Progressives and conservatives feel uncomfortable or paralyzed when populists and other extremists adopt what looks like popular and necessary policies.
It does not need to be so.
When in the 1930s Hitler managed an economic recovery in Germany, through what we would call Keynesian policies of public investment, and in 1940 his finance minister Funk published a plan for a New Economic Order for Europe, John Maynard Keynes was invited by the British Ministry of Information to make a broadcast for American and Dominion audiences to discredit it. Keynes replied that the plan was “excellent and just what we ourselves ought to be thinking of doing. If it is to be attacked, the way to do it would be to cast doubt and suspicion on its bona fides.” For instance, “Funk´s talk of a rational division of labour was merely a cloak for concentrating industry in Germany and pastoralising the rest of Europe.”
Today, progressives face a similar problem in relation to some populist policies. Let me illustrate with three examples.
(1) The migrants’ caravan, which started in the Honduras and reached the Mexico/USA border today is a good example. Whoever started and facilitated the caravan, and it could be anyone from local village demagogues, criminal gangs, left-wing activists, religious idealists, Putin or Trump himself, is irrelevant.
Nobody can accept that a crowd, claiming poverty or whatever, organized in a country, decides to try to invade another country in search of settlement there.
However, how to stop them is a different matter. During the Roman times the army had to fight the armed invaders. But Trump’s decision to deploy the army in the border with an order to shoot unarmed civilians, seems out of proportion and risks causing a slaughter.
There are obviously more humane and efficient ways to stop the invaders and punish the organizers. For instance, by moving them into a refugee camp where the children and sick will be fed and treated prior being repatriated with a little bit of pocket money to help them settle back in their country of origin. Meanwhile, while in the camp, they need to be taught a lesson to dissuade further incursions. For instance, the leaders and organizers could be separated and taken into custody where they would remain until earning the money necessary to reimburse their deportation costs, while the remaining could be registered into a DNA database to prevent them from applying legally for residence in the USA during the next 10 years.
(2) The USA-China trade conflict is another example where the populist approach is wrong. Again, there is no doubt that China has often misbehaved in international trade, namely in relation to intellectual property.
However, Trump’s policy of imposing selective import tariffs and trying to negotiate some “deal” with Xi Ping is not only chimerical but also risks to backfire. For starters, it is an unprecedented reversal of roles, the USA has become the protectionist and China the free trader.
Yet, there are better solutions to lead China into behaving in accordance with international trade rules. For instance, the Trans Pacific Agreement, abandoned by Trump, had an important role in this regard. Likewise, encouraging China to join the OECD and follow its rules in terms of international competition and transparency is a better way. In the end, having China as part of the current liberal international order is better than driving them into trying to create a rival alternative.
(3) Finally, Bolsonaro’s decision to stop the use of Cuban medical slaves in Brazil is another example. Shamefully, for many years western countries (including Portugal) have tolerated the hiring of medical staff to the Cuban government, while ignoring that the doctors were forced to leave their families in Cuba as hostages and received only a pittance of the fees contracted with the Cuban government. So, Bolsonaro’s intention is laudable, but is it the best solution?
Of course, no. There are better ways to achieve the same result, without repatriation.
For instance, renegotiating the contracts to force Cuba to allow the doctors’ families to join them in Brazil would preserve their jobs and benefit their patients. Likewise, paying directly to the doctors. The slave doctors ended up being the victims of two extremists.
These examples and many others show why progressives and conservatives cannot be complacent with the populists. More than ever, they need to show the shortcomings of such policies and how they can do better. They must show that there are humane, liberal and civilized ways of dealing with such problems and the anxiety and fear associated with them.
Showing posts with label Keynes. Show all posts
Showing posts with label Keynes. Show all posts
Sunday, 25 November 2018
Tuesday, 8 December 2015
Asymmetries in access to leverage
There is a justified apprehension that in credit-based economies, of the type associated with capitalism, the excessive reliance of credit on collateralization perpetuates an unfair advantage for those endowed with more capital. The popular sentiment that money-attracts-money and misery-attracts-misery. However, the rise of capital markets and the spreading of banking philosophies based on the ongoing concern principles, means that market capitalism dilutes such concerns about the misallocation of savings.
Before addressing the potential misallocation of leverage under financial capitalism, let me make a qualification about the differences between savings and investment and credit and borrowing. The two concepts are often confused because ex-post, in an accounting sense, their value is identical and also because in a popular sense saving is seen as a form of abstinence. Likewise, lending is popularly identified with renting an existing asset, e.g. a lawnmower or cash.
To be more exact we should define investment as the carrying of any asset (whether the butter in the fridge or the computer in the office) from one accounting period (whatever period unit one uses, year, month, etc.) into the next period, either because it cannot be entirely used up within a single period or for precautionary or speculative reasons.
Under this definition one would consider consumption as the use of a portion of newly produced or existing assets during the current accounting period. Thus, as Keynes put it, “when investment changes, income must necessarily change in just that degree which is necessary to make the change in saving equal to the change in investment” . Hence, savings and investment are jointly determined by the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest.
Therefore, one needs a theory of how financial leverage influences these determinants. In the absence of such theory, one can nevertheless intuition (see Mendes 2000) that the rise of finance capitalism has two offsetting effects on investment – contractionary and expansionary – whose net effect has to be ascertained under specific circumstances.
In particular, large scale investments need to be collateralized through a mix of financial assets and guarantees involving a complex engineering between banks and governments. This necessarily degenerates into collusion between these two sectors which occasionally may crowd-out the funding of enterprise in favor of speculation and government spending. In this sense it is a threat to market capitalism.
However, some speculative occurrences in financial assets have as an underlying a non-financial asset like real estate or similar which causes a misallocation of resources into non-financial assets (e.g. the sub-prime real estate bubble and crash in US). On other occasions it is not clear if the speculative frenzy began with non-financial assets and after transmitted to the financial sector or vice versa. However, such cycles are neither the result nor a threat to capitalism.
In conclusion, finance capitalism may cause some misallocation of resources and favor the leveraging of some sectors (e.g. managerial capitalism) but it is not a fatal threat to market capitalism.
Before addressing the potential misallocation of leverage under financial capitalism, let me make a qualification about the differences between savings and investment and credit and borrowing. The two concepts are often confused because ex-post, in an accounting sense, their value is identical and also because in a popular sense saving is seen as a form of abstinence. Likewise, lending is popularly identified with renting an existing asset, e.g. a lawnmower or cash.
