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Economic Development and Financial Instability

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376 Pages
English

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A fascinating collection of essays on financial crisis by one of the most eminent post-Keynesian scholars active today.


Jan A. Kregel is considered to be “the best all-round general economist alive” (G. C. Harcourt). This is the first collection of his essays dealing with a wide range of topics reflecting the incredible depth and breadth of Kregel’s work. These essays focus on the role of finance in development and growth. Kregel has expanded Minsky’s original postulate that in capitalist economies stability engenders instability in international economy, and this volume collect’s Kregel’s key works devoted to financial instability, its causes and effects. The volume also contains Kregel’s most recent discussions of the Great Recession beginning in 2008.


Foreword by G. C. Harcourt; Publication History; I. Theoretical Discussions; 1. Financial Markets and Economic Development: Myths and Institutional Reality; 2. External Financing for Development and International Financial Instability; 3. Capital Flows: Globalization of Production and Financing Development; 4. Some Risks and Implications of Financial Globalization for National Policy Autonomy; 5. Two Views on the Obstacles to Development; 6. Can We Create a Stable International Financial Environment that Ensures Net Resource Transfers to Developing Countries?; 7. Natural Instability of Financial Markets; 8. Trying to Serve Two Masters: The Dilemma of Financial Regulation; II. Finance for Development; 9. East Asia Is Not Mexico: The Difference Between Balance of Payments Crises and Debt Deflations; 10. “Yes ‘IT’ Happened Again”: The Minsky Crisis in Asia; 11. Financial Liberalization and Domestic Policy Space: Theory and Practice with Reference to Latin America; 12. Derivatives and Global Capital Flows: Applications to Asia; 13. Was There an Alternative to Brazilian Crisis?; 14. An Alternative View of the Argentine Crisis: Structural Flaws in Structural Adjustment Policy; 15. The Discrete Charm of the Washington Consensus; III. The Crisis in the US and the EU; 16. Alternative Economic Analyses of German Monetary and Economic Unification: Monetarist and Post Keynesian; 17. Currency Stabilisation through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?; 18. Minsky’s “Cushions of Safety,” Systemic Risk and the Crisis, in the Subprime Mortgage Market; 19. Why Don’t the Bailouts Work? Design of a New Financial System versus a Return to Normalcy; 20. Is This the Minsky Moment for Reform of Financial Regulation?; 21. Debtors’ Crisis or Creditors’ Crisis? Who Pays for the European Sovereign and Subprime Mortgage Losses?; 22. Six Lessons from the Euro Crisis; 23. Minsky and the Narrow Banking Proposal: No Solution for Financial Reform; Index

