What is the truth about the great recession and increasing inequality dialogues

Mario Morroni What Is the Truth About the Great Recession and Increasing Inequality? What Is the Truth About the Great Recession and Increasing Inequality? Mario Morroni What Is the Truth About the Great Recession and Increasing Inequality? Dialogues on Disputed Issues and Conflicting Theories Mario Morroni Department of Political Sciences University of Pisa Pisa, Italy ISBN 978-3-319-98620-3 ISBN 978-3-319-98621-0  (eBook) https://doi.org/10.1007/978-3-319-98621-0 Library of Congress Control Number: 2018951401 Translation with updates from the Italian language edition: Nulla è come appare Dialoghi sulle verità sommerse della crisi economica by Mario Morroni, © Imprimatur 2016 All Rights Reserved © Springer Nature Switzerland AG 2018 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Acknowledgements This book is an updated and revised edition of the Dialogues that were originally published in Italian (Nulla è come appare Dialoghi sulle verità sommerse della crisi economica, Imprimatur Editore, Reggio Emilia, 2016) I am very grateful to Eugenio Biagini, Peter Clarke and Elizabeth Garnsey for their encouragement and insightful help I deeply appreciate the invaluable comments on earlier versions of the Dialogues provided by Pietro Ferrari, Vladimiro Giacché, Maria Cristina Marcuzzo, Augusto Ninni, Alberto Pench, Marcello Ranucci and Elena Taverna I want to thank Janet Campbell, Dylan Macchiarini Crosson, Nick Garwood, Janet Henderson, Rossana Pagliolico McKeane and Martin Richards for careful reading and useful advice that have greatly improved the quality of the manuscript I acknowledge the support by the University of Pisa and by the Clare Hall College for Advanced Studies, University of Cambridge, which offered a stimulating research environment throughout the writing process Finally, Maria Cristina Acocella’s professional editorial assistance is gratefully appreciated v About this Book An anthropology student and three economists meet at an airport They are waiting in a departure lounge; their flight grounded by fog The student, who knows very little about economics, asks her three travelling companions a series of questions about increasing inequality, cutbacks to welfare systems, crisis management policies, the euro, environmental degradation and industrial policies enacted in the face of globalisation This is a rather lucky coincidence because nowadays it is rare for economists with different theoretical positions to be willing to engage in direct discussion with each other The protagonists debate the consequences of neoliberal economic policies that are based on the idea of efficient, self-regulating markets and that have been implemented over the last 30 years across the world by both right-wing and left-wing politicians The deep recession which followed the 2007–2008 financial crash has shown the fatal consequences of these policies and has encouraged the development of alternative visions The economic implications of these different visions emerge clearly in the discussions In their answers to the student’s questions, the three economists are obliged to avoid their usual abstract and specialist jargon This makes the discussion comprehensible to the reader who is not an economist but aims to get to the truth of the causes of recent economic events that have affected all of us, and that are often difficult to understand because of the mystification created by the use of jargon and political posturing Unlike most other writings on the Great Recession, the dialogue form has an advantage, in the words of Galileo, it ‘presents the arguments … as much vii viii     About this Book from one side as from the other’,1 highlighting the weak points of theories under discussions These nine dialogues have been used in public readings2 but can also be used to complement textbooks on macroeconomics and economic policy which usually omit, or else touch upon, very superficially, the theme of the recent economic crisis The first dialogue is about the sharply rising inequality over the last three decades within most advanced economies The second dialogue discusses speculative bubbles and why economists did not predict the crash of 2007– 2008 The third one concerns the policies of fiscal austerity and addresses the point that in macroeconomics, as in physics, nothing is what it may seem at first sight The fourth one deals with the consequences of rolling back welfare systems The fifth dialogue explores the roles of the state and markets The sixth one discusses the economic consequences of the very considerable German trade surplus and the euro crisis The seventh dialogue addresses the policies enacted to confront the crisis The eighth one deals with the problem of environmental degradation The last dialogue discusses the need to implement an industrial policy that favours innovation and safeguards the environment The dialogues can be read in any order according to the reader’s interests At the