Why does America have potholed roads, low taxes, and high inequality?
My latest post at Forbes endorses Raghuram Rajan's call for there to be permanent co-operation between the central banks of the G20. Business is global: financial markets operate across borders. Countries no longer have genuinely independent monetary policy. Monetary policy needs to be co-ordinated internationally, with the Fed as "first among equals". Whether intentionally or not, the Fed has become the de facto central bank of the world. It is time it behaved like it.Coppola Comment
In our era of global finance, the theory of aggregate demand management is alive and unwell, says Amit Bhaduri. In this pol- icy brief, Bhaduri describes what he regards as a prevalent con- temporary approach to demand management. Detached from its Keynesian roots, this “vulgar” version of demand management theory is being used to justify policies that stand in stark contrast to those prescribed by the original Keynesian model. Rising asset prices and private-debt-fueled consumption play the starring roles, while fiscal policy retreats into the background.
Returning to foundations laid down by Keynes and Kalecki, Bhaduri sets out to clarify whether there is any place for traditional demand management policies—featuring an active role for deficit spending and public investment—in the context of financial globalization, and he concludes that such policies are ultimately unavoidable if we are to revitalize the real economy and achieve stability.
This policy brief emphasizes not only that globalization has elevated the relative importance of the external market, but also that we are living through a period in which trade in financial assets, enabled by multinational banks and other financial institutions, overwhelms, in terms of quantitative significance, trade in goods and services and foreign investment in physical assets. This era of financial globalization is marked by layers of private debt contracts that are generated at will by financial institutions—a system of private credit creation that is increasingly centered on a shadow banking system that exists largely beyond regulatory and supervisory control, and (at least formally) with- out the support of a lender of last resort.
While some might insist that the age of global finance leaves little room for the idea of demand management, Bhaduri con- tends that the theory survives, but that it does so in a form that is nearly unrecognizable from the original. This contemporary model of demand management receives its inspiration from the presuppositions of neoclassical economics, and its policy emphasis is often the very opposite of the old Keynesian model. In the context of the mobile and short-term nature of contemporary
financial investment, the perceived need to maintain a healthy climate for finance and protect against the risk of capital flight disciplines and constrains fiscal policy, while elevating the status of price-stability-focused monetary policy. Instead of public investment aimed at full employment, policymakers pursue restrictions on government spending and a shifting of the tax burden away from corporate profits and toward wages and salaries. Bhaduri argues that such policies exacerbate inequality and thereby suppress aggregate demand. To support demand, the “vulgar,” or “Great Moderation,” model hinges on the interplay between expectations of ever-rising asset prices and a consumption boom driven by private debt.
Bhaduri cautions, however, that a model centered on pri- vate credit creation is prone to instability. More and more financial investment is needed to produce greater returns and boost asset prices, continually shifting the composition of investment from the real to the financial and creating the conditions for a delinking of finance from output and employment. When the paths of the financial and real sectors of the economy diverge, when incomes stagnate while debt and asset prices continue to rise, this creates the conditions for a financial crisis. At that point, the government is called upon to inject liquidity into the finan- cial system. But this is not enough, says Bhaduri: it saves the financial sector, but not the real economy. Ultimately, he suggests that a revival of traditional Keynesian demand management, including large-scale, deficit-financed public investment, is needed to return the real economy to a state of health and stabilize the system as a whole.
Narrowly, Rajan is correct, but the underlying problem is much bigger and most orthodox economists are unwilling to confront it because it conflicts with their free markets religion. Carmen Reinhart and Ken Rogoff, in an analysis that got much less attention that their work on debt levels and growth, looked at 800 years of history of crises and found a strong correlation between the level of international capital flows and the frequency and severity of financial crises. That’s implicit in his discussion of the impact of hot money flowing in and out. The Reinhart/Rogoff finding was confirmed by a 2010 paper by Claudio Borio and Piti Disyatat of the BIS that argued that what drives financial crises is not net capital flows (“global imbalances”) but gross capital flows (too much financial “elasticity” as they called it, or what most of us would describe as too much speculation). But Rajan may in fact be referring to remedies like capital controls when he says, basically, that the industrial economies may not like the remedies that emerging economies implement.
