Post Keynesian economics and academic freedom

Tom Palley wrote a short post on his recent experience with the Post Keynesian Economics Society (PKES). The post raises interesting issues about what constitutes an economic topic and where to draw the line between academic and non-academic work. A similar debate recently occurred on the listserv of the Union for Radical Political Economy (URPE) regarding an announcement about the Gaza conflict (specifically, whether it constituted genocide, whether URPE should have a statement on the topic, and so on).

On the two main topics of Tom's piece -- what constitutes an economic related topic, and what is an academic subject -- I should say that I tend to think that there are relatively clear answers (and my views might not be hegemonic, in this field; see what I did there?). I come from a political economy tradition, that harks back to classical political economy, according to which economics is about the material conditions for the reproduction of society, in which social classes, and the conflict between them are central not only for the determination of distribution, but also of the pace of accumulation and progress (another question open to debate).* Hence, issues related to Ukraine and Palestine, and other geopolitical issues are certainly part of political economy, and it is hard to suggest that they should be excluded from conversation.

On the other, whether something can be consider academic or not, at least from a sociological point of view, is entirely determined by peer review, what economists doing academic work in economics define as academic work. In this case, what Post Keynesians (PKs) considered PK economics to be. From that point of view, and regarding PKs, it seems clear that the issues of the war in Ukraine, that Tom was discussing (whatever the views on that were), would have always been seen as part of the tradition, and a perfectly reasonable topic of inquiry. Just to provide an example, in the second issue of the Journal of Post Keynesian Economics (the journal that gave the name to the tradition), Charles Issawi had a long discussion of the Arab-Israeli conflicts to understand the 1973 oil shock (there are other papers in that issue on similar topics).

Mainstream economics always took a dim view of PKs willingness to entertain issues that were hard to formalize. Robert Solow famously said that:

"The proper way to do macroeconomics can hardly be all historical context and no analytical structure. Unfortunately the school has provided no systematic description or example of what it conceives to be the right way to do macroeconomic theory. Thus far so-called post-Keynesianism seems to be more a state of mind than a theory." 

Note that, while critical of PKs, Solow was not for the exclusion of PKs from conversation, and he was always willing to discuss with heterodox economists (on this see my short piece on his relation to ROKE on the occasion of his death).

In other words, the post by Tom was on economics on a topic that PKs considered economics, at least ib the past.** For those reasons, it seems hard to justify the PKES decision, which appears punitive and an attempt to stifle conversation, the sort of thing they persistently criticize about the mainstream. This is much worse given the current attack on academic freedom, particularly in the US, with Trump going after academia in general.

* For my views on heterodoxy, and its relation to that tradition see this old post, and this paper. On Post Keynesian economics see this old piece.

** Colin Danby reminded me of the old PK listserv that used to be more than announcement emails, and was effectively a forum for the discussion of ideas. 

More on MMT in the Tropics: or Can exchange rate instability, and zero interest rates, guarantee prosperity in the periphery?

 

Lance Taylor, Wynne Godley and myself in March 1999

Back in the 1990s (from late 1996 to early 1999 to be precise), I worked for Wynne Godley at the Levy Institute. Minsky, that I saw in Brazil once, had just passed away. Randy Wray was at the Levy at an office not far from Wynne's, where we worked on his model. I was, also, in Ed Nell's study group (Matt Forstater was a frequent visitor), that met regularly and discussed functional finance. In fact, one of the few topics that I was first exposed at the New School, rather than at my alma mater in Brazil.

Ed organized a conference on functional finance in 1997 (if memory doesn't fail me), then published as a book (see here), which in many ways was the beginning of what later would be called Modern Money Theory (note that at the core was Abba Lerner's functional finance). At dinner (at the Orozco Room) I sat at a table with Musgrave, Duesenberry, and, for a brief moment, Eisner, that had to leave early.* I think that was the first time I met Mosler.** Randy's MMT book came next year, in 1998 (I should note that I paid less attention to that book than his previous one, based on his PhD dissertation under Minsky, since I was at the time writing my own dissertation under Wynne and Lance Taylor, both pictured above on the day of my defense).

