My initial comments at the seminar on the legacy of Pierangelo Garegnani's contributions to economics organized by the Italian Post Keynesian Network. The full seminar here.
Friday, November 26, 2021
Monday, November 22, 2021
More on the same issues, with a discussion of Piero Sraffa and the surplus approach (this week there will be an event on the legacy of Pierangelo Garegnani). In Spanish again.
Wednesday, November 17, 2021
Interview in Spanish to Radio UNAL with Óscar Morillo. We discuss the the origins of political economy and their importance and the continuous relevance for the understanding of modern capitalism. Link here.
Monday, November 8, 2021
Thursday, October 7, 2021
New paper by Thomas Palley. From the abstract:
This paper explores the economics and political economy of financialization using Matt Taibbi’s vampire squid metaphor to characterize it. The paper makes five innovations. First, it focuses on the mechanics of the “vampire squid” process whereby financialization rotates through the economy loading sector balance sheets with debt. Second, it identifies the critical role of government budget deficits for the financialization process. Third, it identifies the critical role of central banks, which are the lynchpin of the system and now serve as de facto guarantors of the value and liquidity of private sector liabilities. Fourth, the paper argues financialization imposes a form of policy lock-in. Fifth, it argues financialization transforms popular attitudes and understandings, thereby generating political support despite poor economic outcomes. In effect, there is a politics of financialization that goes hand-in-hand with the economics. The paper concludes with some observations on why mainstream macroeconomics has no equivalent construct to financialization and discusses the disquieting unexplored terrain that the economy is now in.
Wednesday, October 6, 2021
But in spite of the apocalyptical rhetoric in Washington nothing like this is even faintly possible in the case of the United States. Public debt in the US is in domestic currency, the safest financial asset, and not owed to foreign bankers or in foreign currency, which is not controlled by the administration. It is also not debt in an asset the administration does not control like gold, as it was the case in Ancien Régime France, or the US itself before the end of Bretton Woods. More importantly, political representation, and democratic control over the public purse provided the conditions to sustain expanding budgets and public debt in the American case. The debt reflects, for good or for bad, the democratic decisions of the people. The only reason public debt has become an issue is the existence, for arcane political reasons, of a debt ceiling.
Even though there is a debate about whether the economy needs an additional fiscal boost or not, nobody thinks seriously that the disruption caused by a default and interruption of government functions, with a shutdown, would be a good idea, particularly not during a pandemic. The economy is certainly not a full employment, and about five million workers that had jobs before the pandemic are unemployed. Inflation, although a concern, does not result from an economy close to full employment, but from the disruptions associated with the supply chain during the pandemic. Interest rates on public debt remain low, and there is no reason for austerity measures in the midst of a still uncertain recovery. In fact, most economists, and a good part of the public opinion, think that the visible decline in American economy results from lack of investment, not just on basic infrastructure, but also on the wellbeing of population.
If there is a perception of a national crisis, it is not about a fiscal one, but one about declining hegemonic power, and about the rise of China (with the Sinophobic undertones noted by Tom Palley). The solution requires investment in the future, in the kinds of things that are both popular and part of the broader Biden agenda, boosting the safety net programs, and investing in green technologies, promoting cleaner economic growth. That these investments are necessary is not particularly controversial, given the size of the social crisis at home, and the global environmental crisis, let alone in the context of a pandemic crisis that seems will become endemic.*
The debt ceiling debate is purely a political instrument used by Republicans to preclude Democrats from implementing their budgetary priorities. This is not an economic crisis, it is a political crisis and requires a political solution. The most cited solution for the current crisis would be to mint a one trillion-dollar platinum coin, that would allow the Treasury to continue spending (e.g. Paul Krugman here). As Zachary Carter said in the Washington Post, only an absurd solution could save the US from an absurd problem. However, trust in the existent political institutions might be the best solution for the impasse. The Biden administration should simply declare that the debt ceiling is unconstitutional, move forward, and continue to make payments even if the debt ceiling is breached. Congress cannot enforce the debt ceiling, and the Treasury can continue to pay until the courts decide on the merits of the case. The issue should be decided by the courts.
Tuesday, October 5, 2021
There are many myths about the Phillips Curve and the so-called Monetarist Counter-Revolution of the 1960s and 1970s. Forder's book is a good read on some of these issues. Jeremy Rudd's recent paper is also a must read, and has now been accepted for publication in the Review of Keynesian Economics (ROKE).
