, except in rare occasions. Especially in the 1990s, in spite of the high taxes and the new externalities-related regulations, faith in the market returned, and trust in its operations and acceptance of its outcomes reached high levels.

The answer was that in a centrally planned economy it would have required three workers: one to do the work, one to supervise the operation, and one to write a report on the operation. In a market economy nobody would be required, because the market would do it! Clearly the market was assumed to have magical power. Central banks became more politically independent than they had been, reducing the opportunities that governments had had in the past to allocate credit to preferred sectors; occasionally to resort to “inflationary finance” to finance their public spending; or to fix the rates of interest to favor particular sectors. However, central banks became more accommodating to the market with their monetary policies, believing in the rationality and the honesty of those who could get and use easy credit from the banks.

Also, the control of the growth of the money supply has come to be considered less meaningful in a world in which the meaning of “money” seems to have changed dramatically and the creation of virtual money (bitcoins) is frequently discussed. In the future monetary policy may become totally different than it is today. These changes are likely to have increased systemic risk. Termites in Stabilization Role 243 The campaign some decades ago to make central banks politically independent had been based on the belief that the goals of central banks were the aforementioned ones. In the 1990s and in the first few years of the new millennium some economists concluded that central banks had in fact become so efficient and wise, and monetary policy so powerful, that they had been responsible for the “great moderation,” a relatively long period of economic expansion without major fluctuations or inflation that had lasted until the middle of the first decade of the new century.


pages: 192

Kicking Awaythe Ladder by Ha-Joon Chang

Asian financial crisis, business cycle, central bank independence, clean water, colonial rule, Corn Laws, corporate governance, creative destruction, David Ricardo: comparative advantage, fear of failure, income inequality, income per capita, joint-stock company, joint-stock limited liability company, land reform, liberal world order, moral hazard, open economy, purchasing power parity, rent-seeking, short selling, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, Washington Consensus

Some of these institutions may even be beneficial for most, if not necessarily all, developing countries, although the exact forms that they should take is a matter of controversy. For example, central banking is necessary to manage systemic financial risk, but it is debatable whether the central bank should have near-absolute political independence and focus exclusively on inflation control, as the current orthodoxy has it. Indeed, given that many potentially beneficial institutions have only developed after painful economic lessons and political struggle, it would be foolish for developing countries to forego the advantages of being the latecomer which stem from the possibility of 'institutional catch-up'.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

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

In practice this was a source of considerable difficulty.17 If large deposits of gold or silver were suddenly discovered, as in Spanish America in the sixteenth and seventeenth centuries or California in the mid-nineteenth century, prices could skyrocket, which created other kinds of problems and brought undeserved windfalls to some.18 These drawbacks make it highly unlikely that the world will ever return to the gold standard. (Keynes referred to gold as a “barbarous relic.”) Once currency ceases to be convertible into precious metals, however, the power of central banks to create money is potentially unlimited and must therefore be strictly regulated. This is the crux of the debate about central bank independence as well as the source of numerous misunderstandings. Let me quickly retrace the stages of this debate. At the beginning of the Great Depression, the central banks of the industrialized countries adopted an extremely conservative policy: having only recently abandoned the gold standard, they refused to create the liquidity necessary to save troubled banks, which led to a wave of bankruptcies that seriously aggravated the crisis and pushed the world to the brink of the abyss.

If Europe created a stateless currency in 1992, it did so for reasons that were not simply pragmatic. It settled on this institutional arrangement in the late 1980s and early 1990s, at a time when many people believed that the only function of central banking was to control inflation. The “stagflation” of the 1970s had convinced governments and people that central banks ought to be independent of political control and target low inflation as their only objective. That is why Europe created a currency without a state and a central bank without a government. The crisis of 2008 shattered this static vision of central banking, as it became apparent that in a serious economic crisis central banks have a crucial role to play and that the existing European institutions were wholly unsuited to the task at hand.

No one wants to empower a head of state to replace university presidents and professors at will, much less to define the content of their teaching. By the same token, there is nothing shocking about imposing tight restrictions on the relations between governments and monetary authorities. But the limits of central bank independence should also be precise. In the current crisis, no one, to my knowledge, has proposed that central banks be returned to the private status they enjoyed in many countries prior to World War I (and in some places as recently as 1945).25 Concretely, the fact that central banks are public institutions means that their leaders are appointed by governments (and in some cases by parliaments).


pages: 387 words: 119,244

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy by Iain Martin

asset-backed security, bank run, Basel III, Bear Stearns, beat the dealer, Big bang: deregulation of the City of London, call centre, central bank independence, computer age, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, deindustrialization, deskilling, Edward Thorp, Etonian, Eugene Fama: efficient market hypothesis, eurozone crisis, falling living standards, financial deregulation, financial innovation, G4S, high net worth, interest rate swap, invisible hand, joint-stock company, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, long term incentive plan, moral hazard, negative equity, Neil Kinnock, Nick Leeson, North Sea oil, Northern Rock, old-boy network, pets.com, Red Clydeside, shareholder value, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, value at risk

Number 10 civil servants who offered to work up papers examining the potential consequences and implications were rebuffed. Blair simply asked Brown if it was the ‘right thing to do’. His Chancellor responded that it was. On Monday 5 May, Brown squared ‘Steady Eddie’, the Governor of the Bank of England, Eddie George.8 The Chancellor handed him two letters, the first dealing with central bank independence. The chain-smoking George, a Bank of England lifer who joined in the early 1960s, was delighted as it meant a strengthening of powers for the institution he loved. He paid less attention to the second letter. The other letter would eventually have grave consequences many years later, in the period running up to the financial crisis of 2008.


pages: 228 words: 68,880

Revolting!: How the Establishment Are Undermining Democracy and What They're Afraid Of by Mick Hume

anti-communist, battle of ideas, Berlin Wall, Boris Johnson, central bank independence, colonial rule, David Brooks, disinformation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Martin Wolf, mass immigration, non-tariff barriers, Occupy movement, open borders, Plutocrats, plutocrats, Slavoj Žižek, the scientific method, We are the 99%, World Values Survey

(This is, of course, the fault of those same elected politicians who have freely outsourced such authority to the central bankers in order to avoid being held accountable. A state of affairs that, in the UK, is due to the actions of the New Labour government, which gave the Bank these powers to set interest rates while floating above democratic politics.) When technocrats talk about ‘independent’ central banks, the key thing is that they should be independent of any democratic interference by the millions who pay the price for their policies. They seriously believe that they are the guv’nors of our economic lives. We can see the same cool disdain for popular democracy flourishing in the ‘Serious’ section of the bookshop, where a leading European academic’s latest work Against Elections is only trumped by an American professor’s even more starkly entitled tome, Against Democracy.16 Both do little more than rehash old prejudices.

