Wednesday, August 29, 2007

Greater Fools

In a world of overconfidence, fear makes a welcome return

Financial Times, August 17, 2007, p 11

"At particular times a great deal of stupid people have a great deal of stupid money . . . At intervals . . . the money of these people - the blind capital, as we call it, of the country - is particularly large and craving; it seeks for someone to devour it, and there is a 'plethora'; it finds someone, and there is 'speculation'; it is devoured, and there is 'panic'." Walter Bagehot.*

Panic follows mania as night follows day. The great 19th-century economist and journalist, Walter Bagehot, knew this better than anybody. Lombard Street, his masterpiece, is dedicated to the phenomenon. It is devoted, too, to how central banks should deal with its results.

Ours has been a world of the "no income, no job, no assets" 100 per cent mortgage; of the "do what you like with our money, as long as you pay the fees" covenant-light loan; and of the "in go poor credits and out comes a triple A-rated security" financial alchemist. It has been a world of confidence, cleverness and too much cheap credit.

This is not new. It is as old as financial capitalism itself. The late Hyman Minsky, who taught at the University of California, Berkeley, laid down the canonical model. The process starts with "displacement", some event that changes people's perceptions of the future. Then come rising prices in the affected sector. The third stage is easy credit and its handmaiden, financial innovation.

The fourth stage is over-trading, when markets depend on a fresh supply of "greater fools". The fifth stage is euphoria, when the ignorant hope to enjoy the wealth gained by those who came before them. The warnings of those who cry "bubble" are ridiculed, because these Cassandras have been wrong for so long. In the sixth stage comes insider profit-taking. Finally, comes revulsion.

In the latest cycle, displacement began with the huge cuts in interest rates in the early 2000s, which drove up prices in housing. The easy credit was stimulated by innovations that allowed those making the loans to regard their service as somebody else's problem. Then people started to buy dwellings to resell them, not live in them. Subprime lending was a symptom of euphoria. So, in a different way, was the rush of bankers into hedge funds and of the wealthy and big insti-tutions into financing them. Then came profit-taking, falling prices and, last week, true revulsion.

This was what George Magnus of UBS bank calls a "Minsky moment". It was the moment when credit dried up even to sound borrowers. Panic had arrived.

The correct policy response is also well known. It was laid down by Bagehot himself from his observation of the evolution of the Bank of England. The central bank must save not specific institutions, but the market itself. It must advance money freely, at a penal rate, on good security.

In providing money to the markets last week and this, the European Central Bank, the Federal Reserve, the Bank of Japan and other central banks have been doing their jobs. Whether the terms on which they have done this were suffi-ciently penal is another matter.

Financial markets, and particularly the big players within them, need fear. Without it, they go crazy. Moreover, it is impossible for outsiders to regulate a global financial system riddled with conflicts of interest and dominated by huge derivatives markets, massive trading by highly leveraged hedge funds and reliance on abstruse mathematics and ques-tionable statistical models. These markets must regulate themselves. The only thing likely to persuade them to do so is the certainty that the players will be allowed to go bust.

When William Poole, chairman of the St Louis Federal Reserve, said that "the Fed should respond to market upsets only when it has become clear that they threaten to undermine achievement of fundamental objectives of price stability and high employment or when financial market developments threaten market processes themselves", I gave a cheer.

Not so Jim Cramer, hedge fund manager and television pundit, who declared last Friday that chairman of the Fed-eral Reserve, Ben Bernanke, "is being an academic!...My people have been in this game for 25 years. And they are los-ing their jobs and these firms are going to go out of business, and he's nuts! They're nuts! They know nothing! . . . The Fed is asleep."

So capitalism is for poor people and socialism is for capitalists. This view is not just offensive. It is catastrophic.

The world has witnessed four great bubbles over the past two decades - in Japanese stocks in the late 1980s, in east Asia's stocks and property in the mid-1990s, in the US (and European) stock markets in the late 1990s and, finally, in the housing markets of much of the advanced world in the 2000s. There has been too much imprudent finance world-wide, with central bankers and ministries of finance providing rescue at virtually every stage.

Unfortunately, there is every chance of repeating mistakes. A bail-out has already occurred in Germany, far from the epicentre. More are likely. US legislators want Fannie Mae and Freddie Mac to bail out the mortgage markets.

The pressure on the Federal Reserve to cut interest rates will also grow. As Larry Hathaway and Mr Magnus of UBS note, this looks a much more significant event than the implosion of Long-Term Capital Management in the af-termath of the Russian default of August 1998. The consequences cannot be "ring-fenced", as those of LTCM were. Trust in counterparties and financial instruments has fled. The likelihood is a period of recognising losses, tightening credit conditions and deleveraging.

Such a period, desirable in itself, will lead to strong pressure for swift declines in interest rates, at least in the US, and so for another partial bail-out of a crisis-prone system. This pressure should be resisted as long as possible.

Yet the underlying challenge confronting the world's central banks remains: huge surplus savings in important parts of the world; corporate sectors that do not need to borrow and so limited categories of creditworthy and willing borrow-ers, households in rich countries foremost among them. The epoch of the US housing bubble is over. The pressure for repeated injections of cheap finance is not.

*Cited in Manias, Panics and Crashes: a History of Financial Crises, fifth edition. Charles P. Kindleberger and Robert Z. Aliber (Basingstoke: Palgrave Macmillan, 2005)

Private Equity Scambake

Thursday, Mar. 22, 2007

Abracadabra for Sale

By Michael Kinsley

As head of Blackstone group and the new "King of Wall Street" (according to FORTUNE), Stephen Schwarzman is said to pay himself $300 million or more a year. He may already have accumulated as much as $10 billion, and if, as expected, Blackstone goes public, he will pocket billions more.

What do Schwarzman and Blackstone do for all this money? Oh, this and that, but mainly they buy publicly traded companies, take them private (that is, replace the public stockholders with private equity from institutions and rich individuals), do some abracadabra that increases the companies' value and then take them public again. The $20 billion to $40 billion that Blackstone is said to be worth--Schwarzman may own 40% of that--does not include the value of any company that it happens to own. It is solely the value of the abracadabra. Blackstone and other private-equity firms collect a profusion of fees--from the companies they buy (like the charming Chinese custom of billing victims of capital punishment for the bullets used to kill them) and from their investors and usually a nice 20% of the profit when they sell the firms back to the public.

Because they are private, we don't really know how much private-equity firms make, but the amount is reliably assumed to be humongous. And so what? Right? If he can turn, say, a $5 billion company into a $10 billion company a couple of years later, what's wrong with a few hundred million in the tip jar for Uncle Steve?

Well, one wrong thing is that Uncle Steve's 20% fee gets a huge tax break. It is considered a capital gain rather than ordinary income, so it is taxed at 15% rather than 35%. There is no conceivable justification for this loophole. No one who benefits from it could possibly need the money. Why hasn't some private-equity billionaire taken this up as a cause, the way Bill Gates' father has taken up preserving the estate tax? What about Pete Peterson--a co-founder of Blackstone and longtime Cassandra about the national debt?

But the roaring success of private equity raises a much bigger question, about the nature and validity of the stock market: Why isn't that $5 billion company worth $10 billion already? Why does it take Blackstone's expensive intervention to get it there? More than $13 trillion is invested in publicly traded shares on the New York Stock Exchange. Another $3 trillion--plus is riding on the NASDAQ. Most of this isn't rich people's portfolios and trust funds; it's the savings and pension funds of middle-class Americans. Over the past couple of generations, they have been enticed into the stock market because it is supposed to be efficient and because everyone can get a piece of that efficiency.

The stock market is supposed to be efficient in two senses. First, it is supposed to distribute and structure capital efficiently to maximize the output of the economy. Second, it is said to deliver the bounty of prosperity efficiently to its loyal investors.

When a private-equity firm goes in and buys, say, a washing-machine company, it rarely does anything to improve the washing machines. Instead it concentrates on restructuring the company--selling off the dryer division, perhaps. Or it doesn't even get its hands dirty to this extent but just fiddles with the finances. I'm not knocking it. It seems to work. Shares in the company are suddenly worth double. But most of that increase in value has gone to the private-equity firm and its investors, not to the folks who have bought stocks in the ordinary way. They are the ones who sold the company at $5 billion and bought it back at $10 billion.

Why can't the stock market deliver that $10 billion in value? Why does it take Schwarzman and crew to squeeze it out (for themselves)? Some say it's the short-term perspective of the investing public. Some say it's excessive regulation, most of which doesn't apply to private-equity investments. Whatever the explanation, the billions earned by private-equity operations aren't "created," as the whimsical conceit of Wall Street troubadours would have it. These billions are a toll charge collected from ordinary investors.

Schwarzman is frank about this: "I think the public markets are overrated," he has said. Anyway, if you think private-equity firms are ripping off the rest of us, you'll soon be able to join in the rip-off yourself when Blackstone goes public.

Or will you? The consensus in the business world seems to be that Schwarzman and his colleagues may be selling full-price tickets to a ball game in the ninth inning, as the stock market fizzles out. These private-equity types are not in the habit of selling at the bottom. "I always think about what will kill off the other person," Schwarzman once noted, charmingly. Go ahead and buy Blackstone when it becomes available. But don't be disappointed if you take your shares home, unwrap them, wave your magic wand, say abracadabra ... and nothing happens.

Find this article at:,9171,1601835,00.html
Copyright � 2007 Time Inc.

Tuesday, August 28, 2007

Andrew Mellon Book

Scandal in Pittsburgh

David Nasaw, LRB | Vol. 29 No. 14 dated 19 July 2007, pp 34-35

Review of Mellon: An American Life by David Cannadine · Allen Lane, 779 pp, £30.00

‘There is nothing so enervating,’ Andrew Carnegie wrote in 1891, ‘nothing so deadly in its effects upon the qualities which lead to the highest achievement, moral or intellectual, as hereditary wealth.’ Boys born with silver spoons in their mouths, Carnegie said, were likely to choke on them. To spare them from ruin, and society from being despoiled by dynastic wealth, he argued for a nearly 100 per cent tax rate on large estates. ‘Looking at the usual result of enormous sums conferred upon legatees,’ he wrote in the Gospel of Wealth, ‘the thoughtful man must shortly say: “I would as soon leave to my son a curse as the almighty dollar.”’ Carnegie might well have wondered whether Thomas Mellon, in passing on his huge fortune to his son Andrew, had not bestowed on him a curse rather than a blessing.

The two families made their fortunes in Pittsburgh after emigrating in the first half of the 19th century: the Mellons from County Tyrone in the late 1810s, the Carnegies from Dunfermline in 1848. Andrew Carnegie’s father, William, an impoverished linen weaver in Scotland and a business failure in the US, left his son nothing but debts. Andrew Mellon’s father, Thomas, passed a bank on to his son, as well as millions of dollars in stocks, bonds and real estate.

As Pittsburgh prospered in the mid-19th century, so did Thomas Mellon. At 21 he left the family farm for the Western University of Pennsylvania, then studied law with a former judge and set up his own practice. Though a competent enough lawyer, he made his early money by investing in foreclosures and trading in mortgages, then married ‘a substantial heiress’, and used her dowry to acquire properties in and around the city.

In 1859, Thomas Mellon was elected a judge of the Court of Common Pleas. During his ten-year term, he also managed to expand his real-estate holdings and enter the coal and banking businesses, adroitly riding the post-Civil War boom in western Pennsylvania until he had more than enough capital to set up his five surviving sons in business. He was as zealous a superintendent of his large family as he was of his fortune. He schooled his older boys at home, chose the businesses they should enter, and kept careful watch over their personal lives. ‘Though Judge Mellon had rebelled decisively against his own father,’ David Cannadine writes in his new biography of the judge’s son Andrew, ‘he had no intention of tolerating any such conduct in the next generation . . . The judge regarded his sons as essentially extensions of himself.’

When Andrew Mellon was in his teens, his father introduced him to the banking business. In 1882 he decreed that Andrew would take over ‘both the management and income of T. Mellon & Sons’. In 1890 he transferred his and his wife’s remaining assets to Andrew ‘to hold them on behalf of the four surviving brothers’. Andrew did what was expected of him. All his life, ‘whenever confronted by any major problem, his authentic reflexive response,’ Cannadine tells us, ‘was to wonder what his father would have done.’ He even followed his father’s example and broke off his engagement to his first love when he found out she had consumption. With his father lurking in the background, and with the help of his brother Dick, who was installed by the judge as vice-president of T. Mellon & Sons in 1887, Andrew expanded the family’s banking businesses and invested, usually wisely, in a variety of new ventures: the Mellons became major shareholders in Gulf Oil and Alcoa Aluminum.

