The Worldly Philosophers go to Washington: Bankers and Generals

Fourth episode, where I discuss the Bank Wars, in particular the disputes between Biddle and Jackson, its relation to the Bullionist Controversy in England, and the ideas of Henry Carey, of whom Marx said: “bourgeois society in the United States has not yet developed far enough to make the class struggle obvious and comprehensible is most strikingly proved by H. C. Carey (of Philadelphia), the only American economist of importance."

From Regulation to Deregulation and (Perhaps) Back: A Peculiar Continuity in the Analytical Framework

New working paper with Bill McColloch, published by the Centro di Ricerche e Documentazione "Piero Sraffa." From the abstract:

The rise of the regulatory state during the Gilded Age was closely associated with the development of Institutionalist ideas in American academia. In their analysis of the emergent regulatory environment, Institutionalists like John Commons operated with a fundamentally marginalist theory of value and distribution. This engagement is a central explanation for the ultimate ascendancy of neoclassical economics, and the limitations of the regulatory environment that emerged in the Progressive Era. The eventual rise of the Chicago School and its deregulatory ambitions did constitute a rupture, but one achieved without rejecting preceding conceptions of competition and value. The substantial compatibility of the view of markets underlying both the regulatory and deregulatory periods is stressed, casting doubt about the transformative potential of the resurgent regulatory impulse in the New Gilded Age.

Download full paper here. 

Leo Panitch and the Lessons from Socialist Defeats

 

A few weeks ago I bought the little book on top (a new edition of a previously published one, I think). Sadly not long after I learnt of Leo Panitch's untimely death (obit by Chibber here). The book tries to account for three recent defeats of the democratic socialist left in recent times, even though it was written before the ultimate defeat of Bernie Sanders by the establishment candidate earlier this year. He and his co-authors discuss the rise of democratic socialism, and the consequences of the defeat, or one might say the caving, suffered by Syriza, which they point out was "the only party to the left of traditional social democracy in Europe that succeeded in winning a national election"* (p. 29), and what they call "the devastating defeat Corbyn suffered at the hand of Boris Johnson in December 2019" (p. 67).

The main lesson about the Syriza failure, even before the somewhat expected electoral defeat in 2019, was the absence of a Plan B. It could not back it's challenge to the Troika's austerity plans, since there was no plan for exiting the Euro, and they assume that would have led to leaving the European Union too. They say: "There was a marked lack of seriousness, if not dishonesty, behind the tendency to treat the referendum as proving, not just the massive public support for resisting further Troika-imposed draconian austerity (which was the question actually posed) but that the same support would have existed for leaving the eurozone, and most likely the EU, in light of the capital and import controls that this inevitably would have led to." In a sense, the notion is that there was support (from the middle class?) for pushing against the Troika, but not really for leaving the Euro. On Syriza's betrayal of the No Referendum see the old post by Stavros Mavroudeas here.

The lessons in the Corbyn case are less clear to me. They praise the Labour Party's 2019 Manifesto as being "more coherent and progressive [than the 2017 one], especially in making the environmental crisis rather than the need for export competitiveness, the overarching framework for the radical industrial strategy" (pp. 67-68). But they seem concerned fundamentally with how markets would punish a more radical government, and with the absence of "plans to deal with capital flight or a run on the pound" and the silence on "how and when to introduce controls over the movement of capital" (p. 65; although that seems more about the 2017 Manifesto). That notion of the dangers of capital blackmailing left of center governments seems to be part of their general view. They also tell us (p. 82), regarding the Meidner Plan in Sweden to socialize the ownership of the means of production,  that it was "resisted by Palme's Social Democratic government... [because] it had a fatal flaw: why would owners, knowing there is a timetable for their expropriation, continue to invest?"

Of course, a left of center governments could use monetary policy tools to avoid capital flight (including higher rates, and not just controls), and investment depends considerably more on whether the economy is growing or not. But my main problem with the discussion on Corbyn's defeat is their unwillingness to deal with the issue of Brexit and the role it played in his defeat more explicitly. My views on Brexit have not changed much since this post, so I'll avoid getting into it. But it seems clear that, like in the United States, in order to discuss the economic grievances of the working class, the left of center parties must be willing to discuss more directly the problems of economic integration.

