Sunday, January 22, 2017

On the blogs

Making America Great Again!

Rex Tugwell of FDR's Brain Trust -- by Tony Wikrent, with a paper by Tugwell on the New Deal. Tugwell was the guy responsible for taking Eccles from Utah to DC, to the Treasury, before he moved to the Fed

AD/AS: a suggested interpretation -- Nick Rowe on how you must start with Aggregate Demand and Supply to explain macro, to do it right. More on this soon, if I have time

Chart of the day -- h/t to David Ruccio, after all it's sometimes true that a chart (reproduced above) is worth a thousand words

Saturday, January 21, 2017

Top 20 most productive departments of the top 100 national liberal arts colleges

So Bucknell is on that list, according to Chen Qian, Steven B. Caudill and Franklin G. Mixon, Jr. (2016) “Engaged in teaching, and scholarship too: economics faculty productivity at national liberal arts colleges,” International Journal of Pluralism and Economics Education, 7, 360-372 (subscription required).
Not sure how useful this kind of data is. Very much like the data on journal rankings discussed before, this should be taken with a grain of salt. But the schools with heterodox, or pluralist departments do relatively well, I think.

Friday, January 20, 2017

President Trump and Fiscal Policy: Austerity Big Time?

I can already see some of the cuts ;)

The Hill suggests that we should expect a huge decrease in government spending. According to them:
Overall, the blueprint being used by Trump’s team would reduce federal spending by $10.5 trillion over 10 years. The proposed cuts hew closely to a blueprint published last year by the conservative Heritage Foundation, a think tank that has helped staff the Trump transition.
In all fairness, I am not, or at least was not until now, expecting big spending cuts and austerity. I expected the cuts in social programs, like say health, to be more than compensated by military and infrastructure spending. The recent historical record is that all Republicans since Gerald Ford have increased spending and the fiscal deficit. Maybe the Hill is right, and President Donald will throw the economy into a recession, following the rightwing/lunatic fringe's ideological hate of Big Government. That would make Trumponomics very different than Reaganomics. To be seen soon. Btw, this increases the degree of uncertainty about his presidency.

Monday, January 16, 2017

The “Natural” Interest Rate and Secular Stagnation

New paper by Lance Taylor in Challenge Magazine. From the blurb:
Can America recover ideal rates of growth through interest-rate policies? This important analysis suggests that most economists misunderstand the issue. Updating Keynes, the analysis suggests that fiscal stimulus, labor union bargaining power, and more progressive income taxes are needed to support growth. (The article includes some algebra, which some readers may choose to skip.)
Read full paper here.

Sunday, January 15, 2017

On the blogs

On Ajit Sinha On Sraffa -- by Robert Vienneau; I also recommend the reply by Heinz Kurz to Sinha available here (subscription required). In particular, Kurz takes issue with how much of the early equations Sraffa developed were influenced by Marx's schemes of reproduction, and also with the notion that Sraffa didn't deal with counterfactuals, although I would use the term ideal types for what he discusses there

Infrastructure Delusions -- Paul Krugman, who predicted before a run on the dollar (his famous phrase was "it seems likely that there will be a Wile E. Coyote moment when investors realize that the dollar’s value doesn’t make sense, and that value plunges"), predicts that there will be no fiscal expansion (to be seen). The main reason? He asks: "who really believes that this crew is going to come up with a serious plan?" Yeah, who would predict this crew would win the election, right? Hope he keeps his prediction track record intact

The Calico Acts: Was British cotton made possible by infant industry protection from Indian competition? -- Pseudoerasmus on, well, the title gives it away. I disagree with the notion, implicit, that some degree of protection was not instrumental for industrialization, but he raises interesting points about the Calico Acts and their relevance for the mechanization of the cotton industry. At any rate, an informed post worth reading