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Published 15 October 2014
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EAN13 9781783083848
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Economic Development and Financial Instability
Anthem Other Canon Economics
Anthem Press and the Other Canon Foundation are pleased to present theAnthem Other Canon Economicsseries. The Other Canon – also described as ‘reality economics’ – studies the economy as a real object rather than as the behaviour of a model economy based on core axioms, assumptions and techniques. The series includes both classical and contemporary works in this tradition, spanning evolutionary, institutional and PostKeynesian economics, the history of economic thought and economic policy, economic sociology and technology governance, and works on the theory of uneven development and in the tradition of the German historical school.
Series Editors Erik S. Reinert – Chairman, The Other Canon Foundation, Norway and Tallinn University of Technology, Estonia Rainer Kattel – Tallinn University of Technology, Estonia Jan Kregel – University of Missouri, USA and Tallinn University of Technology, Estonia Wolfgang Drechsler – Tallinn University of Technology, Estonia
Editorial Board HaJoon Chang – University of Cambridge, UK Mario Cimoli – UNECLAC, Chile Jayati Ghosh – Jawaharlal Nehru University, India Steven Kaplan – Cornell University, USA and University of Versailles, Paris Jan A. Kregel – University of Missouri, USA and Tallinn University of Technology, Estonia BengtÅke Lundvall – Aalborg University, Denmark Richard Nelson – Columbia University, USA Keith Nurse – University of the West Indies Patrick O’Brien – London School of Economics and Political Science (LSE), UK Carlota Perez – Judge Institute, University of Cambridge, UK Alessandro Roncaglia – Sapienza University of Rome, Italy Jomo Kwame Sundaram – Food and Agriculture Organization of the United Nations
Other Titles in This Series
Bread, Politics and Political Economy in the Reign of Louis XV: Second Edition,by Steven L. Kaplan
Schumpeter’s Evolutionary Economics: A Theoretical, Historical and Statistical Analysis of the Engine of Capitalism, by Esben Sloth Andersen
National Systems of Innovation: Toward a Theory of Innovation and Interactive Learning, edited by BengtÅke Lundvall
Economic Development and Financial Instability
Selected Essays
Jan A. Kregel
Edited by Rainer Kattel Foreword by G. C. Harcourt
Anthem Press An imprint of Wimbledon Publishing Company www.anthempress.com
This edition first published in UK and USA 2014 by ANTHEM PRESS 75–76 Blackfriars Road, London SE1 8HA, UK or PO Box 9779, London SW19 7ZG, UK and 244 Madison Ave #116, New York, NY 10016, USA
Copyright © Jan A. Kregel 2014; foreword © G. C. Harcourt
The author asserts the moral right to be identified as the author of this work.
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.
British Library CataloguinginPublication Data A catalogue record for this book is available from the British Library.
Library of Congress CataloginginPublication Data A catalog record for this book has been requested.
ISBN13: 978 1 78308 382 4 (Hbk) ISBN10: 1 78308 382 4 (Hbk)
Cover design by Brit Pavelson.
Cover photo:Valor Econômico(http://www.valor.com.br).
This title is also available as an ebook.
Foreword G. C. Harcourt
Publication History
I.
C
Theoretical Discussions
O
N
TEN
TS
 1. Financial Markets and Economic Development: Myths and Institutional Reality  2. External Financing for Development and International Financial Instability  3. Capital Flows: Globalization of Production and Financing Development  4. Some Risks and Implications of Financial Globalization for National Policy Autonomy  5. Two Views on the Obstacles to Development  6. Can We Create a Stable International Financial Environment that Ensures Net Resource Transfers to Developing Countries?  7. Natural Instability of Financial Markets  8. Trying to Serve Two Masters: The Dilemma of Financial Regulation
II. Finance for Development  9. East Asia Is Not Mexico: The Difference between Balance of Payments Crises and Debt Deflations 10. Yes, “IT” Happened Again: The Minsky Crisis in Asia 11. Financial Liberalization and Domestic Policy Space: Theory and Practice with Reference to Latin America 12. Derivatives and Global Capital Flows: Applications to Asia 13. Was There an Alternative to the Brazilian Crisis? 14. An Alternative View of the Argentine Crisis: Structural Flaws in Structural Adjustment Policy 15. The Discrete Charm of the Washington Consensus
vii
i
x
3 15 41
63 75
85 99 119
135 153
167 181 199
215 241
vi
ECONOMIC DEVELOPMENT AND FINANCIAL INSTABILITY
III. The Crisis in the US and the EU
16. Alternative Economic Analyses of German Monetary and Economic Unification: Monetarist and Post Keynesian
17. Currency Stabilization through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?
18. Minsky’s “Cushions of Safety,” Systemic Risk and the Crisis in the Subprime Mortgage Market
19. Why Don’t the Bailouts Work? Design of a New Financial System versus a Return to Normalcy
20. Is This the Minsky Moment for Reform of Financial Regulation?
21. Debtors’ Crisis or Creditors’ Crisis? Who Pays for the European Sovereign and Subprime Mortgage Losses?
22. Six Lessons from the Euro Crisis
23. Minsky and the Narrow Banking Proposal: No Solution for Financial Reform
Index
259
269
281
297
309
325
337
343
349
FO
R
EWO
R
D
