Sunday, November 11, 2018

Heterodox Central Banking in the Periphery

Our paper with Esteban Pérez on Prebisch's missions as a Money Doctor during the Fed-led missions directed by Triffin to Paraguay and Dominican Republic has been publish in Research in the History of Economic Thought and Methodology. From the abstract:
Traditionally, monetary policy in Latin America followed the recommendations of the missions of the monetary “doctors” who defended an independent central bank and a pro-cyclical monetary policy, adhering to the automatic adjustment of the gold standard. A key function of central banks was to support fiscal stability. The effects of the Great Depression and its aftermath in the periphery countries questioned these recommendations and gave way to a shift in monetary policy. An illustrative example is provided by the creation of the Central Bank of the Argentina Republic (BCRA) under the auspices of Raúl Prebisch, and the technical assistance missions of the United States Federal Reserve to several Latin American countries some of which were led by Robert Triffin. Prebisch actively participated in mission to Paraguay and the Dominican Republic bringing the experience he had acquired as director of the BCRA and the tools devised to adapt monetary policy to a changing external context and circumstances. The use of the discount window and exchange controls, among other instruments, was seen in this new view as necessary to pursue counter-cyclical policies and to provide support for industrialization and full employment in the periphery.
Read rest here

Friday, November 2, 2018

The End of Brazilian Democracy

As noted in my previous post on this, there was a good chance that the Neo-Fascist candidate Jair Bolsonaro would win the election in Brazil. And he did, with approximately 39 percent of all votes. There are only a few things that I want to point out about this.

The Workers' Party (PT) candidate received about 32 percent of all votes. Note that 29 percent or so did not vote, in one way or another. So PT maintained almost one third of the electorate in this election, while its rival in the previous 6 elections (PT was the winner or close runner up going back to 1989), the Social Democrats (PSDB), has vanished. And the defeat of PT was possible only with years of judicial harassment, the illegitimate imprisonment of the party leader (Lula), the blocking of his candidacy, precluding him from giving interviews, and the relentless media campaign against PT, tarnishing the party as corrupt. In that sense, the result is not unexpected, and puts in question the meaning of democracy in Brazil, to say the least.

The second important point is that the economic situation will certainly not improve, for those that think that the Brazilian problem was  simply  political instability. In fact, the incoming administration would be a more radical version of the neoliberal post-coup government of the last two years. They are trying to negotiate social security reform, meaning cutting off benefits, and partial privatization, before the end of the year to avoid the political costs associated with it. That on top of the labor reform that was approved last year. The notion is that one would allow for higher savings, since people would be forced to save for retirement, and the other would allow for lower wages, with one leading to higher investment and the other to higher employment. Of course, the logic behind that is hard to sustain, and the evidence regarding this kind of structural reforms is very clear about their failures. Expect lower wages, and higher poverty in old age. And no growth.

The rest is based on the vague rhetoric of the minimal state, meaning spending less (and also taxing less), liberalization and privatization, with a strong geopolitical alignment with the United States (meaning leaving aside even right wing governments in Latin America, like Macri in Argentina). The question is whether they will really promote fiscal adjustment. Paulo Guedes, the incoming minister of the economy (with the finance and planning ministries unified) has suggested that a zero deficit will be pursued (an idea that seems that of an ideological fanatic rather than someone with experience in this matters). It also seems that there will be a greater willingness to allow for a more depreciated real, perhaps creating an exchange rate target. Note that these discussions were very superficial and went hand in hand with the revived idea of using the external reserves for financing the buying of public debt in reais.

I'm more skeptical than Luis Nassif about the the possibility of higher growth related to the competitiveness of a depreciated real. Btw, this was a well-known New Developmentalist proposition, and I'm not sure how it fits with Guedes's Chicago Boy credentials. At any rate, if that happens expect more inflation, and additional contractionary effects of the depreciation. On the second point, the use the reserves to pay down debt in reais there is nothing good to say. It's preposterous. There is no need to use dollars to finance debt in domestic currency. And the whole point of that huge pile of dollars is to avoid a crisis like the Argentine one.

Perhaps, the last two issues that I want to emphasize are the more important ones, and somewhat counter intuitive, relating to his relation to populism and corruption. There is a widespread view that the incoming president is nationalist and that somehow links him to other right-wing populists in the world, like Trump. While it's true that his origins are in a sort of right-wing militaristic nationalism, it is clear that he was willing very fast to shed any ideas regarding the protection of national economic interests. His economic policies will promote free trade and privatization, and will go in the opposite direction of the global trends. Unlike Trump that has been somewhat nationalistic in his trade renegotiations with the North American partners and more clearly with China, Bolsonaro will give up any leadership role in Latin America and discard Mercosul. In part that is the result of Bolsonaro adapting to the needs of the political system in Brazil, and understanding that in order to get elected he would have to signal to the local elites his willingness to promote neoliberal policies.

And that's the most important thing that everybody missed with his election. No, he is not the result of the vote of people tired with corruption. Some (perhaps many) uninformed voters might have that as their main reason for voting him. He's an entrenched politician, with almost three decades in congress (even if an irrelevant one). Bolsonaro is the enthronization of the corruption, meaning the normal back and forth pork barrel politics that allows for policies to be passed in congress. He is the product of that. The elites thought they could use congress, for the impeachment, and the Car-Wash (Lava-Jato) operation against corruption to deliver the government to a PSDB candidate. They failed partially. Bolsonoro rather than the PSDB was the lucky inheritor of the destruction of Brazilian democratic institutions.

But the coalition that was behind the coup is still in power. That is clear with the acceptance of a cabinet position by Sergio Moro, the Car-Wash judge.* That is, the same coalition that allowed all administrations to govern since the return of democracy will be put in place with an increasing role of smaller parties (many connected to Evangelicals; this should be part of another discussion, since it did have a role in his rise, but here again he used that more than representing these movements). And the corruption will continue, but it will not be investigated.

People that voted for him were tired of the inability of PSDB to win elections, and they were essentially anti-PT because they hated the social improvements of the good decade of growth and inequality reduction. The key to the victory was wiping out of one third of the vote, creating high levels of abstention. These are people in the middle, that decided that between a right-winger flirting with authoritarian rule and PT there was no good alternative (and the media, including the international one, facilitated that message). Perhaps, the epitome of that behavior was the ex-president Fernando Henrique Cardoso. Even Cardoso, that Bolsonaro had suggested in the past should have been murdered by the military, said he would not vote for him, but did not endorse Haddad, the PT candidate.

So in my view, the one third of the vote indicates that PT will remain, in spite of all these pressures, the main left of center party in the country in the near future. PT is NOT dead (we will see in the next few years, but that's my bet). Second, expect neoliberal policies to worsen the economic crisis in course. Bolsonaro is not a nationalist in the mold of Trump, although he has authoritarian tendencies, and democracy is at risk. And he is the result of a corrupt bargain to promote the return of the same ruling elites that were in place before PT. How long can he govern without economic recovery, you may ask. Look south to Argentina for an answer. Three years into a disastrous administration it's still unclear that the Peronist left could mount a viable alternative in next year election. So we will have very though years ahead.

