Sunday, August 31, 2014

Riccardo Bellofiore on why Italy’s stagnation could be future for Euro Zone

From The Guardian
This summer Italy fell into a triple-dip recession. After the 2008/09 collapse, the economy stagnated, heading back into recession during 2011 and never really recovering. The philosophy of Giulio Tremonti, who was the economic minister at the time, was to wait and see, until speculation killed Berlusconi’s government. Prime ministers Mario Monti and Enrico Letta followed Brussels’ self-defeating diktat for fiscal rigour, but even with moderate deficits the public debt/GDP ratio soared. The situation remained under control only thanks to the zero rate of interest and rhetoric by the European central bank president, Mario Draghi. Then came along Matteo Renzi, and Italian economic policy was all talk, talk, talk. While turning the screw of authoritarian parliamentary and electoral reforms, future lower taxes and liberalisations are promised to compensate for public cuts and to attract foreign investments. The €80 monthly tax break to lower-paid workers did not raise household consumption, and was instead spent on tariffs and local taxes. Yet in the past few weeks the outlook has changed, with 2014 second-quarter data showing France flat and Germany experiencing negative growth. Greece, Spain and Portugal registered rosier figures only because they were recovering from severe austerity. The eurozone cannot but be driven by the three biggest economies alone. This is a continental crisis within an anaemic global economy. However, an old Gramscian truth about Italy must be remembered: the “backwardness” of its capitalism is paradigmatic. Europe’s exit from the crisis needs the same policies that Italy needs, and without them Italy’s stagnation is the future for the entire continent.
Read rest here.

Saturday, August 30, 2014

Mundell-Fleming, Independent Central Banks, Inflation and Openness

Bucknell's Academic West (Bertrand Library in the background)

Teaching international finance this semester, after a long while. At Utah I taught mostly intermediate macro and Latin American Development for undergrads (and macro and history of thought for graduate students), and the eventual elective. But here the course was up for grabs, so to speak. Decided to use Peter Montiel's International Macroeconomics, since his books always provide competent presentations of the mainstream views, plus having worked at the IMF and World Bank, he always tries to cover real problems with plenty of developing country examples.

The limitation of the book is, as it should be expected, that the mainstream analytical view is, as Montiel's (p. x) says: "a generalized and modernized [sic] version of the original Mundell-Fleming model." The book does present in the last chapter the 'modern' intertemporal approach to the current account. In a later post I'll discuss the limitations of the Mundell-Fleming model, but for those interested check this paper by Serrano and Summa. In other words, Montiel's book can present the mainstream views, but lacks any critical perspective, which is not uncommon, but certainly problematic given the poor state of the mainstream understanding of how the economy works.

It is illustrative of the lack of alternatives in the book, the presentation of the relation between openness and inflation. Montiel's follows the evidence on an inverse relation between openness (that can be measured in many ways: import share, imports plus exports over GDP, etc.) and inflation presented in David Romer's well-known paper (see here). Montiel argues that in closed economies governments might tend to run fiscal deficits, that if monetized, would lead to inflation. In a more open economy, the higher deficits and inflation would lead to higher rates of interest, since international creditors faced with a risky government would demand a higher premium. In this context, "the higher interest rates that the government has to pay would tend to discourage excessively expansionary fiscal policies, thus reducing pressures on central banks to expand the money supply." If the central bank is more autonomous or independent from the Treasury then you should expect also less inflation (that would be Bernanke's explanation for the Great Moderation; here).

Many problems, as you can see. Yes, for Montiel inflation is caused by excess demand (fiscal deficits) and by increasing money supply, which seems to be what the central bank controls (let alone that all central banks control really the rate of interest). Worse, in a sense, is the notion that fiscal deficits in domestic currency (presumably, since nothing is said), may cause foreign investors to punish the government. Note that what should have investors concerned would be the current account surplus (which provides foreign reserves) and the amount of foreign reserves held by the central bank. The evidence on interest rates and fiscal deficits, by the way, is less than forthcoming for Montiel's story (see here).

A simple alternative suggests that inflation more often than not is caused by cost pressures, rather than excess demand, and that two of the main sources of cost pressures are the prices of imported goods and wage pressures. In a more open economy, in which firms are faced with competition from foreign firms, and workers might be afraid of losing their jobs, then wage resistance might be subdued. Note that over the last few decades unionization rates have declined and that also constrains the ability of workers to demand higher wages (see here). In this case, lower inflation in the globalized economy has been predicated on a weaker labor force that faces more international competition, and is more willing to accept stagnant wages. Inequality and stagnant wages, rather then well-behaved governments and independent central banks are behind the Great Moderation in this story.

