An ‘unproductive labour’ view of finance

17/10/2012 § Leave a comment

I confess to an uneasy Physiocratic suspicion, perhaps unbecoming in an academic, that we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I fear that, as Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth-degree speculation which is short sighted and inefficient (J.Tobin)

The present paper discusses the role of the financial sector in a capitalist economy, arguing that the huge increase in its weight (economic and otherwise) in the last decades is not justified by the importance of its contribution to economic growth. The point is developed going back to the classical concepts of productive and unproductive labour. pdf


Financial reform

16/10/2012 § Leave a comment

Walter Bagehot states that ‘the briefest and truest way of describing Lombard Street is to say that it is the greatest combination of economical power and economical delicacy the world has ever seen’. The greatness of the delicacy is easy to understand. From a laissez-faire position, any proposal to make the management of such economical power an exception to the general rule that competition should be free from any government intervention is hard to swallow. Yet few would mantain that the financial market is a market like any other. Differences of opinion about financial reform mainly depend on the different reasons on which this position is based. pdf

La redistribuzione del reddito nell’Italia di Maastricht

21/07/2011 § Leave a comment

L’idea che la causa dell’elevato debito pubblico italiano sia da cercare in una dinamica anomala delle uscite è tanto diffusa quanto infondata. Il totale delle uscite in rapporto al prodotto è stato sempre allineato a quello dei più civili paesi europei. L’anomalia italiana è tutta nel ritardo con cui le entrate si sono adeguate alle uscite, e nel conseguente sbilanciamento di queste ultime in favore degli interessi corrisposti ai detentori del debito pubblico. Vi è certo molto da discutere sulla scarsa qualità della spesa pubblica nel nostro paese. Bisogna però farlo avendo ben chiaro che, oltre che qualitativamente inadeguata, la spesa dello Stato al netto degli interessi è stata, per buona parte del periodo in esame, inadeguata anche dal punto di vista quantitativo. Dalla seconda metà degli anni settanta, il deficit impositivo è stato coperto prevalentemente ricorrendo al prestito da parte del settore privato. L’eccesso di spesa non è stato così finanziato stampando moneta ma dal risparmio, che di questa mancata imposizione fiscale è in buona misura la risultante e che l’emissione di debito pubblico fruttifero di interessi ha ‘riacquisito’ allo Stato. Queste due peculiarità – inadeguatezza delle entrate e ricorso al prestito – si sono saldate in un circuito redistributivo al contrario che, ingrossandosi, ha agito da potente fattore di disgregazione sociale (saggio: pdf; grafici: pdf).

The US Congress inquiry on the financial and economic crisis

19/07/2011 § Leave a comment

The recent financial crisis seems destined to remain an event without causes. Despite the increased attention given over the last decades to the role that credit and finance play in a modern capitalist economy, the outbreak of the crisis was totally unexpected. And in the aftermath, attempts to provide an explanation of events rarely went beyond a simple description of how the financial mess spread. In the light of this state of things, the release of a US government report on the sources of the current economic and financial disorders is an important fact, offering an opportunity to discuss the main lines of interpretation that have emerged a year and a half after the most acute phase of the financial turmoil. This review will first provide a summary of the recon- struction of events by the Financial Crisis Inquiry Commission. The report’s expla- nations of the crisis are then discussed. It is argued that the main limitation of these explanations lies in a conception of the crisis as an entirely monetary and financial event. The following sections discuss some not strictly financial factors that caused the crisis. We will focus, in particular, on changes in income distribution, arguing that the recognition of the role they played in fostering the crisis establishes the needed connection between the financial crisis proper and the economic crisis in a wider sense. pdf

On the link between functional and personal distribution in Italy

19/07/2011 § Leave a comment

Over the past decades, Italian wage and salary earners have become more and more unable to call the same share of value added theirs. Wider disparities in workers pay structure have meant that a small segment of the salaried workforce has not seen its share decline. The proportion of income allotted to the unprivileged part of the working class has thus been impaired not only by other incomes, but also by labour income at the top of the pay scale. Surprisingly, these alterations in both wage share and wage dispersion have not been mirrored in a long lasting worsening in personal income distribution. This apparent de-link between functional and personal income distribution is discussed in the present work, relying on the Bank of Italy Survey on household income and wealth. The essay calls attention to the influences on personal income inequality exerted by the massive growth in imputed property income as distinct from actual property income, and by the increasing spread ofprecarious and badly paid jobs.  essay pdf tables xls figures xls

Changes in income distribution, financial disorder and crisis

19/07/2011 § Leave a comment

This essay intends to discuss the main interpretations of the current crisis advanced over the last two years, as well as the main policy lines that have been suggested to overcome the crisis. Confronting this approach, we shall put forward an interpretation based on a contribution we wrote before the outbreak of the crisis on the long-term implications of the rising US household debt. From that contribution, an explanation of the crisis can be derived that locates its source in the real sphere of the economy, and in which the current ‘financial disorder’ is viewed in primis as an effect rather than a cause. The ‘real’ nature of the crisis is arrived at by connecting the growing US household debt to the marked changes in income distribution recorded over the last decades. Changes in distribution are thus seen as the fundamental determinant of the crisis, rather than as a consequence of the increased weight of the financial sector, with its wealthy remuneratios. Confronting the prevailing explanations of the crisis with our own, alternative policy implications emerge, which are discussed in the concluding section of this essay. pdf

Rising household debt. Its causes and macroeconomic implications: a long-period analysis

19/07/2011 § Leave a comment

The article analyses the rise in household indebtedness from the point of view of its causes and long-run macroeconomic implications. The analysis is focussed on the US case. Differently from life-cycle interpretations of the phenomenon, and from interpretations in terms of erratic deviations of current income flows from their longrun trend, the rising household debt is viewed as the outcome of persistent changes in income distribution and growing income inequalities. Through household debt, low wages appear to have been brought to coexist with relatively high levels of aggregate demand, thus providing the solution to the contradiction between the necessity of high and rising consumption levels, for the growth of the system’s actual output, and a framework of antagonistic conditions of distribution which keeps within limits the real income of the vast majority of society. The question of the longrunsustainability of this substitution of loans for wages is finally discussed.  pdf