Crisis and sustainability : the delusion of free markets

This book offers a novel interpretation of the Great Recession and the ensuing Euro Crisis as a consequence of the evolution of capitalism since the 1970s. Chapters argue that the neoliberal development trajectory pursued in recent decades is unsustainable, and posit that neither sound macroeconomics nor empirical data support the unqualified faith in free markets that inspired it. The book begins by providing a broad critical perspective on key concepts such as freedom, free market, free trade, globalisation and financialisation, before going on to analyse the long and deep recent crisis as a result of the neoliberal policy strategy adopted since the early 1980s. The alternative narrative outlined in the book provides insights into the policy strategy required to achieve a sustainable development trajectory. -- From publisher's website Preface 6 Acknowledgements 13 Contents 15 List of Frequent Abbreviations and Acronyms 17 1: Introduction: Approach and Basic Concepts 19 1.1 Brief Overview 19 1.2 The Approach 21 1.3 Empirical Evidence and Interpretation: The Case of the Phillips Curve 22 1.4 The Role of Vision in Empirical Science 26 1.5 Growth and Development: Three Visions 29 1.6 Sustainable Development, Fairness, and Free Markets 35 1.7 The Life Cycle of Development Paradigms 37 Notes 40 Bibliography 42 Part I: Globalisation and Financialisation in a Long-Run Perspective 46 2: Freedom, Free Markets, and Neoliberalism 47 2.1 Introduction 47 2.2 The Concept of Freedom 48 2.3 Free Market and Economic Liberalism 50 2.4 Varieties of Economic Liberalism: Evolution and Suggested Definitions 56 2.5 Neoliberalism: Evolution and Definitions 59 2.6 The Misleading Zero-Sum Game Between State and Market 65 2.7 Concluding Remarks 69 Notes 70 Bibliography 74 3: The Globalisation of Markets 78 3.1 Introduction 78 3.2 Globalisation after the Industrial Revolution 80 3.3 The First Globalisation 82 3.4 The Second Globalisation 85 3.5 The Free-Trade Doctrine 86 3.6 Cross-Country Movements of Productive Factors 91 3.7 Concluding Remarks 94 Notes 97 Bibliography 100 4: The Evolution of Financialisation 103 4.1 Introduction 103 4.2 Financialisation as a Recurring Phenomenon 105 4.3 Financialisation as a Long-Run Tendency: The Driving Role of Financial Innovations 113 4.4 Financialisation and Sustainability 116 4.5 Differences Between First and Second Financialisation 117 4.6 Concluding Remarks 121 Notes 123 Bibliography 126 Part II: The Great Recession: Causes and Consequences 130 5: The Neoliberal Trajectory and the Crisis 131 5.1 Introduction1 131 5.2 The Origins of the Second Financialisation 133 5.3 The “Monetarist Disinflation” 135 5.4 The Roaring 1990s 141 5.5 The “Zero Years” and The Genesis of the Great Recession 144 5.6 The Propagation of the Crisis 145 5.7 Concluding Remarks: The Unsustainability of the Neoliberal Model of Development 148 Notes 151 Bibliography 154 6: The Neoliberal Financialisation1 157 6.1 Introduction 157 6.2 The Neoliberal Revolution in Finance 159 6.3 The Genesis of Shadow Banking 167 6.4 Contagion and Propagation 172 6.5 Regulation of Shadow Banking 177 6.6 Towards a Sustainable Finance 180 6.7 Concluding Remarks 187 Notes 189 Bibliography 192 7: Environment and Sustainability 195 7.1 Introduction 195 7.2 The Clash Between Environmental Policies and Neoliberal Policy Strategy 197 7.3 The Delusion of Market-Based Instruments: The Case of EU ETS 201 7.4 The Ecological Imprint and the Crisis: A Tale of Two Debts 204 7.5 The Unsustainability of the Energy System and Climate Change 206 7.6 Technological and Development Trajectories 210 7.7 The Role of Public Investment 215 7.8 Concluding Remarks 219 Notes 222 Bibliography 225 Part III: Epilogue 229 8: The Eurocrisis 230 8.1 Introduction 230 8.2 The Origins of the Eurocrisis 231 8.3 The Propagation of the Crisis in the Eurozone 235 8.4 The Conventional Explanation 240 8.5 An Alternative Explanation 242 8.6 Policy Implications 247 8.7 Concluding Remarks 249 Notes 250 Bibliography 253 9: Concluding Remarks 258 9.1 Introduction 258 9.2 Implications of a Diagnosis for a Better Therapy 259 9.3 Aetiology: A Restricted View of Liberty and Democracy 263 9.4 Therapy: Which Regulation? 