28. SNA 2008, p. 99.
29. Ibid.
30. In the 1980s, a textbook on national income accounting boldly asserted that because roughly half the female adult population is working in the household, ‘anything up to one-quarter of all production does not get recorded in the accounts’. G. Stuvel, National Accounts Analysis (Basingstoke: Macmillan, 1986), p. 29. Stuvel argued that household work is production and that something is missing. This raises a curious point that is redolent of Marx. If a single man employs a houseworker, her salary would, of course, be part of GDP (as long as it was paid legally). However, if he married her and she continued doing exactly the same work as before, but now as a married ‘housewife’, her work would no longer contribute to GDP.
31. SNA 2008, p. 99.
32. The recommended method for imputing rents is given thus: ‘Households that own the dwellings they occupy are formally treated as owners of unincorporated enterprises that produce housing services consumed by those same households. When well-organized markets for rented housing exist, the output of own-account housing services can be valued using the prices of the same kinds of services sold on the market in line with the general valuation rules adopted for goods or services produced on own account. In other words, the output of the housing services produced by owner occupiers is valued at the estimated rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighborhood amenities, etc. as well as the size and quality of the dwelling itself. The same figure is recorded under household final consumption expenditures. In many instances, no well-organized markets exist and other means of estimating the value of housing services must be developed.’ (SNA 2008, p. 109.)
33. For the US, this can be seen by comparing growth rates of GDP and of imputed rental of owner-occupied housing (Bureau of Economic Analysis, US Department of Commerce, ‘Imputed rental of owner-occupied housing’, table 7.12, line 154, last revised on 3 August 2016; accessed 13 March 2017).
34. SNA 2008, p. 48.
35. https://www.istat.it/it/files/2015/12/Economia-non-osservata.pdf?title=Economia+non+osservata+-+04%2Fdic%2F2015+-+Testo+integrale+con+nota+metodologica.pdf
36. S. Merler and P. Hüttl, ‘Welcome to the dark side: GDP revision and the non-observed economy’, Bruegel, 2 March 2015: http://bruegel.org/2015/03/welcome-to-the-dark-side-gdp-revision-and-the-non-observed-economy/
37. SNA 2008, p. 150.
38. Quoted in P. A. Samuelson and W. D. Nordhaus, Economics, 13th edn (New York: McGraw-Hill, 1989), p. 75.
4. FINANCE: A COLOSSUS IS BORN
1. R. Sahay, M. Cihak, P. N’Diaye, A. Barajas, R. Bi, D. Ayala, Y. Gao, A. Kyobe, L. Nguyen, C. Saborowski, K. Svirydzenka and S. Reza Yousefi, ‘Rethinking financial deepening: Stability and growth in emerging markets’, IMF Staff Discussion Note SDN/15/08 (May 2015): https://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf
2. C. W. Park and M. Pincus, ‘Internal versus external equity funding sources and early response coefficients’, Review of Quantitative Finance and Accounting, 16(1) (2001), pp. 33–52: https://doi.org/10.1023/A:1008336323282; T. Hogan and E. Hutson, ‘Capital structure in new technology-based firms: Evidence from the Irish software sector Centre’, Financial Markets Working Paper series WP-04-19 2004, University College Dublin School of Business, Centre for Financial Markets.
3. C. Furse, ‘Taking the long view: How market-based finance can support stability’, speech at Chartered Institute for Securities and Investment, 28 March 2014: http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech718.pdf; Z. Moradi, M. Mirzaeenejad and G. Geraeenejad, ‘Effect of bank-based or market-based financial systems on income distribution in selected countries’, Procedia Economics and Finance, 36 (2016), pp. 510–21; B-S. Lee, ‘Bank-based and market-based financial systems: Time-series evidence’, Pacific-Basin Finance Journal, 20(2) (2012), pp. 173–97.
4. R. Bacon and W. Eltis, Britain’s Economic Problem Revisited (Basingstoke: Macmillan, 1996), pp. 15–33.
5. H. Oliver Horne, A History of Savings Banks (Oxford: University Press, 1947), pp. 118–67.
6. M. da Rin and T. Hellmann, ‘Banks as catalysts for industrialization’, William Davidson Working Paper 443 (October 2001): https://deepblue.lib.umich.edu/bitstream/handle/2027.42/39827/wp443.pdf?sequence=3
7. J. Schumpeter, ‘The theory of economic development’, Harvard Economic Studies, 46 (1934); A. Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, MA: Belknap Press, 1962).
8. L. Akritidis, ‘Improving the measurement of banking services in the UK national accounts’, Economic & Labour Market Review, 1(5) (2007), pp. 29–37.