Two ex-graduate students of mine (yes, someone was paying attention after all) teamed up and provided some empirical evidence in favor of the alternative story (go here). If you want to see alternative views on inflation, implicit in this discussion, go to the linked posts and papers here.

Thursday, August 28, 2014

Ben Fine on British Coal Industry's Contribution To Work of Paul Sweezy

My research has delved me into the plethora of work produced by the 'Monthly Review School'. Interestingly enough, I came across this article by Ben Fine, which I found to be quite illuminating. 

From the abstract:
Paul Sweezy has been a central figure in the understanding and development of Marxist political economy both in the United States and more widely in the West. For a long period, much like his counterparts in the United Kingdom, Maurice Dobb and Ronald Meek, his was almost a lone voice along with his close collaborators, most notably Paul Baran. Much has changed in the last twenty years with the renewed intellectual interest in Marxism following the student activisim of the sixties-so much that Marxism has even attained the status of academic respectability. This has meant that whilst there was always opposition to the Sweezy problematic (as represented by the “Monopoly Capital” or Monthly Review school), only in recent years has it been substantially criticised and counterbalanced by alternative schools of Marxism. In particular, there has been a lessening sympathy for underconsumptionist theory; for the notion that monopoly and competition are inversely related; for the validity of the concept of the potential surplus and its compatibility with value theory; and, as a more general aspect of the latter, that monopoly and competition and accumulation can be analyzed independently of the labour (value-producing) process, whatever the merits of Braverman’s (1974) seminal contribution. In addition, unfortunately on the margins of political economy, rather than its occupying a central position of debate as within the often supposedly separated discipline of economic history, Sweezy has been a prime mover in the debate on the transition from feudalism to capitalism’ which has subsequently given way to the “Brenner Debate” [...] The purpose of this article could hardly be to provide a “political economy of Sweezy.” For this, the present author cannot claim adequate acquaintance with Sweezy ’s intellectual and political biography. Indeed, here we rely exclusively upon the articles of Sweezy that have appeared in the academic journals. As a study of the evolution of Sweezy’s political economy, we have made use then of only a few of the pieces of the jigsaw that make up his intellectual biography, although we also have available some overall picture of the “final product,” as represented in his mature works.
Read rest here (subscription required).

Tim Dickinson on The Biggest Tax Scam Ever

Today, Tim Dickinson was on Democracy Now talking about the ways in which US Corporations have engineered a global scam to avoid tax obligations.  His article in Rolling Stone provides extensive details.

By Tim Dickinson
In July, the American pharmaceutical giant AbbVie, maker of the world's top-selling drug – the arthritis treatment Humira – reached a blockbuster deal to acquire European rival Shire, best known for the attention-deficit medication Adderall. The merger was cheered by Wall Street, not for what the deal will do to advance pharmaceutical science, but because it will empower the bigger firm, AbbVie, to renounce its U.S. citizenship. At $55 billion, the AbbVie deal is the largest in a cavalcade of corporate "inversions." A loophole in American tax law permits companies with just 20 percent foreign ownership to reincorporate abroad, which means that if a big U.S. firm acquires a smaller company located in a tax haven, it can then "invert" – that is, become a subsidiary of its foreign-based affiliate – and kiss a huge share of its IRS obligations goodbye. AbbVie shareholders will continue to control 75 percent of the company, which will still be managed by executives outside Chicago. But the merged company will now file its tax returns on the island of Jersey – a speck of land in the English Channel, where Shire is incorporated. AbbVie, which racked up more than $10 billion in Humira sales last year, will slash its effective corporate tax rate from 22 percent to 13. The cost to the U.S. Treasury? Possibly as much as $1.3 billion by the year 2020.
Read rest here, and for an article by David Cay Johnston on the issue, see here.

Leo Panitch on how the US still decides the future of global capitalism

Leo Panitch offers an antidote to the growing consensus that the new development bank launched by the BRICS manifests a significant challenge to US hegemony.