To be more exact we should define investment as the carrying of any asset (whether the butter in the fridge or the computer in the office) from one accounting period (whatever period unit one uses, year, month, etc.) into the next period, either because it cannot be entirely used up within a single period or for precautionary or speculative reasons.
Under this definition one would consider consumption as the use of a portion of newly produced or existing assets during the current accounting period. Thus, as Keynes put it, “when investment changes, income must necessarily change in just that degree which is necessary to make the change in saving equal to the change in investment” . Hence, savings and investment are jointly determined by the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest.
Therefore, one needs a theory of how financial leverage influences these determinants. In the absence of such theory, one can nevertheless intuition (see Mendes 2000) that the rise of finance capitalism has two offsetting effects on investment – contractionary and expansionary – whose net effect has to be ascertained under specific circumstances.
In particular, large scale investments need to be collateralized through a mix of financial assets and guarantees involving a complex engineering between banks and governments. This necessarily degenerates into collusion between these two sectors which occasionally may crowd-out the funding of enterprise in favor of speculation and government spending. In this sense it is a threat to market capitalism.
However, some speculative occurrences in financial assets have as an underlying a non-financial asset like real estate or similar which causes a misallocation of resources into non-financial assets (e.g. the sub-prime real estate bubble and crash in US). On other occasions it is not clear if the speculative frenzy began with non-financial assets and after transmitted to the financial sector or vice versa. However, such cycles are neither the result nor a threat to capitalism.
In conclusion, finance capitalism may cause some misallocation of resources and favor the leveraging of some sectors (e.g. managerial capitalism) but it is not a fatal threat to market capitalism.
Wednesday, 17 April 2013
O Impasse Português
Já aqui explicamos por várias vezes as razões pelas quais o programa de ajustamento para Portugal falharia, tal como falhou. No entanto, a visita intercalar da Troika e o falhanço da tentativa atabalhoada do Governo para associar o Partido Socialista às adaptações do programa em curso levam-me a voltar ao tema para explicar o drama da situação Portuguesa.
O drama resulta de termos dois intervenientes igualmente errados sobre o que propõem para Portugal. De um lado temos o Governo/Troika apostados em fazer uma consolidação orçamental a qualquer custo e do outro uma oposição a não querer austeridade em nenhuma circunstância. Em termos simples direi que uns querem mais tempo, mais dinheiro e mais facilidades e os outros acreditam que a “fada mágica” do crescimento nascerá de uma pátria anoréxica em vias de desfalecimento. Nem uns nem outros percebem que não é assim que se recupera uma empresa ou um país.
Em linguagem técnica, os economistas do Governo/Troika continuam a ignorar os efeitos nefastos sobre a procura agregada nacional e o emprego do corte dos rendimentos nominais, denunciados por Keynes nos anos de 1930, e vêm propor menos despesa pública e mais cortes de rendimento para os funcionários públicos e pensionistas. Não percebem a diferença entre o efeito multiplicador do despedimento selectivo dos funcionários públicos em organismos e funções marginais do Estado e uma baixa generalizada da remuneração dos funcionários públicos.
Os Socialistas tentam ressuscitar a ideia Keynesiana de que em situações de desemprego extremo seria mesmo aceitável pagar a uns para abrir buracos e a outros para os tapar. De facto, acabo de ouvir a conferência de imprensa dada por António José Seguro após reunir com Passos Coelho e a Troika e quando questionado sobre políticas concretas de crescimento as duas únicas que citou foram a reabilitação urbana e o investimento em eficiência energética. Na verdade são ambas medidas do tipo abrir e tapar buracos para agradar aos lobbies da construção e das energias renováveis que estiveram na origem da actual crise, porque se esses investimentos forem realmente rentáveis os seus donos encontrarão forma de os financiar. A sugestão Keynesiana do abrir e tapar buracos só foi feita para períodos muito curtos e em circunstâncias onde houvesse margem para agravar o endividamento externo e os défices orçamentais; que não existem em Portugal.
Para facilitar a compreensão das consequências da ignorância do Governo/Troika e da oposição Socialista, o leitor imagine que o Governo em vez de gastar 5 dos 87 mil milhões pedidos à Troika num novo Fundo/Banco e os 12 mil milhões de Euros ainda disponíveis no QREN até 2015 em projectos de utilidade duvidosa decidia gastar 15 mil milhões desse montante para financiar o despedimento de 20% (cerca de 120 mil) funcionários públicos. Essa verba daria para lhes pagar um subsídio de desemprego equivalente a 90% do seu vencimento durante dois anos e ainda dar um subsídio de 50 mil euros a cada para criarem o seu próprio emprego ou empresa. O efeito sobre a sustentabilidade das contas públicas seria permanente e algum desse dinheiro seria mesmo recuperado através dos impostos pagos pelas empresas criadas por esses funcionários.
Em resumo, a compatibilização da consolidação financeira com o crescimento só é possível se houver coragem para combater a ignorância e tibieza do Governo/Troika e da Oposição em Portugal.
O drama resulta de termos dois intervenientes igualmente errados sobre o que propõem para Portugal. De um lado temos o Governo/Troika apostados em fazer uma consolidação orçamental a qualquer custo e do outro uma oposição a não querer austeridade em nenhuma circunstância. Em termos simples direi que uns querem mais tempo, mais dinheiro e mais facilidades e os outros acreditam que a “fada mágica” do crescimento nascerá de uma pátria anoréxica em vias de desfalecimento. Nem uns nem outros percebem que não é assim que se recupera uma empresa ou um país.
Em linguagem técnica, os economistas do Governo/Troika continuam a ignorar os efeitos nefastos sobre a procura agregada nacional e o emprego do corte dos rendimentos nominais, denunciados por Keynes nos anos de 1930, e vêm propor menos despesa pública e mais cortes de rendimento para os funcionários públicos e pensionistas. Não percebem a diferença entre o efeito multiplicador do despedimento selectivo dos funcionários públicos em organismos e funções marginais do Estado e uma baixa generalizada da remuneração dos funcionários públicos.
