Sunday, November 26, 2023

Neoliberalism Resurgent in Argentina

Extended post with Sergio Cesaratto on the website of Brave New Europe. A comparison of dollarization with some of the effects of the euro, and the similarities and differences between Argentina and Southern European countries.

Saturday, November 25, 2023

Was Keynes a Liberal or a Socialist?

A Socialist Rag

My old Will Lyons  Lecture at Franklin & Marshall College in the Spring of 2021 is now a working paper. Prof. Lyons was a Bucknell Graduate, and a professor at F&M. The topic was based on the, at that time, recent reading of Jim Crotty's book. From the abstract:

Right-wing critics of Keynes have often suggested that he was a socialist. His policy proposals were very often described as a slippery slope that would lead society into a totalitarian nightmare. Alternatively, from the left, Keynes was often seen as a reformist that intended to preserve the essence of capitalism. His reforms were mere window dressing on an exploitative system. The scholarship on Keynes also remained divided. However, in the last few decades a more robust position in favor of Keynes’ socialist affiliation was developed, particularly in the careful scholarship by Rod O’Donnell and James Crotty. This paper suggests that while Keynes was a pragmatist willing to experiment in economic policy, and fully aware of the need to transform and transcend laissez-faire capitalism, he remained a liberal, in particular because Labourites, and most socialists, remained conservative in their economic policy outlook. Keynes was a
revolutionary in economic theory, but a moderate in his politics.

Read paper here.

Tuesday, November 21, 2023

Interview (in Spanish) with Diego Polanco about Milei and Argentina

First part of my interview with Diego Polanco on the Argentine election, and the never ending crisis of the economy. Second part in a couple of weeks.

Monday, November 20, 2023

Dollars & Nonesense: Milei and the risk of hyperinflation

Javier Milei will be Argentina’s next president. Milei is an extreme right-wing populist, with authoritarian, some may say Fascistic, tendencies. He is an admirer of Trump and Bolsonaro. He is rumored to talk with his deceased dog, that he had cloned. His party’s proposals range from the dangerous – like dollarization, the closing of the Central Bank, the drastic reduction of social spending, the loosening gun ownership laws, and the criminalization of abortions – to the insane – like instituting a market for human organs, or allowing fathers to opt out of the paternity obligation to pay parental support. Some of his views are outright despicable, like his minimization of the human rights violations of the last dictatorship. He has also has played fast and loose with all his proposals, suggesting that he may not do anything that he promised to do, with the exception of one. He has maintained that dollarization is not negotiable.

The dangers of dollarization could not be minimized. Dollarization implies getting rid of the domestic currency, and being forced to borrow only in dollars. Debt in foreign currency can only be repaid with the dollars obtained from exporting, which would limit drastically the ability of the government to borrow, in particular since Argentina is already deeply indebted with the International Monetary Fund (IMF) and private creditors, as a result of the presidency of Mauricio Macri. Macri is Milei’s main political sponsor within the Argentine establishment, and during his presidency he more than doubled the debt in foreign currency (on Macri see this paper). If the idea is to dollarize to reduce debt accumulation and the problems associated with it, it must be noted that to eliminate the central bank and the peso as the legal tender for domestic transactions does nothing to increase the exports needed to service foreign debt, which would be the only way to obtain more dollars.

If the idea is to dollarize to stop inflation, which it might do, it would only be reasonable if inflation, which is running at almost 140 percent annually, was caused by the central bank and the printing of pesos. In fact, Macri believed that was the problem, and promised to stabilize the economy back in 2015, when inflation was around 25 percent. The president of the central bank appointed by him, Federico Sturzenegger, a possible finance minister of Milei, instituted inflation targeting and prohibited the monetary financing of the Treasury. However, inflation still more than doubled and was at 50 percent at the end of Macri’s government. The reason for that is that inflation results from the depreciation of the peso, which raises the price of imported goods, and leads to demands for higher wages. Dollarization may resolve the problem by essentially precluding any depreciation of the currency.