The Mellon family fortune grew geometrically during Andrew’s lifetime, but it is difficult to ascertain what role he played in the piling up of dynastic wealth. We know that Andrew Carnegie played a major part – even as an absentee owner – in his iron and steel businesses: he left behind thousands of pages of memoranda, accounting sheets, annotated board minutes, drafts of contracts in his own handwriting, and letters instructing his partners what to do and when. Unfortunately for Cannadine, Mellon did not leave behind the same wealth of documentation, probably because he was less involved in the management of the companies than Carnegie was. The aluminium business, a cornerstone of the Mellon fortune, was, Andrew later admitted, managed by Arthur Vining Davis: ‘You might say that he was practically the whole business.’ Gulf Oil was overseen by one of Andrew’s nephews. The banking businesses were controlled jointly by Andrew and Dick, but they were advised by a succession of highly talented managers. And then there was Henry Clay Frick, who became a friend, client and partner of the Mellons in the 1870s and remained one for thirty years. In their joint ventures – and there were many – one suspects that Frick, not the Mellons, was the dominant partner.

While the Mellon family offered Cannadine carte blanche to examine every scrap of paper in the family archives, there may not have been much material there. Andrew Mellon was reticent in the extreme. He had no way with words, written or spoken, and little intellectual curiosity. Unlike his father, he did not write an autobiography. Assistants produced the books, articles and speeches that appeared with his name attached. His correspondence and interviews reveal little. Even the entries Mellon made in the diary he began to keep in 1910 tell us very little about his personal life, perhaps because there was so little of it. He was, his biographer concludes, emotionally stunted and ‘never quite a three-dimensional figure’.

On finishing Cannadine’s biography, we can understand why it is the first to be published since the journalist Harvey O’Connor’s appeared in 1933. As Gertrude Stein said about Oakland, there isn’t any there there. Cannadine dutifully charts the success of Mellon’s various investments and the growth of his banking businesses, but there is little narrative drama in the story of his rise from riches to more riches.

Mellon becomes intriguing as a biographical subject only when, at the age of 43, he repudiates his father’s training, abandons all pretence at good sense, and proposes marriage to a woman half his age. Nora McMullen of Hertfordshire and Andrew Mellon of Pittsburgh were married in September 1900. Their daughter, Ailsa, was born the following June. The marriage was a disaster from the outset. Nora ‘was appalled and bewildered by Pittsburgh’, unprepared for domesticity, angry that her husband spent more time at the bank than at home, and distraught that he had so little to say to her. Andrew, who had until his marriage lived in his parents’ home, was oblivious to his wife’s unhappiness and shocked when, four years after they married, she asked for a divorce: she wanted to live with the man she had been seeing for two years. Andrew tried to talk her out of her ‘madness’. They stayed together, and had a second child, Paul, in 1907. In 1909, Nora, who had started seeing her lover again, once more asked her husband for a divorce and enough money to settle comfortably with the children in England: she could not, she insisted, live any longer in America. She ‘threatened to make Pittsburgh “ring with scandal”’, Cannadine writes, ‘unless Andrew met her demands. She would accuse him of being infected with venereal disease, of having procured an abortion for a young girl, and of keeping a woman in New York.’

Mellon, now in his mid-fifties, was left with two choices, neither particularly desirable. He could accede to Nora’s demands and share the children with her – and her lover – or he could do battle in the divorce courts. For perhaps the first time in his life, he chose the alternative that posed the greater risk for himself and his family. He filed for divorce on grounds of adultery, hired detectives to trail Nora and gather evidence of past liaisons, placed every first-class lawyer in the region on retainer – just so Nora could not hire any of them – and used his influence with the Pennsylvania Republican machine to make the state legislature overturn the law that required a jury trial when the charge was adultery.

The divorce proceedings became, as Nora had threatened, ‘the talk of Pittsburgh, an utter embarrassment for Andrew’, and a burden that Ailsa and Paul would bear for the rest of their lives. To prevent Nora from poisoning the children with recriminations or removing them to England, Andrew filed an application with the Orphans’ Court to have them made wards of court and assigned a guardian. ‘These were terrible times for the Mellon children,’ Cannadine writes. ‘By turns lonely and fearful and bored, they were uprooted, hauled off to unfamiliar and impermanent surroundings, and looked after by a strange German lady.’ In the end, the divorce decree was granted. Andrew was given custody of the children for eight months a year, Nora for four, but she was forbidden to remove them from Allegheny County without Andrew’s or the court’s written approval.

In 1920, Mellon turned 65, richer than ever and known locally for his wealth, his scandalous divorce, and his devotion and financial contributions to the Republicans. When Warren Harding was elected president that November, he invited Mellon to serve as his treasury secretary, not because of his brilliance as a banker or his knowledge of international finance, but because Harding’s first choice had turned him down and the president-elect owed Pennsylvania’s Republican leaders a favour. Mellon fitted the requirements: he was a loyal Republican contributor and ‘acceptable to Wall Street, but . . . not of it’.

Mellon has been identified – and often condemned – as an architect of the Republican policies which declared that what was good for business was good for the nation. But Cannadine argues that ‘he was certainly never as powerful as his many contemporary nemeses presumed.’ He ran the Treasury as he ran his businesses: by relying on his advisers and leaving much of the work to his deputies and chief assistants, several of whom he brought with him from Pittsburgh and paid out of his own pocket.

The Treasury’s major initiative during his time in office was tax reform: the reduction of the top rates; the abolition of estate, excess profits and gift taxes; and the elimination of the public disclosure of individual returns. Though Mellon claimed – and Cannadine supports him – that lowering tax rates for the wealthy would increase revenues by discouraging tax avoidance and investment in tax-exempt bonds, it also resulted in a bonanza for millionaires like Mellon. As Cannadine notes, Mellon’s income doubled in the mid-1920s, while, as he mildly says, ‘the tax he paid on it went up rather more slowly.’ The removal of gift tax also benefited him by enabling him to begin ‘transferring his immense holdings to his children’ without penalty.

On taking office, Mellon had pledged to retire from business, as was required by the 1789 statute that ‘prohibited anyone engaged in trade or commerce from becoming secretary of the treasury’, but he didn’t. He consulted regularly with his brother Dick and the managers of the family firms, including Gulf Oil and Alcoa, lobbied his colleagues in government for contracts and concessions for his companies, and supported legislation that benefited the industries and firms he had investments in. Mellon, Cannadine tells us, ‘went to Washington an orthodox believer in the plutocratic creed that government existed to serve business interests’, his own included. ‘The Mellon interests and the national interest went hand in glove . . . He simply never understood or accepted the notion of conflict of interest.’

He should have known better. As the richest businessman and banker in an administration that made no secret of its commitment to businessmen and bankers, and which had lowered taxes for the wealthy, Mellon was a magnet for criticism. Most of his critics were Democrats, but perhaps the most vociferous and resolute among them was a Republican senator, James Couzens from Michigan, a millionaire himself, who set up a Senate investigation of the Internal Revenue Service. Mellon or someone else at the Treasury (Cannadine doesn’t make clear whose idea it was) retaliated by having another look at Couzens’s 1919 tax return and charging him an additional $11 million. The decision was quickly overturned by the Board of Tax Appeals, which found that Couzens had overpaid, not underpaid his 1919 taxes.

After this disastrous attempt at revenge, Mellon responded to the mounting criticism by withdrawing from public view, ceding greater responsibility to his assistants at the Treasury, and spending more time assembling his collection of paintings. He had been encouraged to buy into art by his friend Henry Frick, probably during their vacations in Europe in the late 1890s. Like other Gilded Age millionaires, he relied on his dealers to advise him. He began by collecting genre paintings, French landscapes of the Barbizon School and English portraits. He didn’t become a serious collector until his mid-sixties, when he spent considerable sums decorating the walls of his new Pittsburgh mansion and the opulent Washington apartment for which he paid an annual rent of $25,000, twice his salary. The coming of the Depression presented new opportunities. ‘The international art trade came close to collapse in the aftermath of the crash,’ Cannadine writes, ‘as many rich people suddenly stopped spending on such luxuries.’ But Mellon was rich enough not to have to stop. The final episode in his collecting history – and the most entertaining to read about – was his purchase of paintings from the Hermitage which Stalin put on sale in 1929 to raise foreign currency. Though fiercely anti-Communist and a member of an administration that refused to grant official recognition to the USSR, Mellon gladly delivered $7 million to the Soviets in return for more than twenty masterpieces by Hals, Rembrandt, Van Dyck, Velázquez, Rubens, Raphael and others.

Cannadine devotes many pages to Mellon’s art-collecting and his plan to establish a National Gallery of Art to house his collection, though in the end he can’t quite explain the motives or sensibilities behind the individual purchases or the plans for a gallery: ‘What began as a way to decorate his drab marital home evolved into a personal interest and a delight in driving hard bargains, in which the aesthetic component, though probably present, remains largely inscrutable.’

In November 1928, Herbert Hoover became the third Republican in succession to win the presidency. Though Mellon disliked and distrusted Hoover and, at 73, should have retired as treasury secretary, he chose to remain in place, perhaps in the hope of facing ‘down the critics who had dared doubt his integrity’. When, a year later, to his great surprise, the American stock market crashed, accompanied in time by bank failures, catastrophic decreases in output, increases in unemployment, a depression in Europe and the collapse of the loan arrangements negotiated with debtor nations, Mellon ‘did little and stayed quiet, still governed by his faith in the self-regulation of markets’. In 1930 and 1931, as the situation worsened, he continued to counsel inaction and spent more and more of his time on his art collection. ‘Buying pictures covertly from the Soviets captured his imagination in a way that presiding over an uncertain economy did not.’

In January 1932, Mellon finally resigned from the Treasury and accepted a new post as ambassador to Britain only days after Wright Patman, a Texas congressman who had been collecting incriminating material on him for some time, initiated impeachment hearings. Still not really understanding Depression-era economics and politics, Mellon anticipated Hoover’s re-election, a quick return to prosperity, and many more years for himself as ambassador in London. He was mistaken on all counts.

In March 1933, Franklin Roosevelt took the oath of office as president and Mellon resigned his ambassadorship. Within months, Homer Cummings, the attorney general, told reporters that he intended to look into charges that Mellon had under-reported his income and underpaid his income tax – the same accusation Mellon had made against Senator Couzens a decade earlier.

Mellon spent the last years of his life defending himself against tax fraud charges and finalising his plans for a National Gallery. In March 1937, his plans were approved by Congress; on 26 August, Mellon died of complications from cancer. He was 82. In December, the Board of Tax Appeals cleared him of filing fraudulent tax returns. He had broken the law by taking part in business decisions while he was treasury secretary, but he had paid his taxes in full and on time, though at the much reduced rates he had been instrumental in setting.

David Cannadine has done a masterful job telling the story of this cold, isolated, secretive and taciturn banker, businessman, senior government official, art collector and philanthropist, though the subject doesn’t always afford full rein to his talents. While the Queen Elizabeth the Queen Mother Professor of British History, whose work until now has been exclusively on British topics, has ably negotiated the crossing of the Atlantic, one might have preferred him to make another subject his entry-point into US history. Still, it is difficult to imagine any historian writing a better biography of Andrew Mellon than this one.

David Nasaw, the author of a biography of Andrew Carnegie, is Arthur Schlesinger Jr Professor of History at the Graduate Center of the City University of New York.

Review of Joseph Schumpeter Book

‘There is a woman behind this!’

Peter Clarke, LRB | Vol. 29 No. 14 dated 19 July 2007 | pp 31-33

Review of Prophet of Innovation: Joseph Schumpeter and Creative Destruction by Thomas K. McCraw · Harvard, 719 pp, £22.95

The two most influential economists of the 20th century must surely be Keynes and Schumpeter. Influential, at any rate, in the English-speaking world, where Keynes fine-tuned his rhetoric with a good ear for what would carry with his different audiences (though he sometimes lapsed in appearing to patronise Americans, from President Roosevelt down). It was, too, primarily among anglophones that the thinking of the polyglot polymath Schumpeter eventually made such an impression, especially when his posthumous History of Economic Analysis, weighing in at 800,000 words, deployed scholarship in a dozen languages, with his own English prose now as well honed as his native German. But when we consider the popular reception of their ideas, a rather obvious point is often overlooked: an intellectual version of Gresham’s law often operates, debasing the currency in ideas and traducing their concepts in the process.

By 1983, the centenary of the birth of both John Maynard Keynes (died 1946) and Joseph Alois Schumpeter (died 1950), it was the less dirigiste Schumpeter, so economists were saying, who spoke to the needs of the hour. The Age of Keynes thus gave way to the Age of Schumpeter, as can be confirmed by searching their respective names on electronic databases. In the long run, it seems, Schumpeter triumphed over his great contemporary and rival, whose fame had so often galled him in his lifetime.

