On Eccles and QE in the 1930s

So last weekend I was at the Eastern Economic Association meetings, and I presented with Steve Bannister (on and off contributor to NK) a paper on Quantitative Easing in the 1930s. It's been a while since we looked at this work, which started long ago (4 years at least). One point worth noticing is that while most accounts of Eccles performance at the Fed suggest that he didn't do much (see Meltzer in his A History of the Federal Reserve), we suggest that he was crucial in pushing qualitative easing (the term first used by Buiter here), that is a shift in the composition of the Fed's balance sheet.

The figure shows that when Eccles assumed at the Fed, in 1934, QE, the increase of the balance sheet had already started, but the shift from short term government bills (blue ones) to long term bonds (green) had not. The dark line shows Eccles' policy, which had the objective of keeping long term interest rates at 2.5 percent, in order to allow for fiscal stimulus and sustainable expansion of public debt.

On the blogs

Graph For the Day: Is QE4 Far Away? -- Roger Farmer on why the Fed might be forced to intervene. This one is a bit old, but worth reading, even if you don't agree with Roger on the effect of the stock market on the unemployment rate

Lessons from the Crisis: Ending Too Big to Fail -- New head of the Minneapolis Fed, Neel Kashkari says that financial reform did not go far enough and some banks are still too big to fail

New Keynesian Orthodoxy and Hysteresis -- Robert Waldmann, at Angry Bear, on the Jerry Friedman versus establishment economists debate, and on the fact that with the Kaldor-Verdoorn law (he doesn't cite it, but that's the source of hysteresis), short run effects of macro stimulus have a more significant impact on growth

On Austerity and the Economic Outlook at the Rick Smith Show

Undocumented Immigrants pay a lot of taxes

I have discussed this before. I explicitly argued that this was one the GOP myths about taxes, and I lumped it together with the notion that poor people don't pay taxes (Myth #3: 50% don't pay taxes, including immigrants).  Now a report from the Institute on Taxation and Economic Policy (ITEP) seems to confirm this view.

The report claims that undocumented immigrants living in the United States collectively pay an estimated $11.6 billion dollars each year in state and local taxes. And if their situation was regularized, they would pay even more. Add that to the fact that it does not seem that immigrants reduce wages, and the whole anti-immigration position seems more like what it really is. Xenophobia exploited by a demagogues preying on people that have had a hard time and are willing to find someone to blame. A dangerous mix.

Brexit and Euroskepticism

British exit from the European Union (EU) is more radical than Grexit, which basically was exit from the eurozone (EZ), the currency area, but not the union. Wynne Godley, for example, was against the euro (see this), but he was not against the EU. Quite the opposite, he was pro-Europe, as were many progressive economists, several connected to Labor (Lord Eatwell being an example). The whole isue now became relevant, since David Cameron, the prime minister, set the date for a referendum on Brexit for June 23rd. Map below shows the degrees of euroskepticism (as in EU membership, not EZ) around Europe.

Note that in the UK there is a significant amount of euroskeptics, more than in the parts of Europe that have suffered from the problems with the monetary union (source here). The UK and the countries with more developed welfare systems in Northern Europe (Denmark, Sweden, Finland) tend to have a less favorable view of the European Union.

I'll discuss the pros and cons, from an economic perspective, of EU membership in another post. I do feel like Wynne that, while EZ membership is not necessarily good (at least with the current fiscal rules), EU membership is better than the alternative.

Size of government

Source: WEO, IMF

Nothing earth shattering. Just the size of the average government spending as a share of GDP between 2001 and 2015 in a few developed countries, all of which, but one, have comprehensive health coverage. So it's reasonable to assume that if the US wanted that (healthcare for all), it would have to increase spending to something closer to 40% of GDP, for all levels of government, rather than the current 35% or so. Nothing implausible about that (wink, wink, nudge, nudge, say no more).

