Tuesday, June 11, 2024

Bidenomics and other ugly ducklings

The media and a good chunk of the policy wonks are surprised that Biden does not get the deserved recognition for the relatively good state of the US economy, and that as a result he is suffering in the polls. There are two separate, but interrelated, causes for that. The most obvious can be defined in one word, inflation. The second, is related to the fact that, even though the recovery from the pandemic was fast, the economic situation for most working class people has not been great for a long while. In other words, the recovery from the pandemic brought back a situation with which most of the people at the bottom of the income distribution were struggling. I'll deal with inflation, which is the one that everybody is discussing in the news.

Regarding inflation, two things have been negative for Biden. A lot of the mainstream (liberal) and conservative media blames Biden's fiscal package in early 2021 and, perhaps to a lesser extent, the 2022 Inflation reduction Act, for the acceleration of inflation. As do many economists connected to the Dems, more prominently Larry Summers. That view also underpins the Fed's interest rate hikes.

The interest rate hikes could have caused a recession, but now that seems to have been clearly avoided. Traditionally the mechanism is through the impact of the interest rate on residential investment, which is critical for consumption patterns. The graph below show residential investment, that fell before every recession. There were two previous false alarms, in 1951 and 1967, where the Korean and Vietnam wars, and the spending associated to those, came to the rescue. Here, it seems the extra fiscal spending which was highly criticized came to the rescue. Also, the government shutdown, which was always a possibility, and would have reduced spending (and was my biggest fear in terms of a possible recession), never materialized.

The acceleration of inflation, as I discussed several times here (see this paper and this one too, or this INET video),  was caused by supply side constraints during the pandemic, and the shocks to key prices, particularly energy and food commodities after the war in Ukraine. Since there is no significant wage resistance, it was expected that inflation would recede and fall once the shocks passed. No surprises there. And wages are winning against inflation, ad can be seen below. The wages of non-supervisory workers were growing below CPI in the early phase of the inflation acceleration, and are recovering now.

So one may very well ask why are people so angry about inflation. If one looks at the BLS resports it is clear that energy prices, early in the war, and then rents, after the Fed hiked interest rates, had higher increases than the general CPI. The graph below shows that.

This is relevant, since, for lower income people, the impact of higher energy and rental prices impact more than proportionally their ability to spend. In other words, people have less money after paying for gas and housing (and gas impacts transportation and some food items). So most people have felt the inflationary acceleration and they had to tighten the belt somewhat to maintain the same life style.

PS: The yield curve is inverted, and has been for a while and that makes some people nervous. I discussed back in 2019 why an inverted yield curve might not necessarily imply an impending disaster.

Sunday, June 9, 2024

Maria da Conceição Tavares (1930-2024)


Maria da Conceição Tavares passed away last Sunday. She was among the key thinkers of the Latin American Structuralist School, often associated with the Economic Commission for Latin America (ECLA). In her case, Anibal Pinto, who was her teacher in a ECLA course in the early 1960s, and Celso Furtado, who was never formally her teacher, were her major influences. She was instrumental in introducing Kalecki in Brazilian academic circles, and in her debate with Furtado on the possibilities of growth in the late 1960s (Furtado defended a stagnationist thesis) she started to move in the direction of demand-led growth theories. She also noted in the mid-1980s that the diplomacy of the dollar (and the end of Bretton Woods) essentially implied that American Hegemony was stronger than ever. She was associated to the failed stabilization plans of the 1980s (in particular the Cruzado Plan), and was critical of the neoliberal policies of her friend Fernando Henrique Cardoso, and her co-author José Serra. She was a member of congress (I should say I did work for her campaign back in 1994), and she was close to the Workers' Party administrations. Her contributions both to academia and to Brazilian politics were without comparison, and she will be missed.

For those that read in Spanish, here a paper I wrote a few years ago on her contributions to heterodox economics. It was published in this book edited by Juan Odisio and Marcelo Rougier on several key Latin American thinkers.

Saturday, June 1, 2024

My short piece on Solow and his relation to the Review of Keynesian Economics


Robert Solow, who was a member of the editorial board of the Review of Keynesian Economics (ROKE), died in December 2023. Solow holds a special place in the history of macroeconomics, and he was a strong supporter of the ROKE project. In this brief note I want to honor Solow’s contribution to economics and to place on record his contribution to ROKE.

Histories of macroeconomics tend to emphasize the disputes between Keynesians and Monetarists, at least up to the 1970s. Those disputes very often pitted Milton Friedman against either Paul Samuelson, with whom he alternated in a famous Newsweek column, or James Tobin who was, perhaps, the most prominent of Friedman’s opponents when the Journal of Political Economy edited a debate with Friedman’s critics. In the broader cultural wars, Friedman was often pitted against John Kenneth Galbraith, and his Free to Choose series was seen as a response to the latter’s BBC series The Age of Uncertainty. Solow appears, if at all, as Samuelson’s co-author of a paper on anti-inflation policy (Samuelson and Solow 1960), which is widely viewed as introducing the Phillips curve to the American economics profession.

