Marx Capital turns 150

Marx's capital (Volume 1) was published September 14, 1867, exactly 150 years ago. Below a few links to posts on Marx written over the years.

What makes capitalism capitalism? (on the definitions of capitalism as a mode of production)

Sraffa and Marxism or the Labor Theory of Value, what is it good for? (on the labor theory of value)

Was Marx right? Nice of you to ask, but... (on common misconceptions about Marx)

A Note on the Concept of Vulgar Economics (an important idea, often neglected)

Garegnani on Sraffa, Ricardo and Marx (on the relation of Marx with classical economics)

The last Marxist? Or shortchanging Hobsbawm (a critique of The Economist's obituary)

And this one on why Marx and Keynes are essential for a coherent heterodox alternative to the mainstream:

The meaning of heterodox economics, and why it matters

Seminar in Mexico

The 8th international seminar on Coordination of Fiscal, Monetary and Exchange Rate Policies in Developing Countries at the Universidad Nacional Autónoma de México, Facultad de Estudios Superiores Acatlán (UNAM-FES-Acatlán) will take place later this month. Ignácio Perrotini and I will give the opening talks the 26, and Ariel Dvoskin the following day. Many local economists will present too, like Flor Brown, Lilia Domínguez, Noemí Levy, Teresa López, and Luis Ángel Ortiz to name a few. Will post a link to the program soon.

ReOrient

A graph that shows, for a longer span, essentially the same information presented in Robert Allen's graph of manufacturing production, and discussed before here. It is evident that the rise of China (India is not quite yet visible, even if its share did increase) represents a certain rebalancing, which is inevitable as the income per capita grows in that country, even if it does not scape what mainstream economists refer to as the middle income trap. Source here, and the data is, as expected from Maddison.

Note that the first millennia, where Asia (China and India essentially) is much smaller in terms of the graph, which is a result of the paucity of data. In a sense, the graph shows the relatively brief rise, and now relative decline of Western GDP dominance, as Asia regains a space more proportional to its population share.

PS: On issues with GDP measures see here.

Sunday Reading: Economic Letters of Note

Rick Holt edited a superb book with John Kenneth Galbraith's letters from the 1930s until his death in 2006. He wrote to everybody, friend and foe, and displays his usual wit. Here I reproduce parts of his letter to Joan Robinson, that he wrote after having invited her to give the Ely Lecture (subscription required).

The letter is from January 12, 1972. It says:

Dear Joan:

Many thanks for your note. If the meetings were slightly less stuffy and neoclassical than usual, it was owing more to you than to anyone else...

The president of the Association, as I think I said once in New Orleans, has powers closely paralleling the President of Italy, but perhaps less. Indeed this is the way in which all establishments maintain themselves. One diffuses power through people who are reliably like of mind. But I hope to have some slight influence on the Journals, and I'm going to make a particularly determined effort to revise hiring practices in the profession... A good deal has been done in the past couple of years to put the problems of the black and Spanish-speaking minorities on the professional conscience. Discrimination against women remains in some degree the most blatant.

Would you... write me a little more complete observation and complaint... Sometimes the knowledge of an unsatisfied clientele produces some results.

Love, 

John Kenneth Galbraith

I was lucky to see Galbraith give a talk (subscription required) at the New School back in November 1998. Great book. Buy two copies!

Don't be evil... oh well, perhaps a little bit

Don't be evil was, of course, Google's motto. The New York Times had a piece recently on the firing of Barry Lynn from the New America Foundation, a Democratic think tank that, if memory doesn't fail me, was at least initially connected to the Clintons. The whole thing resulted from the fact that Lynn was favorable to the European Union regulation of Google, a major donor to the think tank.

Given that I've been writing about the influence of corporate money in academia, I thought it was a good idea to link to this other story about Google's perverse influence in the public debate. In my view, Google is not on the cancer-denying or climate-change-denying business simply as a result of a market structure phenomena. And in many ways Google and Facebook (don't get me wrong Amazon is also dangerous, but in a different way, they still sell stuff, whereas the other two sell your information), or Big Internet, are more dangerous than Big Tobacco and Big Oil.

'Edupreneurs,' Corporate Universities and Pluralism in Economics

I posted recently on the increasing influence of corporate money in academia, specifically the new Marriner Eccles center funded by the Koch brothers at the University of Utah. The piece by David V. Johnson in the Baffler on this subject is worth reading. As he notes, the new breed of private money goes beyond what they used to do in the past, trying to directly influence what kind of research, the curriculum and what ideas should be disseminated, and, indirectly who should be hired and retained. This is all the more problematic in the context of the retreat of public funding and the rise of the the corporate university, which implies that increasingly money equals voice in academia.

Johnson says that:

private funding that burrows within the very body of public institutions, the better to influence related departments and curricula across the university.

In other words, the edupreneurs sell academic acceptability and prestige for ideas that might have a more difficult time entering the curricula, and getting people published and tenured. The change started in the 80s, but it has accelerated, and the Kochs are a good example of that. As he noted:

All told, the Charles Koch Foundation has invested some $200 million in higher education activities since 1980, with more than $140 million of that money allocated since 2005, funding over fifty free-market research centers and institutes at universities. And these beachheads of private campus cash have become lush islands of ideological purity

One of the examples discussed is a center that is an offshoot, in a sense, of the Mercatus Center at George Mason University, which was at the heart of the discussion of James Buchanan and the Kochs in Nancy MacLean's Democracy in Chains (reviewed here by Heather Boushey). I'm not particularly interested in the details, but what I think is relevant is that the push for free market fundamentalism is seen as a quest for "spreading what he called 'diversity of thought' at universities across the land." You would think that Economics Departments in the US are dominated by Marxists or other types of Radicals. In all fairness, there are only four graduate heterodox programs in the US and a few Liberal Arts Schools that still have heterodox economists.

