National credits act
Working Paper No. 592
The Global Financial Crisis and a New Capitalism? by Luiz Carlos Bresser-Pereira*
Getúlio Vargas Foundation
May 2010
*Emeritus Professor of Getúlio Vargas Foundation; www.bresserpereira.org.br
Comments to: bresserpereira@gmail.com
The Levy Economics Institute Working Paper Collection presents research in progress by
Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals.
The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service.
Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.
Levy Economics Institute
P.O. Box 5000
Annandale-on-Hudson, NY 12504-5000 http://www.levy.org Copyright © Levy Economics Institute 2010 All rights reserved.
ABSTRACT
The 2008 global financial crisis was the consequence of the process (1) of financialization, or the creation of massive fictitious financial wealth, that began in the 1980s,; and (2) the hegemony of a reactionary ideology—namely, neoliberalism—based on self-regulated and efficient markets. Although laissez-faire capitalism is intrinsically unstable, the lessons of the 1929 stock market crash of 1929 and the Great Depression of the 1930s were transformed into theories and institutions or regulations that led to the “30 glorious years of capitalism” (1948–77) and that could have helped avoid a financial crisis as profound as the present one. But it did not, because a coalition of rentiers and “financists” achieved hegemony and, while deregulating the existing financial operations, refused to regulate the financial innovations that made these markets even riskier. Neoclassical economics played the role of a
The Global Financial Crisis and a New Capitalism? by Luiz Carlos Bresser-Pereira*
Getúlio Vargas Foundation
May 2010
*Emeritus Professor of Getúlio Vargas Foundation; www.bresserpereira.org.br
Comments to: bresserpereira@gmail.com
The Levy Economics Institute Working Paper Collection presents research in progress by
Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals.
The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service.
Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.
Levy Economics Institute
P.O. Box 5000
Annandale-on-Hudson, NY 12504-5000 http://www.levy.org Copyright © Levy Economics Institute 2010 All rights reserved.
ABSTRACT
The 2008 global financial crisis was the consequence of the process (1) of financialization, or the creation of massive fictitious financial wealth, that began in the 1980s,; and (2) the hegemony of a reactionary ideology—namely, neoliberalism—based on self-regulated and efficient markets. Although laissez-faire capitalism is intrinsically unstable, the lessons of the 1929 stock market crash of 1929 and the Great Depression of the 1930s were transformed into theories and institutions or regulations that led to the “30 glorious years of capitalism” (1948–77) and that could have helped avoid a financial crisis as profound as the present one. But it did not, because a coalition of rentiers and “financists” achieved hegemony and, while deregulating the existing financial operations, refused to regulate the financial innovations that made these markets even riskier. Neoclassical economics played the role of a
References: Aglietta, Michel. 1995. Macroéconomie Financière [Financial Macroeconomics], Paris: La Découverte. _____. 2008. La Crise [The Crisis], Paris: Éditions Michalon. Aglietta, Michel and Sandra Rigot. 2009. Crise et rénovation financière. Paris: Éditions Odile Jacob. Akerlof, George A. and Robert J. Shiller. 2009. Animal Spirits. How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism Arrow, Kenneth J. and Gerard Debreu. 1954. “Existence of equilibrium for a competitive economy,” Econometrica 22 (3): 265–290. Bogle, John C. 2005. The Battle for the Soul of Capitalism. New Haven: Yale University Press. Bordo, M., B. Eichengreen, D. Klingsbiel and M. Martinez-Peria. 2001. “Is the Crisis Problem Growing More Severe?” Economic Policy April: 53–82. Bourguinat, Henri and Éric Briys. 