Friday, January 13, 2017

Bill Gross and the Yield Curve

Tyler Durden at ZeroHedge, and others, are discussing Bill Gross's recent rant on his monthly letter to investors about the yield curve and the possibility of a Trump recession. Bill Gross sees in the decline of the 10-year bond rate since the early 1980s a secular (like Summers and his secular stagnation, it seems everything is secular now) trend, and concludes that the long term rate cannot go above 2.6% or so. In his words:
"So for 10-year Treasuries, a multiple of influences obscure a rational conclusion that yields must inevitably move higher during Trump's first year in office. When the fundamentals are confusing, however, technical indicators may come to the rescue and it's there where a super three decade downward sloping trend line for 10-year yields could be critical. Shown in the chart below, it's obvious to most observers that 10-year yields have been moving downward since their secular peak in the early 1980s, and at a rather linear rate. 30 basis point declines on average for the past 30 years have lowered the 10-year from 10% in 1987 to the current 2.40%... And this is my only forecast for the 10-year in 2017. If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun."
The fear is, of course, that if the Fed continues to tighten monetary policy, then the yield curve (the difference between the long term rate and the base rate) would be inverted (see figure) and a recession would follow.
There is nothing secular about the falling rate long or short term rate, however, which Gross analyzes in nominal terms. The declining tendency is just the result of the lower rates of inflation, what Bernanke called the Great Moderation, even if the causes are not the ones he suggested. Sure enough, in real terms, the 10-year treasuries are also down, but I cannot see a trend.
What I suspect is going on in the graph above are three different phases, in which the long term rate has fluctuated around different levels. During the Golden Age (50s through 70s) the rate was relatively low, a result of tight regulation, and extensive capital controls, which allowed low rates at home. After the Great Inflation, with negative rates, and the Carter/Reagan/Clinton deregulation rates were considerably higher. What we observe in the 2000s is that after several bubble-led booms, nominal rates have been forced to the floor. But there is no secular trend associated to this, it is the result of policy choices given the macro and regulatory regime we have.

It's is perfectly possible, if Trump really promotes a fiscal expansion, that the base rate would rise, and the long rate too, keeping a positive yield curve, and a higher average real 10-year bond rate. Above 2.6% for sure. Not saying it will happen. Just that it is plausible, and there is no secular trend that precludes it.

Thursday, January 12, 2017

The World Health Organization warns of outbreak of virulent new ‘Economic Reality’ virus

New paper by Steve Keen. After Paul Romer accused mainstream colleagues of using phlogiston to explain phenomena they don't understand, now we have a better working hypothesis about what is happening with the mainstream. From the abstract:
A new virus, known as ‘Reality’, has started to afflict Mainstream Economists, causing them to reject the ‘as if’ arguments they used to use to justify their models. There is no known cure for the virus, and complete avoidance of ‘Reality’ is the only effective strategy to prevent infection.
Read full paper here.

Wednesday, January 11, 2017

The Nature of Capitalism and Secular Stagnation

McCloskey, Lazonick, Despin, and Shaikh (I'm covered)

The joint AEA/URPE session was very lively, but suffered from the last minute absence of Brad DeLong. He did send the notes of what he was going to discuss here. On the topic of stagnation per se only Hans Despin suggested that it was an important phenomenon, but not necessarily for the same reasons Larry Summers and Brad De Long. It was unclear to me, however, that his views were based on a demand side story, and, hence, that this was more like Steindl would call it a question of stagnation policy. All the others, for different reasons were against the idea of secular stagnation.

Deirdre McCloskey, who said she was an Austrian economist (and no, that doesn't make her heterodox, just a different version of the orthodox marginalist approach), argued vigorously against it. I was a bit surprised that nobody pushed back on her explanation of growth as based on ideas, and the notion that the movement of the marginal productivity of capital (that she drew in an imaginary blackboard as being downward sloping) to the right is what explains improved livings standards. I mean I agree that capital accumulation does not explain growth (it's the other way round, growth of demand explains capital accumulation, but nobody there believed in that, other than me, and I was just the moderator), but at this point the notion of downward MPK curves should receive more criticism among heterodox economists.

Lazonick and Shaikh had more to debate on the nature of capitalism, in particular with McCloskey, and the reasons for technological innovation, with both emphasizing the role of the state in promoting technical change, rather than the idea of the innovator as a superhero.

PS: I was going to film it, but the memory card jammed, and in spite of all the technological advancement, we're left only with oral history.

Tuesday, January 10, 2017

An increase in rents is behind the rise in inequality

Eileen Appelbaum

Eileen Appelbaum delivered the David Gordon Memorial Lecture at the Chicago Meetings of the Union of Radical Political Economics (URPE). The lecture, and the comments by John Schmitt will be published later in the Review of Radical Political Economics (RRPE). The gist of the argument is that ever stronger corporations use their dominant position in markets, patent and copyright protections, and their political influence to obtain favorable regulations and tax breaks to earn monopoly rents at the expense of consumers. She noted that the evidence suggests that inequality has increased more between establishments (firms) than within them, which is impressive given the increasing gap between management and plant salaries. She cited the work by Richard Freeman on how two thirds of the increase in inequality is caused by between establishment differences.

