On the blogs

Government spending multipliers in good times and in bad: Evidence from U.S. historical data -- Valerie Ramey and Sarah Zubairy suggest that fiscal multipliers are as large in booms as they are in recessions, with a zero bound interest rate. Their estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were large, but because government spending was great. Same thing we suggest here with Nate.

Alexander Hamilton's Comeback -- Justin Fox on Michael Lind's book on US economic history. I tend to agree on the advantages of Hamilton over Jefferson, in this respect.

The Federal Reserve and Shared Prosperity: A Guide to the Policy Issues and Institutional Challenges -- Tom Palley on bringing back the full employment goal, raising the inflation target and not hiking the rate of interest too soon.

Private Employment under Obama and Bush -- simple, but revealing graphs by Menzie Chinn.

Graph/Table of the Week: Tax in Scandinavian countries -- I posted my weekly graph/table on URPE's blog, showing how high the levels of taxation are in Scandinavian countries. And yes, no problem, quite the opposite.

Cuba, the United States and Our America

It often comes as a surprise to most Americans that Latin Americans generally resent that in the United States people think of themselves as uniquely American—as if the rest of the continent somehow has another name. Latin America is, in fact, a name created by the French, supported by local elites, that invaded Mexico to collect foreign debt and to try to re-establish European colonialism. The Latin heritage, being a common one between Maximilian’s new court and the Mexican people, gave the region its appellative, but a tarnished one. That is why José Martí, the hero of Cuban independence, referred to “Our America,” to contrast it with the other, the one Americans fancy as the only one.

Read rest here.

Academic Freedom Watch: Koch's Brothers and Universities

For the whole documentary go here. For the part specifically about their role in universities forward to minute 17:30 or so.

Academic freedom watch: academically disguised lobbying at the University of Kansas

I noted before the news about hiring practices at Florida State being influenced by the Koch's brothers ideological agenda. Now the news suggest that the Koch have been funding an ideologically biased center at the University of Kansas (KU). Art Hall, who worked for the the Koch's, and now runs KU's Center for Applied Economics, has been at the center of the controversy.

There is a new and troubling development in the story. Professor Hall has filed to block a group of students that wanted more information about the relation between him and the Koch brothers. Schuyler Kraus the president of Students for a Sustainable Future, the group behind the information request, suggested that: “It just seems more obvious that there’s something going on that they want to hide.” Indeed.

The connections of wealthy individuals, with strong views on the economy, funding research on economics is always problematic. Not surprisingly, this is happening at a Business School, which are often heavily dependent on corporate donors, who might have a political agenda that conflicts with the research values that most universities profess to follow.

PS: You may want to check the UnKoch My Campus website here. This quote from Charles Koch in their site is telling: "We should cease financing our own destruction and…[support] only those programs, departments or schools that 'contribute in some way to our individual companies or to the general welfare of our free enterprise system.'"

Amado & Rollemberg Mollo on the ‘developmentalism’ debate in Brazil

New ROKE Paper by Adriana Moreira Amado and Maria de Lourdes Rollemberg Mollo

From the abstract:

This article analyses different approaches to ‘developmentalism,’ emphasizing their theoretical origins and identifying their different economic policy implications. Based on the theoretical and empirical characteristics of different growth regimes in Brazil (that is, export-led, demand-led, debt-led, profit-led, and wage-led), the paper recommends that Brazil adopt a ‘social developmentalist’ growth strategy.

Read rest here (free download).

The NAIRU or why economics is not a serious science

This is from Watson's AER paper from last year (another version here). Same methodology he has used before, with Staiger and Stock, as far as I can tell, to measure the non-accelerating inflation rate of unemployment (NAIRU) or natural rate. The estimation is based on the Phillips curve (PC), in which inflation is the result of deviations of unemployment from its natural level, that is, essentially demand. He estimates that it is at 6.3%, but will soon return to its pre-2007 crisis level of 5.5%, basically were we are now.