Sanders has been doing that, and yet, he lost a second time. The book cannot discuss that, since it was written, it seems, before April and the victory of Biden in the primary. Here the issues of the inability to win, to a great extent because the party machine makes it impossible, opens the discussion of whether fighting inside the Democratic Party is the correct strategy. Like Michael Harrington, I believe that there is little alternative. I'm not sure that's their view in the book. At any rate, they do praise Bernie for having "a class-focused campaign" (p. 71) and spend a good amount of ink (pp. 74-86) criticizing Elizabeth Warren's firm based rather than class-based struggle for democracy (p. 87). It seems that a reform both of the primary system within the Democratic Party and an elimination of the electoral college are needed for a democratic (lower case) society in the US.

If there is a lesson, although it's not expelled out explicitly in the book, is that the forces of neoliberalism are incredibly strong, and resilient. Perhaps, that's a lesson that could have been seen in the several defeats of the left in Latin America with the end of the pink tide a few years ago. In the case of Latin America, lawfare, the use of the media, and the international institutions, and more recently even military force (in the case of Bolivia)+ were central to defeat left of center governments. In the case of Chile, it's worth remembering the role of the Constitution in tying the hands of left of center administrations, and how a referendum was needed to overturn Pinochet's charter. And the book suggests correctly in my view that "democratization can't occur without changing the context within which economic units, and thus workers, relate to each other" (p. 85). At any rate, Panitch always forced us to reflect, and this last book continues to do so.

* Podemos in Spain is part of the government coalition, of course.

+ Although international organizations like the Organization of American States were crucial too, and the coup was eventually defeated by the democratic forces on the left.

The worldly philosophers go to Washington: Episode 3, Farmers and Merchants

Economics without Gaps: on Ibn Khaldun and non-Western traditions in the history of ideas

Ibn Khaldun, Arab scholar

A piece* from a few years ago, has again become somewhat popular and it has been making the rounds. It suggests that the Arab scholar Ibn Khaldun developed the ideas of classical political economics in the late XIV century, about half a millennia before Adam Smith, often seen as the father of classical economics, and of modern economics. Some would suggest that Khaldun was the real father of economics (or stepfather in the first essay on top). To a great extent, the discussion of the role of non-western scholars tries to show that an Eurocentric bias has dominated the history of economic thought. This discussion goes hand in hand with the notion that the Rise of the West and the so-called Great Divergence are relatively recent phenomena.

There are many elements in that assessment that are correct. Schumpeter's massive History of Economic Analysis does mention Khaldun in passing on his discussion of historical sociology, but he also argues that between the ideas of classical antiquity and scholastic thinking there was a great gap.** In his words: "So far as our subject is concerned we may safely leap over 500 years to the epoch of St. Thomas Aquinas (1225–74), whose Summa Theologica is in the history of thought what the south-western spire of the Cathedral of Chartres is in the history of architecture." There is little recognition of the role of Arab scholars in maintaining and expanding the knowledge of classical antiquity in almost all fields. And in the field that eventually would be associated with political economy, Khaldun's Muqaddimah, or Introduction (or Prolegomena), does indeed provide significant progress over the work of classical antiquity.

His work essentially deals with the cyclical rise and fall of caliphates, and analyzes the material conditions for these historical circumstances. Robert Irwin in his intellectual biography of Khaldun, reminds us that: “Arnold Toynbee, who produced a twelve-volume study of the rise and fall of civilizations, described Ibn Khaldun’s theoretical treatise on history, the Muqaddima, as 'undoubtedly the greatest work of its kind that has ever been created by any mind in any time or place'.”

However, while all of that is correct, and should lead to a more encompassing understanding of the role of non-western economic thinking, it is also important to bear in mind what was the contribution of Ibn Khaldun, how it fits in the history of ideas, and also in what sense classical political economy authors have an original theoretical framework. That tradition, it is worth noticing starts really with Sir William Petty, not Smith, as noted by whom I would suggest is the first serious historian of economic ideas, Karl Marx, in his Theories of Surplus Value. Furthermore, it is important to be careful and avoid the normal confusion of seeing Adam Smith as the father of modern, meaning marginalist (or neoclassical), economics. As a general principle, I would also be critical of the notion that the history of economic ideas is the repository of old versions of modern economic theory, that have to be deciphered and understood in modern guise. It was exactly this kind of thinking that led many marginalists, like Alfred Marshall, to suggest that they were expanding on the ideas of classical authors like David Ricardo, when in fact they were subverting them.***