end of each chapter, there are notes that give references to sources and suggestions for further reading Definitions of the main economic concepts that are discussed in the dialogues are found in the Glossary Notes The quotation is taken from the subtitle of the famous Dialogue by Galilei (1632 in 1914)  Theatrical readings were presented in Catania University (June 2016), Genova University (November 2016) and Pisa University (May 2017) Reference Galilei, G (1632) Dialogo sopra i due massimi sistemi del mondo tolemaico, e copernicano; proponendo indeterminatamente le ragioni filosofiche, e naturali tanto per l’una, quanto per l’altra parte Firenze: Gianbattista Landini, (1914) English edition: Galilei, G (1914) Dialogues concerning two new sciences (trans: de Salvio, A., Crew, H.) New York: Macmillan Contents Prologue Increasing Inequality: First Dialogue The Failure to Predict the Great Recession: Second Dialogue 29 Why Fiscal Austerity?: Third Dialogue 47 Rolling Back the Welfare State: Fourth Dialogue 65 The State and the Market: Fifth Dialogue 77 The Gigantic German Trade Surplus and the Euro: Sixth Dialogue 105 Crisis Policy: Seventh Dialogue 143 Environmental Degradation: Eighth Dialogue 165 Industrial Policies: Ninth Dialogue 183 Afterword 191 Glossary 195 Index 199 ix Prologue The Protagonists Agatha is a professor of Economics at a British university Max is a professor of Economics and Finance at a university in the United States, as well as being a consultant to a multinational financial company Forrest has recently completed his Ph.D in Environmental Economics at the university where Agatha teaches Sarah is in the third year of her Ph.D in Anthropology at the same university as Forrest and Agatha AGATHA Hi, Max, nice to see you! I saw your name on the programme for the conference MAX Agatha, it’s great to see you! We seem to be on the same flight AGATHA You know, I often think of the old days, when we were both students and I remember those endless discussions we used to have after the lectures… MAX How could I forget? AGATHA I can’t believe that it was twenty years ago … now look at you, … impeccably dressed… that grey suit, really smart MAX Well, the years have flown by … although you haven’t changed a bit! AGATHA You know, I missed you when you left for the United States to your Ph.D MAX The first few months were rather hard, but it was an incredible experience in the States They reward talent and dedication there… AGATHA Hey look, we aren’t the only ones… Here comes Forrest, a colleague of mine, with his partner Sarah That couple over there: the casually © Springer Nature Switzerland AG 2018 M Morroni, What Is the Truth About the Great Recession and Increasing Inequality?, https://doi.org/10.1007/978-3-319-98621-0_1 2     M Morroni dressed guy with the strawberry blonde hair and that tall blonde with the vaguely oriental-looking blue jacket … They’re coming this way … FORREST Hi Agatha, wow, great to see you! Sarah has taken a few days’ leave to come with me AGATHA Great idea I thought you might be on this flight, Forrest Max, let me introduce you to Forrest and Sarah This is Max, a friend of mine from college … MAX … Yes, some years ago… AGATHA … And now he’s a professor of Economics and Finance in America FORREST Ah, yes, I know of you, pleased to meet you AGATHA Forrest has just got a grant at our university to research the economic impact of global warming MAX So Forrest, you are lucky enough to be a colleague of Agatha’s here in jolly old England? AGATHA Sarah’s studying anthropology and she’s a polyglot, as well as a really good climber, like Forrest … They go off to the Swiss Alps whenever they can SARAH I know the Alps well – they are the mountains of my childhood We both love trekking and cross country skiing AGATHA And you still sail, Max? MAX Yes, these days I’ve got a really fast catamaran When work permits, I go sailing on the lake with my wife I’m a freshwater economist, you know … SARAH I must confess I hadn’t heard of that sort of economist FORREST Well, in the States they talk about economists as being freshwater or saltwater SARAH But what does freshwater or saltwater have to with economics? FORREST Freshwater economists are those who teach at the universities near the Great Lakes The most famous of these is the University of Chicago, a stronghold of the neoliberals, on the shores of Lake Michigan The saltwater economists are those who work mainly at the various universities close to the Atlantic or Pacific coasts, and they belong to the various schools that are shaped, in one way or another, by the theories of John Maynard Keynes MAX … Saltwater fish… AGATHA … Yes, that’s right… as you well know, I’m a true saltwater economist, as you call it The Keynesian theories have proved their worth in the face of the great crash of 2008 Anyway, I can’t help but be a saltwater creature: you know how much I love the sea and swimming MAX Do you still spend your holidays on that splendid Tuscan island? AGATHA Yes, whenever I can I fly there with