Argentina on the verge

The big question in the case of Argentina, as always is when it will explode. If the current developments are an indicator of anything, it should be sooner rather than later. Note that the fundamental problems regarding the possible crisis and default are associated to the external debt in dollars (one has to repeat this all the time). It does not mean that there weren't other problems with the Argentine economy, but the domestic issues do NOT lead to a default (yes, that means the fiscal problems).

In spite of all the criticism of the Fernández government, and some of that is certainly correct (but not the fact that they didn't do fiscal adjustment or not enough industrial policy; it's the reserves idiot!), the increase in debt happened all during the Macri administration (2015-2019). Milei's 'plan' was to make a fiscal adjustment and devalue the official exchange rate to close the gap between it and the parallel exchange rate (the blue). The notion was that fiscal adjustment would solve the inflationary problem, caused in this view by monetary emissions to cover the fiscal deficits. Regarding the devaluation the logic was that the official rate was incompatible with the market determined one, and, hence, this was inevitable.

Milei depreciated the official exchange rate by more than a 100 percent, to reduce the parallel market premium, and implemented a draconian fiscal adjustment, that he claims has led to a balanced budget. In reality his adjustment is a bit of a sham, an accounting gimmick. For example, the distributor of electricity, privatized in the 1990s, has stopped payments to the producers, and the government is negotiating the bill, which will not be zero, even though that is what they show in the balances. Many other cuts are unsustainable. In this case, even the IMF has suggested that the measures have gone too far, and might have severe social consequences. Note that fiscal adjustment and depreciation are the traditional IMF policy prescriptions.

As a result of his measures, inflation accelerated to more than 25 percent per month in December right after the depreciation, and as the exchange rate depreciation moderated, inflation has decelerated, remaining for now more or less at the same level as before Milei’s inauguration, which corresponds to an annualized rate of about 180 percent. However, in the last month inflation increased again, from 4.2 percent in May to 4.6 in June.

More importantly, the exchange rate premium has started to increase again, as the parallel exchange rate depreciates more than the official one, and reaching a gap of 60 percent, before falling back to somewhere in the 40 something percent.

Of course the devaluation only managed to accelerate inflation, and reduce real wages, and the blue continued to devalue, since the expectations that the government will be able to stabilize the exchange rate are minimal, given the lack of reserves. The central bank is now intervening in the foreign exchange markets to reduce the gap. But all hinges on the ability to obtain dollars. And that's why we are on the verge of a crisis. The IMF will probably not pony up more dollars, even if Trump gets elected, which seems to be Milei's bet. And now Argentina will have to start make significant payments servicing the debt. Default is imminent, and there is an increasing need to acknowledge that the Argentine debt is unsustainable.

A bad day for whom? The Left for one

 

I blink, you lose!

Will Rogers supposedly said that he was not a member of any organized political party. He completed that noting he was a Democrat. That feeling is alive and well among Dems. The confusion caused by Biden's withdrawal seems to have led to many peculiar views among pundits and public intellectuals. Two typical reactions are the ones that are certain that Biden would have lost, and now with Kamala the election is in the bag, and the ones that suggest that the lefties in the party were wrong in supporting Biden. It's true that Biden was trailing in the polls, but it is unclear that he had already lost (although the chances were high), and even less that Harris will win for sure. I hope she does, to be clear, given the alternative.

But it seems only reasonable to assume that dropping the incumbent that, at least on domestic issues, presided over a fast recovery, and one that has favored those at the bottom of income distribution, is a bad idea (if he was to drop because of his cognitive issues, which were known, that window probably had closed in March, same date as LBJ stepped down, as some connected with the party had hinted). He was clearly pushed aside by donors, backed by the party establishment. And now Dems will have to defend the record, but also suggest that the person behind that record was not up to the task of running the campaign (not to mention the added problem of explaining how he still remains in the presidency, w/o invoking the 25th amendment, which the GOP is obviously going to call for, if they already didn't).

 

Blame the left, a winning strategy

As noted, the other common reaction was to suggest that Bernie, AOC and others in the Squad were completely wrong in supporting Biden, and, even with significant differences (and not just on foreign policy), thought that he was the best candidate. It is evident that Bidenomics has been reasonably good because he veered to the left, approved a large fiscal package, contrary to Summers and others associated with the party establishment, and that saved the economy from a recession. To some extent that was the legacy of Bernie's two runs for the presidency. He pushed the party to the left. The internal coup carried by donors and the establishment basically will move the party back to the right. One may dislike Bernie's views on this, but they are perfectly rational.

Finally, now the NYTimes and most party insiders are lionizing Biden as a selfless martyr for democracy. But if Harris loses in November (and again I truly hope she doesn't; as I noted Trumponomics will be much worse) he will be hang out to dry by the establishment and the media. He will be seen as responsible for the defeat, for his stubbornness and delay in leaving (and even, perhaps, for the inflation he caused with his fiscal plans; again, just to make sure, the latter is ludicrous). This is a defeat for Biden, and inevitably for his allies moving the party to the left.

Long ago, in 2016, before the election, I suggested that the results would be closer than they should be, because of the persistence of the neoliberals within the party. And after the election I noticed that Dems refused to learn that lesson. It seems that we are in the exact same place, with the same dangers as in 2016. The fact that Dems are incapable of organizing a coalition that includes the working class, and are dominated by donors in Wall Street and Silicon Valley is problematic. Hope springs eternal.

PS1: Of all the neoliberal Dem's bad ideas, and their willingness to veer right, the best, by far, was Aaron Sorkin's suggestion that they should nominate Mitt Romney.

PS2: Note that no Republican candidate for president has earned 51% the popular vote since 1988. W got 50.7 in 2004, with 9/11 the war and all. And that was the only time a GOP candidate won the popular vote after 1988. Both Bush in 2000, and Trump in 2016 lost it. And Trump is truly unpopular (but might win). But the fact that is going to be close suggests that the Democratic establishment is also very unpopular. Their refusal to learn and promote candidates like Bernie is not a mistake, it is consistent with their own economic interests.