Yet Solow is, in many ways, the central figure of ‘American’ Keynesianism, and he was awarded the 1987 Nobel Prize in Economics. His work was central to the building of what Samuelson referred to as the Neoclassical Synthesis, which was dominant during the post-war era up to the 1970s. This synthesis combined microeconomic competitive general equilibrium theory, Keynesian macroeconomics, and Solow’s (1956) Neoclassical growth theory. It gave short-run space for Keynesian policy effectiveness but asserted a long-run belief in market forces and Say’s Law, which Solow defended in his growth model and in the Cambridge debates with more heterodox Keynesians. Additionally, Solow contributed decisively to the development of what eventually would be called New Keynesian Economics, with the development of the efficiency wage model in the late 1970s. He lived long enough to see fiscal policy rehabilitated after the Great Recession of 2007–2009, and to see what many view as the return of Keynesian Economics.

Read rest here.

Monday, May 20, 2024

Debt cycles and the long term crisis of neoliberalism

My talk at the IDEAS/PERI conference a few weeks ago. As I said there, I hate to be the optimist in the room, but I'm a bit more skeptical about the risks of a generalized sovereign debt crisis in the Global South. The two papers I cite are these (in their PERI Working Paper versions) two (one and two).

Sunday, May 19, 2024

Esteban Pérez Caldentey on the Ideas of Raúl Prebisch

Esteban Pérez's talk at the University of Chile, about Raúl Prebisch, about whom we have written several papers. This is in Spanish.

Thursday, April 18, 2024

Keynes’ denial of conflict: a reply to Professor Heise’s critique

Tom Palley reply to response about his paper on Keynes lack of understanding of class conflict. In many ways, this is how Tom discusses Keynes lack of understanding of old classical political economy. Tom is correct in pointing out that:

"Kalecki (1933 [1971]) began the process of incorporating conflict into the Keynesian paradigm, but there is much more to be done regarding recognizing conflicts’ implications for economic theory and recognizing the multiple fora in which it appears."

Of course, Kalecki was building on Marx and classical political economy. Read the full reply here.

Sunday, March 10, 2024

Atonella Stirarti's Godley-Tobin Lecture

There was a problem during the 7th Godley-Tobin Lecture. I disconnected everyone when I was trying to fix a problem with Professor Stirati's presentation, and I didn't notice until much later. The worst part is that the recording was lost. I'm posting here the PowerPoint presentation for those interested. We will also post the link for the published version of the lecture, which will be open also on the website of the Review of Keynesian Economics (ROKE).

Saturday, March 9, 2024

On the Heritage Foundation Freedom index

My interview with Rick Smith on the Heritage Foundation Index and its tenuous relationship with anything that can be called freedom, economic or otherwise.

Friday, March 1, 2024

Association for Heterodox Economics' Webinar: The Argentina of Javier Milei

 April 16th 2024 10am New York / 3pm London

Since the beginning of the military dictatorship in March 1976, pro-market visions were imposed by violating human rights in the darkest period of Argentina’s history and occupied political thought for more than four decades, even in democracy. Although these ideas had a brief pause in the period 2003-2015, they are still in force and now more than ever under the new administration of Mr. Milei. Mr. Milei has imposed a huge depreciation of the national currency, reducing the purchasing power of workers, and an adjustment of public spending by dismissing more than 50,000 public employees under the slogan of efficiency. Inflation has reached 200% per year and poverty has reached 60% under his administration, which has been in place for less than 5 months. As a heterodox community, we wish to better understand the social and economic consequences of the Milei government and discuss the possible alternatives Argentina now faces. Zoom Registration here.


Ramiro Álvarez is a postdoctoral fellow at the Centre for Political Economy and Development Studies at the National University of Moreno (Argentina). He is a specialist in the Political Economy of Argentina. After his Master in Economic Development at the National University of San Martín (Argentina) he did his PhD at the University of Siena (Italy). Ramiro teaches basic and advanced economics at different Argentinean universities. He has been a guest professor at the Autonomous University of Santo Domingo due to his studies in Political Economy and he published many papers analysing the political “pendulum” in Argentina, and its impacts on income distribution and growth.

Matías Vernengo is Full Professor at Bucknell University. He was formerly Senior Research Manager at the Central Bank of Argentina (BCRA), Associate Professor of Economics at the University of Utah, and Assistant Professor at Kalamazoo College and the Federal University of Rio de Janeiro (UFRJ). He has been an external consultant to several United Nations organizations including the Economic Commission for Latin America and the Caribbean (ECLAC), the International Labor Organization (ILO), the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP). He has eight edited books, two books and more than one hundred and twenty articles published in scientific peer reviewed journals or book chapters. He specializes in macroeconomic issues for developing countries, in particular Latin America, international political economy and the history of economic ideas. He is also the emeritus founding co-editor of the Review of Keynesian Economics (ROKE), and co-editor in chief of the New Palgrave Dictionary of Economics.

María Carolina Moisés is a distinguished Argentine politician and political scientist with a rich career dedicated to public service and political advocacy. Beginning her political journey with foundational education from the University of Belgrano, where she earned a degree in Political Science, she has been a pivotal figure in Argentine politics. Her early academic achievements were complemented by international exposure through a program at the University of Berkley, Boston, which broadened her perspective on governance and public policy. Carolina’s political career is marked by her tenure as a National Senator for Jujuy since December 10, 2023, showcasing her continued relevance and leadership in Argentine politics. Prior to this role, she served as a National Deputy for Jujuy from December 18, 2017, to December 10, 2023, and previously from December 10, 2005, to December 9, 2009, where she was known for her passionate advocacy and significant legislative contributions, including her involvement in the landmark Audiovisual Media Law. As a speaker, María Carolina Moisés brings a wealth of experience, a profound understanding of political dynamics, and a visionary approach to addressing contemporary challenges. Her career is a testament to her unwavering dedication to public service, making her an inspiring figure in Argentine politics and beyond.

