Available here.

In terms of chronology, this is kind of the opposite of my review of From the Clinic to the Streets, in that I both read this back when I was first getting started in economics, back in 2010, and it came out in 2009, so it's not 'hot off the presses', but I think still worth a read.

Of course, this might raise some eyebrows amongst those of you noting specifics within my writing, namely that back in 2010 I would still have been 'neo-liberal' Tayroc, not even a doc yet, working away at my Bachelor's degree, and still fully believing in the free market. To understand why I still, despite my Marxist turn and this book's increasing age, think this book is still worth examining, and yes, even reading.

I originally had this book assigned to me in one of the first economics modules I ever took, which was on the history and theory of economic crashes. It being 2010 when I was taking this module, the 2007/08 crash was still very much on everyone's minds. Largely because it was still ongoing. Indeed, the module I was taking used a lot of literature one of two economists, Paul Krugman and Joseph Stiglitz, almost as if the convenor was trying to make us debate these two famous economists against each other. In the real world, they were also vying for the attention of Barack Obama (Stiglitz was also vying for the attention of the European Union). To gain said attention, they needed, in their respective works, to both explain the cause(s) of the 2007/08 collapse, as well as provide a path forward. Of course, this being the early 2010s, it had to be done entirely within the framework of capitalist modernity. The most radical thing one could call Stiglitz is a post-Keynesian, at best. Nothing wrong with the post-Keynesians, several of my colleagues are post-Keynesians, but I wouldn't call them radical.

Anyway, with the recent death of Alan Greenspan, my thoughts have been returning to the 2007/08 financial crisis, Greenspan, and Stiglitz's critiques of the system he built, which came crashing down in 2007. Thankfully, Greenspan wasn't exactly the most public of public figures, especially here in Britain, and so I haven't had to suffer reading a punch of hagiographies of Greenspan. I'm sure they're out there, but thankfully I've missed the lot of them. So this review, in a way, is also a reminder that not all who die are going to be missed, nor should they be venerated. At the very least, dear reader, try to lead the kind of life that won't be met with mass celebration upon its completion.

On this blog, I've discussed or hinted at, several times, the advent of neo-liberal economics. One of the problems with the concept of neo-liberalism is that the phrase 'neo-liberal' has been used fairly extensively, but never (at least until recently) by the proponents of the system, rather it is the term that was used to level criticism at it. Originally this was by economists who stood behind the Keynesian order that neo-liberalism had come to displace, or by Marxists who were aware of the trading in of one form of capitalism for something altogether worse. One of the joys as well as downfalls of the humanities is, of course, born of the fact that we tend to share our toys. In fairness to my colleagues in the other disciplines, capitalism is, by design, all encompassing, and all consuming, seeking to transform everything into a commodity from which capitalised value can be extracted. Resultantly, critiques of capitalism can, and even must, come from all of the places where the commodification is occurring. The downside of this, unfortunately is that sometimes terms like 'neo-liberalism' get used extensively by people who don't understand entirely what it is, or even by neo-liberals themselves to dismiss the 'bad things' they don't like, and eventually the concept is left watered down, devoid of meaning, and lacking the original 'punch' that provided it the extensive utility prior.

As such, let's define what I mean when I say 'neo-liberalism', which is based at least in part by what Stiglitz means. When I teach the history of modern economic thought to my students, I tend to draw a timeline on the ol' whiteboard, starting in the 18th century and drawing through to today. This was a bit easier during the Covid-19 pandemic, as the 2020 lockdowns gave a nice natural stopping point, but of course now we're beyond. Further, I should add, as I do when I'm teaching, that there is always easy ways to critique categorical variables, as the boundaries are more often then not imposed by the biases and interpretations of the person creating the categorical variable. With all these warnings aside let's get a brief idea of the time table I typically layout:

Origins of Capitalism (1500 - 1815)

• 1500s Spain and Portugal begin the era of European Expansionism

• 1588 The Dutch Republic is established.

• 1600 The English/British East India Company given Royal Charter

• 1602 The Dutch East India Company and Amsterdam Stock Exchange established.

• 1660 Royal Africa Company established (Charles II giving charter)

• 1680 Jonathan's Coffee-House established, London stock traders meet there

• c. 1688 Lloyd's Coffee-House becomes known for insurance providers

• c. 1760 beginning of the First Industrial Revolution in Lancashire

• 1776 Adam Smith publishes The Wealth of Nations

• 1789 French Revolutionary Wars begin

• 1803-1815 Napoleonic War (Brings old order to a violent end)

Formalisation of British Capitalism (1815-1914)

• 1807 Abolition of Slave Trade Act passes Parliament, Receives Royal Assent

• 1832 Reform Act, 1832 expands sufferage, begins the 'age of reform'

• 1833 Slavery Abolition Act, 1833 ends slavery within the British Empire, reparations paid to former slave owners