Frank Knight on unemployment equilibrium

Luca Fiorito, my sometimes co-author, and Carlo Cristiano have published (subscription required) class notes from Frank H. Knight's business cycle course in the fall of 1936, that used Keynes' General Theory (GT) as one of his references. Two quotes from the notes by Perham Nahal are reproduced below.

The main postulate of Keynes: the supply curve for labor should be drawn in terms of money, with no reference to the value of money (real vs. money wages). There is no tendency for the price of labor to adjust itself so as to clear the market.

It is not intelligent to take antithetical assumptions, as Keynes has done. There must be an enormous amount of inertia in an economic system to keep it from flying to pieces. Frictionless conditions are a fallacy. Because the classical assumptions did not work, they were not necessarily wrong. It is entirely possible that ‘frictions’ or undiscussed tendencies are responsible for deviations of actual conditions from what the classical economists believed would happen.
...
Unemployment is essentially the failure of the market to establish a clearance (FHK). Keynes seems to think that there is no such tendency toward clearance of the market. Keynes is wrong – this is FHK's criticism of Keynes. Keynes's talk of stable ‘equilibrium’ is ridiculous. How is this possible when there is unemployment? Competitive conditions tend to clear the market – if there is unemployment the ‘natural’ forces are working out too slowly, or there are obstacles. Any talk about stable equilibrium where the market is not cleared is nonsense. The fact that savings are sometimes not cleared does not invalidate a ‘law’ or tendency. If there were no tendency for prices to be set that would clear the market, there would be no system. [Emphasis added]

I do spend sometime with students emphasizing how important it is that Keynes suggested that the system was stuck in an unemployment equilibrium situation, and how contradictory that would be for neoclassical (classical for Keynes and Knight) theory.

Of course, while it seems clear that Knight dealt with chapter 3 of the GT, it seems evident from the class notes that he did not grapple with the issues in chapter 19, which explain how, even without frictions, without wage rigidities, the system remained below full employment.

Lord Eatwell in the Financial Times

A short Letter to the Editor, but worth reading. He clearly explains the policy failure since the global crisis and the reasons for the current problems in financial markets in developed and developing countries. He says:

The adage that, in the absence of the prospect of growing demand, cheap money amounts to “pushing on a string” has been once again confirmed in advanced economies by the slowest recovery from any modern recession. Instead of funding real investment, monetary expansion has resulted in a boom in asset prices — not just in real estate and equity markets, but in the flow of funds into emerging market corporate bonds in the search for higher return. All these asset markets are extremely unstable, as is now all too evident. And, as has been once again demonstrated in the last 7 years, financial instability leads to substantial real economic loss.

Yet in the face of evident policy failure, and of severe asset market distortions that can only lead to further financial instability, the response seems to be “more of the same”, or even, in the case of negative interest rates, “very much more of the same”. There was a significant fiscal expansion in the US in 2009 that had a clear positive impact. But the federal government lost its nerve and reined back on the expansion just as it was gathering pace. The quiet abandonment of severe austerity by the UK government in 2012 at least enabled something of a recovery, albeit fuelled by growing household debt. Fiscal policy works. 

Given that the cost of funds to most governments is today negative in real terms (and sometimes in money terms too) it is difficult to understand the failure to initiate a major expansion of investment in infrastructure and the other major components of “supply-side” strength. This failure is resulting not just in a loss of output today, but a long-term loss of competitive productive capacity (a particularly severe problem for the UK). Fiscal policy can provide the pull on the string required to validate the monetary push.

Read the full letter here (subscription required). Pushing on a string as an explanation for the inefficiency of monetary policy in a crisis was a term popularized by Marriner Eccles, by the way.

