Business Cycles in the Modern World System: Past, Present and Future

 

In case anybody is in the area around New York, the Program of the PEWS conference below.

Thursday, April 26, 2018 -- 4:30 - 5:20 p.m.

Reception in the DiMenna-Nyselius Library Room 107 C

5:20 p.m.

Formal Opening of the Conference Library Multimedia Room

Welcome: Eric Mielants (Sociology)

Katsiaryna Salavei Bardos (Finance)

Introduction of Keynote Speakers

Dean Greenwald (CAS)

Immanuel Wallerstein (Sociology, Yale University)

“Cycles Within Structures versus Structural Crises”

Matías Vernengo (Economics, Bucknell University)

“From Financial Instability to Secular Stagnation”

Friday, April 27, 2018

9 – 10:30 a.m. DiMenna-Nyselius Library Multimedia Room

Panel 1: Theoretical Models and Business Cycles

Moderator: Michael Puleo (Fairfield University)

Daniel H. Neilson (Bard College at Simon's Rock)

“Minsky, Polanyi, and World System Analysis”

Daniel Gugan (Corvinus University of Budapest)

“An embedded-systems approach to the socio-economic cycles of the world system”

Roberto J. Ortiz (Binghamton University)

“The Nature and Limits of Endless Accumulation”

10:45 a.m. – 12:15 p.m.

Panel 2: Business Cycles confronting Social and Political Trends I

Moderator: Kathy Nantz (Fairfield University)

Tarun Banerjee (University of Pittsburgh)

“The Great Recession and Corporate Responses to Social Movements in the US”

Chungse Jung (Binghamton University)

“Long-Term Capitalist Dynamics and Protest Waves in the Global Periphery: A Critical Reappraisal of Business Cycles”

 For more information go here.

Corporate tax cuts use in one graph

So it seems that a good chunk of the GOP/Trump tax cuts will go to buybacks, and to fuel the bubble in the stock market, according to Robin Wigglesworth in the FT (subscription required). Bad news for those that think that higher earnings lead to higher investment (meaning gross formation of capital). My impression is that if you want tax cuts to be stimulative, you should target consumption, in particular for lower income groups, which tend to spend a higher proportion of their income.

On the Blogs—The Inequality Edition

Why So Few American Economists Are Studying Inequality—Alana Semuels at the Atlantic provides a nice summary of the problems in the profession, and cites the work by a few economists like Jamie Galbraith and the two cited below (Milanovic and DeLong)

Chinese income distribution in 2002-3 and 2013—Branko Milanovic on how Chinese inequality, did not increase much in that period, even though it is high, and how it converged to the US levels

Globalization: What Did Paul Krugman Miss?—Brad DeLong more on globalization really, but there again, globalization has been at the core of the debates on inequality (how much it hurt the Rust Belt here, or how it raised incomes in the South, China and India mostly)

More on China and the US

So, if there is a reason for concern regarding China in the US, it is definitely the use of their developmental state to promote technological innovation.

And as the graph shows they are catching up on spending, at least. I'm not sure I agree with the WSJ here, but they are certainly moving into high tech areas like AI.

China and US Trade Tensions in one graph

The graph below illustrates the reasons for the concerns in the US and the somewhat erratic, but more combative position of the Trump administration.

Note, also, that China is closing the gap on R&D spending and on the technological front, at a faster pace that I would have predicted (more on that for a later post).

PS: I only got noticed this today, but Wolff's column is also about US-China relations. I suppose it's the topic now.

Modern Money Theory (MMT) vs. Structural Keynesianism

By Thomas Palley

A journalist sent me some questions about MMT. My answers are below.

1. What are the major flaws you see within Modern Monetary Theory?

(A.) I like to say that MMT is a mix of “old” and “new” ideas. The old ideas are well known among Keynesian economists and are correct, but the new ideas are either misleading or wrong.

The essential old idea, which everybody knows, is government has the power to issue money. We used to talk of “printing” money. In today’s electronic world we talk about “keystroke” money created by electronic credit entries.

Everyone knows that because government has the capacity to create money, it can always pay its bills and debts by printing money. But having the capacity is not the same thing as saying it should, which is the beginning of where MMT goes astray.