* He is the judge responsible for Lula's process, and that paved the way to Bolsonaro's victory (even though he probably preferred a PSDB victory) is going to be the equivalent of the attorney general, the minister of justice.

Tuesday, October 23, 2018

The Global Crisis: Beyond Secular Stagnation

My talk last year (2017) at the Critical Economics Summer School of the Unviersidad de Valldolid (in Spanish). It was great to meet and interact with lots of progressive thinkers in Spain.

Symposium on "Milton Friedman’s Presidential Address at 50"

Here all the links to the papers of the last issue of the Review of Keynesian Economics:

Sunday, October 21, 2018

The budget, the fragile recovery and the next recession

I'm not a forecaster. I do macro, and worked for Wynne Godley at the Levy, but I feel that there are too many dangers in forecasting. Wynne was also, btw, more concerned with what he called medium term scenarios, than pinpointing when a recession would take place. The obvious joke applies here. Economists have predicted 10 of the last 9 recessions. Having said that let me do the exact opposite and throw caution to the wind.

So I'm going out on a limb here. Everybody thinks the recession is around the corner. I'm more skeptical. Let me start by looking at what Martin Wolf has said in his last column, since he seems to be close to what consensus views would argue. He resuscitates old views about confidence cycles. For him: "Bull markets, it is said, climb a wall of worry... so much optimism was already in the prices of financial assets — in the US, above all — that once worry returned they had nowhere to go but down." He suggests that a "jump in risk aversion" might trigger the recession.

Worse, he suggests, following the IMF (that has changed its mind, according to many), that the US government has not helped by embarking on a highly irresponsible, pro-cyclical fiscal expansion on top of what the IMF labels 'already unsustainable debt dynamics'." In other words, expansionary fiscal policy will promote a crash by sapping the confidence of financial markets. Presumably we need sound finance.

The worst risk for him comes from populism, particularly in the US. He notes:
"The biggest shift of all is in the US. Last week, President Donald Trump broke a longstanding taboo by condemning recent tightening by the Federal Reserve. Under him, the US has also embarked on an assault on the World Trade Organization’s dispute settlement system and an open-ended trade war with China."
As I noted in my previous post on this, the biggest risk in my view comes from monetary policy in the context of a relatively fragile and slow recovery, even if it is a very prolonged one. The yield curve (see below; I use the Fed Funds and the 10 year bond rather than the 10-2 spread, since the Fed Funds is more clearly a policy rate, and gives you the result of policy actions) is closing, but if the Fed does not raise the basic rate too fast, there is a chance for the slow expansion to continue.

Note that there are other indicators that suggest that even though the recovery is not great, it may continue for a while. For example, if one looks at Gross Fixed Capital Formation, it is clear that an initial downturn seems to have subsided (like in the mid-1980s), and that the system got a second wind.

Capacity Utilization in Industry shows a similar picture. Note that this does not mean that the recovery is strong by any means. But last week the news, in spite of the unstable financial markets, were if anything indicating that the economy may continue on this path. I'm referring to fiscal news.

The budget deficit increased. That in and off itself says nothing, since the deficit is endogenous. In part the deficit went up as a result of tax cuts (a lot going to corporations and the wealthy). But also higher spending, quite a bit on defense. So there is a lot to complain about how money is being spent and how taxes are being collected. But that provides a modicum of stimulus. Trump, one should note, actually was more accurate on this than Wolf. He said that there is no fiscal danger, and that the US runs no risk of default (so why would financial markets be concerned with that), since the US can print money. Note that printing money might have consequences, but these are not the ones orthodox economists often suggest (see more here).

Contrary to Wolf I don't think that the trade wars would affect significantly the US economy. It might affect China, and certainly will have effects on the supply chains of US corporations. It might lead to higher prices, but it's implausible that it would bring the economy to a halt. The American economy depends on domestic demand. Nothing much will be affected by the trade war on that front. Also, while I think that student debt (and car loans too) are out of control, and will have implications, it's not clear that these, by themselves would cause a recession, in the way that mortgage loans did last time. They might not affect domestic demand to the same extent, at least not in the short run.

If there is a risk (besides monetary policy) is the persistence of financial speculation and the shadow financial sector, as represented by for example Collateralized Loan Obligations (CLOs), which have been going to high risk non-financial corporate firms (like Sears). But that does not mean that a recession is around the corner, and this weak recovery can (arguably) prolong itself for a few more quarters. Hey, conceivably it might go on until the 2020 election, giving Trump a serious shot at reelection (and that's not a happy thought).

Thursday, October 18, 2018

US technological hegemony

Where the Digital Things Are

I have suggested for a while here (this entry from May 2011) that deindustrialization in the US has not meant a decline in technological hegemony. Consider big tech digital firms in that respect. From the new Trade and Development Report:
The widening gaps across firms have been particularly marked in the digital world. Of the top 25 big tech firms (in terms of market capitalization) 14 are based in the United States, 3 in the European Union, 3 in China, 4 in other Asian countries and 1 in Africa. The top three big tech firms in the United States have an average market capitalization of more than $400 billion, compared with an average of $200 billion in the top big tech firms in China, $123 billion in Asia, $69 billion in Europe and $66 billion in Africa. What has been significant is the pace at which the benefits of market dominance have accrued in this sector: Amazon’s profits-to-sales ratio increased from 10 per cent in 2005 to 23 per cent in 2015, while that for Alibaba increased from 10 per cent in 2011 to 32 per cent in 2015.
For a country in decline, the US corporations are doing surprisingly well. Again, the problem of deindustrialization is one of the consequences for working class people, and inequality. American corporations, capitalism if you prefer, is doing fine. Workers not so much (and hence Trump).

Sunday, October 14, 2018

Brazil is Falling Under an Evil Political Spell

By Thomas Palley (guest blogger)

Brazil is falling under an evil political spell. The leading candidate in the presidential election is Jair Bolsonaro, an extreme right-wing politician. It is as if voters are sleepwalking their way to destruction of Brazilian democracy. Under the spell’s influence, they have become blind to the truth about Brazilian politics and blind to their better nature.

Read rest here.