I start this, just to explain what should be obvious, that functional finance, endogenous money, and a preoccupation with full employment not only are part of my concerns, but that I learned, at least in part, some of these ideas more or less at the same time that they were being discussed and the MMT school was being formed. Mind you the notion of effective demand, and the perils of the external constraint, were things I already knew, but some of the issues with value theory and its importance for policy I also learned with Ed, and John Eatwell, at the New School. Further, on a personal note, I should clarify that while I worked for Wynne, who at the time was concerned with the growing external imbalances of the US, and the consequences for the international position of the dollar, I tended, on this topic to be closer to Randy's views, since it was clear for any one that came from the Federal University in Rio, and who had been influenced by Maria da Conceição Tavares, that the dollar was under no danger, and the US by definition didn't have an external constraint.

All of this to say, again, that in general, I do agree with the notion that autonomous spending determines income, and taxes being charged out of income, are the result of spending, and, as a result, the limit to fiscal policy is essentially political in nature. That is something that MMT has been instrumental in popularizing in the United States, and whenever I can, I do help on that (see my podcast with Stephanie Kelton, who was at Levy when I worked there, and started her PhD at the New School slightly after I did). She was here at Bucknell to discuss the documentary Finding the Money.

 

Stephanie at the Campus Theatre, Bucknell last March

This introduction, longish and winding, is to explain why it is somewhat weird to discuss this paper by Arturo Huerta, who I have met in Mexico, but do not know very well. This is difficult because it is a misrepresentation of the differences I do have with MMT. His paper is supposedly a rebuttal to some arguments that we have made with Esteban Pérez on Modern Money Theory (MMT). The paper is a mix of name calling (essentially that we are conventional or orthodox, read, neoclassical, and that we are neoliberals or aligned with them) and a series of arguments in defense of flexible exchange rate regimes as a solution for unemployment problems in peripheral countries. The title, "Exchange-Rate Stability Causes Deterioration of the Productive Sphere and Destabilizes Developing Economies," seems to go even further and advocate for exchange rate instability. For Minsky financial stability was destabilizing, for some MMT authors exchange rate stability causes underdevelopment and is also destabilizing.

In fact, this seems to be more a response to the critique, mine more than Esteban's, to Warren Mosler's proposal for Argentina (see below),* which would definitively cause more exchange rate instability,  inflation and a huge recession, than to our original discussion of MMT in developing countries. In fact, Huerta does not cite that paper, but our response to a poorly developed and somewhat misleading paper by Agustin Mario, that I discussed here, who said without any evidence that we defended supply side views of economic growth.

Mosler's plan consists of free float (which he says retains foreign reserves), a zero (yep, that is zero) interest rate irrespective of the rate of interest in the United States, and a Job Guarantee (JG) program. The rest is less relevant, at least for our purposes. I also assume some expansionary fiscal policy on top would be necessary for the JG.

 

Mosler's policy proposal for Argentina

Huerta's main point is that a flexible exchange rates would free the country to spend in domestic currency, very much like Mosler suggests, without loss of reserves, which developing should not be concerned with in the first place. He essentially argues along Wray's lines according to which: "a government does not need to fear that it will run out of foreign currency reserves (or gold reserves) for the simple reason that it does not convert its domestic currency to foreign currency at a fixed exchange rate" (from Wray's Modern money theory: a primer on macroeconomics for sovereign monetary: p. 161. It is still exactly like that in the 2024 edition).

