Decolonizing Keynesian Macroeconomics by Jayati Ghosh

 

The 9th Godley-Tobin Memorial Lecture was delivered by Professor Jayati Ghosh, from UMass, Amherst, one of the leading development economists. Jayati argues that Keynesian economics must be further “decolonized” by recognizing how financial globalization and currency hierarchies constrain developing countries. Even fiscally disciplined poorer countries face higher borrowing costs, capital volatility, and reduced policy autonomy, so effective Keynesian policy requires tighter regulation of finance and reform of the international monetary system.

Jayati Ghosh on the Poverty-turn in Development Economics

As much as there has been an institutional turn in mainstream economics, since the 1980s, which is not completely dissociated from the anti-Keynesian turn that started in the 1970s and led to the segregation of heterodox groups within the profession, there has been a poverty-turn in the development economic literature, as noted by Jayati Ghosh.

Particularly important in this shift is that:

"Macroeconomic processes are entirely ignored: patterns of trade and economic activity that determine levels of employment and its distribution and the viability of particular activities, or fiscal policies that determine the extent to which essential public services like sanitation, health and education will be provided, or investment policies that determine the kind of physical infrastructure available and therefore the backwardness of a particular region, or financial policies that create boom and bust volatility in various markets. No link is even hinted at between the enrichment of some and the impoverishment of others, as if the rich and the poor somehow inhabit different social worlds with no economic interdependence at all, and that the rich do not rely upon the labour of the poor. This shuttered vision is particularly evident in the neglect of the international dimension in such analyses, and of the way in which global economic processes and rules impinge on the ability of states in less developed countries to even attempt economic diversification and fulfillment of the social and economic rights of their citizens."

The notion that development, and that meant industrialization, is central for elimination of poverty has vanished. But the mainstream has adopted a pro-poor stance. And who is really against reducing poverty?

BRICS Bank mini-symposium at the IDEAS Network

The International Development Economics Associates (IDEAS) Network has published a series of short papers on the BRICS Bank, from the more negative views of Prabhat Patnaik, that suggests that the South continues to pursue neoliberal policies and the bank will not be of much help in this context, to the more optimistic of my good friend Oscar Ugarteche (second part here), who thinks that the declaration of the last BRICS Summit had a distinctive anti-neoliberal flavor, and that the bank might be one of the pillars of an alternative to the neoliberal order, in which the dollar has a less prominent role. Jayati Ghosh's views are also less pessimistic than Patnaik (for my preliminary thoughts go here).

Chandrasekhar & Ghosh on the missing global recovery

"In mid-November the OECD Secretariat issued the second of its annual assessments of the Economic Outlook for the world economy. The previous assessment was in May. In the short span of time between these two reports, the outlook has indeed changed. The optimism that desperately-searched-for-and-found “green shoots” of recovery generated has waned. To quote the OECD’s report: 'The global recovery remains modest and uneven ... Outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook, with global GDP growth revised down by just under 1⁄2 percentage point both this year and in 2014 to 2.7% and 3.6% respectively.'"

Read the rest here.

Economists with K, or rediscovering something never lost

So there is a certain buzz about the two old Ks, Keynes and Kalecki, and what Krugman and Konczal, the new Ks, have been saying about their theories. Mike is more of a journalist, and it is certainly good that journalists get Keynes right. And even better if they get Kalecki. On Krugman I said enough. He should take a page from Keynes and learn that by 1936 he was:

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

In all fairness, for heterodox economists this rediscovery of Keynes/Kalecki is both welcome and a bit frustrating (check the comments in Quiggin post; someone thinks that DeLong was the first to point the relevance of Kalecki's "The Political Aspects of Full Employment").

But here is my advice to recovering neoclassical economists, check these other economists with K, you might learn something: Kahn, Kaldor, Keyserling, Klein, Knapp,  and Kondatriev. Kuznets is often remembered, so no need for rediscovering him, I think. And you can always go back to Gregory King, if you're so inclined. A good active economist with K, that understands both Keynes and Kalecki and how their theories are related to the old classical economists and Marx is Heinz Kurz. I have a list with the Ms and Ss for you to 'rediscover' too.

