Proposals for a sustainable economy: Liquidity and credit as commons
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1 Proposals for a sustainable economy: Liquidity and credit as commons Gaël Giraud, SJ 1 1 CNRS, Paris School of Economics Centre d Economie de la Sorbonne, UMR CNRS 8174 ESCP-Europe Business School, CERAS Barcelona July, 2012 Technology and Business for a sustainable world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 1 / 43
2 Macro-economic imbalances 1 Macro-economic imbalances 2 What about public debts? 3 The rôle of liquidity and credit 4 Climate and Energy 5 Liquidity and credit as commons Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 2 / 43
3 Macro-economic imbalances I. Macro-economic imbalances I-1. Over-production in emerging countries Emerging countries have a high investment level ( 2 Western countries). Since the end of the 90 s, over-production in emerging countries. Hence, low domestic inflation and decreasing profit rates. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 3 / 43
4 Macro-economic imbalances I. Macro-economic imbalances I-1. Over-production in emerging countries Emerging countries have a high investment level ( 2 Western countries). Since the end of the 90 s, over-production in emerging countries. Hence, low domestic inflation and decreasing profit rates. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 3 / 43
5 Macro-economic imbalances I. Macro-economic imbalances I-1. Over-production in emerging countries Emerging countries have a high investment level ( 2 Western countries). Since the end of the 90 s, over-production in emerging countries. Hence, low domestic inflation and decreasing profit rates. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 3 / 43
6 Macro-economic imbalances Conversely: under-consumption in Northern industrialized countries due to too low wages. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 4 / 43
7 Macro-economic imbalances Conversely: under-consumption in Northern industrialized countries due to too low wages. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 4 / 43
8 Macro-economic imbalances I. Macro-economic imbalances I-2. Wages are too low Globalization of the labour market, wage dumping in emerging countries (and Germany), lower power of trade-unions, management based on shareholder value optimization, capital-friendly fiscality, exploding inequalities... Hence, the low domestic inflation (again). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 5 / 43
9 Macro-economic imbalances I. Macro-economic imbalances I-2. Wages are too low Globalization of the labour market, wage dumping in emerging countries (and Germany), lower power of trade-unions, management based on shareholder value optimization, capital-friendly fiscality, exploding inequalities... Hence, the low domestic inflation (again). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 5 / 43
10 Macro-economic imbalances I. Macro-economic imbalances I-2. Wages are too low Globalization of the labour market, wage dumping in emerging countries (and Germany), lower power of trade-unions, management based on shareholder value optimization, capital-friendly fiscality, exploding inequalities... Hence, the low domestic inflation (again). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 5 / 43
11 Macro-economic imbalances I. Macro-economic imbalances I-4.Debt as a substitute for wages? Since the middle of the 90 s : systematic development of consumption credit. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 6 / 43
12 Macro-economic imbalances I. Macro-economic imbalances I-4.Debt as a substitute for wages? Since the middle of the 90 s : systematic development of consumption credit. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 6 / 43
13 Macro-economic imbalances I. Macro-economic imbalances I-Inequality and leverage Kumhof and Rancière (2010) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 7 / 43
14 Macro-economic imbalances I. Macro-economic imbalances I-Inequality and leverage Kumhof and Rancière (2010) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 7 / 43
15 Macro-economic imbalances I. Macro-economic imbalances I-Inequality and leverage Kumhof and Rancière (2010) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 7 / 43
16 What about public debts? 1 Macro-economic imbalances 2 What about public debts? 3 The rôle of liquidity and credit 4 Climate and Energy 5 Liquidity and credit as commons Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 8 / 43
17 What about public debts? II. What about public debts? II-1. A recent issue Public debt in the Eurozone (Keen (2011)): Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 9 / 43
18 What about public debts? II. What about public debts? II-1. A recent issue Public debt in the Eurozone (Keen (2011)): Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 9 / 43
19 What about public debts? II. What about public debts? II-1. A recent issue Public debt in the Eurozone (Keen (2011)): Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 9 / 43
20 What about public debts? II. What about public debts? II.2. Public debts are not the problem Grece < 3% of the Eurozone GDP. (Why did nt Brussels notice Goldman Sachs swap?) Ireland 2007 : Public debt= 25% of its GDP Spain 2007 : 40% : (net public debt) 67%. 34% of the Spanish debt hold by non-residents. Italy: 32% hold by non-residents. Today s public debts mostly come from a transfer of private debts. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 10 / 43
