Showing posts from April, 2016

Chomsky on public education

Defunding a program is the best way to promote privatization. He discusses here public education, but you can go down the line. The idea of voucherizing Medicare is basically a way of defunding it, worsening its quality and eventually move to private health (you get it if you pay for it). And on education note that while Chomsky is right that it worked well and is being defunded and privatized (think charter schools), it is also true that the system was always unequal and favored the middle class, since the value of housing determined the quality of the public schools.

Short excerpt from Requiem for the American Dream, which I highly recommend.

Ilene Grabel on capital controls

New paper on the resurgence of capital controls. From the Abstract:
The startling resuscitation of capital controls during the global crisis has substantially widened policy space in the global north and south. The paper highlights five factors that contribute to the evolving rebranding of capital controls. These include: (1) the rise of increasingly autonomous developing states, largely as a consequence of their successful response to the Asian crisis; (2) the increasing confidence and assertiveness of their policymakers in part as a consequence of their relative success in responding to the global crisis at a time when many advanced economies have and still are stumbling; (3) a pragmatic adjustment by the IMF to an altered global economy in which the geography of its influence has been severely restricted; (4) the intensification of the need for capital controls during the crisis not just by countries facing fragility or implosion, but also by those that fared “too well”; and (5) t…

Slow recovery continues

In the first quarter the economy slowed down grinding nearly to a halt. Real Gross Domestic Product (GDP) slowed to a 0.5% annual growth rate in the first three months of 2016, according to the Bureau of Economic Analysis (BEA). By the way, federal government spending has been a drag on growth. And here in lies the problem. Don't expect any stimulus this year, and very unlikely that this would change significantly any time soon. The problem isn't secular stagnation, it is rather short-term inaction.

Bankers and economic theory

From the BBC Yes, Prime Minister comic series. True, most bankers never quite learned Keynes, and then had to learn the stuff from some other Milton.

Fabio Petri on non-substitution theorems

Sometimes there is simple and right
New paper by Professor Petri, which is always worth reading, titled "Nonsubstitution Theorem, Leontief Model, Netputs: Some Clarifications." From the abstract:
The nonsubstitution theorem concerns long-period technical choice and relative prices, and was so understood in its first (1951) formulations, but the modern advanced micro textbooks that present it do not make this clear, rendering the theorem impossible to understand for students. These modern presentations derive from a reinterpretation of the Leontief model as a ‘timeless’ economy in Walrasian equilibrium, capable of positive production in spite of zero initial endowments of all inputs except labour: an unacceptable interpretation, made possible by a use of netputs, to describe the economy’s production possibilities, that is illegitimate in this case even from a strictly neoclassical perspective. The notion of a ‘timeless’ economy disappears from the textbook presentations of th…

Some brief thoughts on technical change

Engelbart's mouse
I have discussed some of these issues before (here, for example, or here). But it is the last week of my intermediate macro class, and I often end up with some discussion of growth. Mostly the Solow model, and some alternative demand-led growth model. I do only the simple models, Joan Robinson's banana model and Thirlwall's balance of payments constraint, to contrast with neoclassical supply constrained stories of growth.

But in the middle of that discussion, supply constraint versus demand led growth, a conversation about the nature of technological change is always inevitable. No, I'm not going to talk about Kaldor-Verdoorn now. There are two interesting aspects of technology that are often misrepresented in mainstream models.

First, in the Solow model technology is akin to a public good, meaning is non-excludable and non-rivalrous. So technology is relatively easy to acquire, difficult to preclude others from obtaining it, and the access to it by o…

On the blogs

Why not full employment? -- Chris Dillow on the abandonment of full employment as a policy goal. Personally, I'm not sure workers don't demand full employment now. I think they do, as they did back in the 1960s. But the conditions that allowed that to be an acceptable policy to the elites have changed significantly

Robert Lucas – Keynesian? -- ProGrowthLiberal at EconoSpeak. Yeah, sure it all depends on definitions, but it's a stretch

Enough central bank jazz hands… Why Labour should democratise the Bank of England -- Paul Mason's talk that has been all over the blogosphere. A quote if I may: "Under the Conservatives, monetary easing has been used simpy to offset the hit to the economy caused by fiscal tightening. Labour should, in future, use monetary policy to create fiscal space." Literately from Marriner Eccles book (see here)

What's the matter with Kansas at the Rick Smith Show

More on the GOP failure in Kansas. Rick Smith Show podcast here.

70 years ago

Keynes (1883-1946) NYTimes Obituary here

Tom Palley on Inequality and Growth

New paper published by PERI. From the abstract:
This paper examines the relationship between inequality and growth in the neo-Kaleckian and Cambridge growth models. The paper explores the channels whereby functional and personal income distribution impact growth. The growth – inequality relationship can be negative or positive, depending on the economy’s characteristics. Contrary to widespread claims, inequality per se does not impact growth through macroeconomic channels. Instead, both growth and inequality are impacted by changes in the underlying forms and pattern of income payments. However, inequality is critical at the microeconomic level as it explains differences in household propensities to consume which are at the foundation of neo-Kaleckian and Cambridge growth theory. Read full paper here.