Saturday, October 13, 2018

Bob Solow on Friedman's Presidential address and the natural rate failure

His full paper was published in the Review of Keynesian Economics. He reminds us that it was a talk to undermine 'eclectic Keynesianism' about which he says:
Milton Friedman's famous presidential address of 1968... aims to undermine the eclectic American Keynesianism of the 1950s and 1960s, the habits of thought to which Joan Robinson attached the (unintentionally) complimentary label of ‘bastard’ Keynesianism. I will only say a little about what that was. In fact, the adjective ‘eclectic’ is meant to remind you that it was not a tight axiomatic doctrine but rather the collection of ideas in terms of which people like James Tobin, Arthur Okun, Paul Samuelson and others (including me) discussed macroeconomic events and policies.
More substantively, he argues, correctly my view, that Friedman's misperception model was not accurate, and that the Volcker shock was not caused by any misperception. In fact, Solow suggests that:
So the Fed was in fact able to control (‘peg’) its real policy rate, not for a year or two but for at least six years, certainly long enough for the normal conduct of counter-cyclical monetary policy to be effective.
Note that this is the real, not nominal rate. But perhaps Solow's most important conclusion, drawing from the evidence and Blanchard's more recent contributions is that: "findings imply that there is no well-defined natural rate of unemployment, either statistically or conceptually." In that regard, I think that Solow goes further than Blanchard, and I'm glad he does.

Sunday, October 7, 2018

The Brazilian Election or Brazilian Fahrenheit 11/9

#nothim protest in São Paulo

This is, hands down, the most important election in Brazilian recent history. Haven't seen any exit polls, but if the last polls are trustworthy expect a second round between an openly fascistic candidate, Bolsonaro, and the Workers' Party (PT in Portuguese) and Lula's candidate Haddad. Maybe Ciro Gomes has a shot. The US and international media have been part of the problem, in all fairness, for the rise of Neo-Fascism. They suggest that Bolsonaro is not acceptable (like many in Brazil that have protested, pictured above), but they suggest that the Workers' Party is as dangerous and radical, but on the left of the political spectrum. Red scares continue to dominate the media decades after the collapse of Soviet communism. It's a bit tiring.

Note that as I argued in many posts in the past the Brazilian situation is not the result of an economic crisis, fiscal or external. No real economic problem existed. It was, and it still is, a political crisis. Corruption exists, but it is also not the problem. That's what right wingers have used as a political instrument to counter their inability to win elections. The main cause of the political crisis is the result of the moderate improvement in social conditions and inequality during the PT administrations, and the backlash that this has caused in segments of the middle and upper classes.

Interestingly, Dilma Rousseff, the impeached president, is not accused of anything and might have a shot at the Senate seat held by Aécio Neves, her rival in the last election, who is trying desperately to win a seat in Congress to avoid being prosecuted (contrary to Lula, that has been jailed as a result of someone saying he owned an apartment, without a single shred of corroborating evidence; Aécio is recorded asking for a R$2 million bribe, suggesting his cousin would pick it up, since it was a person he could trust and kill if he opened his mouth, and the cousin was later filmed and caught with the money).

It is far from surprising that the Workers' Party is still in the dispute, and might win. Life conditions for the vast majority did improve in their governments (even if there is a lot to criticize in their policies). And they did win the last four elections. They are responsible for a frustrated right wing base that cannot win elections and resents social improvement. But the responsibility for the rise of Neo-Fascism in Brazil should all be placed squarely with the Brazilian Social Democracy Party (PSDB), the main alternative to PT, that failed to win elections since 1998 (20 years now), and to abide by the democratic rules when loosing.

Besides, the justice system is now seen by many as a corrupted system itself, and the impunity of proven corrupts within PSDB has sapped their support within the middle and upper classes. That empty space has been occupied by Bolsonaro, that claims to be anti-corruption, as Collor did back in the 1990s, and is probably all but. PSDB will probably collapse as the main opposition party after this election. And the middle and upper class are as a result left with a more radical and authoritarian alternative.

In this respect, the Brazilian situation is not very different than the American one discussed by Michael Moore in his last movie Fahrenheit 11/9. Sure there are many reasons for the rise of Trumpism. But the elites in the Democratic Party have an important part in that rise. So-called liberals that did not respect democracy (e.g. the fact that all West Virginia counties went for Bernie, but Hillary got the delegates), or pushed and defended Neoliberal policies (e.g. the shocking role of Obama in the Flint catastrophe) were central to explain what happened (and more important than Russia).

In similar vein, many PSDB intellectuals that had a lot of pride about their fight against the last dictatorship in Brazil, are co-responsible for perhaps helping lead to a new one (since many in the Bolsonaro camp, including him, have suggested they would not accept the results if they loose). Aécio was explicit about not accepting the results of the elections in 2014. And PSDB supported the coup, hoping to be able to win elections as soon as PT was tarnished as corrupt. From jail Lula has defeated them once again. Decent people around the globe now hope he can defeat Fascism too (if he has a chance).

But the blame for this is all in the hands of the supposedly reasonable and well-behaved Brazilian Social Democrats. And the US media, by suggesting that PT is as despicable as the Neo-Fascists is helping them too. If Bolsonaro wins, you know who is to blame.

At any rate if you are interested in digging any deeper go read my previous posts, going all the way back to December of 2015, that chronicle the unfolding of the crisis:
  1. Goodbye Lula, Hello Failed State
  2. The Strange Death of Progressive Brazil
  3. The Mediatic-Parliamentary Coup in Brazil
  4. Brazilian coup and US misinformation
  5. Some thoughts on the impeachment and the right wing turn in Brazil
  6. New York Times on the Brazilian coup... I mean impeachment
  7. The strange and misunderstood reasons for the Brazilian crisis

Friday, October 5, 2018

Trumponomics and the next recession

Progressives for balanced budgets and free trade

It was the best of times; it was the worst of times. Or that is what you would think if you follow the economics press lately. Sebastian Mallaby has a column on Trumponomics a while ago, suggesting Trumponomics is not working. I wouldn't disagree with the verdict, but the explanation is far from correct, and that is a common feature of discussions of Trumponomics in the media, and frankly by many progressive (not just liberal, in the US sense of the word) economists. On the other hand, you can expect a lot of praise in conservative circles (and bragging from the Trumpsters) about the unemployment level reaching 3.7%, the lowest since the Kennedy/Johnson boom of the 1960s. Many would say we are at full employment, and in a sense they might not be wrong (I think it's debatable; more on that below).

The question is then how things can be both good and bad. First, let me explain the more obvious, the labor market story. The recovery from the 2008 crisis has been long and slow, as it is well-known. And it is unclear what impact Trump's tax cuts will have, but it is highly unlikely that they would lead to any significant acceleration of growth, if past evidence is a good guide. So the current low unemployment level is the result of a process that started with the Obama fiscal package and has proceeded at a slow pace pushed essentially by consumption (after the initial fiscal stimulus). And that's why it has not been a more robust recovery (it remains very slow, even in the two Trump years).
This is reflected in an employment to population ratio that is still below the previous peak, even if now recovering. In other words, the participation rate in the labor market remains relatively low. And, hence, wages have not yet started to pick up significantly, and inflation remains subdued, which casts at least doubts about the meaning of full employment.

