Make Argentina Crash Again

 

My article for The American Prospect on the Argentina situation was just published online. Argentina is far from being out of the woods. The expectation that the country will stabilize prices, float its currency, and build up reserves, and restart economic growth is a chimera. Despite market support for Milei’s program, the crisis remains unresolved. In my article, I explain why the challenges persist, an why this will end like the previous three neoliberal experiments, with a crash. While an immediate crash may not be on the horizon, it is somewhat inevitable. It's a matter of when, not if. And it may very well be with the next president, if the U.S. continues to financially prop Milei's government.

Note that contrary to the IMF, or Barry Eichengreen, who actually provided the IMF justification for floating rates more generally (as he explains there), I don't think to abandon the dirty float (band in this case) would be a good idea.* On that I think Milei's administration is correct. I even think that some degree, even more I think, of a reintroduction of exchange rate controls (the government reintroduced some controls on individuals, I must add) is necessary. Something that supposedly the IMF also favors. Capital controls as a macro-prudential measure in times of crises.

I also want to make clear that this is mostly about the current macroeconomic circumstances. The point is not to return to a world of Bretton Woods, with fixed exchange rates, and capital controls. It is clear that Brazil, for example, did much better than Argentina, with a dirty float and no capital controls. But, as noted by Fabian Amico, in a talk at Universidad Nacional de Moreno, recently, Brazil accumulated reserves in a different macroeconomic scenario.

Brazil accumulated foreign reserves (see graph), maintaining a positive interest rate differential (the domestic interest rate minus the foreign reference rate, the U.S. one, the expected depreciation, and a measure of country risk). We discussed that with Amico and Serrano a few years back (in Spanish). Note that as capital inflows allowed Brazil's central bank to accumulate dollars, the real appreciated in nominal terms. In Argentina where both left and right of center governments have 'appreciation fear' (and their fear is about the real rate, let alone the nominal one), that would be politically difficult.

Exchange rate depreciation at this point would lead to accelerated inflation, and to contractionary pressures. Of course, there might be a situation (they had more than a few over the years) in which, with low country risk, and high interest rates at home, leading to a higher differential that allows for the profitability of holding peso denominated assets to be higher than holding dollars, we might finally get on the road to stability. That would be orderly macroeconomic policy, and not draconian fiscal adjustment. At any rate, that doesn't seem to be the case right now.

Over the long-term, it is very clear that all the previous experiments with this kind of policy (fiscal austerity, financial deregulation, and trade liberalization) ended up in a crash. There is also little reason to believe that this time it will be different. 

* It goes without saying that I would also be against dollarization, something that Milei promised in his campaign in 2023, and that has been recently floated by Laurence Kotlikoff in the Financial Times. This suggests that the old bipolar consensus has not been completely abandoned in more mainstream circles.

Labor numbers (or lack of) and the Trump economy

 

The elephant in the room? 

The long-delayed September employment numbers are finally out, and the news is mixed, much as expected. The economy added 119,000 jobs, while the unemployment rate ticked up slightly from 4.3% to 4.4%, still close to what the profession calls the natural rate, or what most people would simply call full employment. That's obviously not the best picture of the labor market. As always, the broader U6 measure gives a clearer picture of labor market slack (in my understanding), and it stands at 8%. We still don’t have the official October numbers, but private-sector estimates suggest a much weaker figure, around 40,000 jobs, driven partly by continued losses in manufacturing and in federal employment. The only clearly expanding sector remains health services.

This labor-market softness, that led to the earlier firing of the head of the BLS (will Trump fire someone else?), reinforces something I’ve said for a while here in the blog. The economy is slowing, but we are not yet in a recession.

Meanwhile, inflation continues subdued rather than accelerating. The September CPI report shows year-over-year inflation at 3%. Importantly, the largest price increases, electricity and utilities, used cars, and medical care services, other than shelter (more on that below), have nothing to do with tariffs. Studies suggesting tariffs added roughly 0.7 percentage points to inflation seem plausible, but that is far from the stagflation many predicted. If there is a remaining inflationary concern, it is shelter costs, driven not by tariffs, but by structural housing shortages and, in the short run, the Fed’s high interest-rate policy, which keeps mortgage rates, and rents, elevated.

Paradoxically, the Fed is now sustaining inflation by keeping rates high, and by bringing them down too slowly (perhaps the only thing I would agree with Trump*), while also risking a recession by tightening consumer credit and depressing construction. Consumption has already flattened (from last CEA report). At the same time, government spending, which continues at a healthy pace, and bubbles in crypto and AI continue to prop up activity.

