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Showing posts from March, 2017

Robert Wade on Trumponomics vs. Free Trade

Echoing some of the arguments discussed here in the blog (for a list of posts on free trade go here, and for the effect of free trade on the Trump election here, here and here) Robert Wade suggests that the economics profession defense of "Free Trade" might have something to do with the election of Trump.
Wade's phrase is perfect (apparently Adrian Wood came up with it): "Like Gresham’s Law, 'alternative facts' drive out facts." The alternative fact here is the theory of comparative advantage and the notion that free trade is the best of all possible policies for all countries (and people within the country) at all times. As Keynes, quoted in Wade's epigraph, said:
Free trade assumes that if you throw men out of work in one direction you re-employ them in another. As soon as that link is broken the whole of the free-trade argument breaks down (J. M. Keynes, evidence to the Macmillan Committee on Finance and Industry, 1930) Read paper here.

50+ Economists Warn Against Neoliberalism's Return in Ecuador

Ahead of upcoming elections, a call for austerity and economic policies structured for the elites to be left in the nation's past

by Ha-Joon Chang, James K. Galbraith

Over the past ten years, Ecuador has achieved major economic and social advances. We are concerned that many of these important gains in poverty reduction, wage growth, reduced inequality, and greater social inclusion could be eroded by a return to of the policies of austerity and neoliberalism that prevailed in Ecuador from the 1980s to the early 2000s. A return to such policies threatens to put Ecuador back on a path that leads not only to a more unequal society, but to more political instability as well. It is important to recall that from 1996 to 2006, Ecuador went through eight presidents.

Unfortunately, there is much confusion and misinformation about Ecuador’s achievements in recent years. It has all but become conventional wisdom that the economic and social progress in Ecuador, such as it is recognized, res…

Master of Arts degree in Economics at John Jay College

The Master of Arts degree in Economics at John Jay College is a new graduate program providing both practical skills for work in economic policy, and a foundation for study at the PhD level. Located in the heart of Manhattan, it is one of a handful of graduate economics programs in the country that makes alternative perspectives a core part of the curriculum. Students at John Jay will study the history of economic thought, Marxian and Post Keynesian theory, economic history, the economics of gender, environmental sustainability, and global inequalities of income and wealth; as well as learning the core technical skills they need for a profession or further academic work in economics.

This is a 36-credit, two year program. Tuition and fees are approximately $4,000 per semester for New York State residents, and $7,250 per semester for out-of-state students.
To apply online, visit here.

Latin America's Crisis: The End of the Commodity Super-Cycle, or the Return of Neoliberalism

Video of the talk at Keene State College on March 20th, 2017.

How Capitalism is Killing Itself

Short documentary on the limits of capitalism mostly based on an interview by Richard Wolf. I find the simplistic explanation of exploitation at the end (around minute 27:30) based on the time of work (prices proportional to labor incorporated) to be problematic (for a discussion of the Labor Theory of Value, LTV go here). At any rate, worth watching whether you agree with Wolf's interpretation of Marx and capitalism or not.

Latin America’s Crisis: The End of the Commodity Super-Cycle, or the Return of Neoliberalism?

From this announcement about my talk at Keene State College today at 7pm.
"Professor Vernengo will offer a public lecture and discussion of the recent slowdown in economic growth. The talk will consider the degree to which these events reflect the fall in primary commodity prices, particularly oil, or are instead the result of a return to neoliberal policy prescriptions.
Dr. Vernengo is currently Full Professor of Economics at Bucknell University. He is the former Senior Manager of Economic Research at the Central Bank of Argentina, and has acted as an external consultant for the International Labor Office (ILO), United Nations Development Program (UNDP), the Economic Commission for Latin America and the Caribbean (ECLAC), and the United Nations Conference on Trade and Development (UNCTAD)."

Latin American corner: Neo Fisherism, New Keynesianism and monetary policy in Latin America (II)

By Naked Keynes (Anonymous Guest Blogger)

The positive relationship between nominal interest rates and inflation is not a new stylized fact in economic theory. In the 19th Century Thomas Tooke (1774-1858) considered it a general rule illustrated by the data presented in his History of Prices and the State of Circulation, 1792-1856 (published over the period 1838-1857).