Never mind that millions of people’s lives will be directly affected by whatever the bankers decide to do about interest rates. Democracy is all very well in its place, but its place is apparently not at the financial top table with the City money-men and Euro-bankers. The important thing about ‘independent’ central banks is that they are supposed to be independent of any political interference – otherwise known as democratic control. The central banks were handed these powers by politicians trying to offload democratic accountability for economic decisions. It is a sign of how the Left has submitted to this dogma that in the UK, the ability to take ‘independent’ decisions on setting interest rates was granted to the Bank of England as the first act of Gordon Brown, seen as a left-wing chancellor of the exchequer, after Labour won the 1997 general election.


Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies by Nik Bhatia

bank run, basic income, Bear Stearns, bitcoin, blockchain, Bretton Woods, British Empire, central bank independence, Credit Default Swap, cryptocurrency, distributed ledger, fiat currency, fixed income, Fractional reserve banking, interest rate derivative, interest rate swap, Isaac Newton, joint-stock company, Kickstarter, Long Term Capital Management, margin call, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, offshore financial centre, quantitative easing, reserve currency, risk free rate, Satoshi Nakamoto, slashdot, smart contracts, time value of money, tulip mania, universal basic income

With a CBDC, the Fed could issue second-layer money directly to people in the form of digital helicopter money; the phrase “helicopter money” comes from Milton Friedman, who in 1969 provided the imagery of dropping cash out of a helicopter in order to stimulate economic demand. The Fed wouldn’t necessarily be able to provide this type of economic stimulus without a larger political debate; a CBDC blurs the line between the central bank’s independent monetary policy and government-controlled fiscal policy. Helicopter money has been explored as a monetary policy tool for decades, and with the popularity of political ideas such as Universal Basic Income, CBDCs are the ideal vehicle to transmit direct payments to citizens in the future.


pages: 566 words: 155,428

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

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

Unlike a private bank, a central bank can even conduct its normal business with negative net worth. A few have actually done so. But a central bank with no capital cushion is potentially vulnerable if, in some year, it doesn’t earn enough revenue to pay its expenses. In such a case, the bank becomes beholden to its government for funds, and, if the government is hostile, central bank independence could be threatened. Needless to say, the Federal Reserve is unlikely to encounter such a problem for the foreseeable future. Its current net worth exceeds $55 billion, and its net profits (most of which it turns over to the Treasury) have lately been running around $75 billion to $80 billion per year.* That’s comparable to the combined profits of the entire oil and chemical industries.


pages: 511 words: 151,359

The Asian Financial Crisis 1995–98: Birth of the Age of Debt by Russell Napier

Asian financial crisis, asset allocation, bank run, banking crisis, banks create money, Berlin Wall, Bretton Woods, business cycle, Buy land – they’re not making it any more, capital controls, central bank independence, colonial rule, corporate governance, Covid-19, COVID-19, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Deng Xiaoping, desegregation, discounted cash flows, diversification, Donald Trump, financial innovation, floating exchange rates, Fractional reserve banking, full employment, hindsight bias, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, if you build it, they will come, impact investing, inflation targeting, interest rate swap, invisible hand, Jeff Bezos, Kickstarter, laissez-faire capitalism, lateral thinking, Long Term Capital Management, market bubble, mass immigration, means of production, Mexican peso crisis / tequila crisis, Money creation, moral hazard, Myron Scholes, negative equity, offshore financial centre, open borders, open economy, Pearl River Delta, price mechanism, profit motive, quantitative easing, Ralph Waldo Emerson, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, savings glut, Scramble for Africa, short selling, South China Sea, The Wealth of Nations by Adam Smith, too big to fail, yield curve

They did not take the opportunity to do so even though such a move would clearly have ended the economic and asset price boom and would have been a very bold step. The opportunity was there in 1995 to take the punchbowl away from this particular party, but no Asian policy maker took that audacious path. In choosing the exchange rate management target, central bank independence had been surrendered. The central banks were forced to adjust the size of their balance sheets according to the pressure on the exchange rate. To change the managed exchange rate policy was not within the remit of the central bank. The implications of such a move were so profound that they required the endorsement of the politicians.


pages: 1,242 words: 317,903

The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

"Robert Solow", airline deregulation, airport security, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, bond market vigilante , Bretton Woods, business cycle, central bank independence, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, energy security, equity premium, fiat currency, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Long Term Capital Management, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, popular capitalism, price stability, RAND corporation, rent-seeking, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

While the committee chairman was gone, a sympathetic senator hoped that Greenspan would “have the iron will to resist pressure from anybody in any form that you think is wrong.” With the exception of Senator Gramm, the politicians were urging Greenspan to stand up to the politicians. The case for central-bank independence, which came to be accepted internationally over the next decade, had clearly penetrated the Senate. The hearing wound on, and Greenspan gave a comprehensive tour of his views on credit and money. He believed that monetary growth would determine the inflation rate in the long term, but that it was no guide to price stability in the short term.

