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Showing posts from October, 2016

James Tobin

(1918-2002)
By Thomas Palley

James Tobin was a leading - perhaps the leading - American neo-Keynesian macroeconomist in the era of Keynesian dominance after World War II that extended through to the early 1970s. Along with growth theorist Robert Solow and micro and trade theorist Paul Samuelson, the three substantially shaped what became known as the neoclassical synthesis which fused neoclassical microeconomic theory, Keynesian macro theory, and neoclassical growth theory. The macroeconomic component of the neoclassical synthesis is termed neo-Keynesianism. All three received the Royal Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel, with Tobin winning his prize in 1981. Tobin died in 2002, aged 84.

Robert Dimand (2014) has written a short book, which is part of The Great Thinkers in Economics series edited by Tony Thirlwall, on Tobin’s economics. For purposes of truth in advertising, it should be noted that Dimand was a student of Tobin’s at Yale University and wro…

On the blogs

Premonition of Things to Come -- Robert Paul Wolff on how we can expect Hillary to move to the right after the election, which is more or less what I said here

Trump, Clinton, Obama and the TPP -- Jomo Kwame Sundaram on the political economy of TPP

Central Banks Going Beyond Their Range -- John Eatwell and John B. Taylor (yep, that's correct). A bit old, but worth reading. They are against lower rates, but I doubt they agree on fiscal and regulatory issues

Self Driving Trucks

I don't normally post about this stuff, but the possible implications of this technological change are far reaching, not just in terms of safety as implied in the video (somewhat promotional; hey, it's WIRED), but also in terms of employment. Jimmy Hoffa is turning on his grave, wherever that is. The original WIRED piece here.

GDP recovers a bit in the third quarter

According to the BEA, the advance estimate of GDP growth in the third quarter is 2.9%, which is a significant improvement on the second quarter (1.4%). So maybe there is no recession in the near future (Neil Irwin might be right about that), which does not mean Yellen should hike the Fed rate in December anyway.

History of Central Banks tutorial

Next semester I'll be teaching a senior seminar on the history of central banks. The idea is to blend economic history, history of economics ideas and monetary theory in equal parts. And I decided to post on some of the topics I'll discuss in the class, very much like Robert Paul Wolff's tutorials in his blog The Philosopher's Stone, but probably in a less instructive and interesting way than the ones he posts (see this multi-part tutorial on Marx that starts here, and continues here and here and so on; last of nineteen parts here). In the same spirit, I'll suggest some readings for those interested in the topic. An obvious place to start is with the paper "The changing role of central banks" by Charles Goodhart, or for an alternative interpretation by yours truly go here.

Foreign Exchange Trading and the Dollar

The new Bank for International Settlements (BIS) Triennial Central Bank Survey was published last month. The Foreign exchange turnover is down for the first time since they started in 1996. As the press release says: "Trading in FX markets averaged $5.1 trillion per day in April 2016. This is down from $5.4 trillion in April 2013." The figure below shows the main results.
Not surprisingly the dollar remained the key vehicle currency, being on one side of around 88% of all trades, while the euro has continued to slide down approximately from 39% in 2010 to 31% now. Also, while the yuan or renminbi is now the most actively traded developing country currency, the rise in the share in global foreign exchange turnover is from 2.2% to 4%.

PS: For those interested here there is an old paper, but I think still relevant, on the dollar after the crisis, and why there should be no fear about its dominant position.

On Volcker and Peterson's debt problem

In their recent NYTimes op-ed Paul Volcker and Peter Peterson say: Yes, this country can handle the nearly $600 billion federal deficit estimated for 2016. But the deficit has grown sharply this year, and will keep the national debt at about 75 percent of the gross domestic product, a ratio not seen since 1950, after the budget ballooned during World War II. The practical consequence of large deficits and debts, according to them is that:
Our current debt may be manageable at a time of unprecedentedly low interest rates. But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending. There would be no room for the infrastructure programs and the defense rebuilding that today have wide support.  It’s not just federal spending that would be squeezed. The projected rise in federal deficits would compete for funds in our capital markets and far outrun the private sector’s capacity to save, to finance in…

A Theory of Economic Policy Lock-in and Lock-out via Hysterisis

Locked out
By Thomas Palley

This paper explores lock-in and lock-out via economic policy. It argues policy decisions may near-irrevocably change the economy’s structure, thereby changing its performance. That causes changed economic outcomes concerning distribution of wealth, income and power, which in turn induces locked-in changes in political outcomes. That is a different way of thinking about policy compared to conventional macroeconomic stabilization theory. The latter treats policy as a dial which is dialed up or down, depending on the economy’s state. Lock-in policy is illustrated by the euro, globalization, and the neoliberal policy experiment.

Read paper here.

On the blogs

How to tell apart trade agreements that undermine democratic principles from those that don't -- Dani Rodrik on Free Trade Agreements. Many problems. I'm certainly not keen on what he calls the "good kind of delegation and external discipline." Probably more on that latter

Philanthropy in Development: Undermining Democracy? -- Ingrid Kvangraven on the role of philanthropic foundations, like the Clinton one

I Paid $2,500 for a ‘Hamilton’ Ticket. I’m Happy About It -- Greg Mankiw admits his a sucker

Nominal and Real Interest Rates

The persistence of low interest rates has dominated the news. In general related to whether the Fed will or will not increase the interest rate by the end of the year. The Economist tried a few weeks ago to put things in perspective, and suggested not only that the current nominal rates close to zero are unprecedented, but it sort of indicated that the negative real rates are also to some extent a new phenomenon. The explanations for low rates can be found here, and the consequences, according to The Economist here (btw, for them is a pension crisis; and yeah, just wait this will be used to call for privatization).

