Saturday, February 6, 2016

Jobs and Trade numbers at the Rick Smith Show

Friday, February 5, 2016

Unemployment is below 5%, and no inflation to be seen

Numbers are out,employment rose by 151,000 in last month, and December numbers were revised down too.Manufacturing added 29,000 jobs in January. The unemployment rate fell to 4.9 percent. Also, average hourly earnings increased by 12 cents last month, and at about 2.5 percent for the last year. So the unemployment rate has crossed the 5 percent barrier, but inflation does not seem to pick up. The natural rate keeps moving, and mainstream macro has very little to say about it.

Thursday, February 4, 2016

Follow the Money

That's what Deep Throat said to Bob Woodward in All the President's Men. Good advice. I'm certainly not a specialist on campaign contributions, but Hillary Clinton said regarding Wall Street that "They’re not giving me very much money now, I can tell you that much" after the exchange with Anderson Cooper (video available here), and I decided to check it out. This website provides some comparative data on Hillary and Bernie's donors [I'm assuming the data is accurate and the info I provide is based on that assumption].

Hilary gets 80% of her funds from large donors, compared to 26% from Large Individual contributors for Bernie. At the top of her list the Soros Fund, with more than 7 million, while for Bernie it's Alphabet Inc., with less than 100,000. Not sure how she claimed to receive 90% from small donors.

If we take "Wall Street" to mean the sum of Securities & Investment, Real Estate and Misc. Finance, then she received about 21.5 million from them in this electoral cycle, or about 16% of the funds raised. Number one industry for Bernie is "Retired" (if that can be called an industry) and second is Education, with 1 and half a million respectively. Real Estate and Misc. Finance contribute slightly more than 200,000 of his funds.

 Hilary does receive 50% of her contributions from women, while for Bernie it's about 36%.

You decide who, if anybody, is the Wall Street candidate.

PS: For comparison Jeb Bush gets 93% from big donors, and about 38% from "Wall Street," defined as above. If you add Insurance, then he gets about 46% from "Wall Street." Ted Cruz is also at around 45% of his contributions.

Tuesday, February 2, 2016

Lauchlin Currie's review of Keynes' General Theory

Curried Keynesianism in action
The review with an intro can be read here (or here). Currie is often considered the first Keynesian in the Roosevelt administration (I suggested here that, while not a professional economist, that merit goes to Eccles), and was also the first to work in the White House, before the Employment Act and the creation of the Council of Economic Advisers (CEA). He was also later unjustly attacked as a Soviet spy, and Roger Sandilands has dealt with this here (subscription required). His biography of Currie is a must read.

Monday, February 1, 2016

Simon Wren-Lewis on New Classical Economics and the Financial Crisis

New paper by Wren-Lewis titled "Unravelling the New Classical Counter Revolution." It provides a strong New Keynesian critique of the New Classical/Real Business Cycle schools. He argues, correctly in my view, that the problem is the abandoning of the Keynesian method of analysis. I'm less keen on microfoundations. Or at least on marginalist microfoundations. But it is important to understand how much the fundamentalist views of Lucas and Prescott have affected the profession.

From the abstract:
To understand the position of Keynes's The General Theory today, and why so many policy-makers felt they had to go back to it to understand the Great Recession, we need to understand the New Classical Counter Revolution (NCCR), and why it was so successful. This revolution can be seen as having two strands. The first, which attempted to replace Keynesian policy, failed. The second, which was to change the way academic macroeconomics was done, was successful. Before the NCCR, macroeconomics was an intensely empirical discipline: something made possible by the developments in statistics and econometrics inspired by The General Theory. After the NCCR and its emphasis on microfoundations, it became much more deductive. 
As a result, most academic macroeconomists today would see the foundation of their discipline as not coming from The General Theory, but as coming from basic microeconomic theory – arguably the ‘classical theory’ that Keynes was so keen to cast aside. Students are also taught that pre-NCCR methods of analysing the economy are fatally flawed, and that simulating DSGE models is the only proper way of doing policy analysis. This is simply wrong. The problem with the NCCR was not the emergence of microfoundations modelling, which is a progressive research programme, but that it discouraged the methods of analysis that had flourished after The General Theory. I argue that, had there been more academic interest in these alternative forms of analysis, the discipline would have been better prepared ahead of the financial crisis.
Read the whole paper here

The relevance of Keynes's General Theory after 80 years

By Thomas Palley, Louis-Philippe Rochon and Matías Vernengo*

This year marks two important anniversaries in macroeconomics: the 80th anniversary of the publication of Keynes's The General Theory of Employment, Interest and Money (1936), and the 70th anniversary of Keynes's premature death, at the age of 63. To mark these anniversaries, the first issue of the fourth year of the Review of Keynesian Economics is dedicated to Keynes.

The issue contains a symposium of papers titled ‘The Relevance of Keynes's General Theory after 80 Years’ and some previously unpublished archive material on Keynes. The unpublished material consists of notes from a 1936 University of California course taught by Frank Knight in which The General Theory was discussed, and a memorandum written by Lauchlin Currie, who is considered the first and most combative Keynesian in the Roosevelt administration during the early phases of the New Deal.