From The Guardian:
International attention has been diverted away from this year’s G20 meetings in Australia by the declaration from the leaders of Brazil, Russia, India, China and South Africa, at their meeting in Fortaleza Brazil this July, that they would launch a new “Brics bank”. Created by the US Treasury in the wake of the Asian financial crisis at the end of the 1990s, the G20 was designed to get the major “emerging market” states to take responsibility alongside the G7 for the “new international financial architecture”. This was seen as providing legitimacy for the continuing central role of the US in superintending a greatly expanded but increasingly volatile global capitalism
Read rest here.

Wednesday, August 27, 2014

Elise Gould on Why America’s Workers Need Faster Wage Growth

In the previous post, see here, Matias shared an EPI video on the need for significant wage growth to curb inequality, specifically starting with raising the minimum wage. As a follow up, below is from a briefing paper by EPI economist Elise Gould.

By Elise Gould
The last year has been a poor one for American workers’ wages. Comparing the first half of 2014 with the first half of 2013, real (inflation-adjusted) hourly wages fell for workers in nearly every decile—even for those with a bachelor’s or advanced degree. Of course, this is not a new story. Comparing the first half of 2014 with the first half of 2007 (the last period of reasonable labor market health before the Great Recession), hourly wages for the vast majority of American workers have been flat or falling. And even since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline—even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth. The poor performance of American workers’ wages in recent decades—particularly their failure to grow at anywhere near the pace of overall productivity—is the country’s central economic challenge. Indeed, it’s hard to think of a more important economic development in recent decades. It is at the root of the large rise in overall income inequality that has attracted so much attention in recent years. A range of other economic challenges—reducing poverty, increasing mobility, and spurring a more complete recovery from the Great Recession—also rely largely on boosting hourly wage growth for the vast majority.
Read rest here.

If you care about inequality, raise the minimum wage


From the Economic Policy Institute (EPI). Yes wages in general should grow, starting with the minimum wage. A no brainer.

Gerald Epstein on the Fed Signaling a Possible Policy Shift

Jerry Epstein was interviewed by the Real News Network. Among other things he said that:

"Typically in the past the Federal Reserve has been inviting a lot of investment bankers and financial market economists to the Jackson Hole Conference. This year's a little different. Janet Yellen and the Fed people didn't invite so many investment bankers. Instead, they invited a bunch of labor economists, which was a big change. Nevertheless, despite signals of an apparent shift in attention towards bringing unemployment down, Fed policy still remains toothless in helping out working Americans."

Full transcripts here.

Tuesday, August 26, 2014

Amato and Fantacci on reforming international money

New Cambridge Journal of Economics paper by Massimo Amato and Luca Fantacci.

From the abstract:
In the face of the current crisis, there is growing demand for regulation, often invoked in terms of a ‘return to Bretton Woods’. The Bretton Woods Conference of 1944 was indeed the last explicit attempt to define a rule for international settlements. In fact, post-World War II currency negotiations gave place to a confrontation between two alternative visions of the international monetary system. The two plans set forth by the U.S. and by the U.K. embody two alternative principles: the first aims at producing international liquidity on the basis of a reserve currency (White’s plan for an International Stabilization Fund); the second aims at providing a pure means and measure for the multilateral clearing of current accounts in the form of a currency unit (Keynes’s plan for an International Clearing Union). The former has undoubtedly prevailed. However, it is questionable whether it is the most appropriate way to manage global imbalances. Indeed, the principle eventually embodied in the Bretton Woods system, and persisting even after its demise, tends to identify money with a reserve asset, making possible, and even necessary, the accumulation of global imbalances, despite original intentions to reabsorb them. On the contrary, the principle that inspired the alternative plan was intended to deprive money of the character of a reserve asset, thus making it the rule for international exchanges, rather than an object of regulation among others. This paper outlines the two principles both in historical perspective and in the perspective of future reforms, particularly in relation to the recent proposal by the governor of the People’s Bank of China to go back to the principles of the Keynes plan.
Read rest here (subscription required).

Labor productivity comparisons

A simplified graph with the GDP per worker employed in 2013 (i.e. labor productivity) in US dollars converted to Purchasing Power Parity (PPP) is shown below.
Note that it is better than per capita income (which is more of a measure of living standards) as a measure of the economic potential of an economy, and that labor productivity avoids the pitfalls of Total Factor Productivity (TFP). The measure in PPP rather than market exchange rates distorts things a bit (but that is another issue). The graph with all the countries, and the link to the Conference Board data set here.