Development Finance, External Constraints and Effective Demand in Maria da Conceição Tavares' Thought

 

A panel about Maria da Conceição Tavares with talks by three of her disciples and students, Ricardo Bielschowsky, Carlos Medeiros and Franklin Serrano.

Podcast with about the never ending crisis in Argentina

Podcast with about the never ending crisis in Argentina with Fabián Amico, and myself and interview by Carlos Pinkusfeld Bastos and Caio Bellandi from the Lado B do Rio Revista, and sponsored by the Centro Celso Furtado (Carlos is the director). In Portuguese (but fine if you speak Spanish or at least Portuñol).

Trumponomics vs. Bidenomics: The good, the bad and the stupid

The debate between Biden and Trump is on everybody's mind. And for good reason, the future of the global economy, and the well being of the planet are always at stake in American elections. I, of course, will restrict my brief comments here to the economy, and what the alternatives might entail. But the analysis of the impacts of both programs, if one can talk of programs per se, is very poor, to say the least.

Broadly speaking there has been increasing agreement on a tougher policy with respect to China, what Jake Sullivan referred to as a New Washington Consensus. Many see this as a revival of industrial policy. This is of course suggests some continuity with the Trump policies, even though I would suggest that only with Biden there was a clear plan to re-shore manufacturing jobs, particularly with chips and electric vehicles. Trump basically just hiked tariffs. Both protectionism and the continuity make some liberals (I would say neoliberal progressives, to use Nancy Fraser's term, nervous. For example, Edward Luce's anxiety is that Biden agrees too much with Trump. He says: "both Biden and Trump are vowing to travel in the same direction. But Trump would do so in leaps and bounds."

Note that in all fairness, the US never really stopped doing industrial policy. As noted by Fred Block, even with the problems of the Military-Industrial-Sillicon-Valley Complex, a hidden developmental state. The main new element in the "New" Washington Consensus is really that the US will be less willing to promote economic development by invitation in the case of China. As the IMF policies seem to indicate, for the rest of the world, the old consensus is in place. In that respect, the anxieties of liberals on this are exaggerated.

But that's not all. According to Luce, based on a report* from Moody's, "Trump’s policies would trigger a recession by mid-2025. Unemployment and inflation would jump. The bottom half of US income distribution would suffer the most." He concludes that: "The economic consequences of Trump would be a disaster." This was reinforced letter by 16 Nobel economists warns that: "Many Americans are concerned about inflation, which has come down remarkably fast. There is rightly a worry that Donald Trump will reignite this inflation, with his fiscally irresponsible budgets." This is flatly incorrect. Tax cuts (or their extension) and tariffs wouldn't cause inflation and a recession. Worst case scenario there would be a one time increase in prices, but again the bargaining power of the working class is at low point. So no danger of inflation there. And neither would affect the ability the government to spend. On that Republicans are normally less fiscally conservative when in power than Dems (see old roundtable on that here). And it actually it is a critique that misses the point of why Bidenomics is much better than Trumponomics.

Inflation was not caused by Biden's fiscal packages, as I have insisted several times here (see this paper). And Trump's tax cuts would also not be a problem from that perspective. The point is that Trump would be, in his domestic agenda, more of the trickle down agenda or Republicans going back to Ronald Reagan. Cutting taxes for the wealthy and making it harder for minorities and the poor (often minorities) to access welfare programs. It would be distributively problematic. Inflation is not the risk. The problem with Trump's policies is that they hurt the very working class (many in unions, and certainly white folk) that might vote for him. It would be stupid for unions and other progressives to support Trump.

The good thing about Biden is that he, in part because he had more union connections, and in part because he has moved towards the left (certainly Bernie played a role here), was bold in his fiscal policy, and that might have been instrumental in avoiding a recession (that the Fed was almost engineering). Contrary to Obama, with his mild post-bubble program, and Hillary, Biden has moved to a more traditional Dem (New Deal would be a stretch perhaps) logic of tax and spend.

Eight years ago Hillary had a completely different economic agenda, and that actually explained, to some extent, why Trump ended up winning. I noted that it was likely in this post from before that election, right after a debate, in which I said: "This [election] is going to be way closer than it should be." I also noted that the problem with Hillary was that: "The fact that she has not fully renounced Clintonomics, i.e. financial deregulation, austerity (End of Welfare as we know it) and free trade, is a problem for the progressive base of the party. She walked back some of these, mostly after pressure from the Bernie campaign, but is unclear that these changes would stick."

That these divisions are still relevant within the Democratic Party is clear in the primary in New York that pitied Bowman and Latimer, the former with support from Bernie and the latter from Hillary. Bernie said that "the race 'one of the most important in the modern history of America' and a contest between 'the billionaire class' and ordinary citizens," according to the Financial Times. So if one wants to criticize Trumponomics, the issue is that his agenda is the pro-billionaire one (Wall Street and Silicon Valley agree and have closed the funding gap). Biden is the leftest president since Lyndon Johnson (he is clearly to his right, and LBJ was no commie). He also is not the best possible candidate. He has one unbeatable quality though: he is NOT Trump.

* Mark Zandi is the main author of the report, and he can be seen as another neoliberal progressive, aligned with the pro-business part of the Dems.

Brief note on public debt and interest rates in Brazil

Robin Brooks, previously the chief economist at from the Institute of International Finance (IFF), and now at Brookings, suggests Brazil needs austerity, and, here is the punch line, that would promote growth (laugh track here).

The notion that it is the fiscal balances that determine the interest rate on public debt, and that fiscal deficits and high debt must imply high interest rates has no correlation with reality. Imagine the rate of interest that Japan would have if that was correct. In the case of Brazil the higher interest rates are entirely associated to Central Bank decisions.

