Tuesday, November 25, 2014

Economists Without Borders (Economistes Sans Frontières)

By Thomas Palley

Inspired by the work of Doctors Without Borders (Médecins Sans Frontières), I have recently started a project called Economists Without Borders (Economistes Sans Frontières). Its purpose is to inoculate the global economy against the virus of neoliberalism. Last week, I had two difficult “missions” to Vienna and Warsaw.

In Vienna, I confronted an outbreak of the neoliberal globalization – free trade strain of the virus. Without doubt, this is the most virulent and dangerous of all strains. People who get infected become blind to all evidence, deaf to all argument and prone to intellectual condescension. Massachusetts Avenue in Washington DC is a hot zone of infection. The bad news is that if you are over forty and infected it is doubtful you can be cured. However, younger patients have a chance of recovery. Here is the anti-viral I prescribed titled “The Theory of Global Imbalances: Mainstream Economics vs. Structural Keynesianism”.

In Warsaw, I confronted an outbreak of Milton Friedmanism which is one of the oldest strains of neoliberal virus. Friedmanism is a gateway virus that weakens defenses against other neoliberal strains and younger minds are particularly susceptible to it. The good news is that if diagnosed early there is a good chance of recovery. However, if treatment is delayed, intellectual ossification and closed-mindedness sets in. This ossification is almost always associated with inflation obsessive compulsive disorder and austerity fever. Here is the treatment I recommend titled “Milton Friedman’s Economics and Political Economy: An Old Keynesian Critique”.

Restoring Shared Prosperity: A Policy Agenda From Leading Keynesian Economists, December 2013, PDF available at www.thomaspalley.com, book available at Amazon.com.

Friday, November 21, 2014

Amitava Dutt on Pluralism (or lack thereof) in Economics

The recent issue of ROPE is an excellent symposium on nature of pluralism (or lack thereof) in contemporary economics. This following article by Amitava Dutt is quite insightful.

From the abstract:
Recent debates about the nature and desirability of pluralism in economics suffer from a lack of clarity about the meaning of pluralism. This paper attempts to remedy some aspects of this problem by distinguishing between different dimensions of pluralism, that is, epistemological, ontological, methodological, normative and prescriptive dimensions. Although, in principle, these dimensions are distinct, they are difficult to keep apart because of the relations that exist in terms of choices made in the different dimensions. It is argued that the recognition of these distinctions and relations allows for a resolution of some of the debates about pluralism.
Read rest here (subscription required), and for an introduction to the symposium by John Davis, see here (subscription required).

Wednesday, November 19, 2014

Tom Weisskopf on 50 Years of Radical Political Economy

From the abstract,
I examine first how radical political economy (RPE) has evolved over the last five decades, as the overall political climate in the United States has shifted increasingly to the right. I explore how this political shift, as well as new developments within mainstream economics, have altered the focus of much of RPE and the activities of many of its practitioners. I then offer suggestions to radical political economists as to the future orientation of RPE.
Read rest here (subscription required).

And for other posts on the nature & evolution of radical political economy, see here & here.

Tuesday, November 18, 2014

Elizabeth Warren on Fed Appointments

Warren says that Obama should pick nominees for the Board of Governors vacancies that would "look out for Main Street, not big banks." More precisely:
"The five sitting governors have a variety of academic and industry experience, but not one came to the Fed with a meaningful background in overseeing or investigating big banks or any experience distinguishing between the greater risks posed by the biggest banks relative to community banks. By nominating people who have a strong track record in these areas and who have a demonstrated commitment to not backing down when they find problems, the administration can show that it is taking the Fed’s supervision problem seriously. Nominating Wall Street insiders for the Board of Governors would send the opposite message."
 I have a few names in mind.

Monday, November 17, 2014

Did the New Deal help in the recovery?

I have posted on this before (e.g. here and here, but there is more). Here a short excerpt from Joshua Hausman dissertation, supervised by Barry Eichengreen and Brad DeLong. He suggests in this particular paper that the 1936 Veteran Bonus was essential for the expansion of consumption and growth in 1936. Table below show aggregate data. Note that most of the accelerated expansion is explained by consumption (one might add, investment is derived demand and follows the accelerator, but that's another discussion).
He says: "All this is not easily explained by factors other than the bonus. Monetary factors were if anything contractionary in 1936. Broad money supply growth slowed from 14 percent in 1935 to 11 percent in 1936. And in August 1936, the Federal Reserve raised reserve requirements."