The notion is that: "a floating currency provides more policy space – the ability to use domestic fiscal and monetary policy to achieve policy goals. By contrast, a fixed exchange rate reduces policy space" (Ibid.). Of course, a fixed exchange rate is not necessarily the same that a stable one, and the notion that allowing big devaluations is counter-productive. MMTeers may say, as I'm sure they will, we do not defend big devaluations. Maybe not explicitly, but if you keep low (zero interest rates), and do not intervene in the exchange rate market, that is, unavoidably, the consequence. Doing that will not retain reserves, and central banks should be concerned about reserves. Btw, Milei was able to reduce inflation drastically because he did intervene both in the official and the parallel exchange rate markets (and the loan from the IMF is essentially about recomposing reserves; more on that in another post).

Then comes the question of why you should be concerned with reserves, and here Huerta's position is somewhat puzzling, particularly for someone coming from a developing country. I quote here, he says: "Vernengo and Pérez (2021) do not consider that purchases of imported goods are paid for in the importing nation’s currency, accepted by the exporters so that they can make investments, acquire financial assets, and make purchases in that nation." He suggests that they would accept pesos. In this view, a country that is an oil importer, that cannot function without energy, can import oil in domestic currency. Good luck with that!

But even if we leave the realm of Latin American magical realism, an the notion that developing countries can import in its own currency the basic capital and intermediary goods that they need to maintain normal levels of activity, his view is full of problems. He accepts very conventional views about the exchange rate (while claiming that I do have orthodox views, which I never did, on fiscal austerity; on that, note that The Guardian quotes me twice, here and here, as being against austerity when many heterodox economists, some even arguably MMTeers, I might add, have been for austerity in Argentina, saying that the mistake of the Kirchners was their fiscal excesses).

His main argument is that a "flexible exchange rates are important ... for increasing the competitiveness of national productivity and reducing pressures upon the external sector." He repeats it,  saying that: "A flexible exchange rate improves competitiveness and promotes economic growth, thereby reducing the current account deficit." In other words, the flexible exchange rate does solve the external problem (Randy is always more careful about that, and I have not seen that argument in his work).

He says that: "the reason for MMT’s advocacy of flexible exchange rates is so that the exchange rates may adjust to differences between domestic prices and those of the principal trading partners. By allowing those adjustments, a nation can avoid the relative-price distortions that would affect national production." *** He notes, as I suggested above, that they are not for depreciation per se (yeah, but with a zero interest rate...), but that: "the predominant exchange rate stability (achieved by maintaining high interest rates, in order to promote capital inflow) has led to exchange rate appreciation, which is detrimental to the competitiveness of national production." In this, as we noted in our original paper with Esteban, they are very similar to Bresser-Pereira's New Developmentalism. In the concern with a competitive exchange rate, but with a tolerance, if not a promotion of exchange rate instability, which is inevitable with very low interest rates.

There are many other issues, which again reveal actual use of marginalist thinking, for example, he says: "In saying that low interest rates generate inflation, these authors presuppose that low rates increase demand, and that the economy is in full employment. However, Vernengo and Pérez do not consider the fact that low interest rates favor the growth of investment, production, and productivity." First of all, that misrepresents our views. Low interest rates, leading to a negative interest rate differential (when the local rate is lower than the US rate adjusted for risk) leads to depreciation, and higher costs of imported goods, and inflation even if the economy is below full employment (I published the model in a book edited by, wait for it ... Forstater and Wray). Inflation comes from distributive conflict, and a depreciation, by affecting the costs of production and reducing real wages, stokes inflation. Second of all, his point is that lower interest rates lead to higher investment, which is a marginalist view that associates the intensity of the use of capital with its remuneration, a problem Huerta and many Post Keynesians share with Keynes.**** I follow Sraffians and prefer to abandon marginalist principles.

Huerta puts emphasis on the role of investment as central for growth, and in the need of very low interest rates for that, irrespective of their effect on exchange rate instability. He actually says several times that exchange rate stability is a problem, and argues that: "economies that give priority to exchange-rate stability cannot employ flexible monetary and fiscal policies to stimulate growth." On this, my views are closer to Ricardo Summa, that notes that investment is not so unstable, and follows the accelerator, and that autonomous demand (the non capacity generating part of it) is central for explaining growth.