On the blogs

The Pious Attacks on Bernie Sanders’s “Fuzzy” Economics -- David Dayen at the New Republic on the Bernienomics debate

The TPP: Investor-State Dispute Procedures are a Threat to Democracy -- Mehrene Larudee at Triplecrisis on dispute settlement provision of the TPP agreement

Are US taxes progressive all the way to the top 1%? -- Branko Milanovic is not sure, in this slightly older, but relevant post

NYT Zombie Sighting -- James Livingston, who was last week at Bucknell, on an even older post, discusses the strange persistence of Monetarism (I discussed this before here and here)

Crazy as Adam Smith: the Media Discovers the Kaldor-Verdoorn Effect

So Kevin Drum at Mother Jones discovers the Kaldor-Verdoorn effect, and the fact that growing demand might be the main cause of rising productivity, and idea as old as Adam Smith in his vent for surplus model (chapter 3 of the Wealth of Nations says that the division of labor, that is, productivity, which is the basis for development, is limited by the extent of the market, that is, by demand). I posted extensively on that here (all post by date here), and produced, as far as I know, the only methodology to separate the Verdoorn effect (long term trend effect) from the Okun effect (cyclical effect) with one of my graduate students long ago (see here). And yes this is in part why a Bernie type policy would actually lead to significant changes in employment and productivity.

Getting history right: Krugman continues his disinformation campaign

So Krugman continues to argue that Friedman's calculations are implausible. Well sure. But that's the point to some extent as Galbraith discussed here. The Plan involves huge (read yuge; wink, wink, nudge, nudge) spending, and it should have almost by definition implausible results looking from the perspective of recent history. Imagine the implausible effect that Social Security had on old age poverty. Or the incredible reduction in inequality that the New Deal policies had.

If you were in the 1930s, the historical record would suggest that an improvement in income distribution based on higher taxes on the wealthy and cheap college access to the masses would be implausible, and yet by the 1950s things had changed (see graph below). The historical record would say this was not possible.

The guy that used the graph above said: "The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains." Unprecedented, as in never done before, or implausible. Who said that? Bernie Sanders? Gerald Friedman? No, it was Paul Krugman of course.

What Friedman calculates is what would be the effect of Sanders transformative policies in the real world using fairly conventional assumptions. More spending should lead to higher output, and employment. For example, Krugman has correctly complained all through the recovery what little impact the fiscal package had on the employment-population ratio. A huge increase in spending would basically look like the figure below (not from Friedman's data; but same result).

So what Krugman calls implausible is the unprecedented fiscal expansion necessary to increase the employment-population ratio to the level he has been arguing it would need to be in a strong recovery. Krugman in the 1930s would have claimed that we shouldn't follow the pipe dreams of FDR and his implausible plans. We should probably stick with a Southern Dixiecrat that didn't rock the boat and implemented policies similar to Hoover. Electability is important after all.

PS: That there is nothing implausible about health care for all is shown by the number of developed countries that have something like that, with government spending not much higher than the US. A reasonable increase in government spending would be of about 15% rather than 40% to achieve that.

On Bernie Sanders and the Democratic Establishment Economists at the Rick Smith Show

Jamie Galbraith's response to the critics of Gerald Friedman's paper on the impact of Bernie Sanders policies

There has been a debate following the NYTimes piece on left of center economists against Bernie Sanders. Doug Henwood replied here and Dean Baker here. Henwood does not discuss the Gerald Friedman paper that led to the whole discussion. Now Jamie Galbraith provided a nice reply to the left of center economists that suggested that Bernie's plans are not realistic. He says:

"What the Friedman paper shows, is that under conventional assumptions, the projected impact of Senator Sanders' proposals stems from their scale and ambition. When you dare to do big things, big results should be expected. The Sanders program is big, and when you run it through a standard model, you get a big result.

That, by the way, is the lesson of the Reagan era – like it or not. It is a lesson that, among today's political leaders, only Senator Sanders has learned."

Read full letter here.

Davidson on Temin and Vines

Paul Davidson debates Peter Temin and David Vines in this INET working paper. I had criticized Temin and Vines before here and here. Although in general I agree with Paul, in my view, there is a problem with Keynes’ Bancor Plan kind of solution, that is the one that puts an emphasis on the need for surplus countries to carry the burden of external adjustment. It is really, in the world we live with a hegemonic currency, the role of the issuer of the international reserve currency to carry the burden. In other words, pace Mr. Trump, it is the US that needs to provide global demand, not China.