If anything it seems that it's more likely that studying economics, in US universities, would make you more conservative (The New York Times said Republican citing the same study) and favorable to free markets. And others suggest that it can make you more selfish. Don't get me wrong, I'm for diversity of views, pluralism if you prefer the term, but pro-market views are well represented in academia.

The Economist and the natural rate of unemployment

The Economist new series on 'big ideas' tackled in a recent issue the concept of the natural rate unemployment (subscription required; other ideas included Say's Law and Human Capital, just to give you the broad picture of what they think it's big). I will only comment very briefly on two issues, one related to the history of ideas and the other to the concept itself.

The Economist suggests that the natural rate of unemployment can somehow be connected to the ideas of Keynes. In their words:

John Maynard Keynes, the great British economist, took a first step towards the natural-rate hypothesis when he focused minds on 'involuntary' unemployment. In his book 'The General Theory'.

The idea of a natural rate of interest can be clearly traced back to marginalist economics, and was a central concept discussed by Knut Wicksell. The idea of the natural rate of unemployment, as The Economist correctly points out, is essentially related to Milton Friedman's American Economic Association Presidential address of almost half a century ago, and the Monetarist interpretation of the Phillips Curve (PC).

However, Keynes' Wicksellian days were over by about 1932, when in the aftermath of the Circus discussions, he abandoned the theoretical framework of the Treatise on Money and started on his way to effective demand and the General Theory (GT). Note that the idea of a natural rate of interest is intrinsically connected to the natural rate of unemployment, since the former would be the rate of interest that corresponds to full employment and stable prices, meaning the equilibrium in the labor market.

On the natural rate of interest, Keynes had this to say in chapter 17 of the GT:

... it was a mistake to speak of the natural rate of interest or to suggest that the above definition would yield a unique value for the rate of interest irrespective of the level of employment. I had not then understood that, in certain conditions, the system could be in equilibrium with less than full employment. 

I am now no longer of the opinion that the concept of a 'natural' rate of interest, which previously seemed to me a most promising idea, has anything very useful or significant to contribute to our analysis.

There is little room for doubt that Keynes rejected the natural rate rather than taking the "first steps" in its direction, as The Economist suggests. He was clearly moving away decisively from that flawed concept, which leads me to discuss the concept itself and what the magazine (they think somehow they're a newspaper, strangely enough) thinks one must do to reject the concept.* The Economist says:

... to reject the natural rate entirely, you would need to believe one of two things. Either central banks cannot influence the rate of unemployment even in the short term, or they can peg unemployment as low as they like—zero, even—without sparking inflation. Neither claim is credible.

The second part shows that they presume that the absence of a natural rate means that the economy could be driven to zero unemployment without inflation (I'll deal with the first statement about the effect of monetary policy on employment subsequently). This is the case because for The Economist, as much as for many in the mainstream of the profession, inflation is always a demand phenomenon. Too much spending, often government (meaning fiscal policy) is behind inflationary pressures. Of course, the PC only works empirically when supply side factors, like the price of oil, are included as explanatory variables. So they think that if you reject the natural rate you must think there is no limit to demand expansion.**

Inflation, more often than not, is a cost push phenomenon associated to higher prices of commodities, devalued exchange rates, and more social conflict reflected in higher wage resistance. So, lower unemployment would eventually strengthen the labor force, and would lead to higher wages, and that combined with possible sectoral shortages of raw materials, which would also be more expensive, would lead to inflation. So you might very well get inflation before you reach zero unemployment rate, but the reasons are not the ones the magazine authors think. The point is that there is no reason to think that there is one level of unemployment that magically would lead to inflation. No natural rate, but several possible rates of unemployment compatible with stable prices, depending on a whole set of social and institutional conditions.

And the central bank can affect unemployment, even if its ability is not straightforward and is asymmetrical. In a recession, a lower rate of interest is, as Eccles famously said (he really popularized the phrase, but he did not coin it), like pushing on a string. You need fiscal spending in that situation, as has been painfully obvious during the long Obama recovery. But in a boom a hike to the rate of interest, in particular if it affects debtors, might cause a recession. So The Economist is wrong (I'm shocked, shocked!). You can believe that central banks affect unemployment and that there is some inflation barrier, but that does NOT mean that there is a natural rate.

Interestingly enough, they do admit that they (and economists in general) have no clue what is the correct natural rate of unemployment, and that should make the natural rate concept of limited usefulness for policymakers. So what they propose central banks should do? Use a flawed concept that cannot be measured as the guide for policy? That's some serious thinking, isn't it?

* Too many posts on the problems with the natural rate have been discussed over the years in this blog, just click on the hashtag and check a few if you're interested.

** Note, also, that when demand goes up, firms do invest to adjust capacity, which means that the capacity limit is not fixed either.

Labor share and super firms

I discussed on several occasions before the worsening of income distribution and the squeeze of the labor share in total income. Figure below provides updated information.

Professor Autor and some of his co-authors suggest this in part might result from the rise of the 'superstar firm.' In other words, Facebook, Google (Alphabet), Amazon, Apple, etc and the winner take all economy. This paper (h/t Santiago Capraro) argues that this results from market power reflected in higher mark ups.

Note that the paper by Autor et. al. suggests that superstar firms are more efficient and as their share of the market increase, their higher productivity and reduced labor force leads to a lower share for labor in the aggregate. It is mostly a technological effect for them.

I have my doubts, of course, about any story that leaves out the relative bargaining power of the labor force, and in this story the regulatory environment that has allowed the information age firms to have such large shares of the market. But that's another story.