21 What about public debts? II. What about public debts? II.2. Public debts are not the problem Grece < 3% of the Eurozone GDP. (Why did nt Brussels notice Goldman Sachs swap?) Ireland 2007 : Public debt= 25% of its GDP Spain 2007 : 40% : (net public debt) 67%. 34% of the Spanish debt hold by non-residents. Italy: 32% hold by non-residents. Today s public debts mostly come from a transfer of private debts. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 10 / 43
22 What about public debts? II. What about public debts? II.2. Public debts are not the problem Grece < 3% of the Eurozone GDP. (Why did nt Brussels notice Goldman Sachs swap?) Ireland 2007 : Public debt= 25% of its GDP Spain 2007 : 40% : (net public debt) 67%. 34% of the Spanish debt hold by non-residents. Italy: 32% hold by non-residents. Today s public debts mostly come from a transfer of private debts. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 10 / 43
23 What about public debts? II. What about public debts? II.2. Public debts are not the problem Grece < 3% of the Eurozone GDP. (Why did nt Brussels notice Goldman Sachs swap?) Ireland 2007 : Public debt= 25% of its GDP Spain 2007 : 40% : (net public debt) 67%. 34% of the Spanish debt hold by non-residents. Italy: 32% hold by non-residents. Today s public debts mostly come from a transfer of private debts. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 10 / 43
24 What about public debts? II. What about public debts? II.3. European countries cannot borrow from the ECB Monetization of public debt forbidden by the Lisbon Treatise (art. 123). In 2010, the ECB refinanced the Irish Central Bank (40 billions C?) in order to save the defunt Irish banking sector. In 2011, the ECB refinanced a commercial bank founded by... PSA. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 11 / 43
25 What about public debts? II. What about public debts? II.3. European countries cannot borrow from the ECB Monetization of public debt forbidden by the Lisbon Treatise (art. 123). In 2010, the ECB refinanced the Irish Central Bank (40 billions C?) in order to save the defunt Irish banking sector. In 2011, the ECB refinanced a commercial bank founded by... PSA. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 11 / 43
26 What about public debts? II. What about public debts? II.3. European countries cannot borrow from the ECB Monetization of public debt forbidden by the Lisbon Treatise (art. 123). In 2010, the ECB refinanced the Irish Central Bank (40 billions C?) in order to save the defunt Irish banking sector. In 2011, the ECB refinanced a commercial bank founded by... PSA. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 11 / 43
27 What about public debts? I. Macro-economic imbalances II.4. The snow ball effect Average real interest rate > GDP growth public debt. Grece 2011: growth = 7%. Grece will necessarily default again. Where is the turning point for Spain? Italy? Around 7.5%? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 12 / 43
28 What about public debts? I. Macro-economic imbalances II.4. The snow ball effect Average real interest rate > GDP growth public debt. Grece 2011: growth = 7%. Grece will necessarily default again. Where is the turning point for Spain? Italy? Around 7.5%? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 12 / 43
29 What about public debts? I. Macro-economic imbalances II.4. The snow ball effect Average real interest rate > GDP growth public debt. Grece 2011: growth = 7%. Grece will necessarily default again. Where is the turning point for Spain? Italy? Around 7.5%? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 12 / 43
30 What about public debts? I. Macro-economic imbalances II. 6. The risk of a liquidity trap The Japanese (counter-)example. I. Fisher and J.-M. Keynes: zero short-run (real) interest rate, almost no inflation, no growth, long deleveraging process. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 13 / 43
31 What about public debts? I. Macro-economic imbalances II. 6. The risk of a liquidity trap The Japanese (counter-)example. I. Fisher and J.-M. Keynes: zero short-run (real) interest rate, almost no inflation, no growth, long deleveraging process. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 13 / 43
32 What about public debts? I. Macro-economic imbalances II. 5. Are CDS going to kill the Euro zone? Naked short sale positions on CDS in OTC markets. Example: Goldman Sachs and CIT (2009). Prohibition of naked positions in November 2012 within the Eurozone. Too late! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 14 / 43
33 What about public debts? I. Macro-economic imbalances II. 5. Are CDS going to kill the Euro zone? Naked short sale positions on CDS in OTC markets. Example: Goldman Sachs and CIT (2009). Prohibition of naked positions in November 2012 within the Eurozone. Too late! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 14 / 43
34 What about public debts? I. Macro-economic imbalances II. 5. Are CDS going to kill the Euro zone? Naked short sale positions on CDS in OTC markets. Example: Goldman Sachs and CIT (2009). Prohibition of naked positions in November 2012 within the Eurozone. Too late! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 14 / 43
35 What about public debts? I. Macro-economic imbalances II. 5. Are CDS going to kill the Euro zone? Naked short sale positions on CDS in OTC markets. Example: Goldman Sachs and CIT (2009). Prohibition of naked positions in November 2012 within the Eurozone. Too late! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 14 / 43