PS: China is losing reserves, faster than any one expected. But it’s worth remembering that they do still have significant current account surpluses, and that China faces no external constraint.

The Big Short and post-film debate with Geoff Schneider and @NakedKeynes

Showing at The Campus Theatre this Saturday, Feb 20th, 4:00pm – THE BIG SHORT – This funny, fact-based film explores the very serious recent collapse of Wall Street and the insiders who saw it coming. Mondragon Bookstore and Susquehanna Valley Progressives are pleased to sponsor this film and a discussion panel of economic and business experts, immediately following the film. Panelists include Dr. Geoffrey Schneider, Professor of Economics, Bucknell University and Dr. Matías Vernengo, Professor Of Economics, Bucknell University. The panel will be moderated by Charles Sackrey, former Bucknell Professor of Economics and owner of Mondragon Bookstore. The panel is free and open to the public and will take place across the street at the Barnes & Noble bookstore's meeting room. Complimentary coffee and refreshments will be offered.

More info here.

PS: In short what I said on the debate, is that, while the film is good in portraying that the crisis was manufactured, and it was a swindle of the American people by Wall Street, it gets a few things wrong, and does not point the deep causes of the crisis. In particular, several people actually knew and said that the economy was unsustainable and the bubble would eventually burst, not just a few geeks and weirdos. And the roots of the crisis are in the increasing inequality and financial deregulation that harken back to the 1980s and 1990s.

Scalia, Partisanship bias, and Long Term Stagnation

So a student asked me if the nomination for the Scalia vacancy at the Supreme Court would have any macroeconomic impact. Can't imagine what kind of effect he was thinking about, but there is a relevant question on what are the effects of the inability of the legislative to get things done. The most obvious is the inability to pass a budget that deals with the slow recovery.

It used to be the case that both parties had a a very different fiscal agenda, with Democrats being for tax and spend, in particular spend on social welfare, while the GOP was for, at least nominally, for small government. And up to the Vietnam War, hawks tended to be Democrats (certainly before World War-II, most isolationists were Republicans). But as I noted before, there has been a switch in both parties, with the GOP being since Gerald Ford the party of Big Government.

In part, the switch is explained by the fact that the GOP has become the party of the neocons, and of the shadow government that requires contracts for the Military-Industrial Complex. Big Government for corporations so to speak. And low taxes for the wealthy, hopefully allowing debt to accumulate, and creating the conditions for cutting welfare programs and spending. Democrats too have accepted some of this logic, as the speaking fees of Hillary Clinton seem to indicate (but that's another story).

At any rate, it used to be that even though the parties had different priorities, at least it was agreed that certain things were necessary (like appointing Supreme Court justices). That included, for example, spending in infrastructure. And the inability to have a healthy fiscal package after the crisis, in my view, and not a long term problem with the technologies associated with the third industrial revolution, as Robert Gordon thinks, is what is behind the new normal, the lower growth in output and productivity.

I've deal with demand driven views of labor productivity before, here and here, but there are more if you search the archive.

5 years of Naked Keynesianism

Barking Keynesianism

The first post was this day in 2011. The name was based on Fox News criticism of Jamie Galbraith's corruption of youth at the University of Texas, Austin. He was teaching "Naked Keynesianism." And the rest is history.

On the blogs

How to Make a Mess of a Monetary Union, and of Analyzing it Too -- Jörg Bibow on the never ending European crisis

The Challenge before the Latin American Left -- Prabhat Patnaik on the Latin American Left. Not sure I agree Argentina was less on the left than some of the other cited. And the problem is not just the people blame the governments for the economic situation. In all fairness, in many cases the problems are caused by government policies. Worth reading

Fabio Petri: Walras on capital: interpretative insights from a review by Bortkiewicz -- Alejandro Fiorito at Revista Circus links to a paper by Petri. Always worth reading

A Clarification of the clarification of supermultipliers

After my post I got an email and post below by Franklin. Mind you, I still would refer to supermultiplier models as Kaldorian, and the models with autonomous investment as neo-Kaleckian. As Franklin notes Bortis, a Kaldorian and Sraffian, makes the transition to exogenous distribution, even if Kaldor himself didn't. Below the email and the post.

