Recently Keynes came from the shadows of the History of the 1940s due to his proposal at that time for a new international monetary order and a new reserve currency (the so-called “bancor”), quite different from the one finally established in Bretton Woods in the final round of negotiations in 1944. The winners of Bretton Woods – the dollar and the new superpower, the US – take it all. Keynes Plan was “archived” and forgotten – until recently.

Perhaps not a surprise, the International Monetary Fund (IMF) analysed the Keynes solution in a recent study published in April prepared by the Strategy, Policy and Review Department. The study referred to a “sui generis Global Currency” and concluded: “If bancor were to circulate as a parallel currency, but in a dominant role in place of the US dollar, then as in the SDR-based system described above, current account imbalances that reflect today’s situation – namely, surplus countries pegging to bancor with deficit countries floating against it – would adjust more symmetrically, and perhaps more automatically than the current or SDR-based systems since the deficit currencies would be expected to depreciate against the bancor”.

Paul Davidson, who we interview in this article, considered by many macro-economists a “true interpreter of Keynes,” believes that the system imposed by the Nixon Administration after 1971-1973 increased the degree of “Keynesian” uncertainty in the world economy. He criticizes the idea of an “automatic” adjustment of the global imbalances as a “doctrinal ilusion” and “adapted” the Keynes solution in a soften way, proposing an international clearing union, more acceptable politically. Recently, Robert Skidelsky, the Englisg biographer of Keynes, considered the Keynes solution as a starting point for the next “grand bargain” between the US, the leading deficit country, and China, the leading surplus economy.

Even today the dollar is 86% of foreign exchange transactions, 65% share of bank notes held overseas, 65% of international reserves, 59% of cross-border bank deposits, 52% of cross-border bank loans and 46% of debt securities. On a decade, from 1999 to 2009, the international reserve accumulation was huge, with a threefold increase, and remain concentrated in the dollar. Only from 2003 to 2009, global reserves increased from $2.6 trillion to $6.8 trillion. But in the next decade or two, the jump can be insane. Extrapolations suggest demand for reserves would reach levels insupportable by reserve issuers, says the IMF study. China has 24.3% of all the global reserves holdings and Japan 13.4%.

An opportunity to discuss the present complex situation will be later this year with the quinquennial review of the IMF SDR (special drawing rights) basket – today based on the US dollar (dominant, 44%), the euro (34%), the yen (11%) and the pound sterling (11%). One of the discussions can be the inclusion of a non-convertible currency.

A “structural” flaw is embedded in the current monetary system. As Skidelsky pointed out recently: “Unless steps are taken to rebalance global current accounts, we will be walking into the next crisis.”

Virtual Round Table © Janelanaweb.com, Jorge Nascimento Rodrigues, October 2010

The yuan/dollar peg strategy from China: a de facto agreement

Q: Can we consider that the dollar-yuan peg since 1995 was a de facto change in the managed floating system among major currency areas from 1973? Some analysts even talk about a “Bretton Woods II” between the two great powers…

Paul Davidson: No! Still it did not have managed float between euro and dollar and English pound, etc. Also, in the 1995-2000 years China’s economy was not that big relative do the United States. At the beginning the US could ignore the Chinese peg.

Rolf J. Langhammer: I do not think that the collapse of the Bretton Woods system in the early seventies and the dollar-yuan peg are related to each other. When China began to gradually reform and open its economy in 1978, the country did not play any role in the global economy, neither on the real nor on the financial side. With a completely isolated financial sector, a non-convertible currency, and an initial split between foreigners and locals concerning the use of the local currency, China simply pegged its currency to the dollar as a way to further its international competitiveness in export markets. It thus followed practices which in the post-war period were pursued by countries like Germany and Japan as well.

Bill Witherell: I don’t think it is correct to characterize the period since 1995 as a Bretton Woods II as that implies a conscious international agreement. I think it was an evolutionary process with China becoming an increasingly important player in international commerce, but having a closed financial system and a currency that was not freely convertible. China maintained the peg and for the most part the US went along with it in practice while issuing statements that appreciation of the yuan would be desirable. That might be called a de facto agreement, but the US would deny they ever agreed to it.

Q: The de facto agreement, in recent years, is coming to and end since now China is the second great power, the first one on foreign reserves and the renminbi begins a world strategy?

Paul: The Chinese continuing running of balance of payment surpluses has a depressing effect on its trading partners.

Rolf: This de facto agreement will have still a fairly long lifetime. Risks of severe shocks rattling through world financial markets are threatening the markets should the de facto peg be abruptly abandoned or be perceived by the markets as such an end. The reason is that given the depth and liquidity of the US dollar market, and the roles of the dollar as unit of account, invoice currency, transaction currency and reserve currency, there is not substitute to the role of the dollar as an international currency. The renminbi will have to go long way to acquire one of these functions, not to speak of all of them.

Bill: The situation has changed and is still changing. The Chinese are moving in carefully measured steps towards transforming the yuan to a freely convertible international currency and permitting its value to be determined to an increasing extent (but not yet fully) by market forces. Under current conditions, this means letting the yuan appreciate vs the US dollar. On the other side the US has become increasingly sharp in its criticism of the slow pace of China’s moves in this direction. The now great economic and trading strength of China both motivates the US to press harder and builds the confidence of China that it can and should move to an internationalization of its currency. However, heightened rhetoric on both sides will likely slow the process as the Chinese will not respond positively to name calling, even if they understand it is mainly for domestic US political reasons. China is correct in noting that a too rapid appreciation of the currency could be highly destabilizing in China and that would have serious negative global repercussions.