PS: Picture changes a little with productivity per hours worked, which is also available. For example, Norway would be slightly more productive if we used the labor productivity per hour measure.

Monday, August 25, 2014

The theory of global imbalances: mainstream economics vs. structural Keynesianism

By Tom Palley

Prior to the 2008 financial crisis there was much debate about global trade imbalances. Prima facie, the imbalances seem a significant problem. However, acknowledging that would question mainstream economics’ celebratory stance toward globalization. That tension prompted an array of explanations which explained the imbalances while retaining the claim that globalization is economically beneficial. This paper surveys those new theories. It contrasts them with the structural Keynesian explanation that views the imbalances as an inevitable consequence of neoliberal globalization. The paper also describes how globalization created a political economy that supported the system despite its proclivity to generate trade imbalances.

Read more here.

Why interest rates will (likely) stay low

Or they need to stay low. That's what the editorial board of the NYTimes says, quite correctly in my view, after the Jackson Hole speech by Janet Yellen last Friday. Yellen is more cautious and it is not exactly clear what will happen next. She said:
Earlier this year, ... with the unemployment rate declining faster than had been anticipated and nearing the 6-1/2 percent threshold, the FOMC recast its forward guidance, stating that "in determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee would assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation." As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve's dual mandate.
I'm not going to try numerology or any other dark science to foresee the future decisions of the FOMC, but it is clear that pressures for tightening are increasing.

I think overall the speech suggests slightly more weight to the dovish view, and that interest rates, at least for now, will remain low. She said:
... the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions... [and]... wage inflation, as measured by several different indexes, has averaged about 2 percent, and there has been little evidence of any broad-based acceleration in either wages or compensation. Indeed, in real terms, wages have been about flat, growing less than labor productivity. This pattern of subdued real wage gains suggests that nominal compensation could rise more quickly without exerting any meaningful upward pressure on inflation.
Yes, then she cautioned that "the current very moderate wage growth could be a misleading signal of the degree of remaining slack." But that's basically to say that they will act if inflation signals appear. The interesting thing is that although the whole discussion of the risks of inflation is associated to the slack (or lack of) in the labor market, and other measures of the current level of activity vis-à-vis the optimal level (unemployment or output or GDP gap), she admits quite candidly that: "historically, slack has accounted for only a small portion of the fluctuations in inflation." It is a remarkable admission of the absence of evidence for the dominant model that orients monetary policy. The natural rate is dead, long live the natural rate!

Saturday, August 23, 2014

Bill Lucarelli on The Euro: A currency in search of a state

New paper concerning Euro by Bill Lucarelli

From the abstract:
To understand the structural dynamics of the current eurozone crisis, it is necessary to examine the longstanding internal contradictions that the system has inherited from its inception under the Maastricht Treaty and the neoliberal strategy which has governed its evolution from the first experiments in economic and monetary union in the 1970s. A brief narrative of the evolution of the European Monetary Union yields some insights into its peculiar institutional design. More specifically, the article examines the dangerously self-reinforcing logic between speculative bond markets and cascading, deflationary policies of austerity imposed on those countries encountering severe debt crises. This examination reveals the fragile foundations upon which the eurozone was constructed [...] The stark contrast between US monetary and exchange rate policies and the straightjacket imposed in the eurozone by the ECB during the financial crisis that began in 2008 could not be more revealing. As David Fields and Matias Vernengo (2012) [see here] contend,
By buying great quantities of Treasuries, the Fed not only keeps stable bond prices and low interest rates, but also provides assurances that Treasury bonds remain a secure asset. That allows the US Treasury to maintain high fiscal deficits on a sustainable basis. That is the exact opposite of what the ECB has done for the countries in the periphery of Europe. Countries in the currency union lose control of monetary policy and cannot depreciate the exchange rate. But a common currency setting also brings to an end the possibility for a single nation to run fiscal deficits since the sources of funding are either removed or subjected to supra-national control.
Read rest here (subscription required).

Keynesian vs. Supply-side Economics: Causality


In one graph.

Friday, August 22, 2014

Technological determinism and economic growth

Technological determinism is widespread. The Solow model basically suggests that it is technological progress, measured incorrectly as Total Factor Productivity (TFP), that drives growth. The same is true of Schumpeterian models with a demiurgic role for the innovating entrepreneur.