This suggests that we would need more fiscal stimulus, and not austerity. That's one concern I have with some critics of Trumponomics. That they presume that fiscal deficits and Trump's tax cuts are both bad. I would suggest that the latter is certainly bad, for distributive reasons. But deficits in the current situation in which the recovery has not raised all boats is far from a problem. I think it was Barbara Bergmann (citing Alvin Hansen) that said that the full employment deficit was the fiscal deficit necessary to bring the economy to full employment. We are probably not there yet. Btw, this is what used to be called functional finance and Trump's critics should learn about it.

Some critics, like Mallaby, are concerned with the trade wars. Here too I'm a bit worried about the positions taken by critics. Progressives have complained about Free Trade Agreements (FTAs) for a long while now. And also criticized the concept of Free Trade (see here for a list of entries in this blog). Mallaby, for example, suggests that the trade war with China, and the new version of NAFTA (USMCA now), which is worse for him than the original (the name for sure, Moreno-Brid suggested at a conference in Mexico this week MEXCUSA, a good pun in Spanish), would reduce productivity and growth.

I still don't have a full picture of the USMCA deal, but it seems that beyond the clauses about North American content and percent being produced with higher wages in the auto industry (both clauses that seem to favor the US and not Mexico), the liberalization of Canadian dairy industry, and tighter restrictions on generic medications (all of which seem to favor US corporations against Canadian citizens), the most important is the one that allows any member country to essentially veto free trade agreements with non-member countries. That is, most likely, a clause for the US to veto FTAs with China.

In that sense, USMCA is just an extension of the trade war with China. I don't want to write much on this, but it seems to me that the US finally decided to revert the opening policy towards China, that harks back to Nixon, and to take the Chinese challenge (and at this point it's just that; I don't see a Sinocentric world any time soon) seriously. In all fairness, it seems to make a lot of sense, from an American security position to make it difficult for Chinese firms to go about the process of catching up, which includes acquiring companies, reverse engineering, violations of copyrights and patents, industrial espionage and more. And yes, there will be disruption of the commodity chains. For example, maybe Apple will move some of its i-Phone production out of China into other developing countries in the region (don't think many manufacturing jobs will return to the US though). But productivity won't suffer much.

If you're concerned with productivity, fiscal policy and its impact on growth should be a greater concern to you. Expansion of demand is what pushes labor productivity (productivity is not the cause of growth, but the result; search the entries on Kaldor-Verdoorn Law in the blog). The slow recovery is the problem.

Finally, I'm still unsure about when the recession will come, but neither the fiscal or trade fronts, which are the ones attacked mostly by Trump's critics seems to be the crucial problem. Monetary policy might be though. If the Fed continues to raise rates, something they suggested they would do, then there is a serious possibility of a crisis ahead. Higher rates would affect the already overextended American consumer, and lead to a recession. Nothing like the last one, I think. And the Fed would be forced to reverse course pretty soon. But the Fed remains independent, also something that old critics of the concept have embraced in the Trump era.

Sunday, September 30, 2018

On Sraffa and the History of Economic Thought

Mongiovi, Girardi, McColloch and Vernengo

Bill McColloch, Keene State College (Guest Blogger)
Opening comments, "Roundtable on Sraffian Economics as Part of the Radical Political Economics Tradition," URPE 50th Anniversary Conference, September 28th, 2018.
What should the purpose of studying the history of economic thought be? That purpose doesn't, of course, have to be singular, but it's a question that I regularly feel pushed to answer as I often find myself teaching undergraduate courses in the history of economic thought, as I'm sure many of us do. At one level I feel fortunate to find myself in a heterodox program that welcomes the study of the history of economic thought, and in fact requires our undergraduates to take a course in it. But I also feel the need to justify the course's place in the curriculum. Indeed I normally spend the first day of class questioning, with students the larger purpose of the course. Some arguments seemed destined to fall on deaf ears. As Sraffa suggested of the Classical economists at the outset of his lectures on the advanced theory of value, “the best thing would be to read them in the original – I'm sure you would find them more readable and less abstruse than the modern economists, but I suppose there's very little chance of inducing anyone to read them” (Sraffa Papers, D2/4). Certainly we ought to reject the old claim of Pigou that the HoT is little more than a litany of “the wrong ideas of dead,” but what can we say in its place? Some heterodox historiography exhibits an understandable tendency to treat the history of economic thought as a genealogical project. We want to feel rooted in the past, to feel that we're not quite so alone, or that we were not always so isolated from mainstream discourse. In some cases then, HoT therefore becomes a search for this or that prescient and neglected thinker to remind us that once, is some far off and idealized past there was a more open, more pluralist economics. Thus we tell stories about the heyday of old Institutionalism or of the historical schools and recall times when, to borrow Keynes' phrase, “the weather was delightful and the mind free to be fertile of new ideas.” I worry not only that such an appeal in likely to be entirely lost upon students, but also that this renders it even easier for the mainstream to dismiss or marginalize the history of thought as a pursuit for indulgent specialists.
Already in 1929 Sraffa plainly expressed disdain for these approaches. In his view we must not overlook “the fact that economic theories, whether ancient or modern, do not arise out of simple intellectual curiosity of finding out the reasons for what is observed to happen in the factory or in the marketplace. They arise out of practical problems that present themselves to the community and which must be solved. There are opposite interests which support either one solution or the other and they find theoretical, that is universal, arguments in order to prove that the solution they advocate is conformable to natural laws, or to the public interest, or to the interest of the ruling class or to whatever is the ideology that at the present moment is dominating.” He goes on to suggest that it is only later, as theories undergo some evolutionary process, that they come to be regarded as the outcome of impartial inquiry, and comparatively unassailable for that reason. Sraffa's work is thus a reminder that economic theory is both infused with ideology, and that it is contestable. It is a reminder that the study of the history of thought should not offer a picture of the smooth and orderly ascendance of incontestable truths, but of the rifts, ruptures, and debates that continue to animate the discipline.
Sraffa also suggests that the outcome of our study of the history of thought should not be absolute fealty to the ideas of any one thinker. He rightly suggests that in our study of Ricardo we should recall the it was the distribution of the total product between landowners and the remainder of society that was his principal focus, not the division between wages and profits. Ricardo's own views changed over his lifetime, but as Sraffa suggested, “however the historical point as to the interpretation of Ricardo is's true to say that Ricardo's views on this point are not very important” (Sraffa Papers, D2/4). Though the question may be central to our own historical moment, it was less so for Ricardo, and played only a minor role in his theory.
In Sraffa's mind Marx's great victory was to have rediscovered the essential meaning of the classical system in an era in which it was increasingly lost to all observers. On Marx's basic triumph, he notes that it was “[s]till more terrific [that] in the middle of the 19th century, a man succeeds, either by accident or by superhuman effort, in getting again hold of the classical theory: he improves it, and draws its practical consequences from it” (Sraffa Papers, D2/4). We might appreciate then that Sraffa's achievement was to draw out a few of the essential elements of classical political economy, and of Marx. What then should be regarded as essential in our own age from Marx? It seems to me that the correct thesis is that capitalism rest upon exploitation, an exploitation of human beings and of nature, and that is remains the task of economics today to speak to this reality and its consequences. Whether Marx's own proof of exploitation can be shown to be true is perhaps of negligible importance. The central suggestion of Sraffa's work, that profits are not the reward of abstinence, or a payment according with the illusory marginal productivity of capital, but instead the portion of the surplus product extracted from those that “concur in its formation”
Archival efforts to more clearly reveal the genesis of Sraffa's own ideas are laudable, and testify to the importance of Sraffa's engagement with Marx as a sustaining motive force in the work that culminated in the Production of Commodities by Means of Commodities. But is it important to ask if Sraffa was ‘really’ a Marxist? I would suggest not. Similarly, Sraffa's well-reasoned and foundational criticisms of neoclassical theory have been rehearsed and staged for nearly six decades, to no great destructive effect. In Sraffa's own spirit it seems more important to ask what what “practical consequences” we can draw from this work today. One simple suggestion is that our theory of the functional distribution of income must be institutional and sociological. Insofar as the pace of accumulation is understood to depend on this functional distribution of income, or on the sources of autonomous demand, any non-neoclassical growth model is, at its foundation, an institutional theory of growth. Thus rather rather binding ourselves to a singular approach we might recall Sraffa's suggestion that “[o]ur metaphysics is in fact embodied in our technique; the danger lies in this, that when we have succeeded in thoroughly mastering a technique, we are very liable to be mastered by her” (Sraffa Papers, D3/12/4).