2009. L’Arrogance de la Finance. Comment le Théorie Financière a Produit le Krach Bresser-Pereira, Luiz Carlos. 1972. “A emergência da tecnoburocracia” [The emergence of technobureaucracy], in L _____. 1993. “Economic Reforms and Cycles of State Intervention,” World Development 21(8): 1337–1353. _____. 2004. Democracy and Public Management Reform: Building the Republican State. _____. 2009. “The Two Methods and the Hard Core of Economics,” Journal of Post Keynesian Economics, 31 (3) Spring: 493–422. _____. 2010. Globalization and Competition. Cambridge: Cambridge University Press. Bresser-Pereira, Luiz Carlos and Paulo Gala. 2007. “Why foreign savings fail to cause growth”, Revista de Economia Política 27 (1): 3–19 in the journal’s website: www.rep.org.br. Republished in L. C. Bresser-Pereira (2010: chap. Bresser-Pereira, Luiz Carlos, Lauro Gonzalez and Cláudio Lucinda. 2008. “Crises financeiras nos anos 1990 e poupança externa” [Financial crises in the 1990s and foreign savings], Nova Economia 18 (3) September: 327–357. Reduced version in L. C. Bresser-Pereira (2010: chap. Buiter, Willen H. 2008. “Central banks and financial crises,” Kansas City: 2008 Symposium of the Federal Reserve Bank Kansas City, August 21-23, available at Chesnais, François. 1994. La Mondialisation du Capital, Paris: Syros. Cintra, Marcos Antonio Macedo and Maryse Farhi. 2008. “A crise financeira e o shadow banking” [The financial crisis and shadow banking], Novos Estudos Cebrap n.82, November: Eatwell, John and Lance Taylor. 2000. Global Finance at Risk. New York: The New Press. Epstein, Gerald A. 2005. “Introduction: Financialization and the World Economy,” in Gerald A. Foucault, Michel .1977 [1979]. “Verdade e poder” [Truth and power], in Michel Foucault (1979) Microfísica do Poder [Microfisics of Power], by Roberto Machado (ed.), Rio de Janeiro: Frank, Robert, Thomas Gilovich, and Dennis Regan. 1993. “Does Studying Economics Inhibit Cooperation?” Journal of Economic Perspectives, 7(2) Spring 1993: 159–171. Frank, Robert, Thomas Gilovich, and Dennis Regan. 1996. “Do Economists Make Bad Citizens?” Journal of Economic Perspectives, 10(1) Winter 1996: 187–192. G-20. 2008. G-20 Statement on Financial Markets and the World Economy. Washington: November 15 (full text). 38 Galbraith, John Kenneth (1954) The Great Crash, 1929 Galbraith, John Kenneth (1967[1979] The New Industrial State. New York: Mentor Books, originally published in 1967. Galbraith, John Kenneth (2004) The Economics of Innocent Fraud. Boston: Houghton Mifflin Company. Gramsci, Antonio (1934 [1971]) Selections from the Prison Notebooks of Antonio Gramsci, edited by Q Group of Thirty – Working Group on Financial Reform (2009) Financial Reform: a Framework for Financial Stability Guttmann, Robert (2008) “A primer on finance-led capitalism and its crisis”, Revue de la Régulation n Hilferding, Rudolf (1910 [1963]) El Capital Financiero [Financial Capital]. Madrid: Editorial Tecnos, 1963 Kindleberger, Charles P. (1973) The World in Depression 1929–1939. Berkeley: University of California Press. Kindleberger, Charles P. (1989) Manias, Panics, and Crashes. New York: Basic Books. Koo, Richard C. (2008) The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession Kregel, Jan (1998) “The past and future of banks”, Roma: Ente per Gli Studi Monetari, Bancari e Finanziari Luigi Einaudi, Quaderni di Ricerche n.21: 1–44. Krugman, Paul (2009) 3rd Lionel Robbins Lecture at the London School of Economics, June 10th, reported in The Economist (2009a). Lash, Scott and John Urry (1987) The End of Organized Capitalism. Cambridge: Polity Press. Mankiw, N. Gregory (2006) “The macroeconomist as scientist and engineer,” Journal of Economic Perspectives 20 (4): 29-46. Marglin, Stephen A. (1990) “Lessons of the golden age: an overview”, in Marglin and Schor, eds Marglin, Stephen A. and Juliet B. Schor, eds. (1990) The Golden Age of Capitalism, Oxford: Clarendon Press.