Skip to main content


Showing posts from March, 2014

Palley's Keynesian critique of Keen and an alternative theoretical framework

New Paper by Tom Palley titled: "Effective demand, endogenous money, and debt: a Keynesian critique of Keen and an alternative theoretical framework."From the abstract:
This paper presents a Keynesian critique of Steve Keen’s treatment of the endogenous money – credit – aggregate demand (AD) nexus. It argues his analytic intuition is correct but is developed in the wrong direction. Keen’s fundamental relation describing determination of AD in an endogenous credit money economy suffers from two flaws. First, it neglects the core Keynesian problematic of leakages from and injections into the circular flow of income. Second, it falls into the theoretical morass regarding the black box of velocity of money via its adoption of a form of Fisher equation to determine AD. The paper contrasts Keen’s treatment with a Keynesian structural framework.  Read it here.

20 years of the Tequila Crisis

In December it will be the 20th anniversary of the Tequila Crisis, which inaugurated a series of external crisis in developing and transition economies, in Asia, Russia, Brazil, Turkey and Argentina. Here a short note (in Spanish) for a Mexican on-line magazine (Paradigmas).

Don’t Cry for Argentina--Not Yet!

In the new issue of Dollars & Sense my short article on the Argentine crisis. Subscription required. Previous post on the same topic here, here and here.

Galbraith on Piketty's Capital

I'm still reading the book, so I will not say much at this point. The history of ideas at the beginning of the book is just embarrassingly bad, and suggests that mainstream economists do not have the faintest idea about the history of their own discipline. Just a short example would suffice to show what I mean. Piketty says: “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.” Note that the book is named Capital, and Piketty is quite critical of Marx. So you would expect some reasonable understanding of what is in the other Capital. If you open chapter XV of Marx's Capital, on Machinery and Modern Industry he tells you:
"Like every other increase in the productiveness of labour, machinery is intended to cheapen commodities, and, by shortening that portion of the working day, in which the labourer works for himself, to lengthen the other portion that he gives, without an equivalent, to the capitalist. In short,…

Roncaglia on Whether History of Economic Thought should be Included in Undergraduate Curricula

It's seems like a no-brainer, but is less and less common in the US at least. Here a paper on the topic by Alessandro Roncaglia (h/t Renata Lins). From the abstract:
"Mainstream views concerning the uselessness or usefulness of HET are illustrated. These rely on a hidden assumption: a ‘cumulative view’ according to which the provisional point of arrival of contemporary economics incorporates all previous contributions in an improved way. Critiques of positivism led philosophy of science to recognise the existence of different approaches – in economics, as in other sciences. Conceptualisation, recognised by Schumpeter as the first stage in economic theorising, is the stage in which the different visions of the world underlying the different approaches, take shape – and are better recognised. In this, HET plays an essential role. As an illustration, the differences between the classical and marginalist conceptualisations of the economy are illustrated. Thus HET is essential in…

The New Old IMF

The 'new' IMF still demands devaluation and fiscal adjustment. Like the old. From their new agreement with Ukraine, according to the New York Times:
"The agreement, announced in Kiev, the Ukrainian capital, will hinge on the country taking steps to let the value of its currency float downward, to cut corruption and red tape, and, crucially, to reduce huge state subsidies for the consumption of natural gas." This is consistent with what the IMF says in last in one of the last World Economic Outlook reports. The IMF suggests that the current risks for the global economy fall into five categories, namely (IMF, 2013a, p. 14): “(1) very low growth or stagnation in the euro area; (2) fiscal trouble in the United States or Japan; (3) less slack than expected in the advanced economies or a sudden burst of inflation; (4) risks related to unconventional monetary policy; and (5) lower potential output in key emerging market economies.” Note that even though it is suggested tha…

Two Cents on Birner's 'The Cambridge Controversies in Capital Theory'

I just finished perusing Jack Birner's "The Cambridge Controversies in Capital Theory" (see here). My brief take is that although the author provides a thorough and lucid analysis & exposé of the debates, I certainly do not agree with his assumption that the issues involved primarily dealt with a fundamental difference over research programmatic technique & methodology, with ideology being merely secondary, if not superfluous. This is quite untrue; ideology was at the very core! For more on this, I recommend G.C. Harcourt's"Some Cambridge Controversies in The Theory of Capital" (see here) and Andrés Lazzarini's "Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study" (see here).

Inflation, hyperinflation and Monetarist perceptions about the functioning of the economy

I dealt before with the persistence of Monetarist views, in particular regarding economic history (here and here). Interesting thing is that recently the Bank of England admitted that money is endogenous, and, hence, at least the simplistic notions that money causes prices are clearly in the defensive. Mind you, as I noted in my post, admitting money endogeneity does not mean they are heterodox by any means, since for them the system still has very much a tendency to full employment.