Keynes’ proposal remains a vision

Q: Professor Davidson, to avoid a global currency war scenario, a solution like the one proposed by Keynes in the Bretton Woods’ negotiations of the 1940s has relevance today?

Paul: The principle behind Keynes’ plan – namely that the burden of ending an imbalance in international payments should be primarily by the creditor nation, and not the debtor- is the basis of a solution to our current problems. Unfortunately Keynes’ plan was based on the formation of a supranational central bank and its currency, the bancor. The European Central Bank has shown that a supranational central bank – without a supranational fiscal authority – can create problems, namely the possibility of sovereign national default. The correct solution requires an international clearing union – but each nation running its own monetary and fiscal system.

Q: Abolishing the use of national currencies as international reserves and substitute bancor in their stead was a truly prescient vision from Keynes?

Paul: Keynes of course was more worried about going back to the gold standard – the idea was to have an accounting mechanism that keeps score among the international payments between nations, but not allowing the public to speculate on this accounting system. I developed a solution in my book ‘The Keynes Solution: The Path to Global Economic Prosperity’.

Rolf: This is a vision and it is very likely that it will remain a vision. I do not think that the bancor would have the reputation and/or the backing of a strong national economy as the US had it for many years. One should not forget that the international role of the dollar was always owed to the dynamics, openness and absorptive capacity of the US economy as well as to its second international role as a “producer” of political security and stability.

Bill: The bancor idea is attractive in many respects, but I think it is very unlikely to be accepted and implemented. Getting the necessary agreement from all the key countries is difficult for me to imagine.

Q: Professor Davidson, rejecting the Keynes’ solution was basically a great power decision from the emergent superpower, the US?

Paul: It was solely a USA decision made by Harry Dexter White, the leader of the US Delegation.

Q: From Keynes’ proposals at Bretton Woods which “detail” or particular aspect impressed you more?

Paul: The need for the creditor nation to have a greater responsibility for solving international payments balance.

Q: But is it viable?

Rolf: There is no other solution than to reduce global imbalances by preferably symmetric commitments of both surplus and deficit countries. In reality, however, the major burden will rest upon the deficit countries. The idea of Keynes to establish an international clearing system that taxes or even confiscates excess gains of surplus countries is like riding a dead horse. No surplus country would commit itself to such a solution.

Q: The Chinese could be interested in an aggiornamento of the Keynes solution? Paradoxically, is it useful for China’s geopolitical and geoeconomic emergence the bancor idea?

Paul: The Chinese are worried about the Exchange rate that makes exports profitable. The bancor by itself does not solve that problem.

Rolf: Presumably yes, but it is also clear that they would be the main victims of any break with the past and probably futile trials to replace the dollar. They know that and they want to avoid these costs. This is why they doubt the sustainability of the current system while supporting it by backing the dollar.

Bill: Yes the Chinese have said as much and there is a recent IMF staff report that takes a positive view of the bancor idea. The Chinese probably would support having the fund develop the idea further.

SDRs are not decoupled from the dollar

Q: The present SDR (special drawing rights) system, created by the IMF and based on a basket of four currencies, has conditions to be developed in the short-medium-term as a transition period for a bancor solution in the future?

Paul: NO!

Rolf: The SDR is basically a credit and payments system among Central Banks. In the currency basket constituting the value of the SDRs the dollar has the largest weight. In this respect, SDRs are not decoupled from the dollar. Furthermore, SDRs so far have not acquired any further functions of the dollar as an international currency as mentioned above.

A bit of History

KEYNES TRIPS TO AMERICA

John Maynard Keynes made six trips across the Atlantic between May 1941 and 1946. In these trips he drafted a proposal he initially labeled “International Currency Union,” later renamed as “International Clearing Union” – what would be known as the “Keynes Plan”. The Basic idea was that each country would have a bancor (a new reserve currency) account which would be administered by an International Clearing Bank. The target of this proposal was for each economy to run a zero balance on this account, and through this ingenious system avoiding the bilateral trade imbalances. By 1942, this Plan was in its fourth draft. The British gives it full support – the former superpower was running a trade balance deficit, having a solvency problem and watching the Sterling Area overstretch. The Plan was the British strategy for the Bretton Woods’ negotiations in New Hampshire, in the US. But, the US has a different agenda – the emerging superpower saw the opportunity. Harry Dexter White, also an economist, was appointed special assistant to the Secretary of the Treasury in 1942 and his “plan” for the Bretton Woods summit was quite different – the US dollar should be at the centre of the international monetary system, not the bancor. The great confrontation took place for three weeks in July 1944 at the Mount Washington Hotel and Keynes suffered a minor heart attack and lost the political-financial battle. The US at that time had surpluses. The Agreement of 1944 set up the International Monetary Fund – a fund, not a bank – to provide short-term financial assistance for countries with balance of payments’ problems, and no solution to stop persistent reserve accumulation. Keynes would suffer a third massive heart attack in Easter 1946 and died. Irony of history, in 1947, Dexter White was accused of being a Soviet spy, although nothing was proven. He died also of a heart attack in 1948. More than 60 years after Bretton Woods, the US is a deficit and debtor nation. The global situation was reversed.

Subitamente, o pensamento dominante desabou com um abalo que começou com o que era julgado ser apenas uma crisezita do subprime e terminou num pânico financeiro global e numa quebra do produto mundial e do comércio internacional como não havia memória, precisamente, desde os tempos de Keynes.

Como reza um dos seus mais famosos ditos, os decisores “são geralmente escravos de algum economista defunto”.