This sort of narrative certainly gives both these intellectual giants their due. First, Keynes told us that macroeconomic policies are necessary and beneficial in managing the economy; that their effect must be symmetrical, notably in stimulating investment in slump conditions and restraining consumption in boom conditions; and that government needs to supply a pragmatic guidance we can’t rely on the market to find unaided. Then, Schumpeter (or his ghost) persuasively disclosed that the sheer energy of market forces had been underestimated, and that we needed to harness, though not to harass, the entrepreneurial spirit of innovation; that a process of ‘creative destruction’ was inherent in reshaping the material world; and that its consequential inequities were petty compared with its vast power to enrich the whole community.

What such a narrative does not capture, however, is what happened when the big ideas became the stuff of politics and policy. It was a problem that had, in different ways, fascinated both economists. Keynes talked about it in terms of the power of ideas as against vested interests; Schumpeter talked about it as the influence of ideology in science. Neither should therefore have been surprised that their own insights were subject to a process of reception which vulgarised and often distorted them, to this extent mocking their title to be the two economists who exerted most practical influence in the decades after their own demise. Instead the messages that successively hit the street had a demotic potency: the secret of prosperity is to spend, spend, spend; everything would be fine if only government got off our backs; greed is good; taxes can be cut while military spending is piled high, and those deficits – hey, who cares any more?

Totemic fame has its price. Eponymous labels can be misleading. Economists who have never actually read any of the works of Keynes and Schumpeter nonetheless confidently invoke their names in identifying stylised concepts; and it is pointless to complain about this sort of professional shorthand. For those who like longhand, however, there is more to be said; and more to be read. In Prophet of Innovation, Thomas McCraw has written a big book by almost anyone’s standards, except those of its subject, who would perhaps have regarded its five hundred pages of text as barely adequate for a full scholarly exposition of his life’s work.

McCraw’s triumph is to tell less exacting readers quite as much as we need to know about Schumpeter in a lucid and well-paced narrative, while also supplying, for more rigorous scholars, no fewer than two hundred pages of endnotes. These are not just references or indications of further bibliographical sources on technical matters, but sometimes amount to short essays in themselves. It is a rather unusual format for a book, but I have to report that my initial literary conservatism – all that fumbling at the back of the book for items that interested me – succumbed to the author’s method, which leaves his text uncluttered with the paraphernalia for which historians of economic doctrine have their own relish. McCraw successfully passes off the life of a professor of economics as a story that fully complements its undoubted intellectual significance with a tantalising human interest.

Yes, that does include sex. Charming and debonair as well as clever, Schumpeter made the most of his circumstances (which were rarely quite as grand as he made out). When he once drew up a list of seven distractions that had prevented him from accomplishing more work, ‘money (business)’ was in seventh place, just below ‘travel’ in sixth. In ascending order, ‘politics (public career)’ came next (he had briefly been state secretary of finance in the barely viable Austria carved out of the old Habsburg Empire after the First World War), but ‘science (and philosophy)’ had held him back even more, though not quite as much as ‘sport (and horses)’ which in turn were less culpable than ‘art (and architecture)’. But all other dalliances faded in comparison to ‘1. Women’.

There were a lot of women in his life, from his comfortable student days in turn-of-the-century Vienna, to his grand tour of France and Germany, and then England, where he stayed for more than a year. Indeed, in 1907, when he was 24, he actually married an Englishwoman some 12 years older than he was, and took the intrepid Gladys off to Egypt, though he subsequently – and rather carelessly, in more senses than one – left her in England during the First World War. They had effectively separated, but the marriage had not been legally terminated. Naturally, the rising professor of economics at Graz University now had all too much freedom to indulge in his number-one distraction; and his brief forays into politics and then banking after the war did not pass without a troublesome taint of scandal, to which rumours of sexual intrigue lent a frisson. In fact, Schumpeter’s main worry was financial, since, after making a splash as a risk-taker in high finance, he ended up with heavy debts which, it seems, his sense of honour did not allow him to repudiate, and which dogged him until the 1930s.

Meanwhile (in 1925) another wife: this time a beauty 20 years younger than he was. Annie was thus 32 years younger than Gladys, who promptly reappeared, if not in the flesh then in the form of a potential litigant who took a tediously pedantic view of the law on bigamy. Less than a year later, Schumpeter’s mother suffered a serious illness and he was summoned back to what proved to be her deathbed in Vienna. Only weeks after he returned to Bonn, where he had landed a prestigious professorship, death also claimed Annie and their newborn child.

McCraw has good reason to call these deaths in the summer of 1926 ‘the pivotal events of Schumpeter’s life’. It is understandable that they shook him, and that he mourned. What is more remarkable is that the pain was enshrined in acts of private commemoration of his mother and his wife that marked every important milestone in his academic career. In his diary he would implore ‘O Mother and Mistress, help me,’ and he started to refer to them as his Hasen (literally, ‘hares’), a familiar form of address which crops up repeatedly over the years. ‘Again, again, work, for my bread and for God in my heart and for the Hasen,’ he writes in 1931. Two years later, now settled at Harvard, things are going better, and he thanks the Hasen, of course: ‘We, Hasen, we stay the same, eh!’ And another 15 years on, by then at the peak of his profession, delivering a triumphant lecture to his massed colleagues as president of the American Economic Association, the story is the same; as he described it in his diary: ‘The might of the Hasen stood out gloriously. Thank you, Hasen, for supporting me and for one of the richest presents. Everyone rose for my presidential address. The whole of the Cleveland ballroom audience rose and gave me applause. That was not poor and that was not small. And yet so undeserved. Thank you, Hasen.’

By this time, Schumpeter was happily remarried, to Elizabeth Boody Firuski, a scholar herself but one prepared to subordinate her career to his. He kept a portrait of Annie on his bedside table throughout their marriage; Firuski later made his full diaries, with the repeated invocations of the Hasen, available for research. She was also responsible for the posthumous publication of the History of Economic Analysis, which could hardly have been reconstituted from his mountains of notes without her collaboration, and became the guardian of his life, his career and his legacy. ‘Given Schumpeter’s emotional state – his diaries suggest that he was very close to a breakdown – marrying for a third time was one of the hardest things he ever did,’ McCraw comments. ‘But it would prove to be one of the wisest.’

These words make a fitting conclusion to Part 2 of the book, ‘The Adult, 1926-39’, which followed Part 1, ‘L’Enfant Terrible, 1883-1926’. We thus seem duly prepared for a major transition as we begin Part 3, ‘The Sage, 1939-50’. For once, however, McCraw’s strategy of exposition fails him, as becomes evident some fifty pages later, when we are taken back to Schumpeter’s long-running affair with Mia Stöckel. The end of this story – we had indeed been told of its beginning when Stöckel kept house for the bereaved Schumpeter in Bonn – is handled awkwardly, with a series of excerpts from Stöckel’s letters from Europe filling many pages of a separate chapter. It is only when we get as far as the letters of October 1937 that we realise that he has not told her of his new marriage. On this showing, the Sage seems rather messily trapped in his terrible infancy.

Schumpeter’s move from Bonn to Harvard in 1932 had been a decisive step in his career. He had decided then, McCraw tells us, against marrying Mia, despite her own continuing hopes. She was 26, he was nearly fifty; her social origins were inferior to his; but then Annie had been much younger than him and was the daughter of a Viennese concierge (though they hushed this up nicely in Bonn). So Stöckel’s expectations had not been unreasonable; and she and Schumpeter continued to live together on his annual summer trips to Europe. It was not until 1936 that these ceased – to her distress – and she consoled herself by accepting a proposal of marriage from Stojan Bicanski, a Yugoslav citizen. ‘You were always too good for me,’ she wrote to Schumpeter at this point, which let him off lightly. ‘I have betrayed you.’

Their relationship, in short, was a complex one; and it overlapped Schumpeter’s third marriage, just as Gladys had haunted the second. Schumpeter wrote more letters to Stöckel than to anyone else; but it is her letters that survive, safe at Harvard, whereas his disappeared during the war. In 1937, the gap of six weeks in his correspondence, following his marriage, seems to have given the game away – ‘there is a woman behind this!’ – and she tells him that she imagines him ‘with a girl on your tail’ (as McCraw translates Schwanz, though alerting us to the word’s ribald connotation). ‘Do you know,’ she writes again in November 1937, ‘that the other day I dreamed that you had remarried with a young and beautiful girl and that I collapsed in grief.’ It was presumably in response to this missive that Schumpeter belatedly came out with the news of his marriage. And then the two of them, each recently married, busily continue their frank correspondence. Eighteen months later, Schumpeter is ready to provide the detailed advice on sexual technique for Stojan and Mia that she has solicited. The curtailment of these exchanges followed all too soon. Mia and Stojan Bicanski were shot in 1942, when Novi Sad was overrun by the Nazis, their chief crime apparently membership of the English Club.

Only by comparison could it be said that the Schumpeters had a good war. Elizabeth’s academic work on Japan stereotyped her as an apologist, a sympathiser, or worse, especially after Pearl Harbor. Joseph’s background as a former Austrian minister of finance also created grounds for suspicion, as the FBI files that exist from 1941 onward confirm. These files are better evidence of the heavy-handed nature of the investigation than of any wrongdoing; the Schumpeters’ retreat into a more reclusive existence, with more time spent writing at Elizabeth’s country house in Taconic, Connecticut, was an obvious response.

Moreover, Schumpeter’s natural sympathy for the suffering of his former compatriots, and his revulsion from the Allied policy of demanding unconditional surrender, made him ambivalent about the war. His feelings were also fed by his political prejudices. He had long distrusted Franklin Roosevelt as a demagogue and a potential dictator. From the first, he had hated the New Deal, with its provocative affronts to the wealthy, its suspicion of entrepreneurial profit-taking, its delusive promises of work and social reform. Schumpeter increasingly suspected that a president ready to manoeuvre himself into an unprecedented third term in office would, sooner or later, manoeuvre the US into Europe’s war: ‘Is it the last card of the New Deal?’ Little wonder that the course of the war fulfilled his fears about Roosevelt’s role as ‘but a cat’s-paw for Churchill and Stalin’. The rise of the Soviet Union, once it had thrown back Hitler’s armies, was an obvious menace, but the British Empire was apparently hardly less so. ‘Oh these English,’ he wrote in his diary, ‘they fought with American soldiers and now they will rule with American money!’

Most people think that Schumpeter’s greatest book is Capitalism, Socialism and Democracy (1942). It is still eminently readable, still capable of jolting the reader with its ostensibly favourable view of socialism and its prospects: ‘Can socialism work? Of course it can.’ This rhetoric simply inverted the form in which he had earlier asked: ‘Can capitalism survive? No. I do not think it can.’ If we are tempted to describe the format of the book as a tease, it is a tease of classic proportions, carrying off the effrontery of Swift with the straight-faced disingenuousness of Voltaire. No small-minded jibes at FDR here, no failure to credit Schumpeter’s ideological opponents with the best of intentions; but no quarter to them as he pursues the logic of their misunderstandings of market forces to the absurdities to which these can be reduced. ‘I have pushed hard on that socialism book,’ his diary tells us, ‘and the situation simply teaches me once again that any achievement, however small, requires desperate concentration and neglect of all other plans.’ As though for the avoidance of doubt, he adds: ‘God what suffering “writing” means!’

It was in Capitalism, Socialism and Democracy that Schumpeter introduced the concept for which he remains best known: creative destruction. The essential point for Schumpeter was that ‘in dealing with capitalism we are dealing with an evolutionary process.’ It was an insight he attributed to Marx, whose vision indeed comprehended the raw power of capitalism, fuelled by its contradictory impulses and its clash of interests in a brutal struggle for survival. Little wonder that Marx himself had sought to co-opt Darwin in extending the theory of natural selection to economics.

For the mature Schumpeter, this evolutionary character meant that capitalism was never stationary but was driven by a process of innovation, which was itself driven by the pursuit of profit, with profit-hungry entrepreneurs in the driving seat. It was not perhaps an attractive spectacle, yet it was the way that mankind had released a surge of plenty by rewarding innovation. For it was innovation that provided the incentive of super-profits, generated by the temporary monopolies that could be exploited by possession of a new product or a revolutionary process. Perfect competition was thus a pipe-dream in this Schumpeterian analysis, and the attack on monopolies a threat to that endangered species, the goose that lays the golden eggs. Instead, big business needed to be left unhampered, to be allowed to destroy the comfortable arrangements of the status quo in the same process that created new sources of wealth. ‘This process of Creative Destruction is the essential fact about capitalism,’ ran the claim in Capitalism, Socialism and Democracy, in the chapter that enshrined the phrase in its title.