At any rate, a full discussion of the several views on inflation with a taxonomy is presented here.  The second session that provides a historical overview of inflation is posted below.

Inflationary Processes in Historical Perspective

Price Revolutions are often neglected by economists, but have been central for economic historians. The conventional wisdom among economists is that monetarist views are the dominant interpretation of those long term processes. This is particularly the case about the 16th Ce…

More on wages and employment

So my last post has led to a few comments on the relation between changes in real wages and employment. As my students are probably tired to hear real wages tend to be pro-cyclical, a well established empirical regularity. This poses a problem, not only for mainstream accounts of the labor market (and hence for the conventional views on the minimum wage), but also for Keynes' own views.

Keynes was forced to deal with those issues early on, as a result of the empirical research by Dunlop and Tarshis, and his answer in his famous 1939 paper (often published together with the General Theory, GT) "Relative Movements of Real Wages and Output." He said then:
"The only solution was offered by Dr Kalecki in the brilliant article which has been published in Econometrica. Dr Kalecki here employs a highly original technique of analysis into the distributional problem between the factors of production in conditions of imperfect competition, which may prove to be an important p…

Education as Pedagogy of Possibility: Shedding Dogma through Reciprocal Learning

A piece on education that I co-wrote with Colin Jenkins has been posted by The Hampton Institute. From the introduction:
Like a snake that sheds its skin periodically throughout its lifecycle, the human mind must develop and shed itself of intellectual skin. Its evolution is characterized by cyclical bouts of learning, reflecting and reconsidering; however, unlike the snake, which is genetically inclined to molting, the mind may not mature and regenerate without being subjected to antagonistic curiosity. This may only be accomplished through frequent and consistent mental cultivation, whereas knowledge is acquired, ideas are processed, and intellectual fruit is born. This process is cyclical in its need for reflection, but most importantly, it is evolutionary in its wanting to refine itself; and it is this constant pursuit of knowledge and validation that drives the mind to absorb substantial information and constant pursuit of knowledge and validation that drives the mind to absorb s…

What do mainstream economists think about the minimum wage?

A third think it's bad, while slightly less than a quarter think it's fine. Or so it seems according to David Colander. In the update of his 1987 analysis of "The Making of an Economist" (original one with Arjo Klamer; subscription required) David asked graduate students what did they think about several economic issues (a short version here; the book here). I have some doubts about David's new overall conclusion about the state of the profession, in particular his views on how the profession has changed (see for example my debate here), but there are several interesting points raised by the replies given by the graduate students of 6 mainstream programs. One is related to their views about the minimum wage.

The table (from the book) shows the views then (1987) and now (2005), by publication dates, on whether the minimum wage increases unemployment among young unskilled workers. The evidence seems to suggest overall there is not much of a change, with 34% back t…

Chang & Grabel on The End of The Neoliberal Approach To Development

The following is an extract from Ha-Joon Chang and Ilene Grabel's new book Reclaiming Development: An Alternative Economic Policy Manual :
We should take note of what we see as the beginning of the end of the neoliberal approach to development. The process of discrediting that development model begins in the aftermath of the east Asian financial crisis of 1997–98. At the time there appeared to be nothing new in the nature of the east Asian crisis or in the crisis response. But, in fact, the east Asian crisis marked the gradual beginning of the end of the neoliberal consensus in the development community. The severe constraints on policy space that followed the east Asian crisis created momentum behind a new vision – that developing countries had to put in place new strategies and institutions to prevent a repeat of the events of the late 1990s. Policymakers in a number of Asian countries and in other successful developing countries sought to insulate themselves from the hardships…

The ‘Better Off Budget’: An EPI Analysis of The Congressional Progressive Caucus Proposal

By Joshua Smith
The Congressional Progressive Caucus (CPC) has unveiled its fiscal year 2015 (FY2015) budget, titled the “Better Off Budget.” It builds on recent CPC budget alternatives in prioritizing near-term job creation, financing public investments, strengthening the middle and working classes, raising adequate revenue to meet budgetary needs while restoring fairness to the tax code, protecting social insurance programs, and ensuring fiscal sustainability. The Better Off Budget aims to improve the economic well-being of the working and middle classes by focusing on ending the ongoing jobs crisis, and it provides substantial upfront economic stimulus for that purpose. This paper details the budget baseline assumptions, policy changes, and budgetary modeling used in developing and scoring the Better Off Budget, and it analyzes the budget’s cumulative fiscal and economic impacts, notably its near-term impacts on economic recovery and employment. Read rest here.