The 80th anniversary of The General Theory takes place at a time when the global economy is struggling with economic stagnation that set in after the financial crisis of 2008. In some respects, these conditions have parallels with the 1930s when the Great Depression followed the financial crisis of 1929. This time, however, economic depression was avoided by timely economic policy interventions that either bore the direct hallmarks of conventional Keynesian thinking or were inspired by Keynesian thinking about the economy's limited self-stabilizing capacity.

Read full text here.

Thomas Palley - Senior Economic Policy Adviser, AFL-CIO, Washington, DC, USA
Louis-Philippe Rochon - Associate Professor, Laurentian University, Greater Sudbury, ON, Canada
Matías Vernengo - Professor, Bucknell University, Lewisburg, PA, USA

Sunday, January 31, 2016

On the blogs

Kalecki And Keynes On Wages -- by V. Ramanan. Keynes' reply to Dunlop and Tarshis on the pro-cyclicality of real wages is available here. This is an issue I still discuss in my macro classes, that is not part of any manual I know

How Central Banks (and even Keynes) Misled the Public About Banking and Money -- Perry Mehrling on the Bank of England's admission that money is endogenous. In all fairness endogenous money is quite old and no central bank ever pretended they controlled money supply other than in the 1970s, when they tried and failed. So it's monetary economists (and Keynes in the GT, but not in the Treatise for that matter, where he used a Wicksellian approach)

Two Views On Introductory Economics -- Robert Vienneau on Noah Smith and Robert Paul Wolff's views, which basically are the marginalist supply and demand versus the surplus approach

Introduction to Economic History -- Brad DeLong posted the link to his graduate history course with Barry Eichengreen. I used to teach a graduate course in economic history too

Did socialism keep capitalism equal? -- Older post by Branko Milanovic that I missed somehow, and he twitted about recently

Friday, January 29, 2016

Chinese slowdown and the world economy

The Conference Board argues that Chinese official data should be taken with some skepticism. Nothing new there. They have adopted a new measure, which implies "Chinese economic growth at a more realistic 3.7 percent" for the recent past. In this scenario, interestingly enough, "it’s likely that the bulk of China’s slowdown has already taken place since 2011, even if unapparent in official statistics." So the picture is probably worse than the official one (as shown below, from The Economist)

So China will grow at about 4% and has already been growing at that pace for a while, if one believes the Conference Board (in the official data above one might think there is more space for a slowdown, but clearly it has gone already down too). The big questions are whether this will continue, and what would be the impact for the global economy (and the US).

Arguably the slowdown is the result of the transition from an export-led development strategy to a domestic, consumption centered economy, compounded by the problems of an unregulated banking sector, the infamous shadow banks. Note, however, that most problems are associated to domestic demand, and debt in domestic currency. China still has current account surpluses and huge external reserves, even if the latter have decreased. So the problems of a typical developing country, which cannot grow given the external constraint, are nonexistent. Also, it is true that some firms have debts in dollars (and revenue in yuan), and the depreciation of the yuan poses problems, but again the People's Bank of China has enough dollars that rescuing and absorbing the costs of exchange rate risk should be a minor issue. This is not to say that a further slowdown is impossible, but if it continues it should be counted as a policy mistake, not a structural constraint.

On the effects on the world economy my impression is that there is also a great deal of exaggeration. China is the second largest economy in the world, for sure, and has become central for the global economy in many ways. But its role in the global economic problems has been overstated. In Brazil, for example, the Chinese slowdown played virtually no role, as I discussed here. In the US the usual complain is that the depreciation of the yuan is behind deindustrialization, and that the Chinese crisis, that has led to a more depreciated currency, is hurting the manufacturing recovery. I am skeptical of the argument. The figure below shows manufacturing employment and a broad trade weighted exchange rate for the US.
As it can be seen the decrease in manufacturing jobs, which started in the early 2000s (before that it was more or less constant; see discussion here) is connected to the entry of China in the World Trade Organization (WTO). But the collapse of manufacturing jobs went hand in hand with a depreciation of the dollar. And some of the, admittedly slow and small, recovery since the 2008 recession has gone with an appreciation of the dollar. This indicates that Free Trade Agreements (FTAs) and the WTO play a more important role than exchange rates.

China is important, but the notion that it will derail the US recovery seems incredibly hyperbolic. My bet is the US will continue its slow recovery, and the Fed will increase interest rates at an even slower pace than they suggested, as the last meeting indicated.

Thursday, January 28, 2016

The Mission of Radical Political Economy

The mission of radical political economy is to accentuate the perseverance of critical social scientific enquiry. As such, the aim is to make palpable how the insights of social justice research widely make apparent how the global socioeconomic system does not automatically generate efficient situations whereby unique organizations of production, exchange, and distribution guarantee the attainment of maximum social welfare.