So one needs a managed exchange rate, to avoid the inflationary pressures, and one needs to be concerned with reserves to be able to avoid the perils of not being able to import essential goods, that would cause bottlenecks an impede growth. But Huerta knows that, as a friend noticed (see below).

As he says in his tweets, what would Mexico do if it runs out of dollars to buy corn? Why not use pesos instead then? I mean, I get that Vernengo did not consider that, but he is an orthodox economist, isn't he?

In other words, sometimes, and certainly not always, developing countries cannot pursue expansionist fiscal policies because they do NOT HAVE DOLLARS (there is a reason every country, even China, accumulated humongous reserves of dollars after 2008-9). In order to be able to do it, sometimes, higher rates are needed in the periphery (not so much in the US). Then expansionary fiscal policy can be pursued even with higher interest rates, and the economy would be able to grow (as would investment that would respond, not to the higher interest, but to higher levels of demand). Exchange rate competitiveness is not central for growth, and Latin America did its State-led, import substitution industrialization (that Huerta cites all the time) during Bretton Woods with a stable nominal exchange rate (Mexico had a fixed rate from 1954 to 1976; they call it stabilizing development). It was a period of high growth, and relatively stable and appreciated exchange rate.

* I did co-edit a book, that had what I think was the last paper written by Eisner and can be seen as a follow up to that conference (ours what out of a few sessions we co-organized at the Easterns in DC in 2004, on functional finance issues.

** Mosler was in Argentina and presented this in several venues, including, at the University of Moreno, where someone questioned the idea that flexible rates with zero interested was feasible, and correctly noted that it would be inflationary and contractionary. He proceeded to ask if the person worked with me, as the story was related to me. As if my position on this is somewhat unique and someone that suggests that it doesn't make sense is my disciple.

*** Note that for Huerta exchange rates change relative prices and allow to fix distortions, in typical marginalist fashion. The emphasis is not on the effects on distribution and through that on quantities, as in structuralist views.

**** This blog is known for emphasizing the Sraffian critique of the marginalist theory of investment (very old post on that).

Paul Davidson (1930-2024)

 

Paul (I'm next to him) and the Brazilians at the UMKC, PK Conference in 2002

Paul has passed away a few days ago. He wasn't in good shape for a while, and this was expected. He lived a long and productive life. I wasn't personally close to him, even though I met him several times from the mid-1990s onward. He went to two conferences I co-organized at the Federal University in Rio, always with Louise, which was a central figure of Post Keynesian (PK) life, and basically run the Journal of Post Keynesian Economics (JPKE) for him.

He was more effective as an institutional organizer, and as an observer of economic reality (and his main book was called Money and the Real World) than in his theoretical endeavors. His views on Keynes stayed close to the flawed discussion of the Principle of Effective Demand in chapter 3 of the General Theory, and an insistence on the importance of uncertainty and non-ergodicity in Keynes' work, that proved to be somewhat of a dead alley for PKs. He also emphasized the ideas of Tony Thirlwall, and his export-led model of growth, as a central PK contribution to economic theory. Finally, he tended to accept the views of Robert Skidelsky on Keynes' intellectual development, who, as I noted here, accepted a conventional on interpretation of Keynes' ideas, relying on imperfections to explain unemployment, even if he provided a much needed accurate biography of Keynes (in contrast to Harrod).

JPKE, that he created with Sidney Weintraub, and help from John Kenneth Galbraith among others, was central for a generation of PKs. He was part of the Trieste Summer Conferences that, in the early 1980s, that included many heterodox groups, and was the closest to Marc Lavoie's broad tent in real life, but failed to provide a unified view, and an alternative to mainstream marginalist theory. Many thought that the PK project was sectarian, and could not incorporate other views. I tend to think that the failure resulted from the fragmentation of the mainstream, that was reflected in the fragmentation of the heterodoxy, and were part of the era. Certainly not Paul's fault, who, at least in my experience, was very open and willing to debate, even if he did stick to his views. At least, not his personal fault.