Now, if it was not returning to the earlier anchors, the Fed needed a new one. It should announce an explicit inflation target. Hoskins was airing an idea that would come to be embraced by central banks the world over. Only a few months later, at the end of 1989, New Zealand became the first convert, enshrining an inflation target in law and granting the central bank the independence from political interference that would make the target achievable.41 Given the pressure on the Fed from the Bush administration, the attractions of a New Zealand–style bargain were obvious: if the Fed formally committed to an inflation target, it would have a potent excuse to ignore White House demands for lower interest rates.

It would be a lot easier to go for deficit reduction if Greenspan offset the drag on the economy by lowering interest rates. “We need to set our economic priorities,” Clinton told Greenspan. “I’m interested in your outlook on the economy.”5 It was good that he was muddying his real question.6 He respected the central bank’s independence enough not to pitch for lower interest rates explicitly. Greenspan felt immediately comfortable. Presidents and presidential aspirants had been asking him about economic priorities for twenty-five years, since before Clinton had graduated from college. And with one slightly shaming exception—his time inside the Ford White House—Greenspan had argued consistently for budgetary restraint.7 The national debt had ballooned to the point where interest payments had become the third-largest federal expense after Social Security and defense, he now told Clinton.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

This is a salutary warning for central bankers in the aftermath of the crisis, since they are now committed to macro-prudential policymaking, which entails imposing counter-cyclical increases and decreases in banks’ capital buffers, as well as other forms of intervention such as quantitative controls on lending. The timing of such action is exceptionally difficult to judge. As for the regulators – whether sitting in central banks or existing independently outside them – they were struggling in the run-up to the crisis to understand huge changes in the structure of the financial system. Paid far less than the rocket scientists in the big banks who were devising new and complex financial instruments, they were, as always, one step behind and less well paid than the people they were trying to regulate.

The result was inflation without much addition to economic growth. While inflation helped reduce the debt, it caused widespread discontent – more shades of Faust, Part Two – not least because, as Milton Friedman remarked, inflation is taxation without legislation. So Keynesian policies became discredited and central banks, granted independence from the politicians, focused on low and stable inflation as their primary objective. Yet government deficit spending continued, thereby confirming the homespun wisdom of US President Calvin Coolidge, touched on in Chapter One, who warned: ‘Nothing is easier than spending the public money.


pages: 471 words: 124,585

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

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, Washington Consensus, Yom Kippur War

Inflation has come down partly because many of the items we buy, from clothes to computers, have got cheaper as a result of technological innovation and the relocation of production to low-wage economies in Asia. It has also been reduced because of a worldwide transformation in monetary policy, which began with the monetarist-inspired increases in short-term rates implemented by the Bank of England and the Federal Reserve in the late 1970s and early 1980s, and continued with the spread of central bank independence and explicit targets in the 1990s. Just as importantly, as the Argentine case shows, some of the structural drivers of inflation have also weakened. Trade unions have become less powerful. Loss-making state industries have been privatized. But, perhaps most importantly of all, the social constituency with an interest in positive real returns on bonds has grown.


pages: 611 words: 130,419

Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller

agricultural Revolution, Albert Einstein, algorithmic trading, Andrei Shleifer, autonomous vehicles, bank run, banking crisis, basic income, bitcoin, blockchain, business cycle, butterfly effect, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, central bank independence, collective bargaining, computerized trading, corporate raider, correlation does not imply causation, cryptocurrency, Daniel Kahneman / Amos Tversky, debt deflation, disintermediation, Donald Trump, Edmond Halley, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, full employment, George Akerlof, germ theory of disease, German hyperinflation, Gunnar Myrdal, Gödel, Escher, Bach, Hacker Ethic, implied volatility, income inequality, inflation targeting, invention of radio, invention of the telegraph, Jean Tirole, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, litecoin, market bubble, Modern Monetary Theory, money market fund, moral hazard, Northern Rock, nudge unit, Own Your Own Home, Paul Samuelson, Philip Mirowski, Plutocrats, plutocrats, Ponzi scheme, publish or perish, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Rubik’s Cube, Satoshi Nakamoto, secular stagnation, shareholder value, Silicon Valley, speech recognition, Steve Jobs, Steven Pinker, stochastic process, stocks for the long run, superstar cities, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, traveling salesman, trickle-down economics, tulip mania, universal basic income, Watson beat the top human players on Jeopardy!, We are the 99%, yellow journalism, yield curve, Yom Kippur War

The dynamics of this worldwide narrative epidemic likely provide the best explanation for these epochal changes in trend of the two major economic variables, inflation and interest rates. The end of the wage-price spiral narrative was marked by changes in monetary policy and the advent of newly popular ideas: the independent central bank5 and inflation targeting6 by central banks. The independent central bank was designed to be free from political pressures, which organized labor tries to exploit. Inflation targeting was designed to place controlling inflation on a higher moral ground than appeasing political forces. The moral imperative here was strong. On its face, the wage-price spiral may seem purely mechanical.


pages: 385 words: 111,807

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

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, 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, corporate raider, creative destruction, 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, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, 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, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, 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 Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

In those few areas in which we still need the government, such as the provision of monetary stability or the regulation of natural monopolies, the policy process should be insulated from politics by granting political independence to the government agencies that actually do these things. An independent central bank and independent regulatory authorities of natural monopolies (e.g., gas, telecommunications) are the most frequently recommended examples. Market and Politics Government failures need to be taken seriously, but with a large pinch of salt Government failures are real and need to be taken seriously.



pages: 462 words: 129,022

People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disinformation, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Bannon, Steve Jobs, surveillance capitalism, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population, Yochai Benkler

Every schoolchild knows that one of the key criticisms of Andrew Jackson was his introduction of the “spoils system.” 15.It is worth noting that most conservatives support an independent monetary authority, worrying about the economic dangers of politicization of the determination of the money supply. For an excellent account of the principles and controversies surrounding central bank independence, see Paul Tucker, Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State (Princeton: Princeton University Press, 2018). 16.Two tweets after the terrorist attacks in New York City reflect Trump’s low regard of the judiciary: “We need quick justice and we need strong justice—much quicker and much stronger than we have right now.