Saturday, September 15, 2018

Dollarization in Argentina?

So I have no insider knowledge on what the Argentinean government plans to do. And the White House is a mess; they don't have any knowledge on what they plan to do. But Larry Kudlow, the Director of the National Economic Council, said that the Treasury is deeply involved in a plan to dollarize the Argentinean economy (Guillermo Calvo, an influential conservative economist, has also spoken in favor of dollarization; see here in Spanish).
He supports a Currency Board to solve the run on the currency, and the long-term external problems. That worked well in the 1990s, he said, without a hint of irony. The notion is that the problem, again difficult to believe this type of stuff is still around, is a fiscal problem. So, no fiscal deficits, no printing of money, no inflation, and no depreciation of the currency as the proportion of pesos to dollars increases. The logic of full employment (neoclassical theory), monetarism (Quantity Theory of Money), and a version of Purchasing Power Parity for the determination of exchange rates. It is all very simplistic.

Of course Macri's government promised to do a fiscal adjustment, and to block the central bank to lend to the treasury. But the real problem is external. There is a long-run problem of sustainability of the current account (as I noted earlier). But the real problem now, in the short-run, is the lack of reserves and the forthcoming obligations in dollars (not in pesos). My take on currency crises as being related to external problems here (and the paper here; note that this is about the long-term or fundamental causes, not necessarily the short-run crisis like the one in course now).

I should also say that the fiscal problems that exist have been caused by the government, and not only have nothing to do with the external crisis, they are instrumental, in some sense, in promoting the austerity cuts that allow for the reduction in social spending. As I noted even before the Macri governments started in 2015 (when I wrote it, but published in January 2016)*:
"the coming larger fiscal deficits will most likely be used to try to cut social welfare expenditures, which increased significantly during the administration of the outgoing president Cristina Fernández and her predecessor (and husband) Néstor Kirchner. It would not be surprising if Macri tries to privatize social security once again, something that Menem accomplished in the 1990s, and which had to be reversed in the 2000s as a result of the private system’s complete failure to provide a decent retirement for seniors."
And that is essentially what dollarization would be there to do. Tie the government's hands and help promote an even more brutal fiscal adjustment than the one the IMF (that, yes, has changed a lot, has it not?) can help impose. Why go to the US Treasury, you ask; because it can provide enough dollars to guarantee the stabilization of the currency, and perhaps some lower inflation (by stoping the pass-through to domestic prices), giving Macri or a right wing candidate a fighting chance next year in the presidential elections.

However, dollarization would not solve the long-term current account problems, it will intensify them in fact, and a new collapse like the one from 2001-02 would be inevitable. Argentinean elites, you might think, keep committing the same mistake over and over again. But there again, from their perspective this is fine. The crisis only hits the poor (and the middle classes that are still somehow afraid about the devil of populism). Macri complains about the Kirchner legacy (three years into his government), but dollarization would be truly a terrible legacy. Oh well.

PS: The government has denied plans to dollarize. There again he said in 2015 he would not devalue the currency.

* I also predicted the contraction and the devaluation, which Macri firmly denied back then.

Friday, September 14, 2018

The Godley-Tobin Lecture

Tobin and Godley

The Review of Keynesian Economics (ROKE) created of the Godley-Tobin Lectures, an annual lecture to be delivered at the Eastern Economic Association meetings. James Galbraith provided the first lecture, to be published in the first issue of 2019.

Wynne Godley and James Tobin represent the best among Keynesian economists. Both scholars insisted they were non-hyphenated Keynesians, meaning Keynesianism transcends the political disputes that often accompany economics. There is a deeper scientific validity to Keynesianism, something we reaffirmed in our inaugural statement of purpose for ROKE [see Palley, Rochon, and Vernengo, 2012].

Wynne Godley was an Oxford-trained economist, influenced by Philip Andrews and the views of the Oxford Economic Research Group on full-cost pricing. He was also a Treasury economist and Head of the Department of Applied Economics, University of Cambridge. He is remembered for the sophistication of his stock-flow consistent macroeconomic models that gave him a prescient sense of the unsustainability of the and housing bubbles in the 1990s and 2000s. Godley died in May, 2010.

James Tobin was educated at Harvard University and spent most of his career at Yale University. He was also a member of the celebrated Council of Economic Advisers (1961-62), during the Kennedy administration. His accomplishments and contributions to the profession are too many to cite, but it is specifically worth mentioning that he won both the John Bates Clark Medal (1955) and the Nobel Memorial Prize in Economic Sciences (1981). Tobin died in March, 2002.

Tobin and Godley shared an interest in stock–flow consistent macroeconomic modelling, a belief in the appropriateness of macroeconomic modelling based on aggregate functions rather than microeconomic parable models, and a belief in the importance and feasibility of full employment.

The Godley-Tobin lectures are intended to celebrate the intellectual achievements of Wynne Godley and James Tobin. We also hope the lectures will contribute to advancing their macroeconomic approach and interests, and help rescue macroeconomics from the narrow theoretical frame within which it is currently trapped.

The editors of ROKE [Tom Palley and yours truly] are pleased to announce that Robert Rowthorn has accepted to give the second annual Godley-Tobin lecture at the 2019 meetings of the Eastern Economic Association, in New York City. Professor Rowthorn is Emeritus Professor of Economics at Cambridge University and a life Fellow of King’s College.

He was also a long-time colleague of Wynne Godley at Cambridge University.