9. L. Fioramonti, Gross Domestic Problem (London: Zed Books, 2013), p. 111.
10. B. Sturgess, ‘Are estimates of the economic contribution of financial services reliable?’, World Economics 18(1) (2017), pp. 17–32.
11. The seller hopes that by the time he or she has to deliver the securities to the buyer the price will have fallen. The securities can then be bought at the new (lower) price and sold to the buyer at the contracted old (higher) price. The shorter pockets the difference between the two prices.
12. J. Allen and M. Pryke, ‘Financialising household water: Thames Water, MEIF and “ring-fenced” politics’, Cambridge Journal of Regions, Economy & Society, 6 (2013), pp. 419–39.
13. L. A. Stout, ‘Why the law hates speculators: Regulation and private ordering in the market for OTC derivatives’, Duke Law Journal, 48(4) (1999), pp. 701–86.
14. S. Strange, International Monetary Relations (Oxford: University Press, 1976), p. 180.
15. B. Eichengreen, The European Economy since 1945: Coordinated Capitalism and Beyond (Princeton, NJ: University Press, 2008), p. 76.
16. C. A. E. Goodhart, ‘Competition and credit control’, Financial Markets Group London School of Economics, special paper 229 (2014).
17. N. Ruggles and R. Ruggles, ‘Household and enterprise saving and capital formation in the United States: A market transactions view’, Review of Income and Wealth, 38(2) (June 1992), pp. 119–63.
18. M. McLeay, A. Radia and R. Thomas, ‘Money creation in the modern economy’, Bank of England Quarterly Bulletin, Q1 2014, pp. 1–14.
19. Competition Commission, ‘The supply of banking services by clearing banks to small and medium-sized enterprises: A report on the supply of banking services by clearing banks to small and medium-sized enterprises within the UK’ (2002), summary online at: http://webarchive.nationalarchives.gov.uk/20111202184328/http://www.competition-commission.org.uk/rep_pub/reports/2002/462banks.htm
20. B. Christophers, Banking Across Boundaries (Chichester: Wiley-Blackwell, 2013), p. 38.
21. Eichengreen, The European Economy since 1945.
22. J. M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 59.
23. J. M. Keynes, ‘Evidence to the Royal Commission on lotteries and betting’ (1932), p. 400, quoted in Barba and de Vivo, ‘An “unproductive labour” view of finance’, p. 1492: http://doi.org/doi:10.1093/cje/bes048
24. Ibid.
25. Keynes, General Theory of Employment, p. 159.
26. H. P. Minsky, ‘The Financial instability hypothesis: An interpretation of Keynes and an alternative to “standard” theory” ’, Challenge, 20(1) (1977), pp. 20–27.
27. L. Randall Wray and Y. Nersisyan, ‘Understanding Money and Macroeconomic Policy’, in M. Jacobs and M. Mazzucato (eds), Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth (Chichester: Wiley-Blackwell, 2016).
28. H. P. Minsky, Stabilizing an Unstable Economy (New Haven and London: Yale University Press, 1986), p. 369.
29. J. M. Keynes, ‘Proposals for an International Clearing Union’, April 1943, reprinted in J. K. Horsefield, The International Monetary Fund 1945–1965: Twenty Years of International Monetary Cooperation (Washington, DC: IMF, 1969), pp. 19–36.
30. A. Turner, Economics A
fter the Crisis: Objectives and Means (Boston, MA: MIT Press, 2013), p. 18.
31. E. Fama, ‘Efficient capital markets: A review of theory and empirical work’, Journal of Finance, 25(2) (1970).
32. M. Mazzucato and A. Shipman, ‘Accounting for productive investment and value creation’, Industrial and Corporate Change, 23(4) (2014), pp. 1059–85: http://doi.org/10.1093/icc/dtt037
33. B. Cournède and O. Denk, ‘Finance and economic growth in OECD and G20 countries’, OECD Economics Department Working Papers no. 1223 (2015).
34. P. Hill, ‘The Services of Financial Intermediaries, or FISIM Revisited’, paper presented to the Joint UNECE/Eurostat/ OECD Meeting on National Accounts, Geneva, 30 April–3 May 1996: http://www.oecd.org/dataoecd/13/62/27900661.pdf
35. https://www.federalreserve.gov/boarddocs/speeches/2004/20040220/
36. Bank of England, Financial Stability Report, 30 (December 2011), p. 16; available at https:www.bankofengland.co.uk/media/boe/files/financial-stability-report/2011/december-2011
37. Ibid.
38. Lavoie, Introduction to Post-Keynesian Economics.
39. http://www.bbc.co.uk/news/uk-37873825
40. Using OECD data we can see that the budget surplus in the UK was 0.72 in 1990; 1.11 in 2000; and 0.39 in 2001. In the US it was 0 in 1999, 0.8 in 2000.