McCraw is right to hail the significance of this concept and to give the moment of its proclamation due prominence. Indeed this is perfectly consistent with what he repeatedly says earlier in his biography about the stages by which distinctively Schumpeterian ideas took shape in the economist’s own mind, from his first book onward. This was a 628-page volume, published in 1908 and called in English The Nature and Content of Theoretical Economics, which, as McCraw comments, ‘communicates little sense of a capitalist economy as an engine of creative destruction’. It is odd, then, that a couple of chapters earlier the matter is put so differently when McCraw describes the alleged influence of his early environment in shaping the economist’s vision: ‘Because the maturing Schumpeter sensed that creative destruction in the economic sphere could be violently disruptive, he began to place a high premium on political order.’ This is question-begging of a high order: assuming prior awareness of exactly what needs to be explained in terms of intellectual biography, and offering instead the rather tired conceit about the precocious boy prefiguring the great man. Readers who skip one or two of these over prescient early pages will profit all the more from McCraw’s account of the mature thinker.

It was, in fact, during the Second World War that the Schumpeterian synthesis really came together in the mind of a man who was driven to reflect on the folly and wickedness of the world around him. The Big Three – Stalin, Roosevelt and Churchill – were each of them stage villains, posing rebarbative political choices for a sophisticated conservative, formed by his own European experiences, no doubt, but projecting his vision onto the possibilities of the New World. And whether the huge surge of wartime production validated the milk-and-water socialism of Keynesian New Dealers or revealed the vast pent-up forces released by creative destruction, it certainly signalled the return of economic vitality after the searing experience of the interwar slump.

Schumpeter had really had no answer to the slump. What riled him was that Keynes did have an answer, or was credited with having one by so many impressionable people, so much less learned in their economics, less versed in their history, and less perceptive in their politics than the Sage of Taconic. McCraw is admirable in keeping Keynes in the picture throughout and in suggesting many instructive comparisons and contrasts between the two men. One is that Keynes had a great talent for simplification, focusing his theoretical analysis on a few points that seemed to him at once intellectually pivotal and vital for economic wellbeing. To Schumpeter, this seemed all very well up to a point, but lacking the real depth and diversity that he could so readily bring to bear himself. For him, Keynes’s best work was in A Treatise on Money (1930), perhaps because he suspected that Keynes’s magpie mind had picked up some of his own unpublished insights. But Keynes notoriously had got tired of his own book while it was still being reviewed by other economists, and, surrounded and supported by clever acolytes, went off on what he claimed was a new tack altogether.

The contrast with Schumpeter is clear. Even before leaving Bonn, he was open in declaring that ‘I never felt the urge to create something like a Schumpeter school.’ While Keynes started giving his annual course of lectures at Cambridge on the most interesting subject he could think of – his own work-in-progress – Schumpeter amazed his eager graduate students at Harvard by refusing to do anything comparable. And while Keynes passed round his drafts for discussion by a ‘circus’ of hand-picked younger economists, Schumpeter wrote his massive drafts by himself, without aid or criticism (at least until Elizabeth joined him). One result was that the publication of Keynes’s General Theory in 1936 was already an event before the event, not least in the other Cambridge, where Schumpeter’s own students were among those queuing up for copies, often ready to embrace the new doctrines.

Hence the tragic moment in 1939, when Schumpeter had finally published his two volumes on Business Cycles, adding up to 1095 pages. At Harvard, a special seminar on it was organised by his loyal students. But when it met, the realisation dawned that nobody had read the text; worse, that they had all read the General Theory; worse still, that everyone was talking about Keynes and not about Schumpeter. That Schumpeter became angry is hardly surprising; but he well appreciated that there was no answer, or none that he could give. After an earlier discussion of the General Theory by students and faculty, he told a Harvard colleague: ‘I did not take any part, precisely because I did not wish to give myself the opportunity of displaying what may look like and perhaps is ungenerosity and bad temper.’

The nub of Schumpeter’s criticism, as he wrote in his review of the book, was that in the General Theory Keynes ‘pleads for a definite policy, and on every page the ghost of that policy looks over the shoulder of the analyst, frames his assumptions, guides his pen’. And this remained his view, doubtless reinforced by the kind of Keynesianism that became current by the 1940s, especially in the US. This emphasised a fiscal revolution in which deficit finance (sometimes called functional finance) dethroned the old-fashioned idea of balancing the budget, and did so by stressing the need to boost effective demand through manipulating levels of consumption. None of this was particularly close to what was actually said in the General Theory, with its emphasis on investment as the motor of the economy and its separation of capital projects from ordinary budgets. But it was what American Keynesians often preached, and Schumpeter was not alone in his reading of Keynes’s message.

Nor was Schumpeter egregious in seizing on the famous observation about being dead in the long run. It obviously showed him, and demonstrated for the benefit of others, Keynes’s short-term irresponsibility. Yet the point that Keynes had originally made (back in 1924) was that this ‘long run’, of which economists had made so much, was a misleading guide to current policy, and that it was no use relying complacently on a theory which simply told us that, after the storm, the ocean would no doubt subside. Remedial short-term action might also be necessary – and prudent. And here, surely, it is Schumpeter himself who looks rather vulnerable in hindsight. Whatever the general pertinence of his maxims about creative destruction, these did not guide him to any constructive policy initiatives when the capitalist economies in which he had such faith encountered a novel kind of market failure between the wars. He may have been right to say that Keynes was over-attentive to the problems thereby highlighted, though even this ignores the theoretical symmetry of what Keynes was saying. Dismissing the General Theory as depression economics acknowledges its focus on the observed insufficiency of effective demand to sustain employment, but it ignores the capacity of the analysis to address potential over-sufficiency. In short, Keynes invented a sort of macro-economic way of thinking about the economy that we all use today: fiscalists, monetarists or whatever.

What Schumpeter seized on as Keynes’s worst flaw was not, in the end, a matter of economic analysis. When the president of the American Economic Association gave that address in the Cleveland ballroom in December 1948, he was at last the most famous economist in the world, if only because Keynes was dead. Schumpeter chose to talk about science and ideology, and did so with grace and insight. He paid tribute to Marx for discovering ideology (though only in other people, of course). Yet Schumpeter went on to do virtually the same when he turned to discuss Keynes, allegedly driven by a vision of the stagnation of capitalism. This highly public statement reflected a private view that the General Theory was such a dangerous book because it helped to undermine faith in capitalism at just the time when capitalism indeed seemed vulnerable. But nobody in the packed, appreciative audience seems to have asked Schumpeter exactly how such value judgments, when internalised by himself, failed to exert just such an ideological effect on his own scientific procedures. Rightly, this was his day, long anticipated and long deserved. ‘We, Hasen, we stay the same, eh!’

Peter Clarke’s book The Last Thousand Days of the British Empire will be published to coincide with the 60th anniversary of Indian independence in August.

Agent Zigzag

Ducking and Dodging

R.W. Johnson, London Review of Books, 19 July 2007, pp 29-30

Review of Agent Zigzag by Ben Macintyre · Bloomsbury, 372 pp, £14.99

In December 1940, Ben Macintyre’s anti-hero, Eddie Chapman, was in jail in Jersey – he already had a long record, including everything from safe-breaking to blackmail – when the Nazi occupiers threw a young hotel dishwasher, Tony Faramus, into the same jail; Faramus became Chapman’s cellmate and friend. At Chapman’s suggestion they both offered to spy for the Germans, essentially as a way of getting themselves out of jail and away from Jersey. Faramus, a small-time operator guilty only of obtaining £9 under false pretences and being in possession of an anti-Nazi leaflet, looked up to the older and more experienced Chapman. It did him no good: while Chapman was recruited into a purple career as Nazi spy and then double agent, Faramus was sent to Buchenwald and later to Mauthausen, where he was starved, beaten and worked almost to death through a succession of illnesses; he lost a lung and seven ribs. After the war he became a film extra, playing a starved-looking prisoner in The Colditz Story, and ended up as Clark Gable’s butler in Hollywood. Macintyre says he got the idea for his book from reading Chapman’s obituary (he died, aged 83, in 1997), but he might just as easily have made Faramus the central character.

Chapman was patriotic in an Arthur Daley sort of way, willing to rally to the cause but always on the qui vive for dodgy little earners, a theft here, a con trick there. He was unfaithful to any number of women, robbed people he was quite fond of and, although he formed an enduring friendship with Stephan von Gröning, his charmingly aristocratic German spymaster, he also systematically double-crossed him, in a way that would probably have cost von Gröning his life had Chapman been found out. Yet Chapman was lastingly loyal to Faramus and kept trying to do his best for him throughout the war; in this uneducated little chancer he must have seen an echo of himself.

Macintyre makes much of what an accomplished, guilt-free and amoral rogue Chapman was, as well as being physically very strong and apparently irresistible to women. But what Macintyre leaves out of his account, oddly, is the Depression, which is mentioned only once in passing. Chapman was the son of a drunken publican from the Durham coalfields, and grew up in a world that was coming apart around him. He was 17 in 1931 as unemployment went through the roof. There was nothing he could rely on or believe in: the Great War had destroyed popular confidence in the establishment and deference towards it; the labour movement was at sixes and sevens; he was too cynical for religion and his family was hopeless. Doubtless, a miner or a railwayman could feel supported by a strong working-class culture, but this was not the situation for most. Anyone who has learned about these years by talking to working-class people who had to survive them (rather than by relying on the writings of the Old Etonian George Orwell) knows that even for those who weren’t permanently unemployed it was a desperate business of one short-lived job after another – a bouncer this week, a bottle-washer next week – and of ducking and dodging, a great deal of it at or beyond the margins of the law. Survivors like Chapman learned to live on their wits. They had continually to remake their plans and allegiances, and to have no regrets. It was a period that produced many Eddie Chapmans, and even more Tony Faramuses.

Chapman gravitated to Soho, became a film extra and, as his criminal career prospered, started to mix with movie stars and other raffish members of the middle class whom he met over gaming tables and in clubs. He became friendly with Noel Coward, Ivor Novello and Marlene Dietrich, as well as with Terence Young, who later made the first Bond films. Mixing with these types made Chapman acutely aware of his own lack of education, and he read enthusiastically, trying to catch up. Macintyre is often deeply amused by Chapman’s later ability to interact on equal terms with mandarins like Lord Rothschild: having a bounder for a subject means there is a Flashman-like fascination in seeing just how far he can go. But this shouldn’t blind one to his astonishing abilities. Once inducted into the espionage world he soon became a dab hand at the black arts of cryptography, wireless transmission, explosives and timing devices, quickly picked up good German, French and some Norwegian, and was not only mentally agile enough to stand up to prolonged interrogation but developed a photographic memory that allowed him to reel off all manner of militarily valuable information.

Chapman, then, was wonderfully well equipped for upward social mobility, but on the outbreak of war he was going nowhere: he faced a long jail sentence and, with his criminal record, might never have worked again. The war gave him a chance of breaking out of the social man-trap he was caught in, something that would have been impossible in peacetime. Moreover, as soon as the Germans decided to take him seriously as a potential agent, he found himself translated to a pleasant villa near Nantes, where, although he had to undergo training and endure both celibacy and a lack of privacy, he ate well, was able to consume a good deal of fine brandy, and was sheltered from the war itself. Part of Chapman’s phlegm seems to have derived from his short-termism: this life certainly beat being in jail in Jersey.

Given the immense professionalism of the German armed services, it is always surprising how poor the Abwehr was: the calibre of their agents was often woeful, they never realised that the British had broken the Enigma code and never found out that all their agents in Britain had been turned. They gave Chapman the important task of sabotaging the de Havilland factory in Hatfield where the RAF’s Mosquitos were built. But as soon as he was parachuted into Britain he contacted MI5, who slowly came round to realising that Chapman was telling them the truth, and that he was, in fact, a mine of information. But when he cheerfully reeled off his criminal record they also realised that if the police caught him he faced years in jail, so it was essential to keep him away from the law. (Years later the police were simply informed that it would be a favour to MI5 if he were not arrested. In effect, Chapman’s meritorious war service bought him an amnesty, even though MI5 had no official power of pardon.) MI5 kept up Chapman’s radio transmissions to Germany, fed the Germans inconsequential titbits and arranged to fake the destruction of the Mosquito factory by the expert use of camouflage. This fooled the Germans, despite the fact that the delivery of Mosquitos to the RAF never halted.

Chapman, whose offer to assassinate Hitler, even at the cost of his own life, was turned down by MI5 for reasons that are not entirely clear, then had to be smuggled back into Germany via Lisbon. Somewhat rashly, in order to impress the Germans, he had offered to sabotage the ship he travelled on from Liverpool, thus necessitating another bogus operation by MI5 to try to convince the Germans that only a last-minute intervention had prevented the sabotage from working. Chapman proceeded to Berlin and thence to Oslo. He could not communicate with MI5, but thanks to the Enigma decrypts his progress was easily observed from Bletchley, since his name frequently cropped up in German radio messages.

