Friday, March 23, 2018

Ilene Grabel's new book, When Things Don't Fall Apart: Global Financial Governance and Developmental Finance in an Age of Productive Incoherence, is out. From Dani Rodrik’s Foreword:
“It happens only rarely and is all the more pleasurable because of it. You pick up a manuscript that fundamentally changes the way you look at certain things. This is one such book. Ilene Grabel has produced a daring and delightful reinterpretation of developments in global finance since the Asian financial crisis of 1997–1998.”
From the jack description:
In When Things Don’t Fall Apart, Ilene Grabel challenges the dominant view that the global financial crisis had little effect on global financial governance and developmental finance. Grabel’s chief positive claim is that the global crisis induced disconnected and ad hoc discontinuities in global financial governance and developmental finance that are now having profound effects on emerging market and developing economies. Most observers have failed to appreciate this phenomenon owing to a heroic narrative of social change that discounts all but grand, systemic ruptures in institutions and policy. The chief normative claim is that the resulting incoherence in global financial governance is productive rather than debilitating. In the age of productive incoherence a more complex, dense, fragmented, and pluripolar form of global financial governance is expanding possibilities for policy and institutional experimentation, policy space for economic and human development, financial stability and resilience, and financial inclusion. Grabel draws on key theoretical commitments of Albert Hirschman to cement the case for the productivity of incoherence. Inspired by Hirschman, Grabel demonstrates that meaningful change often emerges from disconnected, erratic, experimental, and inconsistent adjustments in institutions and policies as actors pragmatically manage in an evolving world. Grabel substantiates her claims with empirically-rich case studies that explore the effects of recent crises on established and new networks of financial governance (such as the G-20); transformations within the IMF; institutional innovations in liquidity support and project finance from the national to the transregional levels; and the “rebranding” of capital controls. Grabel concludes with careful examination of the opportunities and risks associated with the evolutionary transformations underway.
The book has been endorsed by Antonio Ocampo, Jayati Ghosh, Ha-Joon Chang, and Mark Blyth. It's a must if you're interested in the changes in the post-Bretton Woods financial architecture after the Global Financial Crisis of 2008.

Thursday, March 15, 2018

GDP growth in Latin America

Writing a paper on Latin America. Nothing particularly relevant to report. I was just checking the date. Many sources to get the data. I suggest both the World Bank Development Indicators and the Conference Board Total Economic Database. At any rate, below GDP growth from the Golden Age (after the Korean War and up to Debt crisis) to the Neoliberal Era (starting in the 1990s).
Clearly growth has been more volatile and at lower rates. So much for the notion that Neoliberalism works.

Monday, March 12, 2018

Classical Political Economics and the History of Central Banks

As promised not long ago, here a short paper on the history of central banks presented at ASSA meeting in Philadelphia. The paper is short, given the submission policy. It discusses the growing literature on the origins of central banks, and essentially disagrees with Charles Goodhart, who is the authority on the topic.

The conventional argument is that central banks only become effectively central banks in the late 19th century when a concern with financial stability was developed and the function of Lender of Last Resort (LOLR) was more formally established. The notion is that up to that point central banks were essentially concerned with profit making, as private institutions, and that only when a concern with financial stability as a public good was developed is that they can be seen truly as public institutions (even if they remained private).

Implicit in this view is also the notion that central banks would have a tendency to overissue paper money, in times of booms, which would help their profitability, and that constraining that ability, but at the same time allowing them to act as LOLR was central for financial stability. The first part of the argument, the notion that inflation is caused by the overissue of paper money, derives from the Bullionist controversies and the Bank Charter Act of 1844.

The point of the paper is that early public banks (essentially Italian and Dutch banks that preceded the the Swedish and English central banks) were central banks because they did have a public concern considerably before than their LOLR function was developed. They were fiscal agents of the state concerned with providing a stable unit of account and a secondary market for public debt allowing the expansion of the State.

The paper tries, in that sense, to connect the discussion of the origins of central banks with the extensive literature on the Fiscal-Military State and its relevance for the process of capitalist development.

Sunday, March 11, 2018

On the blogs

Trying to resurrect my brief look at blogs during weekends. So here are three post/entries/op-ped pieces worth reading (look at this space for three or four of these every Sunday):

Will bourgeoisie ever rule the Chinese state?-- Branko Milanovic on Arrighi's question. Funny thing is this weekend I was re-reading Adam Smith in Beijing, since I'm giving one of the keynote speeches at the Political Economy of World Systems (PEWS) meeting in April at Fairfield University (the other being Immanuel Wallerstein. Btw, looking at my notes on the side of the book, I seemed to complain back then (bought the book in 2009 in NY) the absence of a discussion of the Fiscal-Military State in Arrighi.