The Routledge Handbook of Heterodox Economics

(click to enlarge)

The Routledge Handbook of Heterodox Economics presents a comprehensive overview of the latest work on economic theory and policy from a ‘pluralistic’ heterodox perspective. Contributions
throughout the Handbook explore different theoretical perspectives including: Marxian-radical political economics; Post Keynesian-Sraffian economics; institutionalist-evolutionary economics; feminist economics; social economics; Régulation theory; the Social Structure of Accumulation approach; and ecological economics. They explain the structural properties and dynamics of  capitalism, as well as propose economic and social policies for the benefit of the majority of the population. You can buy it here.

A theory of economic policy and the role of institutions

Nicola Acocella published a paper in the Journal of Economic Surveys (a free, preliminary version is available here) on the development of the theory of economic policy. Acocella is clearly fully aware of the differences between classical political economics and marginalism (neoclassical economics).* And he dismisses the pre-margnialist views on economic policy as being unsystematic and devoid of general principles.
In his words:

Most classical writers and the marginalists had suggested cases where public intervention was in order. This had been so for Smith (1776), Ricardo (1817), Mill (1848), Marshall (1890), Walras (1874-1877, 1898). But these cases were mainly what Walras called ‘examples of empirical policy’ rather than consistent policy. They were certainly dictated on the basis of an analytical evaluation of the circumstances suggesting them, but were not part of a systematic and consistent assessment of the foundations and the articulation of public policy.

In his view, economic policy as an autonomous discipline, meaning one based on theoretical principles, only started with Sidgwick,  Marshall and Pigou, that is, with Welfare Economics or Social Choice Theory, which apparently now is referred to as Implementation Theory (I didn't know that, I might confess). So it is in the debate of the 1930s, with Robbins and his followers and critics, and more fundamentally with Arrow's Impossibility Theorem that he sees the development of the main themes of a theory of economic policy.

He also suggests that before the development of a the theory of economic policy proper "the ‘night-watchman’ position became an exception as most classical and marginalist economists tended to state a number of specific or general cases where government intervention was in order." I'm not fully convinced about that. Sure there were some views about government intervention, but for the most part the Victorian consensus, among economists (not necessarily in practice, meaning actual economic policy) was for free trade, adherence to the rules of the Gold Standard, and sound finance. The idea of the minimal state was probably dominant, and the exceptions, particularly among marginalists that dominated in the UK at least, were associated to market failures.

The two major obstacles to this dominant view that government action was possible, in Acoccela's view were due to Arrow and Lucas. In his words, these 'vital failures' were: "the impossibility of taking people’s preferences as a reference for public action, underlined by Arrow (1951) and ‘radical’ objections to effectiveness of public action of the kind raised by Lucas (1976)." I should note that it seems that, in his view, the major critiques have been successfully dealt with, by Sen and his followers in one field and New Keynesians in the other, and the current consensus would be that government action is possible and desirable.

In this view, then, the history of the development of of the field is one in which the profession goes from being in favor of government action up to the development of the theory (essentially the from the beginning of marginalism to the 40s), broadly speaking, to being critical from the 50s to the 80s, with a slow return to a more interventionist consensus ever since. And maybe this describes well the field of Implementation Theory. But it strikes me as being at odds with conventional views of what the profession thinks about the role of government over time.

I mean, normally you would think of the profession as being essentially for laissez-faire, the reason why sometimes there is a conflation of classical and marginalist authors, and then after the Great Depression and the Keynesian Revolution (even if not complete, and dominated by an imperfectionist view) there would be an interventionist turn, which starts to be contested in the 1970s, with the Conservative Revolution and the Great Inflation. The apotheosis of the return of the market would come with the fall of the Soviet Union, shock therapy and the so-called Washington Consensus. The question would be to what extent this neoliberal dominance has been undermined by the last Global Financial Crisis (I would say less than what people think).

I also think that the dismissal of the classical political economy approach to economic policy, which was based on historical understanding of the specific conditions of a particular situation, is a mistake, and that there is a lot be learned from that tradition. Note that for classical political economy authors history and institutions, and, hence, policy analysis, were at a different level of abstraction, and had a different relation with the core of the theory (value and distribution). At any rate, this is an interesting paper worth reading.

* For example, he is careful to note that the meaning of the invisible hand in Adam Smith is often out of context. However, he argues that: "we use the term ‘invisible hand’ as a metaphor of the Smithian position as well as of later theories, in particular neo-classical thinking, which has then prevailed, even if the latter are deprived of some social aspects of the working of the market that certainly were in Adam Smith." This reading of Smith leaves room for intervention in the case of imperfections, and seems to follow the ideas of Acoccela's mentor, the famous Italian economist Federico Caffè.

Racism, the election and more

After writing on Venezuela last week, Trump suggested that the US might intervene there. And then the predictable happened, violence and death ensued... in the US. I don't have much to say about what happened in Charlottesville. It is worth noting that even though the city and the University of Virginia are relatively progressive places these days, they do have a long history that ties them to slavery and white supremacy (see this on NPR; h/t URPE blog).*

At any rate, it's not surprise that Trump didn't condemn his base (and yes the racist voted for him; but as I noticed before 1964 those votes went mostly to Democrats). He certainly is more explicit than previous Republicans going beyond racist dog whistle  politics. I would insist that racism is not the main reason why he won the election, and that a left wing populist right have won.

The topic is still relevant (even in the middle of the violence and crazy confrontation with North Korea; btw, this is a must read for those interested on the history of US-Korea relations), since the lessons of the defeat are important to preclude 8 years of this madness. So this piece in the NYTimes shows that Obama-Trump voters, meaning voted for Obama in 2012 and for Trump in 2016, are real.