To dollarize Milei will need to obtain large amounts of dollars. And if the dollars are obtained, the central bank could intervene in the foreign exchange rate market, stabilize the currency and stop inflation. In other words, dollarization is only possible in a context in which it would not be needed anymore. Dollarization would reinforce the problem, already exacerbated in the Argentine case, of borrowing in foreign currency.

The risk now is that Milei might announce his dollarization plans, and markets might  anticipate it, and a rush to the dollar might follow. In fact, Milei has openly said that the more the peso depreciates the better. He suggested that he would allow the exchange rate to depreciate as much as possible before dollarization, essentially causing a hyperinflation. He would cause the whole economy to collapse in order to stabilize it. He would cure the disease, but kill the patient.

Thursday, November 2, 2023

The theory of monetary disorder

 “When I discovered that the economic order produced social disorder, they took away my scholarship.”

New working paper by Tom Palley. From the abstract:

This paper introduces the notion of monetary disorder. The underlying theory rests on a twin circuits view of the macro economy. The idea of monetary disorder has relevance for understanding the experience and consequences of the recent decade-long period of monetized large budget deficits and ultra-easy monetary policy. Current policy rests on Keynesian logic whereby a large fall in aggregate demand warrants robust offsetting monetary and fiscal policy actions. That logic neglects potential monetary disorder being bred within the financial circuit in the form of inflated asset prices and leveraged balance sheets. That disorder is likely to develop long before inflation accelerates so that inflation targeting fails to protect against it. Political factors increase the policy danger as the benefits of disorder are front-loaded and the costs backloaded. The paper concludes with a policy discussion regarding how to prevent Keynesian goods market counter-cyclical stabilization policy from causing monetary disorder.

Download it here.

Wednesday, November 1, 2023

Beyond the NAIRU - 7th Godley-Tobin Lecture

The 7th Godley-Tobin Lecture will be given by Antonella Stirati at the Eastern Economic Association meeting next Spring in Boston. The previous lecture by Professor Joseph Stiglitz will be published in the January issue of ROKE.

Saturday, October 28, 2023

Argentina Between Anger and Fear

My piece in Phenomenal World on the Milei phenomenon, the possibility of dollarization, and the recent electoral results in Argentina. Read it here.

Friday, October 27, 2023

Exchange Rate Arrangements: Fix, Float, or Manage?

Updated version of a textbook chapter on exchange rate arrangements. It is for undergraduate use. From the abstract:

The paper tries to provide a concise summary of the main debates on exchange rate arrangements. It a simple taxonomy of exchange rate arrangements, fixed, flexible and managed, and a brief analysis of the main debates about their advantages and disadvantages. It emphasizes the different policy objectives of mainstream and heterodox schools of thought, suggesting that they tend to be more relevant than the specific defense of one particular exchange rate arrangement. In that sense, there are divergences on their preferences within schools of thought. The paper also discusses the causes of currency crises and the role of the dollar in the international monetary system.

Full paper can be downloaded here.

Thursday, October 19, 2023

Lucas Teixeira on Inflation

The talk here. Recording is not the best, and the Power Point cannot be seen. It is available here for those interested.

Paper is here. From the abstract:

In the overlapping global emergencies of the pandemic, climate change and geopolitical confrontations, supply shocks have become frequent and inflation has returned. This raises the question how sector-specific shocks are related to overall price stability. This paper simulates price shocks in an input-output model to identify sectors which present systemic vulnerabilities for monetary stability in the US. We call these prices systemically significant. We find that in our simulations the pre-pandemic average price volatilities and the price shocks in the COVID-19 and Ukraine war inflation yield an almost identical set of systemically significant prices. The sectors with systemically significant prices fall into three groups: energy, basic production inputs other than energy, basic necessities, and commercial and financial infrastructure. Specifically, they are “Petroleum and coal products”, “Oil and gas extraction”, “Utilities”, “Chemical products”, “Farms”, “Food and beverage and tobacco products”, “Housing”, and “Wholesale trade”. We argue that in times of overlapping emergencies, economic stabilization needs to go beyond monetary policy and requires institutions and policies that can target these systemically significant sectors.