The idea that humans are simple instrumentally rationalists, who supposedly oscillate like a homogeneous globule of Hobbesian brutes, is conclusively a fiction. Radical political economy exposes hidden complex social fractures that limit the capability of humans to safeguard social assets, social claims, and social ties requisite for sustaining an institutional nucleus for human survival. Hence, the goal is to embrace scholarship that evinces the impingement upon the accruement and management of resources vital for catholic cogitation, and realization, of conscious desires for humans to reach their full potential.

In this sense, the purpose is to establish the appropriate consciousness needed to untie the Gordian knot of social complexity, in order to surpass rudimentary assumptions concerning the nature of human social interaction. Accordingly, the concern is with elucidating the intrinsic causal social relationships—the Hegelian ‘notion’ of truth submerged and contained within the confines of appeared ‘being’—that furnishes meaning and understandability, so as to strengthen a philosophy of praxis that strives to build the social conditions for a reconstruction and reconstitution of the social world, such that higher stages of human development are sought and achieved.

In other words, what is requisite active engagement in the construction and strengthening of a broadly shared paradigmatic and methodological orientation that emphasizes the trenchant questioning of manifest social phenomena, in order to expose the underlying structural dynamics that engender mass deprivation and dispossession. This is a tireless exercise in solving the inherent problems related to relationship between abstraction and social reality, in order to elucidate the philosophical, metaphysical, epistemological, ephemeral, and ontological qualities that condition the human lived experience and, regrettably, foster the unnecessary barriers for humans to be masters of their own social organization.

The human brain confronts matters in the most efficient manner possible; so much so that it often becomes counterintuitive to undergo analysis that extends beyond the simplest explanation, even if that explanation is suspect. It is in this inherent method where dogma is born. This process of edification, however, has the power to overcome innate tendencies towards such reductionism. Since radical political economy presents an authentic humanism, which posits as fundamental that human beings of all social locations subjected to domination must fight for their emancipation, then this predisposition towards apathy—intensified through systems of coercive, disconnected, and hierarchical social institutions—can be broken down, spawning a community that is both cooperative and collaborative, whereby all human dignity, creativity, and survival are held in the highest regard.

Another post on radical political economy is here

Wednesday, January 27, 2016

Bob Pollin on Clintonomics

At The Nation. Few important points. As Bob notes Hillary does invoke the mantle of Clintonomics. In his words:
"In trying to burnish her credentials as a can-do populist and to portray Bernie Sanders as a purveyor of naive socialist fantasies, Hillary Clinton has increasingly invoked Bill Clinton’s presidency as her economic policy lodestar."
 And Bill Clinton's program was not really progressive. Again:
"The starting point for understanding Bill Clinton’s economic program is to recognize that it was thoroughly beholden to Wall Street, as Clinton himself acknowledged almost immediately after he was elected."
 His Treasury Secretary, one of them, was Robert Rubin, ex-chairman of Goldman Sachs. And financial deregulation, which is at the heart of two bubbles, and two recessions, continued in this period. Bob says:
"A major driver here was Wall Street’s craze for Internet start-ups... Throughout the bubble years, Clinton’s policy advisers, led by Rubin and his then protégé Larry Summers, maintained that regulating Wall Street was an outmoded relic from the 1930s. They used this argument to push through the 1999 repeal of the Glass-Steagall financial regulatory system that had been operating since the New Deal. The Clinton team thus set the stage for the collapse of the bubble and ensuing recession in March 2001, only two months after Clinton left office. They also created the conditions that enabled the even more severe bubble that produced the 2008 global financial crisis and Great Recession."
A good analysis of the limitations of Clinton's economic policies is in Bob's old paper Anatomy of Clintonomics.

Tuesday, January 26, 2016

Consumer credit and mortgage finance in the 1920s

I've been reading Robert Gordon's The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World), that I bought at the ASSA Meeting in San Francisco. There is a wealth of data. One topic discussed here before was the expansion of credit in the 1920s, and the role of the housing market in the boom of the roaring 20s. Gordon says with respect to the housing market:
“One reason homeownership rates soared in the 1920s as part of the massive building boom of that decade was a widespread loosening of credit conditions that allowed families to take out second and third mortgages. The value of outstanding mortgages soared from about $12 billion in 1919 to $43 billion in 1930 (i.e., from 16% to 41% of nominal GDP). Figure 9–2 plots the ratio of mortgage debt to GDP against the non-structures consumer debt ratio already examined in figure 9–1. The differing left-hand and right-hand axes indicate that mortgage debt for structures during the 1920s was consistently seven times higher than for non-structures consumer debt. The longer view in figure 9–2 shows that the value of outstanding mortgages was roughly 20 percent of GDP from 1900 to 1922.”
“Ratios to GDP of Non-Structures Consumer Credit and Residential Structures Credit, 1896–1952.
Sources: Olney (1991, Table 4.1), Gordon (2012a, Table A-1), and HSUS series Dc903.”

The Great Depression put an end to the roaring 20s. The unsustainable expansion of consumer credit and mortgages seems to have played, as much as in the last crisis, a significant role.