Affordability concerns (see Mamdani's election and Trump's decision to reduce tariffs) remain real, but they have less to do with inflation per se, which has fallen sharply since late 2022, and more to do with the fact that real wages at the bottom, although rising (above CPI for non-supervisory employees), start from very low levels. People feel squeezed because they are squeezed.

That won't change any time soon. Trump is bound become very unpopular (in many ways, he already is), and his policies will not help people at the bottom. Dems don't need to do much, actually. Perhaps avoid self-inflicting wounds. [Unpopular view here: the shutdown was a mistake they should have avoided, since there was no way of winning; Trump wanted to shutdown the government, because Republicans do NOT care if it doesn't work. Cut medicare? No problem. Cut SNAP? Go ahead. But these callous policies will make them very unpopular].

Let me conclude in a more cheerful mood. For me that is. So here’s a small victory lap. The dire predictions that high tariffs would produce stagflation were wrong. Tariffs are now at their highest average level since the 1930s, around 17%, up from 2%, according to Yale's Budget Lab, yet they did not trigger either runaway inflation or a recession on their own. Stagflation is NOT the elephant in the room. Slowdown of the economy, which was already under way, and subdued inflation, close to the target. If we want to avoid a recession, and if we are serious about affordability, for both reasons, contrary to conventional wisdom, the Fed should begin cutting rates sooner rather than later.

* Obviously that doesn't mean I'd agree with his intervention at the Fed (we will know more on that once the SCOTUS rules on that next year). 

Chapter on the history of monetary policy for the Elgar Companion to the Economies of Latin America and the Caribbean

My paper with Esteban Pérez has been published and is available now here. From the abstract of our chapter:

Monetary policy in Latin America has evolved in five different phases. The first one is characterized by the establishment of the first central banks adhering to a gold standard. The second phase is marked by the abandonment of the gold standard and the adoption of discretionary over rules based monetary policy. The third phase consists in the generalized adoption of developmental and inward industrialization goals by central banks. The fourth phase places price stability as the key overriding objective of monetary policy. The last phase focusses on the adoption of inflation targeting within an open economy context. The evolution of monetary policy in the region is closely related to the developments in the external sector and with the needs associated with the integration with the global economy. The chapter will emphasize the relative difficulties of insulating the region from external monetary and financial volatility and the limitations faced by monetary institutions to promote economic development with price stability.

An earlier version can be read here. 

The 6th Palgrave-Macmillan Lecture: On Decolonizing Economics and the New Palgrave Dictionary

 

The project of the new edition of The New Palgrave Dictionary of Economics is an effort to build an economics "without gaps," challenging the historical tendency of the profession to neglect certain topics, perspectives, and geographies. In my talk, I note that the original 1894 edition and 1987 revival, while monumental achievements, inevitably reflected their respective historical moments, the consolidation of the Neoclassical school, the rise of free-market ideas, and an inherent Eurocentric view of the profession. 

This historical narrowing, where the breadth of perspectives often diminished over time, resulted in "blank spaces," particularly concerning the Global South, non-traditional lines of inquiry, and scholars outside of the established European and North American academic centers. The modern project seeks to address these omissions, ensuring the Dictionary remains a pillar of the field while reflecting a more complete record of economic thought.

The term decolonizing the Dictionary translates into several concrete actions that embody a pluralism with purpose. This includes commissioning entries on the Global South and by scholars based there (like Krishna Bharadwaj and Víctor Urquidi), recovering neglected histories of thought (such as the School of Salamanca and figures like Ibn Khaldun), and introducing newly salient topics like "neoliberalism" or ones about which there is renewed interest like "imperialism."

The goal is not to replace the profession's core but to broaden and re-balance the map, maintaining analytical rigor while highlighting lines of inquiry that standard narratives often overlook. This re-balancing is deemed necessary after 2008-9 global financial crises exposed the profession’s analytical blind spots, ensuring that future economists, regardless of their background or focus, find their work and history represented.

 

Policy-Constrained Growth: Government spending and economic recovery in Brazil during Lula's third term

By Ricardo Summa, Guilherme Haluska and Franklin Serrano

Despite headwinds from higher interest rates in the US and at home, the Brazilian economy is nevertheless emerging from a period of prolonged stagnation. After growing an average of 0.2 percent a year between 2015 and 2022, national growth averaged 3.3 percent annually during 2023–2024, the first two years of President Lula’s third term. Though quite modest in comparison to the massive social needs of a developing country, this is still better than expected.1 Part of Brazil’s recent positive performance has been due to growing exports, to be sure. But the bulk of Brazil’s current economic growth stems from a cause the government itself has been reluctant to recognize: expansionary fiscal policy, which has generated sufficient demand to counteract these forces of contraction.