my husband and our two kids My grandparents are from there MAX It sure is a lot colder here than there SARAH Hey look outside! AGATHA Oh yes, the fog’s getting thicker! Industrial Policies     189 16 Mazzucato (2013) 17 Galbraith (2004, pp 69–72) 18 Zingales (2014, p 88) 19 Mazzucato (2013) 20 O’Sullivan et al (2013); Andreoni (2016); Mazzucato (2013, Chap 7); Celi et al (2018, Chap 9) 21 See Solow (2014) On economics as a moral science, see Atkinson (2009); Sandel (2013) References Acemoglu, D., Aghion, P., & Zilibotti, F (2006) Distance to frontier, selection and economic growth Journal of the European Economic Association, 4(1), 37–74 Andreoni, A (2016) Varieties of industrial policy: Models, packages ad transformation cycles In A Noman & J Stiglitz (Eds.), Efficiency, finance, and varieties of industrial policy New York: Columbia University Press Atkinson, A B (2009) Economics as a moral science Economica, Issue Supplement, 76, 791–804 Bertocco, G (2015) La crisi e le responsabilità degli economisti Milan: Francesco Brioschi Editore English edition: Bertocco, G (2017) Crisis and the failure of economic theory The responsibility of economists for the great recession Cheltenham: E Elgar Celi, G., Ginzburg, A., Guarascio, D., & Simonazzi, A (2018) Crisis in the European Monetary Union A core-periphery perspective London-New York: Routledge Chang, H.-J (2011) Industrial policy: Can we go beyond an unproductive confrontation? Annual World Bank Conference on Development Economics 2010 The World Bank, Washington, DC Chang, H.-J (2014) Economics: The user’s guide London: Penguin Books Dosi, G., Fagiolo, G., Napoletano, M., & Roventini, A (2013) Income distribution, credit and fiscal policies in an agent-based Keynesian model Journal of Economic Dynamics & Control, 37(8), 1598–1625 The Economist (2010, October 7) Smart work Special report – The World Economy EuroMemo Group (2015) What future for the European Union? Stagnation and polarisation or new foundations? EuroMemorandum 2015 European Economists for an Alternative Economic Policy in Europe www.euromemo.eu/ euromemorandum/euromemorandum_2015 Friedman, M., & Friedman, R (1980) Free to choose: A personal statement New York: Harcourt 190     M Morroni Galbraith, J K (2004) The economics of innocent fraud: Truth for our time London and New York: Allen Lane-Penguin Gerschenkron, A (1962) Economic backwardness in historical perspective Cambridge, Mass: Harvard University Press Lerner, J (2010, July 12) The proposer’s opening remarks The Economist Debate: “This house believes that industrial policy always fails” http://www.economist com Accessed Mar 2011 Mazzucato, M (2013) The entrepreneurial state London: Anthem Press O’Sullivan, E., Andreoni, A., López-Gómez, C., & Gregory, M (2013) What is new in the new industrial policy? A manufacturing systems perspectives Oxford Review of Economic Policy, 29(2), 432–462 OECD (2017) Global Value Chains (GVCs) http://www.oecd.org/sti/ind/global-value-chains.htm Accessed Jan 2018 Polanyi, K (1944) The great transformation The political and economic origins of our time Boston: Beacon Press 2nd edition 2001 Rodrik, D (2010, July 12) The opposition’s opening remarks The Economist Debate: “This house believes that industrial policy always fails” http://www economist.com Accessed Mar 2011 Rodrik, D (2017, November 6) Rescuing economics from neoliberalism Boston Review https://bostonreview.net/class-inequality/dani-rodrik-rescuing-economics-neoliberalism Accessed Nov 2017 Roubini, N., & Mihm, S (2010) Crisis economics A crash course in the future finance London: Penguin Books Sandel, M J (2013) Market reasoning as moral reasoning: Why economists should re-engage with political philosophy Journal of Economic Perspectives, 27(4), 121–140 Solow, R (2014) The one percent Journal of Economic Perspectives, 28(1), 243–248 Stigler, G (1986) The theory of price (4th ed.) Upper Saddle River, New Jersey: Prentice-Hall Wessner, C W., & Wolff, A (Eds.) (2012) Rising to the challenge: US innovation policy for global economy Washington: National Academy of Sciences Press Zingales, L (2014) Europa o no Sogno da realizzare o incubo da cui uscire Milan: Rizzoli Afterword These days, economists with very different theoretical perspectives rarely want to debate with each other The widespread tendency to evade discussion comes in part from the growing importance of publishing numerous articles in mainstream, high impact factor, academic journals (the ‘publish or perish’ world) These strong and increasing pressures to publish lead to tailoring of papers according to the ideological position of the editorial committees of mainstream journals This has two main consequences Innovative and non-mainstream papers are difficult to get published and authors follow the suggestions from their anonymous referees without question, so that the paper gets accepted These enormous pressures favour conformism and lead one to consider different perspectives a waste of time.1 This narrow-minded attitude may also be partly explained