Couple of things. In the estimation of the PC he does, as normally is done, include supply shock elements. My guess (results are not clearly shown in the tables) is that a good chunk of inflation is actually explained by this rather than the unemployment gap. In other words, cost matters for inflation, and whether unemployment was above 10%, as right after the crisis, or 5.6% like now, has little impact. Also, that means that the unemployment gap is basically orthogonal to inflation, and that the measure of the NAIRU or natural rate could be obtained as an average of the actual unemployment. In one of the methods of obtaining it that is exactly what is done (not in this paper).

In other words, the black line in the middle is NOT an attractor around which the actual unemployment level fluctuates. It is an average of the actual rate, which is essentially another way of writing the same data. It is the actual unemployment rate that determines the natural one, and if unemployment rates were reduced sufficiently with expansionary policies, the natural (being an average) would also come down. Economics is NOT a serious science.

More on the National Accounts: Gross versus Value Added Exports

Yes, still teaching that. So end up thinking and reading about the stuff. At any rate, an interesting paper by Robert Johnson (here; subscription required), suggests that with the rise of global supply chains gross exports overstate the amount of domestic value-added in exports. Note that now exports have a greater content of imports, so gross trade is not a good measure of value added. Johnson says that: "estimates suggest that value-added exports are equal to 70–75 percent of the value of gross exports."

Interestingly there is more value added in services than the data on gross exports indicates, as can be seen above. In other words, manufacturers exporters tend to buy a lot of local services, and that ends up being part of gross manufacturing export numbers, undervaluing the role of valued added service exports.

The lowest value added to gross exports ratios are in East Asian countries, in the data presented South Korea and Taiwan, which is not surprising. China and Mexico are higher than both South Korea and Taiwan, and I was surprised by that.

An interesting result of his analysis is that: "the ratio of exports to GDP will overstate how much GDP falls when exports decline." Of course, for the external constraint, it might still be the case that gross exports are the relevant ones, since they provide access to hard currency for developing countries.

Masters of Money: Marx

Got to see the one on Marx, which is below. Come to think about it, not only Hayek is an odd choice for a conventional view of capitalism (even Friedman, I suggested Schumpeter in the previous post, would be a better one), but also the title is a weird one. Not sure Marx was a master of money, whatever that means.

The whole thing is very shallow. The equalization of Stalinism and the limits of the Soviet system with Marx's theories, and even the complete lack of discussion of Marx's ideas (on that read this). Seriously, Rajan and Roubini never read Marx. No serious economics scholar of Marx was interviewed. Yes Harvey and Ali, or Zizek for that matter, are not economists, even if they have read Marx. And Marx was, above all, an economist, even if that's the field in which he is not studied anymore. Also, the notion that capitalism is just profit seeking behavior is preposterous (for more on that). On the positive side, from my perspective, the type of crisis discussed is a realization crisis.

Footnote on the notion that Marx's propositions still are very radical, as said in the intro to the BBC episode: it should be taken with a grain of salt. Yes he thought that communism would abolish private property, but was also for "a heavy progressive or graduated income tax... free education for all children in public schools... [and the] abolition of children’s factory labour in its present form." So some of these ideas are now common sense. Radical stuff indeed.

Their advice, if you want to understand it better you should read it. Yes, given the stuff they did, you probably should.

Post-neo-Malthusianism -- a global demographic transition?

OK, all you Malthus enthusiasts out there, after a way-too-long hiatus, here are some of my latest graphs and interpretations:

First, let's look at global population levels since C.E. 0. The data are mostly, of course, from Angus Maddison (R.I.P.), with UN data spliced after 2008.

You can see a liftoff in the late middle ages, some acceleration in the early modern era, and an exponential explosion starting about the industrial revolution era and continuing until now. As I recently argue, this level growth is sufficient to claim that the correlated growth in aggregate demand is sufficient to explain many things, in particular the great growth in (and supply to) demand for capital to meet the aggregate consumer demand, all correlated with the English and later industrial revolutions.

Good. Now, lets look at the really interesting, at least to me, information somewhat buried in this first graph. The next graph is in log differences of the population levels, so showing the change in population growth rates.