As the authors says, echoing what I said here a while ago:

... the national vote doesn’t count, and Mrs. Clinton is not the president. She lost primarily because of the narrow but deep swing among white working-class voters who were overrepresented in decisive battleground states.

The interesting twist is that racism did play a role in the flip from Obama to Trump, at least more than I thought it did by looking at the Rust Belt alone. The piece says:

... racial resentment is the strongest predictor of the Obama-Trump vote in this survey data. White, working-class Obama voters with racially conservative views were very likely to flip to the Republicans.

Note that not all the 'rednecks' in the Rust Belt are racists though. There is an interesting piece on the redneck revolt here.

* It's also the home of the Virginia School, or the Public Choice School of Buchanan (briefly discussed here), that has been the subject of a new book that generated some controversy in economics circles. I'll have more to say about the book later, once I'm done reading it.

On Venezuela, Democracy, Violence and Neoliberalism

Many pieces have been written recently on the situation in Venezuela, including some on the left, that are very critical of the Maduro government (see for example this Jacobin piece that has been widely cited). Interestingly, during the sleepy months of the summer in which I almost didn’t write anything here, this old post on Venezuela has become the most read on the blog (as we approach almost 3 million hits).

Let me first say that I am for democracy and against violence, irrespective of who is behind it. Calls to reduce violence on both sides should be at the top of the international agenda. So, any government constraints on the ability of the people to participate in its own government (some form of democracy) and government repression of manifestations (violence) is wrong. As far as I can tell, the current claims about the lack of democracy in Venezuela are not associated, for the most part, to the election of the president (even though right-wing activists insist, without proof, that Maduro and Chávez have rigged past elections; truth is that they won every time, including the last, even if by a smaller margin), but rather to the Supreme Court reduction of legislative power, and to the new constitutional convention. One could also point out the imprisonment of some opposition leaders, like Leopoldo López, who is under house arrest now. All legitimate concerns, no doubt.

The question then is how much of the push to limits to the power of the legislative assembly dominated by the opposition, and how much of the political repression (including the treatment of opposition leaders, but also the police violence) results from the very violent and anti-democratic push from the opposition itself, that has tried to bring down the government since the very beginning (including a failed coup attempt in 2002). And this is also a valid concern that many (almost all the mainstream media) on the left seem to forget. I can’t honestly respond. But I can provide a perspective, based on my understanding of the Argentine and Brazilian cases that are closer to my experience.

In Argentina, the right-wing neoliberal agenda eventually dislocated the Kirchner governments in the ballot (when Cristina was not a candidate I should add), but it basically needed to lie about its intentions. Macri said he would not devalue the currency (and reduce real wages), that he would not cut the tax on exports, that he would not promote austerity, he also said he would end corruption, and he lied on every single element of his platform. Certainly that undermines democracy in my view. A demagogue that on top has been connected to corruption (for example, his name is in the Panama papers) is not necessarily good for democracy (many on the left here in the US are afraid of what another demagogue with corrupt practices may do to democracy). And there are now at least one ‘desaparecido’ (missing, presumably killed like during the last dictatorship) and at least one famous political prisoner (Milagro Sala). These are significant restrictions on democratic values and certainly indicate some connivance (if not direct participation) with violence. But yet I don’t think Macri is a dictator (and certainly the international media doesn’t think that either).

In Brazil, unlike Argentina, the left won the elections (like in Ecuador, btw). Dilma got a second mandate in 2014, and a fourth electoral victory for the Workers’ Party. The solution there for the right-wingers and their neoliberal agenda was a mediatic-judicial coup (and yes Dilma had accepted some of the economic agenda before the impeachment, in particular austerity; but note that Chávez too tried some neoliberal things before too; see my old piece in Dollars & Sense back in 2005 criticizing the left of center governments in the region). In this case, there have been several people imprisoned as a result of corruption charges, in many cases without other proof than the accusation of self-confessed criminals after plea bargains. Also, there has been a lot of abuse of power, including violence against protestors, and they almost certainly will try to preclude Lula from being a candidate in the next election (he too was condemned because somebody says he owns an apartment, without any formal proof). And yes, I would suggest that the current Brazilian government is not democratic.

So why is this relevant to understand Venezuela you ask. Part of the story is that the opposition in Venezuela says that they need to push the boundaries of the democratic system, because the Chavistas are anti-democratic and would not leave power. The US provides full support to that narrative, suggesting that the Venezuelan government is a threat, and that was true of the Bush, Obama and Trump administrations (there is State policy when it comes to the left in Latin America). That’s why Maduro needs to be recalled, in their view, even though he won the election. At any cost. A coup is acceptable and changing the rules too. That was also repeated ad nauseam in Argentina, and it wasn’t true as it is clear now, since Cristina stepped down and followed democratic principles (also that was kind of the argument used against Allende and many other left of center governments in the region before). In addition, the Brazilian case is important because, when the right-wingers loose, as they did in Brazil, they do push and try to promote a coup (if anything Dilma and the left in Brazil were outmaneuvered, but I don’t think they should not have tried to remain in power, since they did win the election, as did Maduro). In my view what we are seeing is a long slow coup in motion, with the US support (and now Argentina and Brazil too), and the Maduro administration is trying to survive.