I would suggest that there are two important differences between Ibn Khaldun and the Anglo-French tradition of the surplus approach, associated with the Petty-Cantillon-Quesnay-Smith-Ricardo (and I would add Marx; on the first three that form the basis for the work of the surplus approach see this chapter by Tony Aspromourgos) line of evolution. First, while Khaldun is interested in the cyclical rise and fall of civilizations, associated to the sedentary, urban, mercantile caliphates bordered by nomadic, desert populations, Smith developed at the same time and independently from Turgot (on that see Ronald Meek), a linear four stage theory of economic development, from hunting (and gathering), to pastoral, then agricultural, and finally commercial societies, which is the term he used for societies like the England of the time, were manufacturing activities and financial relations were significantly developed. These ideas would lead to Marx's materialist conception of history based on the notion of modes of production, evolving from ancient slavery and feudalism to capitalism.

It seems that while a perception that, what we now call, the social sciences are historical in nature was clearly in Khaldun's writings, the conception of history, and the scope of the analysis was different than the one in Smith. The reason is not only related to the fact that Khaldun was writing in the Middle Ages, before the rise of capitalism, but also, and more importantly it seems, Khaldun was looking at the specific circumstances of Arab societies, even if there were universal lessons in his analysis. The evolution from hunter-gathering to agriculture and to manufacturing are more universal. Further, Marx's conception of modes of production emphasizes the method and the social relations of production by which surplus is extracted from workers. Command and coercion in the context of slave and feudal societies, and market relations in the case of capitalism.

The second difference is related to the notion of surplus, and the source of value. It is true that there was a notion of a surplus beyond what is needed for survival in Khaldun's work, and that it allowed in his view for crafts and division of labor, or specialization, as would be discussed by classical authors much later. And there was also a clear sense that labor was the source of value, and that a producer must cover the costs of production. Some have argued that one can see the labor theory of value (LTV) in Khaldun's writings. However, it is clear that the conception of profits and of prices in Khaldun was not in conformity with the LTV.

He argues in chapter 5 of the Muqaddimah that: "Commerce is a natural way of making profits. However, most of its practices and methods are tricky and designed to obtain the (profit) margin between purchase prices and sales prices. This surplus makes it possible to earn a profit." In other words, the surplus results from selling at a higher price than purchased in the process of exchange. Profits were not a residual obtained in the process of production for Khaldun, after the conditions for reproduction of society, in particular the subsistence of the labor force, was obtained. This is, of course, the whole point of classical political economy. The understanding of the objective, material conditions for the reproduction of society. Profits were obtained in the process of production, and that would allow to understand accumulation, since the surplus was the basis for economic growth. Accumulation and not the cyclical fluctuations of civilizations were at the center of classical political economy analysis, reflecting, perhaps, the dynamic nature of capitalist societies.

These differences suggest that Khaldun was, most likely, an important source for scholastic, and mercantilist/cameralist authors to which classical authors were to some extent responding in their own writings. Mercantilists authors also thought in terms of profits in the process of exchange, which was to some extent to be expected in pre-capitalist societies with a large mercantile sector. These were essentially agrarian societies, and the transformation of the structure of production was not yet significant.  Recognizing the role of Arab scholars in preserving the texts and the knowledge of ancient scholars, and their ability to move beyond the ancients is crucial for the proper understanding of the evolution of economic ideas. But it is important understand their actual contributions to avoid more confusion in the history of ideas.

-------------------

* In this piece it is suggested that the history of thought textbooks by Screpanti and Zamagni and by Roncaglia are mainstream texts, and put in the same category with Blaug's book. That is of course a misconception. The former differentiate between classical and marginalist traditions, and do not argue for the continuity, as Blaug does, and can be seen as clearly heterodox in nature.

** Spengler (1964) is the classic study on Khaldun by western historians of economic thought. Although his essay is careful about Khaldun's contribution it might give to much credence to the notion that the "economic literature of Islam can be traced to the Economics of Bryson", for the ancient Greek philosopher. 

** It is worth noticing that the piece cited at the beginning suggests that Khaldun is a precursor of Smith, presumably because of the division of labor, but without a distinction of productive and unproductive activities, but also of Alfred Marshall. We are told that Khaldun "analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century: the islamic scholar also described the relationship of demand and supply." Supply and demand forces were well-known before Khaldun. Marginalism suggested that long-term prices, what Smith called natural prices, were determined by those forces.

Heterodox Challenges in Economics by Sergio Cesaratto

The English translation of Sergio Cesaratto's book has been published. A Free chapter is available at the Springer website here.