Dear Matias:

Great Post.Your use of the phrase “no independent investment function” to refer to induced investment models is unfortunately quite confusing.

This phrase since the classic survey of Hahn in Matthews has been used to refer to models in which full employment (or full capacity in Lewisian and neo-Marxian models) saving determines investment.

I am sure that what you mean is that in supermultiplier models there is no autonomous component in the (capacity creating) investment function. It would be much better to all of us if you changed that at no cost for you. If you do this , please omit this part from my uninvited guest post.
...

The Sraffian supermultiplier (Serrano, 1995) , as the name says is,well... Sraffian. That means that its key feature is that distribution is exogenous. In fact the original title of my 1995 PhD dissertation was going to be “demand led capacity growth under exogenous distribution”. That is why it can and recently it has been adopted/discovered by a few eminent neo-Kaleckians , as the key feature of their approach is also the exogenous profit share, determined separately from output (although along different lines through the degree of monopoly).

Kaldor himself never moved away completely from some version of the Cambridge theory of distribution, either of the “competitive” (prices are flexible relative to Money wages ) or “managerial” (there is mark-up pricing but the mark-up is function of the desired induced investment share and thus of the rate of growth of the economy (a la Wood, Eichner, etc.) . See chapter three of my PhD thesis and chapter two of my 1988 Master´s thesis for a critique of both [in Portuguese].

In both (totally unrealistic )versions of the Cambridge mechanism, it is accumulation that determines distribution endogenously, unlike the separation between distribution and accumulation we find in Sraffa , Kalecki and their modern followers.

In fact, Kaldor´s paper that I quoted in my thesis and that Lavoie (2015) mentions, called “conflict in national economic objectives” is the only one in which (although without using equations) he does not mix the harrod balance of payment equilibrium condition X/m=Ybp ,which shows a balance of payments constraint with a proper supermultiplier , say Y=G+X/(c(1-t)+m-gv ) which is the level of output determined by effective demand

In all his other works Kaldor makes Y=Ybp and this occurs because Kaldor arbitrarily assumes that G=t.Y and that vg =(1- c(1-t)) via some Cambridge mechanism that makes the aggregate marginal propensity to consume adjust itself to the marginal propensity to invest vg. See Fabio Freitas (2003) and Bhering & Serrano (2013) for details here and here.

(Palumbo ROPE 2009 also mentions these assumptions by Kaldor but unfortunately fails to note that the endogeneity of distribution that is the problem and not the induced investment function as she claims)

The inconsistency of having a proper aggregate demand led growth model with endogenous Cambridge distribution is the reason why I say in chapter two of my Ph. D. thesis that “It seems then that the only reason why Kaldor did not get to point of producing a explicit model of the industrial economy identical to our Sraffian supermultiplier must be attributed to

His reluctance to abandon completely his own version of the Cambridge theory of distribution. In fact , a consistent supermultiplier analysis requires the distribution of income  (and the aggregate marginal propensity to save) to be treated as an exogenous parameter, being therefore incompatible with the idea that distribution is somehow endogenously determined via the Cambridge equation.”

And it is then also no surprise that it was Heinrich Bortis, supervised by Kaldor that first got to the idea of an exogenous distribution supermultiplier, that he calls “Classical-Keynesian” in his 1979 Cambridge PhD (though his book was published only in 1997).

But note that , again as I demonstrated in chapter 3 of thesis, that in Cambridge models whatever the initial level of capacity there will always be enough aggregate demand for as distribution will change so that aggregate consumption changes to fill the gap (see Serrano & Freitas, 2015).

Of course you may ask: but then what is the point of having induced investment growing at the rate the autonomous part of demand grows if there is never lack of aggregate demand? The only consistent answer to this last question is: please just drop the endogenous distribution Kaldorian supermultiplier and use either the neo-Kaleckian or Sraffian ones, according to the theory of exogenous distribution you find more reasonable. In other words, if you like the idea of an autonomous demand supermultiplier , don´t be Kaldorian (in this specific sense). The exogenous distribution supermultipliers are not just more general as Vernengo correctly argues but most importantly , they are more consistent.

