Skip to main content


Showing posts from October, 2014

If markets voted...

As I noted yesterday, the Wall Street Journal and The Economist long for a time in which markets, or people with means, voted, not the people in general. From the February 1, 1933 New York Times (p. 29).

If it is not clear, it says: “The Boerse recovered today from its weakness when it learned of Adolf Hitler’s appointment, an outright boom extending over the greater part of stocks." Markets are always right, aren't they?

The L-word

Lowflation is the new dirty word now. The Economist says that deflation, not lowflation, in Europe is the world's biggest economic problem. But they also suggest that low inflation (lowflation is the neologism; some suggest that the term was coined by Reza Moghadam from the IMF) is as bad as deflation. In a recent article they note that most countries are undershooting their official or unofficial inflation targets. The Economist says:
"In America, Britain and the euro zone central banks have a 2% target for inflation. In all three, it is below that target. In Italy, Spain and Greece, which have experienced wrenching crises and recessions, it is below zero (as it also is in Sweden and Israel). Japan, which finally escaped from deflation in 2013 after more than a decade of struggle, is battling not to return. Leave out the effects of a consumption-tax increase and inflation there is barely half way to its 2% target. Even in China inflation is below 2%, compared with a 4% cent…

Markets and democracy

Meanwhile the Wall Street Journal and The Economist remind us that they think that markets (wealthy investors really) and not people should vote. Because when people vote there is: "much ruin in a nation." These are just the opening salvos in the battle for austerian policies in Brazil, as noted by Pedro Zahluth Bastos here (in Portuguese).

Ideology, theory and investment

Krugman is basically correct in today's New York Times to argue that investment is low because of ideology. In his words, the "inability to invest doesn’t reflect something wrong with 'Washington'; it reflects the destructive ideology that has taken over the Republican Party", which ultimately is based on "an overwhelming hostility to government spending of any kind." And he is also correct that the solution would be the "obvious policy response to this situation: public investment."

The graph below shows Gross Capital Formation (investment) as a share of GDP. It is at a low level indeed. And the recovery since the Great Recession has been moderate at best. Krugman in his post seems to suggest that, since "America has been awash in savings" and there is a "mismatch between desired saving and the willingness to invest", then this is what "has kept the economy depressed." Notice that this diagnostic would be perfect…

Frederic S. Lee

Sad news for the heterodox community, Fred Lee has passed away. He was a tireless builder of institutions, an activist for Post Keynesian, and institutionalist economics, creating space for heterodox economists and he will be sorely missed. Below one of his last presentations.
Check also his website here. His short bio from the website below.
I attended a small state college in Maryland where I majored in history and took a bit of philosophy. After graduating in 1972, I took some more philosophy courses. But then I got interested in economics and began reading books and articles by Smith, Ricardo, Marx, J. B. Clark, Schumpeter, Joan Robinson, Keynes, Kalecki, Sraffa (or at least I tried to) and others. After working in Saudi Arabia for a couple of years, I returned to the States and attended Colombia University (1976-77) where I picked my undergraduate economic courses. While there I read about everything I could find on costs, pricing, the determination of the mark up, and the busin…

New School Economic Review (NSER) Call for Papers

Submission Deadline: February 20th 2015/Publication: May 2015

The NSER is a peer-reviewed, student-run economics journal that publishes original and high-quality articles. We encourage diversity of subject matter and writing style covering a wide range of topics in economics. Submissions can be in the form of but not limited to, scholarly articles, commentaries, book reviews, guest editorials, and announcements. The papers will be reviewed by a committee of New School alumni. The NSER welcomes submissions from academics, practitioners and students of all levels seeking to broaden and strengthen the foundational structure of the study of economic systems.

The NSER editorial board reserves the right to suggest both minor and substantive revisions to accepted works. Finally, following the standard practices of North American scholarly journals, the NSER is not in a position to offer payments for accepted and published manuscripts.

In preparing your submissions, we ask that fol…

Kicking away the ladder too

The table below comes from Broadberry and O’Rourke's The Cambridge Economic History of Modern Europe. It shows that national control of the money supply, the monopoly of emission, is a 19th century phenomena, something we discussed with L-P. Rochon in this paper back in 2003.
Note that before the mid-19th century period, which Charles Goodhart aptly calls the Victorian era, central banks had been created for supporting the State’s financing needs. Also, the role of lender-of-last resort (LOLR) in the late 19th century, associated to Bagehot, did not lead to a significant change in the Victorian preoccupation with price stability.