But technological determinism is not just typical of economics, historians too tend to accept that technology drives history. Leo Marx and Merritt Roe Smith tell us in the intro to their edited book titled Does Technology Drive History? that:
The collective memory of Western culture is well stocked with lore on this theme. The role of the mechanic arts as the initiating agent of change pervades the received popular version of modern history. It is embodied in a series of exemplary episodes, or mini-fables, with a simple yet highly plausible before-and-after narrative structure. Before the fifteenth century, for example, Europeans are said to have known little or nothing about the western hemisphere; after the compass and other navigational instruments became available, however, Columbus and his fellow explorers were able to cross the Atlantic, and the colonization of the New World quickly followed. Newly invented navigational equipment is thus made to seem a necessary precondition, or "cause," of as if it had made possible Europe's colonization of much of the world. 
Similarly, the printing press is depicted as a virtual cause of the Reformation. Before it was invented, few people other than the clergy owned copies of the Bible; after Gutenberg, however, many individual communicants were able to gain direct, personal access to the word of God, on which the Reformation thrived. As a final example, take the story, favored by writers of American history textbooks, about the alleged link between the cotton gin and the Civil War. In the late eighteenth century, slavery was becoming unprofitable in the American states; but after Eli Whitney's clever invention, the use of African slaves to harvest cotton became lucrative, the reinvigorated slavery system expanded, and the eventual result was a bloody civil war.
And when it comes to economics technological determinism is not only a trait of the mainstream of the profession. The editors argue that Heilbroner (who was very open, but more conventional in is economics than people think) is the closest in their book's collected essays to accept technological determinism. Heilbroner's classic paper "Do Machines Make History?" starts with Marx's (Karl not Leo) epigraph (from The Poverty of Philosophy) according to which: "the hand-mill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist." Mind you, I think that regarding Marx, the quote might be misleading. Marx clearly thought that there was a technological component to the mode of production, but social relations of production mattered too.

What is NOT discussed in most analyses of the technological determinism by conventional and more than a few heterodox authors is the role of demand in creating the conditions for technological change. In that case, technological change is not the cause of growth, but the result. As in Adam Smith's story, it is the extent of the market (demand) that limits the division of labor (productivity). In modern parlance the idea is known as the Kaldor-Verdoorn Law.*

Obviously there is a certain serendipity in the process of technological innovation, and, hence, it is not uniquely determined by the pressures of a growing market. The point is more that there is no reason for an invention to be pursued systematically if it does not somehow provide for an existing and pressing need. Think of steam engines (the ones that give you the industrial capitalist), which were known for millennia, way before Newcomen and Watt, but had no relevant productive use until they were employed for pumping water out of mines. Only then the potential of the machine was comprehended, and the real work of incremental improvements that made it really useful started.

The question is then one of causality (as it often is between heterodox and mainstream views). Do innovations cause growth or are caused by growth (even if there is some two-way causality the question is which one predominates)? Were the high wages in England that forced capitalists to economize on labor (Principle of Substitution) and led to the Industrial Revolution, as Robert Allen suggests, or did the high wage economy, and the extended domestic markets (let alone the external markets) that provided the stimulus for technological change? I still believe that the weight of the historical evidence suggests that demand rules the roost.

The notion that technology is demand driven is also the only alternative, even though that is not understood very well by historians (economic or otherwise) to technological determinism. In this case, the reasons behind innovations are associated to the more complex social forces that determine the expansion of demand. They involve issues related to income distribution (high or low wages), or the social patterns that determine tastes and consumption (the reasons why the British consumed Indian calicos and porcelain pottery), the access to foreign markets, and the geopolitical forces that explain why some won and others lost in the pursue of those markets, to name a few. Note that power and politics are central to technological innovation, since they involve issues like income distribution and global access to markets. How can you understand the US National Innovation System (NIS)** without the Military-Industrial Complex and its role in providing access to global markets?

Sure enough a demand driven story has space for the sort of external supply-side effects that allow technology and innovations to thrive. So the expansion of demand in a society like England that was going through a Scientific Revolution would have more chances to lead to technological innovation (there is a gap between science and technology, of course) and  provide certain advantages over their competitors for global hegemony, to say the least. In other words, a demand driven story does not imply that supply side factors are irrelevant, they are simply not the prime movers.