From the promotion pamphlet:

This book discloses the economic foundations of European fiscal and monetary policies by introducing readers to an array of alternative approaches in economics. It presents various heterodox theories put forward by classical economists, Marx, Sraffa and Keynes, as a coherent challenge to neo-classical theory. The book underscores and critically assesses the analytical inconsistencies of European economic policy and the conservative nature of the current European governance. In this light, it examines the political obstacles to proposals to reform the European monetary union, as well as those originating in the neo-mercantilist German model. Given its scope and format, the book offers a valuable asset for researchers and members of the general public alike.

Go get one immediately! 

Poor Richard Goes to London: The Economic Ideas of Benjamin Franklin

Another episode of my podcast on The Worldly Philosophers Go to Washington: From Alexander Hamilton to Janet Yellen. The ideas of early classical political economists and their influence in America are analyzed in this episode. The role of Sir William Petty’s ideas in the development of Benjamin Franklin’s early policy proposals is discussed. It is noted how Franklin had a firm grasp of the main economic theories of his time, even before some of these ideas were fully developed in Europe, by the Physiocrats and Adam Smith. In fact, some of Franklin’s original ideas influenced European political economists. The notion that the influence of economics is a recent phenomenon cannot be supported by the evidence.

From Regulation to Deregulation and (Perhaps) Back (Talk in Portuguese)

My talk at the Federal University of Rio de Janeiro yesterday, on the rise, fall, and perhaps rise again of the regulatory state in the US, and its relation to ideas, particularly institutionalist, and Chicago School views, as expressed by John R. Commons and George Stigler. In Portuguese, of course.

Diego Maradona (1960-2020): Some Bittersweet Reflections

By Thomas Palley (guest blogger)

Maradona was more than just an extraordinary footballer. He was also a complicated social icon. That further distinguishes him from other footballers, though Pele also has some of that… and it is great to see young footballers like Marcus Rashford taking up that mantle.

He was both rewarded by and terribly exploited by the system. The system treated him like a “race horse”. They wanted him to play at all cost and pumped him with drugs. They did not care about the physical and psychological costs to him. That contributed to his addiction. Maybe he would have gotten there on his own owing to personality reasons, but the addictive pain-killers they fed him sure gave him a healthy shove in that direction.

He came from great poverty, from a shanty town. He never hid that and insisted on keeping the connection. I’m told he had tattoos of Fidel Castro and Che Guevara. He also had a relationship with the Pope (Francisco, not Benedict II or John Paul II). That politics speaks well of him, even if it was not carried through with the consistency of an intellectual or political activist.

As for the “Hand of God” goal, it obviously sits badly with England supporters. But in a way it fits with Maradona’s personality and social icon standing – a sort of roguish Robin Hood’s goal. I’ve come to accept it and even enjoy it.

Did you know that in Argentina, before inflation made them irrelevant, they used to call the 10 (diez) peso note a “Diego”? That is how much people loved him.

Published originally here.

Capitalism Alone Against Itself: Liberal Democratic versus Political Capitalism

I finished Branko Milanovic's thought provoking Capitalism Alone this summer. But I haven't had much time to write on the blog, as you might have noticed. This is certainly not a review, and I would definitely suggest that you go and buy the book as soon as you can and read it. It is a serious discussion of the future of capitalism, that word that, as Heilbroner often reminded us, was at the center of the discipline, but seldom discussed openly by economists. He cited, if memory doesn't fail me that it didn't appear in Mankiw's Principles textbook, at least back then in the 1990s, when it was published. I always note that Allan Meltzer wrote a little book titled Why Capitalism? were he makes no explicit effort in defining it, even though a definition can be gleaned from it.*

The definition most economists use leans more on Max Weber than Karl Marx, or the materialist tradition of the surplus approach upon which he built on. Branko is a pluralistic economist, well read and influenced by several authors, not all of them conventional. The discussion of the definition of capitalism is complex, and he separates, in its modern version two archetypes of capitalism, that are in a mortal battle for global hegemonic power, namely: Liberal Meritocratic Capitalism, represented by the West, and particularly by the United States (perhaps more credibly now after the election), and Political Capitalism, represented by the rise of the rest, with China at the head.