36 What about public debts? I. Macro-economic imbalances II. 6. Sunspots Sunspots (Azariadis (1974), Cass and Shell (1980 )...) Financial markets are generically second-best inefficient (Geanakoplos and Polemarchakis (1986), Stiglitz (1985), Drèze et al. (1990)). Markets and democracy (Ireland, Grece, Italy...) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 15 / 43
37 What about public debts? I. Macro-economic imbalances II. 6. Sunspots Sunspots (Azariadis (1974), Cass and Shell (1980 )...) Financial markets are generically second-best inefficient (Geanakoplos and Polemarchakis (1986), Stiglitz (1985), Drèze et al. (1990)). Markets and democracy (Ireland, Grece, Italy...) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 15 / 43
38 What about public debts? I. Macro-economic imbalances II. 6. Sunspots Sunspots (Azariadis (1974), Cass and Shell (1980 )...) Financial markets are generically second-best inefficient (Geanakoplos and Polemarchakis (1986), Stiglitz (1985), Drèze et al. (1990)). Markets and democracy (Ireland, Grece, Italy...) Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 15 / 43
39 The rôle of liquidity and credit 1 Macro-economic imbalances 2 What about public debts? 3 The rôle of liquidity and credit 4 Climate and Energy 5 Liquidity and credit as commons Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 16 / 43
40 The rôle of liquidity and credit III. The rôle of liquidity and credit III.1. Expansionary monetary policies The Taylor rule focuses only on domestic inflation. Very far from Friedman s Golden rule! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 17 / 43
41 The rôle of liquidity and credit III. The rôle of liquidity and credit III.1. Expansionary monetary policies The Taylor rule focuses only on domestic inflation. Very far from Friedman s Golden rule! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 17 / 43
42 The rôle of liquidity and credit III. The rôle of liquidity and credit III.1. Expansionary monetary policies The Taylor rule focuses only on domestic inflation. Very far from Friedman s Golden rule! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 17 / 43
43 The rôle of liquidity and credit According to the monetarist doxa, we should have had much more inflation... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 18 / 43
44 The rôle of liquidity and credit According to the monetarist doxa, we should have had much more inflation... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 18 / 43
45 The rôle of liquidity and credit Financial bubbles (even more attractive due to the fall of profit rate in real economy). Houses serve as collateral. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 19 / 43
46 The rôle of liquidity and credit Financial bubbles (even more attractive due to the fall of profit rate in real economy). Houses serve as collateral. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 19 / 43
47 The rôle of liquidity and credit I. Macro-economic imbalances III.2. Financial deregulation Financial deregulation beginning in the 80 s. Gramm-Leach-Bliley Act (1999) : Abolishment of the Banking (Glass-Steagall) Act (1933). OTC markets, securitization, procyclicality of capital-adequacy ratios and Mark-to-market accounting... Moral hazard issues. Crazy leverage ratios. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 20 / 43
48 The rôle of liquidity and credit I. Macro-economic imbalances III.2. Financial deregulation Financial deregulation beginning in the 80 s. Gramm-Leach-Bliley Act (1999) : Abolishment of the Banking (Glass-Steagall) Act (1933). OTC markets, securitization, procyclicality of capital-adequacy ratios and Mark-to-market accounting... Moral hazard issues. Crazy leverage ratios. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 20 / 43
49 The rôle of liquidity and credit I. Macro-economic imbalances III.2. Financial deregulation Financial deregulation beginning in the 80 s. Gramm-Leach-Bliley Act (1999) : Abolishment of the Banking (Glass-Steagall) Act (1933). OTC markets, securitization, procyclicality of capital-adequacy ratios and Mark-to-market accounting... Moral hazard issues. Crazy leverage ratios. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 20 / 43
50 The rôle of liquidity and credit I. Macro-economic imbalances III.2. Financial deregulation Financial deregulation beginning in the 80 s. Gramm-Leach-Bliley Act (1999) : Abolishment of the Banking (Glass-Steagall) Act (1933). OTC markets, securitization, procyclicality of capital-adequacy ratios and Mark-to-market accounting... Moral hazard issues. Crazy leverage ratios. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 20 / 43
51 The rôle of liquidity and credit I. Macro-economic imbalances III.2. Financial deregulation Financial deregulation beginning in the 80 s. Gramm-Leach-Bliley Act (1999) : Abolishment of the Banking (Glass-Steagall) Act (1933). OTC markets, securitization, procyclicality of capital-adequacy ratios and Mark-to-market accounting... Moral hazard issues. Crazy leverage ratios. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 20 / 43
52 The rôle of liquidity and credit I. Macro-economic imbalances III.3. Money creation ex nihilo Do private banks create money out of thin air? Paul Krugman versus Steve Keen. Reserve and capital requirement. Shadow Banking Securitization (e.g., in Spain). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 21 / 43
53 The rôle of liquidity and credit I. Macro-economic imbalances III.3. Money creation ex nihilo Do private banks create money out of thin air? Paul Krugman versus Steve Keen. Reserve and capital requirement. Shadow Banking Securitization (e.g., in Spain). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 21 / 43