Friday, September 29, 2023

Minimum wage

Students will have a midterm soon. There will be some questions on the very likely shutdown (using the ISLM) and the minimum wage. The figure below shows the real (deflated with CPI) and nominal minimum wage for the US since 1939.

No surprises in the story. Minimum wage in real terms peaked in 1969, a culmination of an expansion that started in the 1950s. It fell significantly starting in 1979, with the Volcker shock and the fixed nominal minimum wage during the Reagan years, and never recovered the Golden Age peak. Since the 1970s, Dems managed to increase the rate in nominal terms (Carter, Clinton and Obama), but not reverse its decline in real terms. So far Congress has managed to stop the Biden administration attempts at raising the rate. And even when procurement contracts should give the executive some power over minimum pay, conservative judges have acted to stop it.

Tuesday, September 19, 2023

Dollar Hegemony, coming soon

The dollar's hegemony rests on the economic, military, and international political power of the USA. There have been two eras of dollar hegemony which were characterized by different models. Dollar hegemony 1.0 corresponded to the Bretton Woods era (1946-1971). Dollar hegemony 2.0 corresponds to the Neoliberal era (1980-today). The deep foundation of both models is USA power, but the two models have different economic operating systems. The articles in this book explore this and consider two further questions: what is the future of dollar hegemony? And: is there a better way of organizing the world monetary order? There has been considerable speculation of a drift to currency multipolarity but, so far, there is little evidence of that. The Chinese renminbi might join or displace the dollar as the world's hegemonic currency, but that will require China making significant changes to its financial markets and monetary policy. Dollar hegemony imposes significant costs on developing and emerging market economies, but the international political economy of systemic reform is fraught, making reform unlikely.

Sunday, September 10, 2023

The menace of the myth of General Pinochet’s Chilean economic miracle

By Thomas Palley

September 11, 2023, marks the fiftieth anniversary of General Pinochet’s military coup against Chilean President Salvador Allende. While it is now widely recognized that Pinochet authorized large-scale human rights abuses, there is an accompanying narrative that he also unleashed an economic miracle via embrace of Milton Friedman’s “Chicago Boys” vision of a market economy.

The “Pinochet economic miracle” narrative is profoundly misleading. Worse yet, it is a political menace for two reasons. First, it risks tacitly promoting the notion that dictatorship may be legitimate to the extent it offers a road to prosperity. Second, the Pinochet regime embraced Neoliberalism which promotes anti-democratic tendencies by fracturing society. The claim of a Pinochet economic miracle lends support to Neoliberalism, thereby encouraging acceptance of Neoliberalism despite its anti-democratic proclivities.

For those reasons, debate over Pinochet’s economic policy remains of vital importance. The fiftieth anniversary of Pinochet’s coup is an opportunity to challenge the pernicious miracle myth which is increasingly part of the conventional wisdom.

Read rest here.

Friday, September 8, 2023

Structuralism, Classical Political Economy and Demand-led Growth


Roundtable with Esteban, and Carlos Bastos Pinkusfeld on Structuralism, Classical Political Economy and Demand-led Growth at the Instituto de Economia, at my alma matter earlier this summer.

Wednesday, September 6, 2023

Hysteresis in economics

Hysteresis, not hysteria

New paper by Thomas Palley. From the abstract:

This paper argues for broadening the application of hysteresis to institutions, policy lock-in, psychology, identity, and economic ideas. Hysteresis is an element of historical processes, and the real world is historical. That explains why hysteresis is pervasive and important. Hysteresis should be a fundamental building block of political economy. Expanding its application in economics is both an opportunity and a challenge. The opportunity is that it provides a means for incorporating political, sociological, and
psychological forces which economics tends to neglect. That will enrich economics and can also provide a mutually enriching bridge to other social sciences. The challenge is introducing such concerns raises questions about the character of economics’ knowledge claims, which is likely to trigger resistance from economists.

Monday, September 4, 2023

Serrano on conflict inflation and inertia (in Portuguese)

Must see video (but I'm sorry to say in Portuguese). The talk at the last Demand-led Growth conference not yet available was in English, but much shorter. Once that is published I'll link it here.