It is only with the Great Depression that the Victorian dreams of a self-adjusting economy with a tendency to full employment and an orderly division of labor, where the periphery only produced commodities and imported manufactured goods, were utterly shattered. In my view, an contrary to Goodhart, the crucial element on the rise of Keynesian Central Banks…

On the blogs

Jean Tirole, A Practitioner Of New Industrial Organization -- Robert Vienneau discusses the new IO, based on game theory of the new 'Nobel' winner, and the old IO, which was based on the classical surplus approach and barriers to entry

Crony Capitalism, or Plain Old Capitalism? -- Arthur MacEwan dissects the right wing attack on the Export-Import Bank

These states, Part I and Part II -- Max Sawicky on how labor markets have done in States with gubernatorial elections

Where revenue comes from

Not sure if I posted something similar before. At any rate, no surprises. Before the New Deal excise and other indirect taxes were the vast majority of the administration's revenue. Since then the individual income tax become the central source of revenue. Since the 1970s corporate income taxes fell, and were essentially compensated by higher payroll taxes. In other words, first more progressive, then more regressive. Updated data here.

Tony Aspromourgos on Piketty, future of capitalism, growth & theory of distribution

By Tony Aspromourgos

From the abstract:
This essay reviews Thomas Piketty’s Capital in the Twenty-First Century (2014). The focus is upon the conceptual framework and theoretical interpretation of the empirical findings assembled in the book, rather than those empirical findings themselves (which are, in any case, broadly incontestable). The core theoretical logic of the distributional dynamics is explained and subjected to scrutiny with respect to the theory of distribution in particular, but also the theory of growth.  Read rest here. For other posts on Piketty, see herehereherehere, here, and here.

Development and Change Forum 2014

All papers are, at least for now, open for download here. Codrina rada's assessment of UNCTAD's Trade and Development Report 2012 is, for example, available here. Guy Standing's discussion of the precariat is here. Enjoy!

Wealth inequality, it's worse than you think

So the top 1% in the US hold around 33% of all wealth. More here, with the link to the original report.

More on the IMF and fiscal policy and Blanchard's rethinking of macroeconomics

I wrote a few days ago on the IMF's persistent views on fiscal policy, and how these views are rooted in an unchanged perception of how the macroeconomy works.  The new Fiscal Monitor tends to support my previous position. The policy recommendations, in the case of advanced economies, suggest that:
"Fiscal efforts in the last five years have stabilized the average debt-to-GDP ratio. Nevertheless, it is still expected to exceed 100 percent of GDP at the end of the decade. It is important to continue to reduce debt to safer levels and rebuild fiscal buffers. Further fiscal adjustment is needed in most advanced economies to bring down debt ratios to safer levels... reining in age-related Debt (percent of GDP) spending could reduce longer-term fiscal risks." Why debt ratios have to fall is an incognita, given that we now know that there is no evidence for a 100 percent, or any other for that matter, threshold that leads to lower growth. And it's really annoying that the…

Massimo Pivetti on Interest Rates and Gross Profit Margins In Recent Experience of Advanced Capitalism

From a paper prepared for the colloquium “What have we learnt on Classical economy since Sraffa?” Paris, October 2014
According to the monetary explanation of distribution, as elaborated over the past 25 years on the basis of a well known suggestion by Sraffa, the normal rate of profit would be arrived at in each sphere of production by adding up two autonomous components: the rate of interest on long-term riskless financial assets, plus a normal rate of profit of enterprise, viewed as a component of normal production costs and reflecting objective (or widely perceived as objective) elements of risk attached to each different productive employment of capital. Since the normal margins for profit, given production techniques, depend on normal profit rates, the same two variables, the rate of interest and the rate of the profit of enterprise, would govern also the course of net normal profit margins in the different production spheres. For any given set of profits of enterprise, the lon…

In Memoriam of Angelo Reati: "A Note on Some Misunderstandings of Sraffa's System"

From Review of Radical Political Economics:
Author Angelo Reati, an independent scholar and former United Nations economist based in Brussels, was killed in a cycling accident in July 2013. Angelo was a meticulous and open-minded scholar who believed deeply that economists have a responsibility to work towards the achievement of a more humane and more just society. His death is a great loss to the community of progressive economists. The editors wish to express their respect and affection for this true gentleman, true scholar, and true friend of humanity. Reati's last paper, titled "A Note on Some Misunderstandings of Sraffa's System", can be seen here (subscription required).