In fact, if one looks at the correlation between interest rate and the size of public debt as a share of GDP, the correlation is weak, statistically insignificant, and negative. That is, higher debt is associated with lower interest rates by the central bank.

Let alone that the idea of expansionary fiscal contraction has been completely debunked with the austerity policies that followed the European crisis more than a decade ago. Ask Tories in the UK how well that worked!

New Clarivate Rankings

 

ROKE continues to improve it's ranking (based on the Clarivate Impact Factor measure) among heterodox journals. An old discussion about that here. You can see how much we went up since the last time I posted about this here and here.

Paul Davidson (1930-2024)

 

Paul (I'm next to him) and the Brazilians at the UMKC, PK Conference in 2002

Paul has passed away a few days ago. He wasn't in good shape for a while, and this was expected. He lived a long and productive life. I wasn't personally close to him, even though I met him several times from the mid-1990s onward. He went to two conferences I co-organized at the Federal University in Rio, always with Louise, which was a central figure of Post Keynesian (PK) life, and basically run the Journal of Post Keynesian Economics (JPKE) for him.

He was more effective as an institutional organizer, and as an observer of economic reality (and his main book was called Money and the Real World) than in his theoretical endeavors. His views on Keynes stayed close to the flawed discussion of the Principle of Effective Demand in chapter 3 of the General Theory, and an insistence on the importance of uncertainty and non-ergodicity in Keynes' work, that proved to be somewhat of a dead alley for PKs. He also emphasized the ideas of Tony Thirlwall, and his export-led model of growth, as a central PK contribution to economic theory. Finally, he tended to accept the views of Robert Skidelsky on Keynes' intellectual development, who, as I noted here, accepted a conventional on interpretation of Keynes' ideas, relying on imperfections to explain unemployment, even if he provided a much needed accurate biography of Keynes (in contrast to Harrod).

JPKE, that he created with Sidney Weintraub, and help from John Kenneth Galbraith among others, was central for a generation of PKs. He was part of the Trieste Summer Conferences that, in the early 1980s, that included many heterodox groups, and was the closest to Marc Lavoie's broad tent in real life, but failed to provide a unified view, and an alternative to mainstream marginalist theory. Many thought that the PK project was sectarian, and could not incorporate other views. I tend to think that the failure resulted from the fragmentation of the mainstream, that was reflected in the fragmentation of the heterodoxy, and were part of the era. Certainly not Paul's fault, who, at least in my experience, was very open and willing to debate, even if he did stick to his views. At least, not his personal fault.

When LP (Rochon) invited me to start a new journal, more or less at the time Paul was substituted as the editor of the JPKE by Jan Kregel and Randy Wray, on PK monetary economics, I suggested we needed a journal that would bring other Keynesians into the conversation. Hence, the Review of Keynesian Economics (ROKE).* Paul wrote to me once he knew about the new name of the journal. I knew from him that they had thought of naming their journal the Journal of Keynesian Economics, but the acronym would have been JOKE, so they opted for Post Keynesian, and the name stuck to the school of thought. He wasn't happy. But he understood that our project was very different.

Ours was not a journal to propagate the ideas of the heterodox followers of Keynes, and to emphasize the notion that effective demand mattered, at times that Keynesians were under attack with the neoliberal turn, and the rise of Monetarism and New Classical economics (Paul was in the book of debaters with Milton Friedman, that included also Jim Tobin, and a few other more conventional Keynesians). Ours was an attempt to recreate a Keynesian big tent (not an heterodox one) to reinforce the commonalities with all Keynesians (in spite of the many differences).

Paul was combative, forceful in his discussions, particularly about Keynes' legacy, and a key figure in the preservation of Keynesian ideas, when those were considerably less popular, and the profession moved incorrectly away from the Keynesian Consensus. Later many would gladly talk about the return of the master. Paul never abandoned him, and he was right. A great loss for the profession.

* On that see Tom Palley here and my discussion of Bob Solow's role here.

Dollar dominance and the international monetary hierarchy

Our panel at the UNICAMP conference last Thursday, with Mark Schwartz, and Andrés Arauz.

Lula's fiscal problems

Almost everything that’s wrong with conventional views on fiscal policy is on display in this column (well written and clear) by one of the key journalists from Folha de São Paulo, Vinicius Torres Freire. He suggests that the current fiscal adjustment is not credible. For him, this is a confidence crisis, caused by Lula’s insistence on attacking the central bank policy and his lukewarm support for the adjustment. Why the adjustment is necessary, he never asks. It’s evident, for any educated or serious person, one must conclude. Debt is too high, spending cannot go on forever. These are truisms, and if repeated long enough they do seem right.

The problem of course is that the Brazilian fiscal problems (note that it is unclear why deficits that are not particularly large by historical or comparative standards and debt that grew as a proportion of GDP, but is in domestic currency and can be rolled over without any trouble routinely, are a problem) started when the economy stopped growing in 2015. And that’s when PT tried to promote an adjustment to appease the radical right. It was only then that public debt started growing as a share of GDP (see graph). We know how well that strategy worked out for Dilma.

In my Catalyst piece from last summer, I suggested that the problems Lula would face would be within his own coalition. The fiscal conservatives inside his coalition, and, in particular, those on the left and within PT, which include his own Finance Minister, Fernando Haddad. Haddad truly and earnestly believes, as much as Torres Freire, that the path to growth is through fiscal consolidation, lower deficits and debt, obtained in his view mostly by increasing revenue (his critics and the 'markets', read the traders on Faria Lima, would prefer cuts on social spending), and obtaining investment grade, which would lead to an investment boom.