pages: 471 words: 109,267

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

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

One calls it the “constitutional protection of capitalism.”16 Another calls it the “Hayekian economic constitution” aimed at the “immunization of expanding cap­i­tal­ist markets against egalitarian-­interventionist demo­ cratic politics.”17 In an influential coinage, Stephen Gill calls it the “New C o n cl u sio n 267 Constitutionalism” striving to “allow dominant economic forces to be increasingly insulated from demo­cratic rule and popu­lar accountability.”18 As summarized by scholars, this constitutionalization “establishes a worldwide institutional grid that offers transnational capital multiple exit options.”19 ­Others have written the history of the neoliberal fix in dif­fer­ent ways. One scholar writes of the “nonmajoritarian” models of governance in port authorities and the idea of central bank in­de­pen­dence.20 Still ­others have seen this strain in the Eu­ro­pean Central Bank and the governance structure of the Eu­ro­pean Union.21 Other scholars have described the creation of an “offshore world” of tax havens through which nations compete to offer the least pos­si­ble corporate tax, the greatest pos­si­ble secrecy, and the best incentives for individuals and corporations to flee the clutches of their own redistributive states.22 Discussions in the 1990s and beyond have been dominated by “locational competition” and the idea of “policy competition.”23 At the root of the neoliberal idea of international order is the notion of so-­called competitive federalism, with the possibility of capital following opportunities across borders wherever they arise.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, eat what you kill, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

It will come as a surprise to many that the forecasting models used by most central banks had no ability to explain borrowing or lending as the models had no place for banks, ignored most financial assets, and assumed that all people were identical. In short, these models assumed an economy shorn of a financial system, and an economic crisis originating in the financial system was therefore impossible. Such a small-world model might generate insights into the role of central bank independence and inflation targets, but it could not sensibly answer the question ‘What is going on here?’ in the financial crisis. 23 The pretence that every important macroeconomic issue could be explained in terms of a single model was a major error. Radical uncertainty and non-stationarity go hand in hand.


pages: 333 words: 76,990

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, George Akerlof, household responsibility system, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve


pages: 1,088 words: 228,743

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

Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, bond market vigilante , Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Thus, central bankers always worry about an unhinging of inflation expectations that could reverse virtuous developments in recent decades. Some of this concern is self-serving but justifiable. Well-anchored inflation expectations depend crucially on central bank actions and credibility. In the past two decades, a growing number of central banks have become independent and/or have begun to explicitly or implicitly target a particular inflation rate. Inflation management is not the only goal for central banks, however [3]. Evolving inflation process For our understanding of inflation expectations and the IRP in the past 50 years it is important to note that the mountain shape of inflation levels since the mid-20th century was matched by similar uptrends and downtrends in inflation uncertainty and inflation persistence.

As always, the bubble would have a rational precipitating factor, but investors should remember that the link between economic growth and equity market returns is quite tenuous (see Chapter 16). The Scylla and Charybdis of deflation and inflation The disinflationary tailwinds of recent decades—from improvements in central bank independence and credibility as well as from deregulation, globalization, and the massive entry of Chinese workers into the competitive global labor market—may weaken and even turn into headwinds. Moreover, the solutions to some of the major challenges of the 21st century—global warming and the aging population of many countries—are arguably inflationary.


pages: 648 words: 165,654

Dreams and Shadows: The Future of the Middle East by Robin Wright

Anton Chekhov, Ayatollah Khomeini, Berlin Wall, central bank independence, colonial rule, Fall of the Berlin Wall, feminist movement, Mahatma Gandhi, Nelson Mandela, old-boy network, rolodex, Saturday Night Live, Seymour Hersh, Thomas L Friedman, uranium enrichment

The Kurds relied heavily on the United Nations, which under the sanctions arrangement channeled thirteen percent of Iraq’s oil revenues back into the north and provided a daily food ration for every Kurd (and every Iraqi). The income helped rebuild the villages that Saddam had destroyed. It paid for new schools, clinics, a justice ministry, and a Central Bank independent of Baghdad. It helped develop agriculture, pave roads, and plant three million trees. The Kurds, however, did figure a way to generate revenue by turning the tables on Saddam, who also relied on illicit trade to circumvent international sanctions. The Kurds taxed smugglers bringing sanctions-busting goods across from Turkey and Iran, through Kurdistan, into the rest of Iraq—to the tune of one million dollars a day.


pages: 401 words: 109,892

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

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

This is true of the two leading supranational institutions: the European Central Bank is not subject to the same level of parliamentary oversight as the Federal Reserve Board, and DG Comp is more independent than the DoJ or the FTC. This is surprising because it appears to contradict the conventional wisdom about European and American preferences. Did Europeans make the European Central Bank fiercely independent because they studied Milton Friedman’s writings more than Americans? Did they make DG Comp more independent because they trusted in free markets? That does not seem plausible. Instead, we argue that bargaining among sovereign nations leads to supranational institutions that are more politically independent than what the average politician would choose.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, place-making, Ponzi scheme, Post-Keynesian economics, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, Thales of Miletus, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

Compare this to the deficit/military chart above, on page 366—the curve is effectively identical. 18. See dailybail.com/home/china-warns-us-about-debt-monetization.html, accessed December 22, 2009. The story is based on a piece from the Wall Street Journal, “Don’t Monetize the Debt: The president of the Dallas Fed on inflation risk and central bank independence” (Mary Anastasia O’Grady, WSJ, May 23, 2009.) I should add that in popular usage nowadays, “to monetize the debt” is generally used as a synonym for “printing money” to pay debt. This usage has become almost universal, but it’s not the original sense of the term, which is to turn the debt itself into money.