So, the stakes are high, and the fall of Maduro may come electorally, later (as in Argentina), or by a coup (as in Brazil, but perhaps more violently), maybe sooner, and should not be a surprise. Note that the constitutional crisis to deal with the contested recall of Maduro, and the taking over of legislative powers by the supreme court do restrict some forms of self-government and are problematic and should be criticized. But I hardly think this means that the government is not democratic. For example, in the US the candidate that won the majority of the vote didn’t win the popular vote, and some may think this is not democratic (and that was the original intent of the electoral college, btw). And yes, the rules were in place already you may suggest. But rules are changed all the time, like the rules for financing of campaigns, or gerrymandering, or the rules for who is eligible to vote. It is quite legitimate to argue that the supreme court has restricted democracy in the US with Citizen United. And several states are trying to restrict the ability of minorities to vote, let alone that voting is done on Tuesdays when a significant number of workers cannot vote. And I could go on.

The point is that the US (which until very recently, 1964 in fact, did not allow a vast majority of the African-American population to vote) is a democracy (some may actually disagree with this), a very imperfect one (and Churchill was right, if he said it, that democracy is the worst form of government, except for all the others), but one none the less, like Argentina, and in my view Venezuela. Reasonable people may disagree, as much as some people may think that the US is not a democracy too.

Violence is a more complicated issue. There has been violence on both sides of the dispute, even though you would think it's all the government's fault if you only get the mainstream media. A lot of the discussion is related to the fact that young, middle class, university students are on the receiving end of some of the violence which is not common in Latin America. There has been less coverage or preoccupation with the regular violence against working class people in Venezuela. But as I said, I think here the government should err on the side of extreme caution and avoid all confrontation.

Note that in the Argentina, Brazil and the US (and in Venezuela too; the recent burning alive of a lower-class man because he was a Chavista is an example of that) there is a lot of violence against minorities and working-class people. More often than not it goes undiscussed in the media. In the US, only recently as a result of the widespread use of smart phones with cameras the systematic killings of black people have shocked the nation. For violence to be controlled institutions have to be strong and capable of punishing the culprits. In the US, clearly institutions still fail, as the many policemen that shot African-American kids go free. Again, I do think the US is democratic, but for many black folks that couldn’t vote until a generation ago, and/or have been imprisoned and deprived of their political rights the idea of American democracy probably rings hollow. In other words, restrictions on democratic processes, which exist in both Argentina and Brazil (and in the US too), and the existence of violence (always condemnable) per se does not necessarily mean that the government is a dictatorship. Anti-democratic tendencies like those of Macri, Trump and Maduro (Temer in Brazil is the representative of a coup and beyond just having anti-democratic tendencies) should be discussed and condemned, as much as of the opposition to their governments when they exist (if you think Dems in the US have no anti-democratic tendencies, check the primaries, the super delegates and so on). And the opposition in Venezuela is also accountable for a fair share of violence and undemocratic practices.

Don’t get me wrong, there were lots of problems with Chávez (and still true with Maduro) and with the left of center governments in the region. The inability to break with the dependence on exports of commodities (and the price being paid now that prices have fallen), the lack of counter cyclical policies at crucial times, the absence of a coherent industrial policy, the integration with China on subordinate way and so on (read my post on Venezuela linked above). In the case of Venezuela, it’s worth quoting at some length this excerpt from Tarver and Fredrick’s history of the country:

the Chávez-Maduro tenure has also been termed a ‘petroleum dictatorship’… The enormous increase in national revenue allowed Chávez and Maduro to pay off Venezuela’s foreign debt and undertake a massive social works program… For most Venezuelans, the petroleum era did not bring with it additional jobs, increased wages, or an improvement in the standard of living. Instead, the oil boom brought about a decline in domestic industry, and increase in imports and inflation.

Seems like a familiar critique of Chavismo, doesn’t it? As it turns out, this is a misquote (oops, my bad). The book actually says the Gómez tenure (president in the first decades of the 20th century), public works instead of social works program, and agriculture instead of industry. The point is (as noted in my post linked above) that these problems are not new. In the case of Venezuela there are two excellent papers (in Portuguese) written by Celso Furtado, in 1957 (a report for ECLAC) and in 1974, showing the problems of development with abundance of foreign reserves (should be a paradox since the normal problem, the constraint, is lack of dollars), which are a must read for those interested in the problems of development.

As I said in my previous post too, this is a tragedy, and there are no good solutions. I would prefer the continuation of the democratic institutions, meaning Maduro’s government with an opposition with a significant role in parliament, and without violence of course. And it would be even better if it could be achieved without a return to neoliberal policies. But this seems increasingly unlikely. The fall of the Maduro government will not end violence, and will not bring back democracy. Unless you have a very Manichean view of the meaning of violence and democracy. But hey, Hayek thought that Pinochet was a paragon of democracy, so who knows what neoliberals think.

The wage share in Argentina

In his book, Estudios de Historia Económica Argentina, Eduardo Basualdo has several tables with the data for the share of wages in income. Sources seem to be different and not necessarily compatible (although I 'm not sure about that). He also published a paper in 2008 with additional data. The graph below adds the numbers shown here, which I think are also from Basualdo (the newspaper only cites CIFRA; I couldn't find another source in their website).

To the extent that one can trust numbers on functional income distribution, these numbers give a reasonable picture of what happened in Argentina since the first Peronist government back in 1946. It is clear that the military coup in 1976 was implemented to reduce the share of wages. The graph also puts in perspective the last progressive administration of the Kirchners, which brought wages up from very low levels, but not quite to the pre-1976 level. I would expect the decline with Macri, that seems to have started (as I predicted), will go considerably further.

