Barkley-Rosser Jr. (1948-2023)

 

At the ASSA in San Diego, before the pandemic

It is hard to believe that Barkley has passed away. I met Barkley long ago, when I was still a PhD student in the 1990s, at the Eastern Economic Association Meeting, which still is one of the organizations that congregates both mainstream and heterodox economists with some degree of interaction. Perhaps the only such conference that still exists in the US. Barkley moved in between the mainstream and the heterodoxy. He should be seen, to a great extent, in the way he described the heterodoxy, as trying to break away from orthodox thinking. Although I disagreed about that definition as a description of heterodox economics, I think his definition reflected very well what he was trying to do.

His view of heterodoxy was based on the idea that the mainstream was ossified and didn't capture the complexity of actual economies. In part, he dealt with that by assuming non-linearities, and discontinuities and noting the unrealistic character of rational maximizing assumptions in a complex world. However, I think some of his most interesting work had an institutional character and was based on his joint work with his wife Marina on comparative economic development, in its third edition now.

He was the founding editor of the Review of Behavioral Economics, having been before the editor of Journal of Economic Behavior & Organization, he was interested in Econophysics (he wrote the entry for the New Palgrave). He was also a blogger for one of the oldest and best established econ blogs, EconoSpeak (a short entry after his death). He was, of course, the co-editor of the New Palgrave. A great loss for the profession and all that knew him.

Paul Krugman's Godley-Tobin Lecture

 

Krugman and the editors of ROKE

 

Paul Krugman's lecture, reflecting on the contributions of James Tobin is now published by the Review of Keynesian Economics. The paper can be downloaded here.

 

The 6th Godley-Tobin Lecture will be delivered by Professor Joseph Stiglitz. More information will be made available soon. Registration here.

New book: Varieties of Capitalist Experience

Over the past twenty years there has emerged a compelling new discourse on varieties of capitalism. That discourse has an appealing common sense which challenges the view there is no alternative to free market capitalism. The initial view had a microeconomic focus that made firms the fulcrum of analysis. It distinguished between liberal market and coordinated market economies. Subsequently, there has emerged a second-generation literature which adopts a macroeconomic perspective that emphasizes differences in drivers of growth. This book provides a collection of essays that engage those second-generation concerns and questions. 

More info here.

Luigi Pasinetti (1930-2023)

Pasinetti, Garegnani and the president of Italy in 2010

Last week, in my senior seminar on the history of economic thought, I made the kids read a paper by Pasinetti on "Progress in Economic Science", which was published in a book edited by Boehm, Gehrke, Kurz and Sturn. It's a short defense of pluralism in economics on the basis of the co-existence of Kuhnian paradigms, with a relatively optimistic view of the possibility of progress, in a discipline in which, as he noted, the object of analysis is changing continually, the ideas of the researchers might affect the functioning of the object of study, and value judgments cannot be avoided, in part because they affect everyday material conditions. As he said: "It is enough to think of the devaluation of a currency, or of the movements of wages and salaries, to realize how deeply these phenomena affect everybody’s pocket."

Sadly Pasinetti has died yesterday. He was perhaps the last great name of the Anglo-Italian Cambridge School, that tried to put the works of the classical authors and Marx and the Keynesian Revolution together, and intimately associated with the work of Piero Sraffa. I remember reading a paper on how the school could be divided in a more Marxian strand (with Pierangelo Garegnani as the main author) and a Ricardian one, around Pasinetti. This also had political implications with Pasinetti representing the center right Christian Democrats, and Garegnani on the left, linked to the Communist Party. I once told that to Garegnani, who dismissed the idea of Sraffian schools.*

Pasinetti will be remembered for his work on the Cambridge distribution models, the famous Kaldor-Pasinetti model, the participation in the capital debates, and his work on a classical model of structural growth. Personally, his book on the theory of production (Lectures on the Theory of Production) and his discussion and critique of the Maastricht fiscal limits remain the two of his contributions that influenced me the most.

I should note that this comes after a series of deaths in the profession that have significantly affected the heterodox community, and me personally. Vicky Chick, with whom I was supposed to work for my PhD, and Jim Crotty, two of the more creative thinkers within Post Keynesian economics have passed. Also, on a personal note, Nilüfer Çagatay, my colleague in Utah, and Barkley Rosser, the co-editor of the New Palgrave passed away this month. The heterodox community is in mourning.