For De…

Dean Baker on Obama's High Unemployment Budget

By Dean Baker
President Barack Obama’s proposed federal budget for 2015, which he sent to Congress on March 4, pushes the debate in a positive direction in several areas. For that, he should be given credit. However, on the most important issue, a budget that would get us back to full employment, his proposals fall way short. Let’s start with the positives. President Obama proposes a four-year infrastructure program that would cost just over $300 billion. This comes to $75 billion a year, or roughly 0.4 percent of GDP. This idea could go far toward improving and upgrading our infrastructure and is much needed for this purpose. It would also provide a boost to the economy. Assuming the typical multiplier of 1.5 times the amount spent for the expected stimulus, the program would create more than 800,000 jobs. A second item on Obama’s agenda is universal pre-kindergarten. This idea would provide a boost to many children from low- and moderate-income families, whose lack of …

Krugman and the Fear of Wages

Although Krugman is a New Keynesian, who, by definition, oftentimes implicitly assumes a natural rate, he is quite on point:
Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering. Read rest here.

Sunkel and Conceição Tavares on Prebisch and Furtado at ECLAC

Short excerpt from the Furtado biopic "O Longo Amanhecer." Osvaldo Sunkel and Maria da Conceição Tavares on the early contributions of Prebisch and Furtado. In Spanish and Portuguese, but with subtitles in English.

Psychologists and the Surplus Approach

I noted before about the fact that historians, like McNeill use the notion of the surplus to explain how primitive societies developed economically. Their lack of modern training in economics is a blessing and they end up using at least some elements of the old classical political economy authors. This is true of physiologist and popular writer Jared Diamond (see here and here). The figure below is from the book Sex at Dawn by two psychologists,  Christopher Ryan and Cacilda Jethá.

While the book is mostly about how behavior, in particular sexual behavior but violence and war too, changed with the development of agriculture, they also introduce the role of the surplus in economic development. Note that the food surplus is what allows for social hierarchy and specialization, which is what Adam Smith would have called the division of labor. And don't forget the division of labor is the basis of the wealth of nations. They also note other mechanisms associated to the development of…

Bank of England on Endogenous Money

This paper by McLeay, Radia and Thomas from the Bank of England has been making the rounds in heterodox circles. In particular because it admits that the conventional story about money creation is simply wrong. For them:
"rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks." Yes, finally the monetary version of Say's law is seen as incorrect. And for a change they do cite heterodox authors contributions. In a footnote they say:
"There is a long literature that does recognise the ‘endogenous’ nature of money creation in practice. See, for example, Moore (1988), Howells (1995) and Palley (1996)." Interestingly they do get the reflux principle of the old Banking School (of Thomas Tooke and others). They say:
"There are two main possibilities for what could happen to newly created deposits. First, as suggested by Tobin, the money may quickly be de…

Inequality for All: comparing the Great Depression and the Great Recession

A short clip from Robert Reich's Inequality for All. Overall is fine. Mind you Reich uses the supply side fiction that education (skills) generates jobs, rather than demand. A very conventional neoclassical labor market story with an implicit Say's law argument. And he calls Alan Simpson, of the infamous Bowles-Simpson's National Commission on Fiscal Responsibility and Reform (which favors cutting entitlement spending, besides higher taxes), a lefty. But still a progressive guy with good intentions, and lots of relevant data and information.

Monthly Review: The Baran–Sweezy Letters Project

The correspondence of Paul Baran and Paul Sweezy in the 1950s and early ‘60s is one of the great, unknown legacies of Marxian political economy in the United States. Over the past year and a half, I have been transcribing all of these letters with the goal of having the collection published by Monthly Review press, both as a hardcopy book of selected letters, as well as an unabridged e-book. In commemoration of my father, Paul A. Baran, on the fiftieth anniversary of his death on March 26, 1964, we decided to refer publicly for the first time to the Baran–Sweezy Letters Project and to publish a few important and representative letters. Read rest here.

Commodity dependence in comparative perspective

Last weekend at the Eastern Economic Association Meetings in Boston Bilge Erten presented her work, together with José Antonio Ocampo, on the commodities super-cycle (see here). The figure below (click to enlarge) was on her power point (not in the paper) and is from UNCTAD's State of Commodity's Dependence 2012.

Note that much of Sub-Saharan Africa has levels of commodity exports as a share of total exports of between 80 and 100%. South America is not too far. China has only 8%, even if one can arguably suggest that some of the manufactured goods exported by China, which are highly standardized, are commodified. That would also explain why Mexico and some Central American economies depend less on commodities, i.e. the export of manufactured goods from 'maquilas.' South Korea is also low at 12%. A few Asian countries do better than most of Africa and Latin America in this respect. That is, they would be less vulnerable to changes in commodity prices.