Trump's steel tariffs are mere political theater-- James Galbraith's piece on The Guardian. More or less like mine suggests that the effects will be small (he doesn't suggest that free trade is good, as others on the left) and that the reasons are essentially political (the special election in PA). I was thinking more long term, but along the same lines here.

The PowerPoint Philosophe-- David Bell debunking Steven Pinker’s new book on Enlightenment Now, his latest Panglossian pamphlet about how we do live in the best of all possibles worlds.

Basil Moore (1933-2018)

Basil Moore

I first met Basil in 2000 or 2001, which was quite late, since I've read his work as an undergraduate back in the late 1980s. I was Assistant Director of the Center for Economic Policy Analysis (CEPA, now the Schwartz Center) at the New  School, and we invited him for a talk, which was about his forthcoming (at that time) book Shaking the Invisible Hand: Complexity, Endogenous Money and Exogenous Interest Rates  which was published considerably later (my review here).

Basil came down from Wesleyan, were he was for most of his career before retiring to South Africa, and we had an interesting debate on the relevance of the Keynesian (not the monetary one, on that we agreed) multiplier, which he considered a mistake, and on dollarization, which, at least at the time, he favored. The biggest surprise in my conversations with him that day and after that was what seemed to be a lack of understanding of how much the mainstream had incorporated the notion of endogenous money, in Wicksellian fashion. And I should note that the mainstream has not acknowledged the relevance of Post Keynesians, like Basil, in pushing them into the endogenous money camp.

My debates with him showed how much Post Keynesians could disagree both on theoretical and policy issues, and dispelled any notion that this was a group with monolithic or closed views on economic issues. In fact, it suggests that Posties should be seen more as a collection of schools, that depart from some aspects of marginalism/neoclassical economics.

Basil's contributions were essentially associated to the notion of endogenous money, more in line with the Kaldorian tradition, in which central banks accommodate to money demand, than to the Minskian notion of financial innovation. He was, together with Paul Davidson, Alfred Eichner, Hyman Minsky and Sidney Weintraub a key founding member of the American Post Keynesian School, perhaps less recognized than the others, and being the most focused on a particular topic. I'm sure that many obituaries will discuss his contributions in depth. At any rate, a loss for the profession, and for those of us that enjoyed his pluralistic openness to alternative views.

Thursday, March 8, 2018

Andrea Ginzburg and Anthony Brewer

These were two great economists, that I never met, and that sadly have passed away. I would recommend this paper by Andrea Ginzburg, with Annamaria Simonazzi, on foreign debt cycles, and this paper by Anthony Brewer on the effects of capital mobility on the Ricardian comparative advantage model. Their contributions are certainly much more relevant than these two papers, but I think this provide a good example.

The left and the return of protectionism

So if you believe a simplified version of conservative views on the economy, Trumponomics is pretty contradictory (and yes they are contradictory, even if one may doubts about why). Tax cuts should lead to growth, via supply side economics, and the recently proposed tariffs on steel and aluminum do exactly the opposite. Protectionism (not a very good name, I prefer managed trade, as I discussed here before) has made a come back, but while many heterodox economists have suggested that 'free trade' is not always beneficial to all, and those concerned with the fate of manufacturing and the working class in the United States have decried Free Trade Agreements (FTAs) over the years, it seems that the association of these ideas with Trumponomics has made them less keen on the recent tariff proposal.

A typical example is the recent op-ed by Jared Bernstein and Dean Baker in WAPO, and I cite them exactly for my respect for their economic views in general, and their commitment to progressive causes. In their view: "The bigger dangers to our economy are twofold. One, that our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries, and two, by leading an emboldened, reckless Trump administration to enact more bad trade policy." Essentially, they agree that tariffs would have a negative effect on employment, but perhaps not as big as some Cassandras have suggested, and that this 'bad protectionist' policies would continue. A similar argument can be found in Brad DeLong's op-ed, another progressive economist, in which he argues that the tariff is a tax hike for consumers. Brad, I should note, has recently published a very good book in which he praises the Hamiltonian system, that is,  the use of managed trade to promote industrial development (I discussed it here).*

It's worth remembering that while on other issues Trumponomics is essentially Reaganomics (low taxes for the wealthy and increased military spending), on trade his views are a break with more recent Republican positions (and hence the push back in his own party against the tariffs) and closer to what many Dems, particularly those connected with trade unions, often defended. He has not signed TPP, has really started renegotiating NAFTA (something Obama promised to do as a candidate, but did not deliver as president) and now has imposed some tariffs (like, btw, Bush, so I'm not suggesting this is unprecedented; just that he has been more consistent on this topic).