54 The rôle of liquidity and credit I. Macro-economic imbalances III.3. Money creation ex nihilo Do private banks create money out of thin air? Paul Krugman versus Steve Keen. Reserve and capital requirement. Shadow Banking Securitization (e.g., in Spain). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 21 / 43
55 The rôle of liquidity and credit I. Macro-economic imbalances III.3. Money creation ex nihilo Do private banks create money out of thin air? Paul Krugman versus Steve Keen. Reserve and capital requirement. Shadow Banking Securitization (e.g., in Spain). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 21 / 43
56 The rôle of liquidity and credit I. Macro-economic imbalances III.3. Money creation ex nihilo Do private banks create money out of thin air? Paul Krugman versus Steve Keen. Reserve and capital requirement. Shadow Banking Securitization (e.g., in Spain). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 21 / 43
57 The rôle of liquidity and credit III. The rôle of liquidity and credit III.4. The monetary dilemma Giraud and Pottier (2012) General equilibrium with money and default. Debt-deflation theory (Schumpeter, Fisher, Minsky, Krugman-Eggertson, Tsomocos...) Only three regimes compatible with the equilibrium condition: Growth with inflation (and low unemployment): The thirty Glorious years. A liquidity trap. (Low inflation but high unemployment.) Japan... Eurozone? Financial bubbles and crashes. The last 3 decades in Western countries. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 22 / 43
58 The rôle of liquidity and credit III. The rôle of liquidity and credit III.4. The monetary dilemma Giraud and Pottier (2012) General equilibrium with money and default. Debt-deflation theory (Schumpeter, Fisher, Minsky, Krugman-Eggertson, Tsomocos...) Only three regimes compatible with the equilibrium condition: Growth with inflation (and low unemployment): The thirty Glorious years. A liquidity trap. (Low inflation but high unemployment.) Japan... Eurozone? Financial bubbles and crashes. The last 3 decades in Western countries. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 22 / 43
59 The rôle of liquidity and credit III. The rôle of liquidity and credit III.4. The monetary dilemma Giraud and Pottier (2012) General equilibrium with money and default. Debt-deflation theory (Schumpeter, Fisher, Minsky, Krugman-Eggertson, Tsomocos...) Only three regimes compatible with the equilibrium condition: Growth with inflation (and low unemployment): The thirty Glorious years. A liquidity trap. (Low inflation but high unemployment.) Japan... Eurozone? Financial bubbles and crashes. The last 3 decades in Western countries. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 22 / 43
60 The rôle of liquidity and credit III. The rôle of liquidity and credit III.4. The monetary dilemma Giraud and Pottier (2012) General equilibrium with money and default. Debt-deflation theory (Schumpeter, Fisher, Minsky, Krugman-Eggertson, Tsomocos...) Only three regimes compatible with the equilibrium condition: Growth with inflation (and low unemployment): The thirty Glorious years. A liquidity trap. (Low inflation but high unemployment.) Japan... Eurozone? Financial bubbles and crashes. The last 3 decades in Western countries. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 22 / 43
61 Climate and Energy 1 Macro-economic imbalances 2 What about public debts? 3 The rôle of liquidity and credit 4 Climate and Energy 5 Liquidity and credit as commons Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 23 / 43
62 Climate and Energy IV. Climate and Energy IV.1. The planet is warming too rapidly : + 1 C. The European Union wanted a cap = + 2 C in Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 24 / 43
63 Climate and Energy IV. Climate and Energy IV.1. The planet is warming too rapidly : + 1 C. The European Union wanted a cap = + 2 C in Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 24 / 43
64 Climate and Energy Actually, we are sure to overtake + 2 C. Most probably : +3/ + 5 C. Last climatic era ( years) : + 5 C. Probably : one billion dead people. Production of CO 2 per capita (2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 25 / 43
65 Climate and Energy Actually, we are sure to overtake + 2 C. Most probably : +3/ + 5 C. Last climatic era ( years) : + 5 C. Probably : one billion dead people. Production of CO 2 per capita (2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 25 / 43
66 Climate and Energy Actually, we are sure to overtake + 2 C. Most probably : +3/ + 5 C. Last climatic era ( years) : + 5 C. Probably : one billion dead people. Production of CO 2 per capita (2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 25 / 43
67 Climate and Energy IV. Climate and Energy IV. 2. Why does the productivity rate fall down? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 26 / 43
68 Climate and Energy Hamilton (1983, 1996) Versus Blanchard and Galí(2008) : Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 27 / 43
69 Climate and Energy Hamilton (1983, 1996) Versus Blanchard and Galí(2008) : Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 27 / 43
70 Climate and Energy A disturbing correlation : The price of energy could be a major explanation of most of our recent macro-economic history... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 28 / 43