41. C. Borio, M. Drehmann and K. Tsatsaronis, ‘Anchoring countercyclical capital buffers: The role of credit aggregates’, BIS Working Paper no. 355 (November 2011).
42. See A. Glyn, Capitalism Unleashed: Finance, Globalization and Welfare (Oxford: University Press, 2006), p. 53; almost 80 per cent of the total increase in US demand from 1995 to 2000 is represented by household spending on consumption and residential investment.
43. A. Barba and M. Pivetti, ‘Rising household debt: Its causes and macroeconomic implications – a long-period analysis’, Cambridge Journal of Economics, 33(1) (2009), pp. 113–37.
44. Glyn, Capitalism Unleashed, p. 7.
45. T. Piketty, Capital in the Twenty-First Century (Cambridge, MA: Belknap Press, 2014), p. 438.
46. Source: A. Haldane, Labour’s Share (London: TVC, 12 November 2015), p. 32, adapted from J. P. Pessoa and J. Van Reenen, ‘The UK productivity and jobs puzzle: Does the answer lie in labour market flexibility?’, Centre for Economic Performance Special Paper 31 (2013), compared to 65–70 per cent during similar periods at the end of the 1960s and during the 1980s.
47. Source: author’s elaboration from: piketty.pse.ens.fr/capital21c
48. https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp210-economy-one-percent-tax-havens-180116-summ-en_0.pdf
49. Source: author’s elaboration on OECD data.
50. See A. Greenspan and J. Kennedy, Estimates of Home Mortgage Originations, Repayments, and Debt on One-to-Four-Family Residences, Finance and Economic Discussion Series 2005-41 (Washington, DC: Board of Governors of the Federal Reserve System, 2005). Greenspan and Kennedy (p. 5) define mortgage equity extraction as ‘the extraction of equity on existing homes as the discretionary initiatives of home owners to convert equity in their homes into cash by borrowing in the home mortgage market’.
51. https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/01-05-housing.pdf
52. Source: adapted from Table 1 in Barba and Pivetti, ‘Rising household debt’.
53. Source: Federal Reserve, 2004 Survey of Consumer Finances.
54. C. Crouch, ‘Privatised Keynesianism: An unacknowledged policy regime’, British Journal of Politics and International Relations, 11(3) (August 2009), pp. 382–99.
55. Ibid., p. 390.
5. THE RISE OF CASINO CAPITALISM
1. H. Minsky, ‘Reconstituting the United States’ financial structure’, Levy Economics Institute Working Paper no. 69 (1992).
2. http://www.economist.com/blogs/economist-explains/2016/02/economist-explains-0
3. R. Foroohar, Makers and Takers (New York: Crown, 2016), p. 7.
4. H. P. Minsky, ‘Finance and stability: The limits of capitalism’, Levy Economics Institute Working Paper no. 93 (1993).
5. F. Grigoli and A. Robles, ‘Inequality overhang’, IMF Working Paper 17/76, 28 March 2017; R. Wilkinson and H. Pickett, The Spirit Level (London: Penguin, 2009).
6. W. Churchill, ‘WSC to Sir Otto Niemeyer, 22 February 1925’, Churchill College, Cambridge, CHAR 18/12A-B.
7. Bank of England database, ‘Three centuries of macroeconomic data’: http://www.bankofengland.co.uk/research/Pages/onebank/threecenturies.aspx
8. Data in this sentence from House of Commons Library reports – Standard Note SN/EP/06193 (Gloria Tyler, 25.2.15) and Briefing Paper 01942 (Chris Rhodes, 6.8.15). The exact figures in Eurostat for Financial and Insurance Activities as a per cent of total value added are as follows: 1995: 6.3 per cent; 2000: 5.1 per cent; 2009: 9.1 per cent; 2015: 7.2 per cent. Or as percentage of GDP: 1995: 5.7 per cent; 2000: 4.6 per cent; 2009: 8.3 per cent; 2015: 6.5 per cent.
9. Source: (2009–13 data extended by author) P. Alessandri and A. Haldane, ‘Banking on the State’ (Bank of England, 2009): http://www.bankofengland.co.uk/archive/Documents/historicapubs/speeches/2009/speech409.pdf
10. Source: Bureau of Economic Analysis, Matthew Klein’s calculations.
11. D. Tomaskovic-Devey and K. H. Lin, ‘Income dynamics, economic rents, and the financialization of the U.S. economy’, American Sociological Review, 76(4) (August 2011), pp. 538–59. The figure for 2014 is similar to what it was in 2009.