* Neo-Schumepterians often refer to this view as the demand-pull hypothesis, due to Jacob Schmookler's Invention and Economic Growth.

** Another Neo-Schumpeterian beloved concept.

Thursday, August 21, 2014

The Flaw, inequality and the financial meltdown

Marie Duggan asked me about econ films the other day. Regarding the 2008 crisis Inside Job remains essential, but another documentary about the causes of the financial crisis, The Flaw directed by David Sington, is also worth watching. Around minute 22 you can see Louis Hyman (the short clip here is the initial part of that segment), Robert Wade and Robert Frank suggest that inequality was at the heart of the crisis. You can watch the whole thing on Youtube (for a fee) or on Hulu (with adds).

PS: An anonymous reader reminded me of Inequality for All by Robert Reich linked before here.

Classic Paper by Arestis & Eichner: "The Post-Keynesian and Institutionalist Theory of Money and Credit"

Recently, (see here) Matias posted a link to Fred Lee's collection of a classic set of by papers by the late Alfred S. Eichner. He mentioned that this not a complete set of Eichner's remarkable work, and that there are plenty of other exceptional pieces; in particular is Eichner's paper with Philip Arestis: "The Post-Keynesian and Institutionalist Theory of Money and Credit." This work has influenced my research tremendously (especially concerning the authors adherence to the tradition of Veblenian Institutionalism, and their emphasis of an 'open-systems' approach to political economy).

From the Introduction (which is worth quoting at length):
The purpose of this article is two-fold: first, to identify the main elements of what constitutes post-Keynesian and institutionalist monetary theory and, second, to put forward a model general enough to encapsulate most, if not all, of the constituent elements of the post-Keynesian and institutionalist theory of money and credit. One further novel aspect of this article is that we account for the possibility of the openness of economic systems. This is an aspect that has been ignored by the literature on both post-Keynesian and institutionalist economics. 
The emphasis in post-Keynesian and institutionalist monetary theory is on the proposition that "Monetary economics cannot help being institutional economics" [Minsky 1982, p. 280] and that "Capitalism is a monetary economy" [Dilland 1987, p. 1641]. In this view money capital is an institution that is inseparable from the other institutions that comprise economic systems. Money is not merely a medium of exchange. It is tightly linked to the behavior of the enterprise sector and the economy as a whole. Therefore, the basic theme in this approach is inevitably, "The Monetary Theory of Production" [Keynes 1973; Veblen 1964]. It is in fact this Veblenian/Keynesian premise that constitutes the core of what we have labelled in this study "the post- Keynesian and institutionalist theory of money and credit." 
In this monetary theory of production, it is not surprising to find that credit rather than money is the mechanism that enables spending units to bridge any gap between their desired level of spending and the current rate of cash inflow. Money is viewed as essentially endogenous in a credit-based economy, responding to changes in the behavior of economic entities, rather than being subject to the control of the monetary
authorities. Money, in this view, is an output of the system, with the endogenous response by the financial sector governed by the borrowing needs of firms, households, and the government. Once it is recognized that money is credit-driven and therefore endogenously determined, any money creation emanating from fiscal or debt management operations initiated by the authorities or from a favorable balance of payments, can be neutralized through an equivalent reduction in commercial bank credit brought about by the actions of private economic agents.' It clearly follows that government may not be able to create money directly (see, however, Chick [1986]). 
What it can do, instead, is redistribute money among different groups of economic agents. This can happen when governments, in their attempt to increase/reduce the stock of money, set in motion the process whereby bank credit is created/destroyed by groups of economic agents. To the extent that the latter groups are different from those initially receiving/destroying money following the government's initiatives, redistribution of money between those groups takes place. 
The endogenous nature of money and credit is further elaborated upon in the next section with the constituent elements of the model under discussion being brought together in the section that follows. It is precisely here that the openness of economic systems is emphasized and its implications for the post-Keynesian and institutionalist theory of money and credit are compared with the neoclassical view. A final section summarizes the argument.
Read rest here (subscription required).

Tuesday, August 19, 2014

Alfred S. Eichner's papers

Have been posted by Fred Lee and are available here. These are not a complete set of papers and books by Eichner, and I assume that they are the ones that are part of Fred's collection. Still worth checking out.