Note that many political scientists, for example Marcos Nobre here, suggest that somehow the problem is that Lula needs to negotiate with the so-called Centrão, the clientelist groups in congress that control voting and have a grip on governability. In that view, he is between the rock of lack of governability, and the hard place of macroeconomic instability. In other words, he either continues with the clientelist policies that allowed all governments to deal with congress since the return of democracy, but pays the price of not being able to deliver the fiscal results necessary,  or he confronts them and does the adjustment, and keeps stability (and growth), but might have his agenda blocked. In this view,  price stability and growth go hand in hand, since fiscal restraint also allows for lower interest rates, which would be instrumental for growth. If Lula negotiates with the Centrão he would also spend on unnecessary things rather than the crucial things that are needed for growth, including in the green transition, in this view. The notion is that whatever he does, the likelihood is that the extreme right (the right without fear) might return (even without Bolsonaro).

Of course, that's a false dilemma. Brazil has no fiscal problem. The best way to consolidate, reducing debt, if that is deemed essential, would be promoting growth, and investing (public investment), including on a green transition, and that would allow the ratio of debt to GDP to fall, even if debt per se went up. The main problem for Lula is that many in his own party, and his key ministers are promoting an adjustment that might force him to miss the mandatory minimum expenditures on education and health, that would preclude providing the increases in wages of public sector workers, and the minimum wage, that would help promote a recovery. So Lula's fiscal problems are not what you might think, an economic constraint on his ability to spend. Brazil has no fiscal problems, which are always political problems, and has not have any serious external issues either, a recurrent theme gong back for more than two decades and discussed here, more recently (and here and here, the last one with links to 7 additional posts, to give a few examples over the years). Lula's problem is fiscal conservatism.

Bidenomics and other ugly ducklings

The media and a good chunk of the policy wonks are surprised that Biden does not get the deserved recognition for the relatively good state of the US economy, and that as a result he is suffering in the polls. There are two separate, but interrelated, causes for that. The most obvious can be defined in one word, inflation. The second, is related to the fact that, even though the recovery from the pandemic was fast, the economic situation for most working class people has not been great for a long while. In other words, the recovery from the pandemic brought back a situation with which most of the people at the bottom of the income distribution were struggling. I'll deal with inflation, which is the one that everybody is discussing in the news.

Regarding inflation, two things have been negative for Biden. A lot of the mainstream (liberal) and conservative media blames Biden's fiscal package in early 2021 and, perhaps to a lesser extent, the 2022 Inflation reduction Act, for the acceleration of inflation. As do many economists connected to the Dems, more prominently Larry Summers. That view also underpins the Fed's interest rate hikes.

The interest rate hikes could have caused a recession, but now that seems to have been clearly avoided. Traditionally the mechanism is through the impact of the interest rate on residential investment, which is critical for consumption patterns. The graph below show residential investment, that fell before every recession. There were two previous false alarms, in 1951 and 1967, where the Korean and Vietnam wars, and the spending associated to those, came to the rescue. Here, it seems the extra fiscal spending which was highly criticized came to the rescue. Also, the government shutdown, which was always a possibility, and would have reduced spending (and was my biggest fear in terms of a possible recession), never materialized.

The acceleration of inflation, as I discussed several times here (see this paper and this one too, or this INET video),  was caused by supply side constraints during the pandemic, and the shocks to key prices, particularly energy and food commodities after the war in Ukraine. Since there is no significant wage resistance, it was expected that inflation would recede and fall once the shocks passed. No surprises there. And wages are winning against inflation, ad can be seen below. The wages of non-supervisory workers were growing below CPI in the early phase of the inflation acceleration, and are recovering now.

So one may very well ask why are people so angry about inflation. If one looks at the BLS resports it is clear that energy prices, early in the war, and then rents, after the Fed hiked interest rates, had higher increases than the general CPI. The graph below shows that.

This is relevant, since, for lower income people, the impact of higher energy and rental prices impact more than proportionally their ability to spend. In other words, people have less money after paying for gas and housing (and gas impacts transportation and some food items). So most people have felt the inflationary acceleration and they had to tighten the belt somewhat to maintain the same life style.

PS: The yield curve is inverted, and has been for a while and that makes some people nervous. I discussed back in 2019 why an inverted yield curve might not necessarily imply an impending disaster.

Maria da Conceição Tavares (1930-2024)

(1930-2024)

Maria da Conceição Tavares passed away last Sunday. She was among the key thinkers of the Latin American Structuralist School, often associated with the Economic Commission for Latin America (ECLA). In her case, Anibal Pinto, who was her teacher in a ECLA course in the early 1960s, and Celso Furtado, who was never formally her teacher, were her major influences. She was instrumental in introducing Kalecki in Brazilian academic circles, and in her debate with Furtado on the possibilities of growth in the late 1960s (Furtado defended a stagnationist thesis) she started to move in the direction of demand-led growth theories. She also noted in the mid-1980s that the diplomacy of the dollar (and the end of Bretton Woods) essentially implied that American Hegemony was stronger than ever. She was associated to the failed stabilization plans of the 1980s (in particular the Cruzado Plan), and was critical of the neoliberal policies of her friend Fernando Henrique Cardoso, and her co-author José Serra. She was a member of congress (I should say I did work for her campaign back in 1994), and she was close to the Workers' Party administrations. Her contributions both to academia and to Brazilian politics were without comparison, and she will be missed.

For those that read in Spanish, here a paper I wrote a few years ago on her contributions to heterodox economics. It was published in this book edited by Juan Odisio and Marcelo Rougier on several key Latin American thinkers.

An obit written with Esteban Pérez is available here.

My short piece on Solow and his relation to the Review of Keynesian Economics

(1924-2023)

Robert Solow, who was a member of the editorial board of the Review of Keynesian Economics (ROKE), died in December 2023. Solow holds a special place in the history of macroeconomics, and he was a strong supporter of the ROKE project. In this brief note I want to honor Solow’s contribution to economics and to place on record his contribution to ROKE.