Chile’s caste of technocrats is smarter than what the left generally gives it credit for. The country’s post-dictatorship neoliberals, most of them inside the Socialist-Christian Democrat coalition, not only inherited the disciplined workforce of the Pinochet years, they also have read Keynes, and use his recipes all the time to escape the typical problems that the more fanatic and less pragmatic market fundamentalists create on their own economies, although they do it in quite a conservative way....
The social divide is similar to what it was in the Pinochet years (crumbs notwithstanding), but demands for reform have been successfully contained for more than 2 decades since the end of the dictatorship, and have only recently started surfacing.
And when they surface, what both the Pinochet/libertarian right and the more neoliberal within the Christian Democrat/Socialist Party coalition tell the wannabe reformers is: if we do what you want and start redistributing wealth, helping the unions and so on, all the growth that Chile has benefited from by being so friendly to international capital—all it’s given us, like boosting construction, mining and other dynamic sectors—will go away. And they are right in a sense, because the world is rigged for international capital, which can boycott any government they don’t like by simply moving elsewhere.
In this context, where national workforces are being played against each other to see which of them can serve the market more effectively, it’s hard to see how a movement of students, a couple of trade unionists and well-meaning citizens and some half-assed center-left politicians inside one country could defeat such an octopus of a system. A homeostatic octopus at that, which has the power to regulate its movements in such a way as to control and eliminate any localized effort to reduce its power. Raise your taxes, raise your salaries? How bad, we are going elsewhere then, good luck paying for all that new infrastructure and investment you needed. Behave like a good boy, do what capital says? Good boy, here, have some of my dollars, have a bit of jobs and welfare, at least for as long as the resource-extracting economy lasts or someone starts behaving better than you....
Still, all these extractive, export-based models in Latin America tend to run in the long term into the same problem: whenever the international prices for the commodities they export fall, their highly dependent economies weaken or collapse. When that happens, the masses who more or less kept quiet despite their subordinate position, placated by continued growth, find out they suddenly don’t even have an expanding pie anymore, and even worse, that their rulers are coming for a bigger share of it even if it’s now shrinking, in order to “make the economy more competitive” and re-boot it into profitability and growth, a process which makes class struggle inevitably resurface, exposing the farcical nature of the neoliberals’ harmonious depiction of society, at no small social cost.Naked Capitalism
So there might be no choice but this: to start thinking of ways of transcending national barriers to stop the race to the bottom, and instead join efforts to confront it. Neoliberalism, neo-imperialism, and neocolonialism still rule through the power of "free markets, free trade, and free flow of capital," along with the power that capital bestows on its owners.
It was not because of the power of financial markets or because the Germans didn’t want to “help” the Greeks that Europe suffered through about three years of recurring crises, in which the continued existence of the euro was thrown into question, until August of 2012.
It was because the European authorities were using these acute crises, and did not want to resolve them, until they had extracted certain “reforms” from the weaker European economies (and possibly even some of the stronger ones, if we consider the European Fiscal Compact and what the French government has been doing recently). We know this because as soon as the European Central Bank (ECB) wanted to do so, it put an end to these crises in a matter of weeks, in July-August of 2012, by effectively establishing a ceiling on the interest rates of Italian and Spanish bonds – something it could have done at any time in the prior three years.
We also know this because the political agenda of the troika (the ECB, European Commission, and IMF) is spelled out pretty clearly in the IMF’s comprehensive reports on regular consultations with European governments. A review of 67 IMF reports on the 27 European Union countries during the four years from 2008 through 2011 shows a remarkably consistent pattern: reduce the size of government, reduce the bargaining power of labor, cut spending on pensions and health care, and increase labor supply.Truthout | OpEd
Any discussion of the European or eurozone project should have this struggle over economic and social policy at its center....