12. Source: Bureau of Economic Analysis, adapted from Tomaskovic-Devey and Lin, ‘Income dynamics, ecnomic rents, and the financialization of the U.S. economy’.
13. https://www.ici.org/pdf/2015_factbook.pdf
14. Asset Management in the UK, The Investment Association Annual Survey: http://www.theinvestmentassociation.org/assets/files/research/2016/20160929-amsfullreport.pdf
15. http://www.bbc.co.uk/news/business-37640156
16. http://www.knightfrank.com/wealthreport
17. http://www.businessinsider.com/chart-stock-market-ownership-2013-3?IR=T
18. https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2015-09-02
19. https://www.ft.com/content/14cda94c-5163-11e5-b029-b9d50a74fd14
20. http://www.agefi.fr/sites/agefi.fr/files/fichiers/2016/07/bcg-doubling-down-on-data-july-2016_tcm80-2113701.pdf
21. http://uk.businessinsider.com/richest-hedge-fund-managers-in-the-world-2016-3
22. G. Morgenson, ‘Challenging private equity fees tucked in footnotes’, New York Times, 17 October 2015: https://www.nytimes.com/2015/10/18/business/challenging-private-equity-fees-tucked-in-footnotes.html
23. http://www.wsj.com/articles/kkr-to-earn-big-payout-from-walgreen-alliance-boots-deal-1420068404
24. B. Burrough and J Helyar, Barbarians at the Gate: The Fall of RJR Nabisco, rev. edn (New York: HarperCollins, 2008).
25. G. Moran, ‘Urine lab flaunted piles of gold’, San Diego Union-Tribune, 24 October 2015; J. Montgomery, ‘Bankruptcy court must clarify Millennium Labs fraud release’, Law 360, 20 March 2017.
26. Barba and de Vivo, ‘An “unproductive labour” view of finance’ p. 1491.
27. A. Hutton and E. Kent, The Foreign Exchange and Over-the-counter Interest Rate Derivatives Market in the United Kingdom (London: Bank of England, 2016), p. 225.
28. Bank for International Settlements, Basel III phase-in arrangements: http://www.bis.org/bcbs/basel3/basel3_phase_in_arrangements.pdf
29. Jordan Weissmann, ‘How Wall Street devoured corporate America’, The Atlantic, 5 March 2013: https://www.theatlantic.com/business/archove/2-13/03/how-wall-street-devoured-corporate-america/273732/
30. L. Randall Wray, Modern Money Theory (Basingstoke: Palgrave Macmillan, 2012), pp. 76–87.
31. Empirical groundwork in Lester Thurow, Generating Inequality (New York: Basic Books, 1975), ch. 6, pp. 129–54.
32. Source: Federal Reserve Bank of St Louis, author’s elabora
tion: https://fred.stlouisfed.org/series/FBCOEPQ027S#0
33. Barba and de Vivo, ‘An “unproductive labour” view of finance’, pp. 1490–91.
34. Ibid., p. 1491.
35. Andy Verity, ‘Libor: Bank of England implicated in secret recording’, BBC, 10 April 2017: http://www.bbc.co.uk/news/business-39548313
36. Barba and de Vivo, ‘An “unproductive labour” view of finance’, p. 1489.
37. T. Philippon, ‘Finance vs Wal-Mart: Why are financial services so expensive?’, in A. Blinder, A. Lo and R. Solow (eds), Rethinking the Financial Crisis (New York: Russell Sage Foundation, 2012), p. 13: http://www.russellsage.org/sites/all/files/Rethinking-Finance/Philippon_v3.pdf
38. John C. Bogle, ‘The arithmetic of “all-in” investment expenses’, Financial Analysts Journal, 70(1) (2014), p. 18.
39. Ibid., p. 17.
40. John C. Bogle, The Clash of the Cultures: Investment vs. Speculation (Hoboken, NJ: John Wiley and Sons, 2012), p. 8.
41. Ibid., p. 2.
42. https://www.ft.com/content/ab1ce98e-c5da-11e6-9043-7e34c07b46ef
43. https://www.nytimes.com/2016/12/10/business/dealbook/just-how-much-do-the-top-private-equity-earners-make.html
44. A. Metrick and A. Yasuda, ‘The economics of private equity’, Review of Financial Studies, 23(6) (2011), pp. 2303–41: https://doi.org/10.1093/rfs/hhq020
45. If ratio of proceeds from PE investments to public investment is > 1, PE is considered superior. Source: Journal of Finance, 69 (5) (October 2014), p. 1860.
46. J. M. Hill, ‘Alpha as a net zero-sum game: How serious a constraint?’, Journal of Portfolio Management, 32(4) (2006), pp. 24–32; doi:10.3905/jpm.2006.644189
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