71 Climate and Energy A disturbing correlation : The price of energy could be a major explanation of most of our recent macro-economic history... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 28 / 43
72 Climate and Energy IV. Climate and Energy IV. 3. The peak oil? The Peak oil with conventional extraction techniques. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 29 / 43
73 Climate and Energy IV. Climate and Energy IV. 3. The peak oil? The Peak oil with conventional extraction techniques. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 29 / 43
74 Climate and Energy Big debate due to shale oil and gaz. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 30 / 43
75 Climate and Energy Big debate due to shale oil and gaz. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 30 / 43
76 Climate and Energy IV. Climate and Energy IV. 4. Financialization of oil Not to be confused with the financialization of the oil price: Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 31 / 43
77 Climate and Energy IV. Climate and Energy IV. 5. Kaya s equation GDP POP GDP NRJ + NRJ POP : GDP NRJ NRJ 1% and POP 2% : GDP NRJ NRJ 1% and POP 0%. Within the three regimes of the Monetary dilemma, inflationary growth is no more possible without energetic-climatic transition. Der Schöpfung verpflichtet, Deutsche Bischofskonferenz, Promotio Iustitiæ n 106, 2011/2, Healing a broken world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 32 / 43
78 Climate and Energy IV. Climate and Energy IV. 5. Kaya s equation GDP POP GDP NRJ + NRJ POP : GDP NRJ NRJ 1% and POP 2% : GDP NRJ NRJ 1% and POP 0%. Within the three regimes of the Monetary dilemma, inflationary growth is no more possible without energetic-climatic transition. Der Schöpfung verpflichtet, Deutsche Bischofskonferenz, Promotio Iustitiæ n 106, 2011/2, Healing a broken world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 32 / 43
79 Climate and Energy IV. Climate and Energy IV. 5. Kaya s equation GDP POP GDP NRJ + NRJ POP : GDP NRJ NRJ 1% and POP 2% : GDP NRJ NRJ 1% and POP 0%. Within the three regimes of the Monetary dilemma, inflationary growth is no more possible without energetic-climatic transition. Der Schöpfung verpflichtet, Deutsche Bischofskonferenz, Promotio Iustitiæ n 106, 2011/2, Healing a broken world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 32 / 43
80 Climate and Energy IV. Climate and Energy IV. 5. Kaya s equation GDP POP GDP NRJ + NRJ POP : GDP NRJ NRJ 1% and POP 2% : GDP NRJ NRJ 1% and POP 0%. Within the three regimes of the Monetary dilemma, inflationary growth is no more possible without energetic-climatic transition. Der Schöpfung verpflichtet, Deutsche Bischofskonferenz, Promotio Iustitiæ n 106, 2011/2, Healing a broken world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 32 / 43
81 Climate and Energy IV. Climate and Energy IV. 5. Kaya s equation GDP POP GDP NRJ + NRJ POP : GDP NRJ NRJ 1% and POP 2% : GDP NRJ NRJ 1% and POP 0%. Within the three regimes of the Monetary dilemma, inflationary growth is no more possible without energetic-climatic transition. Der Schöpfung verpflichtet, Deutsche Bischofskonferenz, Promotio Iustitiæ n 106, 2011/2, Healing a broken world. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 32 / 43
82 Climate and Energy IV. Climate and Energy IV. 6. The ecological transition Start the ecological transition : - thermic isolation of buildings - mobility - capture of CO 2 in coal centrals... How much does it cost? UK : C650 billions. European Commission: Factor 4 : = 1.5% GDP/year. N. Hulot s Foundation: 3% GDP/year during 10 years. For Europe : C3 000 billions in 10 years. Reminder: since 2008, the states spent C4 000 billions to save the banks. Quantitative Easing policy: C1 000 billions offered by the LTRO (ECB, December February 2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 33 / 43
83 Climate and Energy IV. Climate and Energy IV. 6. The ecological transition Start the ecological transition : - thermic isolation of buildings - mobility - capture of CO 2 in coal centrals... How much does it cost? UK : C650 billions. European Commission: Factor 4 : = 1.5% GDP/year. N. Hulot s Foundation: 3% GDP/year during 10 years. For Europe : C3 000 billions in 10 years. Reminder: since 2008, the states spent C4 000 billions to save the banks. Quantitative Easing policy: C1 000 billions offered by the LTRO (ECB, December February 2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 33 / 43
84 Climate and Energy IV. Climate and Energy IV. 6. The ecological transition Start the ecological transition : - thermic isolation of buildings - mobility - capture of CO 2 in coal centrals... How much does it cost? UK : C650 billions. European Commission: Factor 4 : = 1.5% GDP/year. N. Hulot s Foundation: 3% GDP/year during 10 years. For Europe : C3 000 billions in 10 years. Reminder: since 2008, the states spent C4 000 billions to save the banks. Quantitative Easing policy: C1 000 billions offered by the LTRO (ECB, December February 2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 33 / 43
85 Climate and Energy IV. Climate and Energy IV. 6. The ecological transition Start the ecological transition : - thermic isolation of buildings - mobility - capture of CO 2 in coal centrals... How much does it cost? UK : C650 billions. European Commission: Factor 4 : = 1.5% GDP/year. N. Hulot s Foundation: 3% GDP/year during 10 years. For Europe : C3 000 billions in 10 years. Reminder: since 2008, the states spent C4 000 billions to save the banks. Quantitative Easing policy: C1 000 billions offered by the LTRO (ECB, December February 2012). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 33 / 43