Chapman was awarded the Iron Cross by a grateful Abwehr, but by mid-1943 the war had begun to go badly for Germany and he was among those tasked with finding out why. Why were the Allies now sinking so many U-boats? What were the radar secrets enabling British night fighters to shoot down so many Luftwaffe planes? What were the RAF bombing schedules? And had the Allies begun, like the Germans, to develop rockets and flying bombs? In addition, he was to report back on the damage inflicted by the early V-1s and the exact times and places of their impact. Parachuted back into Britain, Chapman was again able to pass on a great deal of useful intelligence, including a warning of the imminent V-2 attacks. He kept up the double-bluff almost until the war’s end, at which point he was scurvily treated by MI5: more or less thrown out without reward, he was given a dire warning against revealing any of his secrets.

Macintyre writes well and has fun with the many ironies of Chapman’s career. It all makes for splendid entertainment, even if it hardly changes history. There are small errors: he mistakes J. Edgar Hoover for Herbert Hoover, for example, and refers to Chapman and his wife going to the Gold Coast in the 1960s, by which time it was Ghana. He also seems to have missed the larger black comedy of the V-1s and the double-cross system, since Chapman was far from being the only (turned) German agent instructed to report on where the missiles were landing. The cabinet’s Home Affairs Committee, under Herbert Morrison, had to decide what they should all say, the choice being whether to tell the Germans that the V-1s were all landing to the south or the north of where they actually were falling, thus causing them to overcorrect the rockets’ trajectory. Morrison objected that they would be playing God and would effectively be deciding whether North or South London should take the brunt. His civil servants said it had to be safer to avoid overflights of the capital and so the agents should report that the rockets were overshooting, causing the Germans to shorten their trajectory so that they would land mainly in Kent and South London. Morrison accused the civil servants of living comfortable bourgeois lives in North London and wanting the working class to cop it instead. So, do you want us to direct the rockets further north, they asked? In a great (though perhaps simulated) fury he stormed out of the meeting saying that Providence would have to decide where the rockets fell. His civil servants sat round appalled, concluded that Morrison simply wanted to avoid responsibility for killing any of the inhabitants of his home borough of Lambeth, and gave the order that the spies should tell Peenemunde to redirect their missiles southward. South London did indeed bear the brunt of the onslaught.

Chapman ran great risks – there were always people on either side insisting he must be a fake – and was probably particularly lucky to get out of Germany just before the July 1944 bomb plot against Hitler, after which the entire Abwehr was placed under Gestapo control. He was also extremely lucky that the Germans didn’t work out that in Oslo he was having a long affair with a member of the Norwegian resistance: he was always happy to take risks in order to get the women he wanted. But it didn’t really make much difference that he faked the attack on the de Havilland plant, and even when he warned of the coming of the V-2s this made it not one whit easier to defend against them. Above all, one is struck by the enormous amount of time spent in training him for missions and on his briefings and debriefings. A large part of Chapman’s war was spent in fairly cushy billets (far cushier on the German side than in Britain), where he romanced innumerable women before settling at war’s end for the girlfriend he’d been with when he was arrested in Jersey, though his amorous adventures continued for many years.

After the war Chapman returned to the world of crime, but it seems never to have been crime of the Kray variety: Chapman used to boast that he’d never needed to use his considerable skills in martial arts and this seems to have been true. Indeed, there is a whiff of the Lavender Hill Mob about what we know of his exploits. After a spell smuggling gold across the Mediterranean, he and his gang got involved in a bizarre plot to smuggle cigarettes into Morocco, where they also planned to kidnap the sultan, presumably for a large ransom. The whole thing fell apart in classic Ealing Studios manner and Chapman returned to England to help knock off a GPO van and £250,000, after which it proved prudent to have a spell in Ghana, in the building industry. This ended with a corruption inquiry but Chapman was long gone by this time. He got rich, wore coats with fur collars (like Arthur Daley), drove a Rolls and owned a castle in Ireland and a health farm in Hertfordshire. We will only really know half the truth of these years when the police files are opened. But what we do know makes sense. If Eddie Chapman, a child of the Depression, could survive so well through the 1930s and the war, it was always likely that he was going to prosper in the far spivvier world of postwar Britain.

But Chapman wanted recognition too. He briefly became ‘honorary crime correspondent’ of the Sunday Telegraph and was a natural for the tabloids, insisting that he didn’t have a bad conscience about anything he’d done and had always been ‘an honest villain’. He kept on trying to publish his war memoirs but was repeatedly frustrated by the Official Secrets Act. In the end, two poorish books and one bad film (Triple Cross, directed, inevitably, by Terence Young) appeared, but this didn’t come anywhere near fulfilling Chapman’s expectations. He met up again with Faramus, and admitted that he was largely to blame for his old cellmate’s tribulations. The two men got drunk together in brotherly style and it would be nice to think that Chapman gave Faramus a leg-up into the film world. Chapman also finally managed to meet von Gröning again and the two happily reminisced. Von Gröning had always been a not-so-secret anti-Nazi and seems not to have been disturbed to learn that Chapman had so completely double-crossed him. But such satisfactions were essentially private. It is a great pity that Macintyre wasn’t able to interview his subject and try to talk the truth out of him.

But even what Macintyre tells us may be only a partial version. Chapman certainly believed for quite a time that Germany was likely to win the war and at one stage was actually training German agents for espionage and sabotage missions against Britain. There is no doubt whatever that if Germany had won the war he would have bounded into that postwar world with a very different story, carefully omitting his work for MI5 and portraying himself as one of the heroes of the Thousand Year Reich. It’s not difficult to imagine him being decorated by a grateful Führer and cutting a swathe through the ranks of svelte Aryan women who would doubtless have populated a victorious Berlin. But even then, one suspects, there would have been cigarette smuggling jobs in the Med and post office vans getting clobbered on the Kurfürstendamm, not to mention other nice little earners in Lower Saxony and Upper Silesia.

Sunday, August 26, 2007

Bush Sandwich

Mouffetard, Sunday sous Soleil

Le Tympan de Sainte Marie-Madeleine, Vezelay

Le Tympan de Saint Lazare, Autun

Main Street Is Fed Up

A wide swath of small investors feels duped

Steve Hamm, Business Week

When I called my 87-year-old father in Wichita a few days back to commiserate about the recent financial turmoil, I had no clue what I was in for. "How about that crazy market?" was my opening gambit. "It's terrible," he said bitterly. "I think we need a revolution in this country."

A revolution? This was my father, a lifelong Republican until he quit a couple of years ago over Iraq and global warming. He had never staked out a position to my left. "All these excesses, the hedge funds, private equity, and these CEOs who pay themselves incredible salaries—the greed is outrageous," he said. "And we all pay the price."

The problems on Wall Street are making folks on Main Street plenty angry—even those who haven't bought a new home or refinanced a mortgage in recent years. Regular investors feel as if they, too, are victims of the predatory lenders and gluttonous financiers whose actions are wreaking havoc on the markets. It doesn't help matters that the recent moves by the Federal Reserve will largely benefit big institutions such as Countrywide Financial Corp. (CFC ), the nation's largest mortgage lender. "I've been watching my 401(k) and wondering if I'll have anything left," laments Lisa Moon, a 49-year-old paralegal in Middletown, Conn. Says Craig Dalrymple, a 37-year-old salesman from Northbrook, Ill.: "People are losing their homes, savings, retirements, and we're seeing worldwide financial chaos because mortgage brokers can make empty promises, lie, cheat, and steal without penalty."

Those sentiments are echoed by some in Congress, where politicians are pounding the table for the little guy. Representative Barney Frank (D-Mass.) recently said he'll hold hearings about the role of the rating agencies in the subprime mess.


Yet just as in the dot-com bubble and other booms, the Joneses haven't been innocent bystanders. Consumers also gorged on cheap credit. Buyers eagerly signed on the dotted line for houses they knew, or should have known, they couldn't afford. Owners mortgaged themselves to the hilt to pay for a new car or to remodel the kitchen. The personal-savings rate has fallen from an average of 9.1% in the 1980s to 1.7% during this decade. Meanwhile, average household debt now equals personal income; it was 60% of income, on average, two decades ago. "I blame the lending industry, but I also blame people who bit off more than they could chew," says Rita Arens, a 33-year-old freelance writer in Lee's Summit, Mo.

Still, some people are digging through the wreckage and finding opportunities. Arens and her husband bought a four-bedroom house out of foreclosure in June. The sell-off in stocks is attracting bargain hunters. And 401(k) investors may yet find relief. After all, the major indexes are up for the year, and it's possible that six months from now the subprime saga may turn out to be merely a short-term disruption of the market's rise. "Excesses are Americana," says Richard Laermer, 45, a New York City marketing consultant. Of course, Laermer can afford to be blasé. He sold much of his stock a few weeks before the market turned.

Chavez Helps London Transit

Quand Chavez brade son pétrole pour "Ken le rouge"

Grâce à un accord conclu entre le président vénézuélien et le maire de Londres, les habitants les plus modestes de la capitale britannique bénéficieront de tarifs réduits dans le bus.
Après le "pétrole contre nourriture" irakien, voici le contrat "pétrole contre expertise". Londres et Caracas ont signé un accord pour la fourniture de fioul vénézuélien à un prix préférentiel, en échange de l'expertise britannique en matière d'environnement. Un accord signé en février, mais dont les détails viennent d’être révélés par la mairie de Londres.

En clair, le groupe pétrolier public "Petroleos de Venezuela" réduira de 20% la facture payée par Londres pour le fioul de ses bus. Ce qui permettra à la mairie de réduire à son tour de moitié le prix du billet de bus pour les Londoniens les plus modestes, dont les parents célibataires, ceux qui ont une famille à charge, les malades et les handicapés. Une économie de 23 millions d'euros sur les 148 millions dépensés chaque année dans ce domaine.

En échange, le Venezuela obtiendra gratuitement de la part de Londres une expertise dans les domaines des transports publics, de l'urbanisme, du tourisme et de la protection de l'environnement. Concrètement, Londres ouvrira un bureau à Caracas, où elle dépêchera des experts du recyclage, de retraitement des déchets, du trafic routier et des émissions de dioxyde de carbone.

"Pas défendable moralement"

L’accord suscite de vives réactions dans les deux pays. Ses détracteurs estiment surtout que le Venezuela brade sa principale ressource pour l'une des villes les plus riches du monde.

L’opposition conservatrice de Londres est également montée au créneau, critiquant l'initiative du controversé "Ken le rouge". Son leader, Angie Bray, qui décrit Hugo Chavez comme "un dictateur avec un bilan monstrueux sur les droits de l'homme", estime qu’il n'est "pas défendable moralement d'accepter du pétrole vénézuélien bradé". "Pourquoi Londres, l'une des capitales les plus riches du monde, a-t-elle besoin d'exploiter une nation en voie de développement ? renchérit Richard Barnes, son adjoint. Cet argent serait mieux destiné aux pauvres du Venezuela".

Une réaction d’autant plus indignée qu’Hugo Chavez n’en est pas à son coup d’essai. En 2005, il avait déjà signé un accord avec New York pour fournir du fioul à bas prix dans le quartier pauvre du Bronx, ainsi qu’avec Boston. Comme le résume une Vénézuélienne, interrogée par l’AFP : "Il avait promis d'être le président des pauvres et on attend toujours".

Overview of August's Crisis in Financial Markets

Financial Times (London, England)
August 17, 2007 Friday, p 9

Parallel worlds? As markets suffer, belief persists in the real economy


When Sentinel, a large American investment house, stopped investors from withdrawing their money this week, it cited market "panic". No wonder: markets around the world gyrated dramatically in recent days, contributing to a growing sense of crisis in parts of the financial world.

But what has been almost as remarkable as this month's market turmoil is the reaction of economists: unlike their -panic-stricken counterparts on bank trading floors, the pundits paid to analyse the "real" economy have been saying: "Crisis, what crisis?"

Certainly, the current market turmoil originated with a "real" economic woe - the all-too-tangible problem of some financially stretched American households failing to make mortgage payments. But this summer it spawned a drama in esoteric and acronym-rich spheres such as the collateralised debt obligation (CDO) market, the asset-backed commercial paper (ABCP) world, or the sector of special investment vehicles (SIVs).

The million - or trillion - dollar question now is whether the financial crisis will return to haunt the wider economy or whether it can be contained. Are these market troubles, in other words, unfolding in a parallel universe inhabited by over-excited bankers and hedge fund managers; or are we witnessing a "time-lag" problem, meaning that the damage from the financial crisis is very real but has yet to feed through to the "real" economy?