266 9.5 Neoliberalism and Sustainability 269 9.6 The Neoliberal Trilemma 273 Notes 275 Bibliography 277 Appendix 1: The Evolution of Financial Legislation: A Short Compendium1, 2 279 Notes 299 Bibliography 300 The US Legislation 279 The UK Legislation 288 The EU Legislation 293 Appendix 2: Glossary of Financial Terms1 301 Note 315 Asset-Backed Commercial Paper (ABCP) 301 Asset-Backed Security (ABS) 301 Bank Holding Company Act (BHCA) 302 Collateralized Debt Obligation (CDO) 302 Central Counterparties (CCPs) or Clearing Houses 303 Counterparty Risk 304 Credit Default Swap (CDS) 304 Credit Default Swap Option 305 Credit Event 306 International Swaps and Derivatives Association (ISDA) 306 Margin Call 307 Money-Market Fund (MMF) or Money-Market Mutual Fund (MMMF) 307 Monoline 307 Multilateral Trading Facility (MTF) 308 Notional Amount 308 Organised Trading Facility (OTF) 308 Over-the-Counter (OTC) Market 309 Protection Buyer 309 Protection Seller 310 Reference Entity 310 Repurchase Agreement (Repo) 310 Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) 311 Structured Investment Vehicles (SIV) 311 Synthetic CDO (SCDO) 312 Systematic Internaliser (SI) 313 Trade Repository (TR) 314 UCITS 315 Author Index 316 Subject Index 324 Preface; Acknowledgements; Contents; List Of Frequent Abbreviations And Acronyms ; 1: Introduction: Approach And Basic Concepts; 1.1 Brief Overview; 1.2 The Approach; 1.3 Empirical Evidence And Interpretation: The Case Of The Phillips Curve; 1.4 The Role Of Vision In Empirical Science; 1.5 Growth And Development: Three Visions; 1.6 Sustainable Development, Fairness, And Free Markets; 1.7 The Life Cycle Of Development Paradigms; Notes; Bibliography; Part I: Globalisation And Financialisation In A Long-run Perspective; 2: Freedom, Free Markets, And Neoliberalism; 2.1 Introduction 2.2 The Concept Of Freedom2.3 Free Market And Economic Liberalism; 2.4 Varieties Of Economic Liberalism: Evolution And Suggested Definitions; 2.5 Neoliberalism: Evolution And Definitions; 2.6 The Misleading Zero-sum Game Between State And Market; 2.7 Concluding Remarks; Notes; Bibliography; 3: The Globalisation Of Markets; 3.1 Introduction; 3.2 Globalisation After The Industrial Revolution; 3.3 The First Globalisation; 3.4 The Second Globalisation; 3.5 The Free-trade Doctrine; 3.6 Cross-country Movements Of Productive Factors; 3.7 Concluding Remarks; Notes; Bibliography 4: The Evolution Of Financialisation4.1 Introduction; 4.2 Financialisation As A Recurring Phenomenon; 4.3 Financialisation As A Long-run Tendency: The Driving Role Of Financial Innovations; 4.4 Financialisation And Sustainability; 4.5 Differences Between First And Second Financialisation; 4.6 Concluding Remarks; Notes; Bibliography; Part Ii: The Great Recession: Causes And Consequences; 5: The Neoliberal Trajectory And The Crisis; 5.1 Introduction1; 5.2 The Origins Of The Second Financialisation; 5.3 The Monetarist Disinflation; 5.4 The Roaring 1990s 5.5 The Zero Years And The Genesis Of The Great Recession5.6 The Propagation Of The Crisis; 5.7 Concluding Remarks: The Unsustainability Of The Neoliberal Model Of Development; Notes; Bibliography; 6: The Neoliberal Financialisation1; 6.1 Introduction; 6.2 The Neoliberal Revolution In Finance; 6.3 The Genesis Of Shadow Banking; 6.4 Contagion And Propagation; 6.5 Regulation Of Shadow Banking; 6.6 Towards A Sustainable Finance; 6.7 Concluding Remarks; Notes; Bibliography; 7: Environment And Sustainability; 7.1 Introduction 7.2 The Clash Between Environmental Policies And Neoliberal Policy Strategy7.3 The Delusion Of Market-based Instruments: The Case Of Eu Ets; 7.4 The Ecological Imprint And The Crisis: A Tale Of Two Debts; 7.5 The Unsustainability Of The Energy System And Climate Change; 7.6 Technological And Development Trajectories; 7.7 The Role Of Public Investment; 7.8 Concluding Remarks; Notes; Bibliography; Part Iii: Epilogue; 8: The Eurocrisis; 8.1 Introduction; 8.2 The Origins Of The Eurocrisis; 8.3 The Propagation Of The Crisis In The Eurozone; 8.4 The Conventional Explanation Alessandro Vercelli. Includes Bibliographical References And Indexes. Front Matter....Pages i-xx Introduction: Approach and Basic Concepts....Pages 1-27 Front Matter....Pages 29-29 Freedom, Free Markets, and Neoliberalism....Pages 31-61 The Globalisation of Markets....Pages 63-87 The Evolution of Financialisation....Pages 89-115 Front Matter....Pages 117-117 The Neoliberal Trajectory and the Crisis....Pages 119-144 The Neoliberal Financialisation1 ....Pages 145-182 Environment and Sustainability....Pages 183-216 Front Matter....Pages 217-217 The Eurocrisis....Pages 219-246 Concluding Remarks....Pages 247-267 Back Matter....Pages 269-329