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The Consequences of the Global Financial Crisis: the Rhetoric of Reform and Regulation

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The Consequences of the Global Financial Crisis: the Rhetoric of Reform and Regulation A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Grant, Wyn (Ed.); Wilson, Graham K. (Ed.) Book — Published Version The Consequences of the Global Financial Crisis: The Rhetoric of Reform and Regulation Provided in Cooperation with: Oxford University Press (OUP) Suggested Citation: Grant, Wyn (Ed.); Wilson, Graham K. (Ed.) (2012) : The Consequences of the Global Financial Crisis: The Rhetoric of Reform and Regulation, ISBN 978-0-19-964198-7, Oxford University Press, Oxford, http://dx.doi.org/10.1093/acprof:oso/9780199641987.001.0001 This Version is available at: http://hdl.handle.net/10419/118675 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by-nc-nd/3.0/ www.econstor.eu The Consequences of the Global Financial Crisis This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected] This page intentionally left blank This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected] The Consequences of the Global Financial Crisis The Rhetoric of Reform and Regulation Edited by Wyn Grant and Graham K. Wilson 1 This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected] 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries # Oxford University Press 2012 The moral rights of the author have been asserted First published in 2012 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available ISBN 978–0–19–964198–7 Printed in Great Britain by MPG Books Group, Bodmin and King’s Lynn This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected] Preface The economic and financial instability that has rocked Europe and North America since 2008 has been a disaster for millions of people who have lost jobs, homes, and savings. We are very conscious of the consequences of the Global Financial Crisis (GFC) on the lives of our fellow citizens. Unraveling the consequences of the GFC is a fascinating intellectual puzzle but we never want to forget that for the unemployed or newly homeless, the GFC has been far more than an academically interesting event. The GFC came after a long period of economic growth in both our countries. Withstanding the economic consequences of terrorist attacks, the advanced democracies enjoyed some sixteen years of success. That success was not shared equally; income inequality increased as many middle- or low-income people saw their incomes stagnate while higher income groups, particularly the very highest incomes groups, made dramatic gains. Nor did governments take full advantage of these years of plenty. In particular, both the United Kingdom and the United States ran large deficits in their public sector budgets creating massive levels of government indebtedness at a time when balanced budgets and deficit reduction should have been the goals. In consequence, the United Kingdom and the United States entered the GFC encumbered with deficits and debts that constrained the ability of their governments to respond effectively to its challenges. However, while terrorism and wars preoccupied governments in the first decade of the century, the economy seemed blessedly to be taking care of itself. Clearly in retrospect, governments were mistaken in this. Failures to regu- late effectively allowed financial institutions to build houses of cards that would soon collapse. Governments tolerated the creation of a bubble in the housing market sustained by vast amounts of easy credit, perhaps linked to global financial imbalances. The determination of the Chinese government to hold down the value of its currency by recycling trade surpluses into vast purchases of US Treasury bonds was probably linked to this oversupply of easy credit. However, it was more attractive to governments to think that economic prosperity was due to the wisdom of their policies. In particular, the long period of growth coincided with and therefore could be seen as being due to v This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected] Preface the neoliberal, “Washington consensus” orthodoxy that dominated eco- nomic policy thinking in this period. Its prescription of facilitating market forces through less regulation, lower taxes, and reduced government interven- tion in the economy seemed to be demonstrably effective. In particular, the United Kingdom, once derided as the sick man of Europe, economically moved ahead of the continental economies in terms of per capita incomes because, it seemed, it had adopted neoliberal economic policies under Thatcher and continued a version of them under Tony Blair’s “New Labour” government. This book originated in discussions between us in which we assumed that the GFC would prompt a wave of new thinking. It seemed reasonable to assume that the GFC would cause a reconsideration of the neoliberal policies that had either failed to prevent or arguably caused the crisis. A combination of criticism of lax regulation and the adoption of policies such as the nation- alizations of banks and auto companies decidedly at variance with neoliberal approaches suggested that a fundamental reconsideration of public policy thinking might be under way. The fact that these policy changes were made by the most unlikely people—a conservative Republican President in the United States and Prime Minister Gordon Brown who had been one of the architects of “the New Labour Project” in the United Kingdom, strengthened the plausibility of our expectation of new approaches in public policy. We also thought that the dramatic initial responses of governments, such as the nationalizations of General Motors and Royal Bank of Scotland,
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