Don't get me wrong, I'm not a big fan of Trumponomics, or even in particular of these tariffs. And this will not work probably, but the reasons are not the ones adduced by progressives. Their basic argument is that retaliation by other countries will make them innocuous. In all fairness, the US is already more 'protectionism' (manages trade) than most people understand. The ability to use trade treaties and organizations for defending the country's own advantage is considerably tilted in favor of advanced economies and their corporations that can use loopholes to creatively avoid rules and continue to subsidize their industries (and agricultural sector). The US use of the defense department, again used by Trump, is typical. Poor countries some times lack the basic technical capabilities (lawyers and economists) to face the trade teams of advanced economies. The complexity of the WTO dispute settlement process, the geopolitical role of the US and the importance of US markets for many developing countries render it a very ineffective tool for the interests of less developed economies.

It should not be a surprise that American corporations continue to thrive in international trade (it's the American working class that is in trouble). Manufacturing is doing well, with the support of what Fred Block has termed the hidden developmental state in the US. So the problem is not that tariffs could not work. In all fairness, tariffs together with significant expansion of domestic spending on infrastructure (and more steel demand), with a vigorous defense of trade unions, with higher minimum wages, with policies to improve income distribution, like progressive taxes on the wealthy, to strengthen the domestic market might actually be part of a Hamiltonian strategy of economic growth. Note also that the whole point of imposing tariffs is to depend less on exports and more on domestic markets, so that to some extent retaliation should matter less. A more closed (not closed, but more so, like Keynes suggested in his National Self-Sufficiency piece of 1933) international economic order, to role back of some of the excesses of the neoliberal, pro-corporate globalization process, used to be be, and should be, on the agenda of the left.

The problem, then is less the tariffs per se, and more the fact that the Trumpian agenda is empty, and has nothing for the working class. That was my biggest concern reading the progressive economists complaints about Trump's trade views. Their solutions are to stop protecting patents and professionals, that is more 'free trade,' and a more depreciated currency (I'll leave my skepticism about this one for another post, at any rate I discussed this before). While I'm more sympathetic to the skepticism on property rights, note that China, in part, thrives, exactly because they do explicitly infringe the rules on patents (the first Geely car was a knock off of a Mercedes, and they bought Volvo to have access to foreign technology; there are many examples; it's worth noticing that the US did that in the past too). That would not necessarily be good for American corporations. To weaken doctors, lawyers and other middle (and upper middle) class professionals is certainly not the way out of the hole for the American working class.

The political danger of these views, which I think still dominate the liberal wing of the Democratic Party, is considerable. I think, that even if his policies turn out not to be very helpful (for the reasons I outlined, meaning lower wages and protections for workers, lower taxes for the wealthy and corporations and so on) his true dislike of globalization and free trade policies would strengthen his position with working people in the Rust Belt, which were central for his victory (maybe you think it was Russia... oh, well). As I noticed before the election, this would make things so much hard for Dems in elections. I said back in September 2016 that: "Note that this doesn't mean he [Trump] is going to win the election. Demographic changes make it harder for Republicans to win now, since Dems get more of the electoral college to start with. And I hope he doesn't, btw. But there are good reasons to be afraid. This is going to be way closer than it should be." And so it was.

I'm afraid that his trade policies, and the Dems position that effectively are to his right (like Hillary, but not Bernie) would make it more likely (hopefully not enough) for a longer period of Trumponomics than it is acceptable. This suggests that a good chunk of Dems are stuck in the model that Mark Lilla has referred to as identity liberalism (see his book here), and have become vulnerable to right wing populism. It's getting increasingly difficult to have hope in the dark.

PS: For discussions of trade policy see this two previous entries which provide a simple discussion of the Ricardian and neoclassical models of trade and its limitations. I would also recommend the paper by Robert Wade linked here.

* There are many others that have written on this in the last couple of days. Paul Krugman could, arguably enter the list of progressives here, but he has been consistently more of a free trade guy. Krugman complain is more macro than the others. In his view, the Fed would hike rates, since we are close enough to full employment and any additional gains from the tariffs will be eroded, even without retaliation from other countries. In part, that would happen because higher interest rates would lead to inflows and an appreciation of the dollar (see here).

Monday, March 5, 2018

The Godley-Tobin Lecture by James K. Galbraith

Presenting the Lecture

Here is the audio file of Jamie Galbraith inaugural Godley-Tobin Lecture. Due to the weather he recorded the lecture before hand. The paper will appear in the Review of Keynesian Economics (ROKE) soon. Jamie presents a macro discussion of income distribution, which he correctly points out has been absent from most discussion of inequality in recent times.