by the evolution of economics, which is becoming an increasingly specialized and fragmented discipline The investment needed to acquire complex analytical techniques can lead to an avoidance of the adoption of alternative methods, compared to those learned during the long years of apprenticeship No less important is the role of well-paid consultancies through which economists become aligned with and supportive of the interests of the big banks and multinational corporations which pay them In their published articles or papers, it is very rarely that they specify where the funding for their consultancies comes from Neither in their websites, nor in their CVs, they list paid consultancies Possible conflicts of interest remain hidden This leads to a loss of the sense of the common interest and to distrust of the experts.2 © Springer Nature Switzerland AG 2018 M Morroni, What Is the Truth About the Great Recession and Increasing Inequality?, https://doi.org/10.1007/978-3-319-98621-0 191 192     Afterword Conformism and the refusal to participate in real debate have led to a growing intolerance and the tendency to replace argument with insults Hence, significant damage has been done, because the comparison and verification of various hypotheses are the basis of scientific development It has not always been so From the end of World War II until the early '80s, there was respect towards those who espoused different ideas Two relevant examples are significant When John Maynard Keynes died, Hayek wrote of his staunch opponent: “[Keynes] was the only true big man I knew and for whom I had unbounded admiration.”3 The second example is Paul Samuelson Evidence from the Paul Samuelson archives suggests he really did nominate Joan Robinson for the Bank of Sweden Nobel Memorial Prize in Economics.4 The fact that he argued with her from the opposite side did not prevent him from appreciating her greatness as an economist Notes Frey (2003) calls this phenomenon ‘academic prostitution’ On the way in which mainstream approaches maintain their hegemony see Mitchell and Fazi (2017, p 176) On the link between widespread conformism among economists and increasing pressure to publish in major journals in order to get a tenure, see Krugman (2014, Sept 14); Kirman et al (2016, Oct 16) In the natural sciences the pressure to publish in top academic journals has effects that are no less worrisome The need to arrive at new results worthy of being published, accompanied by the inability of the referees of journals to replicate the laboratory experiments, led to the publication of a surprisingly high number of erroneous results: in some fields the false positives (the assertions that something is true when it is not) can reach 50 per cent While, the rate of false negatives (the assertions that a thing is not true when it is true) is very low See The Economist (2013, Oct 19) where they mention, among other things, the sensational case of the paper by Reinhart and Rogoff (2010), quoted in the third dialogue, devoted to austerity and the fiscal multiplier See the Second Dialogue and, in particular, notes 46 and 47 and the Seventh Dialogue, note 14 Hayek quoted in (Ruffolo 2006, p 80) On the clash between Hayek and Keynes see the considerations and references in Carabelli and De Vecchi (1999); Machlup (1999); Caldwell (2003, pp 176–181); Skidelsky (2006); and Wapshott (2011) Mirowski (2013, pp 22, 158) On the dispute concerning the theory of capital between Paul Samuelson and Joan Robinson, see the in-depth analysis by Harcourt (1972) For a broad and stimulating discussion of the various aspects of the theoretical work of Joan Robinson see Marcuzzo et al (1996) Afterword    193 References Caldwell, B (2003) Hayek’s challenge An intellectual biography of F.A Hayek Chicago: The University of Chicago Press Carabelli, A., & De Vecchi, N (1999) Where to draw the line? Keynes versus Hayek on knowledge, ethics and economics The European Journal of the History of Economic Thought, 6(2), 271–296 Frey, B S (2003) Publishing as prostitution? Choosing between one’s own ideas and academic failure Public Choice, 116(1/2), 205–223 Harcourt, G C (1972) Some controversies in the theory of capital Cambridge: Cambridge University Press Kirman, A P., Bassett, D., & Claveau, F (2016, October 16) Distinguished economist says economics has gone down a blind alley Traditional economics is mathematically sophisticated without representing the fundamental features of the macro-economy Evonomics.com.http://evonomics.com/macroeconomics-alan-kirman-blind-alley Accessed Nov 2016 Krugman, P (2014, September 14) How to get it wrong Blog, The New York Times.https://www.nytimes.com/2014/09/15/opinion/paul-krugman-how-toget-economic-policy-wrong.html Accessed Sept 2014 Machlup, F (1999) Friedrich von Hayek’s contribution to economics In P.J Boettke (Ed.), The legacy of Friedrich von Hayek Volume III: Economics Cheltenham: An Elgar Reference Collection, E Elgar Marcuzzo, M C., Pasinetti, L L., & Roncaglia, A (Eds.) (1996) The economics