Overall, our results suggest that democracy does represent a real shift in political power away from elites and has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.
Though our work does not shed light on why this is so, there are several plausible hypotheses. The limited impact of democracy on inequality might be because recent increases in inequality are “market induced” in the sense of being caused by technological change. But equally, this may be because, as in the Director’s Law, the middle classes use democracy to redistribute to themselves.
But the Director’s s Law is unlikely to explain the inability of the US political system to confront inequality, since the middle classes have largely been losers in the widening inequality trends.Ya think? Maybe look outside the silo?
Could it be that US democracy is captured? This seems unlikely when looked at from the viewpoint of our typical models of captured democracies. But perhaps there are other ways of thinking about this problem that might relate the increasingly paralyzing gridlock in US politics to capture-related ideas.
In the runup to the global financial crisis, George Magnus, who was then chief economist at UBS, was one of the most insightful commentators and was early to call how bad things might get. He’s best known for coining the term “Minsky moment” in early 2007, which he described as when “lenders become increasingly cautious or restrictive, and when it isn’t only over-leveraged structures that encounter financing difficulties . . The risks of systemic economic contraction and asset depreciation become all too vivid.”
Magnus returns and does not find much reason to be optimistic. In a comment today at the Financial Times, he discusses Turkey’s economic and political situation in some detail, and then discusses the potential for continued, widespread upheaval:Naked Capitalism
One could argue that the USD is at least partially backed by its ability to discharge real tax obligations. But bitcoins truly are purely fiat in nature (they have no intrinsic use in either consumption or production). Does this mean that the value of bitcoins must eventually crash to zero (their fundamental value)? No.That is to say, modern money is not only chartal, after Knapp, but also social credit, as Innes observed. Since money is chiefly information, digital money can serve the purpose of money if certain conditions are met. Andolfatto is mildly positive about Bitcoin in this regard.
Bitcoins are information -- record-keeping devices. You can't eat my credit history either, but some companies would value (and pay for) this information nevertheless. So as long as Bitcoin conveys accurate information, its value can persist indefinitely.
“L.A. relies on these banks,” says The Times, “for long-term financing to build bridges and restore lakes, and for short-term financing to pay the bills.” The editorial noted that a similar proposal brought in the fall of 2011 by then-Councilman Richard Alarcon, backed by Occupy L.A., was abandoned because it would have resulted in termination fees and higher interest payments by the city.TINA? No way, says Ellen.
It seems we must bow to our oppressors because we have no viable alternative – or do we? What if there is an alternative that would not only save the city money but would be a safer place to deposit its funds than in Wall Street banks?
Naked Capitalism readers have frequently called for the Post Office to offer basic banking services, as post offices long have in many countries, notably Japan. That idea has gotten an important official endorsement in the form of a detailed, extensively researched concept paper prepared by the Postal Service’s Inspector General. I’ve embedded it and strongly urge you to read and circulate it.Naked Capitalism
Steele says, "You don't just need a short-term stimulus now. We need a program planned out over a period of time, not just roads and highways but money pumped into technology, science ... that will be a positive for years to come. Nobody is even thinking about that now unfortunately."
In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.Board of Governors of the Federal Reserve System
To those who have been watching the developments in the Fed’s fixed-rate full-allotment repo facility*, it won’t come as a bracing shock that the facility’s interest rate might eventually be synced with the interest rate paid on reserves and supplant the federal funds rate as the Fed’s new policy rate.The Financial Times — FT Alphaville
A short paper by Joseph Gagnon and Brian Sack arguing in favour of such a framework has been eagerly awaited and is now live (hat tip Real Time Economics). Sack’s authorship is especially notable given that he was head of the New York Fed’s markets desk until June 2012, when he was replaced by Simon Potter.