I'm not particular keen, as you know, on the idea of a savings glut, as an explanation for the low rates. The reason is much simpler and is associated to the fall out from the previous crisis. But at any rate I just wanted to check the data. They showed the nominal short term rate in the UK (below), which is not very different from what can be found in other sources us…

Policy Challenges for the New US President

Economists for Peace and Security will conduct its 9th annual policy symposium at the Hyatt Regency Capitol Hill in Washington DC on November 14, 2016 to discuss the economic dimensions of the most pressing global security issues and those facing the domestic economy. Following one of the most unusual presidential and congressional elections in US history, three panels of senior specialists will present ideas for improving prospects for peace, and growth with fairness for all Americans.

Program:
8:30am
Registration & Breakfast  9:00am
Global Security: Russia, China, Europe and Latin America
Chair - Richard Kaufman, Bethesda Research Institute
Michael Lind, New America Foundation
Mark Weisbrot, Center for Economic and Policy Research
Matías Vernengo, Bucknell University
Carl Conetta, Project on Defense Alternatives  10:00am
Keynote: James K. Galbraith, Economists for Peace & Security  10:30am
Jobs, Wages, Health & Social Security: What Next?
Chair - Sherle Schwenninger, New…

On the blogs

Not Keen on more Chaos in the Future of Macroeconomics -- Roger Farmer on Keen's response to Blanchard. I'm not keen on chaos either

Contract this! --David Ruccio on the recent Sveriges Riksbank Prize (aka "Nobel"). I have no patience for explaining the prizes anymore

How Wells Fargo Exemplifies the Drivers of Big Corporate Fraud -- Yves Smith on the last financial scandal

A late note on the Economic Report of the President

This is a bit old. The Economic Report of the President was published a while ago. I just was looking recently, essentially because it has a chapter on the 70th anniversary of the Council of Economic Advisers (CEA). The report discusses the role of Leon Keyserling, the second chair of the CEA, but the most relevant one in the early period, who, like Eccles at the Fed, tends to be a relatively underestimated and forgotten influence on the rise of Keynesian economics (that's in this chapter). That is enough to make this Report worth reading.

But the first chapter (on inclusive growth) tackles the issue of inequality, and not just income, but wealth too. Below the shares in wealth distribution for the top 0.1%, 1% and the bottom 90%.
It's very clear that while the New Deal compressed the shares of the top groups, the Reagan Revolution has completely reversed the earlier achievements. And it is also clear that inequality is important also at the top, since the 0.1% do so much bet…

Raúl Prebisch and economic dynamics: cyclical growth and centre-periphery interaction

New paper. From the abstract:
Prebisch believed that understanding the evolution of capitalist economies over time and in different contexts required a general cycle approach, encompassing all the different areas of economic activity, which he labelled “economic dynamics.” This theory, developed between 1945 and 1949, stemmed from a critique of both neoclassical and Keynesian theories, which Prebisch viewed as static representations of capitalism. It was applied first to a closed economy and then to a centre-periphery context. The theory combined the notion that profit is the driving force of economic activity, with a process of forced savings and the idea that the time lag between income circulation (and the resulting demand) and the completion of the production process are the main source of cyclical fluctuations. Prebisch’s dynamics theory, which he never completed, influenced his “development manifesto” (Prebisch, 1950). Read full paper here.

On the blogs

Better than Adam Smith in Beijing
Sraffa’s visit to China in 1954 -- by Gabriel Brondino and Andrés Lazzarini reporting on Sraffa's (above) diaries
Why Republicans in the USA are "The stupid party" -- by Robert Vienneau, on the fate of the GOP

I Am Seriously Worried -- Barkley Rosser is afraid about the Donald

More methodenstreit -- Josh Mason on the Romer paper

Lance Taylor on Loanable Funds and the Natural Rate

New paper on INET. Here is from Lance's conclusion:
... writing in the General Theory after leaving his Wicksellian phase, Keynes said that “... I had not then understood that, in certain conditions, the system could be in equilibrium with less than full employment….I am now no longer of the opinion that the concept of a ‘natural’ rate of interest, which previously seemed to me a most promising idea, has anything very useful or significant to contribute to our analysis (pp. 242-43).” Today’s New “Keynesians” have tremendous intellectual firepower. The puzzle is why they revert to Wicksell on loanable funds and the natural rate while ignoring Keynes’s innovations. Maybe, as he said in the preface to the General Theory, “The difficulty lies, not in the new ideas, but in escaping from the old ones… (p. viii).” His point is that while there are good reasons to believe in the forces of stagnation, the reasons are not the Wicksellian ones given in New Keynesian models. Worth reading.

An Undergraduate’s Question about Economic Policy

By Thomas Palley
I received an e-mail from an undergraduate economics student who was curious about economic policy in Washington, DC. His question says a lot about the current state of affairs. Here it is with my reply.
From: Xxxxxxx Xxxxxxx [mailto:xxxxxxxxxxxxxx@xxxx.com]
Sent: Saturday, October 1, 2016 10:56 AM
To: mail
Subject: Question from an undergraduate
Dear Dr. Palley,
I am a first-year undergraduate in economics and political theory, and a longtime admirer of your work.
What are your thoughts on how Keynesian/Post-Keynesian ideas are treated in current political discourse?

I was in Washington D.C. recently and I had conversation with a Brookings fellow who told me that he thought Joseph Stiglitz was an “extremist who isn’t taken seriously by anyone who knows their way around the Beltway.”

Does it worry you that ideas which used to be considered “mainstream” (like social democracy) are now increasingly considered “extreme”?
Deeply grateful for your time and attention
Sinc…