It debunks the myth about the importance of inflationary expectations for explaining the Great Inflation of the 1970s, and casts doubts about the Monetarist Counter Revolution, the Rational Expectations one, and that would include the more recent New Keynesian developments that include a lot from both. Rudd's paper suggests that there is a simpler explanation for the acceleration of inflation back then, and the Great Moderation since the 1990s. In his words:
"Another way of stating this point is that an important feature of inflation dynamics after the mid- 1990s appears to be the lack of a strong wage–price spiral (or of any significant year-to-year feedback between wage growth and inflation)... An observation about the actual nature of the 'wage bargaining process' is helpful at this point."
Old Keynesian stories about cost-push versus demand-pull inflation come back to mind. He suggests essentially that worker's wage bargaining power has been weakened, and that reflects in less impact of labor costs on actual inflation. Again, in his words:
"We can make a reasonable case that reactions of labor costs to actual inflation were an important feature of the inflation process in the 1970s. In particular, without this channel’s being present, it is nearly impossible to explain why movements in food prices left a durable imprint on core inflation—unlike energy, which can plausibly be viewed as a broader input to industry, changes in agricultural prices shouldn’t act like a cost shock to firms outside the food sector."
This suggests a preoccupation of the profession with more concrete, objective causes of inflation dynamics, and that bargaining power of the labor class matters. Martin Sandbu has suggested a few months ago in his Financial Times column that:
"To be precise, we may be witnessing the manifestation of two outmoded ideas: that the relative power of economic classes alters macroeconomic outcomes; and that macroeconomic policy tilts that relative power."
Sandbu also noted that in this recession it is Michal Kalecki, not Keynes, the old and forgotten master that we should bring back from the dead. While I do think that Kalecki should always be remembered and was and continues to be relevant, it is less clear that the wage bargaining position of the working class will recover anytime soon. Sure, if Dems manage to pass the more robust social spending bill, with the extra US$ 3.5 trillion, things would look a bite better. Hope springs eternal.
Wednesday, September 29, 2021
Friday, September 24, 2021
Evergrande shows the importance of deeper financial reforms. But what might they look like? Liberal reformers have longed for a clean-up of bad debts, a loosening of controls over prices (including the exchange rate), transparency and independent courts that can enforce property rights. Such a system would allocate capital better and be less prey to moral hazard.
Seriously. For those that think that the craze about financial liberalization was over with the 2008 Global Financial Crisis.
Tuesday, September 21, 2021
Saturday, August 14, 2021
Friday, August 13, 2021
Monday, August 2, 2021
The paper analyzes the relation between premature deindustrialization in Latin America with what is termed premature financialization. Premature financialization is defined as a turn to finance, organized as an industrial concern, which is a vehicle for accumulation before the process of industrialization has reached maturity. This contrasts with developed countries where financialization occurs after an advanced stage of economic and social development is reached, and where the growth of the financial sector, beyond a certain threshold, can be detrimental to economic activity. The paper examines the consequences of premature financialization for investment, growth, and financial stability.
Thursday, July 29, 2021
New IDEAS Working Paper on the alternative views of the collapse of Bretton Woods. From the abstract:
Contrary to conventional views which suggest that the collapse of Bretton Woods represented the beginning of the end of the global hegemonic position of the dollar, the collapse of the system liberated American policy from convertibility to gold, and imposed a global fiat system still dominated by the floating dollar. The end of Bretton Woods and the set of regulations that imposed capital controls were part of the agenda of many powerful groups within the US, and led to the creation of a more dollarized world. The challenge to the dollar might arise, eventually, from the decline in the United States’power to determine the pricing of key commodities in global markets; but it is premature to think about the demise of the dollar. The limitations of the dominant views about Bretton Woods are ultimately tied to mainstream economics.
Wednesday, July 28, 2021
Wednesday, July 14, 2021
Each era gets its own version of Keynes. The post-war era got the sanitized biography by his disciple and friend Roy Harrod. It emphasized the somewhat late Victorian values of what he called the presuppositions of Harvey Road, Keynes’ birth place at Cambridge, representing the ethical principles that he received from his parents. Not only it avoided any discussion of Keynes' sexuality, that was verboten at that time, and not just because Keynes’ mother was still alive, but also it was well suited to the moderate Neoclassical Synthesis version of Keynesianism that came dominate American academia and the profession with its emphasis on wage rigidities and imperfections. Lord Robert Skidelsky famously argued that Harrod’s biography was “an exercise in covering up and planting false trails” (Skidelsky, 1983: xxv).