Kaldorian and Sraffian supermultipliers: a clarification

This is a post for those interested in demand-led theories of growth. Not long ago I wrote a post on misconceptions about Sraffian economics. Marc Lavoie sent me a nice email about it, and a recent paper he published in Metroeconomica (subscription required), which comments on a paper I wrote with Esteban Pérez (working paper available here). In his discussion of supermultiplier models, which put the multiplier and the accelerator together to explain -- not fluctuations of the level of output around its normal position -- but the determination of trend or normal output. Lavoie says:

"Other post-Keynesians, also assume that non-capacity creating autonomous expenditures are the driving force, rather than investment. Serrano himself refers to Kaldor (1983, p. 9) to provide support for this reversal of causality. Fazzari et al. (2013) assume that there is some unidentified demand component that grows autonomously, in order to tame Harrodian instability; Godley and Lavoie (2007, ch. 11) and, as already pointed out Allain (2015), rely on autonomous government expenditures. Indeed, there is a large Kaldorian literature that relies on exogenous growth components other than business investment, most particularly the whole literature on Thirlwall 's law with its exogenous exports (McCombie and Thirlwall, 1994), as well as Godley and Cripps (1983), with both government expenditure and export sales."

And in a footonte to that passage he says:

"Thus, adding to the confusion over terminology, Pérez-Caldentey and Vernengo (2013) refer to the Kaldorian tradition when discussing models based on induced investment and non-capacity creating exogenous growth components such as Serrano's Sraffian supermultiplier analysis."

So let me clarify our use of Kaldorian, and also why I believe that it is a mistake to refer to the Sraffian supermultiplier as neo-Kaleckian, even though it does have evidently Kaleckian elements. As I understand the distinction that came to dominate demand-led models of growth, there are basically two* main traditions, one that is referred to as neo-Kaleckian, and one that is referred to as Kaldorian.

The first tradition developed from Bob Rowthorn's expansion of Joan Robinson's 1960s model. And because Joan Robinson was influenced by Kalecki, and  Rowthorn, a Marxist author, was seen as Kaleckian, the name stuck. The original model, one must note was wage-led. And causality basically determined whether the authors was Keynesian or Marxist, with Ed Nell famously referring to one author that suggested that causality went from income distribution to growth as Jean Baptiste Marglin. At any rate, Marxist and Keynesian closures, to use the term popularized in this context by Lance Taylor, were special cases of the neo-Kaleckian model. Later developments introduced changes in the independent investment function which allowed for a profit-led closure.

As I noted before, the term Kaleckian is a bit of a misnomer. The current version of the model allows for a profit-led closure, which is not clearly in Kalecki, and, besides its derived from Joan Robinson's model. The Kaleckian feature is that often it is assumed that workers do not save, and capitalists do not consume, for simplification, a classical political economy type of assumption really.**

The genesis of supermultiplier models is more convoluted. On the one hand, the combination of multiplier and accelerator was used to discuss economic cycles, not growth, including by Hicks, who first discussed the idea of the supermultiplier. By the late 1960s, Kaldor moved away from the differential savings or neo-Keynesian growth models (sometimes referred to as Kaldor-Pasinetti or Cambridge growth model), and adopted the supermultiplier model, formalized by Thirlwall in the 1970s. The model assumed as a simplification that exports were the only autonomous component of demand. In accordance with the accelerator, investment was seen as derived demand. That is the main difference with the so-called Neo-Kaleckian models, namely: there is no independent investment function.***

The idea of the supermultiplier was later, in the 1980s and 1990s, developed by Bortis and Serrano,**** both authors sharing a Sraffian perspective. In these versions, autonomous spending was not restricted to exports, and government spending was also relevant. The term Sraffian or classical-Keynesian has been used to describe these models. In essence, they are Kaldorian models, since investment is derived demand, as much as in Thirlwall's model. In this sense, even though the Kaldorian models a la Thirlwall are a special case of the Sraffian supermultiplier, as discussed here in my debate with Jaime Ros (in Spanish), and by definition more general than the export-led growth model, they came later, and can be seen as a development within this tradition.