Further, he connects his concern with the data (the UNIDO data that his team at UTIP has worked on for years now) to Wynne Godley's preoccupation with data consistency and accuracy. He also noted that James Tobin's preoccupation with the role of monetary variables, which Wynne certainly admired, is central to understand global inequality. We were very happy to have Jamie give the inaugural lecture, not just because we expected a great presentation, but more importantly because having interacted with both Godley, at the Levy, and with Tobin, at Yale and while he was in the staff at the US Congress, he was in a unique position to provide a thoughtful evaluation of their importance for what I referred (following Wynne) non-hyphenated Keynesianism to the understanding of economics.

Tuesday, February 27, 2018

Theotônio dos Santos (1936-2018)

Theotônio dos Santos, one of the main authors of the Latin American Dependency School, has passed away. I had some minimal contact with him, seeing some of his talks as an undergraduate, and then at a few conferences were we could talk a bit more, including after I had published this paper.

When I was a student, I might add, I was basically taught that there were two dependency school traditions, and often the Marxist one, in which Theotônio and André Gunder Frank were the key figures, was seen, at my alma mater (the Federal University of Rio de Janeiro) at least, as the lesser one, with the Structuralist school, of Fernando Henrique Cardoso, being the 'good' one. In retrospect, given the political views (and some of the economic views too) that Cardoso came to defend from the late 1980s onwards, with his adherence to Neoliberalism, I must conclude that my teachers might have been wrong.

An obituary in Portuguese here.

The inaugural Godley – Tobin Memorial Lecture

The inaugural Godley – Tobin Memorial Lecture at the Eastern Economic Association meetings in Boston on Saturday March 3, 11.30am – 12.50pm. The lecture pays tribute to both Godley and Tobin's emphasis on being non-hyphenated Keynesians (more on that for a later post).

The lecture is sponsored by the Review of Keynesian Economics (ROKE) and will be delivered by Professor James K. Galbraith, whose talk is titled “A global macroeconomics – Yes, macroeconomics damn it – of inequality and income distribution.”

It will be held in Gardner A & B of the Boston Sheraton. If you are attending the EEA meetings, I hope you will attend.

Monday, February 26, 2018

Was Keynes a Keynesian?

Mike Beggs wrote an interesting Review of the book In the Long Run We Are All Dead (which I started, but have not finished yet). Beggs argues that: "Marx lived long enough to declare himself 'not a Marxist.' Keynes was not so lucky. Followers would make the distinction between 'Keynesian economics' and 'the economics of Keynes.' But by then the word had well and truly transcended the man." That's not altogether correct.

Dave Colander retells the Abba Lerner story of Keynes' famous presentation at the Fed in 1943, which according to Colander might be the source for the Alan Meltzer (based on Terence Hutchison) argument that Keynes indeed did say "I am not a Keynesian," where Keynes was essentially against deficit spending, and that Evsey Domar, who was next to Lerner, "whispered: 'He ought to read the General Theory'."

Leaving aside the fact that the GT, in fact, does not deal with fiscal deficits, but more inscrutably with the socialization of investment, there is a certain amount of truth that Keynes was not always Keynesian, in the simple sense of for fiscal expansion. But that essentially puts an emphasis on Keynes' economics as essentially concerned with economic policy.

As I noted recently, Keynes arguments for public works precede the GT, and the book was published when the worst of the Great Depression was already over, clearly and expressly with a theoretical preoccupation. That is why Mann's view, which is central to his book, seems somewhat misguided. For him:

“Keynes and Keynesianism were not 'resurrected' following the financial meltdown of 2007–2008, because neither was ever 'dead,' however hard some mainstream economists might have tried to convince us otherwise. Capitalist modernity, in fact, is and always has been Keynesian on the inside.”

In his view, Keynesianism is just a name for the mechanism by which liberal capitalism tries to save itself from the contradictions that overwhelm the system in periods of crisis. And he is not wrong that Keynes is resurrected every so often (one can say the same about Minsky, now that most crisis have a financial/bubble component too).

My point is that Keynes notion that there is no unique (natural) level of employment around which the system fluctuates, and that it normally oscillates around sub-optimal levels was never actually adopted by the mainstream. What is often resurrected is the mainstream version of Keynesianism. Instead of the perennial persistence of Keynesianism, a more accurate description would be the idea that the Keynesian Revolution was really aborted.

Tuesday, February 20, 2018

Talk of military intervention in Venezuela is absurd

In early February, US Secretary of State Rex Tillerson embarked on a Latin America tour aimed at promoting "democratic security". But just before he set off on his trip, he speculated on the possibility of a military coup in Venezuela.

"In the history of Venezuela and South American countries, it is often times that the military is the agent of change when things are so bad and the leadership can no longer serve the people," he said at an event at the University of Texas at Austin.