Tuesday, February 20, 2024

On the possibility of a recession at the Rick Smith Show

My brief interview at the Rick Smith Show on the likelihood of a recession this year, and the unfounded fears about public debt in the United States.

Thursday, February 1, 2024

Dollar Hegemony and Argentina

First part of a two part interview with Anita Fuentes at Security in Context. The discussion on Argentina and Milei is in the next part. I'll post it as soon as it is up.

Monday, January 22, 2024

On the New Argentine Pendulum

A short paper for FIDE on the so-called Argentine pendulum. The pendulum was the phrase used by Marcelo Diamand to discuss the persistent boom and bust cycles associated with left of center developmentalist governments, and liberal governments that promoted adjustment. The suggestion in this paper is that in reality the previous pendulum was mostly political, and about constraining the left of center ability to redistribute income (higher wages), often restricting democratic institutions. The New Pendulum refers to the period that starts with the last dictatorship, in which alternative economic projects (in which deindustrialization plays a major role) explain the main oscillation. Milei is just one more movement of the pendulum. Full paper (in Spanish) here.

Sunday, January 21, 2024

Tom Palley on "Israel’s genocide, US assistance, and consequences thereof"

By Tom Palley

South Africa has now presented its charge of Israeli genocide in the International Court of Justice (ICJ), and Israel has presented its rebuttal. Regardless of the ultimate judgment, a page has been turned. Israel’s actions in Gaza, assisted by the US, have changed the geopolitical landscape. The consequences stand to be dire and lasting.

The case against Israel

The case against Israel is stark and simple. The argument in descending order of import is as follows.

First, and foremost, is Israel’s disproportionate response and application of collective punishment. Hamas is a criminal terrorist organization, not a state. Israel has a right to appropriate self-defense, but it has no right to kill vast swathes of non-combatant Palestinians as it tries to combat a criminal organization. The indiscriminate killing constitutes a war crime and crime against humanity. It becomes genocidal when paired with denial of means of survival.

Second, razing Gaza to the ground and intentionally driving an entire population into the unprotected open guarantees large scale death from lack of shelter, hunger, and sickness. It echoes the Armenian genocide of 1915.

Third, the razing of Gaza fits with an Israeli plan for mass expulsion of Palestinians, a sort of Israeli final solution to the Gaza problem. Such a plan has long been popular in Israel, predates the Hamas attack, and fits with Prime Minister Netanyahu’s October 28th quotation of the Bible whereby God ordered the Israelites to eradicate the Amalekites: “Now go and smite Amalek, and utterly destroy all that they have, and spare them not; but slay man and woman, infant and suckling.” That record is suggestive of ethnic cleansing which turned genocidal in the wake of the October 7th attack.

Fourth, during the conflict, dehumanizing videos have emerged of Israelis celebrating the killing of civilian Palestinians, mocking Palestinian suffering, vandalizing Gazan shops, and desecrating mosques. Israeli Defense Minister Yoav Gallant described Palestinians as “human animals”. Dehumanization is always part of the story with genocides. Furthermore, Israel’s shooting of Israeli hostages waving a white flag who had escaped from Hamas, shows Israel’s take no prisoners tactics which violate the Geneva conventions. All are part of the mindset informing Israel’s actions.

Some claim every Palestinian is a potential terrorist and legitimate target. Not only is that grotesquely specious, it also tacitly justifies Hamas’ murders on grounds that every adult Israeli is a soldier. The horror of Hamas’ October 7th attack may explain the Israeli public’s desire for revenge and retribution, but it provides no legal justification for mass murder.

Read rest here.

Monday, January 15, 2024

Demand-led Growth In Rio

The Review of of Keynesian Economics is co-sponsoring the Fifth Conference on Demand-led Growth in Rio, next July 11 and 12.

2024 marks the 45th anniversary of Thirlwall’s classic 1979 paper that introduced Thirlwall’s law as well as the 75th anniversary of Prebisch’s manifesto on the main development problems of Latin America. These seminal works were key, for post-Keynesian and structuralist literatures, to put the balance of payments constraint at the center and as one of the main problems of long run growth and development. Furthermore, it was an important critique and alternative to the mainstream view that highlights factors of production scarcity as the only explanation to long run growth.

As a result, many demand-led growth theories often emphasize the balance of payments as the main constraint that an economy faces in the long-run. Among the various subjects that balance of payments constraint literature treat, we can name: The role of financial flows in the long run; External indebtedness; Solvency and liquidity problems; Currency hierarchy; The role of the exchange rate; The relation between balance of payments constraint and economic policy, and many others.

