Robert Guttmann

Consumer debt and financial fragility

This article sheds light on a crucial aspect of the global crisis of 2007–2009: the steady increase of US consumer debt to precipitous levels over a quarter of century. That trend, fed by a combination of macro‐economic, demographic, and political factors, intensified greatly in the 2000s when a series of financial innovations allowed American households to draw equity out of their homes while at the same time feeding an unprecedented housing boom. Those same new mechanisms of ‘structured’ and ‘synthetic’ finance mobilized a significant and steadily growing proportion of global savings and directed them into this super‐bubble as the world’s surplus countries came to fund America’s debt‐financed excess spending for perpetual reproduction of their surpluses. Anachronistic policy preferences among both surplus countries and the US prevented the proper functioning of various adjustment mechanisms before the inevitable financial‐fragility dynamic took hold to burst the bubble and throw the global economy into a steep downturn. The persistence of these global imbalances bodes ill for the medium‐term stability of the world economy and its recovery potential.

Uma introdução ao capitalismo dirigido pelas finanças

Finance-led capitalism always has had a propensity for financial crises at key moments of its territorial expansion when bringing hitherto state-run economies into the orbit of market regulation. The current crisis, however, is different. Not only has it emanated from the center rather than hit somewhere at the periphery, but it also has revealed deep structural flaws in the institutional architecture of contracts, funds, and markets that have made up the new, deregulated system of finance. We are facing a systemic crisis, always an event of epic proportions and lasting impact. We want to shed light on this significant moment.

Asset Bubbles, Debt Deflation, and Global Imbalances

The article investigates the primary imbalances in our global economy, which have brought us to the brink of depression. Putting the emphasis on structural changes in our credit system following its deregulation in the 1980s, we can conclude that the confluence of financial innovation and financial globalization created a new propensity for speculative asset bubbles. When the latest bubble burst in 2007, it triggered a devastating sequence of financial instability which has driven the world economy into the worst downturn since the 1930s. Government crisis-management responses, from deficit spending to unorthodox monetary policy and bank rescues, are assessed. The global dimension of this crisis requires international policy coordination, a task made more difficult by the asymmetry of our dollar-based international monetary system encouraging excessive US deficits.

O endividamento do consumidor no cerne do capitalismo conduzido pelas finanças

Durante o verao de 2007 a crise imobiliaria dos EUA transformou-se em um arrocho de credito [credit crunch] global que esta ameacando transtornar a economia mundial. Enfrentamos hoje (meados de 2008) a perspectiva de uma desaceleracao significativa ou mesmo de uma recessao global. Nao importa qual desses cenarios por fim se revelara, o arrocho progressivo colocou em xeque a viabilidade a longo prazo de um padrao de crescimento global que, nas ultimas decadas, contou em grande medida com os Estados Unidos como o “comprador de ultima instância” do mundo. Essa dramatica reviravolta coloca em risco a transicao suave para um novo regime de acumulacao conduzido pelas financas [finance-led accumulation regime] e para um novo padrao de crescimento multipolar. Se a crise ainda nao e sistemica, o surto atual de problemas nos principais mercados financeiros do mundo certamente sinaliza o primeiro grande teste de resistencia desse novo regime. Nos gostariamos de enfocar, nesse artigo, um pilar central do regime – o endividamento das familias americanas – a fim de extrair algumas percepcoes plausiveis sobre a natureza e implicacoes da crise atual.

Finance-Led Capitalism

In Finance-Led Capitalism , bestselling author and economist Robert Guttmann provides a new conceptual framework to assess the dominate role of modern finance within the workings of our contemporary economic system. This lively and provocative read will challenge some of the core beliefs about modern finance and the world economy.

The Challenge of Climate Change

With Trump US voters elected a climate denier to the White House whose systematic dismantlement of Obama’s climate policies bucks a global trend to tackle this issue more seriously. Thanks to the work of the Intergovernmental Panel on Climate Change we have overwhelming evidence of rapidly growing atmospheric concentrations of greenhouse gases and their nefarious implications for the climate. Global warming, itself unevenly distributed, has already begun to intensify storms and droughts, make sea levels rise, melt glaciers, reduce biodiversity, and hamper agricultural yields. After a quarter of century of stop-go efforts to address this issue, the world community of nations finally decided in December 2015 at a meeting in Paris to address this issue in systemic fashion with a long-run plan for increasingly ambitious collective action—the Paris Climate Agreement.

The Global Emergence of Climate Policy

When analyzing the climate policies of countries, as put forth in so-called Nationally Determined Contributions, we see that the world is nowhere near meeting its ≤ 2 °C objective. One striking example of policy failure is the USA, currently headed by a climate denier who has taken the largest per capita emitter of CO2 out of the Paris Agreement. In contrast to Trump, California has reinforced its climate policies as model for the rest of the world. So have other climate-policy leaders, notably China and France. Companies too seek to contribute to the struggle against global warming, as exemplified by Microsoft’s global carbon fee, Tesla’s product development, or Google’s Sidewalk Labs planning the city of the future. These developments will be dwarfed by much more radical approaches to organizing, say, traffic, agriculture, or waste management in the not-so-distant future.

Sustainable Development and Eco-Capitalism

The transition to a low-carbon economy posits the challenge of how to transform finance-led capitalism into a more ecologically oriented economy. Major systemic transformations in the past have typically required a dual-sequence of structural crisis and political shifts. We may find ourselves once again in such a situation, especially if the acceleration of climate change brings about a panic-like reaction and an alternative political program capable of pushing through the reforms we need to move to eco-capitalism. Such a reform program requires a progressive vision of globalization, proposals for a new social contract, promotion of a “social and solidarity economy” beyond the market-state dichotomy, a profound rethinking of economics and finance in the face of climate change, incorporation of sustainable-development goals, and new cooperation mechanisms for the emerging multipolar world economy.

Moving Toward an Ecologically Oriented Capitalism (“Eco-Capitalism”)

The Paris Agreement’s goal of keeping the cumulative temperature increase below 2 °C implies steadily reducing greenhouse gas emissions to a point where the world achieves zero net carbon emissions by 2060. We are nowhere near such a transition to a carbon-neutral economy. To get there we have to phase out fossil fuels and replace these energy sources with renewables, improve energy efficiency greatly, move toward less polluting means of transportation, change many industrial processes, retrofit buildings, make cities more sustainable, transform the way we grow and consume food, and expand our planet’s carbon sinks (e.g., forests). These changes are tantamount to a different type of capitalism. But when looking at the long-term evolution of capitalism, we see that such systemic transformations follow a certain identifiable pattern which makes the transition to eco-capitalism conceivable.

Key issues for global governance in 2030

The world is facing a global governance crisis affecting not only the financial system, but also, in one way or another, all the fields where this global governance is taking shape, notably the organization of production, of security, and of knowledge construction.Global governance can indeed be defined as the ways according to which the power to edict rules of behavior is organized between agents in various domains. We are looking here concretely at four domains: finance, security, organization of production, and the construction of knowledge.