Tooke rationalized the positive relationship between inflation and interest rates by postulating that the interest rate is part of the cost of production of commodities As a result when interest rates rise so does the cost of production and hence prices. As he put it in his Inquiry into the Currency Principle (1959 (1844) p.81: “A general reduction in the rate of interest is equivalent to or rather constitutes a diminution in the cost of production…the diminished cost of production hence arising would…inevitably cause a fall of prices of all the articles into the cost of which the interest of money entered as an ing…

Trump's budget

The figure from the New York Times shows the changes in spending by category. More defense and less social spending. Not a surprise there. Schumpeter long ago (in his The Crisis of the Tax State) suggested that it is the fiscal history of a society that explains the spirit of the people and the character of the government, since it is there plain to see by those that can read it what they are trying to achieve.

The surprise to me, at least so far, is that the increase in defense seems to be more or less cancelled by the cuts in social spending. I suppose the stimulus part of his fiscal plan will come just from the tax cuts. If that is the case, I would not be too optimistic about the Trump boom.

Latin American Corner: Neo-Fisherism, New Keynesianism and monetary policy in Latin America (I)

By Naked Keynes (Guest Blogger)*


Since the 2000s, like other countries in the region, Brazil adopted inflation targeting. The results are not encouraging. Brazil has, without doubt, the highest interest rate levels of Latin American economies. Brazil also has probably the widest interest rate spread in the region. In the first months of 2017, the monetary policy rate stood at 12.25%. Available data for interest rates for the year 2016 show that the deposit rate is around 12.43%, while the lending rate nears, 50 %. In addition, between 2013 and 2016 the Central Bank steadily raised its monetary policy rate bringing it to the highest level in seven years.

The stylized fact that is even more disturbing is that at least since the beginning 2010, the monetary policy rate is positively related to the rate of inflation (Figure 1).
This stylized fact contradicts the very basis on which Brazil´s inflation target regime is founded and has sparked an important debate in monetary policy involvi…

Kalecki: Forgotten Genius

A documentary about Kalecki can be seen here (no way to embed, sorry). H/t to Franklin Serrano.

What economists do?

Nothing more profound here on the perils of being an economist. And nothing (not in this post, at least) on the interest rate hike (more on that later; it will be announced at 2pm). Just a table I came across from a paper by Card and DellaVigna (see here) on the fields of papers published in the five top mainstream journals.*
The authors suggest that "the relative shares of the different fields are fairly constant over time: theory is the largest field, accounting for about 30 percent of all articles; macro is next (about 20 percent of papers); labor and microeconomics are tied for third (16–17 percent each); and econometrics, IO, and international each account for about 10–12 percent of papers)." However, you can notice (or so it seems visually) that the Lab Experiment field now appears clearly, and that Development, Health, Finance and IO have grown over time. I would prefer to have the graph with the shares of fields.

Perhaps more interestingly the authors note that "p…

Post Keynesian Summer School in Toronto

The Summer School is at the same time than the Annual Meetings of the History of Economics Society, and it is sponsored by ROKE.

Quantitative Easing (QE), changes in global liquidity and financial instability

New paper by Esteban Pérez. From the abstract:
This paper argues that QE led to significant changes in the global financial system, which, are not conducive to greater financial stability. Through a policy of reserve accumulation, QE disconnected base money from the money supply and deposits from loans. Jointly with the deleveraging process of global banks, QE contributed to restrain the supply of bank credit growth throughout the world. Also global banks continued to expand their trading on the basis of opaque instruments such as derivatives. Moreover, by altering the relative profitability of investing in different assets, QE exerted a positive effect on the performance of the international bond market. This not only spilled into emerging market economies expanding the debt of both the financial sector and the non-financial corporate sector but also has reinforced the role of the asset management industry in financial markets. Due to its concentration and interconnectedness, illiqu…

The theory of endogenous money and the LM schedule

By Tom Palley. From the abstract:
Money is at the center of macroeconomics, which makes understanding the money supply central for macroeconomic theory. this paper presents the Post Keynesian theory of endogenous money supply and shows how it is fundamentally different from the conventional money supply theory. the conventional approach relies on the money multiplier and bank lending is invisible. Post Keynesian theory discards the money multiplier and focuses on bank lending which drives money creation. the paper emphasizes the structuralist version of Post Keynesian theory which retains Keynes’ liquidity preference theory of long term interest rates and also recognizes banks are subject to nancial constraints that limit their lending activities. the paper then shows how to derive the Lm schedule in an endogenous money economy, which is a necessary prelude to reconstructing the IsLm model. Read full paper here.