Economic Survey of Latin America and the Caribbean

 The Economic Commission for Latin America and the Caribbean´s (ECLAC) Economic Survey of Latin America and the Caribbean (“Dynamics of the current economic cycle and policy challenges for boosting investment and growth”) for 2016-2017 was published last Thursday (3 of August). It incorporates a number of heterodox concepts and ideas mainly in Part II. These include the notion of center and periphery (which provides the framework for Chapter III “The region’s current economic cycle and its various characteristics are partly a reflection of changes that have occurred in the international economy and in the way forces are transmitted from the more advanced to the developing economies.” p.117 ); the importance of the productive structure (Chapters III and IV) to analyze the impact of the impulses from the center to the periphery; aggregate demand as a key driver of the world slowdown in trade (pp. 123-124); the relative importance of income versus substitution effects (pp.147-149); the investment multiplier (“There is ample evidence that points to the importance of protecting public investment …it represents a significant boost to economic growth in the medium term. …the cumulative effects of public spending variations on the output of 16 Latin American countries, with results showing that the cumulative multiplier of investment spending is significantly higher than that of consumption” p. 158); and the concept of total monetary demand (pp.163-166). As such the report represents a significant attempt to return to ECLAC´s Structuralist roots while at the same including some of the main ideas of other heterodox schools of thought (i.e., post-Keynesian).

The positive profit with negative surplus-value paradox

New paper by Lucas (not that one) and Serrano. From the abstract:

This paper explains the “positive profits with negative surplus-value” example of Steedman (1975) and shows that while in joint production systems individual labour values can be negative, the claim that the total labour embodied in the surplus product of the economy (surplus-value) can also be negative is based on assumptions that have no economic meaning (such as negative activity levels). The paper also provides a way to measure the surplus-value of joint production systems which overcomes the problems of the traditional concept and restates the proposition that a positive amount of surplus labour is a necessary condition for positive profits.

Read full paper here. A preliminary version was briefly noted here in 2012. Academic publications are slow indeed.

On job numbers, the stock market and more at the Rick Smith Show

Full show here. I'm interviewed at around 1:03 into the show, and the whole thing is about a bit less than 20 minutes long.

"Wages, prices, and employment in a Keynesian long-run" by Marglin

New issue of ROKE with papers by Stephen Marglin, Amit Bhaduri, Esteban Pérez (with your truly) among others. Last issue of the several in honor of the 25 years of the Marglin-Bhaduri papers on profit-led/wage-led growth. From the abstract of Marglin's paper:

The central question this paper addresses is the same one I explored in my joint work with Amit Bhaduri 25 years ago: under what circumstances are high wages good for employment? I extend our 1990 argument in three directions. First, instead of mark-up pricing, I model labor and product markets separately. The labor supply to the capitalist sector of the economy is assumed à la Lewis to be unlimited. Consequently the wage cannot be determined endogenously but is fixed by an extended notion of subsistence based on Smith, Ricardo, and Marx. For tractability the product market is assumed to be perfectly competitive. The second innovation is to show how disequilibrium adjustment resolves the overdetermination inherent in the model. There are three equations – aggregate demand, goods supply, and labor supply – but two unknowns – the labor–capital ratio and the real price (the inverse of the real wage). Consequently equilibrium does not even exist until we define the adjustment process. The third innovation is to distinguish capital deepening from capital widening. This is important because, ceteris paribus, wage-led growth is more likely to stimulate the economy the greater the fraction of investment devoted to capital deepening. A final section of the paper shows that US data on employment and inflation since the 1950s are consistent with the theory developed in this paper.

Marglin's paper is open, and so is Bhaduri's. Full issue here.

Beggar thy Neighbor economic development at the Rick Smith Show

On Rick's show last Friday. Some context here.

On Ecuador

The original letter I co-signed is here, and the debate that followed was posted by Bill Black here.

The new Marriner S. Eccles Institute, and his legacy

There are many issues I take exception with the piece at the Deseret News on the new Marriner S. Eccles Marriner S. Eccles Institute for Economics and Quantitative Analysis at the University of Utah’s David Eccles School of Business. In the first place, the notion that it, somehow, “will provide some philosophical balance to the university’s educational offerings and scholarship on economics.” Not just because there is no need for more balance. Everybody in the David Eccles School is mainstream, neoclassical (so no balance there), and a good chunk of the Econ Dept (yep, basically there are two Econ. Depts at the U, which shouldn’t surprise anybody; NYU has a very neoclassical and conservative one with Thomas Sargent in the Liberal Arts/Social Sciences division, and another with Dr. Doom, Nouriel Roubini, at the Stern School of Business) also is neoclassical. The department was always pluralistic.

Actually, the balance in the education is brought by the fact that there are still a few heterodox economists in the Social Sciences Econ Dept., not including the two retired professors cited in the piece. And given the failure of the profession (in particular after the Great Recession) and the fact that a few at the Dept, when I was there btw, where aware of the bubble and the crisis (I remember getting emails from students saying that I had called the crisis; I didn’t per se, but was connected with many people that did and many like Jamie Galbraith or Jane D’Arista visited and taught at the U because of its diversity).

But the important problem with this institute is that it is a complete subversion of Marriner S. Eccles economic philosophy. In his Beckoning Frontiers (pictured above in a copy signed by him, btw), he says:

I believe, however, that the most basic right of all is the right to live, and next to that, the right to work. I do not think that empty stomachs build character, nor do I think the substitution of idleness and a dole for useful work relief will improve either the dignity or the character of the people affected. We cannot expect to preserve our free institutions in this country if we condemn a substantial proportion of our people to prolonged idleness on a bare subsistence level of existence. Further than the right to eat and the right to a position, I think the individual, whether rich or poor, has a right to a decent place to live. I think he has a right to security in old age and to protection against temporary unemployment. I think he has a right to adequate medical attention and to equal educational opportunities with the rest of his countrymen. The government expenditures (…) have in large part been the means of translating these basic rights into realities. [Italics added]

How in hell you square that philosophy, which is quintessentially the one of the New Deal, with a center funded by the Koch brothers’ libertarian, minimal state philosophy is hard to understand. On Eccles read my old paper in the working paper series (later published in this volume) of the U’s Econ Dept.