Freeman argument was made popular by his two clones story. According to him:
"consider two indistinguishable workers, you and your clone. By definition, you/clone have the same gender, ethnicity, years of schooling, family background, skills, etc. In 2006 you/clone graduated with identical academic records from the same university and obtained identical job offers from Facebook and MySpace. Not knowing any more about the future than the analysts who valued Facebook and MySpace roughly equally in the mid-2000s, you/clone flipped coins to decide which offer to accept: heads – Facebook; tails – MySpace. Clone’s coin came up heads. Yours came up tails. 
Ten years later, Clone is in the catbird’s seat in the job market — high pay, stock options, a secure future. You struggle. Back to university? Send job search letters to close friends? Ask distant acquaintances to help? The you/clone thought experiment may seem extreme, but recent research that I have conducted with colleagues finds that the earnings of workers with near-clone similarity in attributes diverged so much by the place they worked that rising inequality in pay among employers has become the major factor in the trend rise in inequality."
This, the fact that workers with similar skills get paid significantly different wages, suggests to her that the old story that inequality results from skill-biased-technical-change (SBTC) is incorrect, and that the power of corporations to extract rents can be seen as a New Labor Segmentation, which is superimposed on the old one, researched by David Gordon and his co-authors.

I am looking forward to the publication of her paper.

Monday, January 9, 2017

ICAPE and the Future of Pluralism in Economics

ICAPE is the acronym for the unwieldy named International Confederation of Associations for Pluralism in Economics. The organization has been somewhat inactive in the recent past, but it seems ready to increase its activities in the near future under the direction of my colleague Geoff Schneider. Here are his remarks on the future of Pluralism at the last ICAPE conference at Roosevelt University in Chicago.
Program from last conference, where these remarks were presented is here.

Wednesday, January 4, 2017

American Economic Association Meeting in Chicago

I'm off (URPE program here). Pretty busy, and won't post for a while. Talk to each other ;)

PS: Mainstream micro is terrible at describing too, btw. And there are a few heterodox macro people that aren't that bad at describing.

Monday, January 2, 2017

Diffusion and technological change

Map above shows the spread of chess from its original invention in India to the rest of Eurasia. There is an interesting analogy here with the diffusion of a game and of technology. Technological diffusion is a slow process, but an essential one, in which a significant part of the improvements are made. Gun technology, which also started in Asia, and discussed here before, is another case in point. And sometimes the latecomer has an advantage (Gerschenkron's the advantage of backwardness, a topic also discussed by Veblen). Nothing much to say about it, just a neat map. For more on the difficulties of understanding technical change go here and here.

Sunday, January 1, 2017

On the blogs

Tariffs and the Trade Balance -- In which Paul Krugman tells us that "capital flows do depend on the potential for trade in goods and services." Hm, so no possibility of capital flows associated to purely financial gain or security? Nobody holds US treasuries just because it's the safe asset in global markets?

Kansas and the myth of trickle-down tax cuts -- Jared Bernstein on Kansas experiment with supply side economics. A bit old, but worth reading

A Socialist Market Economy With Chinese Contradictions -- Lord Turner on the risk of a Chinese crisis, not caused by financial collapse (he correctly points out that: "Most of the debt is owed within the state system... and the government could simply write off bad debts and recapitalize banks, financing the operation with either borrowed or printed money"), but by capital flight

Saturday, December 31, 2016

Economists who passed away in 2016

These (below) are the ones I remember, but there are certainly more. Here, with links to obituaries: Karl Case, Aldo Ferrer, Lloyd Shapley, Thomas Schelling, Charles L. Schultz, Lester Thurrow, Robert Tollison. The only one I met was Ferrer, in a few conferences in Argentina and Brazil. Two "Nobel" (Central Bank of Sweden) Prize winners among the departed. Interesting that Shapley said about his prize that: "I consider myself a mathematician and the award is for economics. I never, never in my life took a course in economics." So I'm not sure he should be on this list (or there should be a prize like that one). Of the non-economists discussed in this blog, the most prominent loss in 2016 was the historian William McNeill. He is one of the authors from other social sciences that I suggest, like say Jared Diamond or David Graeber, that use the surplus approach analytical framework, more akin to old classical political economy than modern marginalist (neoclassical) economics. And Keynes is still dead, 70 years ago this year, but there is always hope for an intellectual revival.

PS: Sad addendum, Tony Atkinson passed away.