Many of the financiers at the heart of the current storm argue - perhaps unsurprisingly - that the events are highly significant. For what is essentially occurring now is widespread -"deleveraging" - the market term for when investors and financial institutions are forced to cut their debt in a hurry by selling assets.

Financial history suggests that such deleveraging rarely occurs smoothly, or without having a knock-on effect on the wider economy. What makes this episode particularly unnerving are signs that the pain is spreading from hedge funds to banks. As George Magnus of UBS says: "Deleveraging may prove longer-lasting (than expected) and not confined to the US sub-prime mortgage market . . .Gloomier scenarios, including hard-landing risk, must be considered in the event that the ongoing financial malaise worsens and endures."

But most economists remain sanguine. After all, fundamental world growth prospects are strong, they say, and lower prices for risky assets could even make the economy more robust. Moreover, much of the market turmoil has erupted in financial spheres such as derivatives - which often appear to have a limited connection to the world of goods and services.

David Miles, chief UK economist of Morgan Stanley, for example, likens the complex financial products that are central to the current malaise to bets on a horse race. These bets can add up to an impressive figure - but they do not affect the outcome or the strength of the horse.

Similarly, he argues, in the real world it is the revenue-generating process of the economy in households and companies that matters, not the complex bets on this made between investors in sophisticated markets. Or, as Julian Jessop of Capital Economics puts it rather more directly: "People in financial markets always think they are more important than the real world."

Nevertheless, making a definitive judgment on the wider impact of the current turmoil is difficult, partly because the events unfolding in the financial sphere are highly complex - and still moving so quickly that policymakers often struggle to piece together what is going on.

Two important facts exist. First, markets have been so calm in the past few years that the level of returns investors could earn on their assets was low. Consequently, many scrambled to find new ways of boosting these returns - and one easy strategy has been to assume more debt to buy assets, pushing up their values and increasing risk at the same time.

Second, there has been a frenetic burst of financial innovation. This decade, bankers have created a plethora of new ways to slice and dice the types of risk that used to be held on banks' balance sheets - and sell them on to new investors. The subprime mortgage market is a case in point: banks used to hold these loans on their balance sheets but in recent years have turned them into bonds and sold them to new investors - who typically then use them to create derivatives, which are then repackaged and resold, over and over again.

Judging just how much indebtedness has been created as a result is hard, since many of these new-fangled instruments are relatively opaque. Worse still, the investors that have raised their leverage - such as hedge funds and SIVs - typically operate partly outside the realm of the regulated banking system.

Nevertheless, what is clear amid this fog is that the unravelling of leverage now under way is brutal. For while the process started with a tangible and seemingly limited problem - namely defaults on US subprime loans - as funds have rushed to offload these assets, this has triggered waves of selling in other markets such as equities.

Nobody expects to see this process end soon. "We see markets on a knife-edge for the near term," admits Jan Loeys of JPMorgan. One reason is that there is now rising uncertainty about where the subprime losses actually lie. For the same process that created this decade's financial exuberance - namely the ability to slice and dice risk - means that exposure to subprime losses is spread widely around.

As a result, investors are now being confronted by a series of nasty shocks - or "small grenades", as one policymaker calls them - as institutions keep unveiling more bad news. This process could last for some time, given that the institutions holding subprime debt employ a vast array of practices for measuring the value of their portfolios - which means many will only acknowledge their hits after a long delay.

A second factor fuelling the unease is that there are now signs that problems are spreading from hedge funds and other small players to banks themselves. One link between the markets and the banks is via another key institution that has been purchasing complex securities linked to US mortgages: the so-called SIV or conduit, a vehicle that funds itself in the short-term money markets and thus does not appear on the banks' balance sheets. However, many of these vehicles have arranged emergency credit lines with banks in case their normal funding sources dry up.

The fear haunting the markets now is that the banks will soon be forced to bail out these vehicles, which could place bank balance sheets under huge strain. In fact, this has already occurred at one German bank, IKB, which triggered a near-implosion. "Credit market conditions are now analogous to a secondary banking crisis," notes Tim Bond, an analyst at Barclays Capital. Stress on the banks might potentially force them to call in lines of credit to the real economy, cutting into growth, as has occurred in previous banking crises.

Nevertheless, there are some reasons to be sceptical. A key point about the frenetic pace of financial innovation is that it is financial players - not mainstream companies - that have generally become highly levered. Thus, while interest rates have been low, the remarkable record of world economic growth over the past four years - the best run in over 30 years - has not been on the back of a corporate borrowing binge, fuelling investment in worthless assets.

On the contrary, corporate debt in aggregate has been falling and balance sheets growing ever more healthy. As a result, the cost of borrowing for companies with stronger finances, and even for those with junk bond ratings, has generally been flat or even falling over the past month, irrespective of the turmoil (see chart). Similarly, creditworthy households have been enjoying a period of falling long-term interest rates, which is far from recessionary.

The one area where growth has been fuelled by excess borrowing has been in US subprime mortgages. But the net economic losses are too small to put a big dent in US growth, let alone the global economy. The Federal Reserve, for example, currently estimates that net losses from subprime will be between Dollars 50bn (Pounds 25bn, Euros 37bn) and Dollars 100bn. But Lehman Brothers points out that even losses of Dollars 200bn would be "far less in nominal terms than the half-trillion US savings and loans debacle of the mid-to-late 1980s". It adds: "As a per cent of the world bond market, this is about five-tenths of one per cent; a large absolute number but small on a relative basis."

Indeed, policymakers may even -welcome what is occurring. After all, central bankers around the world have repeatedly warned over the past year that markets were pricing risky credits too cheaply. Thus, as Jean Claude -Trichet, the European Central bank president, pointed out this week, one upside of current events is "a normalisation of the pricing of risk". Mervyn King, the governor of the Bank of England, went further last week, calling the events "a more realistic pricing of risk, and that's to be welcomed".

If credit does become more "normally" priced, this will benefit anybody who has not become over-levered in recent years. In the corporate world, for example, mainstream companies are now better able to compete against buy-out rivals. "Deleveraging an overleveraged system is always dangerous," notes Credit Suisse. "(But) better to deleverage when in a strong economy than a weak one . . . when there are plenty of strong cash buyers waiting in the wings (and) when past over-investment is not threatening a profits bust."

However, the longer the turmoil lasts, the greater the potential risks to business and consumer sentiment - and the wider economy. If a serious crisis erupts at a bank, for example, that could dent confidence. Similarly, if creditworthy investors - companies with healthy balance sheets or consumers with unblemished credit histories - cannot borrow at reasonable rates, this may slow growth. But these remain for the moment just "ifs" - and there are no signs of it yet.

A more tangible threat is that US households will now respond to the turmoil by raising their levels of saving in response to slower growth or even future falls in house prices. That could reduce US growth prospects and has been an economic risk, unrelated to the current credit market woes, for some time. Meanwhile, in the very near future, a prolonged period of deleveraging could hurt the financial services sector. Jobs and house prices in London and New York, for example, may yet be hit.

But much depends on whether households and companies ignore the fear in capital markets as an obscure event with little bearing on their prosperity and prospects or whether they see this as a portent of harder times to come and hunker down. And it is these risks - not a desire to bail out the financial markets - that are giving central banks pause for thought. In Europe, the ECB is still likely to raise interest rates again, while the Bank of England looks as though it will now wait and see. In the US, the Fed is still more concerned about inflation than falling growth, implying that the markets are too certain about a cut in rates in September, but it would respond to evidence that prolonged troubles for borrowers was damaging the economy.

But at the moment, the focus among policymakers remains on trying to smooth the necessary adjustment to a more deleveraged world in the markets - so that the badly needed repricing of risk can continue without wider disruption. The aim, in other words, is to ensure continued growth without bailing out those who have lent or borrowed unwisely. And if central banks deliver this - and it remains a big "if" - it will be a true measure of maturity and -success in the global economic system.

Bye Bye Love Handles

Sarko in the Cockpit

Overview of the Rise of Conservative Economics

New Left Review 46, July-August 2007

Robert Pollin on Andrew Glyn, Capitalism Unleashed.


In Capitalism Unleashed, Andrew Glyn presents a powerful history of the economic trajectory of the oecd economies—the rich Western countries plus Japan—from the early 1970s to the present. In comparison with the first 25 years after World War ii, this most recent and ongoing phase of Western capitalism has been dominated by slower economic growth, higher unemployment, more inequality, a far less stable financial system, and persistent downward pressure on the living standards of ordinary people.

What lies behind these dramatically unfavourable trends? The book’s very title provides a concise answer. Capitalism came ‘unleashed’ from the chains that were imposed on it over a 40-year period beginning in the depths of the 1930s Depression and continuing through to the early 1970s. Over the years 1945–70, the leashing of capitalism produced what is now commonly termed its ‘Golden Age’ of rapid economic growth, low unemployment, high productivity and moderate but still clearly discernable improvements in equality. Unleashed capitalism ushered in the neoliberal era of, as Glyn sums it, ‘austerity, privatization and deregulation’.

Andrew Glyn is extremely well qualified to tell the story of how and why capitalism came unleashed, and what the consequences have been for different countries and social classes. Glyn has previously co-authored two influential books that examined the rise and fall of the Golden Age, British Capitalism, Workers and the Profit Squeeze (1972, with Robert Sutcliffe) and Capitalism Since 1945 (1991, with Philip Armstrong and John Harrison). He has also written important accounts of specific features of the neoliberal era. These include discussions of the causes of persistent high unemployment in Europe; the operations of welfare state policies; and the global imbalances resulting from China’s emergence as an export-led juggernaut.

Capitalism Unleashed brings these and other aspects of the neoliberal era together in one place, in a compact 183 pages of text. The book is organized by themes, rather than a chronological narrative. Chapter 1 begins by considering how a series of challenges to us capitalist hegemony—from workers, the oil-producing countries, and competition among the oecd economies themselves—emerged during the long boom, leading to the demise of the Golden Age. Glyn then focuses on the central policy initiatives that have defined contemporary neoliberalism, including austere macroeconomic policies, privatization of nationalized industries and the deregulation of markets. This sets the stage for his discussion of the consequences of unleashed capitalism, in terms of financial markets, globalization and the weakening influence of labour movements throughout the oecd. Glyn then assesses the overall record of neoliberalism along two dimensions. First, the fact that it led to slower economic growth and greater instability, trends that capitalists themselves should find disturbing; and second, that it has produced widening inequalities and generally diminished levels of social welfare, matters of obvious concern for most people other than capitalists themselves.

The book does cover technical topics, and includes 14 tables and 39 figures. One cannot tell this story in a serious way by avoiding technical issues entirely. However, Glyn’s presentation of these matters is accessible and engaging. Indeed, one crucial measure of his skill as an economist is his ability to present the most important technical material in the simplest possible way without compromising substance. The late Robert Heilbroner once observed that modern orthodox economics is characterized by ‘rigour, but alas, also mortis’. Glyn delivers the rigour but avoids the mortis.

Why did capitalism get leashed in the first place? Glyn does not begin with this question as his point of departure, as I think he probably should have. In my view, there are two interrelated causes. The first is the 1930s Depression and the horrors of fascism and World War ii that resulted from the global economic collapse. The second is the concurrent rise of the Soviet Union and the challenge of communism.

Keynesianism and the idea of a mixed economy emerged out of this historical juncture. John Maynard Keynes himself was quite explicit in positioning his work as such, both in publishing his masterwork The General Theory of Employment, Interest and Money in 1936, and in his subsequent feverish activity to construct a viable postwar economic order.

The underlying premise behind the mixed economy was straightforward. Keynes and like-minded reformers were not willing to give up on capitalism, in particular two of its basic features: that ownership and control of the economy’s means of production would remain primarily in the hands of private capitalists; and that most economic activity would be guided by ‘market forces’, that is, the dynamic combination of material self-seeking and competition. More specifically, the driving force of the mixed economy, as with free-market capitalism, should continue to be capitalists trying to make as much profit as they can. At the same time, Keynes was clear that in maintaining a profit-driven marketplace, it was also imperative to introduce policy interventions to counteract capitalism’s inherent tendencies—demonstrated to devastating effect during the 1930s calamity—toward financial breakdowns, depressions and mass unemployment.

Keynes’s framework also showed how full employment and social welfare interventions could be justified not simply on grounds of social uplift, but could also promote the stability of capitalism. Thus, if workers are employed and can bring home decent paychecks, they and their families will consequently spend more money, which in turn will expand markets and create more profit opportunities for business. Unemployment insurance and other income support policies correspondingly establish a stable floor on the overall level of market demand in the economy. This enables businesses to assume that their customer base is not likely to evaporate in the event of an economic downturn, bringing them to ruin.