I am delighted and honoured in equal measure to write the Foreword to this fine selection of Jan Kregel’s essays. As I wrote in my remarks when Jan and I were the corecipients of the 2011 Veblen Commons Award, “I regard Jan as the best allround general economist alive” (Economic IssuesJournal of , XLV, June 2011, 261). I have been nagging him for years to bring out a volume (preferably volumes) of his essays for surely, in his case, the whole is greater than the sum of the parts, splendid though each part is. So many thanks to Erik Reinert and Rainer Kattel for putting together and editing the present selection. Jan is steeped in the history of our subject. He has an intimate knowledge and understanding of the work of past greats and the relevance of their contributions to their times and ours. Jan has an especially deep understanding of the nature of money and finance, and of the institutions associated with them and of the indissoluble relationship between them and the real economy, whether in developed or developing economies. He couples this with a flair for designing humane, realistic policies, in the process bringing out clearly the shortcomings of existing institutions and policies in a wide variety of settings. Jan has devoted his life to teaching – he is one of the clearest and most inspiring lecturers I have ever heard – to an aweinspiring amount and range of research, including seminal books which may – should – become classics, and to working in international policy institutions. Surely he is the complete political economist in the grand tradition of Keynes, one of his major mentors. The present selection illustrates well what I have written. I sincerely hope it will be widely read by teachers and their students and by key decision makers in international and national bodies tackling the massive problems of both developing and developed worlds, now so intertwined as to make essential, package deals of policies erected on sound theoretical foundations such as those that have been provided by Jan Kregel over so many years.
G. C. Harcourt Emeritus Reader in the History of Economic Theory, Cambridge;Emeritus Fellow, Jesus College, Cambridge; Professor Emeritus,Adelaide; now Visiting Professorial Fellow, UNSW, Sydney. January 2014
PUBLICATION HISTORY
The editor and Anthem Press would like to kindly acknowledge the original publishers of the following essays. Permission has been sought for their inclusion in the present volume.
“Financial Markets and Economic Development: Myth and Institutional Reality,” inThe Evolution of Economic Institutions: A Critical Reader,edited by Geoffrey Hodgson, Cheltenham, E. Elgar, pp. 145–59.
“External Financing for Development and International Financial Instability,” G24 Discussion Paper No. 32, October 2004.
“Capital Flows: Globalization of Production and Financing Development,” UNCTAD Review, 1994, pp. 23–38. Reprinted inInternational Capital Movements, edited by H. Singer, N. Hatti and R. Tandon, Delhi, B. R. Pub., 2002.
“Some Risks and Implications of Financial Globalization for National Policy Autonomy,” UNCTAD review, 1996.
“Two Views on the Obstacles to Development,”Social Research, vol. 71, no. 2, Summer 2004, pp. 279–92.
“Can We Create a Stable International Financial Environment that Ensures Net Resource Transfers to Developing Countries?”Journal of Post Keynesian Economics, vol. 26, no. 4, Summer 2004, pp. 573–90.
“Natural Instability of Financial Markets”, Levy Working Paper, 2007.
“Trying to Serve Two Masters: The Dilemma of Financial Regulation,” in B. Z. Cynamon,S. M. Fazzari, and M. Setterfield, eds,the Great Recession: The Struggle for Economic After Recovery and Growth, Cambridge: Cambridge University Press, 2013.
“East Asia Is Not Mexico: The Difference between Balance of Payments Crises and Debt Deflations”, in K. S. Jomo, ed.,Tigers in Trouble: Financial Governance, Liberalisation and Crises in East Asia, London: Zed Press, 1998, pp. 44–62.
“‘Yes “IT” Happened again’: The Minsky Crisis in Asia,” in R. Bellofiore and P. Ferri, eds,Financial Keyensianism and Market Instability, E. Elgar, 2000, pp. 194–212.
x
ECONOMIC DEVELOPMENT AND FINANCIAL INSTABILITY
“Financial Liberalization and Domestic Policy Space: Theory and Practice with Reference to Latin America,” in Arestis, P. and L. F. de Paula, eds,Financial Liberalization and Economic Performance in Emerging Countries, Basingstoke: Palgrave, 2008, pp. 9–25.
“Derivatives and Global Capital Flows: Applications to Asia,” Cambridge Journal of Economics, Nov. 1998, pp. 677–92, reprinted in Financier; Philadelphia; 2000.
“Was There an Alternative to Brazilian Crisis?”Brazilian Journal of Political Economy, 1999, vol. 19, no. 3.
“An Alternative View of the Argentine Crisis: Structural flaws in Structural Adjustment Policy,”Investigación económica, no. 243, 2003, pp. 15–49.
“The Discrete Charm of the Washington Consensus,”Post Keynesian EconomicsJournal of , 2008.
“Alternative Economic Analyses of German Monetary and Economic Unification: Monetarist and Post Keynesian,” in P. Davidson and J. A. Kregel, eds,Economic Problems of the 1990s, Upleadon, E. Elgar, 1991, pp. 122–33.
“Currency Stabilisation through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?”Eastern Economic Journal, vol. 25, no. 1, 1999, pp. 35–47.
“Minsky’s ‘Cushions of Safety,’ Systemic Risk and the Crisis in the Subprime Mortgage Market,”Finance and Common Good, nos 30–31, vols II–III, 2008, pp. 51–59.
“Why Don’t the Bailouts Work? Design of a New Financial System versus a Return to Normalcy,”Cambridge Journal of Economics, vol. 33, June 2009, pp. 653–63.
“Is This the Minsky Moment for Reform of Financial Regulation?” Levy Working Paper, 2010.
“Debtors’ Crisis or Creditors’ Crisis? Who Pays for the European Sovereign and Subprime Mortgage Losses?”, Levy Policy Brief, 2011.
“Six Lessons from the Euro Crisis”, Levy Policy Brief, 2012.
“Minsky and the Narrow Banking Proposal: No Solution for Financial Reform”, Levy Policy Brief, 2012.