• c 1830s 'Rail mania' begins in Britain

• 1846 'Corn Laws' repealed, Britain begins to advocate 'Free Trade Agreements'

• 1848 'Springtime of the Peoples' revolutions sweep Europe:

  • France

  • German Confederation

  • Austrian Empire

  • Italian states

  • Denmark

  • [British occupied] Ireland

  • Moldavia (Present-day Moldova, Romania, Ukraine)

  • Wallachia (Romania)

  • Poland (partitioned between Prussia and Russia)

• 1848 Marx publishes The Communist Manifesto

• c 1870 Second Industrial Revolution begins

• 1914-1918 First World War

Interwar Free Trade (1918 - 1937)

• 1920 Formation of the League of Nations

• 1922 Formation of the Union of Soviet Socialist Republic

• 1920s 'Roaring/Golden Twenties'

• 1922 Mussolini's Fascist Party takes over Italy

• 1929 Great Depression begins

• 1933 Nazi Party takes over German Republic

• 1936 'Ni Ni-Roku Jiken' in Japan sees several high level politicians killed, Military rule established over government

• 1937 Marco Polo bridge incident leads to war between China and Japan

• 1939 Germany invades Poland, Britain and France declare war

• 1937-1945 Second World War

Post War Keynesianism (1945 - 1977)

• 1944 Bretton Woods conference, all capitalist countries in attendence

  • Standardisation of international currency exchange

  • World Bank, International Monetary Fund established

• 1947 General Agreement on Tariffs and Trade (GATT) signed (predecessor to WTO)

• c 1950s, 1960s 'Golden Age of Capitalism

• 1962 Milton Friedman publishes Capitalism and Freedom

• 1973 OPEC oil embargo leads to 'energy crisis'

• 1977 Margaret Thatcher elected PM of Britain

• 1980 Ronald Reagan Elected President of the US

Neo-liberal Era (1977 - Present)

• 1989 Washington Consensus proposed by John Williamson

• 1992 Bill Clinton becomes President of the US

• 1992-1994 European Economic Area, European Union, North American Free Trade Association, Association of South East Asian Nations, Common Market for Eastern and Southern Africa, and Central American Integration System created (all Free Trade Agreements)

• 1997 Tony Blair becomes Prime Minister of the UK

• 2001 'Dot com' Bubble Crash

• 2007/08 Global Financial Crisis/'Great Recession'

• 2016 Brexit/Trump (Central rejection of neo-liberal globalisation, fascist reactionism)

• 2019/20 Covid-19 and subsequent crises

Future: ???

Stiglitz rose to prominence during the Clinton government, well into the neo-liberal turn that the US had taken, starting largely under Reagan, although some point to Carter's deregulation of the US airline market as the beginning of the transition away from the post-war Keynesian consensus. Stiglitz had done his PhD at MIT in 1967, having trained under Keynesians, and still firmly identifies as a Keynesian, most of his work criticising the neo-liberal turn. Despite this, he had been the Chair of the Council of Economic Advisors under Clinton and then the Chief Economist of the World Bank in the late 1990s. It is critical to note that despite his claims of being a Keynesian, he had considerably close ties to Clinton, as Clinton was very much a 'third way' candidate, who began the process of bringing the Democrats further to the political right and into the neo-liberal consensus, not unlike what Tony Blair would do as leader of the Labour Party here in the UK. In both cases, Clinton and Blair did not, as many had hoped, undo the damage of Thatcher and Reagan, rather they further embedded it into the opposition parties. In the UK this has frequently lead to Labour being referred to as 'Tory-lite'. When I lived in the US, there was still denial that the Democrats had fallen into being 'Republican-lite', albeit that is because at the time, the Republican Party was already further right than the British Conservative Party. In Stiglitz's defence, the most damage that Clinton did was the repealing of the 1933 Glass-Steagall Act in 1999, when Stiglitz was not part of the Clinton government.

The repeal of the Glass-Steagall Act is particularly important for Freefall because Stiglitz and others have (correctly) identified it as creating the conditions for the 2007/08 financial crisis. Namely because it removed regulations on banks that had been put in place since the end of the Great Depression, and largely in response to the Great Depression. Amongst those protections was the strict division between investment banking and commercial banking. Your average consumer has little need for the more advanced parts of banking, with most people having 'only' a current account (UK) or a chequing account (US). People with larger incomes or fewer expenses may also hold any variety of interest accruing savings accounts. Of course, the number of people with the liquidity necessary to justify a savings account has diminished as time has gone on, for reasons that we (and Stiglitz) will return to. This, of course, returns us to the fact that the majority of people hold exclusively a current or chequing account (depending on the banking tradition near you). Under the (near) Keynesian era in the US, banks would use the accruing capital of customer's savings accounts to provide the liquidity necessary to give out loans. Because the regulations required banks to retain cash on hand sufficient to honour customer's savings accounts, banks would only give out loans which they were fairly certain would be repaid with interest. The interest, here, being the key way for the bank to not only give out loans to customers, but to also gain profit. Thus, the logic goes, the bank has incentive to loan responsibly, as the loans would be the main source of profit. Surplus value, one may even suggest. Bank as lender became a huge part of the role that banks would play in building the economy of post-war America.