of Joan Robinson London: Routledge Mirowski, P (2013) Never let a serious crisis go to waste London: Verso Mitchell, W., & Fazi, T (2017) Reclaiming the state London: Pluto Press Reinhart, C., & Rogoff, K S (2010) Growth in a time of debt American Economic Review, Paper and Proceedings, 100(2), 573–578 Ruffolo, G (2006) Lo specchio del diavolo La storia dell’economia dal paradiso terrestre all’inferno della finanza Torino: Einaudi Skidelsky, R (2006) Hayek versus Keynes: The road to reconciliation In E Feser (Ed.), The Cambridge companion to Hayek Cambridge: Cambridge University Press http://www.skidelskyr.com/site/article/hayek-versus-keynes-the-road-to-reconciliation Accessed Apr 2016 The Economist (2013, October 19) Unreliable research Trouble at the lab Scientists like to think of science as self-correcting To an alarming degree, it is not Wapshott, N (2011) Keynes vs Hayek The clash that defined modern economics New York: Norton Glossary Adverse selection  may arise when informational asymmetries and pre-contractual opportunism lead to a selection that is adverse to one party’s interest Aggregate demand   total spending within an economy on final goods and services It is the sum of consumers’ expenditure, public expenditure, investment and export of good and services, less expenditure on imports of goods and services Automatic stabilisers   taxes and transfer payments that stabilise GDP without requiring policymakers to take action Balanced budget   a situation in which public expenditure equals income from taxes and other receipts Black swan   an event that comes as a surprise Bond   a financial instrument issued by a state, a bank or a firm Bonds are tradable Bondholders may be entitled to periodic payments in the form of interest and they are paid back at bonds’ maturity Corruption   consists in dishonestly using decisional power or privileged information to obtain advantages It involves a hidden exchange between two parties, which violates the law or codes of behaviour Creative destruction   the process of entrepreneurial innovation that destroys the existing industries Crowding-out effect   the process by which an increase in government borrowing and expenditure displaces private consumption and investment, because government borrowing tends to increase the interest rate paid by consumers and investors Current accounts   external transactions in goods and services of a country Deflation   the process of a reduction in the general price index Economies of scale   occur when a larger dimension of scale of a specific microeconomic unit leads to a lower total average cost of the product obtained © Springer Nature Switzerland AG 2018 M Morroni, What Is the Truth About the Great Recession and Increasing Inequality?, https://doi.org/10.1007/978-3-319-98621-0 195 196     Glossary Enforcement power   the ability to oblige the parties either to respect the contract or to pay the injured party compensation Eurobond   bond jointly underwritten by Eurozone states Exchange rate   the price at which currencies trade for one another in the market Externalities   consequences of an economic activity of one party that affect the revenue, the cost or the utility of another, without this being reflected in market prices, such as pollution (negative externality) or the pollination of surrounding crops by bees kept for honey (positive externality) Fiscal Compact   a chapter of the ‘Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG)’ (1st January 2013) According to the Fiscal Compact, public deficit must not exceed the 0.5 per cent of GDP for states with a debt-to-GDP ratio exceeding 60 per cent It is a strengthening of the budget-discipline rules contained in the 1997 ‘Stability and Growth Pact’ that establishes automatic sanctions for countries that violated the Maastricht Treaty parameters of the per cent deficit to GDP ratio and of the 60 per cent of the debt to GDP The Treaty was signed by the representatives of all member states of the European Union with the exception of the United Kingdom and the Czech Republic It has been ratified by the 25 signatories plus Croatia that joined the European Union in July 2013 The Fiscal Compact was not enacted as a Directive of the European Commission, nor consequently passed the scrutiny of the European Parliament Fiscal multiplier   a coefficient that measures the relationship between an increase in investment or in public spending, and the increase in national income Fiscal policy   changes in government taxes and spending GDP (Gross Domestic Product)   a measure of the total flow of goods and services produced by an economy over a specified time period Gig economy   a working model that is based on temporary positions and on-demand independent workers for short-term engagements (for instance, home delivery of ready meals, renting out a small room, designing websites, or driving their own car) Gini index   a coefficient that measures the degree of inequality in personal income This index ranges from to 100 (or from to on the