Job Guarantee Programs: Careful What You Wish For

Thomas Palley (guest blogger)

Some progressive economists are now arguing for the idea of a Job Guarantee Program (JGP), and their advocacy has begun to gain political traction. For instance, in the US, Bernie Sanders and some other leading Democrats have recently signaled a willingness to embrace the idea.

In a recent research paper I have examined the macroeconomics of such a program. Whereas a JGP would deliver real macroeconomic benefits, it also raises some significant troubling economic and political economy concerns. Those concerns should be fully digested before a JGP is politically embraced.

The real benefits of a JGP

The starting point for discussion should be recognition that a JGP delivers multiple benefits. First, it ensures full employment by making available a job to all who want one on the terms specified by the program. Second, it substitutes wages for welfare benefits to workers who accept such jobs and would otherwise be on welfare. Third, it may deliver supply-side benefits to the extent that it helps unemployed workers retain job skills and avoid becoming detached from the labor force during periods of unemployment. Fourth, society benefits from the services produced by workers holding guaranteed employment jobs. Fifth, it has significant desirable counter-cyclical stabilization properties.

Read rest here.

Saturday, September 8, 2018

Prebisch manuscripts for his classes on economic dynamics

There is a trend in the history of economic thought field to depend more on archival research. It is certainly nothing new, since some of the best research in the history of ideas, e.g. Sraffa's reconstruction of Ricardian theory, was essentially dependent on archives. The publication of Keynes collected papers have also sparked a wealth of interpretations about his theories, not all worth reading. I have done some research in Marriner Eccles archives at the University of Utah.

In part, this trend results from the fact that there is increasingly more archival material for modern economists that are closer in time to us. Letters, unpublished papers, class notes and so on. That might be useful sometimes, but it can also lead to lamppost driven research or the streetlight effect, where researchers just look at where it is easier to find results, rather than to what really matters.

At any rate, Prebisch's 1948 classes at the University of Buenos Aires, from a few years after he was let go from the Argentinian Central Bank, and before he went to the Economic Commission for Latin America (ECLA, later ECLAC), on Economic Dynamics are (in our view) relevant because they do shed some light on how he thought about economic dynamics, a theme that was central for the theories and the policy action of ECLAC which did have a significant impact on how government in the region managed their economies in the 1950s and 60s.

They have now been published by CEPAL Review with an intro with Esteban Pérez. Link here. With Esteban we have this paper in English on Prebisch and his views on economic dynamics.

Tuesday, August 28, 2018

Economic and technological determinism

Mind blowing stuff

A while ago now I discussed technological determinism, and the existence of economic laws, even if not in the same sense that in the so-called hard sciences. This semester I'm teaching a class for first year students (non Econ majors, to clarify for those outside the US) titled somewhat facetiously 'From Fire to Uber.' In fact, the first reading is Heilbroner's 1967 paper discussed in the first link provided above, on whether machines make history.

Bob was on the side of technological determinism. The epigraph was Marx's famous dictum according to which: "the hand-mill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist." And he essentially argued that the computer (he also discussed atomic energy technology, but not biotechnology. The computer, the bomb, and DNA were all part of the immediate techno-scientific developments of the post-war period) would essentially gives us the society with the technician. In fact, reading recently David Graeber's new book (original discussion here), on bullshit jobs, I was reminded of Bob's prediction. Bullshit jobs are essentially the result of the 'computer mill,' that gives society with the bureaucrat.*

Heilbroner and almost anybody else that uses that particular citation of Marx seems to suggest that historical materialism, or Marx's conception of history, requires technological determinism. While it is clear that the idea that the economic structure determines the cultural, political and social superstructure of society is a type of economic determinism, it is less clear to me that Marx accepted technological determinism. And as I noted in a previous post, Marx's conception of history, even if permeated by some economicism (I seem to recall that John Kenneth Galbraith suggested that he agreed on that point with Marx, the prominence of economics, but cannot find the quote anywhere), does not imply historical determinism. Not only he has very little to say about the future of society (including communism), but also all his laws of tendency allowed for countervailing forces that could reverse the original course of events.

In that sense, Marx's economic determinism is a sort of soft determinism, which allows for sociopolitical factors to affect economic developments. Here I'm echoing Nathan Rosenberg (pp. 61-62) who suggested long ago that "Marx's position... cannot be reduced to a crude technological determinism." So one may very well ask why I think that Marx's (or Heilbroner's) soft economic determinism does not imply technological determinism. Ultimately the reply hinges on what drives technology, which is a component of the supply side of the economy, and what drives the economy, supply side forces or demand side factors.

In my view, as stated too many times in this blog, the process of growth is demand driven. The adoption of machines (investment) in general results from the needs to adapt productive capacity to demand. In that sense, the computer and the society with the bureaucrat that it created are the result of growing economy and for the most part, as much as in the case of the society with the steam-mill, the one with the computer has been heavily dependent on the role of the state. In fact, there are few sectors in which the role of the state in the development of a technology are more evident than in the case of the computer (see here, for example), the internet and the derived technologies. Sure, I'm probably, like Bob a soft determinist, but with reverse causality.

Probably population growth (which was the main, or only, source of growing demand in pre-modern societies) and the State, and more importantly inter-State warfare, have been the driving forces for socioeconomic change, and technological developments have been the result. Of course, if the Military-Industrial Complex gives you the computer, then the computer may require the bureaucrat. So there are feedback mechanisms. It's the proverbial chicken and egg story. But in my view, demand driven stories of growth break with the technological determinism of the mainstream (neoclassical) and certain Marxist interpretations of history.

* In Graeber's view is not really information technology though. Bullshitization is a development of financialized or neoliberal capitalism (I'll discuss my views on that in another post). I should add that Graeber thinks that the computer has led to a new economic mode of production that he refers to as Managerial Feudalism.

Monday, August 27, 2018

Economic Development in the XXIst century Webinar Series

This seminar series focuses on the analysis of Economic Development in the XXIst century. The notions of distribution, industrial policy and balance of payments constraints will be profoundly analyzed during these four sessions. As there is much disagreement about what drives economic development - and at the same time it is a central objective for developing economies - this question merits deep reflection. Through these seminars there will be a particular focus on the external constraints that developing economies face that make economic development challenging. Although the seminars will deal with small open economies, given that the balance of payment constraint will be part of the discussion, scholars working on the Eurozone may also find the discussion on interesting for their work.

Webinar 1 (Wednesday 09/12): Value and Distribution in a small open economy

By Guido Ianni, Ph.D. candidate at the University of Buenos Aires.

Guido will discuss what determines income distribution in these economies, and how the alternative "closures" can lead to different economic productive structures.

Webinar 2 (Friday 09/21): Income distribution and the balance of payments - Some Latin American structuralist contributions

By Ariel Dvoskin and Germán Feldman. Ariel Dvoskin is Professor of Microeconomics at the National University of Buenos Aires and Germán Feldman is Professor of Macroeconomics at the National University of San Martín.

