The Squandered Wealth of Nations: The Age of Greed

Jeff Madrick

When you write a book called Age of Greed, as I have, the derision about the title begins immediately. How is this age any different than others? Greed is a deep human trait; it does not disappear and suddenly reappear.  Even one of my wisest former book editors questioned the idea that greed is different now than it ever was.

But when he finally read about halfway into the book, he got the point.  Self-interest is one thing.  It is what Adam Smith wrote about in the Wealth of Nations in 1776. It makes the invisible hand work.  And if moderate, it can and sometimes does lead to widespread prosperity.

Self-interest rises to levels of greed, however, when it is unchecked by that other great sphere of modern social life, the government.   My argument is that self-interest broadly turned to greed beginning in the 1970s, and then crescendoed through the next three decades.  Milton Friedman and others argued that competition and price setting would themselves check the bad decisions stimulated by greed.  His claims were and remain nonsense.

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Towards green low-carbon growth?

Triple Crisis Blogger Martin Khor published this article in the Third World Network’s Global Trends Series, on last week’s “green low-carbon development” conference in China.

A conference last week in Beijing heard plans by China and other counties for achieving green low-carbon development to combat climate change.  Despite an upbeat mood, the difficulties are many and serious.

Despite the slow progress in the global climate negotiations, some developing countries are already taking their own climate actions to reduce emissions and adapt to the effects of climate change.

Of course, their actions will fall far short of what is required, unless the funds and technology expected as a result from the global talks materialize.  And unless the developed countries also cut their emissions greatly and leave more “carbon space” to the developing countries.

Read the full post at the Third World Network.

The Greek Crisis: The EU’s Wasted Year

Daniela Schwarzer

In May 2010, the EU could praise itself for its ability to put together a 110 bn € rescue package for Greece in cooperation with the IMF and, only weeks later, for agreeing on a 750 bn € rescue fund for other potentially illiquid Eurozone members. At the time, these steps appeared as an important demonstration of European solidarity, as a signal of the Eurozone’s ability to get its act together although it had no tested crisis management instruments at its disposal, and as a manifestation of strength in the face of financial markets ready to speculate on the bankruptcy of Eurozone member states or even a breaking apart of the currency union.

A year later devastating pictures from all over Europe hit the covers of the newspapers and magazines: people flock to the streets in Greece to demonstrate against austerity measures and structural reforms which they blame on the European Union. Protesters are also out in Lisbon, Portugal, just like in Spain which so far has not requested financial assistance from the EU and the IMF, but which implements a long list of reforms and budgetary cuts in order not to lose further credibility in the financial markets. In France, the Eurozone’s second largest member state after Germany, a right-wing extremist, Marine Le Pen, wants the country to leave the Euro – and roughly a fifth of French voters would chose her if Presidential elections were held tomorrow. In Germany, skepticism towards the single currency and in particular towards the Southern European members of the Eurozone, has grown tremendously since the package for Greece was launched in spring last year.

In June 2011 –  just as in spring 2010 – the European Monetary Union finds itself at a crossroads. The choice is once again to provide Greece with credit and guarantees, or to let the country slip into bankruptcy within weeks.  This would indeed occur if the so-called Troika, which consists of the European Commission, the European Central Bank und the IMF, refuses to hand out the next 12 bn € tranche of the loan package agreed last year since Greece’s restructuring and consolidation programme is not going far enough.

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The Greek Crisis: The EU's Wasted Year

Daniela Schwarzer

In May 2010, the EU could praise itself for its ability to put together a 110 bn € rescue package for Greece in cooperation with the IMF and, only weeks later, for agreeing on a 750 bn € rescue fund for other potentially illiquid Eurozone members. At the time, these steps appeared as an important demonstration of European solidarity, as a signal of the Eurozone’s ability to get its act together although it had no tested crisis management instruments at its disposal, and as a manifestation of strength in the face of financial markets ready to speculate on the bankruptcy of Eurozone member states or even a breaking apart of the currency union.

A year later devastating pictures from all over Europe hit the covers of the newspapers and magazines: people flock to the streets in Greece to demonstrate against austerity measures and structural reforms which they blame on the European Union. Protesters are also out in Lisbon, Portugal, just like in Spain which so far has not requested financial assistance from the EU and the IMF, but which implements a long list of reforms and budgetary cuts in order not to lose further credibility in the financial markets. In France, the Eurozone’s second largest member state after Germany, a right-wing extremist, Marine Le Pen, wants the country to leave the Euro – and roughly a fifth of French voters would chose her if Presidential elections were held tomorrow. In Germany, skepticism towards the single currency and in particular towards the Southern European members of the Eurozone, has grown tremendously since the package for Greece was launched in spring last year.

In June 2011 –  just as in spring 2010 – the European Monetary Union finds itself at a crossroads. The choice is once again to provide Greece with credit and guarantees, or to let the country slip into bankruptcy within weeks.  This would indeed occur if the so-called Troika, which consists of the European Commission, the European Central Bank und the IMF, refuses to hand out the next 12 bn € tranche of the loan package agreed last year since Greece’s restructuring and consolidation programme is not going far enough.

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The Greek Crisis: Uttering the Other “D Word”

Matías Vernengo

Default is not the dirty word that nobody wants to say.  Almost everybody now accepts that Greece will default.  Several people will prefer to use the euphemism of “re-profiling debts,” but we all know what it means.  The interesting thing is that at least some authors, like Martin Wolf in a recent Financial Times column, also acknowledge that default is not sufficient.  The surprising thing that almost nobody asks is whether a default would actually solve the Greek problem.