decimal scale) If it is equal to 0, income is split equally and all receive an equivalent slice If it is equal to 100, one person gets everything Global supply chain   is characterised by various stages of the production process that are located in different countries by outsourcing and offshore activities Ideologies   shared frameworks of mental models, which groups of individuals possess on the basis of their interests Inflation   a process of increase in the average prices of goods and services Influence activity   the attempt to influence others’ decisions Under conflict of interest, the party holding information may misrepresent, distort or fail to report the information needed by the decision maker Influence activities may take place inside organisations, markets and political decision processes Glossary    197 Information asymmetry   a situation in which information is not shared equally between the two parties involved in an exchange It may bring about moral hazard or adverse selection Investment   is an expenditure of money or utilisation of resources that generates a potential flow of future benefits Market failures   situations in which markets fail to achieve efficient allocation Market failures are mainly due to asymmetric information, externalities and economies of scale Missing market  when a market does not exist and therefore trade does not take place even if some agents would be willing to buy or to sell these commodities Sources of missing markets include informational asymmetries, knowledge heterogeneities and adverse selection Moral hazard   when potential opportunistic actions chosen by one party after the contract are not observable and enforceable by the other party Moral hazard is a form of post-contractual opportunism Non-performing loans   a bank loan is considered non-performing when the borrower fails to pay the agreed instalments or interest within 90 days Perfect competition   a model of industrial structure in which agents are not able to influence market price, firms can enter and exit the industry without a cost, and outputs traded are homogeneous Perfect rationality   implies complete knowledge of all possible courses of actions and of the full list of possible outcomes, and complete information-processing abilities Under perfect rationality individuals are able to estimate all possible future payoffs consequent upon their actions Productivity   the relationship between the output of goods and services and the inputs of resources used to produce them Progressive tax   a tax that takes increasing proportions of income as income rises Propensity to consume   the fraction of additional income that is spent Propensity to save   the fraction of additional income that is saved Radical uncertainty   when individuals not know the future payoffs Regulatory capture   when a government agency becomes 'captured' by the interest of organisations it is supposed to regulate Rent-seeking strategy  a behaviour that improves the welfare of someone at the expense of the welfare of someone else Say’s law   supply creates its own demand, in other words, production results in an income that will always be entirely spent until it absorbs the whole production Solvency of a state   A state is solvent if it is able to meet all its financial commitments Sovereign default   the failure of a state to meet its financial commitments 198     Glossary Spread   difference between the interest rates on a bond between two countries In Europe, German bonds are generally used as the reference assets Subprime loan   a loan, especially to buy a house, to people who may not be able to pay it back Transaction costs   costs of exchange, i.e the costs of using markets to satisfy economic requirements Transaction costs encompass contract, information-knowledge and enforcement costs Index A Adverse selection 68, 193, 195 Austerity 6, 15, 39, 47, 49, 50, 52–59, 88, 89, 115, 116, 122, 125, 126, 128, 144, 147, 148, 192 Automatic stabiliser 109, 193 Budget 47, 48, 53, 54, 58, 83, 121, 123, 128, 144, 145, 148, 149, 152, 187, 193, 194 Bundesbank 121, 124, 128 C B Bank of England 146 Banks 6, 7, 30–40, 48, 54, 55, 70, 72, 79–83, 87, 88, 95, 106, 108, 114, 115, 117, 119, 121–125, 127, 128, 130–132, 145–147, 149–153, 156–158, 176, 191–193, 195 Basic income 17, 70–72 Black swans 29, 33, 39, 193 Bonds 14, 30, 54, 77, 111, 114, 145, 147, 149, 150, 152, 157, 158, 193, 194, 196 Brexit 13, 14, 125, 130 Bubbles 6, 15, 16, 29, 35–37, 39, 42, 56, 107, 111, 112, 155 speculative 5, 6, 33, 35, 36, 42, 80–82, 107 Capitalism 15, 81, 82, 93–95, 153, 172 financial 82 Capital movements 32, 155 Capitalist system 33, 79, 81, 169, 184, 186 China 5, 82, 105 Circular economy 171, 175, 176 Climate change 166 Coase theorem 167, 168, 177 Cognitive anomalies 85, 86 Common currency 120, 123, 126 Commons 9, 37, 49, 80, 81, 90–93, 97, 113, 118, 120, 123, 126, 128, 131, 145, 146, 166, 175, 177, 191 common-pool resources 90, 91 tragedy of 91, 97 Compensatory mechanisms 114, 131 © Springer Nature Switzerland AG 2018 