Some thoughts on the impeachment and the right wing turn in Brazil

Riding the coup bike without the military
Brazilian President Dilma Rousseff has been impeached. The vice-president, Michel Temer, will assume the presidency temporarily while she is judged by the Senate. While the final outcome is still uncertain, it is very unlikely that she will return to office. This closes the long cycle of the left in Brazil, which started with the election of Luiz Inácio Lula da Silva to the presidency in 2002, and that led to the election and re-election of the candidates of the Workers’ Party (PT in the Portuguese acronym) since then. The roots of the current crisis are deep, and are not simply associated to corruption or to discontent with economic the poor performance of the country.

Protests started as far back as June 2013. The spark for those protests came from the cost of public transportation in São Paulo and other major cities, and the groups initially connected to the organization of the movement were clearly associated to left of center positions. …

Moody's upgrades Argentina credit rating status

Mainly because of their "expectation that Argentina will settle holdout creditor claims which will result in a lifting of court injunctions and clear the way for Argentina to access international capital markets." Fair enough, access to capital markets would lift the balance of payments constraint, even if the agreement is a complete surrender to the Vultures demands. But the most interesting argument for the improvement in the credit rating is that it results from "economic policy improvements since the Macri administration took office last December." So what happened since December (btw, mostly what I said it would).
The figure above from The Economist shows that inflation went up, and the economy was thrown into a recession. Fiscal deficits will likely increase, in spite of spending cuts, and reduction in public employment, since with the recession revenue will fall (Moody's expects the deficit to be about 5% GDP).

And yes fiscal deficits in domestic curren…

What's the matter with Kansas?

In 2010 Tea Party favorite Sam Brownback was elected governor and he had Republican majorities in both houses of its legislature. The GOP program was put in place. What happened, you ask?
The result of the GOP tax cuts is significantly lower employment growth than in the national economy. By the way, lower income tax and higher sales taxes, a very regressive tax policy, has led to a persistent overestimation of revenue, and tax shortfalls that led to spending cuts, which in part explains the employment problems (see here). And that is essentially the same program that the 3 national candidates are defending this year. Supply-side economics has been debunked several times, but it surprisingly survives. Zombienomics.

New York Times on the Brazilian coup... I mean impeachment

So for the correct view (yes, it was a coup) see Laura Carvalho here. As she says: The impeachment process of President Dilma Rousseff started as a retaliation by the speaker of Brazil’s lower house of Congress, Eduardo Cunha, indicted for taking as much as $40 million in a kickback scheme at the state-owned oil company Petrobras. Cunha, whose name is also tied to the Panama Papers, initiated the impeachment process shortly after a public announcement by government allies that they would not stop investigations in the Congressional ethics committee that could lead to his removal. And, as I noted before the actual farce in Congress last Sunday, Dilma is accused of something trivial, delays in payments to public banks, which is certainly not an impeachable crime. The opposite view here, for what is worth.* Hard to agree with the criminalization of fiscal policy. With that criteria several heads of state should be impeached, including in the US (see IMF on this, which suggests that the…

Brazilian growth during the Workers' Party adminstration

Overall from 2003 to 2016 about 2.4%. If the last two years (2016 being an estimate are not counted) it's 3.5%.
The collapse does not explain the impeachment (on this more later). It's more the result of the Workers' Party administration already caving and accepting the austerity policies promoted by the opposition.

Prebisch's dynamic theory

New paper with Esteban Pérez published in ECLAC Review; for now only the Spanish version is available, but soon there will be an English version (they always release it later).

On the blogs

Regress in Macroeconomic Knowledge Over the Past 83 Years Blogging -- Brad DeLong on Raghuram Rajan. And the problem isn't debt overhang, low productivity or lack of more aggressive and unconventional monetary policy. It's fiscal policy stupid!
Neoliberalism – the ideology at the root of all our problems -- George Monbiot on Neoliberalism. I'm not sure Keynesianism needs a new program, but if you need one a Green New Deal should make Monbiot happy
Clinton vs. Sanders on Big Banks -- Bill Black and Paul Hodes on the Real News Network

Kalecki's Fable

By Jan Toporowski (Full paper published by ROKE here)

Following the death, in 1935, of the Polish military dictator Józef Piłsudski, his regime continued under a group of his military cronies, known as the ‘colonels’, who increasingly modeled their regime on that of Mussolini in Italy. One of the colonels, who was responsible for economic development, wanted to understand the economic principles behind government stabilization. He called in Kalecki's colleague from the Institute for the Study of Business Cycles and Prices (Instytut Badań Konjunktur Gospodarczych i Cen), Ludwik Landau, to explain the principles behind the ‘new economics’. Landau had just been fired from the Institute and was now working at the national statistical office, Główny Urząd Statystyczny (see Kalecki 1964 [1997]; Landau 1957).