Sunday, September 3, 2023

Lulismo’s Past and Present

Lula da Silva’s return to the presidency in Brazil has opened up the possibility of deepening democracy and expanding the scope of egalitarian advance for the Brazilian working class. In what ways might his administration pursue expansionary fiscal and redistributive policies that would improve the conditions of his political base?

In the latest print issue of Catalyst, Matías Vernengo explores the historical and contemporary contours of Brazil’s political economy and outlines how the Lula administration can trade a restrictive economic policy for a broadly redistributive one.

Read more here.

Tuesday, August 22, 2023

On Milei's economic plans for Argentina

Sturzenegger thanks Milei for his support while he was at the BCRA

Javier Milei's victory in the primary election has set alarms in Argentina. Many suggest that this was unexpected, and in a sense, given the more recent polls, it was. Also, many have suggested that his strong showing represents a protest vote, since he is a complete outsider, and that this is a repeat of the 2001/2 protests that demanded that all established politicians were ousted (que se vayan todos). But these are at best half truths.

Sure enough the vote on Milei represents a protest, but he is not really an outsider, even if he does come from the lower middle class. He is ensconced within the Argentine establishment that nurtured him in more than one way. He is at best an eccentric outcome of that Argentine establishment.

Note that he studied at the Universidad de Belgrano, and Universidad Torcuato Di Tella, both private universities, that normally cater to the elites in the country. He worked in several financial sector institutions, including Estudio Broda, founded and managed by Miguel Ángel Broda, a Chicago economist that has been part of the Argentine financial establishment for more than five decades. He was invited and interviewed in all the main media outlets of the country for years, and always treated as an economic expert, even if often he was there for his more colorful ideas and behavior.

Also, many of his current advisors had key positions in previous administrations. Roque Fernández, for example, was both president of the central bank and finance minister during the Convertibility period in which the exchange rate of the peso and the dollar was fixed, in a similar way to dollarization.

Milei and his plans, the two relevant ones (forget some of the crazy stuff that won't happen, like stopping all trade with China), namely, dollarization and closing the central bank, are not alien to the Argentine elites that he has served over the years, and that has provided him with jobs and media space. At the end of the day, all neoliberal experiments (the Military one between 1976 and 1983, the Peronist one with Menem between 1989 and 1999 and a bit beyond, and the Macri one between 2015 and 2019) included people that share similar ideas to Milei and his advisors, and some of them were involved in the previous neoliberal turns.

Last year, at a Milei event, Federico Sturzenegger, who worked for Domingo Cavallo at the end of Convertibility and was the head of the Central Bank (BCRA) during the Macri government, while noting that dollarization was not the best solution, and suggesting that central bank independence is not enough, went on to defend a common currency (interestingly enough the same plan of Grabois, the lefty in the Peronist primary). Milei's victory, if it happens (which is still not a sure thing), and his plans would not be significantly different than the previous neoliberal plans, and the consequences would be as negative as before.*

I have written quite a bit on the negative effects of dollarization (old book on that here). I'll leave a more detailed discussion for a later post. The important thing I want to note at this point is that, if there is a way of obtaining the dollars necessary for dollarization, then that would also allow for holding the exchange rate stable, precluding a large devaluation, and even to bring down the difference with the parallel (blue) dollar. Of course, that would imply resolving not only the financial external constraint that Argentina faces now, but also dealing with the payments (in dollars) to the IMF, which, at least at this point, seem to be beyond the country's capacity to repay. Formal dollarization wouldn't solve those problems, and would generate many new ones.

* That's not the only connection with the other neoliberal experiments. In all of them there were direct violations of human rights, or explicit support for the violators of human rights, and that's true also in Milei's case.