* The other would be the Smithian one, with Sylos-Labini as the main leader, and a Socialist bent in politics.

A common currency for the Mercosur

 

 Actual proposal by Haddad and Galípolo at Folha de São Paulo

Lula's visit to Argentina, during the  Community of Latin American and Caribbean States (CELAC) meeting, brought about a brief discussion of the possibility of a common currency. I have discussed here (as well as many guest bloggers) both currency unions, in particular the euro, and it's consequences. Note that the FT piece linked suggested that the common currency was the first step in a long process. I doubt it, in part because, if the end goal is a real currency union, it would be a terrible idea. The actual proposal by the current finance minister, Fernando Haddad, and one of his collaborators, Gabriel Galípolo, falls short of a common currency area. It is still a bad idea.

The idea is to reduce the use of the dollar for bilateral transactions, and Haddad and Galípolo, in their piece for Folha de São Paulo last year, suggested that this would stimulate integration and trade. It is unclear that even that is correct. And there are other experiences with that kind of instrument in the region (e.g. the SUCRE in Ecuador, not the old currency, but the compensation mechanism).

The question about the proposal, which includes the creation of a digital currency and a central bank of the south, is what purpose does it serve. Haddad and Galípolo had suggested that it would further integration. That seems unlikely. Most of the integration has been done with Mercosur, and the most important way to integrate the countries in the region would be productively. The common currency won’t solve the Argentine external problems associated to the lack of dollar reserves either. And it won’t solve the Brazilian issue of how to deal with the political problem of the self-imposed fiscal ceiling limit, which make no sense, and constrains the ability of the government to promote growth and reduce inequality.

It is also unclear that anything beyond some general discussions would take place, and not just because the conditions are very different, and Argentina does not have dollar reserves, and hence the peso would depreciate considerably more with respect to the sur (the tentative currency) than the real would (note that the peso has depreciated way more than the real with respect to the dollar, and that to some extent explains the inflation differentials).

More importantly, Argentina has presidential elections this year, and it has to avoid a default on external obligations, something that is not the case in Brazil, obviously. In my view, the point of this announcement was purely political, and to suggest that the integration between the two countries, one with a threatened economy, the other with a threatened democracy, is a priority. Both left of center presidents stand together. Of course, the right place for this is UNASUR, not the Mercosur, and talks should be explicitly political. There is no circumstance in which a movement in the direction of a common currency makes any sense.

Alternative approaches to the history of economic ideas

Teaching two history of thought classes this semester. One more traditional, focusing on the evolution of the theories of value and distribution, and another one, my regular senior seminar, on the co-evolution of ideas and policy in the United States. For the former I used a short piece by Peter Boettke on the reasons for reading the original sources (and they do read a fair amount in my class). The blackboard (pictured above) is based on his discussion. I changed the titles and the definition of the logic a little bit.

The archeological approach tries to understand the analytical views of authors in their own historical context, while the theoretical reconstruction tries to understand its relevance for modern theory. BTW, the divide between archeological and theoretical reconstruction was basically what students came up by themselves when asked why one would read the original contributions. The second one corresponds to the Whig version of the history of economic thought, and the contrarian or radical view, with the former seeing linear progress in the development of the discipline (a history of mistakes), and the latter presuming that there are important contributions that have "been submerged and forgotten" and that should be recovered for a critique of economic theory.

I would put Donald Winch as a representative of the Archeological/Whig view, and Blaug as the Theoretical/Whig one, even though I put there Stigler and Schumpeter (in part because Boettke talks about Stigler; it is not clear where he would put him, at least to me). My suggestions for the Radicals are Ronald Meek and Piero Sraffa (the former a student of the latter), respectively, for the Archeological and Theoretical.

