Farrar, Straus and Giroux

Money is created by states and always has been; it is not something that exists independently of governments. Money is always the ‘promise to pay’ by a government. Its value is not reliant on the intrinsic worth of a metal; it is a measure of people’s trust in the permanence of the state.

Once you get your head around this, the true nature of neoliberalism’s problem becomes clear. The problem is not ‘Damn, we printed too much money against the real stuff in the economy!’ It is, though few will admit it, ‘Damn, nobody believes in our state any more.’

‘Financialization’ is a long word; if I could use one with fewer syllables I would, because it is at the heart of the neoliberal project and it needs to be better understood. Economists use the term to describe four specific changes that began in the 1980s:
Companies turned away from banks and went to the open financial markets to fund expansion.
Banks turned to consumers as a new source of profit, and to a set of high-risk, complex activities that we call investment banking.
Consumers became direct participants in the financial markets: credit cards, overdrafts, mortgages, student loans and motor car loans became part of everyday life. A growing proportion of profit in the economy is now being made not by employing workers, or providing goods and services that they buy with their wages, but by lending to them.
All simple forms of finance now generate a market in complex finance higher up the chain: every house buyer or car driver is generating a knowable financial return somewhere in the system. Your mobile phone contract, gym membership, household energy – all your regular payments – are packaged into financial instruments, generating steady interest for an investor, long before you decide to buy them. And then somebody you have never met places a bet on whether you will make the payments.

Proponents of the ‘financial autumn’ theory point to the same pattern in the Genoese Republic – the main financial centre of the late Middle Ages – then the Netherlands, and then London towards the end of the British Empire. But in each of these examples, the pattern was for the dominant power to become lender to the world. Under neoliberalism, this has been reversed. The USA – and the West in general – have become the borrowers, not the lenders. This is a break in the long-term pattern.

The gurus of neoliberalism urged everybody to follow the Anglo-Saxon model, but in reality the system relied on some key countries choosing not to.

In the wake of the 2008 crisis, the current account imbalance has fallen back – from 3 per cent of global GDP to 1.5 per cent. The IMF’s most recent projection sees no danger of a second spike but the conditions for this are stark: that China does not return to its old rate of growth, nor America to its old rate of borrowing and spending. As economists Florence Pisani and Anton Brender put it: ‘The only force that could finally rein in the continuous deepening of the global imbalances was the collapse of globalised finance.

information economy may not be compatible with a market economy

All that would be needed to blow the whole thing apart is for one or more country to ‘head for the exit’, using protectionism, currency manipulation or debt default.

Economists have tended to ignore non-market interactions: they are, by definition, non-economic – as insignificant as a smile passed between two customers in the Starbucks queue. As to the network effect, they assumed its benefits would be quantified into lower prices and distributed between producers and consumers. But in the space of less than thirty years, network technologies have opened whole areas of economic life to the possibility of collaboration and production beyond the market.

The most highly educated generation in the history of the human race, and the best connected, will not accept a future of high inequality and stagnant growth.