This is a technically complex work of sociology unpicking and analysing trends in US society, economy, and politics over the course of forty years from the 1960s to the 2000s.
Krippner’s basic thesis is that successive policy decisions over the course of this period, each in response to immediate challenges, have ‘financialised’ the US economy. In other words, have shifted the focus of profit making from investment in productive activity to the ownership and exchange of financial instruments. Even major industrial companies come to make significant portions of their profit from activity in the financial market. This shift has significant implications for how the economy is managed, and the location of future crises.
Krippner demonstrates this through a detailed analysis of economic data and a systematic review of policy shifts during this period. Although this is somewhat dry in places the case is convincing. She defines three separate phases. First the deregulation of the domestic financial market as an attempt to get to grips with the social crisis of the 1960s and 1970s, offering policymakers a ‘reprieve from difficult political choices’. Second the response to the fiscal crisis of the late 1970s and 1980s with growing government deficits which altered the relationship between the domestic and global markets driving a ‘dramatic expansion of credit in the US economy’. Finally on the realisation relying on market mechanisms offered in fact very little restraint on consumers, corporations, or governments how approaches to monetary policy developed incrementally in the period up to 2001 to control the demand for credit through interest rates (as opposed to regulation of the supply).
Although the book was first published in 2011, Krippner stops short of the 2007-9 financial crisis, indicating in the introduction that she considers this to represent a separate stage of development that requires a separated analysis. That said it is clear that the ‘depoliticisation’ of economic decision making that Krippner outlines is a significant factor underpinning the later crisis. As Krippner explains, in making this change the expectation had been that the market would impose a discipline on economic behaviour that political actors were unwilling to do. In fact this has turned out not to be the case at all. The market has promoted and validated a lack of restraint particularly in relation to credit which has left us more exposed than ever to the risk of financial crisis.
Although this is not Krippner’s intention, her analysis is a neat fit for the Marxist view of the long term tendency of the rate of profit to decline (see writers such as Robert Brenner and Michael Roberts). The declining profit possible in productive industry leads to speculation in what Marx called ‘fictitious capital’. This growing financialisation becoming increasing unstable and leading inexorably to crisis. The picture here is one that provides a deep-seated explanation for the financial crisis of 2007-9.
So this is a fascinating book with many implications for further analysis. If a touch dry in places, it is detailed, well researched, and a thought provoking discussion of what underpins the modern economy.
Krippner, Greta Capitalizing on Crisis (Harvard University Press, Cambridge Massachusetts, 2012)