Tillerson's comments came six months after US President Donald Trump threatened military action in Venezuela.

Full piece published by Al Jazeera here.

Tuesday, February 13, 2018

Cohen and DeLong on Hamilton's Report on Manufactures

Hamilton's Reports, posthumous 1821 edition

Stephen Cohen* and Brad DeLong, in their highly readable book Concrete Economics: The Hamilton Approach to Economic Growth and Policy (if you haven't, go buy a copy now), argue that “Alexander Hamilton [was a] major economic theorist. His theory of economic development, first set out in his famous Report on Manufactures (1791), not only reshaped America’s economy but was channeled by Frederich List half a century later to play a central role in Germany’s rapid industrialization, and still later became a canonical text in Japan." Further they suggest that: “This Hamiltonian project was contrary to Ricardo’s canons of comparative advantage as well as Smith’s free markets. It was bold. The direction of economic activity was not commanded, but it was not left unguided either."

While I generally agree with the main points of the book (my major issues are with the notion that technical change was driven by scarcity of labor, and the need to economize labor along marginalist lines), I would qualify a bit the argument on the break with the Smithian/Ricardian classical political economy (or surplus) approach to economics.

Certainly Hamilton is not Ricardian in the sense that he suggests that the pattern of specialization should not follow comparative advantage (a notion not fully developed until Ricardo's own work a few years later, and simultaneously and independently by Robert Torrens). But note that for Ricardo Free Trade was part of a strategy of reducing the rent of landlords, which resulted from the use of lands of lower quality which were the consequence of the embargo first, and then the Corn Laws. In that sense, Ricardian Free Trade was a strategy of industrialization for England (as much as Hamilton's project was for industrialization in the US). It is also true that Hamilton was breaking with the laissez faire tradition of Smith and classical authors in general. But he was not precisely Mercantilist or Cameralist, in the sense that a reading of the Report clearly shows he understood that the wealth of nations derived from the division of labor, and not from the accumulation of bullion and trade surpluses.++

Hamilton believed, not unreasonably, that manufactures were more prone to the adoption of machinery, and indicates that manufacturing countries are more opulent than merely agricultural countries. In other words, he seemed to believe that what is produced matters, and that manufacturing would further the division of labor that was at the heart of the wealth of nations. That is why there is some importance in the Cohen and DeLong book emphasis on Hamiltonian trade management, and the willingness to use tariffs and bounties (subsidies). Note that the conventional view among economists increasingly tries to deny that this was central for Hamilton. For example, Douglas Irwin argues that: "Although the report is often associated with protectionist trade policies, Hamilton’s proposed tariffs were quite modest, particularly in light of later experience. This reflected his emphasis on using tariffs to generate fiscal revenue to fund the public debt; indeed, the country’s finances were his top priority, not discouraging imports for the sake of domestic manufacturers."

However, the Report itself seems pretty concerned with the differences between agricultural societies and manufacturing ones, arguing that: "nations merely agricultural would not enjoy the same degree of opulence, in proportion to their numbers, as those which united manufactures with agriculture." He cites England and the Cotton Mill developed there as something to be emulated, and that it can only be done with a certain degree of trade management (on free trade versus managed trade see this).

Hamilton is explicit on a strategy that we would call today as import substitution industrialization, and argues that: “The substitution of foreign for domestic manufactures is a transfer to foreign nations of the advantages accruing from the employment of machinery, in the modes in which it is capable of being employed, with most utility and to the greatest extent. The cotton mill invented in England, within the last twenty years, is a signal illustration of the general proposition, which has been just advanced.” Interestingly, he does not cite the use of steam engines, which was still not prevalent, but notes the use of the water wheel, and the extensive use of female and child labor (the latter as a positive development). In this regard, he seems more au courant than Adam Smith, with his pin factory, about what would later be termed the Industrial Revolution.

Moreover, Hamilton suggest that manufacturing and agriculture should be complementary, and argues that manufacturers would provide an outlet for the production of the agricultural sector. The Smithian notion of a vent for surplus, but a domestic one is utilized by him. He argues that: “It is evident, that the exertions of the husbandman will be steady or fluctuating, vigorous or feeble, in proportion to the steadiness or fluctuation, adequateness, or inadequateness of the markets on which he must depend, for the vent of the surplus, which may be produced by his labor; and that such surplus in the ordinary course of things will be greater or less in the same proportion. For the purpose of this vent, a domestic market is greatly to be preferred to a foreign one; because it is in the nature of things, far more to be relied upon.”

The relevance of the ideas related to managed trade seem to be again on the agenda with the rise of right wing populist governments, in particular here in the United States, and the skepticism about Free Trade and Globalization.

