Adair Turner: The Consequences of Money-Manager Capitalism
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In the wake of World War II, much of the western world, particularly the United States, adopted a new form of capitalism called “managerial welfare-state capitalism.” The system by design constrained financial institutions with significant social welfare reforms and large oligopolistic corporations that financed investment primarily out of retained earnings. Private sector debt was small, but government debt left over from financing the War was large, providing safe assets for households, firms, and banks. The structure of this system was financially robust and unlikely to generate a deep recession. However, the constraints within the system didn’t hold. The relative stability of the first few decades after WWII encouraged ever-greater risk-taking, and over time the financial system was transformed into our modern overly financialized economy. Today, the dominant financial players are “managed money”—lightly regulated “shadow banks” like pension funds, hedge funds, sovereign wealth funds, and university endowments—with huge pools of capital in search of the highest returns. In turn, innovations by financial engineers have encouraged the growth of private debt relative to income and the increased reliance on volatile short-term finance and massive uses of leverage. What are the implications of this financialization on the modern global economy? According to Adair Lord Turner, a Senior Fellow at the Institute for New Economic Thinking and a former head of the United Kingdom’s Financial Services Authority, it means that finance has become central to the daily operations of the economic system. More precisely, the private nonfinancial sectors of the economy have become more dependent on the smooth functioning of the financial sector in order to maintain the liquidity and solvency of their balance sheets and to improve and maintain their economic welfare. For example, households have increased their use of debt to fund education, healthcare, housing, transportation, and leisure. And at the same time, they have become more dependent on interest, dividends, and capital gains as a means to maintain and improve their standard of living. Another major consequence of financialized economies is that they typically generate repeated financial bubbles and major debt overhangs, the aftermath of which tends to exacerbate inequality and retard economic growth. Booms turn to busts, distressed sellers sell their assets to the beneficiaries of the previous bubble, and income inequality expands. In the view of Lord Turner, we have yet to come up with a sufficiently robust policy response to deal with the consequences of our new “money manager capitalism.” The upshot likely will be years more of economic stagnation and deteriorating living standards for many people around the world.
Comments
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...the FUCK? This hasn't got anything to do with reptilians OR Kanye! Ugh, you DICKS!
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What name is he giving at 0:47? It sounds like Ca Nodvich Sell'?
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Adair Turner has hit the mark here. Politicians should take note of him.
Land has been airbrushed out of our minds. Economics has been corrupted as Edward Dodson states. We see land as hidden once a building is on it - out of sight, out of mind. The importance of land and how it soaks up a society's economic activity crystallizing as land values needs to be common knowledge. Few know where the values of land comes from. Land value is not manna from heaven, the community collectively created the value, not the landowner. It is their value, their wealth and they should reclaim it to pay for community services, eliminating income taxes, which are a penalty on production.
"Economic rent" is where there is no enterprise or costs of production. In short, the wealth was created by others, the community. Appropriation of economic rent is legalised theft. The reason why a few percent at the top own most of the wealth is primarily because of economic rent appropriation. Economic rent comes in many forms, the easiest to see is in land values. Making appropriation of economic rent illegal and reclaiming it to use for public services will give economic justice for sure. The productive will be rewarded, economic parasites eliminated. -
Within the economics discipline there was a small number of economics professors and other analysts who saw the financial crisis of 2008 coming and explained its cause. Most recently, the commentary has come from former World Bank economist Joseph Stiglitz,who has joined with writers such as Fred Harrison, Mason Gaffney, Fred Foldvary and Michael Hudson in describing our societies has being dominated by rent-seeking.
Professor Turner has correctly identified the power of land markets as a central driver of the boom-to-bust character of economies. This was understood over a century ago by Henry George, who warned that the private appropriation of the rent of land doomed societies to income and wealth inequality. Essentially, failure to publicly capture rents results in a redistribution of wealth from producers to non-producers. The same dynamic was described by Adam Smith and his French counterpart Anne Robert Jacques Turgot.
In 1994 Mason Gaffney contributed to a volume co-authored by Fred Harrison, titled "The Corruption of Economics." Their book tells the story of how neoclassical economics was created and chairs in neoclassical economics funded by robber barons in an effort to discredit the analysis of Henry George and to defend the status quo of landed privilege. -
The funny thing about most of these «lectures» is that most comentators will subscribe to Adam Smith «The Wealth of Nations», but then when explaining the lowering of rates of interest, they tend to forget a famous quote by Adam Smith
«"...wherever a great deal can be made by the use of money, a great deal will commonly be given for the use of it; and that wherever little can be made by it, less will commonly be given for it. According, therefore, as the usual market rate of interest varies in any country, we may be assured that the ordinary profits of stock must vary with it, must sink as it sinks, and rise as it rises. The progress of interest, therefore, may lead us to form some notion of the progress of profit."»...
So the rate of (REAL) profit - at the global level - is down to near zero...
Thereby eroding «investment incentives» for private entrepreneurs (not to be confused with «money managers»)... And the economy tends to stagnate... -
The US taxpayer is now responsible for $303 trillion dollars in derivatives, the gambling money of the very rich.
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When you let so-called investment banks print trillions of dollars - in the form of complex derivatives - and you you still let them do this - what do you expect? Their practices make a a mockery of government and any economic system.
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Interesting discussion. We did not forget a lot of macro economic stuff, but we simply looked the other way. The word credit is often used and here lies the problem and part of the solution. People need to learn again the principles of credit or simply put how to live within your means. In practice: pay more attention to financial,education at schools.
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Urban renewal was also big in 1950s and 1970s however when is "sustainability" not profitable? Something about subtracting land within this process of urban development is done quiet haphazardly within American Cities that leads to inequality.
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something about the geography in sound housing policy
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Henry George deserves a mention here, no?
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Great. Covered some real issues that are so highly relevant to this day.
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