Skidelsky had the advantage of time, and his biography – the three volumes that came out after the publication of Keynes’ Collected Writings, one might add – was more direct and truthful about his subject. Yet, the biography was published between the 1980s and the early 2000s, the period in which the crisis of Keynesian economics was complete, and his ideas forgotten, or worse, as famously noted by Robert Lucas Jr., simply ridiculed. In many ways, Skidelsky’s biography, which broke new ground on the personal life of Keynes, was defensive and did not challenge the notion that his theory relied on imperfections.
Zachary D. Carter’s book is not quite a biography in the same way that the two cited above, or the one by Donald Moggridge, one of the co-editors of Keynes’ Collected Writings. There is little need for another detailed speculative analysis of the lesser known aspects of Keynes’ life and how these affected his economic views. Carter does something better. He provides a lively discussion of the rise and fall of Keynesian ideas, beginning with how Keynes’ developed his analytical framework, from his theoretical struggles of the 1920s, with some retrospective analysis of his previous life and work, to his premature death in 1946. He also discusses the apogee and the fall of Keynesian economics after Keynes’ death, and the rise to dominance of neoliberal ideas, at least until the last crisis. In that respect, the book has two parts. The first twelve chapters that discuss Keynes’ life and the intricate dance between economic policy debates and rapidly changing economic ideas that eventually propelled the Keynesian Revolution, and a second part from chapter thirteen to seventeen, where John Kenneth Galbraith and Joan Robinson pick up Keynes’ mantle as the proselytizers of the true Keynesian gospel. They battled not only with avowed neoliberals and anti-Keynesians like Milton Friedman and Friedrich Hayek, but also against the brand of Keynesianism that came to dominate academia, and the “greatest prophet of this ‘New Economics,’ as it would come to be known in the John F. Kennedy years, … Paul Samuelson” (p. 399).
Read rest here.
Friday, July 9, 2021
However, the classical analytical scheme did not assume full employment of labor or that the economic system was self-adjusted. Competition meant that market prices fluctuated around the natural prices, but those did not imply efficient allocation of resources. The notion that markets are self-adjusting with a tendency to full employment was a development of the last quarter of the nineteenth-century, and part of the so-called Marginalist Revolution. Marginalism also implied that each factor of production, capital and labor, received a share of income in accordance with the services rendered in production. Distribution was harmonious and not conflictive.[i] However, that did not imply that marginalist authors were all for laissez-faire.
It is clear that laissez-faire policies – leaving markets to its own devices without government intervention – could theoretically lead to efficient outcomes in the new theoretical scheme. But many marginalists authors believed that imperfections were relatively common in the real world and that under these circumstances some degree of government intervention was required. Market imperfections were a central reason for government intervention, before the Keynesian Revolution. In addition, most marginalists believed that economics was a science, technical in nature and not an art that required understanding of political factors, like class interests, wage bargaining, the power of capitalists, etc. These were imperfections, and they required government intervention. That was certainly the dominant view within marginalism associated with Cambridge University in England, and with its main academic figure Alfred Marshall.[ii]
Marginalists were part of a late nineteenth-century trend that believed in the power of experts, technocrats, in a period in which economics was becoming professionalized, and independent of the moral sciences. They were policy advisors. Simplifying considerably, one may say that classical authors were for laissez-faire, but not for the self-adjusting nature of capitalism, while marginalists were for the notion that markets are self-regulated, but less keen on hands-off governments. The conjunction of the two, the notion that laissez-faire capitalism is self-adjusting, was a distinctive feature of some of the marginalist authors, in particular the ones associated with the Austrian school, with Ludwig von Mises and his disciple Friedrich Hayek. That is, it is only with the rise of neoliberalism that laissez-faire and the self-adjusting nature of capitalism become associated.[iii]
[i] The notion that distribution is harmonious and not conflictive as assumed by classical authors precedes marginalism or neoclassical economics, and was fundamentally developed in the period after the abandonment of Ricardian economics by pamphleteers and political economists that were afraid of the social implications of the work by David Ricardo, and the development of Socialist theories. Nassau Senior is probably the key author, and Frédéric Bastiat and Harriet Martineau the popularizers of the new dogma. Karl Marx referred to these post-classical authors as vulgar economists, and the term seems fitting.
[ii] Arthur Cecil Pigou, Marshall's main disciple, and John Maynard Keynes' teacher, was concerned exactly with the imperfections caused by externalities that required some sort of government intervention. These would be taxes or subsidies, depending on the nature of the externalities.