When assessing whether China is capitalistic Branko does use the conventional Weberian definition (p. 87), but that seems to be a pragmatic approach to provide the basis for his argument that China (and Vietnam, Malaysia and Singapore too, p. 91) does conform to the Weberian notion of political capitalism, a term used by Weber to discuss ancient forms of capitalism. But there is a concern with how elites maintain control by non coercive forces in Liberal Capitalism, and about the need to create an indigenous capitalist class in Political Capitalism. Both point out to alternative issue of class conflict, of course, and how surplus is extracted from workers, and points to an alternative view of capitalism. There is, in somewhat Marxist tradition a preoccupation with the role of the bourgeoisie, and an nod to Wallerstein that suggested that there are no capitalists without state support, something I would like to have seen more in the book (p. 116).

In fact, the secondary role of the state, to some extent, the absence of a more thorough discussion of the developmental state in the case of the Chinese experience, is one of the problems with the book. Another would be an emphasis with issues of corruption, which seem to me to be of secondary importance, even if the problem might have increased with financial deregulation, and the rise of tax havens. The emphasis of the book is on the changes associated to the increasing mobility of labor and capital and the problems it poses for both systems. Branko thinks that the welfare state is vulnerable with free labor mobility (p.156), undermining the democratic process in liberal capitalism, and that capital mobility, which he sees more through the lens of Global Value Chains, rather than portfolio flows, and that would lead to higher growth in poorer countries, reducing the need for labor mobility. The book also debunks a few myths, like the notion that robots are coming for your job, or the idea that a Universal Basic Income (UBI) would be a panacea for the economic problems caused by globalization and technological change.

* Invariably it is based on notions of the profit motive (some form of rationalization) as required by markets, and private property, or Weber (plus North, if you prefer). For an alternative discussion see this old post on a view based on the surplus approach, including a critique of the Weberian naturalization of capitalism as something that existed in the past and that explains the golden ages of antiquity.

The Portrait of the Heterodox Economist as Young Man

Tomorrow at 3pm (EST) a frank and informal talk about heterodox economics, my personal trajectory in the profession and discussions about political economy in Latin America with some young scholars from the YSI initiative. Join here.

Capital controls and economic development

 

My talk at the Universidad Centroamericana José Simeón Cañas (UCA), El Salvador 20/10/2020. On capital controls and development and in Spanish, of course.

The New Failed States and the reaction to COVID-19

 

Thursday at 9am EST, a roundtable on the "New Failed States" with Antonio Andreoni, Nelson Barbosa, Fiona Tregenna and yours truly. For an old post on the topic go here.

Is the Worldly Philosophy Dead?

 

Instead of videos a series of podcasts on the history of political economy, and its relation to economic policy in the United States. This is based on a course I teach for undergraduates.

Esteban Pérez on John Maynard Keynes

One of my favorite economists, and John Maynard Keynes too. Don't miss this lecture, in Spanish of course, on one of the central economists of the 20th century and its relevance for the periphery, particularly during the current pandemic. I'll post links to the Zoom and Facebook stream soon.

The problems of Neoliberalism in Latin America

 

My talk with Luis Nassif (in Portuguese) about neoliberalism in Latin America. We didn't really get to discuss the current cases of Argentina, Bolivia, and Chile, but talked about it more generally.

Affordable Housing Problems and Solutions: The Utah Case

David Fields (Guest blogger)

Rising housing costs and stagnating real wages are the primary causes of worsening housing affordability in Utah. The dismal wage growth is the result of a larger nationwide upward redistribution of wealth and income, which can be attributed to the following: a failure to adhere to full employment objectives; fiscal austerity; and various labor market policies and business practices allowing the higher social strata of a professional class to capture ever larger shares of economic growth. This is the result of institutional transformations that have exposed workers to the vulnerability of higher turnover, resulting in higher averages of unemployment, particularly worsened by the COVID-19 pandemic induced recession. For instance, from 2009 to 2016 real income only grew at 0.31% per year while rent crept upward at a rate of 1.03% per year in 2017 constant dollars. Slow and unequal wage growth stems from a growing wedge between overall productivity and the pay (wages and benefits) received by a typical worker.

Of particular note is the extent to which housing security has become directly dependent on price fluctuations driven by investment property, which excludes lower-income households from the housing market. A plausible explanation for why rents and home prices have increased is due to developers more interested in building or rehabilitating for upper-income households or high or ultra-high net worth individuals, for purposes of land-value maximization. While these newly built and rehabilitated structures increase the number of housing units relative to demand, which increase vacancy rates, they are essentially vehicles for wealth storage. As such, simply increasing the housing stock may have a much smaller effect on affordability than what could be anticipated.