Robert Skidelsky, de 70 anos, o seu biógrafo inglês, garante-nos numa entrevista (ver aqui original em inglês) que “O mestre regressou” – o título do seu mais recente livro sobre este economista que marcou politica e teoricamente a primeira metade do século XX. The Return of the Master foi publicado pela editora Penguin Allen Lane, no Reino Unido, em Setembro de 2009. O curioso em Skidelsky é que, politicamente, ele foi fundador do Partido Social-Democrata inglês, que se viria a juntar e mesmo a fundir, mais tarde, com os liberais, e passou, depois, alguns anos pelas próprias fileiras conservadoras, de onde foi corrido como dissidente.

O americano Paul Krugman, o mediático Nobel da Economia de 2008, ao fazer a recensão do livro de Skidelsky, exclamou: “Estamos a viver a segunda Era Keynesiana”. Krugman crê que a janela de oportunidade do keynesianismo se entreabriu, fruto da prática dos governantes, até mesmo liberais e conservadores,  contra a Grande Repressão e de alguma desorientação nas fileiras do pensamento liberal em economia. Robert Lucas, um acérrimo inimigo do keynesianismo, diria ironicamente: “Todos somos keynesianos na toca da raposa”.

Skidelsky concorda que estamos a viver “um segundo round” neste ringue da teoria económica, tendo escrito recentemente na sua coluna “Contra a Corrente”: “A Escola de Chicago está mais do que nunca vulnerável, e bem o mereceu. Mas o ataque a esta corrente nunca será eficaz se os keynesianos actuais – como Krugman – não souberem retirar as implicações da incerteza na teoria económica”, um ponto capital no pensamento original de Keynes, a que voltaremos mais adiante.

A principal herança

O regresso de Keynes não se faz sem chocar o pensamento dominante, como sempre foi seu timbre, na academia e na sua vida pessoal e social em Cambridge ou em Londres, ou nas suas idas a Nova Iorque nos anos 1940, passando por Lisboa. “Se Keynes fosse vivo, provavelmente estaria de acordo com os críticos da financeirização extrema da economia”, refere-nos Skidelsky, retorquindo sobre o que seria, a seu ver, o impacto mais actual do seu pensamento.

O que pode parecer um paradoxo – Maynard, como era conhecido entre os mais íntimos, sempre foi um bon vivant, um viciado numa boa partida de bridge regada com champanhe, e sobretudo um especulador em bolsas, commodities e divisas. Amassou uma fortuna nessas andanças (e, também, perdeu somas consideráveis nos crashes da época, como em 1929) e deu de ganhar às instituições de que era curador ou à companhia de seguros de que era presidente. Com os frutos dessas euforias “irracionais” dos mercados financiou os seus círculos de boémia, os seus hóbis culturais, a sua bailarina-mulher e o seu vício pelo coleccionismo de arte e ‘velharias’ literárias.

Mas tinha uma noção das proporções – a financeirização, que vinha crescendo desde os anos 1860, e que já provocara uma crise global em 1907 e 1908, tinha ele vinte e poucos anos, distorcia a dinâmica da economia capitalista. O filme repetira-se, depois, no final de 1929 com efeitos dramáticos de 1930 a 1933. O Mestre via essa financeirização como transformando a economia numa coutada de caçadores de rendas financeiras, o que os franceses chamavam de sistema rentier, uma “espécie” a quem o economista herético americano Thorstein Veblen (1857- 1929), que morreria antes do crash de Outubro de 1929, recomendava a eutanásia, como Keynes bem recordou, num dos seus momentos de maior ira – recorda-nos, hoje, com ironia, Skidelsky.

As duas mortes de Keynes

Keynes morreria em 1946, sem ter tido hipótese de ser galardoado com o Nobel da Economia (que só se iniciaria em 1968), depois de uma longa carreira como funcionário público (incluindo Director do Banco de Inglaterra, o banco central, e membro do Departamento do Tesouro, o equivalente ao nosso Ministério das Finanças), como perito em diplomacia económica (tendo participado na Conferência de Versalhes depois do final da 1ª Guerra Mundial e nos anos 1940 nas célebres negociações de Bretton-Woods), e como professor em Cambridge, onde os seus seminários de fim-de-semana ficaram célebres.

Morreria pela segunda vez nos anos 1970 – agora doutrinariamente. A revolução dos anti-keynesianos, iniciada na Escola de Chicago, na América, ridicularizou o mestre inglês, deitou para o caixote do lixo coisas “estranhas” como a ideia de que a economia era dominada pela incerteza e pelo desequilíbrio, alimentada pelas pulsões humanas que denominou de animal spirits e não por um arquétipo idealista, abstracto, de agente económico “racional”. Ainda por cima Keynes havia reabilitado o maldito Thomas Malthus, numa chapada dada aos fãs de David Ricardo.

Inclusive muitos dos seguidores de Keynes se renderam à nova economia formalista e empurraram o keynesianismo – ou pelo menos, a sua vulgata – para uma grande convergência com os inimigos teóricos do Mestre. Alguns deles seriam premiados com o Nobel. “Bastardos”, lhes chamou, com raiva, Joan Robinson (1903-1983), uma das discípulas, mais aguerridas, de Keynes em Cambridge, uma das mulheres mais proeminentes na Economia, que era, também, do círculo dos seus amigos. Aliás, com Virginia Woolf, a grande animadora do grupo intelectual rebelde e boémio de Bloomsbury em Londres, e com a bailarina russa sua mulher, Lydia Lopokova, a jovem Joan era um dos marcos femininos de então no espaço privado keynesiano muito marcado também pelos amigos íntimos. Muita gente lamenta, hoje, que Robinson nunca tenha recebido o Nobel de Economia – teria sido a primeira mulher, muito antes de Elinor Ostrom, este ano. Mas Joan Violet teve alguns pecadilhos, como o seu interesse pela revolução maoista desde o final dos anos 1950, depois das suas visitas à China.