All these themes are related with the research lines of the Group in Political Economy at the Institute of Economics of the Federal University of Rio de Janeiro, which follows the Sraffian framework proposed by Garegnani to make the Keynesian-Kaleckian principle of effective demand compatible with the classical surplus approach. For our Group, growth is demand-led and policy (often balance of payments) constrained. In succession, inflation is a cost-push political economy phenomenon dependent upon conflicting claims over income distribution. Within this framework, macroeconomic policies are fundamental to growth, inflation, and income distribution. In capitalist economies, these policies arise from institutional arrangements as well as political power relations. The Research Group in Political Economy considers that constructing policy-relevant analysis and theoretical and applied models to better understand advanced and developing countries’ actual performance demonstrates this theoretical approach’s soundness.

Given the approach taken by the Group and in the context of the intensification of dialogue and convergence among some Post-Keynesians, Kaleckians, Kaldorians, practitioners of Modern Monetary Theory, and Sraffians, the goal of the 2024 Edition of the Workshop is to strengthen this promising trend by promoting a constructive and policy-relevant debate among these strands of critical thought. Other heterodox approaches to economics are also welcome and encouraged in fostering new contributions concerning demand-led growth analyses, models, their multiplicity of relations with monetary and financial elements and external constraints to growth.

More info here.

Monday, January 8, 2024

The Gift of Sanctions

Jamie Galbraith presented, at the EPS session at the ASSA Meetings in San Antonio, the paper published by INET. As he said there: "Despite the shock and the costs, the sanctions imposed on the Russian economy were in the nature of a gift." A type of invisible hand effect, by which the unintended effect of the policy that should supposedly benefit US allies (Ukraine) has the unintended effect of helping its alleged enemies (Russia).

From the abstract:

This essay analyzes a few prominent Western assessments, both official and private, of the effect of sanctions on the Russian economy and war effort. It seeks to understand the main goals of sanctions, alongside bases of fact and causal inference that underpin the consensus view that sanctions have been highly effective so far. Such understanding may then help to clarify the relationship between claims made by economist-observers outside Russia and those emerging from sources inside Russia – notably from economists associated with the Russian Academy of Sciences (RAS) – which draw sharply different inferences from the same facts. We conclude that when applied to a large, resource-rich, technically proficient economy, after a period of shock and adjustments, sanctions are isomorphic to a strict policy of trade protection, industrial policy, and capital controls. These are policies that the Russian government could not plausibly have implemented, even in 2022, on its own initiative.

Download paper here.


Sunday, December 31, 2023

Podcast Failures: Friedman and Chile, Hume and Public Debt

I listen to a few podcasts during my commute. Two that I often appreciate are Know Your Enemy, associated with Dissent Magazine,* a series of interviews on mostly right wingers by Matthew Sitman and Sam Adler-Bell, and Past, Present and Future, a series of monologues by David Runciman, sponsored by the London Review of Books.  Both are always entertaining and informative. I'm not a specialist in most of the subjects they discuss. However, two recent episodes (or at least I listened to them recently), one from each, dealt with economic issues, and they did leave a lot to be desired, to say the least.

Very briefly, the issue with the interview with Jennifer Burns about her biography (in many ways, from this interview, and the one with Tyler Cowen, it is hard not to see it as a hagiography; more on that as soon as I read the book; it's been ordered. I hope that's just a perception and that the book provides a more balanced view of his contributions and political views) of Friedman is that the hosts accepted almost all of her very monetarist interpretation of the Allende government, and her whitewashing of Friedman's relation with the Pinochet regime (see on that this and this). In all fairness, at least one of the hosts (sorry, not sure that was Matt or Sam) questions (around 1:16) the validity of her interpretation of the relation of Friedman with the regime. But there seems to be a complacent view according to which inflation in Chile was caused by excessive monetary printing driven by the expansion of the welfare state.

The role of the US sanctions, and Nixon's infamous instruction to "make the economy scream" are never cited. And the lack of dollars was at the center of the depreciation of the currency, inflation and the collapse of the economy. Let alone that the Pinochet period wasn't that good (yes they do claim that it created the basis for future growth, a typical conservative trope, that I should write about; in another occasion). I also recommend this post by Tom Palley. On a general evaluation of the regime see this piece by Jim Cypher in Dollars & Sense.

The issues with Runciman's podcast are considerably more problematic. They don't entail a misrepresentation of the ideas of a crucial intellectual, in this case, David Hume. In fact, Runciman is relatively correct when it comes to Hume's essentially negative views of public debt (which were not all that different than those of Adam Smith, at least according to Donald Winch**; btw it was called public credit at that time, so nothing weird about it). He makes to much of Hume's drastic solution, default, for public debt, and its comparison with suicide, for the nation not the individual. And he does recognize that events essentially proved Hume wrong.

But then he commits all of Hume's (and modern mainstream economics). Presumes that the only way out of debt is to run persistent surpluses, printing money and reducing its value in real terms (endorsing a Monetarist view of inflation; it's amazing how pervasive it is), and default. He misses that debts can fall as a share of income (GDP), that is, the ability to repay, if the economy grows faster than debt (the rate of interest), and that most debt consolidations actually happened that way, while running deficits. He also gives Argentina as an example of a country that has defaulted without noticing the differences between debt in domestic and foreign currency. It's a mess. Worse, in an environment in which many conservatives want to promote default in the US he suggest that talking about it would be reasonable. He is out of his depth, should apologize and invite someone to explain the problems with his analysis.

Again, I'm only commenting on these two episodes, because they do seem off, when compared to the quality of both podcasts in general.