Read rest here. 

Election in Argentina boosted investor confidence, but is it sustainable?

My interview with Deutsche Welle on the Argentine election and the economy. I also had the opportunity of talking with Newsweek on Trump's strategy for Latin America.

Argentina, Economic Science and this year's "Nobel"

Trump wanted the Peace one, Milei the one in Economics

A few random thoughts about some recent news. Today, Javier Milei met with Donald Trump at the White House. Trump reportedly warned that the United States “will not be kind” to Argentina if Milei does not win the upcoming elections. That statement seems to suggest that the much-discussed “rescue” of the Argentine peso may be tied to domestic electoral results — something that Treasury Secretary Bessent had already hinted at when he announced the possibility of a US Treasury rescue package for Argentina.

No surprise there. But the situation brings back memories of earlier crises — particularly the 2001–2002 collapse, when Argentina defaulted after a long neoliberal experiment of liberalization, deregulation and privatization under the Menem administration. The current crisis, which began with the 2018 IMF program, is in many ways a continuation of that same process.

Back in 2002, the crisis caught one economist in particular by surprise: Rudi Dornbusch. Writing in the Financial Times, Dornbusch argued that Argentina could not be trusted to govern itself and proposed that its fiscal and monetary policy should be overseen by a foreign board of central bankers — a shockingly neocolonial suggestion, even for that time ["I'm shocked, shocked I tell you"]. I wrote a short letter to the Financial Times in response, which you can find here, mocking this absurd idea.

Two decades later, we are still dealing with the same problems. The “cleanup” of the 2002 mess took place under the so-called populist governments of Néstor and Cristina Kirchner, through two major debt renegotiations in 2005 and 2010. During that period, Argentina’s debt-to-export ratio — a measure of repayment capacity — improved significantly [see my piece on Challenge on that and the Vulture Fund negotiations that Macri ended up finishing in a favorable way to the Vultures; you know on what side he is]. Yet the Macri administration (2015–2019) more than doubled the foreign debt once again, setting the stage for the current crisis [on the doubling of debt see this piece with Matias De Lucchi; whole issue, scroll down].

In short, the same set of economic elites have crashed the economy multiple times. Domingo Cavallo, Menem’s finance minister and architect of the 1990s convertibility plan, reappeared at the end of the De la Rúa government in 2001. Federico Sturzenegger, who was at the central bank during Macri’s failed experiment in 2018, is now serving as Milei’s Minister of Deregulation. This revolving door of orthodox technocrats has brought Argentina back to the IMF, and now possibly to a US Treasury rescue, for the third time in a generation.

What’s frustrating is how the narrative never changes. The mainstream explanation — repeated recently by a well-known economist from the Di Tella University — is that Argentina’s problems are caused by irresponsible “populists.” In his version, written in academic jargon about sunspots and expectations, the blame somehow always falls on Peronists, whether they are in power or not. If the economy collapses, it’s because investors fear a Peronist comeback; if it booms, it’s despite them. Don't worry, it won't.

This kind of argument says a lot about the state of the economics profession, perhaps more than about Argentina’s actual economy. Instead of looking at straightforward indicators — who increased the foreign debt, how exports performed, whether external repayment capacity was sustained — many economists hide behind highly subjective assumptions disconnected from reality.

This is part of a broader problem in Latin American economics: what my colleague Franklin Serrano calls “brain damage” — not “brain drain.” The issue isn’t that talented economists leave the country, but that many return from US PhD programs armed with orthodox models that have repeatedly failed our economies. They bring back the intellectual framework that justifies the very policies that keep generating crises.

This brings me to another bit of recent news: the so-called Nobel Prize in Economics (technically, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel). This year’s award went to Philippe Aghion Peter Howitt, and Joel Mokyr for their contributions to what’s broadly called “Schumpeterian growth theory” — work that connects innovation and technological change to economic growth. Surprising and soul crushing news to Milei, who wanted the prize for stabilizing the economy (a miracle according to Niall Ferguson).