Drawing on Latin American structuralist analysis, Dvoskin and Feldman will explain not only Value and Distribution, but also their relationship with the Balance of Payments. In this lecture, notions related to balance of payments constraints will appear so it could be interesting for those working on or worried about the Eurozone.

Webinar 3 (Thursday 09/27): Industrial policies and growth in the XXIst century

By Margarita Olivera, Federal University of Rio de Janeiro

This webinar will deal with the role of industrial policies in development in the current age. Margarita is studying the impact of international institutions, such as the WTO and free trade agreements, on the possibilities of economic development.

Webinar 4 (Wednesday 10/03): The role of Central Banks in Economic Development.

By Matías Vernengo, is full professor of economics at Bucknell University. He is co-editor of the Review of Keynesian Economics and co-editor in chief of the New Palgrave Dictionary of Economics.

The final webinar will be focus on the relationship between Central banks, inflation and growth from an historical perspective. Were Central banks instruments of the state to promote economic development once? When did everything change? Matías will try to answer some of this questions under an economic development long-run perspective.

11.00 US East Coast (gmt-4)
12.00 ARG/BRA (gmt-3)
16.00 UK bst (gmt+1)
17.00 ITA cet (gmt+2)

Register to attend: Here.

Questions can be directed to webinar-organiser, Santiago J. Gahn, YSI Economic Development Working Group

Thursday, August 23, 2018

International Confederation of Associations for Pluralism in Economics (ICAPE) Call for Papers

From Geoff Schneider ICAPE's Executive Director:

Proposals for papers, workshops and panels at ICAPE are due Tuesday, September 4th. I hope you can join us for this conference that brings together all of the heterodox perspectives.Information below.

International Confederation of Associations for Pluralism in Economics (ICAPE)
Call for Papers, Panels and Workshops
Agnes Scott College, Atlanta, GA
January 3, 2019, 7:00 AM to 5:00 PM

Gender, Race, Class and Crises:
Pluralistic Approaches to the Economic Issues of our Time

ICAPE was founded 25 years ago (in 1993) by a group of heterodox economists committed to the idea of pluralism in economics. ICAPE’s founding occurred in the wake of a plea for a “pluralistic and rigorous economics" which was published as a paid advertisement in the American Economic Review and signed by many leading economists. Today, we find the mainstream as monolithic as ever in its domination of journals and degree programs, but there are small signs of progress. Analysis of institutions and actual human behavior is displacing some of the emphasis on rational optimizing behavior of individual actors. Institutions in the U.K. are calling for new approaches to economics. Nonetheless, much remains to be done. This is particularly true when it comes to issues of Gender, Race, Class and Crises, where heterodox economists have much to say while much mainstream analysis is inadequate.
The 2019 ICAPE conference will explore the following themes:
·         Given the #MeToo and Black Lives Matter movements, the ongoing domination of the economics profession by white men, and the inadequacies of mainstream economic analysis of gender and race, what can pluralistic economists offer as an alternative?
·         Inequality continues to be a major issue of our time, and one that is central to much pluralistic analysis while being absent from much mainstream analysis. What can pluralistic economists add to the analysis of this crucial topic? How can a contemporary analysis of class, race and gender contribute to our understanding?
·         Contemporary capitalism faces recurrent macroeconomic crises and looming environmental crises. How can pluralistic economists shed light on the dynamics and possible solutions to these crises?
·         What are the major problems confronting today’s communities, and how can pluralistic approaches to economics address those problems?
·         To what extent is it possible to combine and integrate different heterodox approaches into a unified, pluralistic approach?
·         What are the best methods for teaching and conducting research in pluralistic economics?
·         How should we cope with the exclusion of pluralistic ideas from economics journals, textbooks and curricula? What strategies should we adopt?
·         What should younger scholars know about each pluralistic tradition? What are the cutting edge approaches to teaching and scholarship in each tradition?
It has never been more important for pluralistic economists to discuss robust alternatives to mainstream economics and to bolster pluralistic approaches to teaching and research.
This ICAPE conference will occur on the day before the 2018 ASSA meetings from 7AM to 5PM at Agnes Scott College in suburban Atlanta. Agnes Scott is located within a short cab or train ride from the convention hotels. The conference registration fee is $120 ($60 for graduate students/low income), which includes breakfast and lunch, along with coffee and refreshments throughout the day.
One of the purposes of the conference is to bring together economists from a variety of heterodox perspectives. There will be multiple opportunities for people to come together, including breakfast, coffee breaks, and a lunch plenary. Please plan on spending the entire day at the conference. In general, requests to schedule sessions at particular times of the day cannot be granted.
We welcome work from all strands of heterodox economic theory, including evolutionary, ecological, complexity, institutional, feminist, Austrian, Marxian, Sraffian, Post-Keynesian, behavioral/psychological, social, radical political economy, critical realism, agent-based modeling, and general heterodox. We are particularly interested in material from graduate students, sessions on pluralistic teaching, and material on the state of pluralism in economics. And, we are interested in research from any of the perspectives listed above.
The deadline for submitting proposals is Tuesday, September 4, 2018. We welcome proposals for individual papers, full sessions, teaching workshops, research workshops and roundtables. Proposals for complete sessions or workshops with a coherent theme are encouraged, especially those that are pluralistic in nature, reflecting multiple perspectives in the discipline. Those who make a submission will be informed whether their proposal has been accepted by the 10th of September 2018.
Anyone needing an early decision on their submission to secure travel funding should indicate the need for an early decision as part of their submission. Submissions will be evaluated for acceptance on a rolling basis.
ICAPE member associations are encouraged to submit entire sessions or workshops. Current dues-paying ICAPE member associations include: AFEE, AFIT, ASE, IAFFE, and URPE.
For individual papers, please include your (1) name, (2) title, (3) affiliation, (4) abstract of up to 300 words or less, (5) three keywords, (6) short abstract of 40 words, and (7) contact information (address, phone, email). For full sessions consisting of papers, roundtables, workshops, and other formats, please include the above for each contribution, as well as a title for the session, the names of the chair and discussants (if any), and the name and contact information of the session organizer.
All proposals should be submitted by email to as a Word or RTF document. Your email subject should be titled using the corresponding author’s last name, “ICAPE,” and a brief title in the subject line (e.g., “Schneider.ICAPE.Teaching Roundtable”). Please also title the Word or RTF document containing your submission in a similar fashion.
Authors who present at the ICAPE conference are encouraged to submit their papers to the American Review of Political Economy (, edited by Michael Murray and Nikolaos Karagiannis. Papers from the conference will be published in a special issue of the ARPE.
Note that ICAPE does not arrange lodging for this conference. Participants should make their own arrangements.
Please address your questions to Geoff Schneider (, Executive Director of ICAPE.
ICAPE is looking for locations for future conferences in San Diego on January 5-6, 2020. If you know of a potential location in any of these cities, please contact us.