* I published almost 20 years ago on Dissent. Because of this I did search their online archive and my piece, and my name was misspelled. Also, it was published in the Winter of 2004, and not of 1984. In the original magazine it was spelled correctly. Oh well.

** See Donald Winch, "The political economy of public finance in the 'long' eighteenth century," in John Maloney (ed.), Debt and Deficits: An Historical Perspective, Cheltenham: Edward Elgar, 1998.

Saturday, December 30, 2023

Second and third parts of the interview (in Spanish)

Second and third parts of my interview with Diego Polanco. On Argentina, Brazil, heterodox economics, and more. In Spanish. First was here.


Rest here:

Thursday, December 28, 2023

What's the deal with The Smiths


With friends like this...

This is NOT a review of the Smiths (the band), and neither of (or at least not a full one) of Glory M. Liu's (relatively) new book Adam Smith's America: How a Scottish Philosopher Became An Icon of American Capitalism. For a proper review go read Kim Phillips-Fein's one. In a sense, the book remind me of Bernard Shaw's famous saying that UK and the US were two countries divided by the same language. Here the gap is between fields, and there are two gaps, one within economics, modern mainstream economics and old classical political economy. Liu is a political scientist by training, and what she takes as economists views, including the understanding of the history of the discipline, are fundamentally from a mainstream perspective.

The phrase by Sraffa, that I have cited before fully applies here. He said:

"The classical economists said things which were perfectly true, even according to our standards of truth: they expressed them very clearly, in terse and unambiguous language, as is proved by the fact that they perfectly understood each other. We don’t understand a word of what they said: has their language been lost? Obviously not, as the English of Adam Smith is what people talk today in this country. What has happened then?" [Sraffa, Nov. 1927, D3-12-4, front page, 14]

In particular, the continuity in what has been aptly referred to as the surplus approach from William Petty to Smith, and the well documented trajectory from the ideas of Petty to Cantillon, to Quesnay, and then to Smith is lost in her relatively thin discussion of political economy aspects of Smith. The book by Tony Aspromourgos, On the Origins of Classical Economics: Distribution and value from William Petty to Adam Smith, is required reading on this subject. Smith clearly builds upon the core of the surplus approach, as developed by Petty-Cantillon-Quesnay, in particular on the question of the notion that manufacturing activities are productive. That is certainly an important aspect associated to the disputes between agrarian and industrial views of society.

But while there are differences in their views with respect to what might be termed the model of development (agrarian vs manufacturing), there is clear analytical continuity between Smith and the Physiocrats. They are all concerned with the material reproduction of society, in which the surplus (and, hence, profits and distribution) is a residual, and wages are at the level of the socially and institutionally determined (not merely physiologically) by the needs of survival of the working class. Smith saw distribution as conflictive. That's an analytical point that cannot be dismissed, and is not discussed in Liu's book at all.

This matters to some extent, because the general argument in Liu's book -- which is for the most part correct, that Smith ideas have been used by different groups to promote agendas that were not originally part of Smith's arguments, and that he was a complex author with more depth than often transpires in these several versions of reinvented Smiths (hence, the Smiths) -- misses the actual point of the original Smith. In her view, the nuance is provided by the fact that Smith was a moral philosopher and that in his other major work (and in his Lectures on Jurisprudence, based on students notes, and published posthumously), The Theory of Moral Sentiments (TMS), a Smith different from the one of The Wealth of Nations (WN) appears. Smith cannot be seen as a defender of selfish behavior, since he is clearly critical on TMS (the so-called Das Adam Smith Problem, about which Liu makes more than one should), neither an unqualified supporter of unregulated capitalism, since he qualified it, including in the WN (for example, with his approval of the Navigation Acts; I would add of the Bank of England). That's fine, but displays a limited understanding of the relation of Smith's and the surplus approach with modern economics.

Smith is misread by modern economics NOT because he was not an unqualified defender of unmitigated, unregulated, laissez-faire capitalism (which he wasn't), but because theoretically his economic system did not imply that markets produced optimal outcomes. His defense of laissez-faire and of commercial societies was not based on the allocative efficiency of markets (neither then intervention could be supported as a way to preclude inefficiencies), but simply as needed break with the remnants of feudal institutions that hampered the process of accumulation. As Marx noted in his The Poverty of Philosophy (Works, vol. 6: 176): "The Classics, like Adam Smith and Ricardo, represent a bourgeoisie which, while still struggling with the relics of feudal society, works only to purge economic relations of feudal taints, to increase the productive forces and to give a new upsurge to industry and commerce."

Of course, to sort this out one has to get into the theory of value.* The labor theory of value (LTV) (in an early and rude state of society) meant that the long term (natural) prices were determined by the relative amounts of labor, and supply and demand only determined short term market prices. This theory implied that profits were determined as a residual, for a given level of output and with real wages given, for historical and institutional circumstances, at the level of subsistence. The implication is that the theory did not imply the full utilization of labor, and that distribution is conflictive. So Smith's policy defense of laissez-faire was not based, like modern neoclassical versions (in particular the Chicago School that Liu's discusses in more detail, including Stigler, pictured above), on markets producing the optimal allocation of resources, including the full utilization of labor.