pages: 344 words: 93,858

The Post-American World: Release 2.0 by Fareed Zakaria

affirmative action, agricultural Revolution, airport security, anti-communist, Asian financial crisis, battle of ideas, Bear Stearns, 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, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, Mahatma Gandhi, Martin Wolf, mutually assured destruction, National Debt Clock, new economy, oil shock, open economy, out of africa, Parag Khanna, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, The future is already here, The Great Moderation, Thomas L Friedman, Thomas Malthus, trade route, Washington Consensus, working-age population, young professional, zero-sum game

India has a remarkably modern administrative structure—in theory. It has courts, bureaucracies, and agencies with the right makeup, mandate, and independence—in theory. But whatever the abuses of power, this basic structure brings tremendous advantages. India has not had to invent an independent central bank; it already had one. It will not need to create independent courts; it can simply clean up the ones it has. And some of India’s agencies, like its national Election Commission, are already honest, efficient, and widely respected. If the Indian state has succeeded on some dimensions, however, it has failed on many others. In the 1950s and 1960s, India tried to modernize by creating a “mixed” economic model between capitalism and communism.


pages: 275 words: 77,955

pages: 385 words: 128,358

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

Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, buy low sell high, capital controls, central bank independence, commoditize, 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, John Meriwether, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, out of africa, paper trading, Paul Samuelson, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, tail risk, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond, zero-sum game

Every once in a while something like the Indonesian recap market or DROBNY GLOBAL CONFERENCE, MARCH 2003 Jim Leitner’s Favorite Trade: Inflation Index–Linked Housing Bonds from Iceland Where can you get high real yields in an economy with a budget and trade surplus, an independent central bank, and with inflation and interest rates coming down? Leitner pointed to Iceland, which has been largely neglected by the financial community. After five years of strong growth, the Icelandic economy is cooling fast.The central bank, made independent in 2001, has started cutting rates. The krona, which depreciated sharply a few years ago, is still pretty competitive despite having recovered by some 15 percent from the lows, and a very high trade deficit of a few years ago has been transformed into a surplus. On top of all this is the “Alcoa Project,” where a good deal of capital investment and capital inflow is scheduled to begin in the next year or so.


pages: 438 words: 109,306

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam Lebor

banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, central bank independence, corporate governance, corporate social responsibility, deindustrialization, eurozone crisis, fiat currency, financial independence, financial innovation, foreign exchange controls, forensic accounting, Goldman Sachs: Vampire Squid, haute cuisine, IBM and the Holocaust, Kickstarter, Occupy movement, offshore financial centre, Ponzi scheme, price stability, quantitative easing, reserve currency, special drawing rights

Morgan, the First National Bank of New York, and the First National Bank of Chicago. The real purpose of the BIS was detailed in its statutes: to “promote the cooperation of central banks and to provide additional facilities for international financial operations.” It was the culmination of the central bankers’ decades-old dream, to have their own bank—powerful, independent, and free from interfering politicians and nosy reporters. Most felicitous of all, the BIS was self-financing and would be in perpetuity. Its clients were its own founders and shareholders—the central banks. During the 1930s, the BIS was the central meeting place for a cabal of central bankers, dominated by Norman and Schacht.

The BIS’s assets may remain untouchable, but as more activists understand the bank’s role in the global financial system, its secrecy and elitism, they will increasingly question its operations, role, and need to exist. Such a shift in global perception of the BIS, and the demands to make it more accountable, will bring pressure on politicians, which will then be passed on to the central bank governors, who are independent but still appointed by governments. The controversy over the Argentine reserves could, in turn, corrode the basis of the bank’s soft power: its regulation and supervisory frameworks. Commercial banks, might, for example, ask why they should adhere to the Basel Committee’s banking rules, when the host bank itself is arguably protecting a central bank against its creditors?


pages: 831 words: 98,409

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

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

The global financial system rests on several key pillars: central banks, “regular” banks, nonbank financial firms—the so-called “shadow banks”—and other financial institutions such as the Bank for International Settlements and the IMF. Many of these entities hold regular conferences where their executives maintain their ties. The Printing Presses: Central Banks Today almost all countries have central banks, which are independent government agencies, such as the Federal Reserve, the European Central Bank, or the Bank of England. Their mandate is to attain stable growth at low inflation and maintain the stability of the financial system. To achieve these goals, they use monetary policy: setting interest rates, regulating and supervising financial institutions, and providing liquidity in times of crises.


pages: 756 words: 120,818

The Levelling: What’s Next After Globalization by Michael O’sullivan

"Robert Solow", 3D printing, Airbnb, algorithmic trading, bank run, banking crisis, barriers to entry, Bernie Sanders, bitcoin, Black Swan, blockchain, bond market vigilante , Boris Johnson, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, capital controls, Celtic Tiger, central bank independence, cloud computing, continuation of politics by other means, corporate governance, credit crunch, cryptocurrency, deglobalization, deindustrialization, disinformation, disruptive innovation, distributed ledger, Donald Trump, eurozone crisis, financial innovation, first-past-the-post, fixed income, Geoffrey West, Santa Fe Institute, Gini coefficient, global value chain, housing crisis, impact investing, income inequality, Intergovernmental Panel on Climate Change (IPCC), James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, pattern recognition, Peace of Westphalia, performance metric, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, Steve Bannon, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

Under this option there will be plenty of talk of “adding to the toolbox,” that is, inventing new measures to try to coax growth out of sluggish economies.21 The results may simply be more market distortion, a dwindling sense of urgency among politicians as to their task lists, and an undermining of the credibility of central banks as independent public institutions. If anything, recent pronouncements from central bankers suggest that, in the case of a recession, the consensus view among monetary economists supports more aggressive bouts of monetary stimulus rather than the disengagement of central banks in favor of fiscal-policy-led solutions to low growth.22 Public discussions by central bankers in the United States and Europe, for example, point toward a mind-set that is now set on zero and negative rates as the default policy stance of major central banks.

