Legal risks are a significant part of a firm’s overall risk profile, and is typically guided by calculating the probability of risk and its potential magnitude. Yet this calcuation does not fully capture how risks manifest for organizations. This chapter presents a novel way of evaluating legal risk termed transformative legal risk management. Transformative legal risk management is different from traditional approaches because it incorporates a new layer of understanding legal risk. Using a four-pronged approach to risk management known as VUCA (volatility, uncertainty, complexity, and ambiguity). This chapter introduces two of the four VUCA risks: volatility and uncertainty. The chapter defines volatility, identifies sources of legal volatility, and presents responses that legal experts can use in response to volatility risk. The chapter then defines uncertainty, identifies sources of legal uncertainty, and presents responses firms can use to reduce uncertainty risk. The chapter shows how firms applying VUCA can not only minimize harm from legal risks but also elevate legal risk management into a practice that generates a competitive advantage over rivals.

Continuing the exploration of transformative legal risk management, this chapter addresses the remaining two risk dimensions that govern a VUCA environment: complexity and ambiguity. Complexity is an environment that contains numerous interconnected parts, accepts inputs, generates outputs, and develops a capacity to learn and remember. The fourth and final dimension of VUCA is ambiguity. Especially challenging for firms deploying legal knowledge, ambiguity is an environment where causes and effects propelling events forward are largely unknown, the firm does not know whether an organized system will emerge, and little historical precedent exists for determining the most appropriate course of action. The chapter defines complexity and ambiguity, explains how they are applicable to legal risk, and articulates strategies for firms to use their legal knowledge to anticipate and address complex and ambiguous legal problems.

In the early neoclassical era, the smooth adjustment of agents’ marginal utilities dampened the response of market prices to supply disturbances. But when agents do not make smooth trade-offs, they will tend consume goods in specific combinations, as in the model of safety bias. A negative shock to supplies can then send prices soaring, a common feature of energy markets for example. Postwar general equilibrium theory permits agents to be safety-biased but has dismissed these volatility scenarios on the grounds that they occur only at vanishingly unlikely output levels. The no-volatility conclusion fails to hold however once the production of goods is taken into account: the seemingly unlikely output levels arise systematically. Production on the other hand spells out countervailing forces that curb the most extreme cases of price volatility. Volatility is closely related to the indeterminacy of equilibria and the chapter critiques the claims of general equilibrium theorists that these phenomena are unlikely.

Via an analysis of H. G. Wells’s Tono-Bungay, this chapter explores how novels adapted to accommodate the metropolitan spaces of London, and it argues that Wells’s novel links the financialization of the British economy and the cultural turn toward London to the emergence of a new novelistic poetics and to the development of a new novelistic character. Tono-Bungay narrates the rise and fall of Teddy Ponderevo’s financial empire, but the source of drama in the novel is more often the narrator’s inability to reconcile classical novelistic poetics with the logic of value production under finance capitalism and with his experiences in London. The narrator longs for a new mode of representation that can account for the largely imaginary and highly volatile value produced by the financial empire, and he finds inspiration for that new mode of representation in the urban spaces of London.

This chapter interprets Virginia Woolf’s The Waves through the economic theory of John Maynard Keynes. Keynes’s The General Theory of Employment, Interest, and Money waxes nostalgic for a world of industrial capital where people with good characters invest in respected businesses over the long term. Keynes blames the “great slump” on a system of financial speculation made possible by the modern corporation that encourages investors to anticipate and value the vacillations of popular opinion instead of sound business practices. This chapter argues that Woolf’s novel encodes the logic of financial speculation as described by Keynes in her depiction of characters who redefine themselves according to fluctuating social configurations. The resulting novelistic poetics constitute an aesthetic of volatility characteristic of high modernism that anticipates the emergence of affective intensity as the dominant value form of our own era of capitalism.

Jean Rhys’s Voyage in the Dark maps the distinction between the country and the city onto the geopolitical scale of colonial metropole and periphery, where the colonial periphery is the semiotic placeholder for the role that London plays in the previous two chapters as the space that disrupts conventional novelistic poetics. In Anna Morgan, two worlds that do not compute – the financialized metropole of London and the preindustrial periphery – collide and the result is a character that operates according to the logic of affect rather than conventional narratives of sentiment and emotion. Her character thereby anticipates the emergence of affect as value form.