Aghion and Howitt's models attempt to explain long-term growth by endogenizing productivity — the famous Solow residual. They borrow Schumpeter’s language of innovation and creative destruction, though often in a far more formal framework. In that sense, the connection to Schumpeter is more symbolic than substantive. Still, compared to some recent laureates, this year’s selection is a relatively defensible choice. Their models are certainly more in line with Schumpeter that some of the heterodox neo-Schumpeterian models.

Joel Mokyr, a historian, has written extensively on the cultural roots of the Industrial Revolution. His work offers a deeply Eurocentric — also, and more importantly, culturalist and supply-side — interpretation of why growth took off in Europe. While I disagree with much of that perspective, it’s undeniable that the Industrial Revolution did begin in Europe, and any serious account must explain that historical specificity. The problem is less Eurocentrism per se than the exclusive focus on supply factors, ignoring the demand and institutional dimensions that Keynesian and structuralist economists once emphasized. In that sense, I welcome the recognition of a historian among the laureates. But I also lament the profession’s retreat from the richer, more historically grounded analyses of scholars like David Landes, whose The Unbound Prometheus offered a more balanced view of the Industrial Revolution — one attentive to the demand aspects of economic growth.

Perhaps the real lesson — both from Argentina’s crises and from this year’s “Nobel” — is that economics still struggles to learn from its own history.

How the IMF and US helped loot and entrap Argentina with debt

 

Friends with benefits 

By Thomas Palley

Argentina is back in the news with renewed financial turmoil spurred by President Milei’s poor political standing. That poor standing is the product of anger with Argentina’s dire economic performance and massive corruption within Milei’s administration, and it augurs poorly for his party’s performance in the forthcoming October 2025 election.

In response, the IMF and US have jumped into action to save Milei’s government. The IMF had already provided a $20 billion bailout in April 2025. Now, the US government has provided another $20 billion (in the form of a central bank currency swap line). Furthermore, the US has expressed willingness to provide additional stand-by credit and even purchase Argentine government debt.

The media has focused on Argentina’s long troubled financial history, the difficult inflation situation President Milei inherited, and President Trump’s political affinity with Milei. However, that fails to explain why the IMF and US have provided such huge assistance to Argentina, given its lack of credit worthiness.

The support for Milei should be understood as a continuation of past lending to Presidents Macri (2015-2019), and Menem (1989-1999). The purpose is to entrench Neoliberalism in Argentina and entrap it with dollar debt. It is supported by local elites because they are the beneficiaries of Neoliberalism, and they also get to loot the Argentine state via the process of debt entrapment.

Read rest here. 

Argentine crisis on Organized Money Podcast

I was on the Organized Money podcast, hosted by David Dayen and Matthew Stoller, discussing the Argentine crisis, and some of its implications in the United States.

 

I was joined by Rohit Chopra, former director of the Consumer Financial Protection Bureau. Enjoy!

Was Bob Heilbroner a leftist?

Janek Wasserman, in the book I commented on just the other day, titled The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas, suggests in his conclusion that Robert Heilbroner "was one of the foremost American leftists." He also seems to suggest that Heilbroner's criticism of modern economics, which had become too formalistic and paid too much attention to Schumpeter's analysis and not enough to the other Schumpeterian category, vision, and that, hence, economics was moving away from the worldly philosophy, seems to be an endorsement of Austrian methodology and the Austrian aversion to excessive formalization.

Having known Heilbroner at around this time—I arrived at the New School in 1995—I must say that this is not an accurate picture about Bob or his views about the economy or the moment that we were going through at that time. Or at least it paints a partial and incomplete view.

It is hard for me to think of Heilbroner as a leftist, if by that one means a radical critic of capitalism, a socialist, or a Marxist. He was none. Even though he did engage with Marxists and their ideas, which were obviously very much part of the New School. He was open and pluralistic for sure. But he was a traditional liberal, a liberal in the Adam Smith sense, although his views on Adam Smith, particularly if you read his most famous book, The Worldly Philosophers, were very conventional. He assumes there that Adam Smith was a precursor of marginalism, in a way, and of some view of market efficiency in a neoclassical way.