M Morroni, What Is the Truth About the Great Recession and Increasing Inequality?, https://doi.org/10.1007/978-3-319-98621-0 199 200     Index Competitiveness 54, 56, 67, 88, 107–112, 115, 118–123, 126, 127, 132, 187 Consumption 5, 6, 16, 48, 50, 51, 57, 58, 70, 107, 143, 144, 148, 150, 153, 155, 165, 166, 168, 169, 171, 173, 174, 176, 187, 193 Corruption 12, 56, 82, 83, 88, 185, 193 Creative destruction 31, 32, 185, 193 Crisis vii, viii, 3, 5–7, 29, 30, 32–39, 41, 52, 54–56, 65, 77, 79, 83, 87–90, 106–109, 111, 113, 114, 117, 118, 120, 122, 125, 129, 144, 145, 147–149, 151, 157, 165, 166, 168, 170, 173, 183, 184 financial 5, 7, 29, 31, 35, 47, 57, 65, 66, 108, 113, 119, 129, 147, 171 Crowding-out effect 148, 193 Current accounts 109, 113, 115, 119, 121, 122, 131, 193 deficit 109 surplus 106, 109, 111, 121 D Debt 5, 6, 8, 33, 39, 47, 48, 50, 51, 53–57, 65, 66, 69, 72, 88, 105, 107–109, 111, 114, 115, 117, 118, 123, 124, 126, 127, 129–131, 145, 147, 149–152, 157, 165, 170, 172, 175, 194 mutualisation 129, 131 public 47, 48, 50, 51, 53–57, 65, 66, 69, 72, 88, 105, 109, 114, 115, 117, 118, 123, 124, 126, 127, 129–131, 145, 147, 149, 151–153, 165, 172, 175 restructuring 153 sovereign 88, 151, 153 Deflation 118, 119, 121–123, 126, 151, 193 De-growth 52, 170–175 Demand 9, 35, 54–56, 68, 72, 105, 106, 111–113, 115, 119–123, 143, 147, 150, 151, 153–155, 158, 168, 172, 175, 183, 194, 195 aggregate 9, 13, 33, 57, 129, 143, 144, 152, 170, 183, 188, 193 for goods and investments 105, 110, 143, 144 for labour 13, 123, 143, 144, 184 Democracy 12, 14, 16, 88, 90, 93, 114, 122, 125, 174 Deregulation 12, 15, 34, 36, 39, 78–81, 83, 94 Development 9, 15, 80, 92, 93, 106, 115, 155, 166, 169–171, 173, 185, 187, 192 Dynamic Stochastic General Equilibrium (DSGE) models 40 E Economic policy 20, 78, 107, 108, 126, 155, 174 redistributive 16, 155 Economies of scale 67, 70, 86, 186, 193, 195 Education 6, 8–11, 17, 56, 78, 173, 174 Employment 7, 8, 11, 51–53, 105, 119, 145, 152, 154, 157, 158, 169, 170, 172, 173, 183, 187 Environment 86, 92, 112, 123, 166, 169, 172, 176, 183 environmental crisis 90, 165, 166, 183 environmental degradation 165, 168, 172, 176, 177 Index    201 environmental sustainability 166, 172, 173, 175, 176 Euro 107– 109, 111, 113–115, 117, 120, 122–128, 130, 131, 134, 146, 150, 151 Eurobonds 151, 152, 157, 194 European Central Bank 54, 88, 114, 115, 117, 119, 122, 124, 131, 145, 150, 153, 156–158 European Commission 39, 56, 88, 117, 121, 129, 144, 194 European Investment Bank 114 European Union 53, 54, 73, 105, 112, 114, 116, 117, 120–123, 125–131, 133, 145, 146, 152, 170, 171, 194 Eurozone 15, 48, 53, 54, 108, 109, 112–116, 119–128, 131, 132, 134, 145, 151–153, 156, 158, 194 Exchange rates 109, 112–114, 117, 119–122, 126, 130, 194 Exports 56, 105, 108, 109, 111, 113, 115, 119, 120, 127, 128, 193 Externalities 86, 96, 167, 194, 195 F Federal Reserve 20, 29, 30, 33–35, 37, 145, 149, 150 Financialization 7, 80, 173, 174 Finland 56, 116, 119 Fiscal Compact 53, 54, 194 Fiscal policy 52, 53, 79, 111, 113, 131, 134, 144, 145, 147, 148, 150, 151, 153, 155–157, 194 Fiscal union 114, 124 Flexibility 7, 69, 78, 106, 112, 120, 128, 129, 143, 144, 171 labour 7, 143, 144 France 17, 95, 112, 115, 134, 146, 158, 169 G German monetary union 117 Germany 7, 53, 54, 71, 78, 105–109, 111–113, 115–118, 120–122, 124, 127–133, 147, 150, 152, 155, 158 Gig economy 71, 194 Gini index 18, 194 Global supply chains 183, 184, 194 Global warming 2, 166 Globalisation 7, 14, 15 Great Depression 30, 34, 77, 79, 170 Great Recession 5, 15, 16, 19, 34, 35, 65, 116 Greece 56, 115, 120, 129, 130 Green technologies 183 Gross Domestic Product (GDP) 11, 18, 19, 29, 33, 51–57, 65, 67, 72, 90, 94, 111, 117, 121, 128, 129, 134, 145, 146, 148, 149, 151–154, 158, 165, 169, 171, 173–175, 187, 193, 194 Growth 3, 7–9, 11, 13, 15, 17, 18, 30, 37, 47, 50–52, 55–57, 65, 72, 79, 80, 88, 89, 106, 109–111, 114, 116–118, 120, 122, 124, 129, 131, 132, 143, 144, 146, 148, 149, 153–155, 157, 165, 166, 169–176, 183, 184, 187, 188, 194 economic 3, 8, 9, 11, 13, 15, 17, 30, 37, 55, 56, 80, 88, 89, 143, 144, 146, 148, 149, 157, 165, 170, 172, 173, 176, 184, 187 sustainable 165, 172, 173 H Happiness 169 Harrod-Domar models 170, 177 Healthcare 38, 66–72, 172 insurance 67–72 202     Index services 6, 17, 67, 68, 78, 173 I Ideology 17, 37, 78, 171, 177, 194 Immigration 12–14, 111 Imports 55, 105, 111, 113, 115, 128, 193 Income 5–12, 14, 16–19, 48, 50, 51, 53, 57, 58, 66, 70–72, 118, 153, 154, 157, 169, 172, 193–195 India 5, 169 Industrial policies 112, 114, 122, 176, 183–185, 187, 188 Inequality 3–12, 14–20, 79, 144, 173, 177, 194 Inflation 79, 88, 98, 111, 114, 118, 122, 127, 151, 157, 194 hyperinflation 122, 127 Influence activity 12, 38, 83, 185, 187, 194 Information asymmetry 37, 67, 83–86, 195 Innovations 8, 13, 30–32, 93, 110, 112, 122, 144, 147, 155, 158, 165, 173, 175, 176, 183–188, 191, 193 Innovative activity 13, 112, 144, 183, 186–188 International Monetary Fund (IMF) 9, 15, 17, 18, 21, 32, 51–53, 58, 88, 153 Investment 8, 9, 