Branko Milanovic on The Economics of Inequality

Branko Milanovic is one of the authorities on inequality, worked at the World Bank is now at CUNY's Graduate Center. His most recent book is The Haves and the Have-Nots.

Heinrich Bortis on Europe's Need For Classical-Keynesian Political Economy

By Heinrich Bortis
Based on theoretical reasoning this article suggests that a radically new conception of Europe is required to get out of the present economic and political crisis situation. Neo-liberal Europe must give way to a social-liberal Europe...Europe needs a new type of economic theory, classical-Keynesian political economy to wit, to shape institutions and socio-economic policies Mind you, it's not just Europe that needs CKPE...

Read rest here (N.B. the article starts on page 4).

Special Real-World Economics Review Issue on Thomas Piketty's 'Capital'

Special Real World Economics Review issue on Thomas Piketty’s Capital, featuring authors James K. Galbraith, Dean Baker, Jayati Ghosh, Michael Hudson, David Colander, Robert Hunter Wade, Lars Syll, to name a few.

See whole issue here.

For a recent debate at the New School between Anwar Shaikh, Heather Boushey, and Thomas Piketty, himself, see here.

Noam Chomsky on the Corporatization and ‘Death’ of American Universities

The following is an edited transcript of remarks given by Noam Chomsky to a gathering of members and allies of the Adjunct Faculty Association of the United Steelworkers in Pittsburgh, Pennsylvania: The effective owners are the trustees (or the legislature, in the case of state universities), and they want to keep costs down and make sure that labor is docile and obedient. The way to do that is, essentially, temps. Just as the hiring of temps has gone way up in the neoliberal period, you’re getting the same phenomenon in the universities. The idea is to divide society into two groups. One group is sometimes called the “plutonomy” (a term used by Citibank when they were advising their investors on where to invest their funds), the top sector of wealth, globally but concentrated mostly in places like the United States. The other group, the rest of the population, is a “precariat,” living a precarious existence. Read rest here.

Baumol's disease Prize?

So Monday they'll announce the Sveriges Riksbank Prize (aka Nobel). Both The Guardian and Tyler Cowen at Marginal Revolution Blog bet on William J. Baumol, who was nominated for his work on entrepreneurism. Baumol would be a worthy winner for the 'Nobel.' But that's not his best work, in my view, since it relies on the same mainstream flawed supply-side stories to explain economic growth. But Baumol's Disease is an important insight, and one of the few regularities in economics treated like a scientific law and named after the economist that observed it, together with Okun's Law, Thirwall's Law, the Prebisch-Singer Effect, the Balassa-Samuelson Effect, and Kaldor-Verdoorn's Law.

PS: Baumol's contributions are extensive, from money demand, to history of ideas (including this paper on Say's Law, which is named after an economist, but is not a regularity and it's not really a law), to the analysis of productivity, including work with Marxist a…

CIGI Senior Fellow Miranda Xafa on State of The Eurozone

Centre for International Governance Innovation Senior Fellow Miranda Xafa comments on the "State of the Eurozone" discussions which took place on October 6th, 2014 at the the German Marshall Fund of the United States in Washington, D.C. Xafa notes that the recent ECB announcement on asset purchases and the likelihood of a relatively successful forthcoming banking union may help to reduce Euro fragmentation and possibly ease credit issues. She cautions, nevertheless, that such structural reforms alone will not be enough to get the Eurozone out of its current long-run low-growth equilibrium.