It is clear that Smith is not a forerunner of Marx, something that the latter understood. Marx shared an analytical framework with the classical authors, but rejected their a-historical categories. He argued that:

"Economists like Adam Smith and Ricardo, who are the historians of this epoch, have no other mission than that of showing how wealth is acquired in bourgeois production relations, of formulating these relations into categories, into laws, and of showing how superior these laws, these categories, are for the production of wealth to the laws and categories of feudal society." (Ibid.).

But it is also clear that the theoretical foundations of his policy views was very different than those that were built from the developments of the Marginalist Revolution, and closer, in fact, to Marx's own analytical framework. On that Milgate and Stimson (2009), in their very useful After Adam Smith, are also clear. They say:

"Indeed, if the contemporary economic case for liberty is ultimately made in terms of the language of the market, which if left unimpeded by the state is capable of solving a static problem of allocating a fixed supply of resources, then we have moved well beyond these eighteenth-century thinkers such as Smith. In this sense it might be reasonable to ask whether what we understand today as free market theory—against which a modern form of nationalist- led trade policies might be said to operate—is different in important ways from the eighteenth-century political economy from which it is said to have originated. It might also be well to ask just how that transformation of the conceptual framework of political economy and its relationship to politics that came about after Smith took shape" (2009: 32).

Without an understanding of the changes in political economics (and its transition to economics) after Adam Smith, one is left with the puzzle noted by Sraffa almost a century ago.

* On the reasons for the need for a theory of value go here. For more on the limits and problems of the LTV see this and this.

PS: I should note that Liu tells the story of Stigler's T-Shirt that read Adam Smith Best Friend (Nathan Rosenberg's paper on that here). Back when, my PhD students in Utah, did a T-Shirt on my suggestion that there should be an alternative to Stigler's one. The Heterodox Students Association (HESA) T-Shirt read: I read Adam Smith and Understood it. Enough said. Old post on that. A recurring theme around here.

Sunday, December 24, 2023

Robert Solow (1924-2023), who was on the board of ROKE, is dead

Over the years, I had the opportunity to interact with Bob Solow, who was very open to discuss with people he disagreed with, and debate the substantive analytical and empirical issues, taking seriously the ideas of others. I first met him because when I was an Assistant Director at CEPA (now Schwartz Center, SCEPA), back in 2000 or 2001, working for Lance Taylor, I found out he was spending some time in NY at the Russell Sage Foundation, and I invited him for a talk (if memory doesn't fail me the title was, The Good Five Years, about the Clinton boom). He presented, according to him, his first overhead projector slide.

At any rate, after that I invited him to be part of the board of ROKE, which he accepted. In his letter, he explained what he thought ROKE was about and what it should do to avoid the fate of other heterodox journals.

He also published this paper on Friedman's presidential address in 2017. His obit at the NYTimes here.

Wednesday, December 20, 2023

A short note on Argentina's depreciation, inflation and possible dollarization

That Argentina is in for a major crisis is, I think, pretty clear and well-known. I won't delve too much on the political aspects of what Finchelstein refers to as wannabe Fascistic tendencies of the new president.  Today a major protest should take place, and the same people that suggested that Peronists groups forced the recipients of social transfers to participate (something that was never proved) under threat of being cutoff, are threatening to cutoff those that participate. You know, because they defend individual liberties and all.

First of all, the economic plan (and many heterodox authors had been calling for what exactly done) was simply maxi-depreciation, of 100 percent, of the official exchange rate, to try to close the gap with the parallel market (or blue) rate, and the announcement of a massive fiscal adjustment, supposedly of about 5 percent of GDP. As discussed here several times, the effects of these policies are certainly a significant acceleration of inflation, and a massive recession. These are well-known effects of a maxi-depreciation. Prices will adjust to the massive increase in the cost of imported inputs, and the increase will reduce real wages (that, by the way, is one of the main reasons for the measure), and have a contractionary effect on spending, that will be compounded by the fiscal adjustment.

Two brief technical things. The adjustment may not per se improve the fiscal accounts, since the economic collapse will reduce revenue too. It is a well-known rule that consolidations (reductions of debt and of deficits, the results of policies) tend to be more successful with a growing economy, and without a massive adjustment (reduction in spending and/or higher taxes, the direct policies).* Second, the reduction in the exchange rate premium (the gap between official and parallel rates) is not an indication that things are better, if it is done, as it was, by depreciating massively the official rate. In particular, the question is what will happen with the parallel premium in the near future. The official exchange rate will be on a crawling peg, if the announcement of the new minister is believable. And the premium has been very high, because of the interest rate differential between returns in pesos and in dollars, adjusted for risk (see figure below, which shows the interest rate in pesos compared to the actual depreciation of the currency, plus the US rate and the EMBI from JP Morgan). The remuneration in dollars is always higher.

The government has also announced a plan to essentially transform the central bank bonds (Leliqs) into treasury bonds. And the interest rate on the central bank bonds were kept low, presumably to get everybody into the treasury ones. However, the treasury bonds will have to pay a very high rate, since the the expected depreciation is large, and the government announced it will continue. That suggests that they are expecting people to continue to go to dollars, and that might actually lead to a persistence or increase of the exchange rate premium. In particular, if there is significant wage resistance, to be expected after this massive depreciation, and inflation accelerates.

In the absence of dollars, there is little chance of a stabilization. The government may very well be trying to accelerate inflation to create the conditions for a dollarization later on.