Os Socialistas tentam ressuscitar a ideia Keynesiana de que em situações de desemprego extremo seria mesmo aceitável pagar a uns para abrir buracos e a outros para os tapar. De facto, acabo de ouvir a conferência de imprensa dada por António José Seguro após reunir com Passos Coelho e a Troika e quando questionado sobre políticas concretas de crescimento as duas únicas que citou foram a reabilitação urbana e o investimento em eficiência energética. Na verdade são ambas medidas do tipo abrir e tapar buracos para agradar aos lobbies da construção e das energias renováveis que estiveram na origem da actual crise, porque se esses investimentos forem realmente rentáveis os seus donos encontrarão forma de os financiar. A sugestão Keynesiana do abrir e tapar buracos só foi feita para períodos muito curtos e em circunstâncias onde houvesse margem para agravar o endividamento externo e os défices orçamentais; que não existem em Portugal.
Para facilitar a compreensão das consequências da ignorância do Governo/Troika e da oposição Socialista, o leitor imagine que o Governo em vez de gastar 5 dos 87 mil milhões pedidos à Troika num novo Fundo/Banco e os 12 mil milhões de Euros ainda disponíveis no QREN até 2015 em projectos de utilidade duvidosa decidia gastar 15 mil milhões desse montante para financiar o despedimento de 20% (cerca de 120 mil) funcionários públicos. Essa verba daria para lhes pagar um subsídio de desemprego equivalente a 90% do seu vencimento durante dois anos e ainda dar um subsídio de 50 mil euros a cada para criarem o seu próprio emprego ou empresa. O efeito sobre a sustentabilidade das contas públicas seria permanente e algum desse dinheiro seria mesmo recuperado através dos impostos pagos pelas empresas criadas por esses funcionários.
Em resumo, a compatibilização da consolidação financeira com o crescimento só é possível se houver coragem para combater a ignorância e tibieza do Governo/Troika e da Oposição em Portugal.
Wednesday, 31 October 2012
My K&H (Keynes/Hayek) mix
To the (limited) extent that I am a disciple of past intellectuals I must say that Keynes and Hayek are my favourite thinkers. This may seem odd, since they are the two “prophets” behind the current divide between left and right wing schools of economics. Am I confused or opportunistic in this eclectic position? I hope not, as I will try to show next.
Keynes and Hayek were two leading economists, which rank among other great economists like Adam Smith, Ricardo or Jevons. But they were also mathematicians, philosophers and political activists. If I were to judge them on these four fields I would say that Keynes was a better mathematician and economist while Hayek was a better philosopher and they were equally good in politics. But the reason for me being simultaneous a Keynesian and a Hayekian lies on their views on the role of the state in the economy.
They were bitterly divided on the role of the state in managing the business cycle, with Keynes in favour and Hayek against. But in my view they were both right. Keynes was right to advocate demand management during the peaks and troughs of the business cycle and Hayek was right in advocating no state intervention in the economy during normal times.
So I will follow each one of them depending on the stage in the business cycle. That is, I will be Hayekian or Keynesian as illustrated in the following diagram:
During the coloured periods I would be 100% Keynesian and 50% Hayekian and during the rest of the period I would be 100% Hayekian (I would not be 0% Hayekian during recessions because the economic stimulus must be designed without encroaching collectivist trends in the economy).
And, of course, I may be more or less sanguine in my views. For instance, conservatives may accept Keynesianism only during the pink periods in a trough but call for it during green periods in a peak, while leftists may ask for intervention during green periods in a trough but only advocate it during pink periods in a peak.
I could refine further my analysis by considering other variables (e.g. unemployment) or by replacing the long term average growth rate by other metric to define business cycle troughs and peaks. However, it would not be changing the fact that during most of the time I should be predominantly Hayekian as far as demand management is concerned.
This does not mean that on average I like more Hayek´s economic writings, on the contrary, or that I am inconsistent or opportunistic in my views; even if I fail to recognize in a timely manner that we have entered a business cycle peak or trough.
In conclusion, there is plenty of room to be more or less moderate in the relevance we give the two “prophets”, but we need to understand and follow both.
Keynes and Hayek were two leading economists, which rank among other great economists like Adam Smith, Ricardo or Jevons. But they were also mathematicians, philosophers and political activists. If I were to judge them on these four fields I would say that Keynes was a better mathematician and economist while Hayek was a better philosopher and they were equally good in politics. But the reason for me being simultaneous a Keynesian and a Hayekian lies on their views on the role of the state in the economy.
They were bitterly divided on the role of the state in managing the business cycle, with Keynes in favour and Hayek against. But in my view they were both right. Keynes was right to advocate demand management during the peaks and troughs of the business cycle and Hayek was right in advocating no state intervention in the economy during normal times.
So I will follow each one of them depending on the stage in the business cycle. That is, I will be Hayekian or Keynesian as illustrated in the following diagram:
During the coloured periods I would be 100% Keynesian and 50% Hayekian and during the rest of the period I would be 100% Hayekian (I would not be 0% Hayekian during recessions because the economic stimulus must be designed without encroaching collectivist trends in the economy).
And, of course, I may be more or less sanguine in my views. For instance, conservatives may accept Keynesianism only during the pink periods in a trough but call for it during green periods in a peak, while leftists may ask for intervention during green periods in a trough but only advocate it during pink periods in a peak.
I could refine further my analysis by considering other variables (e.g. unemployment) or by replacing the long term average growth rate by other metric to define business cycle troughs and peaks. However, it would not be changing the fact that during most of the time I should be predominantly Hayekian as far as demand management is concerned.
This does not mean that on average I like more Hayek´s economic writings, on the contrary, or that I am inconsistent or opportunistic in my views; even if I fail to recognize in a timely manner that we have entered a business cycle peak or trough.
In conclusion, there is plenty of room to be more or less moderate in the relevance we give the two “prophets”, but we need to understand and follow both.
Thursday, 17 May 2012
Facebook, popular delusions and capitalism
Today Facebook will close its first sale of shares to the public (IPO) at a record price to an unprecedented retail demand.
In the process it will make the kid who created this popular site (that signed one in every seven human beings) a billionaire beyond his wildest dreams. Will his invention ever return profits that justify valuing his company at such high price (26 times its sales)? Probably not!
As usual, some pundits will protest against such market irrationalities that, from time to time, degenerate into speculative mass delusions of a Ponzi-like kind. Some will even use such episodes to claim that capitalism is rotten and needs to be replaced by a more rational system.
Yet, past manias (tulips, canals, railways, dot.com, etc.) have shown that such episodes are temporary purges providing a peaceful escape to the many frustrations accumulated periodically in all societies.