Incerteza não é o mesmo que risco

Precisámos de mais de trinta anos, para reaprendermos, com dor, os marcos fundamentais do verdadeiro pensamento keynesiano, recorda Skidelsly, que os resume em três pilares (ver Caixa).

Mas há um pilar que o lorde inglês faz sobressair na discussão actual entre o keynesianismo e o pensamento liberal em economia: a questão da incerteza, que distingue do risco. “Muitas vezes estamos a falar de gestão de risco, quando deveríamos falar de gestão da incerteza”, se quisermos ser fiéis a Keynes, disse-nos Skidelsky.

Do seu ponto de vista, a maior contribuição de Keynes para a teoria económica foi a ênfase “na precariedade extrema da base de conhecimento” (nas próprias palavras do mestre) de que cada um de nós dispõe.

A nossa ignorância força-nos, como investidores, como empresários, como profissionais a basear as nossas decisões em ideias preconcebidas e em impulsos, por vezes de inovação, de ruptura, mas também inclusive de imitação, onde o pensamento de grupo (groupthinking, segundo Roland Benabou, num trabalho de 2008 sobre o seu papel nos mercados) impera. Animal spirits lhe chamou Keynes – o que motivaria um livro recente dos economistas americanos “comportamentalistas” George A. Akerlof e Robert J. Shiller.

E Keynes, provavelmente para surpresa de muitos leitores, não considerava essa pulsão como responsável por comportamentos “irracionais”. Ele nunca achou que os “agentes económicos” (para usar uma categoria do economês) actuavam como tontos. “Ele pensava o racional como ‘razoável’. Em geral, os seres humanos actuam com razoabilidade – obviamente tendo em conta o que as circunstâncias permitem. Nestas circunstâncias se inclui a irredutível incerteza. Actuar impulsionado pelo animal spirits era, para Keynes, algo racional face ao desconhecido, à incerteza”, sublinha-nos Skidelsky.

A redescoberta da dimensão geopolítica

As divergências no pensamento económico têm sido o prato forte da recordação de Keynes durante o pico desta recessão. A polémica entre Keynes e Hayek nos anos 1930, ainda em Inglaterra, entre fazer intervir ou não a política orçamental (o que levantava os temores de “socialização” da política macroeconómica, um risco que o pensamento anti-totalitário temia) e a política monetária (Hayek era pela sua neutralidade), é o que tem despertado, junto dos especialistas em história, maior interesse actual.

Mas há uma outra dimensão de Keynes que a emergência do G20 e o colapso de alguma herança dos acordos de Bretton Woods dos anos 1940, trouxeram à tona. É um aspecto esquecido da dimensão da vida e da obra do economista – o seu envolvimento na geopolítica, o ter sido protagonista dos confrontos geopolíticos do seu tempo, desde a primeira à quarta década do século XX.

“Ele era mais um pensador político e histórico. Podemos vê-lo, logo desde início da sua carreira literária, com a obra de 1919 intitulada Consequências Económicas da Paz, no caso era a Paz de Versalhes, após o final da 1ª Guerra Mundial”, diz-nos Colin Danby, da Universidade de Washginton. “Mas isso não encaixa muito bem na gaveta da economia como é geralmente entendida”, acrescenta. Keynes, então, avisou que a forma como a Alemanha derrotada estava a ser tratada pelos vencedores da 1ª Guerra Mundial produziria maus resultados – a realidade dar-lhe-ia razão década e meia depois, com o ascenso do totalitarismo nazi naquele país e o rebentar de nova Guerra Mundial. Esse aviso levou-o a afastar-se do lugar de representante oficial do Tesouro inglês nas negociações. O livro foi traduzido em 11 línguas (o que deu um retorno financeiro apreciável), mas os líderes das potências ganhadoras não lhe ligaram nem um segundo.

Keynes voltaria à diplomacia económica nos anos 1940, durante a 2ª Guerra Mundial. Ele negociou em 1941 um empréstimo americano à Inglaterra a troco do uso de bases inglesas estratégicas espalhadas pelo mundo. A primeira visita à terra do Tio Sam, em Maio de 1941, teria o Estoril como ponto de passagem de Keynes e da sua bailarina. Seguir-se-iam mais cinco viagens transatlânticas até 1946. O segundo ataque cardíaco da sua vida surpreendê-lo-ia numas escadas no Mount Washington Hotel em que decorriam as negociações de Bretton Woods em 1944, onde ele apresentou o que viria a ficar conhecido como “Plano Keynes”.

A ideia do economista inglês era criar uma nova divisa internacional, que apelidou de ‘bancor’, que se tornaria referência, substituindo o colapso da libra esterlina e evitando a transformação do dólar (apoiado no ouro) em centro da nova ordem monetária. Apesar do prestígio de Keynes e dos sorrisos trocados com os americanos, o plano alternativo de Harry Dexter White, assistente especial do Secretário do Tesouro americano, ganharia a parada.

Keynes, na ponta final da vida, era vencido pela geopolítica, pelo declínio inexorável do Império de Sua Majestade e pelo triunfo do Século Americano. Os americanos dar-lhe-iam de presente final uma última humilhação: Keynes reclamaria uma dádiva americana à Inglaterra de 6 mil milhões de dólares, como assistência à economia inglesa devastada pela guerra. O novo presidente americano, Harry Truman, aprovaria, apenas, um empréstimo, e não uma dádiva, de pouco mais de metade. E a contrapartida era o golpe final no Império Britânico: Washington exigia que a zona do esterlino (onde estava, por exemplo, o Portugal da ditadura salazarista) se abrisse de par em par ao comércio de terceiros.