Of course that would require understanding the problem in the first place.  And herein lies the problem, since most people still argue that the Greek problem is fundamentally fiscal.  In other words, in the conventional view the Greek government spent too much (and lied about it), and the solution must rely on the generation of sufficient fiscal surpluses to pay for the outstanding debt.  Further, to obtain the funds it is assumed that austerity is the way to go, privatizing public firms, cutting public sector wages, and reducing pensions.

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The Greek Crisis: Uttering the Other "D Word"

Matías Vernengo

Default is not the dirty word that nobody wants to say.  Almost everybody now accepts that Greece will default.  Several people will prefer to use the euphemism of “re-profiling debts,” but we all know what it means.  The interesting thing is that at least some authors, like Martin Wolf in a recent Financial Times column, also acknowledge that default is not sufficient.  The surprising thing that almost nobody asks is whether a default would actually solve the Greek problem.

Of course that would require understanding the problem in the first place.  And herein lies the problem, since most people still argue that the Greek problem is fundamentally fiscal.  In other words, in the conventional view the Greek government spent too much (and lied about it), and the solution must rely on the generation of sufficient fiscal surpluses to pay for the outstanding debt.  Further, to obtain the funds it is assumed that austerity is the way to go, privatizing public firms, cutting public sector wages, and reducing pensions.

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Can’t Pay? Won’t Pay!

Edward Barbier

What do the worldwide debt crisis and global warming have in common?

They both represent economies drawing down assets faster than they can replenish them.

In the case of the debt crisis, economies are spending more wealth than they are accumulating.  In the case of global warming and other symptoms of ecological scarcity, we are using up nature’s capital and its vital services at an alarming rate (see my forthcoming book, Capitalizing on Nature: Ecosystems as Natural Assets).  Rather than adding to wealth – both financial and natural – economies are squandering it.  This is not a new problem but has occurred throughout history, although this tendency has accelerated in recent times, as I show in my recent book, Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Scarcity.

The connection between economic and natural debt is revealed if our conventional measure of economic progress – Gross Domestic Product (GDP) per capita – is replaced with an alternative indicator – Adjusted Net Domestic Product (ANDP) per capita.  As explained in my article, “Tracking the Sputnik Economy” in The Economists’ Voice, calculating ADNP per capita for most economies is straightforward.  ANDP is also a better indicator than GDP per capita of whether or not an economy’s real income is spent on adding to capital – human, reproducible and environmental.

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Myth and the crisis of alternative ideology

Salim Kassem, Guest Blogger

In a recent article, Prof. Prabhat Patnaik provided critique of the received wisdom that neoliberal policies hasten capitalist development and hence the march to modernity in a developing context. He rightly arrived at the conclusion that far from dealing blows against the old obscurantist order of myths and self-styled messiahs, neoliberal policies reach a modus vivendi with it, which impedes the march to modernity. Indeed, it does, but not only in a developing context but also in a developed context.

If modernity is to be partly understood as a social and political discourse and practice free of the influence of mythology, shamanism and phantasm, then the case may be that the United States, the leading capitalist power, is anything but modern. One recent occurrence, the speech of Mr. Benjamin Netanyahu, the Israeli prime minister to congress, which had received 29 standing ovations may, in two particular accolades,  unequivocally demonstrate the point. Standing ovations numbered 15 and 16 respectively, in which biblical references to Judea and Samaria and a 4000 thousand years old bond of Jewish people to Jewish land exemplify the body language a state to mythical statements.  How is one to understand this raucous applause to religious myths from the representatives of the most advanced capitalist state, which is, at one end, the ‘realisation of the spirit’ and, on the other the mediation of the varying positions of social classes in society? 

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What about Capital Controls on Outflows?

Kevin P. Gallagher and Stephany Griffith-Jones

In the wake of the financial crisis, Western economists and policy-makers are to be applauded for recognizing that financial globalization has its limits and that capital controls may be necessary for emerging and developing nations to defend their economies from volatile capital flows.   Most of the discussion to date has focused on controls on capital inflows, but could there be a role for controls on outflows as well?

Perhaps controls on outflows in the US would have bolstered the effect of quantitative easing.  There may be situations where developing countries will need to resort to controls on outflows in order to prevent de-stabilizing outflows of capital from their countries as well.

Keynes thought so.  He said that, “control of capital movements, both inward and outward, should be a permanent feature of the post-war system.”  Indeed, Keynes and Harry Dexter White each argued that in order for capital controls to work coordination was needed at “both ends” of a capital flow, meaning at the source of the capital outflow and the receiving end or in terms of capital inflows.

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Whatever happened to stability analysis?

Alejandro Nadal

Once upon a time, stability of the general equilibrium was considered an important element in the education of students in economics. Today it seldom receives the attention it deserves and this is regrettable. Stability is one of the most important aspects of neoclassical theory because it addresses the question of just how the mechanism of free competition in the marketplace actually leads to the formation of equilibrium prices.

This crucial aspect of microeconomics is seldom covered adequately (if at all) in recent textbooks and university programs, whether at the undergraduate or post-graduate levels. Most students spend years learning how individual agents maximize, or exploring cases of oligopoly, or playing around with game theory, but when it comes to stability, their teachers skirt around the main issues.

As a result, a cloud of confusion persists. Students come to believe that somewhere in the sacred scriptures of the discipline there exists a theory that accurately reproduces just how the market forces of competition guide an economy through a price adjustment process that leads to the formation of equilibrium prices. In fact, if stability analysis received the attention it deserves, students would be able to see that it is the most important failure of general equilibrium theory.

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