Josh Bivens: Nowhere Close: The Long March from Here to Full Employment

By Josh Bivens
The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accomp…

Heidi Shierholz: Still No Jobs for More Than 60 Percent of Job Seekers

By Heidi Shierholz
The Job Openings and Labor Turnover Survey (JOLTS) data released this morning by the Bureau of Labor Statistics showed that job openings increased by 60,000 in January, bringing the total number of job openings to 4.0 million. In January, the number of job seekers was 10.2 million (unemployment data are from the Current Population Survey). Thus, there were 10.2 million job seekers and only 4.0 million job openings, meaning that more than 60 percent of job seekers were not going to find a job in January no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. We are not in a strong labor market. Furthermore, the 10.2 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.7 million would-be workers who are currently not in the labor market, but who would be if job opportunities were strong. Many of the…

On Argentina's secular decline: why The Economist is wrong

The Economist had a few weeks ago an issue on Argentina (here; subscription required), which I wanted to address, but had no time before today. The argument implies that the current Argentine woes (discussed here before) are part of a pattern which is associated to the long decline in income per capita from the late 19th century and early 20th century until now.

The Economist suggests that:
"In 1914 Argentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male suffrage was introduced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and California was a hard one." In a sense that's true. According to Maddison's data in 1913 …

Tokunaga & Epstein - Endogenous Finance of a Dollar-Based World-System: A Minskian Approach

Junji Tokunaga & Gerald Epstein

From the Abstract:
Global financing patterns have been at the center of debates on the global financial crisis in recent years. The global imbalance view, a prominent hypothesis, attributes the financial crisis to excess saving over investment in emerging market countries which have run current account surplus since the end of the 1990s. The excess saving flowed into advanced countries running current account deficits, particularly the U.S., thus depressing long-term interest rates and fuelling a credit boom there in the 2000s. According to this view, the financial crisis was triggered by an external and exogenous shock that resulted from excess saving in emerging market countries, not the shadow banking system in advanced countries which was the epicenter of the financial crisis. Instead, we argue that a key cause of the global financial crisis was the dynamic expansion of balance sheets at large complex financial institutions (LCFIs)(Borio and Disya…

Resource Curse - Natural Gas is What Detonated the Ukraine Crisis

Very few, if none at all, in the West are willing to address what really triggered the latest geopolitical ‘crisis’ in the Ukraine.

From Global Research Canada
Defending Moscow’s December 18, 2013 agreement to provide Ukraine with an aid package estimated at about $15 billion, and cheaper natural gas through discounts and “gas debt forgiveness” estimated as able to save Ukraine $7 bn in one year, Vladimir Putin said the decision to invest $15 bn in ‘brotherly slavic’ Ukraine, and grant the gas discount was “pragmatic and based on economic facts”. At the time, the “investment” in Ukraine was already conditional – not only on the political issue of Ukrainian loyalty to Moscow – but on Ukraine complying with previous longstanding, often revoked, modified or extended commitments to repay gas debts dating from as far back as the early 1990s.  In December, Russia’s Finance minister Anton Siluanov said payment of the “aid or investment” funds to Ukraine, in tranches of about $2…

Mark Weisbrot on Venezuela’s Struggle - Widely Misrepresented, Remains a Classic Conflict Between Right and Left

By Mark Weisbrot
The current protests in Venezuela are reminiscent of another historical moment when street protests were used by right-wing politicians as a tactic to overthrow the elected government. It was December of 2002, and I was struck by the images on U.S. television of what was reported as a “general strike,” with shops closed and streets empty. So I went there to see for myself, and it was one of the most Orwellian experiences of my life. Only in the richer neighborhoods, in eastern Caracas, was there evidence of a strike, by business owners (not workers). In the western and poorer parts of the city, everything was normal and people were doing their Christmas shopping – images unseen in the U.S. media. I wrote an article about it for the Washington Post, and received hundreds of emails from right-wing Venezuelans horrified that the Post had printed a factual and analytical account that breathed air outside of their bubble. They didn’t have to worry about it happening again.…

Noam Chomsky on The Death of American Universities

By Noam Chomsky When universities become corporatized, as has been happening quite systematically over the last generation as part of the general neoliberal assault on the population, their business model means that what matters is the bottom line. The effective owners are the trustees (or the legislature, in the case of state universities), and they want to keep costs down and make sure that labor is docile and obedient. The way to do that is, essentially, temps. Just as the hiring of temps has gone way up in the neoliberal period, you’re getting the same phenomenon in the universities. In the past thirty or forty years, there’s been a very sharp increase in the proportion of administrators to faculty and students; faculty and students levels have stayed fairly level relative to one another, but the proportion of administrators have gone way up. There’s a very good book on it by a well-known sociologist, Benjamin Ginsberg, called The Fall of the Faculty: The Rise of the…