The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature (Updated 19 December 2011)

Starting from the perspective of heterodox Keynesian-Minskyian-Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of appropriate regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the ‘macroeconomics’ that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers’ delight. In particular, into a system without much ‘compulsions’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while doing the opposite to workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the ‘mature’ and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies—including many economists and the ‘new’ left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end, the crisis materialised when markets took their inevitable revenge on the rentiers by calling their (blatant) bluff.