Sessenta e cinco anos depois, os críticos do dólar como divisa internacional recordam a proposta visionária de Keynes. Até mesmo os líderes do banco central chinês o recordam hoje, ironizando contra os americanos. Keynes regressou, também, neste segundo round, a este ringue geopolítico. Veremos se ganha.

Veja se é um keynesiano

Os três pilares do pensamento do Mestre

1-      O futuro é incerto, não é apenas arriscado. O mercado é intrinsecamente instável. Esta incerteza é o fundamento das flutuações, das ‘bolhas’ e dos pânicos do capitalismo.

2-      As economias abaladas por estes choques, se deixadas em roda livre, entregues a si mesmas, poderão permanecer em situações de depressão prolongada com todas as consequências conhecidas (incluindo um desemprego trágico). Por isso, é indispensável uma política monetária, que não pode ser (nem nunca é) neutra, e uma política orçamental para estes tempos “anormais” (uma palavra usada cirurgicamente por Keynes). Acrescentava, ainda, que a manipulação das taxas de juro não era suficiente para derrotar as crises.

3-      As manias do capitalismo financeiro desenvolveram um sistema rentier que é tudo menos “um caminho para um mundo civilizado”.

Perfil do autor

Robert Skidelsky

É professor emérito de Economia Política, na Universidade de Warwick, em Inglaterra. Tornou-se internacionalmente uma referência com a sua trilogia sobre Keynes, publicada em 1983, 1992 e 2000, que foi muito premiada, e que continua a ser hoje a obra-chave para a compreensão da vida e obra do economista de Cambridge. O curioso em Skidelsky é que ele nunca tirou curso algum de Economia, considera-se mais um historiador. O seu encontro literário com Keynes deu-se em 1978 e a sua paixão pela obra e a vida do pensador e boémio levaram-no a arrendar por vinte anos a própria casa de campo em Tilton do Mestre. Deixou-a em 2006. Foi-lhe atribuído o titulo de Lorde. Passou, de raspão, pela política, como fundador do Partido Social-Democrata inglês nos anos 1980, criado como reacção ao esquerdismo do Partido Trabalhista. O PSD acabaria por se fundir com o Partido Liberal. Skidelsky, em fim de militância política, juntou-se, por algum tempo, aos conservadores. Tornou-se porta-voz da Oposição dos conservadores na Câmara dos Lordes, primeiro para os assuntos da Cultura e depois para as Finanças. Opôs-se ao bombardeamento da Jugoslávia pela NATO, o que lhe valeu o ódio conservador. Abandonou a política em 2001.Desde 2003 que é director não-executivo de um fundo, o Janus Capital, e, desde o ano passado, também da Sistema, a gigante das telecomunicações russas. É director da Escola de Estudos Políticos em Moscovo e presidente do Center for Global Studies, nos EUA. Escreve uma coluna mensal intitulada, apropriadamente, “Contra a Corrente”. Este mês, a abrir o novo ano, publica na Random House A World by Itself: A History of the British Iles, uma história breve do Reino Unido durante o século vinte. Tem em preparação um livro sobre globalização.

Versão original publicada na Revista portuguesa EXAME na edição de Janeiro de 2010. (c) Jorge Nascimento Rodrigues, 2010.

Former Federal Reserve (Fed) Chief Paul Volcker’s so called Financial Reform Plan, released after President Obama’s speech decrying ‘fat cats’ on Wall Street, could be one of the most important prescriptions for the post-financial crisis. We interview two of today’s most important economics bloggers, University of Oregon Economics Professor Mark Thoma, editor of Economist’s View, and Dr. David Caploe, Chief Political Economist of the Singapore-based EconomyWatch.com, who holds a Ph.D. in International Political Economy from Princeton.

THE CONTEXT

Before getting to their intriguing thoughts, I would emphasize three contextual aspects of the environment in which any financial reform must operate.

“Systemic” concerns clearly go beyond such proposals as Consumer Financial Protection Agency to regulate financial products, or the so-called “populist” move to “downsize” megabanks, disallowing a market share beyond a certain size, say, 10 percent of deposits held nationally. One of the intentions of the Volcker Plan is to have the right to dissolve financial companies before they pose systemic risk. In addition, banking proprietary trade – trading on their own account – will be banned, and commercial banks will also be forbidden from owning hedge funds and private equity firms.

A new complex financial ecosystem

Following Giovanni Arrighi, we think a prime focus should be on so-called “financialization”: “systemic cycles of accumulation” of increasing scale and decreasing duration, each consisting of a phase of material expansion and a phase of financial expansion.

In this general context, the financialization wave from the 1970s changed completely the banking and financial ecosystems. While it was enough in the 1930s, for example, to separate commercial and investment banking, today, maintaining a wall between traditional banking and the leverage mania of new financial investment trusts and funds is no longer sufficient. The system is much more complex, as Gary Dymski has already explained in his research and the interview we published. Given this, a proposed modern form of the New Deal-era Glass-Steagall Act may not be adequate.

As David Caploe, in the interview below, emphasizes: “As you note, [the Plan] does nothing to deal with the serious issues that were raised by the ‘under cover of night’ revocation of any sort of regulation of derivatives in the waning days of the Clinton administration, which are the real problem today, and which Volcker simply doesn’t deal with in any way.”

This is what leads us to wonder whether the Volcker Plan misses the target.

The question therefore is whether the Obama administration has enough focus on Wall Street’s current business model. As Chris Wallen, from Cumberland Advisors, recently posted: “Volcker has become an advocate of reform, but only focused on those areas that do not threaten Wall Street’s core business, namely creating toxic waste in the form of OTC derivatives such as credit default swaps, and unregistered, complex assets such as collateralized debt obligations, and stuffing same down the throats of institutional investors, smaller banks and insurance companies.”