Histories of macroeconomics tend to emphasize the disputes between Keynesians and Monetarists, at least up to the 1970s. Those disputes very often pitted Milton Friedman against either Paul Samuelson, with whom he alternated in a famous Newsweek column, or James Tobin who was, perhaps, the most prominent of Friedman’s opponents when the Journal of Political Economy edited a debate with Friedman’s critics. In the broader cultural wars, Friedman was often pitted against John Kenneth Galbraith, and his Free to Choose series was seen as a response to the latter’s BBC series The Age of Uncertainty. Solow appears, if at all, as Samuelson’s co-author of a paper on anti-inflation policy (Samuelson and Solow 1960), which is widely viewed as introducing the Phillips curve to the American economics profession.

Yet Solow is, in many ways, the central figure of ‘American’ Keynesianism, and he was awarded the 1987 Nobel Prize in Economics. His work was central to the building of what Samuelson referred to as the Neoclassical Synthesis, which was dominant during the post-war era up to the 1970s. This synthesis combined microeconomic competitive general equilibrium theory, Keynesian macroeconomics, and Solow’s (1956) Neoclassical growth theory. It gave short-run space for Keynesian policy effectiveness but asserted a long-run belief in market forces and Say’s Law, which Solow defended in his growth model and in the Cambridge debates with more heterodox Keynesians. Additionally, Solow contributed decisively to the development of what eventually would be called New Keynesian Economics, with the development of the efficiency wage model in the late 1970s. He lived long enough to see fiscal policy rehabilitated after the Great Recession of 2007–2009, and to see what many view as the return of Keynesian Economics.

Read rest here.

Debt cycles and the long term crisis of neoliberalism

My talk at the IDEAS/PERI conference a few weeks ago. As I said there, I hate to be the optimist in the room, but I'm a bit more skeptical about the risks of a generalized sovereign debt crisis in the Global South. The two papers I cite are these (in their PERI Working Paper versions) two (one and two).

Esteban Pérez Caldentey on the Ideas of Raúl Prebisch

Esteban Pérez's talk at the University of Chile, about Raúl Prebisch, about whom we have written several papers. This is in Spanish.

Keynes’ denial of conflict: a reply to Professor Heise’s critique

Tom Palley reply to response about his paper on Keynes lack of understanding of class conflict. In many ways, this is how Tom discusses Keynes lack of understanding of old classical political economy. Tom is correct in pointing out that:

"Kalecki (1933 [1971]) began the process of incorporating conflict into the Keynesian paradigm, but there is much more to be done regarding recognizing conflicts’ implications for economic theory and recognizing the multiple fora in which it appears."

Of course, Kalecki was building on Marx and classical political economy. Read the full reply here.

The Argentina of Javier Milei

A seminar organized by the Association for Heterodox Economics with myself, Ramiro Álvarez and the Argentine Senator Carolina Moisés.

Atonella Stirarti's Godley-Tobin Lecture

There was a problem during the 7th Godley-Tobin Lecture. I disconnected everyone when I was trying to fix a problem with Professor Stirati's presentation, and I didn't notice until much later. The worst part is that the recording was lost. I'm posting here the PowerPoint presentation for those interested. We will also post the link for the published version of the lecture, which will be open also on the website of the Review of Keynesian Economics (ROKE).

On the Heritage Foundation Freedom index

My interview with Rick Smith on the Heritage Foundation Index and its tenuous relationship with anything that can be called freedom, economic or otherwise.

Association for Heterodox Economics' Webinar: The Argentina of Javier Milei

 April 16th 2024 10am New York / 3pm London

Since the beginning of the military dictatorship in March 1976, pro-market visions were imposed by violating human rights in the darkest period of Argentina’s history and occupied political thought for more than four decades, even in democracy. Although these ideas had a brief pause in the period 2003-2015, they are still in force and now more than ever under the new administration of Mr. Milei. Mr. Milei has imposed a huge depreciation of the national currency, reducing the purchasing power of workers, and an adjustment of public spending by dismissing more than 50,000 public employees under the slogan of efficiency. Inflation has reached 200% per year and poverty has reached 60% under his administration, which has been in place for less than 5 months. As a heterodox community, we wish to better understand the social and economic consequences of the Milei government and discuss the possible alternatives Argentina now faces. Zoom Registration here.

Speakers:

Ramiro Álvarez is a postdoctoral fellow at the Centre for Political Economy and Development Studies at the National University of Moreno (Argentina). He is a specialist in the Political Economy of Argentina. After his Master in Economic Development at the National University of San Martín (Argentina) he did his PhD at the University of Siena (Italy). Ramiro teaches basic and advanced economics at different Argentinean universities. He has been a guest professor at the Autonomous University of Santo Domingo due to his studies in Political Economy and he published many papers analysing the political “pendulum” in Argentina, and its impacts on income distribution and growth.

Matías Vernengo is Full Professor at Bucknell University. He was formerly Senior Research Manager at the Central Bank of Argentina (BCRA), Associate Professor of Economics at the University of Utah, and Assistant Professor at Kalamazoo College and the Federal University of Rio de Janeiro (UFRJ). He has been an external consultant to several United Nations organizations including the Economic Commission for Latin America and the Caribbean (ECLAC), the International Labor Organization (ILO), the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP). He has eight edited books, two books and more than one hundred and twenty articles published in scientific peer reviewed journals or book chapters. He specializes in macroeconomic issues for developing countries, in particular Latin America, international political economy and the history of economic ideas. He is also the emeritus founding co-editor of the Review of Keynesian Economics (ROKE), and co-editor in chief of the New Palgrave Dictionary of Economics.

