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by Jerome a Paris
While not calling it a disease, Martin Wolf has an article this morning about how [u]nfettered finance is fast reshaping the global economy, i.e. about the onset of what I've decided to call the Anglo Disease.
While purporting to be neutral about it (noting how it has good sides as well as bad ones), he cannot quite hide his glee at the fact that it's a momentous event, and it's driven exclusively by the Anglos, whether in London, New York or Honk Kong. I'm quite happy to make sure that the paternity of this phenomenon is agreed by all, so that we can make sure that the right ideology is dicredited when this momentous event sours.
The cultish nature of the underlying ideology is underlined by the quasi-messianic tone of the introduction, and its - now unsurprising - claim to be the real vanguard of humanity, in grab for the inevitability cloak of Hegel and Marx:
It is capitalism, not communism, that generates what the communist Leon Trotsky once called “permanent revolution”. It is the only economic system of which that is true. Joseph Schumpeter called it “creative destruction”. Now, after the fall of its adversary, has come another revolutionary period. Capitalism is mutating once again. And what has made this possible is a combination of several factors, which Wolf identifies:
What explains the growth in financial intermediation and the activity of the financial sector? The answers are much the same as for the globalisation of economic activity: liberalisation and technological advance. As I wrote in my previous diary (and copy in the following paragraph), I think that these short term (we are talking 25 years there, so it's short term only in historical terms) were the main cause for today's financial bubble economy. At least Martin Wolf acknowledges that it's so far impossible to know either way: Increasingly cheap money, underpinned by ever more optimistic prognoses about inflation and, more generally, future returns on financial assets, has fuelled the massive financial boom we've been in for most of our lives and which has so transformed our economic landscape. By making high returns possible, it has generalised the requirement for such returns in all economic activities, and thus the need for constant restructuring of businesses, for cost-cutting, offshoring and, often, for the wholesale dismantlement of whole sectors of activity that could not generate the required profitability. Which does not seem so far from Martin Wolf's own analysis:
The new financial capitalism represents the triumph of the trader in assets over the long-term producer. Hedge funds are perfect examples of the speculative trader and arbitrageur. Private equity funds are conglomerates that trade in companies, with a view to financial gain. He is also trying to identify both sides of the argument on whether this is a sustainable phenomenon:
Optimists would argue that the new financial system combines efficiency with stability to an unprecedented degree. Publicly insured banks not only take fewer risks than before but manage the ones they do take far better. (...) The inequality issues have been pointed reasonably enough nowadays and more people are beginning to be aware of them. what is less discussed is the combination of that inequality with the 'untested' nature of the new system. What's the resilience of the new system? What will happen if there is a real crisis (as I have been predicting)? Will there be a a rollback to previous ways of functioning, or have too many irreversible changes taken place that prevent that (that's my theory about "Anglo Disease", i.e. that other activities have simply be eliminated as financial engineering is more profitable and crowds them out altogether, and forces them to shrink or disappear)? Who will pay if there is a shock? Those that have concentrated wealth to an unprecedented degree, or those that have already paid for today's mutations? Can the system manage to share such a burden in a tolerable way, or will "political" solutions be required?
Our brave new capitalist world has many similarities to that of the early 1900s. But, in many ways, it has gone far beyond it. It brings exciting opportunities. But it is also largely untested. It is creating new elites. The early 1900s brought us the gilded age and the destruction of WWI. Will it be as bad this time?
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Anglo Disease (2) - Martin Wolf's take | 30 comments (30 topical, 0 editorial, 0 hidden)
Anglo Disease (2) - Martin Wolf's take | 30 comments (30 topical, 0 editorial, 0 hidden)
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