So certainly the intention is not to create confusion. In my view, models with an independent investment function are broadly speaking neo-Kaleckian, while models in which investment is derived demand are Kaldorian. And there are differences between models within those broadly defined traditions.

* All taxonomies are somewhat arbitrary and one might see some sub-divisions from the two main branches discussed here as standing in the same footing, for example, some might argue for an explicitly Marxist tradition.

** Goodwin predator-prey models, which have become quite fashionable, can be seen as a variation of these neo-Kaleckian models.

*** I think these Cambridge models have been completely abandoned since the 1960s, and that is the reason why I don't have three types of models in my taxonomy. They are a historical curiosity, associated to a response to the Harrod instability problem, at a time when full employment seemed like a stylized fact in advanced capitalist economies. For a clear explanation of the implications of the different model closures see the paper by Franklin Serrano and Fabio Freitas here.

**** The Sraffian versions of the supermultiplier model also assume differential savings by workers and capitalists, as many other classical political economy inspired models, and in that sense have Kaleckain features. But they are not neo-Kaleckian, since there is no independent investment function.

Global depreciation since the collapse of oil prices

One figure is worth a thousand words (negative number imply depreciation).

So, if you think China devalued a lot...

Source here.

PS: On Twitter some have argued that some depreciations are overestimated. My point remains. China did not depreciate much, comparatively. And besides as noted before there might be a connection between depreciation in the periphery and lower commodity prices.

On the blogs

Friedman responds to Thorpe on Single-Payer -- Gerald Friedman on the true costs of Medicare for all

Is the global economy headed for another crash? -- Ann Pettifor and others debate the issue. She thinks the crisis is "quite imminent." Mind you, I do agree that not enough was done to re-regualte Wall Street, not even close. But I don't see a global financial crisis as imminent

Hillary Is the Candidate of the War Machine -- Jeff Sachs on Hillary. And no, it's not about Wall Street

Jobs and Trade numbers at the Rick Smith Show

Unemployment is below 5%, and no inflation to be seen

Numbers are out,employment rose by 151,000 in last month, and December numbers were revised down too.Manufacturing added 29,000 jobs in January. The unemployment rate fell to 4.9 percent. Also, average hourly earnings increased by 12 cents last month, and at about 2.5 percent for the last year. So the unemployment rate has crossed the 5 percent barrier, but inflation does not seem to pick up. The natural rate keeps moving, and mainstream macro has very little to say about it.

Follow the Money

That's what Deep Throat said to Bob Woodward in All the President's Men. Good advice. I'm certainly not a specialist on campaign contributions, but Hillary Clinton said regarding Wall Street that "They’re not giving me very much money now, I can tell you that much" after the exchange with Anderson Cooper (video available here), and I decided to check it out. This website provides some comparative data on Hillary and Bernie's donors [I'm assuming the data is accurate and the info I provide is based on that assumption].

Hilary gets 80% of her funds from large donors, compared to 26% from Large Individual contributors for Bernie. At the top of her list the Soros Fund, with more than 7 million, while for Bernie it's Alphabet Inc., with less than 100,000. Not sure how she claimed to receive 90% from small donors.

If we take "Wall Street" to mean the sum of Securities & Investment, Real Estate and Misc. Finance, then she received about 21.5 million from them in this electoral cycle, or about 16% of the funds raised. Number one industry for Bernie is "Retired" (if that can be called an industry) and second is Education, with 1 and half a million respectively. Real Estate and Misc. Finance contribute slightly more than 200,000 of his funds.

 Hilary does receive 50% of her contributions from women, while for Bernie it's about 36%.

You decide who, if anybody, is the Wall Street candidate.