The theory of value to which Adam Smith subscribed, which was a variation of the labor theory of value, was not supply and demand. Profits were a residual, and not the remuneration the services rendered by capital. Supply and demand in the labor market was not central to the determination of wages, which were set at subsistence given the lack of bargaining power of workers. Class conflict and class structure were central to Adam Smith in ways that are irrelevant for neoclassical economics and for marginalism. I only attended a few classes of his history of thought course, with Will Milberg, back then, but my impression is that he agreed with his professor, Schumpeter, when he discussed his ideas in The Worldly Philosophers, and said that: 

“... the labor theory of value which everyone knew to be wrong and therefore did not have to be reckoned with. Schumpeter now came forward with a brilliant answer to this vexing question. Profits, he said, did not arise from the exploitation of labor or from the earnings of capital. They were the result of quite another process. Profits appeared in a static economy when the circular flow failed to follow its routinized course.”*

Btw, Schumpeter was an Austrian economist, so the notion that in his coverage of authors (in The Worldly Philosophers) he was biased against them is preposterous.**

More importantly, Bob was very much for some sort of minimal state., in ways that were not completely dissimilar from some Austrians. I recall a conference in 1997 that gave birth to what is now referred to as Modern Money Theory, or MMT, we had a discussion during a coffee break about the Maastricht debt and deficit limits in the European Union. To my surprise, he suggested that he was very much in favor of those limits, a view that certainly would put him together not with leftists, but with very conservative right-wingers within Europe. When I questioned why he would be in favor of the 3% deficit and 60% debt, both as percentages of GDP, limits he suggested something to the effect that there should be some sort of limit to the size of the state. He was very much for a limited state in ways that most progressives and leftists in the 20th century were not so adamant about.***

That should be a qualifier on his views on the view that he was a lefty. That should also color some of his views on the collapse of the Soviet Union, and the legacy of Mises and other Austrians that were decidedly against the communist/planning experiment. But if he was, as almost all moderate liberals of the '50s and '60s for some degree of welfare provisions (at some point Hayek was too, btw), and not for the upturning of capitalism, this camouflages his concerns about capitalism that were more pronounced than the sort of cheer-leading climate of the time was. His views were not this sort of celebration of the victory of capitalism. He had from early on been concerned with the environmental limits of capitalism, something that is also true of John Kenneth Galbraith, and of the limits of capitalism. He was also concerned with consumerism, because of the environmental issues.

So he was certainly more critical of, and remained critical of, certain aspects of capitalism without being a radical, or I wouldn't even say a lefty. He was very much, something that Austrians are not, which was some sort of version of a classical liberal in terms of his political views (Keynes too, btw). Clearly, in modern times, were Austrian economics is at the core of the paleo-libertarian, alt-right phenomenon, Bob seems like a raging communist. That makes as much sense as Austrian economics. But that's my two cents on the topic.

* I discussed this in my history of the New School's department here. 

** In fact, the book was originally published in 1953, way before the resurgence of Austrian economics in the 1970s. The coverage of authors was not revised, and the fact that the book ends with Schumpeter should be seen as pretty significant. Schumpeter that always felt he did not receive the recognition he deserved (and that went to Keynes) would have approved. Obviously he is not Austrian enough for the paleos.

*** Another anecdote. I remember that Michael Woodford came to the New School for a talk on Maastricht's limits as a precondition for price stability. Bob sat in the front row (I was all the way in the back). Woodford proceeded to say that he was not going to discuss the institutional issues, but would proceed from a general equilibrium model, and so on. Bob discreetly (as possible as it was being in the front row) got up and left. He was vindicated at the end!

Marginalist Bastards move center stage

I just finished Quinn Slobodian's new book, Hayek's Bastards. In parallel, I read another interesting book called The Marginal Revolutionaries by Janek Wasserman (Slobodian writes one of the blurb endorsements; Tyler Cowen says it is “the best overall history of the Austrian school”).

They cover slightly different things, but interrelated. Slobodian is looking at the alt-right, the paleo-libertarians, mostly in the United States (some discussion of the Alternative for Germany, AfD, and of Milei, towards the end), and the book is deeply steeped in the theories of Austrian and neo-Austrian authors, in particular since they did have a central role in the rise of both neoliberalism, and the more radical versions of market fundamentalism. The book by Wasserman looks at the history of the Austrian school, its eventual disappearance in its home country, and its development in the United States. Slobodian’s book is relevant in order to try to understand how the alt-right, or the radical right, in the United States, and to a lesser extent globally, has developed.

But at the same time, they have significant problems. I would say both books—particularly Wasserman's book—are more about what one may call gossip. In other words, they are about the relationships between the Austrians themselves, between them and the foundations that finance them, as well as the networks and connections that allow them to have political influence, with politicians and businessmen and wealthy donors. Wasserman spends a lot of time on the divisions and the fights, from early on, between Carl Menger and his disciples, like Böhm-Bawerk, or between Schumpeter and all the others, or between Mises and all the others (they were certainly a difficult bunch). However, one would not learn anything significant about the Austrian theory of capital, or its limitations (even if the topic is mentioned), from reading his book. To use Schumpeter’s useful distinction, there is a lot about vision, and almost nothing about analysis.