In short, Keynes advanced the position that became ascendant over this era: that leashing capitalism was the only way to save capitalism. The leashes that were introduced throughout the oecd included macroeconomic policies focused on achieving some approximation to full employment; regulation of financial markets to prevent speculative excesses and to channel credit to productive investments; national ownership of basic industries that are natural monopolies; regulation of labour markets giving workers basic rights to organize and maintain a reasonable floor on wages; and welfare state programmes providing basic income protections.

At the same time, establishing mixed economies after World War ii depended on capitalists first restoring their authority over the working class and the general direction of the economy. This had been severely eroded during the Depression and war. Glyn mentions this point only briefly in Capitalism Unleashed, but it is a major theme of his previous work. As Glyn and his co-authors write in Capitalism Since 1945:

The boom saw the generalization and expansion of welfare state provisions, unprecedented attempts by governments to plan for economic growth and shape industrial structures, and some experiments in worker involvement in the direction of enterprises. The most important point to recognize, however, is that these developments did not substantially undermine the essential relationships underpinning capitalist economies . . . Workers were still obliged to sell their labour power to employers whose freedom of action they might be able to limit, but certainly not control. Despite the growing importance of state intervention through macroeconomic planning and industrial policies, the essential decisions about investment were still taken by the controllers of private capital, on the basis of private profitability.

There was no guarantee that leashed capitalism would actually work. Indeed, coming out of World War ii, the United States had the only decently functioning capitalist economy in the West. The fear was widespread that the us would collapse back into depression once the massive prop of war spending was removed. However, leashed capitalism did indeed work for some time, producing the Golden Age.

If leashed capitalism brought the Golden Age, why then remove the leash? This is the point at which Capitalism Unleashed picks up the story. Of course, most sectors of big business never accepted the constraints on their profit-seeking that the mixed economy had foisted on them, and, throughout the Golden Age, were manoeuvring persistently—if not effectively—to break free. A minority of equally persistent free-market economists, most notably Friedrich von Hayek and Milton Friedman, never accepted even the watered-down version of Keynesianism advanced in the us. They provided the business opposition with intellectual firepower, though again, throughout the Golden Age, without much effect.

The main factor leading to the demise of the Golden Age was the accumulating force of its own contradictions. Glyn argues that there were four main factors leading to its unravelling. The first was the achievement of low levels of unemployment throughout the oecd economies. That is, the single most important aim of the Keynesian model—to promote full employment—created problems for the model precisely because it was successful. This is because, with low unemployment rates, workers grew more self-confident and their bargaining power increased. They were able to bid up wages and squeeze business profits. When profits fell, capitalists were less willing to pour funds into new investments. When private investment falls, then economic growth itself also slows. Moreover, in the face of rising wage bills, capitalists tried to defend their profit margins by passing these costs onto consumers. This meant higher prices, and consequently, persistent inflation.

The second problem is what Glyn calls ‘international disorganization’. The Golden Age model was premised on the continued economic leadership of the United States and the commanding role of the dollar in international trade. When Western Europe and Japan began to challenge us firms in global markets—including those in the us itself—this meant that the Bretton Woods system of fixed exchange rates based on the dollar was no longer sustainable. This in turn created growing cracks in the entire edifice of what had been tight financial regulatory regimes throughout the oecd. Persistent inflation—and varying rates of inflation among the oecd members—also undermined the workings of the Bretton Woods system.

A third factor was the rise in raw material prices, and in particular the fourfold increase in oil prices at the end of 1973. This move by the opec oil producers reflected both the high levels of demand generated by economic growth as well as a rising assertiveness of ex-colonial countries. The 1973 oil shock also greatly increased inflationary pressures throughout the oecd, further undermining Bretton Woods and all other financial regulatory policies, given that these were premised on the assumption of reasonably stable currencies.

The final factor cited by Glyn was the decline in productivity growth throughout the oecd economies. Rising productivity is what makes the overall economic pie grow, so that workers and capitalists can both bring home higher incomes, regardless of whose share of the pie is relatively larger or smaller. So a decline in productivity will inevitably increase tensions over the relative shares of wages and profits. Glyn argues that the primary factor in the productivity slowdown was the decline in investment associated with the squeeze on profitability, since new and better equipment is the first source of improvements in productivity. Hence for Glyn, the profit squeeze, the fall in private investment, and the productivity decline are closely interlinked.

There is one other related factor leading to the demise of the Golden Age, which was the transition from a relatively stable financial system, focused on channelling credit to productive activities, to an increasingly unstable system focused on speculation. Glyn does not cite this factor, but it has been examined extensively by other economists, most notably the highly influential late post-Keynesian Hyman Minsky. Minsky argued forcefully over many years that the stability of the postwar boom was self-limiting with respect to the operations of financial markets—an argument that paralleled the idea that full employment policies would also be undermined over time by their very successes. The problem with financial markets emphasized by Minsky was that the stability of the boom created a sense of complacency among both financial and non-financial capitalists. They therefore became increasingly willing to pursue highly risky and speculative financial practices—for example, taking on ever greater levels of indebtedness and reducing their holdings of safe liquid assets—in pursuit of higher profits. Capitalists also became increasingly disgruntled with the financial regulations that inhibited their investment strategies. New profit opportunities therefore arose for clever financial engineers who could create techniques for investors to circumvent the regulatory regime. One important example of this was the creation of a Eurodollar market at the end of the 1960s. Operating in Eurodollars enabled us businesses to avoid interest rate ceilings and other barriers to the free pursuit of profits that they faced when operating within us borders.

From the mid-1970s onward, there was an intense debate among economists of various stripes as to the relative importance of these factors in leading to the break-up of the Golden Age. Glyn was long a leading proponent of the position that the increased militancy of workers, leading to a rise in wages, a squeeze on profits and a subsequent decline in private investment, was the most important factor. He does not wade through the debates and evidence again in this book, as his purpose now is to move on and explain unleashed capitalism. Yet, he does offer some vivid perspective on behalf of the importance of labour militancy in causing the Golden Age to end. This includes a news story that appeared in the London Times in 1974, which speculated on the need for a military coup to break the strength of the unions. Even the author of this article recognized that a military coup in Britain was ‘nearly inconceivable’, but the mere fact that the Times was contemplating such a step speaks to the extreme anxieties of British capitalists at that time.

Glyn’s emphasis on this approach certainly has a solid pedigree in Marx, who was the first economist to recognize the central role of what he termed the ‘reserve army of labour’ in generating macroeconomic fluctuations. Marx argued that capitalists would become compelled to break the rising power of workers when the reserve army of unemployed dries up, even if the costs of gaining the upper hand meant inducing a recession. This point was ignored by Keynes, but it was recognized by Michal Kalecki, the brilliant Polish economist and contemporary of Keynes. As early as 1943 in a famous essay titled ‘Political Aspects of Full Employment’, Kalecki concluded that, due to Keynesianism, we now have sufficient understanding of capitalism so that, as a purely technical matter, policy interventions can sustain the economy at full employment. However, following Marx, Kalecki also insisted that full employment capitalism would not be politically acceptable to capitalists unless, through some mechanism outside labour market bargaining, capitalists could maintain their upper hand. Kalecki even suggested that fascism served this particular need of capitalists well, precisely because it was designed to keep the workers in their place, whether or not they had jobs.

In leading his readers through the construction of the neoliberal policy framework, Glyn properly starts with macroeconomic policy. The Keynesian compromise was centred around macroeconomic policy—specifically the idea that central governments could manipulate their spending levels between fiscal deficits and surpluses (fiscal policy) and could adjust interest rates and the availability of credit (monetary policy) to maintain a level of overall demand consistent with full employment. But when capitalists came to realize that maintaining some approximation to full employment created too much worker power, they then used these same macroeconomic tools, beginning in the late 1970s, to put workers in their place. The policy mandarins attempted to conceal this aim amid technical euphemisms about ‘monetarist’ central bank operating procedures and the like. But Glyn assembles some striking observations that leave no doubt as to what was really happening. Thus, Michael Mussa of the imf, reflecting on the onset of austerity macro policies in the us observed that ‘to establish its credibility, the Federal Reserve had to demonstrate its willingness to spill blood, lots of blood, other people’s blood’. Similarly, the then Federal Reserve Chair Paul Volcker himself said that ‘the most important single action of the [Reagan] administration in helping the anti-inflation fight was defeating the air traffic controllers’ strike’.

This was the political framework that gave birth to ‘New Classical’ macroeconomics, which provides the intellectual foundation for neoliberal policies. The central tenet of New Classical theory is that government policy is capable of achieving precisely nothing in terms of reducing unemployment. Macro policy therefore needs to focus entirely on keeping inflation at low levels, with something approximate to zero inflation being the most desirable outcome. And thus, worldwide—in sub-Saharan Africa just as in Washington—global macroeconomic policy is conducted today within the dominant framework of ‘inflation targeting’, with extremely tight inflation targets being the rule. It is not surprising that Ben Bernanke, the current Chair of the Federal Reserve, had been an academic expert on inflation targeting before joining the Bush Administration.

Under New Classical economics/neoliberalism, it also follows that almost no good can come from regulating financial markets. The last chapter of Keynes’s General Theory called for ‘the euthanasia of the rentier’. But in the neoliberal worldview, freely operating financial markets force capitalist firms to function at high levels of efficiency and innovation or be trampled by more capable competitors. It also follows from this perspective that there is no logical justification for publicly owned enterprises. The privatization movement began in the oecd countries as a hard-right attack from Margaret Thatcher. But as Glyn notes, ‘in the second half of the 1990s, the Socialist government of Lionel Jospin privatized more than the previous six governments put together, including almost all holdings in the banking and insurance sectors’.

In all of this, it may seem that there was no longer any place for policies to promote full employment. In fact, neoliberalism does indeed offer a distinct path for promoting full employment. But here again, the neoliberal approach turns the Keynesian mixed economy on its head. In this view, if people are unemployed, it is because labour markets are too ‘rigid’. This specifically means that unions and minimum wage standards prevent people from taking jobs at a wage they are willing to accept. Unemployment insurance similarly keeps people from becoming desperate enough to accept a job at a pay cut. In such circumstances, neoliberalism holds that workers without jobs have voluntarily chosen their unemployed status.

Considering this point from a slightly different angle, once we have abandoned the idea that there is a need to put a floor on the economy’s overall level of demand, it then follows that job protections and other social welfare programmes no longer have any justification as they did within the Keynesian framework, as a tool for promoting stability. Rather, welfare programmes only contribute to the employment problem by maintaining workers’ wage demands at artificially high levels. Hence, under neoliberalism, we return to the pre-Keynesian idea that social welfare can be justified only on grounds of public charity.

As mentioned above, Glyn does not discuss how the systematic build-up of financial instability contributed to the demise of the Golden Age. But he does devote a careful chapter to documenting the dramatic changes in financial markets and institutions that have been a defining feature of the neoliberal era. His discussion focuses initially on three issues: the expansion of household borrowing and indebtedness; the rise of the corporate takeover movement and related stock market boom; and the explosion of international currency speculation following the demise of the Bretton Woods system of fixed exchange rates. He then examines how various destabilizing forces resulting from financial deregulation came together to produce system-threatening financial crises, both with the Asian crisis of 1997–98 and the related failure of Long-Term Capital Management, the major us hedge fund that included two Nobel Laureate financial economists among its directors.

Glyn does see some positive effects from the expansion of financial markets. In particular, he argues that the expansion of households’ access to affordable credit enabled families to purchase homes, cars and vacations that would have been out of reach if they had had to rely on their incomes alone, or the more stringent credit terms that characterized the Golden Age. Glyn argues that this greater expansion of household borrowing, in turn, was a primary engine of economic expansion in the 1980s and 1990s. But his assessment was published before the current severe imbalances in the us mortgage lending markets had become fully evident. By July 2007, us financial markets were teetering on the brink of a major crisis brought on by the collapse of mortgage lending to riskier households—the ‘sub-prime’ mortgage market. Business Week magazine was reporting that ‘one twitchy move’ by Wall Street bankers, hedge fund managers and bond raters in the current situation ‘could lead to mutually assured destruction’. Thus, the positive effects of the expansion of household lending that Glyn emphasized have now led to a classic boom-and-bust credit cycle.

Glyn offers much harsher judgements regarding the corporate takeover movement and the unregulated currency markets. As he notes, the us stock market bubble reached historically unprecedented heights by the end of the 1990s, with stock prices rising relative to corporate earnings to a level well beyond even the 1929 crash. Glyn recognizes that the bubble did help finance start-up companies that enabled information technologies to become commercially viable. At the same time, the bubble produced a frenzy of corporate fraud and excessive investments in fibre-optic cable and other computer-related equipment. Meanwhile, the corporate takeover movement increased pressures on managers to raise shareholder value as quickly as possible and by any means necessary. This frequently meant cutting jobs, wages and benefits for workers. As Glyn writes, ‘even leaving aside the extreme effects of boom and slumps, shareholder value is immediately increased by actions which cut costs and raise profits. Cutting jobs is often the easiest route to “taking out costs”, to use the slightly sinister management jargon’.