Here we see, with some interesting variations that I will not comment on here, that the second derivative of population levels was mostly positive up until about 1960 (I have windowed graphs that allow this granularity). So growth rates were ever-increasing to rates significantly above two percent annually.

Since then, we see a (strong) reversal in growth rates, back to about one percent annually. This has large implications for important things economic going forward. First, should this continue, the first derivative will go  negative (population will peak then decrease - in other work, I show this could happen around 2085 2045). Second, under my nascent and evolving theory of Industrial Capitalism, the correlated fall in aggregate demand will diminish the demand for and supply of global productive capital. This implies a drop in accumulated capital, eventually including financial capital if asset values fall. There are other important implications, but these are biggies.

Should you be one among us desiring yet another crisis of capitalism, this one is a doozy since we will be pushing the demise-of-capitalism water downhill, instead of uphill as has been the case since Marx.

This is probably enough for now.

Sincerely,

Thomas post-neo Malthus Bannister

p.s. I am seriously thinking of legally changing my name to the above.

On the blogs

Don’t Bet on a Stronger Dollar -- Barry Eichengreen on why the US boom is not very strong and predictions of a stronger dollar might be bunk

The Invisible Hand of Alan Blinder -- John Komlos takes Blinder to task for his review of Jeff Madrick's book Seven Bad Ideas

‘New Keynesian’ haiku economics -- Lars Syll, partly influence by a NK post I think, reflects on the limits of New Keynesian macroeconomics

Fed shouldn't raise interest rates too quickly -- Steve Pressman and Rob Scott on... well the title gives it away. The point is household income has not grown sufficiently even if unemployment is down

Is Canada becoming a right-wing country? -- LP Rochon on the Canadian turn to the right, or not

Encyclopedia of Central Banking

So LP Rochon has edited this Encyclopedia, with Sergio Rossi.

LP sent me the entry on Bretton Woods Regime, by Omar Hamouda, as a teaser.

"Bretton Woods is a location, period of history, beginning of an era in the twentieth century, birth of an international organization, but, most of all, an international monetary system to regulate trade, peg currencies to one standard, and maintain a regime of fixed exchange- rate parity.

In July 1944 at Bretton Woods, New Hampshire, 44 nations under official British and American leadership set up economic measures for post- war reconstruction. The US dollar – pegged to gold – was approved as the new monetary standard. Two new insti tutions were also established with specific tasks: the Stabilization Fund (International Monetary Fund, IMF), a “special organization” (Horsefield, 1969, p. 39), to be a watchdog facilitating and promoting trade through monetary stabilization, and the International Bank for Reconstruction and Development (World Bank), with the role of providing member nations with “necessary capital not otherwise available except possibly on too costly terms” (ibid.)."

Read rest here.

Masters of Money: BBC Documentary on Marx, Keynes, and Hayek

The one on Keynes below. I already noticed before that Hayek is not really an intellectual of the same stature of Keynes, or Marx one might add. In terms of Austrians, in fact, Schumpeter might be the only one that is on the same league (even if I disagree with almost everything he wrote, the exception being his discussion of the Tax State).

A few interesting people are interviewed. Peter Clarke and Will Hutton, for example, the former author of a really good book on the political struggle to develop Keynesian policies. They also have some less interesting ones, like Mervin King, the ex-governor of the Bank of England, and Ken Rogoff, of Rogaine and Braveheart fame, complaining of very high debt levels now which preclude the space for fiscal expansion ("there is no magic bullet," he says).

The outcome is not particularly good. The discussion of Treaty of Versailles and German hyperinflation is completely biased presenting a Monetarist interpretation that is not dominant among historians. It also spreads the myth that the fact that the New Deal helped end the Great Depression is a myth. Worse, the interpretation of Keynes is based on chapter 12 of the GT. It's also about confidence, animal spirits and uncertainty.

There is also a discussion of Bretton Woods, and although they do suggest that deficit countries could not do the whole adjustment, there is no discussion of the role of capital controls and financial regulation. Oh well.