TBTF hold Washington hostage

It seems also the Plan does not deal with the lending freeze and the rent-seeking lobbying. Caploe argues: “The ‘lending freeze’ is a conscious effort of the Too Big To Fail (TBTF) banks and insurance companies to hold the political system hostage.”

This dovetails with another aspect: the liaison of lobbying with financial rent-seeking and “exuberant” financial leverage.

A study by Deniz Igan, Prachi Mishra, and Thierry Tressel, published in the Working Papers of the International Monetary Fund, found that lenders lobbying more on issues related to mortgage lending a) had higher loan-to-income ratios, b) securitized more intensively, and c) had faster growing portfolios than other lenders. Since the crisis, delinquency rates are higher in areas where lobbyist’ lending grew faster, and which experienced abnormally negative stock returns during key crisis events.

In their paper, “A Fistful of Dollars: Lobbying and the Financial Crisis”, the three IMF researchers studied empirically the hot “link”: “Lobbying is associated ex-ante with more risk, and ex-post with worse performance.”

One point is particularly relevant: in the current crisis, sixteen of the twenty lenders that spent the most on lobbying between 2000 and 2006 received funds provided by the government under the Emergency Economic Stabilization Act. In total, lenders that lobbied on specific issues received almost 60 percent of the funds allocated.

This “linkage” reveals one of today’s huge structural problems: political influence in the financial ecosystem, which has serious impact on overall financial stability.

The study concludes: “Our analysis suggests that the political influence of the financial industry can be a source of systemic risk. Therefore, it provides some support to the view that the prevention of future crises might require weakening political influence of the financial industry, or closer monitoring of lobbying activities to understand the incentives behind them better.”

As analyst Mark J. Lundeen recently put it, “politicians and lobbyists have become bigger players in the ‘free markets’ than the actual buyers and sellers.”

In countries like the US and the UK, the financialization wave went farther with politically dominant financial sectors. As Lord Robert Skidelsky posted recently: “At root, the battle between the two approaches is a question of power, not of technical financial economics”. Says the English biographer of Keynes, “Much more powerful financial lobbies now stand between pen and policy. If reformers are to win, they must be prepared to fight the world’s most powerful vested interest”.

Stopping “Short-termism”

As Mark Thoma says in the interview below: “One of those [things] is to make sure that bank executives have an interest in the long-run outcome of the transactions they engage in – the maximization of short-run profits through excessive risk-taking has to be stopped.”

Professor Thoma highlights one of the management barriers of today: optimal executive compensation induces managers to favor speculative components and a rent-seeking dynamic. Short-termism is thus linked with risk-taking. Any reform that is to be taken seriously will need to change these incentive dynamics.

INTERVIEWS by Jorge Nascimento Rodrigues, 2010 © I thank David Caploe for his helpful comments and careful revision.

David Caploe: “From a political point of view, it’s, as we say, DOA — dead on arrival. No one in [the US] Congress is taking it very seriously.”
Mark Thoma: “I don’t think the Volcker proposal by itself is nearly enough.”

Q: Do you think the Volcker Plan is appropriate to reform the financial system, and sufficient to limit the risks of the financialization trend?
David Caploe (DC): While I don’t think the Volcker Plan is particularly bad from an economic point of view — all it does is re-instate the division between commercial banking, which is relatively safe and boring and can legitimately receive deposit banking insurance from the Federal government and investment banking, which is much more speculative, and should NOT receive insurance from the government — it’s yet another example of, as we say in the US, “closing the barn door after the horse has already run out”: that is, it is simply not adequate to the issues the US and global financial systems currently confront. And from a political point of view, it’s, as we also say, DOA — dead on arrival. No one in [the US] Congress is taking it very seriously.
Mark Thoma (MT): I think that the Volcker plan does some good things, and it prevents some behaviors that could cause problems – big ones – in the future. And if a crisis does occur, as it will again someday, a rule like this will help to attenuate the effects. But I don’t see this particular problem as the key element of this crisis, so no, this alone is not enough. Much, much more is needed.

Q: Isn’t it too late? Or is now the right time to enforce limitations on what Obama called “the fat cats”?
DC: As my previous answer indicated, it’s WAY too late. There certainly needs to be both regulatory reform and — just as importantly — actual enforcement of regulations that already, and may soon, exist. But the Volcker Plan is just not relevant to either the immediate problems — above all, absolute transparency for ALL derivatives transactions, although, again, it’s also way too late for that as well — or the overarching ideological and ethical breakdown that began in the Reagan era and reached its unfortunate apotheosis during the nightmare years of Cheney / Bush.
MT: Well, it’s surely too late for the present crisis, but it’s not too late to do something to make things safer in the future. One of those is to make sure that bank executives have an interest in the long-run outcome of the transactions they engage in, the maximization of short-run profits through excessive risk-taking has to be stopped.

