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The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature (Updated 19 December 2011)

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  • Palma, J.G.

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 appropriate 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. In particular, into a system without much ‘compulsions’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while doing the opposite to 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 many 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.

Suggested Citation

  • Palma, J.G., 2009. "The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature (Updated 19 December 2011)," Cambridge Working Papers in Economics 0927, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0927
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    References listed on IDEAS

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    1. Harbord, David, 2006. "Enforcing cooperation among medieval merchants: The Maghribi traders revisited," MPRA Paper 1889, University Library of Munich, Germany.
    2. Dora L. Costa & Matthew E. Kahn, 2007. "Surviving Andersonville: The Benefits of Social Networks in POW Camps," American Economic Review, American Economic Association, pages 1467-1487.
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    Citations

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    Cited by:

    1. Setterfield, Mark & Kim, Yun K., 2016. "Debt servicing, aggregate consumption, and growth," Structural Change and Economic Dynamics, Elsevier, vol. 36(C), pages 22-33.
    2. Eckhard Hein & Daniel Detzer, 2014. "Finance-dominated capitalism and income distribution: a Kaleckian perspective on the case of Germany," Working papers wpaper62, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Panico, Carlo & Pinto, Antonio, 2015. "Income distribution and the size of the financial sector," Centro Sraffa Working Papers CSWP15, Centro di Ricerche e Documentazione "Piero Sraffa".
    4. José Gabriel Palma, 2016. "Do nations just get the inequality they deserve? The ‘Palma Ratio’ re-examined," Cambridge Working Papers in Economics 1627, Faculty of Economics, University of Cambridge.
    5. Ajit Singh, 2012. "Financial Globalization and Human Development," Journal of Human Development and Capabilities, Taylor & Francis Journals, pages 135-151.
    6. Fernando Rugitsky, 2015. "Financialization, Housing Bubble, and the Great Recession: an interpretation based on a circuit of capital model," Working Papers, Department of Economics 2015_24, University of São Paulo (FEA-USP).
    7. Soon Ryoo & Yun K. Kim, 2014. "Income Distribution, Consumer Debt and Keeping up with the Joneses," Metroeconomica, Wiley Blackwell, vol. 65(4), pages 585-618, November.
    8. Hein, Eckhard, 2011. "Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies," MPRA Paper 31180, University Library of Munich, Germany.
    9. Rodolfo Signorino, 2011. "Economics in the Mirror of the Financial Crisis," Chapters,in: The Global Financial Crisis, chapter 11 Edward Elgar Publishing.
    10. Eckhard Hein & Daniel Detzer, 2015. "Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), pages 171-191.
    11. Storm, Servaas. & Naastepad, C.W.M., 2012. "Wage-led or profit-led supply : wages, productivity and investment," ILO Working Papers 994709303402676, International Labour Organization.
    12. Miroslava Filipović, 2011. " Exigency Politics or New World Order?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 373-391, September.
    13. Carlo Panico & Antonio Pinto, 2014. "Bassa crescita dell’economia o elevato sviluppo del settore finanziario? Alcune annotazioni sul recente libro di Piketty," STUDI ECONOMICI, FrancoAngeli Editore, pages 34-60.
    14. Michalis Nikiforos, 2015. "A Nonbehavioral Theory of Saving," Economics Working Paper Archive wp_844, Levy Economics Institute.
    15. Eckhard Hein, 2012. "Finance-dominated capitalism, re-distribution, household debt and financial fragility in a Kaleckian distribution and growth model," PSL Quarterly Review, Economia civile, vol. 65(260), pages 11-51.
    16. Pereira, Luiz C. Bresser, 2009. "The global financial crisis and after: a new capitalism?," Textos para discussão 240, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    17. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931, September.
    18. José Gabriel Palma, 2014. "Has the income share of the middle and upper-middle been stable over time, or is its current homogeneity across the world the outcome of a process of convergence? The 'Palma Ratio' revisited," Cambridge Working Papers in Economics 1437, Faculty of Economics, University of Cambridge.
    19. Santiago Capraro & Carlo Panico & Ignacio Perrotini & Francesco Purificato, 2012. "Austerità o politiche coordinate ed espansive? Le difficili scelte delle autorità europee," STUDI ECONOMICI, FrancoAngeli Editore, pages 81-112.
    20. repec:psl:pslqrr:2017:22 is not listed on IDEAS
    21. Giulio Guarini, 2016. "Macroeconomic and Technological Dynamics: a Structuralist-Keynesian Cumulative Growth Model," PSL Quarterly Review, Economia civile, vol. 69(276), pages 49-75.
    22. repec:sos:sosjrn:170312 is not listed on IDEAS
    23. Hein, Eckhard. & Mundt, Matthias., 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 994709323402676, International Labour Organization.
    24. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 9(1), pages 151-174, February.
    25. José Gabriel Palma, 2014. "Latin America's socail imagination since 1950. From one type of 'absolute certainties' to another - with no (far more creative)'uncomfortable uncertainties' in sight," Cambridge Working Papers in Economics 1416, Faculty of Economics, University of Cambridge.

    More about this item

    Keywords

    Ideology; Neo-liberalism; Foucault; Causes of financial crisis; Investment; Risk; Income distribution; Rent-seeking;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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