This book offers a frank and honest assessment of the opportunities and challenges ahead for both the US and the wider world, examining the leading economic, political, and social issues in the context of the several rational choice theories and the emergence of challenges to entrenched Western interests.

Minsky proposed classifying firms in three categories: hedge finance units which borrow no more than they are able to service in interest and principal out of operating cash flows, speculative finance units which are overleveraged to the point where they can service interest on their debt out of operating cash flows, but cannot repay the principal, and thus must continually roll over their existing debt, and Ponzi finance units, whose operating cash flows are inadequate even to service interest on their (...) debt. In Minsky’s financial instability hypothesis protracted prosperity leads endogenously to firms overleveraging themselves and transforming a market dominated by hedge finance into one dominated by speculative and Ponzi finance. Since Ponzi finance units are forced to sell off assets to service their existing interest payments, once the market is sufficiently dominated by Ponzi finance units, this creates an oversupply of assets offered for sale, and the resulting debt deflation causes a financial crisis and drastic shortage of liquidity. It appears this crisis state can be brought about by a deceptively low critical mass of Ponzi and speculative finance units. This paper uses a large 2002–2009 quarterly data set of all publicly traded North American firms and foreign firms traded on North American exchanges, a total of 8,905 stocks. Financial ratios are used to classify these firms in each quarter according to Minsky’s FIH categories. Market value is used to weight the categories, and average betas are computed as measures of volatility. Results provide dramatic support for the FIH. The FIH is then reinterpreted in terms of Austrian business cycle theory, which depends on inflationary credit expansion to drive the unsustainable prosperity. According to Minsky’s FIH, unsustainable prosperity emerges endogenously as long periods of economic expansion make borrowers and lenders alike more willing to engage in investment activities for which they fail to see the inherent risk. It becomes clear that this process is amplified and exacerbated by credit expansion. Minsky’s FIH helps flesh out some of the missing dynamics of the malinvestment liquidation phase of ABC theory, and the two views turn out to be surprisingly complementary. (shrink)

ABSTRACT The main cause of the crisis was the behavior of the banks—largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short‐sighted; lax regulation let them get away with it—putting at risk the entire economy. The mortgage brokers neglected due diligence, (...) since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary. But low interest rates can be a boon; it was the financial institutions that turned them into a bust. (shrink)

Examples of greed and environmental beneficence will be discussed in this chapter. The first example involves the crash of Wallstreet in 2008. Subprime mortgages instruments, complex derivatives and overleveraging in investment banks were major provocateurs in bringing down the economy. Volkswagen’s deceptive practices in measuring diesel fuel efficiency follows. The final example of greed is Boeing and the shoddy decision-making processes on the Boeing 737 MAX that led to the catastrophic crashes resulting in 346 deaths. Good news examples comprise the (...) second focus of this chapter. Some corporations have also demonstrated practices of good will, particularly toward the environment. We focus specifically on Interface Carpets, Unilever and 3M. (shrink)

Households and banks have increasingly displaced non-financial businesses and governments as the primary debtors in modern capitalist economies, resulting in more severe economic cycles, increased inequality, and external macroeconomic imbalances. Yet while the trend is nearly universal among developed economies, its intensity varies a great deal from country to country. This article highlights the common international causes behind the global expansion of household and financial sector debt; the divergent national approaches to household credit that cause household and financial sector indebtedness (...) to vary from country to country; and the likely causes of these disparate approaches. National approaches to interest rate restrictions, property transfer taxation, high loan-to-value mortgages, mortgage interest taxation, and secondary markets for consumer debt can either encourage or mitigate household and financial sector borrowing. Whether a country encourages or mitigates such credit is determined by an idiosyncratic mix of institutional, political, and ideational factors. Especially important are the size of domestic pension funds, banks’ preferred business models, the political power of financial firms, and whether policymakers are more sensitive to the gains promised by a credit-fueled expansion or to the risks posed by an overleveraged collapse. (shrink)

In lieu of an abstract, here is a brief excerpt of the content:Crushing Pressures and Radical IdeasJohn Z. Sadler, MD (bio)Back in 2011, I wrote a paper for the Journal of Bioethical Inquiry, an Australian journal, for a special issue dedicated to ethical issues associated with psychiatric genetics research. The editor was particularly excited by the recent findings of the 5-HTT allele in psychiatric illness. I had different ideas about what I wanted to write about, and the editor, Michael Robertson, (...) graciously considered them and ultimately published the paper. At the time I was interested in the colossal investment of National Institutes of Mental Health (NIMH) research dollars in psychiatric genetic research; at the time I was troubled at the lack of on-the-ground clinical implications of this research investment, and figured an Australian journal and referees would be more generous to a critical paper on U.S. funding priorities. I dug into the National Institutes of Health (NIH), NIMH, and National Science Foundation websites and found some crude dollar evidence of respective expenditures for research funding in various disorders and focus areas, and compared these investments to psychiatric genetic research funding commitments. I will not go into details (Sadler, 2011), but the gist was that the psychiatric genetics research enterprise was and had been an extraordinarily expensive enterprise, when other research questions that could be immediately implementable into clinical care improvements remained marginally funded at best. The paper was not read widely and other than a couple of annoyed responses from psychiatric genetic researchers, not much came of it.This concern about funding priorities was one of the reasons why I was pleased to see this paper by Turkheimer and Greer which explores the long term results of the Spit for Science (S4S) initiative, which was launched grandly the same year as my paper’s whisper from down under. I hope this Philosophical Case Conference explores the many dimensions of interest for this paper, which is extraordinarily careful and even handed in its attitude, while at the same time being incisive in its analysis.My focus here is not in the science per se, which is beyond my competence. I’m interested in Turkheimer and Greer’s (T&G) conceptual overview of this research program. More specifically, I focus on T&G’s highlighting of the extraordinary willingness of the S4S authors to interpret prevailingly negative results in the most generous, even misleading, degree possible. I try to provide some possible ways of understanding this kind of research rhetoric exhibited by a cohort of highly respected, very successful scientists.I acknowledge the well-described varieties of interpretive bias that all of us are subject to. First on the list must be confirmation bias, our tendency to interpret situations in terms consistent [End Page 447] with our preconceived notions—in this case, the idea that genetics has something important to do with addictive disorders. Another might be epistemic overconfidence—the tendency to fail at interpretive skepticism in favor of one’s preferred conclusion. Related to this may also be interpretive momentum, the tendency to maintain a conviction about the correctness of one’s expectations and disregard inconsistent findings over the course of a research program—in this case, the multiple S4S studies (O’Sullivan & Schofeld, 2018). However, these kinds of biases tend to “blame” the individual authors’ thinking styles. I opine, though, that other vectors shaping the declaring-success rhetoric are more important.These sources have to do with the state of practice in doing biomedical science research in universities and particularly academic medical centers (AMCs) today. I identify several causal vectors that compel, however subtly, researchers to declare success in the face of failure. I have only picked three, and in no order of importance: 1) funding caps for NIH grants, 2) the overleveraging of university budgets and ballooning dependence on soft money, and 3) the incentivizing of intellectual property development within AMCs.Funding Caps for NIH GrantsIf you are a university or AMC, one way you hold onto your most productive scientists (e.g., grants, publications, discoveries, and status) is by paying them well. Single NIH grants today commonly amount to millions of dollars, and often tens of millions. These bring... (shrink)