PS: For comparison Jeb Bush gets 93% from big donors, and about 38% from "Wall Street," defined as above. If you add Insurance, then he gets about 46% from "Wall Street." Ted Cruz is also at around 45% of his contributions.

Lauchlin Currie's review of Keynes' General Theory

Curried Keynesianism in action

 

The review with an intro can be read here (or here). Currie is often considered the first Keynesian in the Roosevelt administration (I suggested here that, while not a professional economist, that merit goes to Eccles), and was also the first to work in the White House, before the Employment Act and the creation of the Council of Economic Advisers (CEA). He was also later unjustly attacked as a Soviet spy, and Roger Sandilands has dealt with this here (subscription required). His biography of Currie is a must read.

Simon Wren-Lewis on New Classical Economics and the Financial Crisis

New paper by Wren-Lewis titled "Unravelling the New Classical Counter Revolution." It provides a strong New Keynesian critique of the New Classical/Real Business Cycle schools. He argues, correctly in my view, that the problem is the abandoning of the Keynesian method of analysis. I'm less keen on microfoundations. Or at least on marginalist microfoundations. But it is important to understand how much the fundamentalist views of Lucas and Prescott have affected the profession.

From the abstract:

To understand the position of Keynes's The General Theory today, and why so many policy-makers felt they had to go back to it to understand the Great Recession, we need to understand the New Classical Counter Revolution (NCCR), and why it was so successful. This revolution can be seen as having two strands. The first, which attempted to replace Keynesian policy, failed. The second, which was to change the way academic macroeconomics was done, was successful. Before the NCCR, macroeconomics was an intensely empirical discipline: something made possible by the developments in statistics and econometrics inspired by The General Theory. After the NCCR and its emphasis on microfoundations, it became much more deductive. 

As a result, most academic macroeconomists today would see the foundation of their discipline as not coming from The General Theory, but as coming from basic microeconomic theory – arguably the ‘classical theory’ that Keynes was so keen to cast aside. Students are also taught that pre-NCCR methods of analysing the economy are fatally flawed, and that simulating DSGE models is the only proper way of doing policy analysis. This is simply wrong. The problem with the NCCR was not the emergence of microfoundations modelling, which is a progressive research programme, but that it discouraged the methods of analysis that had flourished after The General Theory. I argue that, had there been more academic interest in these alternative forms of analysis, the discipline would have been better prepared ahead of the financial crisis.

Read the whole paper here. 

The relevance of Keynes's General Theory after 80 years

By Thomas Palley, Louis-Philippe Rochon and Matías Vernengo*

This year marks two important anniversaries in macroeconomics: the 80th anniversary of the publication of Keynes's The General Theory of Employment, Interest and Money (1936), and the 70th anniversary of Keynes's premature death, at the age of 63. To mark these anniversaries, the first issue of the fourth year of the Review of Keynesian Economics is dedicated to Keynes.

The issue contains a symposium of papers titled ‘The Relevance of Keynes's General Theory after 80 Years’ and some previously unpublished archive material on Keynes. The unpublished material consists of notes from a 1936 University of California course taught by Frank Knight in which The General Theory was discussed, and a memorandum written by Lauchlin Currie, who is considered the first and most combative Keynesian in the Roosevelt administration during the early phases of the New Deal.

The 80th anniversary of The General Theory takes place at a time when the global economy is struggling with economic stagnation that set in after the financial crisis of 2008. In some respects, these conditions have parallels with the 1930s when the Great Depression followed the financial crisis of 1929. This time, however, economic depression was avoided by timely economic policy interventions that either bore the direct hallmarks of conventional Keynesian thinking or were inspired by Keynesian thinking about the economy's limited self-stabilizing capacity.

Read full text here.

*

Thomas Palley - Senior Economic Policy Adviser, AFL-CIO, Washington, DC, USA

Louis-Philippe Rochon - Associate Professor, Laurentian University, Greater Sudbury, ON, Canada

Matías Vernengo - Professor, Bucknell University, Lewisburg, PA, USA