María Carolina Moisés is a distinguished Argentine politician and political scientist with a rich career dedicated to public service and political advocacy. Beginning her political journey with foundational education from the University of Belgrano, where she earned a degree in Political Science, she has been a pivotal figure in Argentine politics. Her early academic achievements were complemented by international exposure through a program at the University of Berkley, Boston, which broadened her perspective on governance and public policy. Carolina’s political career is marked by her tenure as a National Senator for Jujuy since December 10, 2023, showcasing her continued relevance and leadership in Argentine politics. Prior to this role, she served as a National Deputy for Jujuy from December 18, 2017, to December 10, 2023, and previously from December 10, 2005, to December 9, 2009, where she was known for her passionate advocacy and significant legislative contributions, including her involvement in the landmark Audiovisual Media Law. As a speaker, María Carolina Moisés brings a wealth of experience, a profound understanding of political dynamics, and a visionary approach to addressing contemporary challenges. Her career is a testament to her unwavering dedication to public service, making her an inspiring figure in Argentine politics and beyond.

Beyond the NAIRU, 7th Godley-Tobin Lecture by Antonella Stirati

 

The 7th Godley-Tobin Lecture in a bit more than a week. For those not in Boston registration here.

On the possibility of a recession at the Rick Smith Show

My brief interview at the Rick Smith Show on the likelihood of a recession this year, and the unfounded fears about public debt in the United States.

Dollar Hegemony and Argentina

First part of a two part interview with Anita Fuentes at Security in Context. The discussion on Argentina and Milei is in the next part. I'll post it as soon as it is up.

On the New Argentine Pendulum

A short paper for FIDE on the so-called Argentine pendulum. The pendulum was the phrase used by Marcelo Diamand to discuss the persistent boom and bust cycles associated with left of center developmentalist governments, and liberal governments that promoted adjustment. The suggestion in this paper is that in reality the previous pendulum was mostly political, and about constraining the left of center ability to redistribute income (higher wages), often restricting democratic institutions. The New Pendulum refers to the period that starts with the last dictatorship, in which alternative economic projects (in which deindustrialization plays a major role) explain the main oscillation. Milei is just one more movement of the pendulum. Full paper (in Spanish) here.

Tom Palley on "Israel’s genocide, US assistance, and consequences thereof"

By Tom Palley

South Africa has now presented its charge of Israeli genocide in the International Court of Justice (ICJ), and Israel has presented its rebuttal. Regardless of the ultimate judgment, a page has been turned. Israel’s actions in Gaza, assisted by the US, have changed the geopolitical landscape. The consequences stand to be dire and lasting.

The case against Israel

The case against Israel is stark and simple. The argument in descending order of import is as follows.

First, and foremost, is Israel’s disproportionate response and application of collective punishment. Hamas is a criminal terrorist organization, not a state. Israel has a right to appropriate self-defense, but it has no right to kill vast swathes of non-combatant Palestinians as it tries to combat a criminal organization. The indiscriminate killing constitutes a war crime and crime against humanity. It becomes genocidal when paired with denial of means of survival.

Second, razing Gaza to the ground and intentionally driving an entire population into the unprotected open guarantees large scale death from lack of shelter, hunger, and sickness. It echoes the Armenian genocide of 1915.

Third, the razing of Gaza fits with an Israeli plan for mass expulsion of Palestinians, a sort of Israeli final solution to the Gaza problem. Such a plan has long been popular in Israel, predates the Hamas attack, and fits with Prime Minister Netanyahu’s October 28th quotation of the Bible whereby God ordered the Israelites to eradicate the Amalekites: “Now go and smite Amalek, and utterly destroy all that they have, and spare them not; but slay man and woman, infant and suckling.” That record is suggestive of ethnic cleansing which turned genocidal in the wake of the October 7th attack.

Fourth, during the conflict, dehumanizing videos have emerged of Israelis celebrating the killing of civilian Palestinians, mocking Palestinian suffering, vandalizing Gazan shops, and desecrating mosques. Israeli Defense Minister Yoav Gallant described Palestinians as “human animals”. Dehumanization is always part of the story with genocides. Furthermore, Israel’s shooting of Israeli hostages waving a white flag who had escaped from Hamas, shows Israel’s take no prisoners tactics which violate the Geneva conventions. All are part of the mindset informing Israel’s actions.

Some claim every Palestinian is a potential terrorist and legitimate target. Not only is that grotesquely specious, it also tacitly justifies Hamas’ murders on grounds that every adult Israeli is a soldier. The horror of Hamas’ October 7th attack may explain the Israeli public’s desire for revenge and retribution, but it provides no legal justification for mass murder.

Read rest here.

Demand-led Growth In Rio

The Review of of Keynesian Economics is co-sponsoring the Fifth Conference on Demand-led Growth in Rio, next July 11 and 12.

2024 marks the 45th anniversary of Thirlwall’s classic 1979 paper that introduced Thirlwall’s law as well as the 75th anniversary of Prebisch’s manifesto on the main development problems of Latin America. These seminal works were key, for post-Keynesian and structuralist literatures, to put the balance of payments constraint at the center and as one of the main problems of long run growth and development. Furthermore, it was an important critique and alternative to the mainstream view that highlights factors of production scarcity as the only explanation to long run growth.

As a result, many demand-led growth theories often emphasize the balance of payments as the main constraint that an economy faces in the long-run. Among the various subjects that balance of payments constraint literature treat, we can name: The role of financial flows in the long run; External indebtedness; Solvency and liquidity problems; Currency hierarchy; The role of the exchange rate; The relation between balance of payments constraint and economic policy, and many others.

All these themes are related with the research lines of the Group in Political Economy at the Institute of Economics of the Federal University of Rio de Janeiro, which follows the Sraffian framework proposed by Garegnani to make the Keynesian-Kaleckian principle of effective demand compatible with the classical surplus approach. For our Group, growth is demand-led and policy (often balance of payments) constrained. In succession, inflation is a cost-push political economy phenomenon dependent upon conflicting claims over income distribution. Within this framework, macroeconomic policies are fundamental to growth, inflation, and income distribution. In capitalist economies, these policies arise from institutional arrangements as well as political power relations. The Research Group in Political Economy considers that constructing policy-relevant analysis and theoretical and applied models to better understand advanced and developing countries’ actual performance demonstrates this theoretical approach’s soundness.