The 1920-21 recession

 

Calvin Coolidge and Andrew Mellon

A new paper by Ahmad Borazan on the 1920-21 recession, often seen in libertarian and Austrian circles as an example of a laissez-faire recovery. From the abstract:

The US recovery from the 1920–21 recession has been presented as a triumph of laissez-faire policies and a serious challenge to Keynesian economics. This study interrogates this claim by using previously unutilised data and examines the historical development of the early 1920s recession and recovery. The study refutes the laissez-faire view and shows that the recovery indeed fits Keynes’s perspective. The deflationary recession was largely engineered by the Federal Reserve a la 1980s Volker disinflation. The recovery closely followed the reversal of tight monetary policy and was propelled by exceptionally long pent-up private consumption and residential spending. The recovery initiated the Roaring Twenties boom of weakened organised labour, rising income inequality and mounting private debt. This private debt-led boom proved unsustainable and was fraught with risks that contributed to the severity of the Great Depression. Although the recovery was not driven by fiscal policy, it cannot be seen as driven by price flexibility either.

Full paper here.

New book on the crisis of economics and teaching in Latin America

 

The book (in Spanish) titled "Economía en crisis : la enseñanza de la economía en Latinoamérica y los límites de la teoría ortodoxa" [Economy in Crisis: The teaching of economics in Latin America and the limits of orthodox theory] is edited Andrés Jose Maria Lambertini; Ignacio Silva Neira. The introductory chapter on the role of neoliberalism and its resilience in the region is by Esteban Pérez and myself. There's a webinar with Carolina Alves and Gabriel Porcile, besides the editors.

It will be in Spanish with English subtitles. You can register here.

Cycles: empirics and the supermultiplier theory

 

New paper on the empirical evidence of the relevance of the supermultiplier for explaining economic cycles by Ricardo Summa, Gabriel Petrini, and Lucas Teixeira. From the abstract:

The demand-led supermultiplier growth model proposes that business investment is induced by income while autonomous expenditures determine economic growth. The most known versions of the model are presented at high levels of abstraction, focusing on general analytical properties and dynamic stability conditions. Based on those versions, Nikiforos et al. (2021) argue that the supermultiplier model cannot generate business cycles compatible with the empirical observation. In this paper, we show that this conclusion is a consequence of the misspecification of the variable chosen to represent the investment share, which includes business and residential investment. As the separation of those expenditures is a central point in the supermultiplier theory, we estimate a VAR model for the US economy (1967-2020) using only the data on business investment share instead. This procedure re-establishes an important feature to the supermultiplier theory, the mechanism of capital stock adjustment, as the empirical results points to the business investment share generally lagging the cycle. Finally, we make some remarks on how to discuss the business cycle from the supermultiplier perspective. We argue that for the supermultiplier, the business cycle depends less on the mechanism of capital stock adjustment than on the behavior of the autonomous components of demand and changes in the multiplier components. As the latter two are influenced by political, social and institutional factors, each business cycle has its own narrative.

Download here.

Kalecki's alternative to Keynes and White and its consequences

Partial video (my fault) of the conference about the book edited by the late Jerzy Osiatynski and by Jan Toporowski published by Oxford University Press. Our chapter on Prebisch with Esteban Pérez is available in a preliminary version here.

Public vs private debt

I was teaching about deficits and debt this last week. If you know me and follow this blog, you'd know that I always emphasize the importance of the distinction between debt in domestic currency and debt in foreign currency. Functional finance authors (and MMT too) are correct in noting that a country cannot default on debt in its own currency (for a model of a currency crisis and default, in foreign currency go here; as afar as I know the only formalization of a PK alternative to the Krugman model).

At any rate, teaching about the US for mostly US kids, that is not an important distinction, since the US has only debt in its own currency. Most of them thought that the current levels of public debt are too high (with respect to what you may ask, the ability to repay or the kind of society we live in?). I would hope that by them most of them tend to think that we do not have enough public debt. I mean the amount of homeless people, or the windshield washers in the corners of the streets, suggest that we need more public spending. The graph below shows the break between public and private debt in the US.

It is clear that the amount of public debt shrank from about 50 percent of total debt in the early 1950s to something around 10 percent right before the 2008 financial crisis, and most of the growth was in the financial sector. Since then public debt has grown to about 30 percent. Household and corporate debt did increase over time, but not much. The important lesson in the case of an economy like the US (with debt in its own currency) is that public debt is safer than private debt, since the government cannot default and its spending does affect the level of activity and the ability of the private sector to thrive.

Kalecki's Alternative to Keynes and White's Plans its Consequences

 

Webinar on Kalecki and his views on the Bretton Woods agreement. To register go here.