Rwanda emerges as East Africa’s investment gateway
Rwanda’s finance minister Claver Gatete waxes lyrical over the country’s bid to become an international-investment hub for the budding East African Community and defends the administration’s security policy.
Claver Gatete, Rwanda’s minister of finance, has but only a few minutes to spare on the phone with Euromoney as he darts from one meeting to another at this year’s World Economic Forum in Davos, Switzerland. The minister is upbeat as investors praise the administration’s deft stewardship of the economy, which is rapidly entrenching its status as an innovative hub for central and east Africa. Gatete’s gallivanting zeal as the country’s chief sherpa on the global economic stage is designed to send a clear message to the international investment community: Rwanda is open to global business.
The Davos exposure comes as Rwanda braces for a landmark economic event in May – the annual African Development Bank forum. Gatete says the event will prove a watershed in the country’s economic rehabilitation in its post-conflict age. “Having the forum in Rwanda this year is a vote of confidence for us,” he says. “It shows the region and the rest of the international community that we are capable of successfully hosting such a central event in African development.”
Rwanda has proven itself to be an extraordinary African success story relative to expectations in 1995. Although there was a slight slowdown in economic growth in 2013, between 2001 and 2012, real GDP growth averaged 8.1% per year and, between 2006 and 2011, an estimated one million people were pulled out of poverty. Underscoring the country’s economic ascent, the Kigali Convention Centre, an impressive glass dome that will become a focal point of the city upon completion, was financed by a successful Eurobond issue in April 2013.
The debut issue was priced at the tighter end to yield 6.875% and attracted a $3.5 billion order book – more than eight-and-a-half times the issue size and more than half the country’s GDP. The conference centre will house a five-star hotel with 292 rooms, a large conference room with a capacity to hold 2,600 people, as well as 24,000 square metres of office space.
The administration hopes the China-backed project won’t in the coming years be seen as an under-used vainglorious construction effort.
Instead, it’s hoped it will be seen as a proactive capacity-building project as Rwanda attracts greater FDI flows, buoyed by its reputation as a regional business and transport hub for the East African Community.[rge: That defines success? Or could that WB ranking be calling looters to Rwanda? After all, "pro-active" capacity building has a 'sterling' track record. Even in China. :) ]
Early signs are encouraging. Last year, the World Bank ranked Rwanda – a commodity-poor landlocked nation – the second-easiest country to conduct business in sub-Saharan Africa, after Mauritius.
Globally, Rwanda is ranked at 32. The Rwanda Development Board has drastically cut the time it takes to register a business in the country: it’s possible to be in and out of their offices with all necessary licences in less than six hours.
However, questions over president Paul Kagame’s human-rights record, and tolerance of dissent continues to dog the administration, testing international support. In the latter part of 2012, Kagame was accused of supporting the Democratic Republic of Congo’s M23 rebels in the Great Lakes conflict. Gatete is anxious to reject any accusations of collusion. “It was proven that the government of Rwanda had not provided any assistance to [the M23],” he says. “The country got all of its aid back, all bilateral and multilateral agreements were restored, and donors are continuing to offer their support with no exceptions. As I have said, confidence in Rwanda – politically and economically – remains firm.” He adds: “We work closely with the international community to reach a peaceful solution in the Congo, nothing more.”[rge: A place even Al Capone couldn't resist? With the way paved by missionaries of finance, hosting prayer meetings?]
However, Rwanda’s international standing came under the spotlight again recently, after the US criticized scathing comments made by Kagame, who claimed that political opponents ought to be treated harshly. The remark came after one of his exiled critics, Patrick Karegeya – a former director of external intelligence and a former opposition leader – was found dead in a hotel room in Johannesburg, raising questions about the administration’s involvement. “We didn’t do it, but my question is: shouldn’t we have done it?” said Kagame at prayer breakfast on January 12, as was reported by Reuters.