Housing prices have skyrocketed over the past two decades, significantly contributing to chronic economic insecurity in relation to real wage stagnation.

What works? Empirically verified: rent control, mortgage assistance for homeowners, and transfer payments to vulnerable populations, along with allowing wages to rise with cost of living, which translates to policies that guarantee living wages, e.g. living wage ordinances and generous unemployment insurance disbursements. In addition, strict regulations as to what type of housing is built and where it can be built are requisite. Innovations in construction techniques and design would not only lower the costs of development, but also guarantee that dwellings are safe and adequate. If the private market is unable to achieve such sustainability, then more public oversight and control is necessary.

Housing market pressures drive up rents and home prices, making housing unaffordable and pushing long-time residents out of their communities, or into homelessness. Sometimes, these pressures result from targeted investments aimed at improving the quality of distressed neighborhoods. They can also result from gentrification, rapid growth in local jobs and population, or rising income inequality, all of which are not mutually exclusive. A countercyclical policy reaction to said pressures (solution 1) plays an essential role in moderating these market dynamics. Protecting against the displacement of long-time residents is vital; this also includes promoting spatial variation of affordable, i.e. mixed income, to prevent spatial inequality concerning the geographical segregation between “wealthy neighborhoods” “poorer neighborhoods.”

A stable and affordable home not only supports a household’s economic security and well-being, it can also help build wealth. Yet, many US households, particularly households of color, face steep barriers to buying a home or sustaining homeownership. Not only do people of color have lower homeownership rates than white people, they are less likely to sustain their homeownership. Black homeownership rates dropped significantly after the Great Recession to levels similar to those before the passage of the federal Fair Housing Act in 1968. Strict regulations against redlining, for example, can potentially expand stable housing and wealth-building opportunities to the nation’s increasingly diverse population.

In short the solution requires:

1. Ensuring Socially Equitable Affordable Housing Stays at Low Cost 
2. Protecting against Displacement
3. Ensuring and Expanding Access to Secure Homeownership

Tom Palley on What's wrong with Modern Money Theory

In the new issue of the Review of Keynesian Economics. From the abstract:

The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic shortcomings render it poor economics. However, MMT's claim that sovereign governments are financially unconstrained is proving a popular political polemic. That is because current distressed economic conditions have generated political resistance to fiscal austerity, and MMT fits the moment by countering the neoliberal polemic that government lacks fiscal space because it is akin to a household.

Read rest here. 

Production of Commodities at 60

Video of the conference, without the long part before it starts that was on the Review of Keynesian Economics Facebook page.

At any rate,the three presentations by professors Serrano, Palumbo and Nell.

Reflections after a Post Keynesian Workshop

 
Jessica Finnamore (Guest blogger)

Heterodox economics refers to any school of thought which is not accepted by the economic mainstream, or neoclassical economics. Post-Keynesian economics is a heterodox school of thought which believes (amongst other things) in high levels of government intervention, fundamental uncertainty, and that the economy is demand-driven rather than supply-constrained (as neoclassical economics says). Keynes himself was concerned with creating theories which were realistic and was even willing to reject theories he had previously supported if empirical evidence disproved them.

Some Post-Keynesian ideas have been adopted into the mainstream; following the 2008 financial crisis, the mainstream had little to no explanation for what had caused the housing market crash and so they adopted the post-Keynesian idea of speculative bubbles, a phrase which is now frequent in mainstream literature. Post-Keynesian ideas are also relevant in the current pandemic, with the UK government pursuing expansionary fiscal policy such as furlough payments to stimulate the economy, something which Keynes believed in strongly.

Fortunately, I have a module on schools of thought in economics at my university (the University of Leeds), which explores heterodox ideas including post-Keynesianism, feminist economics, Austrian economics and Marxism, as well as discussing why pluralism is important in economics. However, I had already been studying economics for 2 years at school before I got to university, and we had never been taught that the graphs and theories we were learning came from mainstream economics. We were never shown the issues of neoclassical economics such as its failure to apply to the real world and the vast oversimplifications of its models. Furthermore, even at university, we have just one module on heterodox economics and the rest of the modules have a clear undertone of neoclassical theory.

Personally, I was driven to search for heterodox alternatives because I began to realise how unrealistic mainstream economics is and that means that neoclassical economics has led to many (if not all) of the issues in our society such as inequality and environmental damage. Heterodox schools such as post-Keynesianism are concerned with creating more realistic models and I believe this is where we have a greater need for pluralism in economics.