Hausman correctly notices that monetary policy had little effect on the boom in 1936, which fits what Eccles thought about that, and also about the role of monetary policy in the 1937-8 recession. The recession was for Eccles caused by a fiscal contraction largely due to two factors, the new Social Security Law that went into effect, increasing taxes, without initially disbursing payments, and the end of soldier’s bonus payments, which would add support to Hausman's story. Yep, multipliers (effective demand) work.

Sunday, November 16, 2014

Eileen Appelbaum on Private Equity & Retirement Savings

By Eileen Appelbaum
The decline in worker pensions creates a challenge for private equity (PE) funds. The funds currently get about a quarter of their capital from public-sector pension funds and another 10 percent from private-sector pension funds. But defined benefit pension plans, once enjoyed by most private-sector workers, have been largely dismantled by corporations. And public-sector pension plans have come under attack in recent years as part of a larger effort by politicians in some states to weaken or destroy public-sector unions. Private equity is worried that the goose that lays the golden eggs it relies on is on the endangered species list. With the industry so dependent on workers' retirement savings, its future growth prospects are likely to be tied to its ability to tap the estimated $6.6 trillion in 401(k) accounts.
Read rest here.

Friday, November 14, 2014

Banks pay fines, but nobody goes to jail

I posted on this before. The Department of Justice was prosecuting banks for rigging the foreign exchange markets, and now banks agreed to pay fines, more than a billion for Citigroup and J.P. Morgan-Chase.
Fines now have exceeded 200 billion as a result of illegal activities, but nobody yet went to jail. Impunity persists. Full story here.

Thursday, November 13, 2014

Mariana Mazzucato on the state and innovation

Not a huge fan of TED talks (quite the opposite indeed). But this one is well worth your time. Turns out that the great innovative entrepreneur of Schumpeter dreams is the Leviathan of his nightmares. Oh well.

Wednesday, November 12, 2014

Rethinking wage vs. profit-led growth theory with implications for policy analysis

By Thomas Palley

The distinction between wage-led and profit-led growth is a major feature of Post-Keynesian economics and it has triggered an extensive econometric literature aimed at identifying whether economies are wage or profit-led. That literature treats the economy’s character as exogenously given. This paper questions that assumption and shows an economy’s character is endogenous and subject to policy influence. This generates a Post-Keynesian analogue of the Lucas critique whereby the econometrically identified character of the economy depends on policy rather than being a natural characteristic. Over the past twenty years, policy has made economies appear more profit-led by lowering workers’ share of the wage bill and tax rates on shareholder income. Increasing workers’ wage bill share increases growth and capacity utilization regardless of whether the economy is wage-led, profit-led or conflictive. That speaks to making it the primary focus of policy efforts.

Read rest here.

PS: Tom's paper is in the standard Kaleckian approach in which investment is a function of capacity utilization and some measure of profit (rate or share; both are related). The so-called Kaleckian model suggests that investment is to some extent autonomous (independent of income) and not simply derived demand. With Esteban Pérez we have criticized the Kaleckian (not Kalecki, which did not develop these family of models, which are in effect a result of Joan Robinson's model) here. In our view, the distinction between profit and wage-led in a model with an independent investment function is problematic. In a sense, although we have a different (Kaldorian, based on the supermultiplier) modelling strategy, we agree with Tom's conclusion, namely: the system only appears to be profit-led, since "increasing workers’ wage bill share increases growth and capacity utilization." That's unambiguous, and should be a policy goal.

Monday, November 10, 2014

Money supply, inflation and velocity

Grading. Slow posting as a result. Reading lots of replies on the Triffin Dilemma (more on that later). Interestingly many students, following the textbook (Montiel's International Macroeconomics) suggest that printing dollars was a way of dealing with the dollar shortage problems of the 1950s, as if the Fed was concerned with international liquidity problems when deciding on monetary policy. At any rate, several also suggest that money printing leads to inflation (no qualifier, like the economy must be at full employment, or something like that). Figure below for recent times.
As can be seen the huge increase in money supply basically led to a reduction of the velocity of circulation. That's why inflation has been tame, and yes we are not at full employment (we rarely are). Back to grading.