I have already argued (chapter 7) that central banks are too powerful and that far too much policy lifting has been left to them. Their overlordly roles in markets and economies should be pared back. Yet this is not a given, and in a multipolar world some players may have a different view. One dimension that may complicate the need for less central bank intervention and diminish their independence is the quest by the large poles for financial dominance over each other. Central banks could become a vital instrument in such pursuits. Echoing Carl von Clausewitz’s view that “war is the continuation of politics by other means,” in a multipolar world central banks could become the monetary battleships of the large regions, with currency wars shadowing trade wars.16 Indeed, the epidemic of countries sanctioning each other in 2018 (Saudi Arabia sanctioning Canada and the United States sanctioning Turkey, Russia, and China, for instance) suggests that finance is a key part of the geopolitical arsenal.


pages: 221 words: 46,396

The Left Case Against the EU by Costas Lapavitsas

anti-work, banking crisis, Bretton Woods, capital controls, central bank independence, collective bargaining, declining real wages, eurozone crisis, Francis Fukuyama: the end of history, global reserve currency, hiring and firing, neoliberal agenda, offshore financial centre, post-work, price stability, quantitative easing, reserve currency, Ronald Reagan, Washington Consensus, Wolfgang Streeck

In some fairly obvious ways the ‘architecture’ of the euro has been deficient from the start.27 Mainstream economists have long been aware that the Eurozone has lacked important institutional mechanisms: for instance, a unified mechanism of fiscal transfers among states and a banking union.28 Others have pointed to the lack of ‘mutualization’ of public debt – that is, allowing the debt of one member state to be considered as an obligation of another – and proposed to correct it through the issuing of Eurobonds.29 The fundamental institution of the EMU is the ECB, the capital for which has been contributed proportionately by all EMU member states. The ECB is part of the Eurosystem, a complex structure comprising the National Central Banks of the member countries, which have ceased to act independently with regard to designing and delivering monetary policy.30 Nonetheless, the National Central Banks retain formal and legal responsibility over their assets and liabilities. The ECB is the pivot of the Eurosystem and is obliged by its statutes to keep inflation below 2%.


pages: 589 words: 128,484

America's Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

bank run, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, capital controls, central bank independence, Charles Lindbergh, corporate governance, fiat currency, financial independence, full employment, Ida Tarbell, Long Term Capital Management, Money creation, moral hazard, old-boy network, quantitative easing, The Wealth of Nations by Adam Smith, Upton Sinclair, walking around money

To a people for whom local autonomy was sacrosanct, the notion of a powerful bank, joined to the even more powerful federal government, was deeply unnerving. Opposition to central authority had animated the minutemen at Lexington and Concord, and the battle to establish the Fed resembled a second American revolution—a financial revolution. America had, of course, experimented with central banking early in its history. After the War of Independence, a military success but a financial disaster, the government was saddled with debt. When in due course the Constitution was ratified, providing a greater degree of political unity, Alexander Hamilton proposed a financial equivalent, a Bank of the United States, modeled after the Bank of England.

Currency questions had always stirred the imagination of cranks, but a genuine intellectual ferment swirled around the topic of a central bank. The most interesting proposal was that of Victor Morawetz, a railroad lawyer, who argued that the United States was too big and diverse a territory for a single central bank. Instead, Morawetz proposed a system of independent regional banks. President Taft did not get more than superficially involved in the issue, though his occasional comments were supportive. In the fall of 1909, he spent some of his dwindling political capital on Aldrich, expressing his full confidence that whatever remedy the Monetary Commission proposed would be free of “Wall Street influences.”

Each set up a system of bank examinations and check clearing. Willis even mimicked the Aldrich bill’s phraseology. Of course, the plans also differed in important respects. The biggest was that Aldrich and Warburg had conceived of “branches” around the country subservient to a central organ. Glass was proposing regional “banks” with greater local independence—although arguably, this was a matter of degree. Another distinction was that Glass-Willis compelled the banks to shift their reserves to the new Reserve Banks, ending the perilous “pyramiding” of reserves from the farm to the city to New York. Aldrich, not wanting to offend his banker colleagues, had been mum on this important point.


pages: 495 words: 138,188

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, compensation consultant, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

Finally I studied my calendar and suggested adding a honeymoon to the tail end of an international monetary conference meeting in Interlaken, Switzerland, in June, two months after our wedding. At the monetary conference, German chancellor Helmut Kohl gave a predictably dry luncheon speech. Central-bank independence and the revaluation of Germany's gold reserves were the topics. Afterward Andrea and I avoided flocks of reporters who wanted comments about the U.S. economic outlook and the prospects for the continuation of the Internet boom on the stock market. Even though they knew it was my policy not to give interviews, some asked Andrea to serve as a go-between, figuring that as a fellow journalist she might be willing to help.


pages: 382 words: 100,127

pages: 492 words: 118,882

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

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

Fractional reserve banking and debt-based money To understand the concept of fractional banking it is important to first acknowledge that although central banks and governments belong to the same ilk and work in unison with respect to the issuance of sovereign coin, it is the central bank that actually influences how much money to create based on the inflation targets and the interest rate. The reason for highlighting this distinction is because the central banks of most countries are independent enterprises and their monetary policy decisions do not have to be approved by a president or anyone else in the executive or legislative branches of government6 . The working model, which is identical for more advanced countries, is based on the model of the Bank of England, which was established in 1694 as a joint stock company to purchase government debt.7 Under this model, when a government needs money for carrying out its functions, they exchange bonds with the central bank.

Such a monetary model would destroy the private banks’ debt-based deposit-funded model and change their function in society. They would still function as direct intermediaries between lenders and borrowers and offer investment products to households and corporations, but the broad money supply would now be more directly controlled by the central bank, making it independent of private lending decisions. The greater the quantity of broad money supply, in the form of sovereign digital cash or fiat money on a Blockchain, the greater the ease with which a central bank can use tools such as negative interest rates or helicopter drops (discussed in detail in the section on Universal Basic Income).


pages: 411 words: 114,717

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

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

In recent years it has developed a strong education system that produces a talented workforce; a growing cadre of small to medium-sized companies that are competitive across Europe; well-run banks far stronger than those of its old nemesis, Russia; and good-quality consumer companies. The central bank is genuinely independent of political interference. In many ways these rising stars in the East look more solid than their Western models. With a population of thirty-eight million, Poland is the only nation in Eastern Europe with a domestic market large enough to generate economic growth, regardless of troubles in the rest of the world.