PS: Just three books on Kalecki published a few years after he passed away that you may want to check out are George Feiwell's The Intellectual Capital of Michal Kalecki: A Study in Economic Theory and Policy, Malcolm Sawyer's Macroeconomics in question: the Keynesian-monetarist orthodoxies and the Kaleckian alternative, and The Economics of Michał Kalecki. For a discussion of Kalecki's views on economic development see this paper by Jayati Ghosh.

A Global New Deal: Three lessons from Argentina

As noted by Richard Kozul-Wright and Jayati Ghosh finance-led globalization has failed. In Argentina we discovered that early on, having applied all the reforms of the Washington Consensus by the early 1990s, only to fail spectacularly in 2001-2. Our crisis was worse than the one during the Great Depression, and preceded the Great Recession by 6 years, which put us on the path of reforming the reforms relatively early. In fact, I suggest that certain lessons from the recent Argentine experience would be valuable for the construction of "a global new deal allowing different economic strategies providing benefits for all."

The first fundamental lesson from the Argentine experience is that foreign debt should be maintained to a minimum, and that negotiations with creditors have to be on the basis of ability to pay, putting the well being of the population ahead of interest payments. It is important to note that the default and restructuring of debt obligations is a normal procedure in capitalist economies. Argentina took advantage of the inevitable situation to promote a significant reduction of foreign obligations. Austerity measures at home could be reversed, as a result, and conditional transfers allowed for a rapid reduction of extreme poverty.

Note that even after successful renegotiation and resumption of payments, Argentina has not been free from harassment. Vulture Funds have been able to, at least temporarily, seize Argentine property, the International Monetary Fund (IMF) has recently menaced with the possibility of expulsion, and Credit rating Agencies still have the power to treat Argentina debt as junk. For that reason a New Deal must strengthen the position of debtor countries, reduce the power of Vulture Funds and other bad citizens of the international financial community, increase the voice of developing and debtor countries within the IMF, and create an international rating agency that is not captured by financial interests of creditors.

A second fundamental lesson from Argentina is that ... Read the rest here.

A New Deal for Global Development

An e-discussion group on development strategies after the Millennium Development Goals (MDGs) co-organized by Richard Kozul-Wright and Jayati Ghosh is available here. They also published a manifesto for a New Deal for Global Development here. There lots of discussions and blog posts (e.g. Butch Montes, Dani Rodrik, and yours truly). Check it out.

Don't comply for me Argentina

By Jayati Ghosh and Matías Vernengo

Argentina is in the news again. The country that successfully managed an external debt restructuring after a major financial crisis in 2001-02, and eschewed the standard austerity package to benefit from a remarkable economic recovery, is being attacked by a combination of court rulings and aggressive moves in financial markets.

Elliott Capital Management, a vulture fund based in the tax haven Cayman Islands owned by conservative financier Paul Singer (a big donor to the Romney campaign), refused to accept the terms of the debt restructuring that was accepted by more than 92% of bondholders in 2005 and 2010. It has demanded payment in full, and has actively pursued its case in different courts across the world. A few months ago, the Argentine frigate Libertad, which ironically means freedom in Spanish, was seized in Ghana after a local judge ruled in favour of Elliott Capital Management. Judge Thomas Griesa has recently ruled in a district court in New York that the Argentinian government must pay $1.3bn to the same vulture fund – the full face value of their holdings plus accumulated interest starting in late 2001 – on the basis of an unusual interpretation of the pari passu clause in debt contracts.

Read the rest here.

Heterodox Central Bankers and Microcredit

Jayati Ghosh's presentation at the Central Bank of Argentina was a harsh critique of microcredit, which according to her has "gone from hero to zero" in less than a decade. Jayati relies on Bateman and Chang recent critique of microfinance, which suggests that microfinance is actually a barrier to economic growth and poverty reduction. A lot of the microcredit experience in India resembles a loan shark operation, with very high rates and heavy penalties, and is part of a broader drive to liberalize financial markets. It is important to note the perverse effects that fads in economic development might have on policy making.