Tag Archives: Financial crisis

Economics is fundamentally flawed

By David Spencer – Economics should be in crisis. But in reality it is not. Rather, economics remains largely the same as it was before the financial crisis – in effect, it remains just as problematic now as in the past. This is an issue not just for economics but for society as a whole, given the enduring power and influence of the discipline on policy and public life.

To think of economics in terms of forecasting is to limit its nature and scope. Economics ought to be about explanation. It should be able to make sense of the world beyond forecasts of the future. It is not clear that as it exists now, economics is able to understand the world in its present form. To this extent, it cannot help understand the frequency and depth of crises.

As things stand, there is little chance that economics will open up to the ideas and methods of other disciplines. Instead, the discipline has embraced a project of “economic imperialism” seeking to colonize other social sciences. Genuine interdisciplinary debate has lost out in this process. more> https://goo.gl/xDk2Mv

A General Logic of Crisis

BOOK REVIEW

How Will Capitalism End? Author: Wolfgang Streeck.
Buying Time, Author: Wolfgang Streeck.
The Deluge: The Great War and the Remaking of Global Order 1916-31, Author: Adam Tooze.

By Adam Tooze – The core of Streeck’s crisis theory is non-Marxian. It does not rest on the violence of original primitive accumulation, or on the alienation or exploitation inherent to the productive process, or even primarily on the declining rate of growth or accumulation.

In one disarming passage he describes capitalism as a ‘a non-violent, civilized mode of material self-enrichment through market exchange’. What makes capitalism toxic is its expansiveness, its relentless colonization of the rest of society. Drawing on Karl Polanyi, Streeck insists that capitalism destroys its own foundations.

It undermines the family units on which the reproduction of labor depends; it consumes nature; it commodifies money, which to function has to rest on a foundation of social trust. For its own good, capitalism needs political checks.

The significance of 2008 and what has happened since is that it is now clear these checks are no longer functioning. Instead, as it entered crisis, capitalism overran everything: it forced the hand of parliaments; it drove up state debts at taxpayers’ expense at the same time as aggressively rolling back what remained of the welfare state; the elected governments of Italy and Greece were sacrificed; referendums were canceled or ignored. more> https://goo.gl/T9bS8i

How the Profound Changes in Economics Make Left Versus Right Debates Irrelevant

BOOK REVIEW

The Origin of Wealth, Author: Eric Beinhocker.
The Gardens of Democracy, Authors: Eric Liu and Nick Hanauer.

By Eric Beinhocker – Economic thinking is changing. If that thesis is correct – and there are many reasons to believe it is – then historical experience suggests policy and politics will change as well. How significant that change will be remains to be seen.

It is still early days and the impact thus far has been limited. Few politicians or policymakers are even dimly aware of the changes underway in economics; but these changes are deep and profound, and the implications for policy and politics are potentially transformative.

For almost 200 years the politics of the west, and more recently of much of the world, have been conducted in a framework of right versus left – of markets versus states, and of individual rights versus collective responsibilities.

New economic thinking scrambles, breaks up and re-forms these old dividing lines and debates. It is not just a matter of pragmatic centrism, of compromise, or even a ‘third way’. Rather, new economic thinking provides something altogether different: a new way of seeing and understanding the economic world. When viewed through the eyeglasses of new economics, the old right–left debates don’t just look wrong, they look irrelevant. more> https://goo.gl/80n0Ke

Shaping the Future of Production

A. T. Kearney – The world of production is one that we define as the full chain of activities to “source-make-deliver-consume-reintegrate” products and services, from origination of inputs, product design, manufacturing and distribution to customer/consumer use and return/reuse.

Production fundamentally impacts our economic structure at a global, regional, national and local scale, on the levels and nature of employment, and is now inextricable from environmental and sustainability initiatives.

Collectively, the sectors comprising production have been an important source of economic growth for developed and emerging nations alike, providing well paid jobs for an increasingly skilled workforce, and they continue to be the dominant focus of innovation and development efforts in most countries.

Disruptive technologies from additive manufacturing to artificial intelligence are transforming global production systems and unleashing a new wave of competition among both producers and countries. They impact and alter all end-to-end steps of the production process and, as a result, transform the products that consumers demand, factory processes and footprints, and the management of global supply chains, in addition to industry dynamics and countries’ access to value chains. Just as we look back at the invention of the spinning jenny, steam engine or the assembly line as turning points in history which changed society, the economy and environment, our descendants are likely to look back on today’s technological advances as the start of a new industrial revolution. more> https://goo.gl/zB86hS

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The Crisis Of Market Fundamentalism

BOOK REVIEW

The Communist Manifesto, Authors: Karl Marx and Friedrich Engels.
Capitalism 4.0, Author: Anatole Kaletsky.

By Anatole Kaletsky – When a particular model of capitalism is working successfully, material progress relieves political pressures. But when the economy fails – and the failure is not just a transient phase but a symptom of deep contradictions – capitalism’s disruptive social side effects can turn politically toxic.

That is what happened after 2008. Once the failure of free trade, deregulation, and monetarism came to be seen as leading to a “new normal” of permanent austerity and diminished expectations, rather than just to a temporary banking crisis, the inequalities, job losses, and cultural dislocations of the pre-crisis period could no longer be legitimized – just as the extortionate taxes of the 1950s and 1960s lost their legitimacy in the stagflation of the 1970s.