Says Gatete: “Karegeya was part of the opposition and was responsible for setting off bombs in Kigali, but the death had nothing to do with us and we will leave the South African government to look into the case. All Kagame is trying to do is protect the country.” Anxious to shift back into Rwanda’s international-investment bid, Gatete cites two landmark projects that highlight the country’s dynamism. “One of the most interesting [projects] is Visa International’s project here to roll out mobile payments and transfers,” he says. “If it’s successful, it will be rolled out in the rest of the region. “The East African Commodities Exchange is another example. Rwanda was chosen for the site of this despite its size and because of its insight into business. Rwanda is a good place to do trials such as this one.
We are a government that international companies can trust and it’s a place where business runs smoothly.”
The exchange aims to increase liquidity and offer a commodities market for 130 million people in the region. One of its goals is to create a platform for smaller, regional producers and give them access to futures and options – an ambitious project given nascent financial infrastructure, limited listed equity products and issuers, as well as illiquidity. Nevertheless, the commodities exchange is another step towards East African integration, aimed squarely at the economies of scale.
“We already have freedom of movement and freedom to seek employment within the region, which helps business in Rwanda and elsewhere,” says Gatete. “We already have certain things in place, including a customs union and a common market. “The next phase will be a monetary union and a single currency.”
Few consider the integration project will be plain sailing, but Gatete’s enterprising zeal highlights how Rwanda – the small country with big ambitions – represents a competitive challenge and opportunity for its reform-shy regional neighbours.
Better it seems to me to focus our attention on the real sources of inequality in the United States. And that means we have to face the class questions straight on. Anything else is merely a distraction.Real-World Economics Review Blog
The World Economic Forum is being held right now in Davos Switzerland. This gathering of the über Predators is always good for a few "let them eat cake" quotes and this time is no exception. A guy named Ermotti thinks life is hard enough without folks picking on the moneychangers. Poor bastard doesn't quite understand why folks don't just LOVE the thieving classes.Real Economics
Watching these scum start to squirm is satisfying only because we are deprived of seeing them marched off to prisons. Until we see the return to honest banking, all the other big problems—including climate change—cannot and will not be solved.
Two points I want to jot down before I forget them.Dizzynomics
1) someone made a really good point today that society seems to be transferring trust away from banks and over to tech firms. This by definition suggests tech firms are as vulnerable to “trust” runs as banks.
2) a trust run should be particularly worrisome to a tech firm which draws power from its stock valuation more than its provable earnings.
Which made me think about acquisition currencies.
North Carolina has been without long-term unemployment benefits since last Summer, and so they might offer a glimpse of what happens when the unemployment insurance is not extended.
The answer? A gigantic drop in the unemployment rate....
Of course, this only answers one question, which is what happens to the rate of unemployment.Business Insider
It doesn't tell us whether people are finding jobs or just totally dropping out of the workforce. But even if this is mostly a function of people dropping out of the labor force, the actual unemployment rate does still matter for Fed policy. So if you think this has any predictive value for the national number (which could be debated) ths number still matters.
North Carolina’s unemployment rate took a sharp turn downward in December, suggesting a dramatic economic turnaround is well underway, but economists warned that the statistics are distorting a more sober reality....
Economists are not so sanguine about North Carolina’s employment statistics for December and for all of 2013....
In reality, however, North Carolina created fewer jobs in 2013 than it did in 2012. Last year’s jobs gain was 64,500, roughly two-thirds of the 89,900 jobs created in 2012.
Just as disconcerting, the state’s labor force shrunk last year, eliminating nearly 111,000 people from the pool of those who are working or looking for work. Such a shrinkage artificially reduces the jobless rate because legions of jobless people don’t show up in the data....
N.C. State University economist Mike Walden said the shrinkage of the labor force is a national problem that suggests discouraged job applicants are giving up finding work.
Wells Fargo economist Mark Vitner expects the 2013 jobs gain to be revised to at least 80,000, but he estimated that December’s unemployment rate is probably closer to 8 percent than the official 6.9 percent....