Thursday, August 17, 2023

Some brief thoughts on Bidenomics


There has been a lot of writing about Bidenomics (a name that might stick, like Reaganomics; nobody really thinks of Clintonomics as a thing) recently. It is fundamentally about the return of industrial policy, even if I personally think that this is less momentous than what people think. Don't get me wrong, both the rediscovery of fiscal policy after the 2007-9 recession (no fiscal packages after the 1990-91 or 2001 recessions, but packages after both 2007-9 and Pandemic in 2020), and the rediscovery of industrial policy, in part because of the rise of China, and in part because of the Pandemic/Chain supply shock, are important. And Bidenomics might stick because it announces a New Washington Consensus, that at least in theory abandons the neoliberal stances of the old one (see Jake Sullivan's speech).

My concern is that on both counts, the macroeconomic or fiscal front, and on the microeconomics, or industrial policy front, rhetoric is stronger than action. Or that it will be, at any rate. I'm not trying to blame Biden (or his team) for not breaking (or not enough) with conventional views. I mean I might have my views on how lefty or progressive (or even pro labor) Biden is (he did sign vote for every Free Trade Agreement possible, but he is allowed to change his mind). My concern is how much the common sense within the Democratic Party has changed. And while the the 2007-9 recession had moved many Dems and their advisors to rethinking about the macroeconomic consensus (not long ago Larry Summers was saying posties were right, and the economy had no tendency to full employment), the Pandemic inflation has done the opposite, as I noted here.

If the lesson was that Summers had been wrong (and Christina Romer right) on the size of the fiscal package needed for a fast recovery back then, now it seems that most economists (in the mainstream) agree with the notion that excess demand (particularly the last fiscal package early in 2021, and less the Pandemic ones, but that's another story) caused inflation, and the Fed fell behind and was correct in raising rates substantially. Note that the mechanism by which the Fed would reduce inflation is the conventional one, higher unemployment, less demand, lower prices (Summers, ironically, is one of the few actually that brings up the issue of bargaining power of workers with lower unemployment). And this diagnosis remains even though the level of unemployment didn't go down (after the recovery) at the same time that inflation came significantly down.

Of course, there's room still to discuss whether the Fed (together with the freezing of fiscal spending growth for next year by Congress) will end up throwing the economy into a recession or not. But either way, part of the legacy of the last crisis will be to reinforce the conventional new consensus model. Note, however, that the political risk is huge. Because Biden is forced to defend the notion that the economy (that recovered fast from the pandemic, no doubt) is doing great. And of course, the pre-Pandemic situation was far from ideal, and there's a reason why over the last decades a right-wing, blue collar movement has emerged. On that, trade policies were central, and the new industrial policy should play a role.

On the industrial policy front, it is worth remembering the existence of what Fred Block called the hidden developmental state, which suggests that the US always did industrial policy. But I doubt that the main effect of the New Washington Consensus will be to bring back many manufacturing jobs. Most of the ones that the establishment wants to move away from China (or at least part of the establishment, Adam Posen's views suggest that some are in doubt, about the movement away from the old one) will move to other Asian countries, like Vietnam and India.

At any rate, there are some reasons to be mildly skeptical about Bidenomics from a progressive perspective. Of course, I do think this is a huge improvement on Clintonomics, which was just Reaganomics, but more fiscally conservative.

Wednesday, August 16, 2023

On Milei's victory in Argentina for Portuguese TV (in Portuguese)

I'll post more on this soon. A few things, his economic ideas show a complete lack of understanding of basic principles. That he is taken seriously by a good chunk of the Argentina media (which is responsible for his rise) is appalling. I also don't think that it is certain that he will win, but in truth the mere possibility is frightening.

Tuesday, August 15, 2023

Inflation Paranoia and the Return of the New Consensus in Macroeconomics


And inflation will remain high, very high

This was published a while ago. I forgot to link it here. Their summary:

Economists have proposed two main theories to explain the recent spike in prices. Progressives have attributed the rise in inflation to corporate greed and have suggested price controls in response. Other economists have turned back to the New Consensus in Macroeconomics that arose in the 1970s in response to steep inflation blamed on the large Keynesian fiscal expansion of the preceding decades. Matías Vernengo writes that neither camp has correctly diagnosed the problems with current inflation. Proponents of Greedflation overlook the price stability of the last few decades even as market concentration increased. On the other hand, advocates of the New Consensus similarly forget their history and the commodity shocks and price-wage spiral that were the real culprit for inflation in the 1970s. 

