Skip to main content

Thirlwall à la Godley

Short note on Thirlwall's Law by Lance Taylor available here. As he notes on Thirlwall's Law:  "Insofar as they [the conditions to generate it] are 'extreme,' the plausibility of (3) [Thirlwall's Law] is open to doubt," which is one of the points I raised in my recent debate with Jaime Ros. Causality here remains from exports to growth, which was reversed in Clavijo and Ros, but there is a healthy skepticism about the generality of the law.

Arguably Godley had a version of Thirlwall's Law in his model too. As noted by Zezza: "the ideas underlying the ‘New Cambridge Hypothesis,’ which assumed... that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio." In this sense, in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero. This would be a stock version of the flow equilibrium between investment and savings, the private balance.

Comments

  1. I find your logic here confusing. I don't see how it follows from that statement from Zezza that the "net acquisition of financial assets would be zero" in a steady state. A target ratio means that in the long run both are growing at the same rate. asset growth would only be zero if income growth was zero and i don't see any reason to presume that. the hypothesis is consistent with any number of CAD sizes.

    ReplyDelete
    Replies
    1. Sorry for the delay in replying. Backlogged. The point of Gennaro's quote is to show that the stock-flow norms play a central role in the New Cambridge tradition. And yes there it just says they grow at the same ratio, yet Wynne did think that the net acquisition of financial assets would be zero.

      Delete
    2. True I just wanted to make it clear that Wynne's position was separate from the idea of stock flow norms or a "steady state".

      Delete

Post a Comment

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…