As Jerry Ford left the White House he handed Jimmy Carter three envelopes, instructing him to open them one at a time as problems became overwhelming. After a year, Carter opened the first envelope. It said, "attack Jerry Ford." He did. A year later, Carter opened the second envelope. It said, "attack the Federal Reserve." He did. Three years into his term, and even more overwhelmed by the economy, Iran, Afghanistan and so forth, Carter opened the third envelope. It said: "prepare three envelopes." Paul Volcker, January 1981
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Geoffrey M. Hodgson
The Great Financial Crisis of 2007–2008, like the Great Depression of the 1930s, focused the American public’s attention – and ire – not just on Wall Street, but also on the Federal Reserve (the Fed) – the US central bank. In normal times, the Fed operates under the radar, generating intense interest from investors, and mostly yawns from everyone else. But at times of financial crisis, like 1929, or 2007–2008, or even 1979 when the Fed raised interest rates sky high, piercing scrutiny and conflict breaks out regarding the Fed’s policy. Indeed, at times like that, more than just this or that policy is up for grabs. The Fed’s whole institutional structure and its very raison d’être comes under attack. Why did the Fed let the economy crash? Why did it raise interest rates so high? Why did it bail out Wall Street while leaving ‘main street’ high and dry? Who benefits from the Fed’s policies? Who really pulls the strings there? Do we even need a Federal Reserve?
Geoffrey M. Hodgson
Geoffrey M. Hodgson
Gerald A. Epstein
Many observers thought that the financial crisis of 2007–08 would be a watershed moment in global finance. They believed the crisis would demonstrate, once and for all, the instability and inefficiency of this hyper-speculative global financial system, and finally bring an end to the destructive “neoliberal moment” and its “Washington Consensus” dictates in domestic and global economic policy (see, for example, Blanchard, Dell’Ariccia and Mauro, 2010). But, something surprising happened to “neoliberal financialization” on the way to the “dustbin of history”: it escaped. Financial deregulation and “neoliberal” populism in finance are in the ascendant in the United States and elsewhere, and the bankers are laughing, well. . .all the way to the bank.1 To be sure, there are important cracks in the old free market consensus on international financial issues. These cracks are leading to what Ilene Grabel (Chapter 5, in this volume) calls “productive incoherence” in theory and practice, which is leading to important opportunities for policy change in some areas. But, in many other areas, the old theories and practices are being resurrected after near-death experiences in the period following the crisis.
Edited by Gerald A. Epstein
According to many authors, one still unsolved query is why the broad consensus for the values and culture of the left has broken down. As far as I can see, the answer is that even after the collapse of the Soviet model of society the left held on to the idea of socialism as founded on centralised planning rather than on democratic firm management. The current crisis of the left is caused also by the globalisation of the economy, i.e. by the fact that the political and economic agendas are dictated by supranational oligarchies which are capable of controlling the media, influencing the opinions of electors and the general public and forcing the left into a corner. As a result, the left is seriously ill and must gain an awareness that idle protest leads nowhere. Moreover, statism is on the wane because of its inability to steer the economy and offer satisfactory welfare in a globalised world and because historical experience has taught us that it tends to generate inefficiency and corruption. This conclusion is effectively summed up in the concept of the death of the State and its organisational structure. One of the founding assumptions of this book, therefore, is that the establishment of a system of democratic firms is the precondition for reducing State intervention in the economy and enabling the State to perform its ultimate function, that is to say serving the public interest. Those who think of socialism as a system of self-managed firms are called upon to emphasise the view that, contrary to capitalism, a self-management system is not a system which prioritises the interests of one class over those of another. What is more important, however, is that a system of labour-managed firms has many other advantages (with respect to capitalism), which suggest that it is a very beautiful economic system. The book discusses such advantages.