Landau explained at length the principles of effective demand and credit cycles underlying levels of output and employment at any one time. The colonel had evident difficulty in gra…

Kicking Away the Ladder, Too: Inside Central Banks

Last January the Association for Evolutionary Economics (AFEE) sessions at the Allied Social Sciences Association (ASSA) meetings revolved around the theme of "Inside Institutions," meaning that within institutions there are many actors with different sets of interests, so one must look under the hood, so to speak, of the institution itself to understand its actions. My paper followed my previous discussion of the historical evolution of central banks, and a brief discussion within the Argentine Central Bank. From the abstract of my paper:
Central banks are evolving institutions. In developed countries, particularly in Britain, central banks were used as instruments of the state to finance government and to promote economic development. However, once they went up the economic ladder, advanced economies kicked it to preclude developing countries from climbing it, too. It is in this context that the modern independent central bank, concerned with inflation targeting alone, wh…

Latin American corner: When will they ever learn?

By Naked Keynes (Guest Blogger)

The latest IMF World Economic Outlook (April 2016) projects stagnation in World Growth (3.1% and 3.2% in 2015 and 2016) both in advanced economies (4.0% and 4.1% in 2015 and 2016) and emerging market and developing economies (1.9% and 1.9% for 2015 and 2016). The prospects for 2017 are hardly any better with an estimate of 3.5% for global output and continuing stagnation of advanced economies. But things could get worse.

The current outlook scenario depends on very optimistic assumptions which as mentioned in the report (p. 18) are “subject to sizable downside risks.” These include: (i) improved conditions for economies under stress; (ii) successful rebalancing in China; (iii) improved economic activity in commodity exporters; (iv) resilient growth (whatever this may mean) in emerging and developing economies other than commodity exporters.

The stagnation and possible reduction in world growth is not traced to transitory shocks or disruptions, or god…

A Terse Elucidation of Marx’s Concern with Alienation in the Mature Writings

By David Fields

Note: The references below are drawn from The Marx-Engels Reader, edited by Robert C. Tucker.

Is Marx’s concern with aspects of alienation subsumed in his mature writings? To suggest so is a falsity. Marx’s depiction of the proletariat becoming, in the Hegelian sense, emancipated from the objective conditions of estranged labour, is not withered as the analysis moves toward the technical conditions of production. Marx’s humanism is still apparent.

In Wages, Labour, and Capital, Marx explicates that labour power is a life activity (204). It is the manifestation of human creativity, so that when it is sold as a commodity, a worker, in fact, sacrifices his life; the “product of his activity is no longer the object of his activity” (204-205). Life, as such, no longer has meaning.

Marx asks a pertinent question: “And the worker, who for twelve hours weaves, spins, drills, turns, builds, shovels, breaks stones, carries loads, etc.-does he consider this twelve hour…

Maurice Obstfeld and the IMF push structural reforms

Spot the difference
The new World Economic Outlook (WEO) is out, now under the direction of Maurice Obstfeld, after the retirement of Olivier Blanchard. They suggests many reason for why the global economy has been Too Slow for Too Long, as the title of the report indicates. In the forward Obstfeld tells us that part of the solution would be to promote: "structural reforms in product and labor markets [since this] can be effective in boosting output, even in the short term, and especially if coupled with fiscal support. Tax reform, even when budget neutral, can create demand if well targeted, while simultaneously improving labor force participation and enhancing social cohesion." So the idea is to liberalize labor markets, and reduce the costs of hiring labor (wink, wink, nudge, nudge, they mean reduce benefits).

So this pretty much confirms that nothing much has changed at the IMF. For more go here.

On the Panama Papers at the Rick Smith Show

A Short Account of The Rise of Neoliberalism

By David Fields

Between roughly the early 1940’s and early 1970’s, the financial architecture of the world economy centered on a US engineered Keynesian accumulation agenda, as a response to the devastation wrought by the Great Depression. The capitalist institutional structure, or social structure of accumulation (Kotz, McDonough, and Reich, 1994), rested on finance being subservient to the promotion of  industrial enterprise. With socially-engineered capital-labor compromises in core-capitalist countries, neo-colonial governing institutions in the periphery, and the Bretton Woods system (along with the Marshall Plan), the immediate post-World War II era was a so-called ‘golden age’ of ‘regulated capitalism’.