Below the text of the New York Times obituary (the pdf of the article here). Eichner had been a student of Eli Ginzberg, who was in turn a student of Wesley Mitchell and John Maurice Clark (his not too kind comments on his teachers here), and was the link to the institutionalist tradition.
Alfred S. Eichner Is Dead at 50; Major Post-Keynesian Economist

Alfred S. Eichner, a leading member of the post-Keynesian school of economics and a professor at Rutgers University, died of a heart attack Wednesday in Closter, N.J., where he lived. He was 50 years old.

Dr. Eichner suffered the attack while playing racquetball. He was pronounced dead at Pascack Valley Hospital in Westwood.

A native of Washington, he was a graduate of Columbia College and received his doctorate in economics from Columbia, where he taught from 1962 until 1971. He headed the economics department at the State University of New York in Purchase from 1971 to 1980 and joined the Rutgers faculty the following year.

Dr. Eichner edited several books, including ''A Guide to Post-Keynesian Economics'' and ''Why Economics Is Not Yet a Science,'' both published in 1983 by M. E. Sharpe. His latest book, ''The Macrodynamics of Advanced Market Economies,'' is to be published this year, also by M. E. Sharpe. 'One of the Best Teachers'

He was a member of the editorial board of the Journal of Post-Keynsian Economics and he lectured widely and testified before Congressional and other legislative committees.

With Eli Ginsberg, a professor of economics at Columbia, Dr. Eichner wrote an economic history of black Americans, ''The Troublesome Presence: The American Democracy and the Negro,'' published in 1964 by Free Press. Dr. Ginsberg recalled Dr. Eichner this week as ''a first-rate historian and one of the best teachers'' of economics.

As a leader of the post-Keynesian school, a small but influential group of economists in Britain and the United States, Dr. Eichner sought to go beyond the theories of John Maynard Keynes, who advocated government intervention in the free market and public spending to increase employment.

In the view of Dr. Eichner and his colleagues, investment is the key to economic expansion. He advocated a government incomes policy to prevent inflationary wage and price settlements as an adjunct to the customary fiscal and monetary means of regulating the economy.

Dr. Eichner is survived by his wife, Barbara; their sons, Matthew and James, both of Closter; two brothers, Martin, of Palo Alto, Calif., and Stanley, of Boston, and a sister, Belle Joyce Kass of Chicago.
There is more interesting stuff in Fred's page here.

Saturday, August 16, 2014

On Paul Krugman and his call to stop listening to paranoid inflationists

From Alternet:
It’s been nearly six years since the demise of Lehman Brothers “ushered in the worst economic crisis since the 1930s,” and New York Times columnist Paul Krugman would like to move on. But he can’t, and by extension we can’t, because recovery is nowhere near complete. And going for the wrong policies at this moment of fragile improvement but enduring “economic weakness” would spell disaster, and possibly “permanent depression,” according to Krugman. The years since the start of the crisis have been largely defined by two camps, the “too-muchers” and “not-enoughers,” The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now —  within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who economists, investors, and pundits in a 2010 open letter to Ben Bernanke.
Read rest here.

Friday, August 15, 2014

Paul Davidson on The Gross Substitution Axiom, Heart of Mainstream Economics

By Paul Davidson, [h/t] Lars P. Syll

The gross substitution axiom assumes that if the demand for good x goes up, its relative price will rise, inducing demand to spill over to the now relatively cheaper substitute good y. For an economist to deny this ‘universal truth’ of gross substitutability between objects of demand is revolutionary heresy – and as in the days of the Inquisition, the modern-day College of Cardinals of mainstream economics destroys all non-believers, if not by burning them at the stake, then by banishing them from the mainstream professional journals. Yet in Keynes’s (1936, ch. 17) analysis ‘The Essential Properties of Interest and Money’ require that:

1. The elasticity of production of liquid assets including money is approximately zero. This means that private entrepreneurs cannot produce more of these assets by hiring more workers if the demand for liquid assets increases. In other words, liquid assets are not producible by private entrepreneurs’ hiring of additional workers; this means that money (and other liquid assets) do not grow on trees.

2. The elasticity of substitution between all liquid assets, including money (which are not reproducible by labour in the private sector) and producibles (in the private sector), is zero or negligible. Accordingly, when the price of money increases, people will not substitute the purchase of the products of industry for their demand for money for liquidity (savings) purposes.

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