86 Climate and Energy IV. Climate and Energy How to finance the transition? The private sector cannot finance it at the beginning. (The ROE is too low... at most 3% ; the banking sector is over endebted). The public sector is over-endebted as well. Money creation? Is it inflationary? Could the ECB create money for such a project? Quantity Theory of money... (Giraud-Pottier (2011)). Mv = pt Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 34 / 43
87 Climate and Energy IV. Climate and Energy How to finance the transition? The private sector cannot finance it at the beginning. (The ROE is too low... at most 3% ; the banking sector is over endebted). The public sector is over-endebted as well. Money creation? Is it inflationary? Could the ECB create money for such a project? Quantity Theory of money... (Giraud-Pottier (2011)). Mv = pt Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 34 / 43
88 Climate and Energy IV. Climate and Energy How to finance the transition? The private sector cannot finance it at the beginning. (The ROE is too low... at most 3% ; the banking sector is over endebted). The public sector is over-endebted as well. Money creation? Is it inflationary? Could the ECB create money for such a project? Quantity Theory of money... (Giraud-Pottier (2011)). Mv = pt Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 34 / 43
89 Liquidity and credit as commons 1 Macro-economic imbalances 2 What about public debts? 3 The rôle of liquidity and credit 4 Climate and Energy 5 Liquidity and credit as commons Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 35 / 43
90 Liquidity and credit as commons V. Liquidity and credit as commons V.1. Commons Ostrom (1990), E. Ostrom, R. Gardner and J. Walker (1993) Subtractability (or rivalry) low high Exclusion Difficult Public goods Commons Easy Club goods Private goods Hardin s tragedy of the common (1968). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 36 / 43
91 Liquidity and credit as commons V. Liquidity and credit as commons V.1. Commons Ostrom (1990), E. Ostrom, R. Gardner and J. Walker (1993) Subtractability (or rivalry) low high Exclusion Difficult Public goods Commons Easy Club goods Private goods Hardin s tragedy of the common (1968). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 36 / 43
92 Liquidity and credit as commons V. Liquidity and credit as commons V.1. Commons Ostrom (1990), E. Ostrom, R. Gardner and J. Walker (1993) Subtractability (or rivalry) low high Exclusion Difficult Public goods Commons Easy Club goods Private goods Hardin s tragedy of the common (1968). Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 36 / 43
93 Liquidity and credit as commons Olson s free-riding problem (1965) The prisoners dilemma Pedro Maria Coop Fink 2 3 Coop 2 0 Fink Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 37 / 43
94 Liquidity and credit as commons Olson s free-riding problem (1965) The prisoners dilemma Pedro Maria Coop Fink 2 3 Coop 2 0 Fink Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 37 / 43
95 V. Commons V.2. Kantian equilibrium Liquidity and credit as commons J. Roemer (1996, 2010, 2012). Kantian categorical imperative : "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law (Grundlagen der Metaphysik der Sitten). Evangelical Golden Rule: Do to others what you would have them do to you, for this sums up the Law and the Prophets, (MT 7,12) Kantian equilibrium : no player would advocate that all players change their strategies in the same kind of way. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 38 / 43
96 V. Commons V.2. Kantian equilibrium Liquidity and credit as commons J. Roemer (1996, 2010, 2012). Kantian categorical imperative : "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law (Grundlagen der Metaphysik der Sitten). Evangelical Golden Rule: Do to others what you would have them do to you, for this sums up the Law and the Prophets, (MT 7,12) Kantian equilibrium : no player would advocate that all players change their strategies in the same kind of way. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 38 / 43
97 V. Commons V.2. Kantian equilibrium Liquidity and credit as commons J. Roemer (1996, 2010, 2012). Kantian categorical imperative : "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law (Grundlagen der Metaphysik der Sitten). Evangelical Golden Rule: Do to others what you would have them do to you, for this sums up the Law and the Prophets, (MT 7,12) Kantian equilibrium : no player would advocate that all players change their strategies in the same kind of way. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 38 / 43
98 V. Commons V.2. Kantian equilibrium Liquidity and credit as commons J. Roemer (1996, 2010, 2012). Kantian categorical imperative : "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law (Grundlagen der Metaphysik der Sitten). Evangelical Golden Rule: Do to others what you would have them do to you, for this sums up the Law and the Prophets, (MT 7,12) Kantian equilibrium : no player would advocate that all players change their strategies in the same kind of way. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 38 / 43
99 Liquidity and credit as commons Kantian equilibria solve the tragedy of the commons and the voting paradox. KE partially solves the prisoners dilemma. Generally, KE outperforms NE and implies cooperation (solidaristic behavior) conditional upon the rewards to cooperation being sufficiently great. When players can signal their types (Nash versus Kantian) KE survives selection where NE does not (Curry and Roemer (2012)). KE should be viewed as the outcome of a bargaining process (with reciprocity). Reciprocity is not only a question of justice but also a question of efficiency! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 39 / 43