* Stephen Cohen was the co-author with John Zysman of a very influential book in the 1980s called Manufacturing matters: the myth of the post-industrial economy which is also still worth reading.

++ In the Report on a National Bank he explicitly says that: “it is immaterial what serves the purpose of money, whether paper or gold and silver; that the effect of both upon industry is the same; and that the intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals, contained in it, but by the quantity of the productions of its labor and industry.”

Wednesday, February 7, 2018

What About the New Tax Law?

New Event from the Susquehanna Progressives. Drop by if you're around the area. Info below.

"As activists we need to understand the history of US tax policies, how they have changed since the 50's and why, the affect on our social fabric and what the new tax bill will mean for the health of our nation (Presentation followed by Q&A)."

Presenter: Matías Vernengo, Professor of Economics, Bucknell University

Thursday, February 22 | 7:00 - 8:30 PM
Community Zone, Market Street in Lewisburg 7-8:30

Monday, February 5, 2018

Keynes' intellectual influence: the theorist vs the pamphleteer

Keynes' 1933 and 1929 pamphlets, respectively

One of the many unfair criticisms of Keynes' General Theory (GT) is that is badly written or somewhat incomprehensible. Note that Keynes started to write it in 1932, four years into the Depression, and two years after publishing the Treatise, which he probably thought was going to be his Magnus Opus. In other words, by the time he started to write the GT the worst part of the Depression was coming to an end (the UK had abandoned gold in 1931, and the US would start the New Deal the following year). Keynes' policy advice, mostly about the need to abandon gold and promote public works was not based on the GT, which came considerably later. The idea of an employment multiplier, even before Richard Kahn developed the concept, can be found in one of the pamphlets depicted above (Can Lloyd George Do It?).

As he said, the book was basically for his fellow economists. More importantly the book marked a theoretical break with neoclassical economics (which he sadly called classical, creating more confusion than needed), one that was NOT necessary to promote public works or expansionary fiscal policy that would come to be associated with Keynesianism (he was advocating that before he reached the main conclusions of the GT). The point of the book was that, even with price and wage flexibility, the economic system did not have a tendency to full employment (that means you must wait for chapter 19, when wage flexibility is introduced, to get his main argument).

The fact that the Keynesian Revolution led to a reinterpretation of Keynes on the basis of rigid wages (or interest rates) or some other kind of imperfection in more modern versions of mainstream Keynesianism, suggests that to some extent Keynes the pamphleteer was more effective than the theorist, which is not altogether surprising, since Keynes was indeed very good at writing for greater audiences, and became internationally known as a result of his pamphlet on the Treaty of Versailles.

This is my list of his most influential essays or pamphlets:
Arguably someone may put How to Pay for the War in the list of important pamphlets. He basically wanted to finance war with taxes, and was concerned with demand pull inflation.

Friday, February 2, 2018

Alan Blinder on Fiscal Adjustment

Alan Blinder published recently two columns on the WSJ (here and here) on the need to exercise fiscal restraint. In both cases he complains that the fiscal deficit is too large. Note that he is not saying that this is always the case, he emphasizes that in the second and most recent piece. The reason, as always, is that we are close to full employment. In his words:

"... today we are back at full employment, or perhaps beyond it, ad economic growth kooks solid. The economy doesn't need fiscal stimulus."

Blinder one must note was strongly for hiking rates in the mid to late 1990s, when he was the vice chairperson at the Fed, exactly for the same reasons (see this old piece in The American Prospect).  So at least he is coherent. We cannot grow too fast, since that would cause inflation. And we have a tendency to be at full employment (note that a few years back almost everybody said full employment, the natural rate, was about 6%, not the 4% or so we have). But if he is coherent, he has also been almost always wrong.

And we are not at full employment. The employment-population ratio (seen below) has finally started to recover in the last three years, but it is still well below the peak before the recession, and the participation rate (not shown but available here) has been stagnant.
That means that too many people remain discouraged about the situation in the labor market, and that when we look at broader measures of unemployment that look at those marginally attached to the labor market the level of unemployment is closer to 8% (see here). And let's not forget that the last two decades saw an impressive decline in manufacturing jobs that reduced the availability of good jobs. So the issue is not just the number of jobs, but the quality of those. It should NOT be a surprise that Trump won in some Rust Belt states.

Dems, and their economists (like Blinder), should be more sensible about the need to create more jobs, and particularly good jobs if they want to regain the White House and Congress. I would suggest that austerity is a terrible strategy. This is what you should expect from the Progressive-Neoliberal branch of the party, as it was aptly called by Nancy Fraser.