[iii] Later, in the 1940s after encountering insurmountable problems with his theory of cycles and the notion of capital, when he distanced himself from economics, Hayek exposed a different argument in favor of laissez-faire policies based on complexity and unintended consequences of government intervention. In this case, the argument was that government failures were worse than market failures or imperfections.
Thursday, July 8, 2021
ROPE will be hosting a special Zoom Webinar, hosted by Lilia Costabile. The webinar is on August 13, 2021, at 1 pm, NY time (Bretton Wood collapsed on August 15, 1971) . To register, please use the following link.
Tuesday, July 6, 2021
The Review of Keynesian Economics (ROKE) Clarivate impact factor has gone up again. The five year one is a bit higher at 1.397. For a critical discussion of the role of impact factors and journal rankings see this old post from when ROKE was just 3 years old and was ranked for the first time. Next year it will be the 10th anniversary of the journal.
Wednesday, June 30, 2021
I haven't written about bitcoin in a long while, in part because it is somewhat irrelevant, like all notions of a future dominance of private currencies (another of Hayek's incredible blunders; more problems with Hayek here and here). Note that nation states are fine and well, and not going anywhere, and hence national currencies will remain dominant. Only a weak state without its own currency (El Salvador is dollarized; on that see here and here) would make bitcoins legal tender. But more on that later.
Even though it's discussed in my old post, let me first explain why bitcoin makes little sense as a currency. The first thing to note about bitcoiners is that they think that the state management of the currency is prone to abuse, and that the value of money, and, hence the price level (or its change, i.e. inflation) suffers as a result. The slow and persistent mining of bitcoins, in this view, is what leads to a stable price level. The value of money depends on its scarcity, according to some version of the Quantity Theory of Money (or if they were more sophisticated some notion of a natural rate, and that would work at full employment). Of course, that notion breaks down pretty fast, since inflation is seldom related to excess printing of money by the central bank.
Note that the value of bitcoins has recently collapsed from about 60,000 to around 33,000. It's closer to 34,000 or so now. At any rate, to make things simpler, and rounding things up, the price has been halved, in dollars. In other words, if you bought with one bitcoin something that costed US$60,000 now you need approximately 2 bitcoins rather than one to buy the same thing. Prices doubled in bitcoins in just a few days. That's a doubling of the price level, an increase of 100%, or very high inflation in bitcoins. So inflation in bitcoins (and in any currency really) has little relation with the amount of money. Exchange rate depreciation is crucial, as well as other costs (on alternative theories of inflation see here).
In other words, bitcoin is simply an asset, as gold since it was demonetized almost 50 years ago by Nixon, with the closing of the gold window (or 1968, if you take the link to Fed notes). It is something that is purely relevant for speculation, contrary to some other financial assets that might be relevant for other uses, even industrial uses like gold. Don't get me wrong, block chain technology and digital currencies might become relevant, but that would be once national governments and central banks, which are moving slowly in that direction, decide to adopt them.
I haven't read much on Bukele's decision to make bitcoin legal tender. But the notion that this would be good for the population is crazy. Notice that if you send one bitcoin, and the value collapses before its collected and changed back to dollars, in a period in which the price is reduced by half, then the person receives half the amount of dollars. The fluctuations of asset prices could be wild, and the losses staggering. And El Salvador depends heavily on remittances from the US; something around 20 percent of GDP. The only possible relevant use for bitcoins is for illegal transactions, other than speculation in which someone can win huge amounts, while many lose their pants. Other than that, this is a decision that compounds other terrible decisions taken by previous administrations, like dollarization and entering the free trade agreement with the US.
Monday, June 28, 2021
The talk I gave for Rethinking Economics Peru (in Spanish). Go check their website and materials here or if you don't speak Spanish there's a lot of interesting material in the general (in many languages) Rethinking Economics here. An older post, in English, that discusses essentially the same thing.
Tuesday, June 22, 2021
Zachary Carter, of Price of Peace fame (a good book that I recommend, btw), wrote an interesting piece on Milton Friedman's legacy, which I think is, as Hyman Minsky said of Joan Robinson's work, wrong in incisive ways. But even before we get to his main point, that the era of Friedmanomics is gone, it is worth thinking a bit about the way he approaches the history of ideas. This is clearly a moral tale for Carter, with good guys and bad guys. Gunfight at high noon. It is more about vision than analysis, in the terminology of Schumpeter.He starts, like Nancy MacLean in her Democracy in Chains -- I discussed only tangentially
Sunday, May 23, 2021
A shorter version at the ISET conference of my Will Lyons Lecture at Franklin & Marshall. And yes, I think Harrod and Skidelsky were right (not Crotty and O'Donnell). He was definitely an Asquith Liberal.