Q: It seems Volcker wants to return to some of the discipline rules of the Glass-Steagall Act of the FDR era, which were revised in the 1990s and gave “full speed ahead” to financial innovations in leverage, high speed trading, derivatives, etc. If passed in the Senate and House, will this shift in legislation return a sound financial system to the US?
DC: It’s precisely the return of Glass-Steagall, which the Democrats stupidly revoked when Clinton was in charge, under the direction of the “destructor-in-chief” Treasury Secretary Robert Rubin — former head of Goldman Sachs, then afterwards head of Citigroup, where he did such an excellent job of helping run it into the ground — and his loyal henchman, Larry Summers — now head of the National Economic Council — and HIS henchman, now Treasury Secretary, Tim Geithner. But as you note, it does nothing to deal with the serious issues that were raised by the “under cover of night” revocation of any sort of regulation of derivatives in the waning days of the Clinton administration, which are the real problems today, and which Volcker simply doesn’t deal with in any way.
MT: I don’t think the Volcker proposal by itself is nearly enough. I would like to see limits on leverage/higher capital ratios, much more transparency including using organized exchanges whenever possible (or at least reporting transactions to regulators), and more attention to the incentives the system creates for ratings agencies, mortgage brokers, real estate appraisers, etc.

Q: Financial people say this movement from the Administration will provoke a double dip in both the stock markets and the real economy. Does this seem possible? Or is it a purely political emanation from the financialization ecosystem?
DC: Not to speak too broadly, but financial people almost always argue that ANY kind of regulation is going to “shake investor confidence” and create problems in the markets, and, hence the real economy. How they have the nerve to say things like this after the absolute mess they created in the US and – because the US is the center of the world political economy – global economies is absolutely beyond me. The “lending freeze” is a conscious effort of the Too Big To Fail banks and insurance companies to hold the political system hostage via blackmail and extortion: until you assure us that you, the government / taxpayers, are going to cover ALL our losses — and remember, those from both derivatives AND unsecured credit cards have yet to explode, although the Greek crisis is giving us a small taste of the former — while we retain the profits, we’re not going to lend anybody anything, no matter how low the interest rate may be.
MT: They always make that argument, and always will. I am not worried about this.

Q: Is there a risk of an overlap of these and other financial reform plans with a fiscal or sovereign debt crisis in the US, as the deficit hawks argue?
DC: As Paul Krugman has correctly argued, there MAY be a problem in the distant future with inflation. At the moment, however, by far the most significant macro-level economic problem is unemployment in all sectors but finance, and the failure to do something serious about that is not just criminal from a human point of view, but is also totally destructive economically, since it continues the vicious cycle characterized by little or no growth due to the lack of effective overall demand — which remains the case, whatever the cooked numbers of the Bureau of Labor Statistics may pretend.
MT: I don’t think so. And there are some reforms, e.g. a transactions tax that could help with the long-run budget picture.

BRIEF PROFILES
David Caploe
David is President & CEO of the Singapore-based American Center for Applied Liberal Arts & Humanities in Asia – ACALAHA, and before that was Founder and Director of the MA program in Media Studies at New College of California in San Francisco. He moved to the island city-state in mid-2007 and recently became Chief Political Economist of EconomyWatch.com, while continuing efforts to develop innovative graduate education in Singapore, the education hub of East Asia.

Mark A. Thoma
Associate professor of the Department of Economics of the University of Oregon, he teaches monetary theory, macroeconomics, Econometrics, International Finance, History of Economic Thought, International Economics, Money and Banking, Microeconomics and Managerial economics. He also edits the blog Economist’s View.

Perhaps it seems a paradox. Keynes was a bon vivant, a bridge gambler and champagne aficionado, he traded in currencies, commodities and stocks where he amassed a fortune (but also lost in the stock market in 1929), he was a manager of an investment company and chairman of a life insurance company, but he regarded financial manias as chaff in a casino – he was a heretic intellectual and investor. Keynes even admitted once he would follow the American Thorstein Veblen radicalism and advocate “the euthanasia of the rentier”. Harsh words, indeed. Critics will say he was a dilettante.

John Maynard Keynes died at 63 in 1946, over sixty years ago, after a long carrier as British civil servant (including director of the Bank of England and member of the Treasury Department), international negotiator (Bretton-Woods has his name in the Wall and long before he represented the Treasury at the Versailles Conference), prolix author, modern art collector, cultural venture capitalist, curator, benefactor, investor, compulsive talker – a man of many facets and tricks (his nickname among his close bohemian friends was Pozzo).

Keynes died for the second time in the 1970s when the new anti-Keynesians ridiculed his theories and medicines. For three decades, the British economist was in eclipse. American ‘efficient markets theory’ and monetarism won the academy and the politicians. Milton Friedman, Eugene Fama and Robert Lucas substituted Keynes in the mainstream Economics and Treasury Secretaries and Departments thinking.

“But, Keynes, it turns out, is having the last giggle. We’re living the second Age of Keynes”, as observed by Paul Krugman reviewing Keynes: The Return of The Master, the new book from Lord Robert Skidelsky, just published in September, in the UK (Allen Lane, Penguin Books).

This reemergence of Keynes didn’t come without severe pain. We needed to suffer a Great Panic in 2008 and the menace of a new Great Depression to assist to his glorious return as a savior. Although a dead worldly philosopher, he came back not as ghost but as a master economist, the Master, as in the title of the new book.

Skidelsky, Keynes’s acclaimed biographer, explained, in this interview, why this book now: “The main reason was that I considered that some of Keynes’ neglected insights into the nature and purpose of economic life were ripe for recall in the light of the total failure of the dominant current schools of economics to explain how a crisis of this magnitude could erupt out of supposedly efficient financial markets.”

If we can summarize The Master in short sentences useful for nowadays politicians, economists and amateurs, we would follow Skidelsky four steps about Keynes thinking:

1- The future is uncertain, rather than merely risky; the market system is inherently unstable; this irreducible uncertainty lies behind bubbles and busts of capitalism, explains the intrinsic instability of market economies;

2- Economies hit regularly by ‘shocks’ can, if left to themselves, run down and stay depressed a long time; that’s why we need monetary and fiscal tools from the State in those exceptional times for a “abnormal” (a word used with a chirurgical intention by Keynes) government spending, that will work as a multiplier provoking a snowball effect;

3- The permanent task of government is to maintain an environment in which the ‘shocks’ were less likely to occur;

4- Capitalist financial manias developed a rentier seeking system which is not the same as a means to a civilized word.