From my conclusion:

The inflation acceleration of the 1970s did not show that Keynesian policies were inefficient or had caused the acceleration of prices. As noted by James Tobin back then, inflation resulted from the oil shocks and the price-wage spiral. But inflation reinforced the social problems that led to the collapse of the old New Deal coalition and the Keynesian Consensus, ushering the Conservative Revolution and the New Consensus in Macroeconomics. The Pandemic inflation acceleration has undermined the revival of Keynesian ideas, and the revision of the New Consensus model that was under course. Instead of the concern with secular stagnation, we are back to inflation paranoia.

Friday, July 7, 2023

What’s driving inflation? Bucknell prof says maybe not what you think

My interview with Scott LaMar from WTFI, on inflation and the problems with demand-pull and oligopolistic inflation, for those interested in another iteration of the same. It's a bit longer than previous ones, and we go on some additional detail.

Thursday, June 29, 2023

Review of Keynesian Economics New Impact Factor

I am pleased to let you know that the 2023 Impact Factor for ROKE has gone up to 1.6 from 1.219. This puts us as one of the top heterodox journals. There are a few above, in my understanding, like the Cambridge Journal (2), and some incredibly good ones that were not ranked until recently, like the Review of Political Economy (now 1.5). One, of course, should take those ranks with some degree of caution. And old post on that here.

Friday, June 23, 2023

New directions in the Sraffian approach

 Call for Papers (ROPE)

65 years after Production of Commodities by Means of Commodities: new directions in the Sraffian approach

Guest Editor: Santiago José Gahn

Internal Editor: Sylvio Kappes

The year 2025 marks the 65th anniversary of the publication of the book Production of Commodities by Means of Commodities by Piero Sraffa (1960). Not all economists are capable of transforming their name into a legacy, into a school. Piero Sraffa belongs to this select group. Exiled from fascism, he built his entire academic career at Cambridge University, where, from a profound analysis of the classical authors, he constructed a powerful critique of the dominant marginalist theory. But Sraffa's legacy has evolved into something much more powerful over the years, where some of his disciples have extended his criticism of marginalist theory, applied his ideas to international trade, and constructed alternative theories of economic growth.

65 years after Sraffa's publication, we believe it is necessary to launch a special issue that calls for reflection on his life, his political thoughts, his friendships, his lessons at Cambridge and his archive; his intellectual legacy, and that of his followers, and the impact on economic theory today; as well as possible guidelines for extending Sraffa's thought to other fields in the future. In recent years, Sraffa's legacy has had a boom that was born mainly in the periphery or the "global south", in particular in Argentina, Brazil and India. Recently, many authors have taken Sraffa's basic outlines and combined them with Latin American structuralist thinking in an attempt to explain the limits to growth and income distribution; they have developed and extended mathematical models of economic growth such as the Sraffian supermultiplier; they have presented the main limitations to Real Exchange Rate-led strategies, among other topics. Sraffa's legacy is alive and growing.

As a way of paying tribute to Production of Commodities by Means of Commodities (Sraffa, 1960) Review of Political Economy (ROPE) is preparing a special issue. This special issue intends to collect scientific articles that present or reinforce new lines of research within a Sraffian (or classical-Keynesian) perspective.

This special issue welcomes articles on a number of topics, including:

a. Sraffa's personal history, his relationship with Gramsci and his political thought.

b. Issues related to Sraffa's intellectual development, such as: extensions of PCMC, critique of mainstream theory, analysis of Sraffa’s archive.

c. Sraffa’s intellectual legacy: the direct impact on their followers such as Garegnani and Pasinetti, among others.

d. New directions in the Sraffian approach: extensions of the Sraffian supermultiplier model, endogenous money, international trade, imperialism and unequal exchange, the method in economics, impact of economic policies on gender, race or climate change. Articles that can extend Sraffian school to Anthropology and Sociology are also welcome.