This was recognized brilliantly by the most quoted critic of unregulated free markets – John Maynard Keynes – in this famous sentence: “It is better that a man should tyrannise over his bank balance than over his fellow-citizens.”
Indeed, the fact that capitalism ends peacefully its own episodes of irrational exuberance is a testimony to the beauty of the capitalist system.
Be prudent but do not blame the system.
In the process it will make the kid who created this popular site (that signed one in every seven human beings) a billionaire beyond his wildest dreams. Will his invention ever return profits that justify valuing his company at such high price (26 times its sales)? Probably not!
As usual, some pundits will protest against such market irrationalities that, from time to time, degenerate into speculative mass delusions of a Ponzi-like kind. Some will even use such episodes to claim that capitalism is rotten and needs to be replaced by a more rational system.
Yet, past manias (tulips, canals, railways, dot.com, etc.) have shown that such episodes are temporary purges providing a peaceful escape to the many frustrations accumulated periodically in all societies.
This was recognized brilliantly by the most quoted critic of unregulated free markets – John Maynard Keynes – in this famous sentence: “It is better that a man should tyrannise over his bank balance than over his fellow-citizens.”
Indeed, the fact that capitalism ends peacefully its own episodes of irrational exuberance is a testimony to the beauty of the capitalist system.
Be prudent but do not blame the system.
Saturday, 11 February 2012
Markets behaving badly again?
The Obama administration $25 billion deal struck with the nation’s five biggest mortgage servicers tops numerous other approaches to boosting the housing market that have conspicuously failed to prop up the economy.
However, such attempt at propping up real estate prices to the levels achieve at the height of the previous bubble is a questionable objective. First, it disregards the ability to pay of homeowners and second it risks creating a new financial bubble.
Indeed, the financial bubble seems to be already blowing if one looks at the chart below where we compare the evolution of house prices (measured by the Case-Shiller Index), with the trend in real estate investment funds (measured by the Ishares Real Estate Trust) and the stock market (measured by S&P 500 index).
The chart shows that there is again a large differential between the price of financial assets (IYR) and the price of their underlying real assets (houses). Although some lagging between real and financial assets is normal, wide deviations usually occur in bubbles or crashes. This fact is important for homeowners as well as to macroeconomic policy and monetary quantitative easing in particular.
Back in the 1930s, the debate between Keynes and Hayek on the efficacy of stimulus policies discussed the relationship between asset prices and production prices. Hayek believed that markets left to their own would restore the prices of assets without increasing those of production. In contrast, Keynes argued that piling up bank balances or purchasing existing securities to bid their prices to previous levels would cause the release of real resources (capital and labour) while failing to find new opportunities to invest them due to a lack of confidence (“animal spirits”). As it turned out the recovery only came about after a number of years through government stimulus of the worst kind (armament and war spending).
Therefore, modern Keynesians like Paul Krugman who are sceptical about the sustainability of quantitative easing should be less soft on quantitative easing and more committed to devise deficit stimulus packages that have a less costly multiplier effect. My own suggestions about the government spending multiplier can be found in this post.
However, such attempt at propping up real estate prices to the levels achieve at the height of the previous bubble is a questionable objective. First, it disregards the ability to pay of homeowners and second it risks creating a new financial bubble.
Indeed, the financial bubble seems to be already blowing if one looks at the chart below where we compare the evolution of house prices (measured by the Case-Shiller Index), with the trend in real estate investment funds (measured by the Ishares Real Estate Trust) and the stock market (measured by S&P 500 index).
The chart shows that there is again a large differential between the price of financial assets (IYR) and the price of their underlying real assets (houses). Although some lagging between real and financial assets is normal, wide deviations usually occur in bubbles or crashes. This fact is important for homeowners as well as to macroeconomic policy and monetary quantitative easing in particular.
Back in the 1930s, the debate between Keynes and Hayek on the efficacy of stimulus policies discussed the relationship between asset prices and production prices. Hayek believed that markets left to their own would restore the prices of assets without increasing those of production. In contrast, Keynes argued that piling up bank balances or purchasing existing securities to bid their prices to previous levels would cause the release of real resources (capital and labour) while failing to find new opportunities to invest them due to a lack of confidence (“animal spirits”). As it turned out the recovery only came about after a number of years through government stimulus of the worst kind (armament and war spending).
Therefore, modern Keynesians like Paul Krugman who are sceptical about the sustainability of quantitative easing should be less soft on quantitative easing and more committed to devise deficit stimulus packages that have a less costly multiplier effect. My own suggestions about the government spending multiplier can be found in this post.
Tuesday, 13 September 2011
The Founders of Libertarianism
Any doctrine should be like a living being. It has its origins and then develops in many different ways. One should not take its founders to the letter, in a Koran-like fashion. But, likewise we must require that its many emanations have a minimum content from the founders, the same way a burger to be a burger must have a minimum of beef.
Therefore, finding a fine balance between innovation and tradition should be a never ending pursuit for a wise person. Its first step must be reading some of the founders’ writings.
For those in a hurry, Wikipedia has an entry with a good overview about liberal and liberalism. There you can read that its ancestry goes back four hundred years to the beginning of the English Civil War. With the rise of the Enlightenment, the word acquired a more positive undertone, being defined as "free from narrow prejudice" in 1781. However, the word liberalism only began to be used around 1815, while the Napoleon troops ravaged Europe.
For those with time to follow the development of the liberal doctrines here is a short bibliography of the main classic texts, all of them available in a Kindle Edition at a low price.
John Locke’s Second Treatise on Government
(1689) is a good start to understand why people have natural rights and the main purpose of governments is to safeguard such rights. Likewise Adam Smith’s Wealth of Nations 
(1776) provides the basis to understand the role of free markets.
Jeremy Bentham’s An Introduction to the Principles of Morals and Legislation
(1781) launched the basis of utilitarianism while John Stuart Mill’s On Liberty 
(1859) defended the right of individuals to control their own mind and body, guaranteed by limiting the exercise of power to prevent individuals from harming others.
Then the twentieth century brought in a divide about how far the government should go. Now, we have the minimalist and rule based schools (Austrians and Monetarists) and the Keynes-inspired school of discretionary interventionism (in fact most of his followers crossed over to the socialist anti-liberal camp). Here, the two basic references are Friedrich Hayek’s The Road to Serfdom
(1944), showing that reliance on free markets would preclude totalitarian control by the state, and John Maynard Keynes’ General Theory 
(1936) claiming that in special circumstances, when countries were caught in a liquidity trap, state intervention was indispensible to avoid depressions.