By the late 1960’s, nevertheless, capital movements began to undermine the Bretton Woods preoccupation with capital controls, as US officials began actively encouraging the growth of the Euromarket—the pool of unregulated dollar reserves concentrated in the City of…

A Brief Sketch of the Classical-Keynesian Perspective

By David Fields

From a Classical-Keynesian perspective (Bortis, 1997, 2003), rates of interest regulate rates of profits (Panico, 1980, 1985), and, thus, real wages are endogenously determined. The presence of financial instruments, which represent titles to future flows of income, makes it so that the actual center of distributive conflict in capitalism lies not in the technical conditions of production, but is rather governed by the real rate of interest, which is a conventionally-determined exogenous variable that reflects the relative powers of finance capitalists vis-à-vis industrial capitalists & labour (Pivetti, 1985, 1991, 2001).
The rate of profit, as a ratio, has a significance, which is independent of any prices, and can well be ‘given’ before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest. (Sraffa, 1960: 33) In this sense, high real rates of interests …

Tom Palley on Inequality, the financial crisis and stagnation

From the abstract:
This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis a nd stagnation, making it critical we get the story right. Read full paper here.

The student loan crisis

The student loan situation is critical, and the WSJ (subscription required) suggests that there are increasing worries that a large number of borrowers will default. The numbers are indeed concerning with 43% in default already, delinquent or in postponement as shown below.
This has had strange implications. But while I think that the increase in student loan debt is part of the increasing inequality in the country, and one might add, the increasing costs of college education, that forces kids to borrow large amounts for a shot at a better life, it's unlikely that it would lead to a short run crisis, and a recession. In contrast to the sub-prime and mortgage based borrowing, student loans are about the possibility of future income, not short run consumption. So I would not expect a collapse of current consumption, if the default rate increases significantly. And I doubt that there is a large bank, like Lehman, that would go under if a large number of borrowers default (of course …

Economists don't read (enough) books

So Ann Petiffor twitted a link to a post on why economists do not read Polanyi's The Great Transformation (or the other GT; yes the one is Keynes' General Theory) The author, Marko Grdesic, basically suggests that economists do not read books, period.* I would add, let alone Polanyi that was always at the fringes of mainstream economics. He estimates that about 3 percent of economists have read Polanyi. That reminded me of a story that Eichengreen had told me about a course he taught based on reading books, since he thought that graduate students in economics do not read them anymore, and, even worse, do not quite get the point of writing books. He was nice to twit the link to the current version of the course. I taught in Utah a course that was not directly based on books, but instead on what I referred to as unresolved issues in economic history. These are the ones that involve the big questions, the ones economists do not deal with anymore, at least not often (as discussed…

Year of the Outsider: Why Bernie Sanders’ Democratic Rebellion is so Significant

By Thomas Palley (Guest blogger)

2016 was supposed to have been the year of Jeb Bush versus Hillary Clinton: the year when the established Bush dynasty confronted the upstart rival Clinton Dynasty. But the year of the insider has turned into the year of the outsider. On both sides, voters have unexpectedly given vent to thirty years of accumulated anger with neoliberalism which has downsized their incomes and hopes.

Though the Republican rebellion has been more clear-cut in its dismissal of insider candidates, it is Bernie Sanders’ Democratic rebellion that is of potentially far greater historic significance.

Read rest here.

Big Think and the nature of capitalism

Jack Goody was one of those rare thinkers that tried to think big. Not common in economics anymore, and less clear in other social sciences, as somewhat narrowly defined techniques take over the breadth of historical understanding. I've only read before his The Theft of History, somewhat iconoclastic book in which he debunks the idea that individualism, democracy and freedom were somehow invented by modern Western society.

I started reading now his Metals, Culture and Capitalism. There are already some interesting things associated to his emphasis on iron, rather than precious metals, in the trade interaction between the West and the Rest. Note that this suggests, probably against the grain of Goody's concern, that the metallurgic advantages of the West, played an early role in the so-called Rise of the West.

But what caught my eye is the following quote:
“In this piece I have covered a long period of time and will undoubtedly have got some things wrong, although I hope my re…

On the blogs

How Much Has Global Economic Power Really Shifted? -- C.P. Chandrasekhar and Jayati Ghosh suggest that less than you might think

Prime-Age Workers Re-Enter Labor Market -- Dean Baker on the job numbers
Economic Rationality Explains Everything and Nothing -- Geoffrey Hodgson on rationality and utility maximization

Labor market numbers at the Rick Smith Show

Payroll employment rose by 215,000 in March

That's more or less the same pace of growth as before, and suggests that the slow recovery continues. The unemployment rate ticked up to 5%, since the labor force participation rate increased from previous month. (but still below the pre-recession level, as shown below). So in this case, a slightly higher rate of unemployment is not a bad thing. It means more people are confident they can find jobs.

Notice that manufacturing employment has declined for the third month in row.  This also might add to Yellen's reasons for being dovish, as discussed earlier this week.

PS: Report here.