Perhaps these four propositions will suffice to define you as a Keynesian, dear reader.

AUTHOR’S PROFILE: Robert Skidelsky

Lord Skidelsky, 70, is emeritus professor of Political Economy at the University of Warwick, in the UK. His three volume biography of Keynes, published in 1983, 1992 and 2000, received numerous prizes. This work “should be given a Nobel Prize for History if there was such a thing”, said the British historian and prominent academic Norman Stone. He was elected Fellow of the British Academy in 1994.

His early life was raised in turbulent times. He was born in Harbin, Manchuria, in 1939 at the time occupied by the Japanese since 1931. His parents were British citizens from Russian and Jewish ancestry. He and his parents were interned in prison camps in Manchuria and in Japan in the 1940s. After, the family was released in exchange for Japanese internees in England. With the triumph of Mao in China, Robert came to Britain as a student in 1950. He published several books since 1967. He began his adventure trough the life of Keynes after appointed professor of International Studies at the University of Warwick in 1978. He retired in 2006. One curious consequence of writing about The Master was that Skidelsky acquired Keynes’s country house in East Sussex in 1986 on a twenty year lease.

Skidelsky never took a degree in Economics. He got some tutorials or supervisions from eminent economist friends, as he explained. He considers himself an economic literate historian – not a professional economist at all. His passion from his ninth birthday in Tientsin (China) is history, world history. In 1995 he wrote World after Communism and in 2008 he completed a short history book: Britain in the 20^th Century. He is co-authoring a book about the sense and non-sense of Globalisation, forthcoming next year. He passed through politics, as a founder member of the British Social Democratic Party and joined the Conservatives. He was against the current several times and left politics in 2001.

Since 2001 he accepted positions in financial companies in the US. He is ironic about this last twist in his life: “I believe this could only happen in the USA. In the UK nothing I have written or done has suggested to anyone that I might be suited for money-making!”

TWO TIPS from the interview below

Most relevant aspect nowadays

«I think the aspect of Keynes’s work most relevant to what has happened in the last two years is his emphasis on uncertainty, and the distinction he made between uncertainty and risk. Too often we talk of risk management when we should be talking of uncertainty management.»

Animal Spirits, rationality and irrationality

«Keynes did not believe that human beings acted irrationally. He thought of rational as ‘reasonable’. In general human beings acted as reasonably as their circumstances allowed. These circumstances included the existence of irreducible uncertainty. Acting according to ‘animal spirits’ was rational in the face of the unknown, as indeed was herd behaviour.»

A short interview with Lord Robert Skidelsky

QUESTION: This financial crisis, the risk and fear of a new Great Depression, the G20 dynamics bring back Lord Keynes after 30-40 years of exile in the academic world. Do you think – for economics and for politicians – this is a “Keynesian moment”?

ANSWER: Yes definitely. The ‘stimulus’ is a Keynesian policy tool based on Keynesian reasoning. As Robert Lucas of Chicago University said ‘We are all Keynesians in the foxhole’.

QUESTION: Where the Keynesian heritage is most appropriate: in the anti-cyclical government policies, particularly the fiscal ones, or in the international agenda dealing with the turmoil in the international monetary system and the crisis of the dollar hegemony?

ANSWER: The stimulus is an emergency policy. Once the global economy is out of the foxhole, we have to set up a system which stops us falling into foxholes. This must include a more equal distribution of international reserves, which in turn involves an agreement on exchange rate rules. It also means an end to the political imbalances which have justified the hegemonic position of the dollar.

QUESTION: You have been a biographer of Lord Keynes for so much time. From his memories, which aspect, event or ditto, you think is the most appropriate for the economic and political landscape of today?

ANSWER: I think the aspect of his work most relevant to what has happened in the last two years is his emphasis on uncertainty, and the distinction he made between uncertainty and risk. Too often we talk of risk management when we should be talking of uncertainty management.

QUESTION: Lord Keynes “resurrected” Thorstein Veblen, the iconoclast of the theory of the leisure class, and he once said that he would recommend the “euthanasia of the rentier”. Facing the huge financialization of the OECD economies since the 1970s, in what sense Keynes thoughts can be useful today?

ANSWER: Keynes would have hated the excessive ‘financialization’ of the economy for the reason that it exalted abstract love of money above the enjoyment of concrete goods. While the former might be a means to the latter, it was too often a substitute. He wanted the economy to be as concrete as possible, so that people would not lose sight of this primary question: what is wealth for?

QUESTION: Professor Krugman recently opened a new American Keynesian revival, but the academia is very fragmented, and new economics’ approaches since the 1980s emerged, like the complexity economics, the evolutionist economics, the econophisics, the behavioral economics (although based on the animal spirits of Keynes), etc. Do you think it’s time for a Keynesian renaissance, or it would be better that different schools of thought blossom?

ANSWER: I believe the debate between those who believe market participants are rational and those who believe they are irrational is a red herring. The problem lies in the neoclassical definition of rational behaviour as behaviour which conforms with a mathematical model of individual decision-making. Any behaviour which deviates from this model is by definition dubbed irrational. Keynes did not believe that human beings acted irrationally. He thought of rational as ‘reasonable’. In general human beings acted as reasonably as their circumstances allowed. These circumstances included the existence of irreducible uncertainty. Acting according to ‘animal spirits’ was rational in the face of the unknown, as indeed was herd behaviour.