100 Liquidity and credit as commons Kantian equilibria solve the tragedy of the commons and the voting paradox. KE partially solves the prisoners dilemma. Generally, KE outperforms NE and implies cooperation (solidaristic behavior) conditional upon the rewards to cooperation being sufficiently great. When players can signal their types (Nash versus Kantian) KE survives selection where NE does not (Curry and Roemer (2012)). KE should be viewed as the outcome of a bargaining process (with reciprocity). Reciprocity is not only a question of justice but also a question of efficiency! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 39 / 43
101 Liquidity and credit as commons Kantian equilibria solve the tragedy of the commons and the voting paradox. KE partially solves the prisoners dilemma. Generally, KE outperforms NE and implies cooperation (solidaristic behavior) conditional upon the rewards to cooperation being sufficiently great. When players can signal their types (Nash versus Kantian) KE survives selection where NE does not (Curry and Roemer (2012)). KE should be viewed as the outcome of a bargaining process (with reciprocity). Reciprocity is not only a question of justice but also a question of efficiency! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 39 / 43
102 Liquidity and credit as commons Kantian equilibria solve the tragedy of the commons and the voting paradox. KE partially solves the prisoners dilemma. Generally, KE outperforms NE and implies cooperation (solidaristic behavior) conditional upon the rewards to cooperation being sufficiently great. When players can signal their types (Nash versus Kantian) KE survives selection where NE does not (Curry and Roemer (2012)). KE should be viewed as the outcome of a bargaining process (with reciprocity). Reciprocity is not only a question of justice but also a question of efficiency! Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 39 / 43
103 Liquidity and credit as commons Why not consider (Polanyi) Labour Earth Money as commons? Create institutions that favor Kantian behavior? For Labour: CSR, stake-holder theory, change the legal status of a firm... Relational Capability Index (Giraud-Renouard). Nigeria (Total), Indonesia (Danone), India (Veolia). For the Earth, operating license given by a cap in the emission of GES and consumption of (non-)renewable energies. What about money? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 40 / 43
104 Liquidity and credit as commons Why not consider (Polanyi) Labour Earth Money as commons? Create institutions that favor Kantian behavior? For Labour: CSR, stake-holder theory, change the legal status of a firm... Relational Capability Index (Giraud-Renouard). Nigeria (Total), Indonesia (Danone), India (Veolia). For the Earth, operating license given by a cap in the emission of GES and consumption of (non-)renewable energies. What about money? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 40 / 43
105 Liquidity and credit as commons Why not consider (Polanyi) Labour Earth Money as commons? Create institutions that favor Kantian behavior? For Labour: CSR, stake-holder theory, change the legal status of a firm... Relational Capability Index (Giraud-Renouard). Nigeria (Total), Indonesia (Danone), India (Veolia). For the Earth, operating license given by a cap in the emission of GES and consumption of (non-)renewable energies. What about money? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 40 / 43
106 Liquidity and credit as commons Why not consider (Polanyi) Labour Earth Money as commons? Create institutions that favor Kantian behavior? For Labour: CSR, stake-holder theory, change the legal status of a firm... Relational Capability Index (Giraud-Renouard). Nigeria (Total), Indonesia (Danone), India (Veolia). For the Earth, operating license given by a cap in the emission of GES and consumption of (non-)renewable energies. What about money? Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 40 / 43
107 V. Commons V. 3. Contra-cyclical policy Liquidity and credit as commons The best way to stop the privatization of liquidity is to cap-floor the leverage cycle. Impose Basel III to the shadow banking and Solvency II to insurers. Increase the contra-cyclical buffer (and reduce the capital ratio). Impose clearing houses on all OTC markets (Cf. EMIR) Close the Multilateral Trading Platforms (MIFID) Kill the High Frequency Trading. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 41 / 43
108 V. Commons V. 3. Contra-cyclical policy Liquidity and credit as commons The best way to stop the privatization of liquidity is to cap-floor the leverage cycle. Impose Basel III to the shadow banking and Solvency II to insurers. Increase the contra-cyclical buffer (and reduce the capital ratio). Impose clearing houses on all OTC markets (Cf. EMIR) Close the Multilateral Trading Platforms (MIFID) Kill the High Frequency Trading. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 41 / 43
109 V. Commons V. 3. Contra-cyclical policy Liquidity and credit as commons The best way to stop the privatization of liquidity is to cap-floor the leverage cycle. Impose Basel III to the shadow banking and Solvency II to insurers. Increase the contra-cyclical buffer (and reduce the capital ratio). Impose clearing houses on all OTC markets (Cf. EMIR) Close the Multilateral Trading Platforms (MIFID) Kill the High Frequency Trading. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 41 / 43