Currently, the two branches are frequently confused by identifying them with conservative or progressive parties. By reading the classics one hopes that a renaissance of liberalism in the 21st century will discard such connotations.
Therefore, finding a fine balance between innovation and tradition should be a never ending pursuit for a wise person. Its first step must be reading some of the founders’ writings.
For those in a hurry, Wikipedia has an entry with a good overview about liberal and liberalism. There you can read that its ancestry goes back four hundred years to the beginning of the English Civil War. With the rise of the Enlightenment, the word acquired a more positive undertone, being defined as "free from narrow prejudice" in 1781. However, the word liberalism only began to be used around 1815, while the Napoleon troops ravaged Europe.
For those with time to follow the development of the liberal doctrines here is a short bibliography of the main classic texts, all of them available in a Kindle Edition at a low price.
John Locke’s Second Treatise on Government
(1689) is a good start to understand why people have natural rights and the main purpose of governments is to safeguard such rights. Likewise Adam Smith’s Wealth of Nations (1776) provides the basis to understand the role of free markets.Jeremy Bentham’s An Introduction to the Principles of Morals and Legislation
(1781) launched the basis of utilitarianism while John Stuart Mill’s On Liberty (1859) defended the right of individuals to control their own mind and body, guaranteed by limiting the exercise of power to prevent individuals from harming others.Then the twentieth century brought in a divide about how far the government should go. Now, we have the minimalist and rule based schools (Austrians and Monetarists) and the Keynes-inspired school of discretionary interventionism (in fact most of his followers crossed over to the socialist anti-liberal camp). Here, the two basic references are Friedrich Hayek’s The Road to Serfdom
(1944), showing that reliance on free markets would preclude totalitarian control by the state, and John Maynard Keynes’ General Theory (1936) claiming that in special circumstances, when countries were caught in a liquidity trap, state intervention was indispensible to avoid depressions.Currently, the two branches are frequently confused by identifying them with conservative or progressive parties. By reading the classics one hopes that a renaissance of liberalism in the 21st century will discard such connotations.
Thursday, 23 June 2011
University Men in Business
University Men in Business was the topic of one of the earliest radio broadcasts by John Maynard Keynes in 1927. Obviously, the much discussed and little understood relation between Universities and Business is an ever-lasting theme. The talk was moderated by Sir Ernest Benn, a business man who had not attended University. The two discussants were Mr. Walls, the Managing Director of Lever Bros Ltd, who had attended University and Mr. Keynes of Cambridge University.
After an introduction by Sir Benn, where he made a distinction between education and instruction, here are some interesting extracts of what they said:
Mr. Walls: Universities can help us in business … making the career of business more of a profession than it is today. … Today it is expected that an undergraduate … will leap straight from the university into business and settle down immediately into it. No one expects the same thing of a lawyer or any other professional man (clergy, doctors, etc.).
Business calls for a professionally trained business man and the question is: Can the universities provide him in the same way that they have successfully supplied the older professions?
Mr. Keynes: The men whom the universities have supplied to the business world in the past have belonged to two quite distinct types.
There are first of all the sons of wealthy business parents … they will, at the end of it all, find a safe berth in the family business or in some other concern where the family has influence. … The degree he takes will not be much scrutinized. For him, the university is a pleasant and delightful interlude without much serious bearing in his future career.
The other type consists of undergraduates with no family or other influence in the business world, who are faced with the necessity of earning a living immediately after the conclusion of their university career, and have nothing but themselves to depend upon. These young men are naturally, as a rule, pretty serious workers.
Now, in the past, the majority of university men in business have belonged as a rule to the first type. … I fancy, however, that the other type … is going to become increasingly important.
[Blogger comment: How much has this ratio changed?]
Mr. Walls: What I would be interested to know is what kind of vocational training, if any, followed the university course in these cases.
Mr. Keynes: it is a mistake for the universities to attempt vocational training. Their business is to develop a man’s intelligence and character in such a way that he can pick up relatively quickly the special details of that business he turns to subsequently. … special training … can only be taught by business men to business men.
[Blogger comment: Where are we now on this endless dispute?]
Note: The full transcript can be found in: Keynes on the Wireless, Edited by Donald Moggridge
After an introduction by Sir Benn, where he made a distinction between education and instruction, here are some interesting extracts of what they said:
Mr. Walls: Universities can help us in business … making the career of business more of a profession than it is today. … Today it is expected that an undergraduate … will leap straight from the university into business and settle down immediately into it. No one expects the same thing of a lawyer or any other professional man (clergy, doctors, etc.).
Business calls for a professionally trained business man and the question is: Can the universities provide him in the same way that they have successfully supplied the older professions?
Mr. Keynes: The men whom the universities have supplied to the business world in the past have belonged to two quite distinct types.
There are first of all the sons of wealthy business parents … they will, at the end of it all, find a safe berth in the family business or in some other concern where the family has influence. … The degree he takes will not be much scrutinized. For him, the university is a pleasant and delightful interlude without much serious bearing in his future career.
The other type consists of undergraduates with no family or other influence in the business world, who are faced with the necessity of earning a living immediately after the conclusion of their university career, and have nothing but themselves to depend upon. These young men are naturally, as a rule, pretty serious workers.
Now, in the past, the majority of university men in business have belonged as a rule to the first type. … I fancy, however, that the other type … is going to become increasingly important.
[Blogger comment: How much has this ratio changed?]
Mr. Walls: What I would be interested to know is what kind of vocational training, if any, followed the university course in these cases.
Mr. Keynes: it is a mistake for the universities to attempt vocational training. Their business is to develop a man’s intelligence and character in such a way that he can pick up relatively quickly the special details of that business he turns to subsequently. … special training … can only be taught by business men to business men.
[Blogger comment: Where are we now on this endless dispute?]
Note: The full transcript can be found in: Keynes on the Wireless, Edited by Donald Moggridge
Tuesday, 28 September 2010
Hayek vs. Keynes: On policies of economic stimulus
Keynes and Hayek main divergence was on whether governments could and should play a role in smoothing the business cycle. Their opposite views were expressed in the pages of The Times of London, on the 17th and 19th October 1932, barely three months after the bottom of the biggest ever stock market crash. The current heated debate on the desirability and efficiency of stimulus packages takes place in circumstances similar to those prevailing at the time..