Given the approach taken by the Group and in the context of the intensification of dialogue and convergence among some Post-Keynesians, Kaleckians, Kaldorians, practitioners of Modern Monetary Theory, and Sraffians, the goal of the 2024 Edition of the Workshop is to strengthen this promising trend by promoting a constructive and policy-relevant debate among these strands of critical thought. Other heterodox approaches to economics are also welcome and encouraged in fostering new contributions concerning demand-led growth analyses, models, their multiplicity of relations with monetary and financial elements and external constraints to growth.

More info here.

The Gift of Sanctions

Jamie Galbraith presented, at the EPS session at the ASSA Meetings in San Antonio, the paper published by INET. As he said there: "Despite the shock and the costs, the sanctions imposed on the Russian economy were in the nature of a gift." A type of invisible hand effect, by which the unintended effect of the policy that should supposedly benefit US allies (Ukraine) has the unintended effect of helping its alleged enemies (Russia).

From the abstract:

This essay analyzes a few prominent Western assessments, both official and private, of the effect of sanctions on the Russian economy and war effort. It seeks to understand the main goals of sanctions, alongside bases of fact and causal inference that underpin the consensus view that sanctions have been highly effective so far. Such understanding may then help to clarify the relationship between claims made by economist-observers outside Russia and those emerging from sources inside Russia – notably from economists associated with the Russian Academy of Sciences (RAS) – which draw sharply different inferences from the same facts. We conclude that when applied to a large, resource-rich, technically proficient economy, after a period of shock and adjustments, sanctions are isomorphic to a strict policy of trade protection, industrial policy, and capital controls. These are policies that the Russian government could not plausibly have implemented, even in 2022, on its own initiative.

Download paper here.

 

Podcast Failures: Friedman and Chile, Hume and Public Debt

I listen to a few podcasts during my commute. Two that I often appreciate are Know Your Enemy, associated with Dissent Magazine,* a series of interviews on mostly right wingers by Matthew Sitman and Sam Adler-Bell, and Past, Present and Future, a series of monologues by David Runciman, sponsored by the London Review of Books.  Both are always entertaining and informative. I'm not a specialist in most of the subjects they discuss. However, two recent episodes (or at least I listened to them recently), one from each, dealt with economic issues, and they did leave a lot to be desired, to say the least.

Very briefly, the issue with the interview with Jennifer Burns about her biography (in many ways, from this interview, and the one with Tyler Cowen, it is hard not to see it as a hagiography; more on that as soon as I read the book; it's been ordered. I hope that's just a perception and that the book provides a more balanced view of his contributions and political views) of Friedman is that the hosts accepted almost all of her very monetarist interpretation of the Allende government, and her whitewashing of Friedman's relation with the Pinochet regime (see on that this and this). In all fairness, at least one of the hosts (sorry, not sure that was Matt or Sam) questions (around 1:16) the validity of her interpretation of the relation of Friedman with the regime. But there seems to be a complacent view according to which inflation in Chile was caused by excessive monetary printing driven by the expansion of the welfare state.

The role of the US sanctions, and Nixon's infamous instruction to "make the economy scream" are never cited. And the lack of dollars was at the center of the depreciation of the currency, inflation and the collapse of the economy. Let alone that the Pinochet period wasn't that good (yes they do claim that it created the basis for future growth, a typical conservative trope, that I should write about; in another occasion). I also recommend this post by Tom Palley. On a general evaluation of the regime see this piece by Jim Cypher in Dollars & Sense.

The issues with Runciman's podcast are considerably more problematic. They don't entail a misrepresentation of the ideas of a crucial intellectual, in this case, David Hume. In fact, Runciman is relatively correct when it comes to Hume's essentially negative views of public debt (which were not all that different than those of Adam Smith, at least according to Donald Winch**; btw it was called public credit at that time, so nothing weird about it). He makes to much of Hume's drastic solution, default, for public debt, and its comparison with suicide, for the nation not the individual. And he does recognize that events essentially proved Hume wrong.

But then he commits all of Hume's (and modern mainstream economics). Presumes that the only way out of debt is to run persistent surpluses, printing money and reducing its value in real terms (endorsing a Monetarist view of inflation; it's amazing how pervasive it is), and default. He misses that debts can fall as a share of income (GDP), that is, the ability to repay, if the economy grows faster than debt (the rate of interest), and that most debt consolidations actually happened that way, while running deficits. He also gives Argentina as an example of a country that has defaulted without noticing the differences between debt in domestic and foreign currency. It's a mess. Worse, in an environment in which many conservatives want to promote default in the US he suggest that talking about it would be reasonable. He is out of his depth, should apologize and invite someone to explain the problems with his analysis.

Again, I'm only commenting on these two episodes, because they do seem off, when compared to the quality of both podcasts in general.

* I published almost 20 years ago on Dissent. Because of this I did search their online archive and my piece, and my name was misspelled. Also, it was published in the Winter of 2004, and not of 1984. In the original magazine it was spelled correctly. Oh well.

** See Donald Winch, "The political economy of public finance in the 'long' eighteenth century," in John Maloney (ed.), Debt and Deficits: An Historical Perspective, Cheltenham: Edward Elgar, 1998.

Second and third parts of the interview (in Spanish)

Second and third parts of my interview with Diego Polanco. On Argentina, Brazil, heterodox economics, and more. In Spanish. First was here.

 

Rest here:

What's the deal with The Smiths

 

 

With friends like this...

This is NOT a review of the Smiths (the band), and neither of (or at least not a full one) of Glory M. Liu's (relatively) new book Adam Smith's America: How a Scottish Philosopher Became An Icon of American Capitalism. For a proper review go read Kim Phillips-Fein's one. In a sense, the book remind me of Bernard Shaw's famous saying that UK and the US were two countries divided by the same language. Here the gap is between fields, and there are two gaps, one within economics, modern mainstream economics and old classical political economy. Liu is a political scientist by training, and what she takes as economists views, including the understanding of the history of the discipline, are fundamentally from a mainstream perspective.