Thursday, February 1, 2018

Investment Rate, Growth and Accelerator Effect in the Supermultiplier Model: the case of Brazil

A new paper by Julia Braga, that she will present at the next Eastern Association Economic Meeting in Boston. From the abstract:

"This paper investigates the role of demand in the productive investment evolution in the Brazilian economy. First, it assesses the long-run relationship between investment rate and GDP growth, taking annual data since 1962 until 2015. We then construct a “Final Demand” index and estimate its impact on productive investment growth rate, taking quarterly data since 1996q1 until 2017q2, highlighting a shift in the aftermath of the 2008 world economic crisis. The results support two hypotheses of the Supermultiplier model of Freitas and Serrano (2015) and Serrano, Freitas and Behring (2017) for the Brazilian economy: 1) non-capacity creating expenditures lead productive investment; 2) there is a very slow adjustment of the investment rate to demand growth, as described by the flexible accelerator process."

Read full paper here.

Saturday, January 27, 2018

Demand Drives Growth all the Way

New paper by Lance Taylor, Duncan Foley and Armon Rezai. From the abstract:

"A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state “dual” to Pasinetti’s cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth."

Read full paper here.

Monday, January 22, 2018

Sunday, January 14, 2018

The slow recovery in historical perspective: 10 years after the Great Recession

It's hard to believe, but it has been almost a decade since the Great Recession. The official recession started in December 2017, but everybody remembers the collapse of Lehman in September of 2008. When you look at the recovery from the last recession in historical perspective, two things are clear. If you take GDP fall, or increase in unemployment, the Great Recession does not compare to the Great Depression, and that means that fiscal policy (automatic stabilizers and stimulus package) did work. The other is that 10 years into it, we are more or less were we where after 10 years of the Depression (which means the New Deal worked too, since the decline in GDP back then was much more pronounced, and recovery started in 1933).
But what I think is crucial, if one extends the historical data, is the effect of that crucial Keynesian experiment, World War II. Keynes was correct when he wrote in 1940 that: "It is, it seems, politically impossible for a capitalist democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case -- except in war conditions." And indeed, it seems very hard to see any circumstances that would push spending up to the extent needed to avoid the slow recovery to continue its course, and for 'secular stagnation' to prevail.

Actually if one looks at GDP per capita (per worker in fact), as The Economist (from last December, which was the inspiration for the graph above) does, then it seems that the New Deal/World-War-II policy experiment already looks better than the last decade.
And that is not considering that there seems to be a bubble in asset markets and the Fed is hiking rates (although I doubt that much). So things do not look particularly good.

Friday, January 12, 2018

The Latin American Crisis


I have not written on the problems in the region for a while now (last stuff that is more comprehensive here in the talk at Keene, for example), in part, because the whole theme is a bit depressing (more recently the Honduras crisis, and the return of the right in Chile). As I have noted before, there is no doubt that the collapse of commodity prices has played a significant role in the downturn in the region, but it is also true that a lot of the problems are political in nature, and the resurgence of neoliberalism (with the support of the US, btw) has played a significant role too. In my view, the latter is far more relevant.

Two recent issues that I wanted to note, and that prompted my return to the issue of the crisis in the region. One is the downgrading of the Brazilian public debt by Standard & Poor's (I've written on credit rating agencies before here, and on the  previous downgrading of Brazil too). As I noted before, the Brazilian economy didn't face any significant fiscal or external problem. Figure below, from IMF WEO data, shows that the primary balances were actually positive until Dilma decided to cave and do a fiscal adjustment in 2015 (which did not save her from the coup, btw). And the external (current account) deficit was small, and manageable given the humongous external reserves and the great amount of global liquidity.

At any rate, why the new downgrading, you ask. The reason is to force the Brazilian government to push once again for pension reform. The whole point is that the crisis was caused to create the conditions for the dismantling of the old remnants of the very incomplete welfare state, if one can speak of one in Brazil, that survived the neoliberal onslaught of the 1990s under Fernando Henrique Cardoso. One should not minimize the importance of the soft power of US institutions, including the credit rating agencies, and how they can be used to promote certain political agendas.

The other issue is related to Venezuela (see my two previous posts here and here). I noted before that Venezuela's democracy (very problematic one, as I noted, before you complain; read the posts in the links please) is under attack, and that right wingers should not be seen as pushing for democracy against an authoritarian regime. That rhetoric, that still permeates most of the coverage in the US, is simply incorrect. I was somewhat shocked to read the recent op-ed by Ricardo Hausmann asking for military intervention by foreign powers (meaning the US). By the way, this comes from someone with the authority of being a Harvard professor (not that Harvard is supporting the coup, as far as I know). The role of the soft power of US institutions again.