Both economists agreed that savings used for hoarding damaged economic growth. However, Hayek opposed public spending on the grounds that the already high level of public debt in the UK would tend to drive up interest rates and undermine the supply of capital to where it was justifiable – the private industry – while encouraging the old habits of lavish government expenditure. Hayek’s alternative to public spending was to abolish trade restrictions and to liberalize international capital movements. For Keynes piling up bank balances or purchasing existing securities (to bid asset prices to its previous level) would release real resources while failing to find new opportunities to invest them due to a lack of confidence (animal spirits). The stimulus could only be brought by increased (local) government spending.
Now, with the benefit of hindsight, we know that both points of view had some validity but were necessarily partial. Hayek was vindicated in forecasting the rise of the role of government in the economy. However, Keynes was also correct in predicting that recessions would be fewer and less pronounced.
Let us compare first the past and current circumstances in relation to three major economies - the UK, USA and Japan. In 1932 the UK government spending was equal to 27% of GDP, with a large portion devoted to servicing a net national debt equivalent to 175% of GDP at a time when 3–month interest yields were at 2.75%. Currently, in August 2010, the UK government expenditure stands at 46%, the net national debt at over 55% and the 3-month yields are at 0.55%. In the US the corresponding figures were then 22%, 33% and 0.18%, but are now at 44%, 94% and 0.15%, respectively. The position of the two countries is now a bit reversed, but in the interim period the country (USA) with slimmer government and lower indebtedness has overtaken the other as the major economic player.
Turning now to the aftermarket of the Japanese market crash in 1992, the figures show for that year a government expenditure equivalent to 33% of the GDP, the central government debt at 49% and the call rates at 4.12%. The equivalent figures for 2010 are respectively 37%, 178% and 0.10%. This shows that the Japanese attempts to recover from the market crash by keeping low interest rates and increasing government spending failed to revive either the asset markets or the growth of the real economy. Similarly, the efficiency of the New Deal policies in the US is still an unsettled debate among economists.
In what concerns the frequency, duration and amplitude of post World War II recessions the US evidence for the two 65-year-periods from 1854-1919 and 1945-2010 clearly shows a reduction in its number from 16 to 11, a reduction on its average duration from 22 to 11 months and a fall in the average change in unemployment rates from 15 to less than 5 percentage points.
Yet, notwithstanding the productivity losses caused by an ever growing role of the state in the economy, the fact that the last recession (December 2007-to June 2009) lasted 7 months more than usual, caused unemployment to grow at twice the rate of previous recessions and left a legacy of fiscal deficits much bigger than even those experienced during the great depression raise serious doubts on whether the growth of the state sector has reached its limit as a stabilizer of future economic cycles.
So what have Keynes and Hayek missed? First, some degree of saving and hoarding will need to take place for precautionary motives and to bring back leverage to its optimal level. Second, investors should write-off some of their capital losses rather than beg governments for bail-outs. Third, governments must manage to cut current spending (like everyone else) while simultaneously running increased deficits to support the consumption of the poorer and the financing of public (local) investments with a positive return and a short payback period.
Last but not least, they did not realize that the marginal efficiency of capital is not just the result of animal spirits but it is also significantly shifted by expectations about leverage and changes in interest rates (not their level). Therefore, central banks should not encourage prolonged bond bull markets, as they are currently doing, but rather resume a smooth return to the type of bond bear market required for faster economic growth (on this see our blog on Keynes and the rentier classes: http://marques-mendes.blogspot.com/2010/07/is-keynes-wrong-or-outdated-on.html).
Both economists agreed that savings used for hoarding damaged economic growth. However, Hayek opposed public spending on the grounds that the already high level of public debt in the UK would tend to drive up interest rates and undermine the supply of capital to where it was justifiable – the private industry – while encouraging the old habits of lavish government expenditure. Hayek’s alternative to public spending was to abolish trade restrictions and to liberalize international capital movements. For Keynes piling up bank balances or purchasing existing securities (to bid asset prices to its previous level) would release real resources while failing to find new opportunities to invest them due to a lack of confidence (animal spirits). The stimulus could only be brought by increased (local) government spending.
Now, with the benefit of hindsight, we know that both points of view had some validity but were necessarily partial. Hayek was vindicated in forecasting the rise of the role of government in the economy. However, Keynes was also correct in predicting that recessions would be fewer and less pronounced.
Let us compare first the past and current circumstances in relation to three major economies - the UK, USA and Japan. In 1932 the UK government spending was equal to 27% of GDP, with a large portion devoted to servicing a net national debt equivalent to 175% of GDP at a time when 3–month interest yields were at 2.75%. Currently, in August 2010, the UK government expenditure stands at 46%, the net national debt at over 55% and the 3-month yields are at 0.55%. In the US the corresponding figures were then 22%, 33% and 0.18%, but are now at 44%, 94% and 0.15%, respectively. The position of the two countries is now a bit reversed, but in the interim period the country (USA) with slimmer government and lower indebtedness has overtaken the other as the major economic player.
Turning now to the aftermarket of the Japanese market crash in 1992, the figures show for that year a government expenditure equivalent to 33% of the GDP, the central government debt at 49% and the call rates at 4.12%. The equivalent figures for 2010 are respectively 37%, 178% and 0.10%. This shows that the Japanese attempts to recover from the market crash by keeping low interest rates and increasing government spending failed to revive either the asset markets or the growth of the real economy. Similarly, the efficiency of the New Deal policies in the US is still an unsettled debate among economists.
In what concerns the frequency, duration and amplitude of post World War II recessions the US evidence for the two 65-year-periods from 1854-1919 and 1945-2010 clearly shows a reduction in its number from 16 to 11, a reduction on its average duration from 22 to 11 months and a fall in the average change in unemployment rates from 15 to less than 5 percentage points.
Yet, notwithstanding the productivity losses caused by an ever growing role of the state in the economy, the fact that the last recession (December 2007-to June 2009) lasted 7 months more than usual, caused unemployment to grow at twice the rate of previous recessions and left a legacy of fiscal deficits much bigger than even those experienced during the great depression raise serious doubts on whether the growth of the state sector has reached its limit as a stabilizer of future economic cycles.