Tuesday, August 21, 2018

Income distribution and the balance of payments: a formal reconstruction of some Argentinian structuralist contributions

A two part paper by Ariel Dvoskin and Germán David Feldman. From the abstract:

In this two-part paper, we explore the interaction between income distribution and the balance of payments, by assessing the contributions of three Argentinian exponents of the Latin American Structuralist School: Oscar Braun, Marcelo Diamand and Adolfo Canitrot. With this aim, we introduce a two-sector model inspired by the classical tradition. Part I of the article examines the implications for prices and quantities of the phenomenon of ‘technical dependency’. That is, the inelastic demand for imported inputs observed in peripheral economies, a true constraint to growth during the Bretton Woods era. We leave until Part II of the paper the assessment of the implications of ‘financial dependency’, namely the influence exerted on the profit rate of peripheral economies by the international profit rate.

Links here and here.

Friday, August 17, 2018

Distribution and Conflict Inflation in Brazil under Inflation Targeting

I can't watch this either

For those interested in the Brazilian situation I highly recommend the recently published paper by Franklin Serrano and Ricardo Summa (Review of Radical Political Economics page here). From the abstract:
In this paper, we analyze Brazilian inflation under the inflation-targeting system from a conflict inflation perspective and show how the inflation target system only worked well when there was a trend of exchange rate appreciation. Later, the strengthening of the bargaining power of workers and rising real wages since 2006, combined with continuous nominal exchange rate depreciation after mid-2011, increased distributive conflicts and are ultimately behind the recent shift toward austerity.
 A preliminary version is available here.

Thursday, August 16, 2018

A Tale of Two Currency Crises: A Short Comment

So the Turkish foreign exchange crisis is all over the news. But the Argentine one is less conspicuous in the international media. Turkey's economy has had many similarities with Latin American economies over the years, in terms of the incomplete process of industrialization, and the types of crises associated with neoliberal reforms over the last three decades. Note, however, that the Argentine nominal depreciation has been larger than the Turkish (the same is true if you go back to the previous big crisis in both countries in the late 1990s and early 2000s, respectively) and one should expect more coverage (perhaps Erdogan has worse press than Macri, but the authoritarian credentials of the latter should not be dismissed; neither the neoliberal ones of the former, I might add).
In all fairness the NYTimes does cite Argentina (and other emerging markets; not a fan of the term, as I think I discussed before on a post about... wait for it... an external crisis in Argentina and Turkey four years ago) in the piece about it today, saying that:
"For nearly 10 years now, the flood of cash from global central banks has financed shopping malls in Istanbul, booming cities in China and 100-year bonds in Argentina. Today, many of the malls are empty, property developers in China are riddled with debt, and Argentina has just submitted to a bailout from the International Monetary Fund."
That seems to suggests that the reason for the crisis is to some extent that central banks created too much liquidity (printed too much money), allowing too much spending (perhaps by the government, wink, wink, nudge, nudge, say no more: it's a fiscal problem), and that's why we are having these problems. However, the NYTimes does get the external problem, the current account, which I always suggest is the way you should go if you are looking for fundamentals (here another discussion from 4 years ago on currency crisis, this one more theoretical). The NYTimes says:
"A country runs a current account deficit if it takes in more money — in investments and trade — from foreigners than it sends to other countries. That leaves the country at the mercy of international investors to keep it afloat financially, and those investors could find other markets more enticing — particularly when emerging markets see their currencies lose value. That is precisely what forced Argentina to go to the I.M.F., the first major emerging market to take such a step during this period of uncertainty."
However, as I noted on my earlier post on the Argentine situation, while I do think that current account positions are the relevant fundamental (the other would be international reserves) for a currency crisis (and that fiscal positions are the result not the cause of a crisis, since they are in domestic currency for the most part), it worth noting that the Turkish situation is not, at least looking at recent data, particularly bad.
Note that there is a secondary axis for the Turkish current account as a share of exports (the right hand side one), and that Turkey has a much larger deficit with respect to exports than Argentina, but not one that is deterioration drastically (these are based on IMF estimates, btw). This suggests that the current account, even though it is crucial in the long run, is probably not driving the crisis (as I noted in May, I still don't the current account is the cause of the crisis; same post as above, btw).

The fact that this is a global phenomenon (the depreciation of currencies of developing countries) suggests that the hike of the interest rate in the US plays a role. It seems also that the financial deregulation and the financial position of some developing countries explain why they are having more trouble than others (e.g. Brazil, which is in the middle of a serious economic and political crisis, but sitting on top of US$ 380 billion in reserves). I haven't found more recent data (this from the World Bank goes only to 2016), but the graph below shows the short-term debt to international reserves ratio; the reverse of the Guidotti-Greenspan rule).
Clearly the ratio has been growing in both countries (mildly in Turkey) and is higher in Argentina. Argentina has also increased its debt exposure in dollars, and somewhat incredibly the central bank has announced that it will retire debt in pesos, and will use precious reserves in dollars for that (apparently with support from the IMF). This suggests that they are clueless about the causes of the crisis. The only solution at this point is higher interest rates (and in domestic currency to reduce demand for dollars) and significant restrictions on the foreign exchange market.

Sunday, August 5, 2018

Nancy MacLean on constitutional economics and the conservative movement

Author of a great book on James Buchanan, that is certainly worth reading. The whole thing is related to Buchanan's constitutional economics and how it underpins the Koch's strategy to take over the country (and Pence is their guy, btw). The American Legislative Exchange Council (ALEC) that has been so influential in the far- right conservative movement take over of US politics at the State and local level (see this old piece in The Atlantic, or this in The Nation) has a plan for a constitutional convention and for 10 Libertarian Amendments that she discusses in the video (towards the end, 3:30 minutes into it), that has for the most part gone unnoticed (NYTimes had a piece on it a couple of years ago here). In all fairness, I didn't pay much attention until she said balanced budget amendment. I always thought that the best shot conservatives had at entitlement reform (read privatization of social security) was with a neoliberal democrat as president (in the mold of Clinton and Obama). But it seems that they are pushing for other ways too.

PS: The book she refers to is by Mark Levin and the 11 amendments are these (according to Wikipedia, I haven't read the book, but will try to):
  1. Impose Congressional term limits
  2. Repeal the Seventeenth Amendment, returning the election of Senators to state legislatures;
  3. Impose term limits for Supreme Court Justices and restrict judicial review;
  4. Require a balanced budget and limit federal spending and taxation;
  5. Define a deadline to file taxes (one day before the next federal election);
  6. Subject federal departments and bureaucratic regulations to periodic reauthorization and review;
  7. Create a more specific definition of the Commerce Clause;
  8. Limit eminent domain powers;
  9. Allow states to more easily amend the Constitution by bypassing Congress;
  10. Create a process where two-thirds of the states can nullify federal laws;
  11. Require photo ID to vote and limit early voting.

Heterodox Central Banking in the Periphery

Our paper with Esteban Pérez on Prebisch's missions as a Money Doctor during the Fed-led missions directed by Triffin to Paraguay and D...