In the case of Wasserman, there is no significant  discussion of what theoretical assumptions connect and make Austrians “Austrians,” in a sense. The book goes all the way back to Menger and the developments that come after that, but it makes very little of the connection with the German Historical School (only the methodological debate emerges, but nothing about how many authors of the latter, like Knies, were closer to marginalism than it is often understood; the ties are significantly more important than is implied in the book which delves a lot on the clash between Menger and Schmoller).

Slobodian tries to connect, more deeply, his discussion of the many characters in the alt-right to what he sees as the main characteristics of the new right, on an analytical level, which he refers to as “the three hards”: hard money, hard borders, and hard-wired culture, which is to say, biological racism. Note that two of those are policy measures, not a fundamental analytical category. And biological racism derives from misconceptions about biology, not economics.

My fundamental problem with the two books is that they miss the point that the strength of Austrian economics, perhaps its main advantage, is that it is a non-formalized, more or less accessible version of neoclassical economics, of marginalist economics.* And that that is the foundation of the right-wing views of society, which hinge on the notion that markets do produce optimal outcomes (that is also at the core of neoliberalism). At the end of the day, right-wing policies are based on the notion that markets are efficient, and that government intervention, in particular, to promote some sort of income distribution, will create inefficiencies.

The notion that markets are efficient is not a notion that can be traced back to old classical political economy authors, like Adam Smith and David Ricardo, who were certainly for capitalism, for laissez-faire, and for free markets in general, but for very different reasons than modern neoliberals. There was no notion, in classical political economy, that markets produced an efficient allocation of resources—certainly not labor, meaning full employment of labor; not even in their version of Say's Law. Nobody would have thought that in 18th or early 19th century England that markets produced full employment. The concern with unemployment is from the end of the 19th century. Fabian Socialists and reformists New Liberals were concerned with that. That is one of the key presuppositions of neoclassical economics, efficient allocation of resources, of marginalism, which appeared at that time.

As I noted somewhere else, Austrians are the fundamental basis of neoliberalism. Why? Because while Cambridge neoclassicals—early marginalists from Jevons to Marshall to Pigou—did believe that markets produced optimal outcomes, in terms of policy, particularly Pigou, but to some extent Marshall too, thought that market failures (they didn't use that term) implied that under certain circumstances, government intervention was acceptable. That is the basis of Pigouvian taxes, and the Marshallian notion of externalities plays a crucial role in all of that.

The Austrian school is exactly the one that suggests, first, that markets do produce optimal outcomes and an efficient allocation of resources, in the same way as the British marginalists and the School of Lausanne (Walras and Pareto, and so on). But at the same time, and contrary to the Cambridge marginalists, they believe that government failures (another term not used at the time) are more important than market failures, and therefore, that government intervention is always a bad thing. So, in that sense, it's neoclassical economics and marginalism that are at the core of the alt-right, and the importance of Austrian economics is that they push that argument—Hayek's bastards, if you will—to the extreme. Murray Rothbard (not Milei's dog) plays a crucial role in all that.

In that sense, the “three hards” of the alt-right are not particularly new and not necessarily defining, although certainly many people on the modern alt-right do believe in those three things. I’m not sure one should discount neoliberals that are not biological racists from this group, for example. Cultural racists will do too.

But those three things do not necessarily constitute the foundation upon which they build their arguments. Hard money and hard borders can be defended on the basis of significantly different theoretical views. For example, Ricardo, back in the 19th century, was for hard money, but for reasons that were different from the somewhat monetarist views of modern Austrian economists. They also have some sort of notion of stateless money, in their Bitcoin version and whatnot, which Hayek sort of pushed (but that's another issue). Old Institutionalists like Ely or Commons were for closed borders, and they and other Progressive reformers were certainly not right wingers. Note that those three things—hard money, hard borders, and a scientific racism—were things that Social Darwinists like William Graham Sumner held back in the 19th century. Which would make the alt-right a 19th century phenomenon. Btw, Sumner was a proto-marginalist (Marx’s would probably have classified him as a vulgar economist).

I think the theoretical basis of the right (alt or not) is in neoclassical economics, even though not all neoclassicals are right wingers (far from it). Also, the basis for the alt-right, and the rise of the more radical ideological version of the right-wing should be seen in the long period of increasing inequality and lower growth that started in the 1970s. That is missing in these books. In other words, I would have liked more analysis and less discussion of ideological views.

