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Showing posts from January, 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 us…

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, consumptio…

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 consciou…

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 Rubi…

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 …

The Great Depression and the Great Recession compared

So I teach a course on the two (old syllabus here). One of the initial classes looks at Eichengreen and O'Rourke's comparison of the two events, and how, even though at the beginning the shock seemed similar, the recovery has been faster the second time. O'Rourke had noticed in his blog last year that the current recovery started way before, but has been so slow that now the 1930s look better when industrial output (rather than GDP) is used as a measure. Below the same data for the US economy (he uses world industrial output).
Note that I added more of the 1930s recovery, and one can see the effects of the Roosevelt recession in 1937-38 (the indexes are monthly and start in October 1929 and December 2007 as 100 respectively). Industrial output growth has slowed down in the last year, by the way. I don't think we are on the verge of a recession in the US. My guess is that sluggish growth will continue. But it is an additional reason to be cautious about hiking interest…

On the blogs

Funding a national single-Payer system -- By Gerald Friedman in an old issue of Dollars & Sense. Not the exact same plan as Bernie's, but close enough. The point is that is feasible and cost effective. And we should try that, even if the powers that be will push back

Economy Can’t Withstand 4 Fed Hikes In 2016 -- Larry Summers says measures of inflation are exaggerated and the FOMC will have to reverse its current course in the future. More dovish than Yellen (so maybe he would have been a better chairman)

The dead hand of austerity; left and right -- Simon Wren-Lewis on austerity

Graph/Table of the week: Recovery for the few -- URPE blog, on how only the people at the top benefited from the recovery

The strongest, most durable economy in the world, but very unequal

Obama went to Detroit this week, and defended his economic record, including the bailout of the auto-industry. He went further on the offensive, as in the State of the Union, and suggested that Republican candidates that complain about the economy don't have a clue. In his words: "The United States of America, right now, has the strongest, most durable economy in the world... So when you hear people -- I won't say who -- but when you hear people claiming that America is in decline, they don't know what they're talking about. They're peddling fiction during a political season." [full speech here] On the other hand, Bernie Sanders (Obama was certainly referring to the GOP candidates, not Bernie) has made the center of his campaign the poor state of the economy, the fact that only the wealthy have benefited to a significant degree from the recovery, and that we need revolutionary changes, including a higher minimum wage, health care for all, and free access…

Wall Street Journal is nervous

WSJ op-ed concerned that "the possibility of an extreme election outcome is no longer unthinkable." Inequality in the 1920s and the Great Recession brought FDR and radical reform. As it turns, Obama was more moderate than people expected, and maybe there is still hope for more radical reform ahead.

On the natural rate and being always wrong

So I saw that someone linked to an old post of mine in a discussion on Jared Bernstein's blog. The discussion is on productivity slowdown.

In that post I quote Alan Blinder on his views (slightly more than a year ago) on the natural rate. He said :
"the 'central tendencies' in the Federal Open Market Committee’s latest published forecasts range from 5.2% to 5.5% for the 'full-employment' unemployment rate, and from 2% to 2.3% for the potential GDP trend." So unemployment should be below the natural rate now, and arguably that could be seen as a reason for the FOMC hike last month, although I doubt that Yellen thinks we're at full employment. As I note on that post Blinder was wrong in the 1990s too about the potential GDP trend. I don't expect any surge in inflation any time soon. But it is amazing how serious economists can be wrong almost all the time.

Immigration and wages

A short op-ed in the Wall Street Journal, of all places, suggests that David Card's famous work (subscription required) on the effects of Cuban immigrants on real wages in Miami was probably correct, meaning immigration does NOT depress wages or lead to higher unemployment. Peri and Yasenov's actual paper is available here (subscription is also required, I'm afraid).

I do have problems with the mainstream interpretation that real wages and employment are determined in the labor market for sure. Employment is determined by aggregate demand, as we still teach in most macroeconomic manuals, since Keynes at least lives in the short run. And real wages are not determined  by supply and demand, or by productivity and intertemporal decisions of workers. Or at least not just by that. The old classical political economy tradition suggested that supply and demand were one of the many factors that affected the bargaining power of the labor class.

At any rate, worth checking the resu…

A comment on Dean Baker's comment on Paul Krugman's comment on Bernie Sander's Health Plan

Away for while, and back in full meta-post. I guess all posts are comment on another post, this one is just one more degree of separation. So Krugman sides with Hilary over Bernie. Let's extend Obamacare, rather than get Medicare for all. The reason is mainly political calculation. It would be impossible to get a single payer system covering everybody. The power of insurance companies, and pharmaceutical firms, combined with the insidious role of money in the political process, implies that Bernie's position is a non-starter. Also, Krugman cites the fact that the increase in taxes would be a problem with the middle class.

Dean Baker basically accepts Krugman's arguments (not sure if that means that he also thinks Hilary is right, but somehow I doubt it), but makes two caveats. On the political level, Dean says, correctly I believe, that you need Bernie, or others like him, to move us in the right direction, and perhaps at some point in the future the US will be like other …