33, 38, 50, 51, 69, 70, 80, 83, 96, 106, 107, 110, 114, 118, 131, 143, 144, 148–150, 153–155, 158, 166, 170, 174, 185, 186, 191, 193–195 Italy 17, 106, 115 J Japan 17, 48, 127, 185 K Keynesian 2, 15, 16, 30, 34, 66, 79, 88, 89, 96, 122, 144, 145, 147, 156, 158, 170, 173, 183, 188 economics 15, 34, 66, 79, 148, 156, 158, 170, 183 economists 2, 79, 96, 144, 145, 147, 183 Keynesianism 15, 94, 156, 170, 173 L Labour costs 54, 106, 108, 110–112, 115, 116, 121, 143, 154, 187 Labour market 13, 106, 144 Latin America 170 LIBOR interbank rate 83 Life expectancy 6, 9, 66, 67, 69, 73, 169, 172 Lobbies 39, 49, 57, 78, 147, 149 Lobbying activity 12, 36–39, 68 M Maastricht Treaty 128, 129, 145, 150, 194 Mark 65, 82, 109, 113, 117 Market 6–8, 10–16, 18, 20, 29, 31, 32, 34–37, 39–41, 47, 49, 55, 56, 65–67, 70, 72, 77–84, 86–88, 90–97, 106, 111, 113, 114, 126, 143, 144, 146–148, 153, 157, 165–168, 175, 177, 184–187, 194–196 economy 15, 16, 81, 82 failures 39, 86, 87, 96, 166, 168, 186, 195 financial 32, 36, 39, 47, 79, 80, 153, 157 missing 195 self-regulating 34, 86, 168 social 72 Index    203 Mediterranean countries 53, 109, 113, 115–118, 127, 130 Monetary Union 114, 116–119, 123, 124, 126, 127, 129, 194 Money 7, 9, 31, 33, 48, 80, 82, 117, 148, 149, 151, 152, 157, 169, 175, 176, 195 fiscal 151, 152, 157 Moral hazard 31, 195 Multilateral regulatory agencies 14, 32, 37, 88, 92, 174 Multiplier 50–53, 57, 58, 96, 153 fiscal 50–52, 58, 72, 88, 152, 155, 192, 194 N Natural resources 165, 166, 170, 172, 173 Nazism 16, 122 Neoliberal economists 7, 33, 34, 39, 77, 88, 147 Neoliberalism 12, 14, 20, 39, 73, 77, 90, 93, 94, 148 Neoliberals 2, 7, 12, 14–17, 20, 30, 31, 33–36, 38, 39, 47, 53, 71, 72, 77–79, 86–90, 94, 96, 97, 107, 113, 115, 124, 126, 130, 147–149, 151, 154, 166, 171 Netherlands 106, 116, 147 New York 37, 169 Non-performing loans 146, 195 Northern European countries 118, 120 P Pareto efficiency 7, 8, 84, 96 Pensions 11, 66, 69, 70–72, 107, 119 Pollution 86, 165–168, 170, 172, 173, 194 Prices 6, 7, 11, 29, 35, 40, 72, 80, 81, 84, 87, 88, 110–112, 118, 119, 121, 127, 132, 145, 165, 166, 168, 193–195 Prisoner’s dilemma 84, 85 Productivity 6, 9, 51, 54, 110–113, 115, 121, 123, 132, 144, 195 Professional training 112, 187 Public choice theory 80 Public spending 50–55, 57, 58, 70, 78, 88, 89, 96, 120, 128, 129, 145, 147–149, 151, 153, 170, 194 Q Quantitative easing 119, 149, 151 R Radical uncertainty 32, 70, 85, 93, 186, 195 Ratings agencies 83 Rational expectations 32, 34, 36 Rationality 36, 93, 195 perfect 36, 93, 195 Recycling of materials 165 Regulatory capture 12, 185, 195 Rent-seeking strategy 68, 195 Romania 111 O Ordoliberalism 78, 94, 158 Organisation economy 82 Organisation for Economic Co-operation and Development (OECD) 9, 15, 106, 120, 153, 155, 188 S Salaries 5, 109, 110, 112, 118–121, 123, 127 Saving surplus 107 Say’s law 154, 158, 195 Scarcity 106, 166, 170 204     Index Schumpeterian economists 183 Single-agent model 33 Southern European countries 107–113, 116, 117, 119, 120, 122, 123, 128, 129, 145 South Korea 185 Spain 65, 106, 112, 115 Spread 29, 54, 79, 128, 185, 196 State 1, 2, 5–8, 10, 11, 13–16, 29, 31, 32, 35, 37, 38, 40, 48, 49, 51–54, 56, 65, 66, 68–70, 72, 77–82, 84, 87, 88, 90–92, 94, 96, 97, 105–108, 110, 114, 123–125, 128, 144–149, 151, 152, 154, 158, 165–169, 176, 177, 184–187, 194 Structural reforms 55, 107, 116, 143, 144 Subprime mortgages 6, 40, 107 Sweden 119, 147, 192 T Taxes 7–9, 11, 12, 14–18, 51, 53, 54, 70, 72, 78, 79, 144, 149, 151–154, 184, 193–195 progressive 11, 17, 72, 195 regressive 9, 154 Technological advances 165 Trade 7, 8, 14–16, 54, 87, 105–109, 111–113, 115–117, 119–122, 125, 126, 128, 130, 131, 148, 150, 151, 153–155, 170, 185, 194, 195 deficit 108, 109, 111, 113, 115– 117, 119–121, 151 surplus 105–109, 111, 120–122, 125, 130, 131, 150, 155, 170 Transaction costs 67, 68, 86, 167, 168, 177, 196 Trust 90, 91, 154, 184, 185 entrepreneurs 154 U Unemployment 53, 66, 70, 79, 81, 117, 123, 124, 127, 128, 131, 143, 145, 150, 154, 165, 170, 171, 184 United Kingdom (UK) 7, 13, 15, 17, 69, 79, 108, 125, 130, 194 United States (USA) 1, 5, 6, 8, 11, 13, 15, 16, 29, 37, 38, 40, 49, 65, 68, 69, 72, 79, 82, 105, 107, 108, 123, 128, 144–147, 151, 152, 165, 169, 186, 187 Utility 85, 145, 146, 167, 168, 194 W Wages 5, 8, 11, 13, 14, 17, 35, 87, 106, 111, 112, 121, 131, 143, 150, 151, 154 Welfare 7, 13–16, 57, 65, 66, 68, 70–73, 119, 123, 125, 126, 146, 173, 195 .. .What Is the Truth About the Great Recession and Increasing Inequality? Mario Morroni What Is the Truth About the Great Recession and Increasing Inequality? Dialogues on Disputed Issues and. .. Piglets, and instead go back to the issue of rising inequality? There is increasing concern about this FORREST Agatha is right The gap between the rich and the rest had grown long before the crisis The. .. of the causes of the crisis The increasing inequality that occurred in the United States had no role whatsoever in the explosion of the real estate bubble The opposite is true: the cause was the