Friday, April 30, 2021
My talk at the Universidad Nacional de Colombia last Friday, in Spanish of course. Part of the argument is that Prebisch, contrary to what is often assumed, moved from an argument that emphasized the role of the external constraint in leading to underdevelopment during his United Nations years, to one that put the emphasis on the patterns of domestic consumption, and its negative impact on the surplus, following the literature on stagnation, in his last book on peripheral capitalism. I suggest that the change is problematic.
Tuesday, April 27, 2021
Wednesday, April 21, 2021
By Thomas Palley (Guest blogger)Almost fifty years ago, the Swedish econographer Axel Leijonhufvud (1973) wrote a seminal study on the Econ tribe titled “Life among the Econ”. This study revisits the Econ and reports on their current state. Life has gotten more complicated since those bygone days. The cult of math modl-ing has spread far and wide, so that even lay Econs practice it. Fifty years ago the Econ used to say “Modl-ing is everything”. Now they say “Modl-ing is the only thing”. The math priesthood has been joined by a priesthood of economagicians. The fundamental social divide between Micro and Macro sub-tribes persists, but it has been diluted by a new doctrine of micro foundations. The Econ remain a fractious and argumentative tribe.
Tuesday, April 20, 2021
The Global Financial Crisis of 2008 and the COVID pandemic that erupted in 2020 have reinforced criticisms of the main, orthodox current economic theory. At the same time, they highlighted the need for and importance of alternative approaches such as Post-Keynesian Economics (PKE). The Post-Keynesian Economics Society (PKES) is an initiative that fosters research and dissemination within the framework of PKE. Furthermore, PKES is committed to working towards a strengthening and an internationalization of heterodox economics networks. The shift to online events due to the covid crisis provides an occasion for such international collaborations. We have worked with the Italian PK network and want to convene a series of webinars with Argentinean PK scholars, which we hope will lead to the launching of the Argentinean Post-Keynesian Association (APKA).
APKA’s objective is to develop a network between economists and other scholars with similar interests, perspectives and approaches, in order to support and disseminate research linked to PKE. We recognize the diverse heterodox traditions of Argentine and more broadly Latin American schools of economic thought with strong links with PKE. Therefore, the APKA extends the invitation to scholars of other traditions such as Structuralism, evolutionism, classical-Sraffianism, institutionalism, regulation theory, feminist economics and ecological economics.
This spring we are organising a series of webinars that explore that the dynamics of developing countries and what PKE can contribute to that. We will analyse financial dynamics, productive structures and the relation between Latin American structuralists and PKE. Each webinar will have two speakers, one based in Argentina and one based in Europe.
Thursday 22/4, 12 noon Argentina = 4pm UK
Financial dynamics in developing countries
Chair: Engelbert Stockhammer (King's College London, UK)
Pablo Bortz (UNSAM, Argentina): "Global financial flows in Kaleckian models of growth and distribution"
Annina Kaltenbrunner (Leeds, UK): "International financial subordination: a critical research agenda"
Thursday 6/5, 1pm Argentina = 5pm UK
PKE, productive structure and economic development
Chair: Pablo Bortz (UNSAM, Argentina)
Martín Abeles (UNSAM, Argentina): TBC
Sara Stevano (SOAS University of London, UK): TBC
Thursday 27/5, 1pm Argentina = 5pm UK
PKE and other heterodox traditions in Latin America
Chair: Florencia Medici (National University of Moreno, Argentina)
Danielle Guizzo (University of Bristol, UK): TBC
Matías Vernengo (Argentina): "María da Conceição Tavares and Heterodox Economics"
Pablo Bortz, Florencia Medici, Engelbert Stockhammer
Thursday, March 18, 2021
Friday, March 12, 2021
Video of the lecture by Michael Lazzara and Esteban Pérez Caldentey, part of the seminar on Memories of Neoliberalism at Bucknell University.
My initial comments at the seminar on the legacy of Pierangelo Garegnani's contributions to economics organized by the Italian Post Keyn...
Fields, David (Forthcoming), “Classical Dichotomy,” Edward Elgar Encyclopedia on Central Banking , edited by L.P. Rochon et...
Teaching on the capital debates this and last week. So here are some thoughts, based on my class notes and the required readings (see below)...
The 4th Godley-Tobin Lecture given by Marc Lavoie, a co-author of Wynne Godley, and one of the leading Post Keynesian authors.