The liberalization of global financial markets—that is, the abandonment of the controls on financial flows that had been a cornerstone of the Golden Age—engendered a massive increase in financial market trading, both in the established financial centres like New York, Tokyo and London, and in ‘emerging markets’ such as Mexico City, Bangkok or Johannesburg. The result was what Glyn calls ‘one of the most notorious aspects of the expansion of finance’. This development had almost nothing to do with promoting international trade. The driving force was rather speculators moving their funds in and out of various countries’ stock, bond and derivative markets, frequently at lightning speed, in search of the next great financial killing or at least the rumour of such. But why are such global financial casinos any more ‘notorious’ than the more conventional casinos in Las Vegas or Monte Carlo? The main point here is that uncontrolled financial speculation created the conditions for financial crises, such as the 1997–98 collapse of Asian markets, which produced huge income and job losses for tens of millions of people who had little understanding that their livelihoods were vulnerable to the whims of global financial high-rollers. Glyn cites a study by the World Bank itself which estimated that the Asian crisis increased the number of people living in poverty in the region by 22 million.

The liberalization of financial markets connects up with broader trends in the realm of trade, foreign investment and labour markets to create the overall dynamic of neoliberal globalization. Glyn weaves his discussion of these broader questions over three chapters. As he recognizes, global integration is nothing new. Globalization proceeded quite rapidly in the Golden Age, so there can be no presumption that neoliberal dictates must necessarily guide its further advance. At the same time, the advance of globalization on neoliberal terms has both opened major new opportunities for capitalists and intensified pressures on working people.

In addition to the purely financial market developments, neoliberal-led globalization has meant that barriers to the free movement of both long- and short-term investment have dramatically fallen. This has encouraged multinational businesses to intensify their efforts to identify the most profitable locations for their operations. Multinational production platforms within a single firm and the formation of what are now termed ‘global commodity chains’ have emerged from these efforts. Such opportunities were especially seized upon by capitalists in light of their struggles to reverse the squeeze on profitability that ended the Golden Age.

Glyn also discusses the problem of the persistent and growing us trade deficit and the financing of that deficit through massive inflows into the us economy of foreign savings. There is also the gigantic question of China. As Glyn says, ‘the current and prospective development of China dwarfs all other current trends in the world economy’. The prc is the major issue in considering both the us trade deficit and the huge financial balances flowing from that. It is also the largest single factor behind the expansion of the global reserve army of labour. Until the us and the rest of the oecd come to terms with these developments, the growing fragility of global financial markets as well as the forces pushing down employment standards in the oecd will inevitably continue.

Glyn’s discussion of these issues is ambivalent. For many years, he resisted the arguments that the current era of globalization was significantly different from earlier periods of global integration, or that the current global trends were of major importance in explaining the trajectory of neoliberalism in the oecd economies. He appears to have now moderated his position, but still holds, for example, that ‘the majority of employment in oecd countries, possibly a substantial and even a growing majority, is largely untouched by international trade competition.’

Glyn bases this conclusion on the fact that a large majority of current jobs in oecd economies, and an increasing proportion of future jobs, will be in services—including taxi drivers, janitors, nurses, high-school teachers, child care workers, psychiatrists, waiters and lobbyists—rather than in manufacturing industries that are immediately vulnerable to global competition.

But he understates two major considerations. First, more services will become tradable over time, including a wide range of professional, informational and technical services. We in the us are familiar with operators sitting in Bangalore servicing our requests for telephone numbers, hotel reservations, and concert tickets. But in addition, back-office accountants, lawyers, engineers, architects and laboratory technicians, as well as their support staff, could also be effectively supplied by employees in poor countries that work for, say, one-fifth the wages of their us counterparts. In a widely cited article in Foreign Affairs in March 2006, former Vice-Chair of the Federal Reserve and Princeton University economist Alan Blinder estimated that as many as 42–56 million jobs—counting both manufacturing and services—are becoming susceptible to outsourcing. This is roughly one-third of all employment in the us.

Even though, of course, not all 42–56 million jobs will be outsourced, the employers in these situations will gain increased leverage over their workers because their power to make credible threats to outsource will grow. In turn, these same pressures will weaken the bargaining power of workers in the rich countries more generally, even those in jobs not directly vulnerable to outsourcing, since there will be increased competition to be hired into jobs that appear to offer a more stable future. Glyn recognizes this point, but, in my view, underplays its significance.

Countertendencies to these kinds of pressures can be created. But this can be accomplished only through political struggles to supplant neoliberalism with an effective egalitarian policy model. Glyn’s considerations on this point—what would seem to be the overriding issue of concern in concluding Capitalism Unleashed—are uneven. He devotes almost no attention to an obvious question, i.e. whether capitalism can be put back on its leash. Or more precisely, is it viable to think about some updated model of a mixed economy focused on promoting high-employment economic growth as well as environmental sustainability—the environment not having been a major consideration during the Golden Age—while maintaining control over inflation and speculative financial markets?

Glyn instead focuses on another set of questions—the viability of the welfare state in the current era. His basic concern is whether globalization and neoliberalism have made the welfare state unaffordable. His perspective offers surprises. He argues that, for the most part, workers will have to pay for the welfare state themselves, and not rely on soaking the rich with higher taxes. But he also holds that this has always been the case. He says that, from its beginnings, the idea behind the welfare state was that working people with jobs would be transferring a share of their income to people without jobs or otherwise in need.

Glyn’s conclusion is that globalization has not made the welfare state unaffordable—that is, at least in this sphere, globalization need not bend to the imperatives of neoliberalism. His most significant piece of evidence is straightforward: that in many oecd countries, especially those in Scandanavia, inequality has not worsened in the neoliberal era, and financial support for the welfare state has not diminished. He presents polling data finding that large majorities throughout most of the oecd support egalitarianism, e.g. the notion that ‘it is the responsibility of governments to reduce inequalities’.

Glyn pushes this point further, in exploring the possibilities of reshaping the welfare state around the idea of a Basic Income Grant. In principle, the Basic Income Grant is simple. It amounts to the government giving everyone a minimally decent sum of money as a right of citizenship. The most important advantage of this approach over other welfare state programmes is that it would not be means-tested. Such programmes require people to proceed through humiliating bureaucratic obstacles to demonstrate their neediness. In addition, the Basic Income Grant would give workers more labour-market bargaining power. Because their basic income needs would be covered, they would not be tempted to accept a job unless the pay and other conditions were decent. But this feature of a Basic Income Grant is not significantly different from other welfare state programmes, such as unemployment insurance.

However, Glyn also considers the possibility that many people will be satisfied by working less and having more free time, which the Basic Income Grant would also encourage. This could enable more people to move toward a socialist vision of human opportunities without requiring the full apparatus of a socialist economy to get there. As Glyn emphasizes, ‘the longer-term objective of socialism was always to facilitate the development of people’s lives in a more fulfilling direction’. That is, socialism was never ultimately about public ownership of the means of production, the eradication of market forces, or some variations on how to mix these. These were simply means to the ultimate end of offering all people decent life opportunities.

That said, it is nevertheless unrealistic for Glyn to think that a decent welfare state—whether or not it is anchored by a Basic Income Grant—is viable indefinitely within the context of neoliberalism. Three basic and interrelated problems loom. First, if economic growth trends in the oecd continue at their slower pace, engendered by austerity-type macroeconomic policies, tax revenues will correspondingly continue to decline, as Glyn recognizes. This will create increasing pressure to limit welfare state spending. Second, if downward wage pressures continue through the global expansion of the reserve army of labour, this will create increasing needs for income transfers through the welfare state to prop up working-class living standards. It will also mean that tax revenues coming from the working class will be pushed further downward. Finally, as long as neoliberal capitalism is creating greater income and wealth disparities before welfare state redistributions bring their levelling effects, the political power of capitalists will continue to grow, since capitalists will have more money to buy political support. Where would the political power come from to press for a Basic Income Grant or other features of an expanded welfare state? A more likely scenario is that effective political forces would become, on the contrary, increasingly aligned against welfare state interventions.

Given these considerations, what seems necessary even as a minimalist egalitarian programme is not simply a defence of the welfare state, regardless of whether it is primarily based on universal or means-tested programmes. Rather, it is to conceive of a political programme to put capitalism back on its leash.

A renewed version of leashed capitalism would necessarily include some basic features of the Golden Age mixed economy model. That is, it would be focused on creating a macroeconomic environment favourable to some approximation to full employment in decent jobs. To advance this would entail, as before, directing fiscal and monetary policies toward that end. It would also require that speculative finance be heavily regulated, to push the economy’s investment funds toward creating high-employment productive activities. It would also require large increases in public investments and public ownership, especially in behalf of creating an energy infrastructure based on conservation and renewable energy sources.

A revived version of leashed capitalism would also have to improve on the Golden Age in the area of inflation control. Rentiers and their minions do certainly exaggerate the costs to society of inflation. An advanced capitalist economy can operate effectively at inflation rates somewhat higher than those being targeted today by central bankers. But this does not gainsay that there are costs to high inflation, including most importantly, as we saw in the Golden Age, in terms of operating a sustainable system of financial regulations. To the extent that the left neglects such costs, it only strengthens the hand of the right in claiming they alone have the wherewithal to run an economy.

Of course, even this type of minimalist egalitarian programme would entail formidable challenges to the prerogatives of big business and the wealthy, especially after a generation of neoliberalism has accustomed the economic elite to getting what they want from politicians—Blair and Clinton almost as much as Thatcher, Reagan and Bush. It is fair to ask how an updated version of leashed capitalism could be made politically viable and sustainable if, as I argued above, a major expansion of the welfare state under neoliberalism is itself not likely to be sustainable.

In my view, the political challenges involved in constructing a renewed leashed capitalism would be at least as great as those of creating a greatly expanded welfare state within the context of an otherwise unleashed capitalism. But the important difference is, once a renewed leashed capitalism has been constructed, it should be sustainable for at least as long as the Golden Age was able to last. It would be crucial, for one thing, that private investment decisions under a renewed leashed capitalism would not be guided by global financiers. This would encourage productive activity to increase relative to destabilizing speculation. The expansion of public investment under leashed capitalism—in schools, health care, public transportation and solar power generators—would promote higher productivity and a clean environment as well as a more stable investment path than one dominated by Wall Street. It could also revive the very idea of a major public presence in establishing the economy’s growth path. An economy operating at something close to full employment in decent jobs would also mean higher average incomes, more equality and, thereby, more buoyant domestic markets. Under some circumstances, a strong domestic market can stimulate private investment even when the share of total national income going to profits has fallen.

Of course, there would be contradictions to this model, just as there were with the Golden Age model. After all, capitalism cannot function if capitalists are not getting something that they consider to be adequate profits. But what would satisfy capitalists as an ‘adequate’ level of profits depends on the overall political, social and moral climate. Moreover, the very real contradictions of a renewed leashed capitalism would be less severe than the efforts that would be needed to hold together a viable welfare state model trapped inside a neoliberal straightjacket. Public policy in this scenario would continue to be dominated by global finance and the effects of an ever-expanding global reserve army of labour. Meanwhile, public decision-making authority over the economy would shrivel to nothing outside the narrow realm of welfare transfers between various segments of the working class and poor.

There is one final question to consider. Given the evident failures of unleashed capitalism and the equally evident limits of leashed capitalism during the Golden Age, should the left not be again advancing a case for full-throttle socialism? My own view is that this is unrealistic, even while desirable as a longer-term vision of how to construct a just society. The problem is that, at this stage in history, we really do not know exactly what a socialist economy would look like, nor do we know how to move from our current reality of neoliberal ascendancy to something approximating one’s vision of a socialist economy. As such, in my view, socialism should be seen today as a series of challenges and questions, not as a package of obvious and ready-made answers.

The overriding challenge I take from reading Capitalism Unleashed—which may not be the message that Andrew Glyn wants to leave us with—is that the left needs to figure out how to make a revived version of leashed capitalism workable. Putting capitalism back on that leash will, among its other virtues, enable us to see more clearly what a democratic socialist economy might look like in a world where the political forces advancing egalitarianism have gathered decisive strength.

By the same author:

Anatomy of Clintonomics

Contemporary Economic Stagnation in World Historical Perspective

Response to Giovanni Arrighi

Financial Structures and Egalitarian Economic Policy