Reflections after a Post Keynesian Workshop

Nicole L. Kormann da Silva (Guest Blogger)

I am from Brazil and I did my bachelor’s degree at Universidade Federal de Santa Catarina. I would say the course there can be relatively multidisciplinary and open to alternative approaches, but macroeconomics was mainly restricted to conventional textbooks and it was only during other classes like Political Economics and Economic Development of Brazil that some insights came across my mind: it was possible – and in fact there was already a structured body of work on it – to perceive economics from another starting point.

For me heterodox economics is a pluralist umbrella under which, among other schools, you find Post-Keynesian economics – PKE. I would say heterodox economics give us the possibility to rethink economics in a more realist term and grasp the intricacies that shape our society and the relations necessary for the reproduction of people and the system. PKE has its origins on the work of Keynes and Kalecki and understands that  e follow a historical trajectory permeated by things that cannot be calculated, and are affected by fundamental uncertainty.

The main contributions of PKE in my opinion lay on its very fundamental aspects. They break with the economicism of the mainstream, that reduces economics to a technical matter, making clear that the macroeconomics is not the sum of decisions made by rational agents. PKE permit us to comprehend that there are different roles to private and public agents and we cannot treat them as equals, in particular when it comes to their ability to expand demand and eliminate unemployment. Besides, economics is permeated by class struggle and distributive conflict. This leads us also to a political dimension, like Kalecki make clear: full-employment might be constraint not for lack of theoretical knowledge, but by political interest. Lastly, preferences for liquidity enter the system and the principle of effective demand tells us that just by a great coincidence demand matches supply with full employment of resources. This has important implications for policy-making.

Celso Furtado – a Brazilian economist – once told in a graduation speech: “The greater the responsibility of men of thought the more intense is the process of transformation of the society in which they live”. He was talking with the economic students of 1959 of Universidade de Minas Gerais, but I believe it applies to all those who decide to follow the field. So that is more or less what brought me to study PKE. I was questioning myself “how can you really change something looking at it through a framework that does not represent it?” To build solid economic knowledge and from it derive policies and the path for development I would have to understand how the real world functions and acquire the tools to work within it.

World-Systems Analysis in a Critical Juncture

The 44th Annual Conference on the Political Economy of the World-System takes place during a critical juncture for both the field of world-systems analysis and for the world-system itself. The first four sessions of the conference bring together papers that reconstruct the theoretical and methodological lineages of world-systems analysis by recuperating neglected foundational texts and by putting the world-systems perspective into dialogue with other critical approaches in the social sciences. The next four sessions deploy tools provided by a world-systems perspective to analyze the multiple intertwined social, political, and economic challenges of the current juncture, illuminating the global crisis and unfolding systemic chaos.

For registration and the program go here.

Reflections after the Post Keynesian Economics Workshop

By Santiago Graña Colella (Guest blogger)

During my bachelor’s degree, I have little access to heterodox literature. What is worst, in most subjects, it was explained that the economy works in a particular fashion everywhere and every time, but without stating that this way was one interpretation of the economy, particularly the neoclassical interpretation. Consequently, most students do not know many alternatives to the economic theory thought to them and after five years (in Latin America) end up thinking that the economy works as in a neoclassical world and that any attempts of applying alternative economic policy it is following an ideological foundation. In this sense, I think it is important to promote heterodox ideas, because it allows critical students to know which schools of thought that are different from the neoclassical school. The problem, however, is having access to heterodox papers and having heterodox teachers within the courses taken. Personally, only in the last years of my bachelor, I had access to some heterodox courses, but this was the exception.

While the division between orthodox and heterodox is somehow necessary it is difficult to select a criterion to define each group. Some authors like Lavoie (2014) derive their classification from the value theory each school considers and sociological features. Other authors like Vernengo prefer to take a more theoretical definition separating strands by the assumptions or mechanisms consider in each school. Finally, mainly among student organizations, there is a more instrumental definition where orthodox is associated orthodox to models and mathematics and heterodox to more social approaches. It is understandable that, after years of neoclassical indoctrination, with models and maximization functions as main tools, critical student movements end up being against the utilization of these tools. However, this last definition is somehow flawed since some heterodox schools such as the post-Keynesian and some part of Marxist school use mathematics and, some orthodox authors, such as the Austrian, reject the use of mathematics.