Of course, all these topics can never cover the vast universe of the impact of Sraffa's intellectual legacy, but all articles that relate to Sraffa's thought are welcome, including critical ones as well. Finally, this special issue will attempt to have a gender balance.

If interested in submitting a paper, please send a short abstract by September 15th, 2023 to both Santiago J. Gahn ( and Sylvio Kappes ( Decisions will be made by September 25th, 2023. If selected, the complete paper must be sent by May 1st, 2024.

Deadline for submitting abstracts: 15th September 2023

Deadline for submitting papers: 1st May 2024

Sraffa, P. (1960). Production of Commodities: Prelude to a Critique of Economic Theory. Cambridge University Press.

Wednesday, June 21, 2023

Unmasking Inflation: Why the Conventional Wisdom is Failing Us

Interview I gave for INET in January. From their website:

Matías Vernengo navigates the complex topic of inflation, discussing its implications on workers, and the economic policies that can potentially mitigate these effects. He explains the inflation of the 1970s and compares it to the more recent inflationary scenario provoked by global events. Vernengo evaluates the mainstream explanations - demand-pull and cost-push theories - and presents an alternative, heterodox explanation that views inflation as a result of distributive conflict and corporate power. While he acknowledges the role of corporations, he emphasizes that it’s the effects of inflation, primarily on workers’ real wages, that require addressing. He argues that the best policy would be to compensate workers for these effects. Vernengo’s analysis covers not just the American context, but also examines inflation in peripheral economies like Argentina and Turkey, identifying a link to exchange rates. He also critiques the “one-size-fits-all” theory approach to understanding inflation, underscoring the need for a heterodox economics perspective that could offer more nuanced insights and potential solutions.

Monday, June 19, 2023

Special Issue of the Review of Keynesian Economics

New issue of ROKE on: Center-periphery analysis reconsidered, Essays in memory of Luigi Pasinetti. Possible topics of contribution to our special issue could address:

  • The relevance of the center-periphery analysis and/or its limitations;
  • Income and/or wealth distribution: the distributive and redistributive effects (in central and peripheral countries) of the neoliberal globalization;Debt tolerance/financial crises: the destabilizing role of central monetary policies on the peripheral economies;
  • International political economy: the ongoing reconfiguration of center-periphery relations;
  • Decoupling of a global West from an emerging Asia; future and crisis of globalization;
  • The inherent fragility of global supply chains;
  • Any other topic related to the center-periphery analysis in a classical-Keynesian perspective.

Submissions should be made using the usual channels of the journal, and they will be managed jointly by editors and guest editors. All accepted articles will be published in the special issue.
Deadline for submissions: November 30, 2023. For further information, please contact the Guest Editors: Matias Vernengo (Bucknell University, U.S.A.; and Roberto Lampa (University of Macerata, Italy;

Friday, June 16, 2023

How tight is the labor market?

Inflation is coming down, as the last BLS report shows. I'm not going to get into that into this (very short) post. The disinflation has taken place while the official unemployment remains very low. However, we all know that unemployment measures very poorly the situation in the labor market. My alternative measure, which I make students calculate in macro classes, is what would be the unemployment rate be if the participation rate, which has been declining since the early 2000s (when China entered the WTO; see on that and deindustrialization this very old post), was the same of the last peak (back at the end of the Clinton era) when it was at about 67 percent (see below).

Note that the unemployment rate has a negative relationship with the participation rate, everything else constant. The result below.


The answer is, not 3.7 percent, but around 10 percent. In other words, there's a lot of what Joan Robinson used to call disguised unemployment. Discouraged workers that are not searching for a job, because they can't find anything worthwhile, and, hence, do not count as unemployed. This can be seen as the extra unemployment that we have because of the neoliberal policies of the last four decades, but in particular after the more radical opening to China starting in the 1990s.

Monday, June 12, 2023

More on oligopolistic inflation (Greedflation)

Marc Lavoie has written this post on the current inflation debates, which received some attention. We had a conversation (I don't say debate because we mostly agreed, and the video is here, last September). I also recommend Julia Braga and Franklin Serrano's paper on Marc's chapter on inflation, which is relevant for the current debates. The debate rages, within heterodoxy, as if a lot of the ideas are new, but quite frankly they are a recap of discussions of the past, particularly for those that dealt with the extensive debates about inflation and hyperinflation in Latin America in the 1980s and 1990s.