* Most economists confuse adjustment and consolidation of fiscal accounts. In part to cloud the fact that consolidation does not require adjustment. The US reduced its massive debt accumulation during World War II, without adjustment, by growing fast in the post-war era, in which the government did run deficits frequently and the welfare state was actually expanded, particularly in the 1960s.

Saturday, December 16, 2023

Argentina and the Philippines: Similar development struggles

Friday, December 1, 2023

Tony Thirlwall (1941-2023)

Leading academic and Keynesian best known for Thirlwall’s Law on economic growth

John McCombie

The economist Tony Thirlwall, who has died aged 82, was, in his own words, an “unreconstructed Keynesian”. He saw this not as a pejorative title, but more as an accolade, considering that many of the insights of John Maynard Keynes, and in particular the importance of demand, are still relevant for understanding today’s economy.

Tony is perhaps best known for his original way of thinking about economic growth. This challenged the supply-side orthodoxy, which often assumes a closed economy in which the growth of demand is missing and the structure of production does not matter. Thirlwall took the Keynsian approach that it is demand that drives growth, but, importantly, the balance of payments can be a major constraint on demand.

In 1979 he established an economic relationship that has come to be known as Thirlwall’s Law. This was elaborated in his 1994 book, Economic Growth and the Balance-of-Payments Constraint, which I co-authored. The simplest form of the law is that the long-run growth of a country can be approximated by the ratio of its growth of exports to its income elasticity of demand for imports.

Any attempt by a country to grow faster than the ratio given by the law is likely to be thwarted by an unsustainable growth in the current account deficit.

It is testament to the importance of the law that research concerning it is still continuing, with a recent symposium in 2019. The law has also proved influential in policy institutions such as the UN’s Economic Commission for Latin America and the Caribbean, and the United Nations Conference on Trade and Development.

A major influence on Tony was the distinguished Cambridge economist Nicholas Kaldor. Tony had the highest regard for his work and extended Kaldor’s approach, especially, to economic growth. He wrote his intellectual biography (1987) and was also his literary executor after Kaldor’s death in 1986.

Tony started as a regional and labour economist, but his major research interest lay in development economics. He wrote many books and papers in this field, including on such topics as inflation in developing countries; financing economic development; and the effect of trade liberalisation on such countries.

His bestselling textbook, Growth and Development, With Special Reference to Developing Countries, was first published in 1971 and has run to 10 editions (with a later change in title to Economics of Development: Theory and Evidence). The last edition was co-authored with his wife and research collaborator, Penélope Pacheco-López, whom he married in 2011.

Tony’s expertise in this subject led to many invitations over the years to universities in the developing world, and also to give policy advice to a number of international organisations.

Born in Cockermouth, Cumberland (now Cumbria), Tony was the son of Ivy (nee Ticehurst) and Isaac Thirlwall, a railway clerk. At Harrow Weald county grammar school he was an accomplished athlete. After graduating with a BA in economics from Leeds University in 1962, followed by an MA at Clark University in Massachusetts in 1963, he started his PhD at Cambridge University, where he ran in the Oxford-Cambridge cross country race the same year. He took up running again in his early 40s and represented Britain in the 400 and 800 metres in the European Veterans championships in Strasbourg in 1982.

He returned to Leeds in 1964 to take up an assistant lecturer post, and was awarded his PhD there in 1967, a year after moving to Kent University, where he was made professor of applied economics by the age of 35. He was later director of graduate studies in economics at Kent for many years, with a master’s (and PhD) programme in development economics.

To celebrate the life and work of Keynes, Tony organised 11 biennial Keynes seminars between 1973 and 1991. These attracted large academic audiences, including some of Keynes’s contemporaries, such as Roy Harrod, Richard Khan, Kaldor, and Joan Robinson.

Tony’s research output was prolific: 18 books, several of which were translated into numerous languages, editor of 12 volumes and author of more than 200 refereed journal articles.

He retired from Kent in 2004, when he was made emeritus professor, and remained active in his research until just before his death.

His first marriage, to Gianna Paoletti in 1966, ended in divorce in 1986. They had three children, Lawrence, Alexandra and Adrian.Adrian died shortly after his birth.

Tony is survived by Penélope and their son, Oliver, by Lawrence and Alexandra, and by four grandchildren, Ben, Sam, Lorenzo and Sienna.

Anthony Philip Thirlwall, economist, born 21 April 1941; died 8 November 2023 

Originally published here.

Sunday, November 26, 2023

Neoliberalism Resurgent in Argentina

Extended post with Sergio Cesaratto on the website of Brave New Europe. A comparison of dollarization with some of the effects of the euro, and the similarities and differences between Argentina and Southern European countries.

Saturday, November 25, 2023

Was Keynes a Liberal or a Socialist?