I believe that heterodox economy should englobe schools which consider that, in the current economic system, there is a group (women, workers, poor people, developing countries) which cannot achieve another group (men, capitalist, reach people, developed countries) better position due to intrinsic mechanisms of the system and therefore, the state intervention is needed to overcome this situation. Differently, orthodox believe, that despite some failures that should be fixed, the intrinsic mechanism of the economic system leads to an optimal outcome and that state intervention will only be needed exceptionally.

Particularly, the post-Keynesian school is part of the heterodox group since has systematically mentioned the most distinctive features of capitalism and pointed out policies that could be applied by the state to overcome it. I believe that one of the main contributions of the post-Keynesian approach was disarming the neoclassical theory showing fundamental flaws in its analysis such as the one raised in the capital controversy. Furthermore, the post-Keynesian approach has evolved from their criticisms to the neoclassical school constructing logic and solid models that explain the economic process based on more realistic assumptions. However, there seems to be room for further development. Post-Keynesian has focused mainly on traditional macroeconomics issues like growth, distribution, and inflation without deeply analyzing the complexity of some other phenomena related to them such as poverty and the social dimension of development. Besides, other issues such as gender and environment are assessed with the same old perspective. For instance, some post-Keynesian papers regarding gender have tried to answer which is the effect of the gender gap on long-term growth, abstracting from the complexities that the gender issue has. However, these limitations can also be understood as opportunities for further developments.

Personally, after taking a mostly neoclassical bachelor, I decided to continue studying post-Keynesian economics because, despite a personal preference for macroeconomics and development topics, I considered that its economic theory always follows strong logical procedures and it is based in solid assumptions achieving, consequently, satisfactory policies recommendations. Furthermore, the post-Keynesian community has a lot of different strands that always raise interesting discussion within this school. Finally, as a general criticism of all heterodox schools, there is very little debate among them, which is needed to present a more solid discussion to the neoclassical hegemony.

Mainstream Economics/Sold Out?

I recently taught a short workshop (online) on Post Keynesian Economics (PKE) for Summer Academy for Pluralist Economics. I basically discussed the definitions of heterodox and Post Keynesian economics, and some critical issues in the theory of output, employment, money and inflation, and income distribution and growth. Students were from several countries, backgrounds, disciplinary fields and stages in their academic careers (from undergraduates to PhD candidates). I will post some brief reactions from a few students on their views on PKE and how they got interested in it, which I think might be of interest, since many have told me over the years that this blog was the only source they had on heterodox economics.

Friedman vs. Wicksell

Slowly, but steadily the Wicksellian concept of a natural, normal or neutral rate of interest is making a come back and becoming more relevant and cited than Friedman's natural rate of unemployment and its awkward twin the Non Accelerating Inflation Rate of Unemployment (NAIRU).

Note that up to Friedman's infamous presidential address the normal rate dominated the field. But in all fairness, even thought it has lost space it seems that Friedman's natural rate of unemployment has a lot of inertia, and might be with us for a while.

UNCTAD INET-YSI Summer School 2020

Register here. I will be talking about Myths about monetary policy, inflation targeting and central banks.

60 Years of Sraffa's PCMC: Watch the whole seminar here

Ed Nell, who shared his signed copy of PCMC

 

The whole Zoominar can be watched at the Review of Keynesian Economics' (ROKE) Facebook page here. It starts early with the live-stream, you can jump to minute 49 or so and watch from the onward.

Autonomous demand, capacity utilization, and the supermultiplier

New issue of ROKE is out. Check out the free papers by Serrano, Summa and Garrido Moreira, and by Fiebiger, beyond the intro by Summa and Freitas.

60 Years of Sraffa's Production of Commodities by Means of Commodities/ROKE Webinar

Tomorrow we will talk about this book that is the Rosetta Stone of the history of economic ideas (read post 6 below for more on that). I'm happy to have a great panel to discuss it. In the meantime below 7 previous posts on Sraffa's contributions to economics, which might be helpful for some.

1. Sraffa and the Marshallian System
2. Sraffa, Marx and the Labor Theory of Value (LTV)
3. Sraffa, Ricardo and Marx
4. The Standard Commodity and the LTV
5. The Capital Debates
6. Microfoundations of Macroeconomics and the Capital Debates
7. Free Trade and the Capital Debates

Argentina: Past Industrialization Problems and Perspectives (in Portuguese)

Interview with Fausto Oliveira, economic journalist that produces the channel Brazilian Industrial Revolution. For those interested in the process of economic development and its relation to the process of industrialization in the periphery (and speak Portuguese) I highly recommend it.