That demand-pull inflation was not the cause of inflation, I think is accepted among heterodox authors, and increasingly so within the mainstream or at least the media, that mostly covers the mainstream. After an initial idyll with Larry Summers and the notion that excessively large fiscal packages during the pandemic had caused inflation, now his view that a prolonged period of relatively high (or at least higher) unemployment was necessary for stabilization has fallen out of favor. Disinflation has taken place with relatively low levels of unemployment (which, it's worth remembering measure very poorly the conditions in the labor market in our neoliberal era, and where there is more slack than noted due to significant numbers of discouraged workers). The coverage has changed from thinking Summers was right to dismissing his views. He was wrong both times.

I'm more concerned with the dominant view among progressives that inflation was caused by higher profit margins, associated to the excessive power of corporations. Something that has been called greedflation, by many commentators (see Robert Reich's recent column here), and that back when, in a distant past in another galaxy, we called oligopolistic inflation. So this is mostly a debate between neoliberal and progressive Dems (Republicans have been less relevant; for their view go to this conference/book including John B. Taylor, John Cochrane and others at the Hoover Institution; not very different than Summers, who was at the conference, at least conceptually, even if more hawkish, if that is possible).*

In particular, I think the main remaining issue is the question of the role of mark ups, or profit margins in the inflationary process. As I noted before, the idea of oligopolistic inflation is in some sense a reaction to the notion that wage resistance and wage-price spirals would imply that workers are responsible for inflation (in this reading as much as demand-pull inflation would require unemployment for stabilization, conflict inflation would imply the need for wage stagnation). Some heterodox economists have even suggested that wage-price spirals are sort of a myth.

Note that when workers manage to increase wages, then price making firms will try to recompose their margins and increase prices. And if workers are not satisfied, as prices go up again and real wages fall, then you get a spiral. Hence, the wage-price spiral is a reflection of distributive conflict, and that workers and capitalists are not satisfied with their relative shares. In that sense, inflation is neither wage-led nor profit-led, like accumulation can be. It is the result of incompatible income claims by both classes.

There is a simple model in this old paper for the Handbook edited by Phil Arestis and Malcolm Sawyer, in which I discussed the three causes of inflation for heterodox authors, supply shocks, inertia and conflict.

* The inflation paranoia is somewhat surprising, with Taylor saying that: "The answer to the key question, 'Are We Entering a New Era of High Inflation?' is clearly 'yes,' unless monetary policy makers change policy." Note that this is not new. The late Allan Meltzer warned against the dangers of excessive monetary expansion after the 2008-9 crisis, saying back then: "the enormous increase in bank reserves —caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain." So, you would have to really believe in the lags in monetary policy (more than a decade) for his prediction to make any sense.

Wednesday, May 31, 2023

Servaas Storm on Lance Taylor

Lance Taylor in Beijing (with me, center), 2001

Full paper for download here. From Duncan Foley's recollection cited in the paper.

Lance had what one might call a casual approach to every-day dress, though he appeared for public talks well turned out even with rather jaunty accessories. It was not unusual, however,for him to appear in his office in the working clothes of a Maine farmer. On some of these occasions, particularly when travel delays or cancellations disrupted work plans, I would try to persuade Lance that graduate students were at least as interesting as goats in the hopes of getting him to spend more time in New York, but I made no headway on this issue.

I don't know if I was as interesting as a goat, but I do recall a dinner after some late talk at CEPA, in which Duncan and Lance discussed about goats and whether they did have souls. Worth reading if you are interested in alternative macro views, and the legacy of someone diametrically opposed to Robert Lucas Jr, who also passed away recently (on my views on Lucas go here).

Neoliberalism Resurgent in Argentina

Extended post with Sergio Cesaratto on the website of Brave New Europe. A comparison of dollarization with some of the effects of the euro,...