Heterodox Currents in Latin America

Esteban Pérez Caldentey will be talking about the topic in the next conference of the central bank of Bolivia. Program, that includes also Luis Bértola speaking on heterodox (presumably the unconventional, but not heterodox as in not mainstream inspired) monetary policy, is available here.

Beyond the traditional monetary circuit

Slow posting will continue the rest of the Summer. Here a paper by Sergio Cesaratto that might be of interest. From the abstract:

The paper is a contribution to a long-run theory of effective demand with elements from monetary circuit theory, Modern Monetary Theory and endogenous finance analysis. Some shortcomings of the still influential neo-Kaleckian growth model and monetary circuit theory are underlined, and the Sraffian supermultiplier is indicated as the most promising heterodox approach to growth and instability in capitalism. The Sraffian supermultiplier allows full consideration of the autonomous components of aggregate demand as the ultimate sources of growth and instability in modern capitalism. Following Steindl, capital gains are included among these components. Autonomous demand and investment are typically fed by endogenous finance. The paper articulates the relation between autonomous demand and investment on one hand, and endogenous finance on the other, in the light of Keynes’s distinction between initial and final finance.

Read rest here.

From Vulture Funds to 100-year bonds: Has Argentina Turned Around?

Just a couple of years ago Argentina’s left of center government was besieged by foreign investors, the hedge funds known as Vulture Funds, that demanded full payment for their bonds acquired at heavily discounted prices in the secondary markets. The New York courts ruled in favor of the Vulture Funds, and Argentina was unable to borrow in international markets, even though during the successive governments of the late Néstor Kirchner and her wife Cristina Fernández de Kirchner the country had successfully renegotiated its debts with 93 percent of the bondholders, and the economy had recovered from the worst crisis in its history, growing at fast pace while diminishing inequality.

In November 2015, the left of center candidate associated to the Kirchners lost a close election to the center-right, neoliberal ex-mayor of Buenos Aires. Mauricio Macri, the new president, the heir to a private fortune amassed mostly during the last and bloody dictatorship and the ex-president of Boca Juniors, the most popular football team in Argentina, had promised reforms to reignite growth, that stalled in the last few years of Cristina Fernández’s administration, alongside with the slowdown of the global economy, and a collapse of the prices of commodities like soybeans, Argentina’s main export resource.

Macri’s administration devalued the peso, even though he had promised he would not do it during the campaign, promoted fiscal adjustment, eliminated export taxes that had been imposed by the Kirchners that affected the wealthy, and agribusiness interests in the country, and increased tariffs of public services, that were seen as distorting the functioning of markets. These market-friendly policies, were seen as the basis not only of a renewed process of growth, but also the fundamentals for establishing price stability. Yet, the economy stagnated and inflation run out of control.

The reasons are simple. A devaluation is generally both contractionary and inflationary, since a devaluation increases the prices of imported goods, directly affecting prices, and also, by increasing the cost of living it leads to a reduction in real wages. Lower wages, in turn, translate into lower consumption, and reduce demand, which leads to a recession. The increases in tariffs deepened the inflationary pressures, while the recession, which implies lower income and a reduction in tax revenue, together with the reduction in export taxes, lead to a worsening of the fiscal accounts. All of that was expected, including by Macri’s government. In fact, higher inflation that reduced real wages, and higher unemployment that weakened trade unions were central to the economic plans of Macri’s administration, as much as renegotiation with the Vulture Funds and reentrance into international financial markets. The US$ 2.75 billion 100-year bond issue is the crowing of these efforts.

The Argentinean bonds will pay around 8 percent per year in dollars for the next hundred years. One may reasonably ask why international financial markets would lend to Argentina, a country that has defaulted between four and seven times before, depending on who you ask. According to the Financial Times it is all a response to the smooth-talking telegenic new president and his market friendly reforms, even though Macri, very much like George W. Bush, was born with a silver foot in his mouth, and the reforms have backfired. In reality the reason for the renewed lending, is that, in spite of its several defaults, the country is a good payer. The very high interest rate implies that even if Argentina eventually defaults, a bondholder can make quite a lot of money. And there is always a chance of selling the bonds in the secondary markets, after making enough back with the high interest rates. Remember that interest rates have been close to zero in international markets, and sometimes negative in real terms, since the last global meltdown in 2008. On top of that, Vulture Funds can always make a buck if Argentina defaults again in the next hundred years. That is their business model.

The question you should really ask is why Argentina would borrow again and continue the long cycle of borrowing and defaults. Macri’s development strategy is a throwback to the Washington Consensus of the 1990s. In other words, the Macri administration is pushing for free trade, financial deregulation and a reduced role for the State at home, when these policies have been under attack and in retreat around the globe, more prominently in recent times with Brexit and the election of Donald Trump in the United States. The hope is that increased integration to world markets would bring investment and lead to growth, and that growth in the long run would make it viable for Argentina to repay its debt. The risks are evident.

It is unlikely, if not impossible, to think that foreign investment will come and promote growth. The narrow specialization of the Argentinean economy on commodities makes it vulnerable to recurrent crises when prices of its exports collapse. Also, the borrowing in dollars implies that only exports can provide the necessary resources for repaying the increasing foreign debt. This story cannot, and probably will not, end well. The only reason to promote this increase in foreign indebtedness is the short run gain associated to the higher interest rates that these 100-year bonds pay. Not only foreigners, and foreign pension funds will buy these bonds, but also Argentineans. For those that are wealthy enough to hold dollar denominated bonds in their portfolios the very high interest rates, even if risky, imply that Argentinean bonds are a good deal, an oasis of high remuneration in the midst of a financial desert.