So what have Keynes and Hayek missed? First, some degree of saving and hoarding will need to take place for precautionary motives and to bring back leverage to its optimal level. Second, investors should write-off some of their capital losses rather than beg governments for bail-outs. Third, governments must manage to cut current spending (like everyone else) while simultaneously running increased deficits to support the consumption of the poorer and the financing of public (local) investments with a positive return and a short payback period.
Last but not least, they did not realize that the marginal efficiency of capital is not just the result of animal spirits but it is also significantly shifted by expectations about leverage and changes in interest rates (not their level). Therefore, central banks should not encourage prolonged bond bull markets, as they are currently doing, but rather resume a smooth return to the type of bond bear market required for faster economic growth (on this see our blog on Keynes and the rentier classes: http://marques-mendes.blogspot.com/2010/07/is-keynes-wrong-or-outdated-on.html).
Hayek vs. Keynes: On individualism and collectivism
With the demise of anarchism in the 1930s and communism in the 1990s, we may say that the boundaries in the political spectrum on the role of the state in capitalism are defined by the extremes of the liberal (socialist in the European sense) and the libertarian movements. Currently, the bibles for both left/right-wing libertarians and liberals are still Hayek’s Road to Serfdom (1944) and Keynes’s General Theory (1936).
The two “prophets” were contemporaries, but Hayek outlived Keynes by almost fifty years. Indeed, as Hayek admitted later on his autobiographical interview, they engaged frequently on controversy but “remained personally on the best of terms, and I [Hayek] had in many respects the greatest admiration and liking for him as a man”. Keynes himself said of The Road to Serfdom: "In my opinion it is a grand book...Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement".
However, today’s supporters of Keynesian and Hayekian theories behave as fanatical or newly-converted followers. Often their behavior resembles that of the fanatics in the Abrahamic religions and sects who believe that their particular faith is the only truth and all other believers are infidels and enemies. Both religious and economic followers fail to recognize that their “prophets” followed the same god and ideals (liberalism) and that their differences were mostly about how to achieve them. Keynes and Hayek embraced the same theory of political economy based on market capitalism and economic liberalism.
Both believed that they should be based on nineteenth-century individualism and not in its misleading meaning of selfishness and egoism used today. The advantages of individualism as recognized by Keynes were: 1) the best safeguard of personal liberty; 2) greater efficiency (through decentralization of decisions and the play of self-interest); and 3) best safeguard of the variety of life and peace. Similarly, for Hayek the merit of individualism rests on recognizing the super individual forces which guide the growth of reason. Individualism is thus an attitude of humility before this social process and of tolerance to other opinions.
If they differ only by degree and not on fundamentals, where are then their key differences? The key differences are the result of how they see the trade-cycle and the trade-off between individualism and collectivism. Although both favor individualism over collectivism, Keynes is willing to sacrifice the first to achieve full-employment. Hayek refutes such compromise and doubts that collective (government) action can achieve such objective without running the greater risk of creating a totalitarian society (greater concentration of decision-making power).
So, their “followers” would do better by focusing on the limits of their theories and on studying the circumstances under which they can be applied.
The two “prophets” were contemporaries, but Hayek outlived Keynes by almost fifty years. Indeed, as Hayek admitted later on his autobiographical interview, they engaged frequently on controversy but “remained personally on the best of terms, and I [Hayek] had in many respects the greatest admiration and liking for him as a man”. Keynes himself said of The Road to Serfdom: "In my opinion it is a grand book...Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement".
However, today’s supporters of Keynesian and Hayekian theories behave as fanatical or newly-converted followers. Often their behavior resembles that of the fanatics in the Abrahamic religions and sects who believe that their particular faith is the only truth and all other believers are infidels and enemies. Both religious and economic followers fail to recognize that their “prophets” followed the same god and ideals (liberalism) and that their differences were mostly about how to achieve them. Keynes and Hayek embraced the same theory of political economy based on market capitalism and economic liberalism.
Both believed that they should be based on nineteenth-century individualism and not in its misleading meaning of selfishness and egoism used today. The advantages of individualism as recognized by Keynes were: 1) the best safeguard of personal liberty; 2) greater efficiency (through decentralization of decisions and the play of self-interest); and 3) best safeguard of the variety of life and peace. Similarly, for Hayek the merit of individualism rests on recognizing the super individual forces which guide the growth of reason. Individualism is thus an attitude of humility before this social process and of tolerance to other opinions.
If they differ only by degree and not on fundamentals, where are then their key differences? The key differences are the result of how they see the trade-cycle and the trade-off between individualism and collectivism. Although both favor individualism over collectivism, Keynes is willing to sacrifice the first to achieve full-employment. Hayek refutes such compromise and doubts that collective (government) action can achieve such objective without running the greater risk of creating a totalitarian society (greater concentration of decision-making power).
So, their “followers” would do better by focusing on the limits of their theories and on studying the circumstances under which they can be applied.
Wednesday, 14 July 2010
Is Keynes wrong or outdated on “the euthanasia of the rentier”?
Writing during the depression of the 1930s, Keynes feared that the return to full employment might require a protracted period of low interest rates which could bring about the euthanasia of the rentier classes. In his words: “Now, though this state of affairs (…to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure…) would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital”. J. M. Keynes, General Theory, pp. 375-76.
Keynes was writing his General Theory during a strong bull market in bonds, following the 35% collapse of high grade USA corporate bond yields to below 3.5% from a peak of 5.41% in June 1932. The bull market in bonds would continue for another 10 years, until April 1946, when yields bottomed at 2.46%. Likewise we have lived through a 28-year long bull market in high yield corporate bonds and have gone through a severe recession and financial crisis. The current bull market in bonds and the economic recession are milder than in the 1930s, with a decline of only 15% in corporate yields from 5.79% in June 2007 to 4.88% in June 2010. Yet, in historical terms, these are the closest we have to the 1930s. Like Keynes we do not know if the current bull market will continue for another 10 years. So, it is pertinent to consider whether Keynes predicament in relation to the euthanasia of capitalists is still valid today.