Erdogan is clearly ambitious to complete his basic project—freeing moderate Islam to be itself in Turkey—and he understands that strong economic growth has provided him the political power to promote that goal. The risk is that to achieve his grand aim he may now be pushing too hard to grow too fast, by continuing to invest public funds heavily and to keep interest rates low during a new boom. (Though the central bank is supposed to have independent control of interest rates, in countries like Turkey, signals from the top political leader are tough for the bankers to ignore.) The growth targets that made sense in 2002, when Erdogan took power, no longer make sense now that Turkey’s per capita income is over $10,000. Today confidence in Istanbul is sky high because of the economy’s admirable performance after the Great Recession of 2008.


pages: 365 words: 88,125

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

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


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)

bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, Post-Keynesian economics, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, Savings and loan crisis, 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

I.1 - One hundred trillion Zimbawean dollar note So, while the hyperinflation was made possible by the printing of money, it is not the case that money printing always leads to high or hyper-inflations. Rather, it was the printing of money to finance expenditure, with no regard for the inflationary consequences, and following a collapse in the productive capacity of the economy, which pushed Zimbabwe into hyperinflation. Had Zimbabwe’s central bank been independent of politicians, and focused on price stability rather than facilitating government spending (with more careful control over the money supply), the hyperinflation would have been impossible. Two conclusions can be drawn from the Zimbabwe experience: There is a danger when those with the power to create money can also benefit from its creation.


pages: 571 words: 106,255

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

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

—Satoshi Nakamoto, 6/17/2010 Bitcoin's resilience has so far not been restricted to successfully repelling attacks; it has also ably resisted any attempt at changing it or altering its characteristics. The true depth of this statement and its implications has not yet been fully realized by most skeptics. If Bitcoin's currency were to be compared to a central bank, it would be the world's most independent central bank. If it were to be compared to a nation‐state, it would be the most sovereign nation‐state in the world. The sovereignty of Bitcoin is derived from the fact that, as far as anyone can tell, the way its consensus rules operate makes it very resistant to alteration by individuals.


pages: 463 words: 115,103

Head, Hand, Heart: Why Intelligence Is Over-Rewarded, Manual Workers Matter, and Caregivers Deserve More Respect by David Goodhart

active measures, Airbnb, Albert Einstein, assortative mating, basic income, Berlin Wall, Bernie Sanders, big-box store, Boris Johnson, Branko Milanovic, British Empire, call centre, Cass Sunstein, central bank independence, centre right, computer age, corporate social responsibility, Covid-19, COVID-19, David Attenborough, David Brooks, deglobalization, deindustrialization, delayed gratification, desegregation, deskilling, different worldview, Donald Trump, Elon Musk, Etonian, Fall of the Berlin Wall, Flynn Effect, Frederick Winslow Taylor, future of work, gender pay gap, gig economy, glass ceiling, illegal immigration, income inequality, James Hargreaves, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labour market flexibility, longitudinal study, low skilled workers, Mark Zuckerberg, mass immigration, new economy, Nicholas Carr, oil shock, pattern recognition, Peter Thiel, pink-collar, post-industrial society, post-materialism, postindustrial economy, precariat, reshoring, Richard Florida, robotic process automation, Scientific racism, Skype, social intelligence, spinning jenny, Steven Pinker, superintelligent machines, The Bell Curve by Richard Herrnstein and Charles Murray, The Rise and Fall of American Growth, Thorstein Veblen, twin studies, Tyler Cowen: Great Stagnation, universal basic income, upwardly mobile, wages for housework, winner-take-all economy, women in the workforce, young professional


pages: 134 words: 41,085

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In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, Black Swan, break the buck, business cycle, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial innovation, financial intermediation, fixed income, full employment, George Akerlof, housing crisis, inflation targeting, information asymmetry, London Interbank Offered Rate, Long Term Capital Management, market bubble, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, Socratic dialogue, too big to fail

All Fed officials speak English as a first language; the ECB does business in English, which is a second language for most of its leadership, and then has to translate its decisions into twenty-one other languages. The ECB has the advantage of clarity of mission: its legal mandate is to resist inflation and ensure stable prices. Period. The Fed’s legal mandate is broader and during a crisis more flexible: maximum employment and price stability. Both central banks are designed to be independent. The ECB’s independence is enshrined in a treaty, but it gets frequent, often hostile, public advice from European heads of state and finance ministers about what it should be doing with interest rates and whether it should be trying to talk the euro down to help European exports.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

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

In an international context with separate national regulatory and supervisory bodies, the micro–macro potentially disruptive interactions raise problems which point to an institutional cooperation between the IMF and several committees, forums and task forces working under the auspices of the Committee of the Governors of central banks in Basle. Cooperation is needed because one cannot get altogether independent national prudential policies, minimum cost of capital and volatility of financial variables no higher than the volatility of fundamentals in international competitive markets. There exists an unescapable tradeoff between national prudential independence, global financial safety and market efficiency in allocating savings.