In economic debate and economic journalism there is a “demand for difference”. On one side you have extreme budget hawks who see every deficit as a dire existential threat. MMT is the counterpart to the hawks. And here’s the rub. MMT is needed as an anti-dote to austerity hawks, but neither make for good economic theory.

That creates a dilemma for progressive economists. On one hand, there is need for a powerful progressive polemic to counter neoliberal austerity polemic. The basic MMT message that government has a lot more fiscal space than mainstream economists say, is correct. On the other hand, MMT’s theoretical arguments are not novel, and are sometimes incorrect.

My past criticism has focused on MMT as economic theory (here and here for more academic references).

B) I have found it is difficult arguing with MMT economists because they tend to change their positions. But here are some objections I have made in the past.

Read rest here.

On the blogs -- The Measurement Edition

Here are 15 Common Data Fallacies to Avoid-- Jeff Desjardins at Visual Capitalist on some common mistakes. I like the McNamara fallacy, which is probably common in economics

Welfare Versus GDP: What Makes People Better Off-- Geoffrey Bannister and Alexandros Mourmouras at the IMF blog on alternative measures of well-being

Inequality and Poverty-- Chris Dillow at Stumbling and Mumbling on the limits of the Gini coefficient

A predator–prey model to explain cycles in credit-led economies

A paper in the new issue of ROKE by Óscar Dejuan and co-author. From the abstract:

This paper develops a predator–prey model to explain cycles in credit-led economies. The predator is the part of the financial sector that issues credit money for non-output transactions. It increases the indebtedness ratio and inflates bubbles that eventually have a negative impact on the real rate of growth (the prey). From this basis, we build a couple of models that may lead to self-contained or explosive cycles. Even in the first case, there is a risk of a financial collapse when certain variables move far away from their long-term equilibrium positions. In order to tame the cycle and avoid extreme positions, governments should ban the expansion of credit money for the purchase of assets and introduce permanent checks to risky credit.

You can read the whole paper here. 

Employment losses in historical perspective

My colleague Chris Magee sent this graphs around about employment losses during different recessions. The first one below show all the recession from the 1970s onwards.

The next one, which I modified to show just the Great Recession and the Great Depression, is below, and gives a sense of the dimension of the Depression.

The sheer size of the Depression is impressive. Even though the last recession is an outlier, it pales in comparison with the Great Depression. You can see in the graph very clearly the Roosevelt recession of 1937-38, and also the fact that the recovery was very slow, even though as one can see from the graph above the current recovery was also slow, by historical standards.

I'm not sure what lessons Chris derived from his graphs, but I would argue that is safe to say that both the macro interventions, the fiscal package and the alternative monetary policy(even if one might have criticisms about particular elements of both), and the more widespread existence of automatic stabilizers, worked very well and precluded another Great Depression. I would see that as some evidence in favor of the New Deal policies and institutions, which essentially were behind the macro policies, and of the importance of Keynesian ideas, which gave theoretical foundation to those policies.

Josh Bivens had a piece on EPI a few years back on the slow recovery which is still worth reading. Btw, his lessons seems to be that there was not enough fiscal stimulus, something that also explains to some degree the persistence of the Depression. I wrote, even longer ago, that one should also take into consideration the conditions of the labor market, and not just the employment recovery, to have a better picture of the economic conditions.

PS: I have done a similar graph with GDP losses comparing the US and Greece. That one indicates the costs of austerity (in Greece).

On the blogs -- Economic History Edition

When did sustained growth start?-- Dietrich Vollrath on a paper by Jane Humphries and Jacob Weisdorf, in which they show the increase in real wages in the 1600s and preceding the Industrial Revolution

Do we really care whether the profits from American Slavery were reinvested to spur faster growth or not?-- Brad DeLong on Gavin Wright's presentation on the topic of the centrality of slavery for economic growth and the Industrial Revolution

What Happened to The Standard of Living During the Gilded Age?-- Bradley Hansen on living standards during the latter part of the 19th century in the US (he suggests the situation was not as bad as some historians think)