PS: A lot of the same stuff on the rise of the right in the US is covered in Brian Doherty's Radicals for Capitalism: A Freewheeling History of the Modern Libertarian Movement, cited once in Slobodian's book. I recommend it too, with these two books.

* As such, and there is no doubt that Austrian economics is marginalist (it's in the title of Wasserman's book) and is part of the mainstream (which is neoclassical), even if they were (which they are not) fringe from a social point of view. Austrians are NOT heterodox, no matter what Wasserman or others suggest. Also, I should note, as explicitly discussed by Wasserman, Austrian held positions at Harvard and other elite universities, were close advisors to governments and international organizations, and received financial support from donors and foundations, besides the ultimate accolade, the Bank of Sweden Economics Prize in Memory of Alfred Nobel (to Hayek). In other words, not so fringe after all. That notion is part of a culture of victimization.

The World Upsidedown: Progressives and the Return of the Victorian Policy Consensus

 

Eminent Victorian? 

The complete shitshow that US trade policy has become has led to a paradoxical result. Many progressive critics of Free Trade have all of a sudden become strong defenders of it, and highly critical of any kind of trade policy intervention. If Trump is against free trade, then it must be good. On top of that, the fear of inflation -- always a recurrent paranoia among more conservative policy makers -- has been exacerbated by the perception that tariffs will cause stagflation, and has led to a concern that the Jerome Powell, the Federal Reserve (Fed) chairman, might be fired by Trump, even if that is more complicated than firing the Commissioner of the Bureau of Labor Statics (BLS). This, in turn, has led to some strong defense, by liberals and progressives, of an independent Fed.

Free trade and rule based monetary policy (at least not the Gold Standard) are back on the agenda. I should say many liberals, with strong influence among the establishment of the Democratic Party, are also not far from defending some degree of austerity after what they perceive as the excesses of Biden's fiscal policy. In that case, it would be a return to the policy consensus of the Victorian era, free trade, rule based monetary policy, and fiscal discipline. A setback, given that the profession was, not long ago, rethinking the so-called New Consensus in macroeconomics, and was moving away from more rigid inflation targeting, with the Fed adopting a more flexible approach, and more acceptance that persistent deficits and even a higher level of debt were not unsustainable.

It is clear that the tariffs will not bring back any significant number of manufacturing jobs back to the US (a longer discussion here; bottom line, wages are still high in the US, and production will shift to other places), but it is also true that trade policies, together with government procurement policies do play a strategic role in promoting technological innovation and economic growth. But the arguments have gone considerably beyond that. On the international arena, the paranoid style in economic policy advising suggests that the tariffs will bring the end of US hegemony, not just some adjustments on supply chains. It will bring a run against the dollar and dollar denominated assets. If it needs repeating, there is no risk to dollar hegemony, even if China has challenged US hegemony in some crucial sectors.

The next exaggerated fear is that tariffs will bring stagflation. On that, as I have discussed here (and here for Pandemic fears, that proved unfounded, notwithstanding Larry Summers' predictions; note that he blames Biden, and not pandemic supply-side shock for the 2022 inflation bout*), the risk of inflation, let alone high inflation, is relatively moderate. Sure enough tariffs will have some impact on the price level, but as much as the snags on the supply chain during the pandemic, this would translate only as a moderate and transitory shock, that will vanish fast. Actually, since the economy is slowing down, and wage bargaining has been eroded even further (on top of that with the weakening of the National Labor Relations Board), chances of inflation acceleration should take a back seat.

The risk of a recession does NOT come from the possible supply-chain problems that tariffs could cause, nor from the uncertainty (that vague and lazy way of saying that anything could happen; the uncertainty fairy), and neither from a possible profit squeeze that would lead to declining investment. It is actually, as I noted recently, the persistent of relatively high interest rates. Trump is NOT incorrect in criticizing Powell on this issue (the form might be wrong, but on substance he is correct). The housing market is affected, and that will have an impact on consumption, and that might cause a recession.

Further, many authors that used to correctly see the fiscal problems, at least temporarily, as secondary, are now concerned with the sustainability of US debt in domestic currency. Something that is absolutely irrelevant even if all three credit agencies have downgraded US public debt (that's material for another post).