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

In the summer of 1927, still weak from his recent illness, Strong decided that rather than go to Europe as he usually did, he would invite Norman, Schacht, and Moreau to the United States.39 Before the war, when the gold standard had worked automatically, the system had simply required all central banks, operating independently, to follow the rules of the game. Collaboration had not needed to go beyond occasionally lending one another gold. Ever since the war, as the gold standard had been rebuilt and evolved into a sort of dollar standard with the Federal Reserve acting as the central bank of the industrial world, Strong had found it useful to consult frequently with his colleagues—he generally used his summers in Europe as an occasion to meet all of his European counterparts.


pages: 267 words: 74,296

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

bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, market fundamentalism, Money creation, 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

Viktor Orban’s centre-right Fidesz party won a smashing electoral victory in 2010 after the outgoing Socialist government became discredited. But Orban proceeded to rewrite the constitution in ways that cemented Fidesz’s dominance over Hungary’s institutions and its intimidating control of the country’s media. Although the EU has managed to get the government to rewrite provisions impinging on central-bank and judicial independence, it has found its leverage over the government worryingly limited. As was discovered as long ago as 2000, when the EU tried to freeze relations with an Austrian government that included the far-right Jörg Haider as a coalition partner, a country that is a full member is much less susceptible to outside pressure than an applicant.


pages: 193 words: 48,066

The European Union by John Pinder, Simon Usherwood

Berlin Wall, BRICs, central bank independence, centre right, collective bargaining, Doha Development Round, eurozone crisis, failed state, illegal immigration, labour market flexibility, mass immigration, Neil Kinnock, Nelson Mandela, new economy, non-tariff barriers, open borders, price stability, trade liberalization, zero-sum game

However, the possibility of building a similar system across the Union was clearly an important motivating factor for an export-driven economy such as Germany’s; if other states would accept the logic of macroeconomic coordination alongside the currency itself, then this would ultimately serve Germany’s interests. The aim of economic and monetary union The Maastricht Treaty, in providing for economic and monetary union (Emu), established the European Central Bank (ECB) to be, like the Bundesbank, completely independent. The ECB and the central banks of the member states are together called the European System of Central Banks (ESCB). The six members of the ECB’s Executive Board, together with the governors of the other central banks, comprise the Governing Council of the ECB; and none of these banks, nor any member of their decision-making organs, is to take instructions from any other body.


pages: 561 words: 87,892

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

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

Nevertheless, policymakers were keen to stick to simple macroeconomic rules in the pursuit of underlying economic stability. Monetary targets were replaced by other targets, the most enduring of which have proved to be inflation targets (in the developed world) and exchange-rate targets (in the emerging world). Meanwhile, to rid policymakers of undue political influence, many central banks were granted independence, to a greater or lesser degree, from their ultimate political masters. Central bankers have become the high priests of price stability and pursue their beliefs with a theocratic orthodoxy. They believe not only that price stability is good but that its achievement is the single best ‘top-down’ way of delivering overall economic well-being.


pages: 1,123 words: 328,357

Post Wall: Rebuilding the World After 1989 by Kristina Spohr

American Legislative Exchange Council, Andrei Shleifer, anti-communist, banking crisis, Berlin Wall, Bonfire of the Vanities, Bretton Woods, central bank independence, colonial exploitation, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, Doomsday Clock, facts on the ground, failed state, Fall of the Berlin Wall, foreign exchange controls, Francis Fukuyama: the end of history, G4S, Kickstarter, mass immigration, means of production, Mikhail Gorbachev, open economy, price stability, rising living standards, Ronald Reagan, Ronald Reagan: Tear down this wall, software patent, South China Sea, special economic zone, Thomas L Friedman, Transnistria, uranium enrichment, zero-coupon bond

France had extracted reassurance on Bonn’s commitment to Europe and the single currency. Kohl had been given the green light to press on with German unification, which would give him new leverage over Mitterrand. And now that he had fully embraced the principle of monetary union, he intended to make Mitterrand pay a price in return: acceptance of European central-bank independence (on the Bundesbank model) and of political union with strong federalist characteristics. For Kohl, his actions at Strasbourg had been governed by politics. Explaining his reasoning to Secretary of State James Baker, he said he was ‘happy to grant France the glory of Strasbourg’, but without him, he added wrily, ‘the thing would not have happened’.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

anti-communist, Ayatollah Khomeini, banking crisis, Bear Stearns, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, margin call, money market fund, Nixon shock, oil-for-food scandal, Paul Samuelson, price stability, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, Savings and loan crisis, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

So much seems familiar: then, as now, central banks too often hesitated to deal with inflation pressures at early stages. As I write this, the Fed is presented with that recurrent question. In my Princeton ivory tower I was unsympathetic to those concerns. The thesis ended with a strong plea to recognize price stability as the central bank’s core objective and to make it independent of partisan politics. Subconsciously, my career path was set. Harvard My first priority after Princeton was to get a job. I had eight or nine months before graduate school, so some kind of internship seemed useful. Naïvely, I took a train down to Washington and spent a day or two knocking on the doors of federal agencies that might conceivably be interested in a brand new potential economist.

Several members of the commission staff, especially Eli Shapiro of MIT and Larry Ritter of New York University’s Stern School of Business, became close friends. The comprehensive commission report has been lost in the mists of time. It did, however, help bolster the case for Federal Reserve independence, which had come into question in parts of the Congress. (At the time, after the turmoil of World War II, a number of leading central banks had lost their independence.) Within Chase, I was also given the responsibility (and privilege) of preparing a summary of the weekly briefing of the twenty or so most senior Chase officers. While my formal status wasn’t high, I became known by top management, even John J. McCloy, the esteemed former public servant and US high commissioner for Germany who was then serving as Chase chairman.


pages: 209 words: 53,236

The Scandal of Money by George Gilder

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

The government sold off its airlines, railways, airports, seaports, bus lines, banks, hotels, insurance firms, maritime insurance companies, radio spectrum, printing facilities, forests, and irrigation schemes and an array of other holdings. It abolished farm programs that in 1985 were supplying 45 percent of all agricultural income. The central bank was privatized, made independent of the government, and restricted to a role of containing inflation. Maurice McTigue, a former minister of transportation, sums up the results: “A decade later, New Zealand had one of the most competitive economies in the developed world. The government share of GDP had fallen to 27 percent, unemployment was a healthy 3 percent, and the top tax rate was 30 percent.”4 Eliminated were taxes on capital gains, inheritances, and luxuries, and excise duties were removed.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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