If we are witnessing this kind of transformation, then piecemeal reformers who try to address specific grievances about immigration, trade, or income inequality will lose out to radical politicians who challenge the entire system. And, in some ways, the radicals will be right.

The disappearance of “good” manufacturing jobs cannot be blamed on immigration, trade, or technology. But whereas these vectors of economic competition increase total national income, they do not necessarily distribute income gains in a socially acceptable way. To do that requires deliberate political intervention on at least two fronts. more> https://goo.gl/ozay5m

How Bad Can It Get? Prepare For Economic Nationalism

By Kurt Huebner – 2016 was already quite miserable in so many respects; 2017 promises to get even worse. Looking at the chamber of horrors President-elect Trump is putting together and assuming that he will indeed prove at any price that he is the maverick President he promised to be during the campaign, then Washington D.C. will turn into the capital of evil, kind of.

For a long time, political observers from the left analyzed political and economic developments through the lenses of neoliberalism. This concept had at its core the idea that only unfettered markets can deliver growth, jobs, income and wealth. Getting rid of ‘red tape’ not only in the realm of product regulation but also and more importantly in that of environment, labor markets and financial industries was the hallmark for any neoliberal project in the world of western capitalism. This project has come to an end.

2017 will be about economic nationalism where crude elements of growth-enhancing fiscal policy programs go hand in hand with mercantilist and protectionist policies that will erect barriers not only for the flow of goods and services but also for labor. more> https://goo.gl/rroMAl

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Economists versus the Economy

By Robert Skidelsky – Since the collapse of theology, no field of study has aimed to understand the human condition as a whole. But no branch of human inquiry has cut itself off from the whole – and from the other social sciences – more than economics.

This is not because of its subject matter. On the contrary, the business of earning a living still fills the greater part of our lives and thoughts. Economics – how markets works, why they sometimes break down, how to estimate the costs of a project properly – ought to be of interest to most people. In fact, the field repels all but connoisseurs of fanciful formal models.

The real trouble is that economics is cut off from the common understanding of how things work, or should work. Economists claim to make precise what is vague, and are convinced that economics is superior to all other disciplines, because the objectivity of money enables it to measure historical forces exactly, rather than approximately.

What unites the great economists, and many other good ones, is a broad education and outlook. Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. more> https://goo.gl/HVu5WG

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It Takes a Village of Media, Business, Policy, and Academic Experts to Maintain a Dangerous Financial System

BOOK REVIEW

The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It, Authors: Anat Admati and Martin Hellwig.

By Anat Admati – The notion that regulators are doing their best to protect the public is false, as they succumb to “willful blindness.”

The financial system is incredibly important and it enables people to move money across time. How did we move from helping the economy to the system collapsing and needing so many bailouts? What was going on?

The financial system, writes Admati, is not only riddled with conflicts of interest, but also the potential and actual damage from excessive risk taking is largely hidden from view.

Excessive risk taking in banking, by contrast, specifically by excessive use of debt, is hard to detect or trace to specific individuals, and the harm it causes is abstract and spread out.

The victims of excessive bank borrowing, specifically the broad public, are led to believe that risks and failures are unavoidable. Because their borrowing is effectively subsidized by the government, when they seek profits banks effectively compete to endanger their depositors and the public.

“An analogy,” writes Admati, “would be subsidizing trucks to drive at reckless speed even as slower driving would cause fewer accidents.” more> https://goo.gl/UXt60f

Beware the Foreign Exodus From Treasuries

By Lisa Abramowicz – The biggest foreign buyers of U.S. government bonds are quickly retreating after years of absorbing record amounts of the securities.

This is an important dynamic to understand when looking at the potential fate of the $13.6 trillion Treasury market in 2017.

For years, many countries were huge buyers of Treasuries as they built up their foreign-currency reserves. Many now need the money and are cashing out.

China, for example, is using tons of cash to support its depreciating yuan and bolster its financial system, which is showing signs of stress as the government seeks to curb riskier lending practices. Brazil’s economy is in shambles, meaning that nation needs all the free cash it can get to plug its budget gaps. more> https://goo.gl/eov5dm

Why Central Banks Should Offer Bank Accounts to Everyone

By Nicholas Gruen – As much as your bank presents itself as the very essence of competitive, private enterprise, it’s actually part of a public private partnership. The central bank – in the US the Fed, in the UK the Bank of England, in Europe the European Central Bank ECB) – sits at the apex of the banking system providing two fundamental services to your bank.

First each bank is connected to the monetary system with an ‘exchange settlement account’ with the central bank. So if you want to pay me, you get your bank to pay mine, with the net difference between all payments to and from each bank at the end of the day being squared up via counterbalancing payments between each commercial bank’s exchange settlement account with the central bank.

Secondly, because the deposits banks hold are such a tiny fraction of the loans they write, the central bank goes ‘lender of last resort’ to banks if they can’t meet withdrawals.

The central bank could also provide ‘iquidity in a more competitively neutral way. It couldn’t practicably assess everyone’s creditworthiness, but it could specify a set of super-safe assets against which it would automatically lend as a matter of right. more> https://goo.gl/AU8bZi