If there were any doubts about their (right wingers that supported the 2002 coup) commitment to democracy I think this clears it up. I'll leave a discussion about the accuracy of the claim that elections have been rigged and the extent of the 'famine' for another post (something old on the latter here). I just wanted to note that here there is that step that is always there in the authoritarian argument about the justification for violence and the removal of the democratic institutions. Unacceptable.

Monday, January 8, 2018

On mainstream Keynesianism

Looking up to Galbraith

The ASSA Meeting was this last weekend in Philadelphia. It was the bomb... cyclone (Nate Cline's joke; I'm sure many others too came up with that one). I don't have much to report actually. I did participate in one section, and will post a link to a preliminary version of my paper soon. I was at the Economists for Peace and Security (EPS) dinner, that honored Jamie Galbraith. This blog was named Naked Keynesianism, as you may know, because years ago Fox News accused him of teaching naked Keynesianism, and I thought that was both funny and a reasonable name for the stuff I did.

Anwar Shaikh was at the dinner, and suggested that Jamie has one foot in each side of the heterodox/orthodox divide, as a result of his paternal influence (Richard Parker noted that as father/son duos come, the Galbraiths do much better than the Friedmans or Steins, and as well as the Gordons), and that for that reason at EPS (presided by Jamie for more than 20 years) we got accustomed to be less segregated from the rest of the profession. That seems about right.

And to prove Anwar right, Joseph Stiglitz was at hand to discuss Jamie's many achievements, and  the many battles, including the one on Greece's debt crisis, and that is far from over, that he fought with Jamie.* Yet, while on policy issues there have been many battles that reasonable, and progressive mainstream Keynesians have fought with heterodox economists (a topic discussed here before), there are important differences between heterodox Keynesians, and their mainstream counterparts. For example, check Stiglitz's new paper on the last issue of the Oxford Review of Economic Policy (OREP).

He acknowledges that: "the economy does not quickly return to full employment," and that "simple models have been constructed investigating how structural transformation can lead to a persistent high level of unemployment, and how, even then, standard Keynesian policies can restore full employment, but by contrast, increasing wage flexibility can increase unemployment." That is essentially correct, and I should add, that perhaps Stiglitz has gone further than most mainstream economists pushing the need for the limits of what he refers to as equilibrium models (mostly of the Monetarist and New Classical/RBC type). But essentially his critiques derive from information problems and limits to rationality, coming from behavioral economics insights.

I often think of Olivier Blanchard when I have to discuss the inability of reasonable mainstream Keynesians incapacity to break with old ways of thinking. Perhaps because of his role until recently at the IMF (now that role was taken over by Maurice Obstfeld). Blanchard tells us in his new paper in the same issue of OREP that: "current DSGE models are flawed, but they contain the right foundations and must be improved rather than discarded."

This is essentially the point of Blanchard's paper on the natural rate too. He essentially suggests that not only the natural rate hypothesis is theoretically reasonable, but that it is relevant for policy makers. Not surprisingly the IMF has not changed its views on macro policy that much (on that see my previous post and the several links to older stuff).

Of course Jamie long ago suggested that the the concept of the natural rate itself should be abandoned. And he did it in the Journal of Economic Perspectives, a journal that was supposed to showcase alternative views in pluralist fashion, but that has failed in being inclusive of heterodox traditions. The inability to ditch the natural rate, even in the face of the last financial crisis (and something that Keynes suggested in the GT) is the main persistent failure of the mainstream.

* Stiglitz acknowledged that Jamie has been studying inequality since before Piketty made it a fashionable topic.

Friday, December 22, 2017

The IMF and fiscal policy

This is a topic I discussed several times here (for example, here, here, here, here or here). Now there is a paper by Marc Lavoie (with co-author) in Intervention, on the same topic. The paper notes that: "There is a paper by Vernengo/Ford (2014) that covers some of the same ground. Their conclusion is that the 2008 crisis prompted only some cautious change in the views being entertained at the IMF" (my paper with Kirsten is here). Just to clarify, that's not exactly our point. The point we make is that while the research department has changed some of their views, without discarding the crucial concept of the natural rate of unemployment in their analytical framework, the policies pursued by the IMF changed very little indeed. So that there is a kind of double discourse. I referred to something like that within the mainstream of the profession as organized hypocrisy. Double discourse in theory, with no significant change in the theories that underlie the policy, and almost no change in policy.* At any rate, as anything that Marc writes this paper is worth your time and attention.

* In our intro we say: "It is concluded that even a most optimistic reading of IMF reports and country arrangements disappoints. The power structure ultimately remains the same: the Fund continues to be the mechanism through which creditor countries enforce contractionary policy on indebted countries." So, in our view, nothing really changed. more window dressing than anything else going on.

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