It is worth remembering, in this context, that it is estimated that wealthy Argentineans hold assets abroad for about the total value of the country’s foreign debt. Macri and his friend are certainly among those that would benefit from his own policies. Also, one should not forget that Macri’s name appears in the Panama Papers, and contrary to what happened in other countries that had politicians implicated, he did not resign after the revelation that he illegally funneled funds to a tax haven. The 100-year bonds are not a sign that the economy is finally doing well, but a brief respite before the coming storm.

A theory of economic policy

New paper by Thomas Palley tilted "A theory of economic policy lock-in and lock-out via hysteresis: rethinking economists’ approach to economic policy" has been published. From the abstract:

This paper uses hysteresis to develop the concept of policy lock-in and lock-out. Policy changes may near-irrevocably change the economy’s structure, thereby changing the distribution of wealth, income and power. That may lock-in policy by changing the political equilibrium. Exit costs that block policy reversals also cause lock-in. Conventional thinking treats policy as a dial which is adjusted according to the economy’s state. Policy lock-in questions the dial formulation and raises new issues for optimal policy design. It also offers insights into economic and political crisis theory. Policy lock-in is illustrated with examples that include tax policy, government spending, the euro, globalization, and the neoliberal policy experiment.

Read full paper here.

Trumpcare and More at the Rick Smith Show

I briefly discuss the Senate Bill, and how it really it's just a tax cut for the wealthy, rather than a health plan. It's as Trump himself admitted just mean. I also discuss how bleak the prospects for the near future are.

Prebisch and Central Banking

You can read here the Power Point of our presentation at History of Economics Society conference on Prebisch and Central Banking and his role as a Money Doctor in the 1940s after he left the Central Bank of Argentina.

Capitalism is national & transnational, but what about the money?

This is my short response, originally posted here, to William I. Robinson's post here and Fred Magdoff's note in the comment section of that post:

While I generally agree with Robinson's and Magdoff's analyses, what is absent, specifically with respect to Robinson's discussion, is a concrete assessment of the acute variables that measure the degree to which national States have the capacity to engage in power-maximizing behavior and, thus, pursue certain responses, i.e. imperialism, to the competitive nature of the capitalist world economy. Certain material capabilities of national States generate the space to be 'constituted', whereby they embody a structural authority to shape the framework of global economic relations. This structural authority is tied to the qualification to establish and enforce a particular item, currency, as the unit of account in which global economic calculations are made, facilitating the functioning of financial markets and thus international trade. Hence, the analytical specificity of methodological nationalism, albeit in amalgamated form to cope with the forces of globalization, is still potent.

References:

Fields, D. and M. Vernengo (2013), “Hegemonic currencies during the crisis: the dollar versus the euro in a Cartalist perspective.” Review of International Political Economy, 20(4), pp. 740–59.

Fields, D. (2015). “Dollar Hegemony.” Pp. 145-147 in The Encyclopedia of Central Banking, Northampton, MA: Edward Elgar Publishing

Ingham, G. (2004), The Nature of Money, Cambridge: Polity Press.

Vernengo, M. & D. Fields (2016), “DisORIENT: Money, Technological Development and the Rise of the West.” Review of Radical Political Economics, 48(4), pp. 562–568

Trump-Style Policies Will Deepen the “American Carnage”

By Lance Taylor

President Trump, in his inaugural address and elsewhere, rightly says that over the decades since 1980 American household distributions of income and wealth became strikingly unequal. But if recent budget and legislative proposals from Trump and the House of Representatives come into effect, today’s distributional mess would become visibly worse.

First, I will sketch how the mess happened, then I will propose some ideas about how it might be cleaned up. I will show that even with lucky institutional changes and good policy, it would take several more decades to undo the “American carnage” that the president described.

Read full text here.

Post Keynesian Summer School in Toronto next week

Updated program below. I'll be discussing the history of central banks.

This is parallel to the HES conference.

On dependency theory

New ebook downloadable for free, titled Dialogues on Development, that was co-edited by Ingrid Kvangraven of the Developing Economics blog, has been published (h/t David Fields of URPE blog). These are interviews on dependency theory with Samir Amin, Patrick Bond, Miguel Angel Centeno, Peter Evans, Ramón Grosfoguel, among many others.

My interview, that starts in page 86, begins with this question:

To start with the most basic question, what is dependency theory? 

There is no straightforward answer to this question, Vernengo notes. Although there are many studies that try to split the dependency tradition into specific schools, Vernengo tends not to regard these theoretical traditions as actual schools of thought. He prefers to broadly split them into Marxists and structuralists, and he believes that these traditions could be further split into four or five different approaches. However, Vernengo argues that also this categorisation is insufficient because even structuralists have roots in classical political economy, including Marx.

For Vernengo, dependency means understanding historical elements of development in the developing world. In his case, the object of study is Latin American economies, but he argues that the theory could as easily be applied to Asia or Africa. Vernengo admits that he might think of dependency in a slightly different way than most - as he works within a Sraffian theoretical framework. Vernengo praises the Italian economist for reviving classical political economy in a way that is both consistent and logical. To Vernengo, Sraffian economics includes the surplus approach, as well as effective demand in the long run. Within this framework, one can introduce elements of dependency in an analysis without necessarily being classified as a dependency scholar.

Thinking of himself as a Sraffian, Vernengo believes he is a classical economist with a touch of radical Keynesianism. One could say that the discussion of dependency tends to be missing among many Sraffians, but it is still perfectly compatible with the ideas of a surplus approach. Classical economics is a good starting point for understanding dependency because distribution is at the centre of the approach. Moreover, it allows for the recognition that there are extra-economic elements that impact the economy.

Read full interview here.