East Carolina University economist James Kleckley said the December jobless rate is the statistical equivalent of an optical illusion.
He said the state has recovered about 75 percent of the jobs it lost in the recession and estimated that North Carolina’s real jobless rate is probably at least 9 percent.
"If we all continuously learned & shared just how little we all need to share, in real time, in order for our nation to CREATE faster/leaner/better culture ... then we'd never have to worry about our Democracy." RGE :)It seems obvious that we can't separate learning & creating ... except by dying.
It was in 1941, a full half-century ago, that Alfred A. Knopf published a volume by a North Carolina newspaperman, entitled The Mind of the South. Time has accorded the book by Wilbur Joseph Cash, known as "Jack" to his associates, a kind of classic status. No one compiling a list of the really significant Southern books of the 20th-century would omit it....
What Cash develops throughout his book is what he identifies as the enormously hedonistic quality of the Southern people. He sees them as self-satisfied, complacent. They will not be diverted from their smugness, their unwillingness to look critically at what they are, with the result that throughout their history anyone who has attempted to point out to them the extent to which they are being used and manipulated for the benefit of those in power has been unable to get anywhere. Conversely, those who have flattered their self-esteem and confirmed them in their prejudices have been able to manipulate them to vote and act contrary to their own economic and political interests.VQR — The Virginia Quarterly Review
"This is highly problematic.
If the ECB takes the risk, there is extreme moral hazard.
If they don’t, [it's likely that net lending to consumers] won’t increase:"
... an economy with enough demand to hold up revenue, but still weak enough to keep labor markets in check, might be great for corporate profit. Without end-customer demand to justify hiring ramps or capex outlays though, that profit would just pile up as cash.Winterspeak
That verbose title is almost the reverse of a quintessentially arrogant statement of economic supremacy published in the UK’s Daily Telegraph - on the editorial page of the business section - by Andrew Lilico. Entitled “Economists are nearly always right about things, despite what you may think” in the print edition, its content and tone encapsulated everything about economic theory, and economists’ blind belief in it, that led me to write Debunking Economics over a decade ago....
The two main factors that made that book necessary were the capacity of economists to intimidate opponents with their apparent depth of knowledge of a difficult subject, and the reality that economists knowledge of their own subject was, to coin a phrase, not even shallow: it was frequently outright wrong.Business Spectator
Lilico’s defence of economics despite its many empirical failings is the mark of a zealot. That is the real weakness of mainstream economic theory: that it engenders in its followers a manic belief that is impervious to empirical reality.This was the thought — WTF? — that came to me as I read Lilico's article when it came out.
This importantly also means that if you cannot show that data satisfies all the conditions of the probabilistic nomological machine, then the statistical inferences used – and a fortiori neoclassical economics – lack sound foundations!The dilemma of probability theory (wonkish)
A recent post introduced the income-expenditure model, a staple of introductory courses in macroeconomics. In this post, a closely related model of the sectoral financial balances is considered at a similarly introductory level. The 'sectoral financial balances model', or 'SFB model' for short, has been discussed in the blogosphere by a number of Modern Monetary Theorists, including Bill Mitchell, Robert Parenteau, Eric Tymoigne, Daniel Conceicao and Scott Fullwiler, prompted by a post of Paul Krugman's which contained a useful diagram. Analysis of the sectoral financial balances proved insightful in understanding both the lead up to the global financial crisis and its aftermath. This claim will be substantiated once the basic model has been outlined.heteconomist.com
In the wake of recent cuts to the Supplementary Nutrition Assistance Program — or food stamps — the Associated Press reported Sunday that working-age people have now passed children and the elderly as the majority of recipients for households relying on food stamps.