110 V. Commons V. 3. Contra-cyclical policy Liquidity and credit as commons The best way to stop the privatization of liquidity is to cap-floor the leverage cycle. Impose Basel III to the shadow banking and Solvency II to insurers. Increase the contra-cyclical buffer (and reduce the capital ratio). Impose clearing houses on all OTC markets (Cf. EMIR) Close the Multilateral Trading Platforms (MIFID) Kill the High Frequency Trading. Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 41 / 43
111 Liquidity and credit as commons V. Commons V. 4. Reform the banking system Reform the banking system in order to prevent the privatization of credit. What about the megabanks with a systemic risk? Systemic risk = socialize the losses and privatize the gains. A rent provided by the sovereign guarantee. The New Economics Foundation: C 52 billions UK C 48 billions France. C 32 billions Germany. Increase the tax for this rent. Separation of investment banks from commercial banks (Vickers). Forbid the proprietary trading (Volcker). Pontifical council for justice and peace, Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority 100% Money. Gaël Giraud Irving (PSE, Fisher CNRS, ESCP-Europe) Liquidity and credit as a commons 42 / 43
112 Liquidity and credit as commons V. Commons V. 4. Reform the banking system Reform the banking system in order to prevent the privatization of credit. What about the megabanks with a systemic risk? Systemic risk = socialize the losses and privatize the gains. A rent provided by the sovereign guarantee. The New Economics Foundation: C 52 billions UK C 48 billions France. C 32 billions Germany. Increase the tax for this rent. Separation of investment banks from commercial banks (Vickers). Forbid the proprietary trading (Volcker). Pontifical council for justice and peace, Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority 100% Money. Gaël Giraud Irving (PSE, Fisher CNRS, ESCP-Europe) Liquidity and credit as a commons 42 / 43
113 Liquidity and credit as commons V. Commons V. 4. Reform the banking system Reform the banking system in order to prevent the privatization of credit. What about the megabanks with a systemic risk? Systemic risk = socialize the losses and privatize the gains. A rent provided by the sovereign guarantee. The New Economics Foundation: C 52 billions UK C 48 billions France. C 32 billions Germany. Increase the tax for this rent. Separation of investment banks from commercial banks (Vickers). Forbid the proprietary trading (Volcker). Pontifical council for justice and peace, Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority 100% Money. Gaël Giraud Irving (PSE, Fisher CNRS, ESCP-Europe) Liquidity and credit as a commons 42 / 43
114 Liquidity and credit as commons V. Commons V. 5. Towards a federal Europe? Let s make money a European common good. COMECE Bishops Statement on Social Market Economy ( ). Solidarity and Responsibility. Create a European fiscal and financial chamber (with members of the financial and fiscal delegations of each national parliament + European parliament) End of the ECB independence (= privatization of money) The ECB should be responsible in front of the European fiscal chamber. Its main task: financing the transition. Euro as a common currency. Let s start with Grece... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 43 / 43
115 Liquidity and credit as commons V. Commons V. 5. Towards a federal Europe? Let s make money a European common good. COMECE Bishops Statement on Social Market Economy ( ). Solidarity and Responsibility. Create a European fiscal and financial chamber (with members of the financial and fiscal delegations of each national parliament + European parliament) End of the ECB independence (= privatization of money) The ECB should be responsible in front of the European fiscal chamber. Its main task: financing the transition. Euro as a common currency. Let s start with Grece... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 43 / 43
116 Liquidity and credit as commons V. Commons V. 5. Towards a federal Europe? Let s make money a European common good. COMECE Bishops Statement on Social Market Economy ( ). Solidarity and Responsibility. Create a European fiscal and financial chamber (with members of the financial and fiscal delegations of each national parliament + European parliament) End of the ECB independence (= privatization of money) The ECB should be responsible in front of the European fiscal chamber. Its main task: financing the transition. Euro as a common currency. Let s start with Grece... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 43 / 43
117 Liquidity and credit as commons V. Commons V. 5. Towards a federal Europe? Let s make money a European common good. COMECE Bishops Statement on Social Market Economy ( ). Solidarity and Responsibility. Create a European fiscal and financial chamber (with members of the financial and fiscal delegations of each national parliament + European parliament) End of the ECB independence (= privatization of money) The ECB should be responsible in front of the European fiscal chamber. Its main task: financing the transition. Euro as a common currency. Let s start with Grece... Gaël Giraud (PSE, CNRS, ESCP-Europe) Liquidity and credit as a commons 43 / 43
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