With the benefit of history we now know that his fears were unwarranted. Indeed, the next bear market in bonds, which would last until 1981, ran throughout the years of the fastest economic growth known to humanity (the golden fifties and sixties). Similarly, after the current 28-year bull market in bonds that began in 1982, we now know that the wealthy are well and getting richer. In fact, they have probably just gone through the period of greatest wealth concentration ever experienced in the USA and many other countries. Last April, the Congressional Budget Office in the USA published data showing that the real after-tax average income of the Top 1 percent income group had almost quadrupled between 1979 and 2007 while the income of those in the bottom 3 quintiles (the lowest 60%) barely moved during the past 29 years.
To be fair, with the possible exception of Japan, no country has ever come near to the almost 0% yield envisaged by Keynes. Nevertheless, there is no doubt that his predicament is outdated and wrong. Yet, because of the risk that an excessive concentration of wealth represents for the future of capitalism, we need to delve further on the reasons why he got it wrong. In our view, the two main reasons were his excessive reliance on the role of interest rates as a determinant of the level of investment required by full employment and his outdated view on how the rich got richer.
Beginning with the way the rich get richer, there are nowadays three important sources of wealth that were disregarded by Keynes. First, there is a new breed of millionaires that make their fortune as corporate raiders. These include private equity and hedge fund managers, investment bankers, CEOs and Non-executive Directors involved in corporate acquisitions and restructurings. To illustrate this new reality one has only to look at the ten-fold increase in their compensation packages, from a ratio of 20:1 during the Robber Baron’s years of the early 20th century to the current 200:1 ratio. Some anecdotal evidence reported by Robert Frank in his book Richistan: a Journey Through the American Wealth Boom and the Lives of the New Rich even shows that some millionaires now make more money from Non-executive directorships than from the returns on their wealth. Second, many of the wealthy have now a large percentage of their portfolio invested in equity, real estate, commodities and alternative investments which are not always correlated with fixed-income and which had a tremendous run in the past 30 years. This greater reliance on capital appreciation rather than on capital growth decouples a large share of their wealth growth from interest rates. Finally, the growth in offshore investment and a cap in progressive income taxation with the top rates generally below the share of public spending in the economy (or even declining as in the USA) have benefited the wealthy.
Turning now to the role of interest rates as determinants of the level of investment, we can see that Keynes missed an important determinant of investment – the level of leverage. As we have shown elsewhere, in a credit-based economy like ours, the marginal efficiency of capital is shifted by leverage making its influence on the level of investment equally or even more important than the level of interest rates. So those able to use higher levels of leverage (like the financiers) are in a better position to accumulate a disproportionate share of income and wealth, in particular when governments underwrite their excessive risk-taking through bail-outs.
We conclude, by paraphrasing Mark Twain, and state that “the announcement of the rentiers’ death was premature”. And complete it by adding our own pronouncement that to secure a vibrant market capitalism we must tackle the problems caused by the new sources of wealth accumulation and financial leverage.
Keynes was writing his General Theory during a strong bull market in bonds, following the 35% collapse of high grade USA corporate bond yields to below 3.5% from a peak of 5.41% in June 1932. The bull market in bonds would continue for another 10 years, until April 1946, when yields bottomed at 2.46%. Likewise we have lived through a 28-year long bull market in high yield corporate bonds and have gone through a severe recession and financial crisis. The current bull market in bonds and the economic recession are milder than in the 1930s, with a decline of only 15% in corporate yields from 5.79% in June 2007 to 4.88% in June 2010. Yet, in historical terms, these are the closest we have to the 1930s. Like Keynes we do not know if the current bull market will continue for another 10 years. So, it is pertinent to consider whether Keynes predicament in relation to the euthanasia of capitalists is still valid today.
With the benefit of history we now know that his fears were unwarranted. Indeed, the next bear market in bonds, which would last until 1981, ran throughout the years of the fastest economic growth known to humanity (the golden fifties and sixties). Similarly, after the current 28-year bull market in bonds that began in 1982, we now know that the wealthy are well and getting richer. In fact, they have probably just gone through the period of greatest wealth concentration ever experienced in the USA and many other countries. Last April, the Congressional Budget Office in the USA published data showing that the real after-tax average income of the Top 1 percent income group had almost quadrupled between 1979 and 2007 while the income of those in the bottom 3 quintiles (the lowest 60%) barely moved during the past 29 years.
To be fair, with the possible exception of Japan, no country has ever come near to the almost 0% yield envisaged by Keynes. Nevertheless, there is no doubt that his predicament is outdated and wrong. Yet, because of the risk that an excessive concentration of wealth represents for the future of capitalism, we need to delve further on the reasons why he got it wrong. In our view, the two main reasons were his excessive reliance on the role of interest rates as a determinant of the level of investment required by full employment and his outdated view on how the rich got richer.
Beginning with the way the rich get richer, there are nowadays three important sources of wealth that were disregarded by Keynes. First, there is a new breed of millionaires that make their fortune as corporate raiders. These include private equity and hedge fund managers, investment bankers, CEOs and Non-executive Directors involved in corporate acquisitions and restructurings. To illustrate this new reality one has only to look at the ten-fold increase in their compensation packages, from a ratio of 20:1 during the Robber Baron’s years of the early 20th century to the current 200:1 ratio. Some anecdotal evidence reported by Robert Frank in his book Richistan: a Journey Through the American Wealth Boom and the Lives of the New Rich even shows that some millionaires now make more money from Non-executive directorships than from the returns on their wealth. Second, many of the wealthy have now a large percentage of their portfolio invested in equity, real estate, commodities and alternative investments which are not always correlated with fixed-income and which had a tremendous run in the past 30 years. This greater reliance on capital appreciation rather than on capital growth decouples a large share of their wealth growth from interest rates. Finally, the growth in offshore investment and a cap in progressive income taxation with the top rates generally below the share of public spending in the economy (or even declining as in the USA) have benefited the wealthy.
Turning now to the role of interest rates as determinants of the level of investment, we can see that Keynes missed an important determinant of investment – the level of leverage. As we have shown elsewhere, in a credit-based economy like ours, the marginal efficiency of capital is shifted by leverage making its influence on the level of investment equally or even more important than the level of interest rates. So those able to use higher levels of leverage (like the financiers) are in a better position to accumulate a disproportionate share of income and wealth, in particular when governments underwrite their excessive risk-taking through bail-outs.
We conclude, by paraphrasing Mark Twain, and state that “the announcement of the rentiers’ death was premature”. And complete it by adding our own pronouncement that to secure a vibrant market capitalism we must tackle the problems caused by the new sources of wealth accumulation and financial leverage.
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