The revenge of the market on the rentiers.: Why neo-liberal reports of the end of history turned out to be premature

Abstract

Starting from the perspective of heterodox Keynesian-Minskyian-Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of intelligent regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the 'macroeconomics' that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers' delight. And in particular, into a system without much 'compulsion' on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while inflicting exactly the opposite fate on workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the 'mature' and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies -including most economists and the 'new' left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end the crisis materialised when 'markets' took their inevitable revenge on the rentiers by calling their (blatant) bluff.

Governance and State Structures

“…Intensive debates about the relative merits of fiscal stimulus to avoid prolonged recession, as opposed to fiscal retrenchment to reduce debt exposure, signalled a shift in the terms of debate not only about the most appropriate way of managing the macro-economy, but also about the distributive balance of power that underpinned the dominance of neo-liberal ideas (Palma 2009). …”

Theoretical Discussion of the Financial Liberalization: The Political Economy of a Policy’s Paradox

“…Industrialized economies fearedLDCs weak financial systems and potential policy mismanagement given the lack of experience in the 1980s.Ironically, markets have taken revenge on the rentiers and reality has shown that technocrats running the international financial system are also prone to big mistakes with adverse economic consequences (Palma, 2009). …”

“…Incidentally, the FDH was so intensively carried out in Latin America that led to a premature financialization of its economies that finding the way out in this conjuncture it requires to many adjustments elsewhere, not only in the financial system (see Palma 2009). Financialization is understood as the rise in size and dominance of the financial sector relative to non-financial sector, as well as the diversification towards financial activities in non-financial corporations.…”

The Contribution of Wealth Concentration to the Subprime Crisis: A Quantitative Estimation

“…That this issue had to figure somewhere in the crisis is not in doubt considering that many of those who took out the subprime loans belonged to the poorest sections of the American population (see e.g. Fernandez et al, 2008;Wade, 2009;Palma, 2009;Stockhammer, 2009). What is in doubt is whether economic inequality had a more centrally causal role, for although poverty can explain the demand for mortgage loans it cannot explain why these loans were securitised and then re-securitised into the collateralised debt obligations (CDOs) that were sold to investors.…”