The phrase by Sraffa, that I have cited before fully applies here. He said:

"The classical economists said things which were perfectly true, even according to our standards of truth: they expressed them very clearly, in terse and unambiguous language, as is proved by the fact that they perfectly understood each other. We don’t understand a word of what they said: has their language been lost? Obviously not, as the English of Adam Smith is what people talk today in this country. What has happened then?" [Sraffa, Nov. 1927, D3-12-4, front page, 14]

In particular, the continuity in what has been aptly referred to as the surplus approach from William Petty to Smith, and the well documented trajectory from the ideas of Petty to Cantillon, to Quesnay, and then to Smith is lost in her relatively thin discussion of political economy aspects of Smith. The book by Tony Aspromourgos, On the Origins of Classical Economics: Distribution and value from William Petty to Adam Smith, is required reading on this subject. Smith clearly builds upon the core of the surplus approach, as developed by Petty-Cantillon-Quesnay, in particular on the question of the notion that manufacturing activities are productive. That is certainly an important aspect associated to the disputes between agrarian and industrial views of society.

But while there are differences in their views with respect to what might be termed the model of development (agrarian vs manufacturing), there is clear analytical continuity between Smith and the Physiocrats. They are all concerned with the material reproduction of society, in which the surplus (and, hence, profits and distribution) is a residual, and wages are at the level of the socially and institutionally determined (not merely physiologically) by the needs of survival of the working class. Smith saw distribution as conflictive. That's an analytical point that cannot be dismissed, and is not discussed in Liu's book at all.

This matters to some extent, because the general argument in Liu's book -- which is for the most part correct, that Smith ideas have been used by different groups to promote agendas that were not originally part of Smith's arguments, and that he was a complex author with more depth than often transpires in these several versions of reinvented Smiths (hence, the Smiths) -- misses the actual point of the original Smith. In her view, the nuance is provided by the fact that Smith was a moral philosopher and that in his other major work (and in his Lectures on Jurisprudence, based on students notes, and published posthumously), The Theory of Moral Sentiments (TMS), a Smith different from the one of The Wealth of Nations (WN) appears. Smith cannot be seen as a defender of selfish behavior, since he is clearly critical on TMS (the so-called Das Adam Smith Problem, about which Liu makes more than one should), neither an unqualified supporter of unregulated capitalism, since he qualified it, including in the WN (for example, with his approval of the Navigation Acts; I would add of the Bank of England). That's fine, but displays a limited understanding of the relation of Smith's and the surplus approach with modern economics.

Smith is misread by modern economics NOT because he was not an unqualified defender of unmitigated, unregulated, laissez-faire capitalism (which he wasn't), but because theoretically his economic system did not imply that markets produced optimal outcomes. His defense of laissez-faire and of commercial societies was not based on the allocative efficiency of markets (neither then intervention could be supported as a way to preclude inefficiencies), but simply as needed break with the remnants of feudal institutions that hampered the process of accumulation. As Marx noted in his The Poverty of Philosophy (Works, vol. 6: 176): "The Classics, like Adam Smith and Ricardo, represent a bourgeoisie which, while still struggling with the relics of feudal society, works only to purge economic relations of feudal taints, to increase the productive forces and to give a new upsurge to industry and commerce."

Of course, to sort this out one has to get into the theory of value.* The labor theory of value (LTV) (in an early and rude state of society) meant that the long term (natural) prices were determined by the relative amounts of labor, and supply and demand only determined short term market prices. This theory implied that profits were determined as a residual, for a given level of output and with real wages given, for historical and institutional circumstances, at the level of subsistence. The implication is that the theory did not imply the full utilization of labor, and that distribution is conflictive. So Smith's policy defense of laissez-faire was not based, like modern neoclassical versions (in particular the Chicago School that Liu's discusses in more detail, including Stigler, pictured above), on markets producing the optimal allocation of resources, including the full utilization of labor.

It is clear that Smith is not a forerunner of Marx, something that the latter understood. Marx shared an analytical framework with the classical authors, but rejected their a-historical categories. He argued that:

"Economists like Adam Smith and Ricardo, who are the historians of this epoch, have no other mission than that of showing how wealth is acquired in bourgeois production relations, of formulating these relations into categories, into laws, and of showing how superior these laws, these categories, are for the production of wealth to the laws and categories of feudal society." (Ibid.).

But it is also clear that the theoretical foundations of his policy views was very different than those that were built from the developments of the Marginalist Revolution, and closer, in fact, to Marx's own analytical framework. On that Milgate and Stimson (2009), in their very useful After Adam Smith, are also clear. They say:

"Indeed, if the contemporary economic case for liberty is ultimately made in terms of the language of the market, which if left unimpeded by the state is capable of solving a static problem of allocating a fixed supply of resources, then we have moved well beyond these eighteenth-century thinkers such as Smith. In this sense it might be reasonable to ask whether what we understand today as free market theory—against which a modern form of nationalist- led trade policies might be said to operate—is different in important ways from the eighteenth-century political economy from which it is said to have originated. It might also be well to ask just how that transformation of the conceptual framework of political economy and its relationship to politics that came about after Smith took shape" (2009: 32).

Without an understanding of the changes in political economics (and its transition to economics) after Adam Smith, one is left with the puzzle noted by Sraffa almost a century ago.

* On the reasons for the need for a theory of value go here. For more on the limits and problems of the LTV see this and this.

PS: I should note that Liu tells the story of Stigler's T-Shirt that read Adam Smith Best Friend (Nathan Rosenberg's paper on that here). Back when, my PhD students in Utah, did a T-Shirt on my suggestion that there should be an alternative to Stigler's one. The Heterodox Students Association (HESA) T-Shirt read: I read Adam Smith and Understood it. Enough said. Old post on that. A recurring theme around here.