Faced with Trump's economics agenda progressives have retreated from the policies that, at least on a conceptual level, were being developed after the 2008-9 financial crisis, policies that endorsed fiscal activism, unconventional monetary policy, and a healthy rethinking of industrial and trade policy (the latter mostly after Trump's first election, and Biden's so-called New Washington Consensus). Not only the notion is that fiscal policy was excessively lax, causing inflation, that monetary policy must remain contractionary, to avoid the inflationary pressures of the tariffs, but also that free trade and is central for US hegemony.

Edward Luce, FT columnist (and former speechwriter for Summers), author of The Retreat of Liberalism (a book that equates free markets and Western democracy with development) now tells us that the main sin of liberalism (which should be taken here in the American sense of progressivism, and not libertarian free market dogma) is intolerance. The excessive reliance on science during the pandemic, and the lack of free speech in academia, the press, and society at large. He sees that as a return to the Victorian era. In his words:

"... today’s liberal establishment looks more like a conservative one. Educated elites confect orthodoxy on what we should say and do. The resemblance to high Victorianism is more than passing. Victorians regulated manners and etiquette. They also dreaded the mob."

He is not completely wrong. The current liberal establishment, of which he is a member, resembles the Victorians, but it is the renewed defense of an outdated economic policy consensus, free trade, hard money, and sound finance.

* In this interview Summers says: "I felt that the Biden administration was failing to pay attention to fairly elementary economic arithmetic with respect to the excessive stimulus that it launched in response to Covid. But in that case there was a logic in terms of insurance, adding to confidence and promoting employment. That was a policy with both benefits and costs, where I felt—and I think it has turned out this way—the costs exceeded the benefits. Here [Trump's policies] it seems like it’s almost all cost with very little benefit."

Post Keynesian economics and academic freedom

Tom Palley wrote a short post on his recent experience with the Post Keynesian Economics Society (PKES). The post raises interesting issues about what constitutes an economic topic and where to draw the line between academic and non-academic work. A similar debate recently occurred on the listserv of the Union for Radical Political Economy (URPE) regarding an announcement about the Gaza conflict (specifically, whether it constituted genocide, whether URPE should have a statement on the topic, and so on).

On the two main topics of Tom's piece -- what constitutes an economic related topic, and what is an academic subject -- I should say that I tend to think that there are relatively clear answers (and my views might not be hegemonic, in this field; see what I did there?). I come from a political economy tradition, that harks back to classical political economy, according to which economics is about the material conditions for the reproduction of society, in which social classes, and the conflict between them are central not only for the determination of distribution, but also of the pace of accumulation and progress (another question open to debate).* Hence, issues related to Ukraine and Palestine, and other geopolitical issues are certainly part of political economy, and it is hard to suggest that they should be excluded from conversation.

On the other, whether something can be consider academic or not, at least from a sociological point of view, is entirely determined by peer review, what economists doing academic work in economics define as academic work. In this case, what Post Keynesians (PKs) considered PK economics to be. From that point of view, and regarding PKs, it seems clear that the issues of the war in Ukraine, that Tom was discussing (whatever the views on that were), would have always been seen as part of the tradition, and a perfectly reasonable topic of inquiry. Just to provide an example, in the second issue of the Journal of Post Keynesian Economics (the journal that gave the name to the tradition), Charles Issawi had a long discussion of the Arab-Israeli conflicts to understand the 1973 oil shock (there are other papers in that issue on similar topics).

Mainstream economics always took a dim view of PKs willingness to entertain issues that were hard to formalize. Robert Solow famously said that:

"The proper way to do macroeconomics can hardly be all historical context and no analytical structure. Unfortunately the school has provided no systematic description or example of what it conceives to be the right way to do macroeconomic theory. Thus far so-called post-Keynesianism seems to be more a state of mind than a theory." 

Note that, while critical of PKs, Solow was not for the exclusion of PKs from conversation, and he was always willing to discuss with heterodox economists (on this see my short piece on his relation to ROKE on the occasion of his death).

In other words, the post by Tom was on economics on a topic that PKs considered economics, at least ib the past.** For those reasons, it seems hard to justify the PKES decision, which appears punitive and an attempt to stifle conversation, the sort of thing they persistently criticize about the mainstream. This is much worse given the current attack on academic freedom, particularly in the US, with Trump going after academia in general.

* For my views on heterodoxy, and its relation to that tradition see this old post, and this paper. On Post Keynesian economics see this old piece.

** Colin Danby reminded me of the old PK listserv that used to be more than announcement emails, and was effectively a forum for the discussion of ideas.