New Book By Eric Helleiner - Forgotten Foundations of Bretton Woods, Int. Dev. & Making of Postwar Order

Professor Helleiner is an astounding international political economist and economic historian. His archival research is impressive, and his explications and understandings of international finance are not only lucid and prolific, but extensively articulate & eloquent. His new book on Bretton Woods, like many of his other works, is certainly a tour de force.
Eric Helleiner's new book provides a powerful corrective to conventional accounts of the negotiations at Bretton Woods, New Hampshire, in 1944. These negotiations resulted in the creation of the International Monetary Fund and the World Bank—the key international financial institutions of the postwar global economic order. Critics of Bretton Woods have argued that its architects devoted little attention to international development issues or the concerns of poorer countries. On the basis of extensive historical research and access to new archival sources, Helleiner challenges these assumptions, providing a major reinterpre…

Even the IMF thinks Vulture Funds are a problem

Since I criticized recently the IMF on its timid changes on macroeconomic policy advice, and the persistence of austerity based programs, it is worthwhile noticing that on the question of debt restructuring they have come clearly on the side limiting the power of Vulture Funds. In a new report on Sovereign Debt Restructurings the IMF suggests that:
The recent litigation involving Argentina has generated significant concerns regarding the impact that the New York court decisions may have on the overall restructuring process. In light of these concerns, there has been considerable progress in both the design and use of a modified pari passu clause that explicitly excludes the obligation to pay creditors on a ratable basis. It is recommended that the Fund support the widespread use of such a modified pari passu clause in international sovereign bonds. Note that this might have an impact on future debt renegotiations, but is of little help for Argentina right now. But if the IMF is doin…

How Much has the IMF Changed in Response to the Global Crisis?

Following the 2008 Global Crisis the notion that the International Monetary Fund (IMF) has moved away from orthodox views on a range of issues, but particularly regarding the need for austerity, has been pervasive. For example, Paul Krugman has argued, in his influential blog, that Olivier Blanchard, IMF’s director of research (or economic counselor) is “helping make at least one international institution less austerity-mad than the others.”

So what is this new view, exposed by Blanchard? For example, in the preface to the last World Economic Outlook, Blanchard tells us that:
Potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of labor market institutions, to increasing competition and productivity in a number of nontradables sectors, to rethinking the size of the government, to examinin…

What macroeconomic policies were relevant for unemployment reduction in Latin America?

I was reading the book by Giovanni Andrea Cornia on Falling Inequality in Latin America, which suggests that the reduction of the skill premium and macroeconomic policies, together with the expansion of social assistant, in particular but not only by left of center governments, is behind the trend. I'll have more on some of the issues related to the skill premium, which rely heavily on both neoclassical labor market and trade theories. However, the chapter on the macroeconomic causes of reduced inequality caught my eye. The chapter, a previous version can be found here, written by Mario Damill and Roberto Frenkel says that:
"A competitive RER [Real Exchange Rate] provides a conductive environment for growth and development. This view has long been stressed by development economists* and recently documented in many econometric studies. The growth-enhancing attributes of a competitive RER operate through the enhancement of tradable sector profitability." The idea is that …

Financialization and the Resource Curse in Brazil

"Financialization and the Resource Curse: The Challenge of Exchange Rate Management in Brazil"
By Kevin P. Gallagher and Daniela Magalhães Prates
Indeed, Brazil has been blessed and cursed with high commodity prices (from 2003 to mid-2008 and 2009-2011) and low interest rates in the core economies after the 2008 global financial crisis. Such an environment, coupled with the high domestic policy rate and the sophistication of the Brazilian financial system, has made Brazil a much sought after destination for carry trade operations through short-term financial flows that are largely transmitted through the foreign exchange derivatives market. Speculative operations into this market have accentuated the upward pressure on the exchange rate, which has come with higher commodities prices, leading to what we refer to here as a financialization of the resource curse (pp. 2). Read rest here.

Duncan Foley and Lance Taylor win Leontief Prize

GDAE will award its 2015 Leontief Prize for Advancing the Frontiers of Economic Thought to Duncan Foley and Lance Taylor. This year's award, titled "Macroeconomics in the Age of Climate Change," recognizes the contributions that these researchers have made to our understanding of the relationships between environmental quality and the macroeconomy.

“Our Institute’s work has been much influenced, and has greatly benefited, by the ways in which Dr. Foley and Dr. Taylor have crossed the boundaries between economics and other disciplines to produce the kind of rigorous analytical work that the Leontief Prize was created to recognize,” said GDAE Co-Director Neva Goodwin. “Dr. Taylor’s research has integrated relevant social relations into macroeconomic models, and is of critical importance for understanding present and future environmental realities and challenges. Dr. Foley’s unique approach to combining research on political economy with advances in statistics and a broad …

Kaldor-Verdoorn's Law for Latin America