Importantly, credit was expensive. The idea was to keep the average consumer out of debt, since the risks included with debt was (and is) difficult for the average consumer to understand. If the bank incurred too much debt, and failed, the US government would bail out, not the bank as we've come to expect, but the holders of accounts, through FDIC insurance. This was, of course, done with the fairly Keynesian understanding that corporations and governments can take on financial risks that individual consumers could never afford to. Part of this down to the understanding that sovereign debt was acceptable, as the state has more guaranteed revenue streams than the individual could ever have, since the state possesses a certain amount of 'captive revenue' in the form of taxation for individuals and firms within the state, as well as fiscal policy tools that can alleviate costs.

Investment banks, on the other hand, could seek a return on investment by becoming shareholders in all manners of businesses, without having to worry about retaining the same kind of cash on hand to honour customer savings accounts. These investments were different than loans, as there was considerably different risk at play. Think modern notions of 'venture capital', wherein investors seek 'unicorns' in which they could 'buy low and sell high' based on stock market fluctuations. The collapse of the stock market in 1929 being frequently cited as one of the main causal agents of the Great Depression, the hope of the original Glass-Steagall Acts were to isolate banks away from investing so that a collapse in bank investments would not trigger a run on the banks akin to the one that lead stock market failure to becoming a general failure felt by persons who hadn't even invested. The repeal allowed consumer banks to return to investment, bringing back one of the main structural faults that had led to the 1929 collapse. Your savings account is once again capital for the bank to invest in AI.

Or more immediately back then, sub-prime loans. Deregulation around wages, mixed with erosion of anti-trust/anti-monopoly laws in the 1970s had led to a growing phenomenon, first in the US, although now a global phenomenon, in which the previous correlation between productivity (firm profitability relative to time) and workers wages had broken. Of course, those of you paying attention to the timeline above, this largely occurred at the same time as the OPEC oil embargo. I know it's difficult to imagine a cost of living crisis on top of wage stagnation, but my dear fellow Millennials (and Gen Xers) stick with me. This is where our 'dear friend' Dr Greenspan comes in. His genius solution to the 'stagflation' as this phenomenon became popularly known was to make credit cheap. This way, consumers could spend as if their wages weren't stagnating, and without having to ask the capitalist class to increase wages. This facilitated a remarkable transfer of wealth, away from the 'middle classes' who began to see their bank accounts empty, and who had to now perpetually service personal debt. This is the beginning of the 'credit score' reigning supreme, as most of the previous metrics for loan arrangements would no longer work under this new system of stagnant wages and increasing debt servicing. The keepers of the credit scores would not be governments, rather private entities overseen largely by the banks that consulted them, creating a whole network of 'perverse incentives' for the credit agencies to give favourable credit ratings to banks, even ones that weren't nearly as solvent as they pretended to be (looking at you AIG, Lehman Brothers, etc). This enabled a variety of institutions to give riskier loans to individuals that previously would not have been advised to take on the risk. These loans would then be packaged with other, less risky loans, a process called 'securitising' and then sold off in packages to other institutions, eliminating the risk to the borrowing institution. This, Greenspan believed, would give everyone easy credit in the form of home equity, and this would be fine since the value of land would 'always' go up.

Spoiler: It didn't always go up. Further, the number of junk mortgages in the system began to exceed the number of 'strong' mortgages to securitise the weaker loans. Mix this with the fact that many of the financial institutions were also 'cooking the books' a la Enron, since thanks to Enron 'mark to market' accounting had become standard practice, and the whole thing came tumbling down like a house of cards. To make matters worse, even as the house was on fire, the Bush and Obama governments upheld the kind of 'trickle down' economics, 'bail out the banks, not the consumer' practices that had been much of the kindling that caused the fire in the first place, as 'too big to fail' replaced the lessons learnt in the 1930s. Greenspan himself admitted he had been wrong, but Greenspan's rhetoric had been too profitable, and so it stuck. Instead of addressing the causal mechanisms, different avenues of cheap credit were pursued (student loans, microloans, etc, etc). The result is we're still stuck in the malaise that started 40 years ago, and the compounding cost of this failed economic model is being felt everywhere.

Rereading Freefall today, as Marxist Taylor rather than neo-liberal Taylor I'm struck by the fact that Keynesian policies like the ones Stiglitz proposes would have helped considerably, but even those weren't implemented. Nonetheless, Freefall still serves as a fantastic entry mechanism for those trying to understand how we got into this mess, what exactly this mess is, and why it feels like we're spinning our wheels without making any progress.