A Socialist Rag

My old Will Lyons  Lecture at Franklin & Marshall College in the Spring of 2021 is now a working paper. Prof. Lyons was a Bucknell Graduate, and a professor at F&M. The topic was based on the, at that time, recent reading of Jim Crotty's book. From the abstract:

Right-wing critics of Keynes have often suggested that he was a socialist. His policy proposals were very often described as a slippery slope that would lead society into a totalitarian nightmare. Alternatively, from the left, Keynes was often seen as a reformist that intended to preserve the essence of capitalism. His reforms were mere window dressing on an exploitative system. The scholarship on Keynes also remained divided. However, in the last few decades a more robust position in favor of Keynes’ socialist affiliation was developed, particularly in the careful scholarship by Rod O’Donnell and James Crotty. This paper suggests that while Keynes was a pragmatist willing to experiment in economic policy, and fully aware of the need to transform and transcend laissez-faire capitalism, he remained a liberal, in particular because Labourites, and most socialists, remained conservative in their economic policy outlook. Keynes was a
revolutionary in economic theory, but a moderate in his politics.

Read paper here.

Tuesday, November 21, 2023

Interview (in Spanish) with Diego Polanco about Milei and Argentina

First part of my interview with Diego Polanco on the Argentine election, and the never ending crisis of the economy. Second part in a couple of weeks.

Monday, November 20, 2023

Dollars & Nonesense: Milei and the risk of hyperinflation

Javier Milei will be Argentina’s next president. Milei is an extreme right-wing populist, with authoritarian, some may say Fascistic, tendencies. He is an admirer of Trump and Bolsonaro. He is rumored to talk with his deceased dog, that he had cloned. His party’s proposals range from the dangerous – like dollarization, the closing of the Central Bank, the drastic reduction of social spending, the loosening gun ownership laws, and the criminalization of abortions – to the insane – like instituting a market for human organs, or allowing fathers to opt out of the paternity obligation to pay parental support. Some of his views are outright despicable, like his minimization of the human rights violations of the last dictatorship. He has also has played fast and loose with all his proposals, suggesting that he may not do anything that he promised to do, with the exception of one. He has maintained that dollarization is not negotiable.

The dangers of dollarization could not be minimized. Dollarization implies getting rid of the domestic currency, and being forced to borrow only in dollars. Debt in foreign currency can only be repaid with the dollars obtained from exporting, which would limit drastically the ability of the government to borrow, in particular since Argentina is already deeply indebted with the International Monetary Fund (IMF) and private creditors, as a result of the presidency of Mauricio Macri. Macri is Milei’s main political sponsor within the Argentine establishment, and during his presidency he more than doubled the debt in foreign currency (on Macri see this paper). If the idea is to dollarize to reduce debt accumulation and the problems associated with it, it must be noted that to eliminate the central bank and the peso as the legal tender for domestic transactions does nothing to increase the exports needed to service foreign debt, which would be the only way to obtain more dollars.

If the idea is to dollarize to stop inflation, which it might do, it would only be reasonable if inflation, which is running at almost 140 percent annually, was caused by the central bank and the printing of pesos. In fact, Macri believed that was the problem, and promised to stabilize the economy back in 2015, when inflation was around 25 percent. The president of the central bank appointed by him, Federico Sturzenegger, a possible finance minister of Milei, instituted inflation targeting and prohibited the monetary financing of the Treasury. However, inflation still more than doubled and was at 50 percent at the end of Macri’s government. The reason for that is that inflation results from the depreciation of the peso, which raises the price of imported goods, and leads to demands for higher wages. Dollarization may resolve the problem by essentially precluding any depreciation of the currency.

To dollarize Milei will need to obtain large amounts of dollars. And if the dollars are obtained, the central bank could intervene in the foreign exchange rate market, stabilize the currency and stop inflation. In other words, dollarization is only possible in a context in which it would not be needed anymore. Dollarization would reinforce the problem, already exacerbated in the Argentine case, of borrowing in foreign currency.

The risk now is that Milei might announce his dollarization plans, and markets might  anticipate it, and a rush to the dollar might follow. In fact, Milei has openly said that the more the peso depreciates the better. He suggested that he would allow the exchange rate to depreciate as much as possible before dollarization, essentially causing a hyperinflation. He would cause the whole economy to collapse in order to stabilize it. He would cure the disease, but kill the patient.

Thursday, November 2, 2023

The theory of monetary disorder

 “When I discovered that the economic order produced social disorder, they took away my scholarship.”

New working paper by Tom Palley. From the abstract:

This paper introduces the notion of monetary disorder. The underlying theory rests on a twin circuits view of the macro economy. The idea of monetary disorder has relevance for understanding the experience and consequences of the recent decade-long period of monetized large budget deficits and ultra-easy monetary policy. Current policy rests on Keynesian logic whereby a large fall in aggregate demand warrants robust offsetting monetary and fiscal policy actions. That logic neglects potential monetary disorder being bred within the financial circuit in the form of inflated asset prices and leveraged balance sheets. That disorder is likely to develop long before inflation accelerates so that inflation targeting fails to protect against it. Political factors increase the policy danger as the benefits of disorder are front-loaded and the costs backloaded. The paper concludes with a policy discussion regarding how to prevent Keynesian goods market counter-cyclical stabilization policy from causing monetary disorder.

Download it here.

Wednesday, November 1, 2023

Beyond the NAIRU - 7th Godley-Tobin Lecture

The 7th Godley-Tobin Lecture will be given by Antonella Stirati at the Eastern Economic Association meeting next Spring in Boston. The previous lecture by Professor Joseph Stiglitz will be published in the January issue of ROKE.

Bidenomics and other ugly ducklings

The media and a good chunk of the policy wonks are surprised that Biden does not get the deserved recognition for the relatively good state ...