The program now covers one in seven Americans, with the fastest growth in use among workers with some college training, the AP reported.The Raw Story
I guess we could at least recognize the logical consistency of the right. Fiat currency leads inevitably to hyperinflation because it does not have gold behind it. Fine. True regardless of what government spends on: Wall Street. Obamacare. Military. Welfare. JG. Basic Income Guarantee. Hasn’t happened in the past (even in the 1940s when budget deficits reached 25% of GDP) and no sign of it in the near future.
What is more troubling is the criticism from the Left. The Left has no problem with QE (helping homeowners) or Wall Street Bailouts (had to save the banks) or Military (security in the age of terrorism) or Welfare (gotta help the poor) or even the Basic Income Guarantee (time to end the “work fetish”).
But, provide Jobs to those who Want To Work? Hell NO, We Won’t Go!
Why not?Economonitor — Great Leap Forward
I will return to Modern Monetary Theory (MMT) for the masochists on TMV. There are important points I wish to repeat with respect to MMT. It may describe the underlying operations of monetarily sovereign nations but when a political/economic system is so corrupt, fraudulent, manipulated and criminal, it doesn’t matter what the underlying policies and principles are when those entrusted with running the system cannot do so honestly or competently. In a country where the “rule of law” only applies to the non-elite, non-wealthy and powerless, then anything goes and nothing matters.The Moderate Voice
The neoliberal capture of the state has laid the ground for the financialization of capitalism, a stage of capitalism that cannot be reversed without developing new methods of public provision in housing, education, health, pensions and the other sources financialization has used to create profit.Truthout
I find Mirowski's argument that neoliberalism is not the enemy of the state and nor does it genuinely ascribe to the simple opposition "state versus market," very persuasive. Neoliberalism is, rather, about capturing and using the state to achieve pro-market changes across society. The neoliberal capture of the state has laid the ground for the financialization of capitalism....
Finance can extract profits from any money income and stock of money - its profits are not limited to the fresh flows of value produced annually. During the past four decades, it has become expert at making zero-sum profits that involve transfers from one economic agent to another. Financial profits have become an incredible proportion of total profits - particularly in the USA for which we have relevant data. The exploitative outlook of finance in relation to households and individual workers is also evident. This is a characteristic feature of financialization and marks it out as a historical period in the development of capitalism....
The characteristic feature of the new regulation is that it has been shaped by the financial institutions themselves, and its purpose has been to ensure the ability of the financial system to grow and extract profits. It has not contributed in the slightest to avoiding financial bubbles nor to imposing the costs of financial crises onto those responsible for them. On the contrary, contemporary regulation has led to society bearing the brunt of financial disasters, while private individuals associated with finance have reaped the benefits of expansion. Society has little to expect from more regulation of the type we have known for four decades now.
In confronting financialization, it is vital to start with the recognition that it does not represent "progress" in human affairs.
Financialization does not amount to a socially productive expansion of the forces of production that could potentially benefit society, if it was brought under control through a series of bold measures and interventions. Financialization ought to be reversed. To this purpose, regulation alone is not enough, particularly when one bears in mind that financialization is a historical period of capitalism. Confronting it inevitably raises issues of ownership, but also of broader policy and social relations.
...if you concentrate wealth at the top, there's not enough purchasing power to make the rest of the system work.Real News Network
As the London banker deftly explains in his blog, those charged with protecting the integrity of markets from the abuses of financial institutions have instead been going out of the way to facilitate those same abuses:“It used to be that the role of the state in financial market regulation was to ensure efficient market operations, promote transparency of prices and liquidity, protect consumers from abusive practices, and to resolve failed companies according to principles of equitable distribution of assets among like classes of creditors. If the role of the state now is to shield HFT, dark pool and OTC markets from transparency, provide liquidity where the market fails, oversee the orderly fleecing of consumers, and to ensure that some creditors of failing firms always win while others always lose, then we no longer have a market economy. And as virtually all these regulatory policies have evolved in the absence of public debate and legislative scrutiny, we also no longer have democratic governance of markets.”