Whether domestic and international contexts affect governments’ abilities to alter total expenditures, revenues, deficits, and budgetary volatility is our focus in Chapter 6. We develop expectations about the influence of government ideology and majority status together with contextual factors and other budgetary components on each of our four budgetary components. For the domestic contexts, we consider election timing, unemployment, and economic growth. In the international realm, we focus on globalization and conflict involvement. Building on the results from the panel vector autoregressive (pVAR) model from Chapter 5, we specify separate reduced-form models for each of our budget component variables to test our theoretical expectations. Across the results we present in this chapter, we find very few statistically significant effects, especially in terms of long-run effects, on the four budgetary components. The strongest results are for the influence of contextual factors on budgetary volatility, specifically when increasing unemployment and economic openness. When unemployment or economic openness increases, we find that budgetary volatility increases under majority left governments in both the short- and long-runs. This evidence indicates that right and left governments differ in how much they respond to both domestic and international contexts.

Chapter 3. The mechanisms that govern how a gold standard works, and the historical performance of gold standards in practice, have often been misunderstood or inaccurately described – both by critics and by supporters, including academic economists. We address the main misconceptions by critics, including “The Gold Standard caused the Great Depression,” “A gold standard is dangerously deflationary,” “The volatility of the price of gold in recent years shows that gold would be an unstable monetary standard.” We also address the main misconceptions by supporters, including “Gold has objective value,” “A gold standard provides a perfectly stable measure of value, like a yardstick provides a stable measure of length, because it fixes the definition of the monetary unit,” and “The quantity of money is self-regulating under a gold standard only if we outlaw fractional-reserve banking in favor of one hundred percent reserves.”

In Chapter 7, we conclude by placing both our theoretical and methodological contributions within the wider world of government decision-making. Our theory begins with the core assumption that government ideology drives the budgetary priorities of governments. With a blank slate, these ideological preferences would steer governments in shaping budgets. While this is a useful place to start theoretical debate about political budgeting, an important part of our argument is about how contextual factors influence whether governments can achieve their ideological priorities. Throughout the book, we find many instances in which context overwhelms ideology to drive government budgets. In developing our theoretical ideas about the interplay between ideology and contexts, we emphasize the importance of recognizing the interlinked nature of the different parts of political budgets. We take advantage of recent advances in dynamic compositional models and panel vector autoregressive (pVAR) models when testing our ideas. To make the results from these complex models accessible, we rely heavily on graphical presentations of our findings. Together, our theory of budgets and the methods we use to test it are all intended to bring studies closer to the messy but fascinating real world of political budgeting.

We turn to the larger pieces of the budget in Chapter 5, where we focus on two objectives. First, we ask how the components of the budgets fit together by conducting causality tests for the full range of possible relationships between expenditures, revenues, deficits, and budgetary volatility using a panel vector autoregressive (pVAR) model. We find that changes to expenditures and revenues drive changes to deficits, and we also find that changes to deficits lead to revenue changes. Second, using findings from these causality tests from the pVAR model, we then test our expectations about ideology and context on total spending, revenues, budget deficits, and budgetary volatility. Once we include these causal relationships in our models, we find that government ideology and majority status do not appear to alter either total expenditures or revenues, but a shift from a left to a right majority government is associated with a long-run decrease in deficits. For budgetary volatility, a move from a left to a right majority government corresponds with a positive significant increase in volatility. These findings fit our expectations that it is political competition that shifts budgets, with government ideology many times proctoring for those differences.

Macroeconomics is the study of movement in aggregate economic activity. The focus of this text is, in particular, on short-run fluctuations around long-run potential growth. Deviations from potential result in output gaps, either positive, involving overheating, or negative, involving underperformance. For the open economies of Emerging East Asia, shocks to foreign trade and capital flows are a major source of volatility. Stabilization policy aims to keep an economy growing on track with its potential.

This text begins by laying foundations in balance of payments and exchange rates, and in money and finance, tailored to the Emerging East Asia setting. It then presents theories of macroeconomic instability and the business cycle. Discussion of monetary and fiscal policy follows with attention to the coordinated pursuit of internal and external balance. As fitting the Emerging East Asia context, emphasis is on the role of the exchange rate and the constraints imposed on policy by global capital markets and debt sustainability strictures.