When LP (Rochon) invited me to start a new journal, more or less at the time Paul was substituted as the editor of the JPKE by Jan Kregel and Randy Wray, on PK monetary economics, I suggested we needed a journal that would bring other Keynesians into the conversation. Hence, the Review of Keynesian Economics (ROKE).* Paul wrote to me once he knew about the new name of the journal. I knew from him that they had thought of naming their journal the Journal of Keynesian Economics, but the acronym would have been JOKE, so they opted for Post Keynesian, and the name stuck to the school of thought. He wasn't happy. But he understood that our project was very different.

Ours was not a journal to propagate the ideas of the heterodox followers of Keynes, and to emphasize the notion that effective demand mattered, at times that Keynesians were under attack with the neoliberal turn, and the rise of Monetarism and New Classical economics (Paul was in the book of debaters with Milton Friedman, that included also Jim Tobin, and a few other more conventional Keynesians). Ours was an attempt to recreate a Keynesian big tent (not an heterodox one) to reinforce the commonalities with all Keynesians (in spite of the many differences).

Paul was combative, forceful in his discussions, particularly about Keynes' legacy, and a key figure in the preservation of Keynesian ideas, when those were considerably less popular, and the profession moved incorrectly away from the Keynesian Consensus. Later many would gladly talk about the return of the master. Paul never abandoned him, and he was right. A great loss for the profession.

* On that see Tom Palley here and my discussion of Bob Solow's role here.

Palley on the history of the Review of Keynesian Economics

Here a short video. I do offer a few remarks. I would add that Louis-Philippe was central not just in the initial discussions that we had going back two decades now, to when we were at Kalamazoo College, but in getting Elgar into the journal business. Not sure Elgar would have done that without LP convincing them. This happened at the time that the Journal of Post Keynesian Economics (JPKE) was transitioning from Paul Davidson editorship, to the Jan Kregel and Randy Wray period.

I suggested Tom to LP, since he had been our teacher at the New School, and I thought three would be a better setting for adjudicating differences between the editors. Tom wanted a journal more open to other traditions. I would say in my view the reasons are not exactly connected to pluralism, as Tom discusses in the clip, and more to the restoration of a political alliance that was more or less in place during the Golden Age, between neoclassical synthesis Keynesians like Bob Solow (who is a member of the board) and people like Joan Robinson. That's why I suggested the Godley-Tobin lecture that in my view makes that alliance explicit. In that sense, the plan, that was originally in LP's plan a post-Keynesian journal related to monetary issues, to not compete directly with the JPKE, became the non-hyphenated Keynesian journal.

PS: And yes, the story of why the hyphen in the JPKE, as told to me by Paul Davidson, is that it couldn't be the Journal of Keynesian Economics, since the acronym would be JOKE! The term post-Keynesian (or is it Post Keynesian) already existed, but in my view it was the JPKE that sedimented its use, and in a sense that was an accident.

JERZY OSIATYŃSKI 1941-2022

By Jan Toporowski*

Jerzy completed his matriculation at Juliusz Słowacki Liceum in Warsaw and went on to study economics in the elite foreign trade faculty of the Main School of Planning and Statistics (Szkoła Główna Planowania i Statystyki SGPiS – now reverted to its pre-War name of the Main School of Commerce Szkoła Główna Handlowa). He completed his PhD there and by then had fallen into the circle of economists around Michał Kalecki, who lectured on the economics of capitalism and convened seminars on economic planning and development economics. Jerzy started teaching, and was remembered as a charismatic teacher who made himself available to students and was willing to explain, instead of just repeating dogmas. His brother Wiktor became a well-known writer. A concert-pianist sister married an Englishman and left Poland to live in London.

In 1963 he joined the ruling Polish United Workers’ Party, a natural move for a socialist with ambitions to have a voice in political discussions, if only on the topic of socialist economic and political reform. Kalecki (who never joined any party) was criticising the economic plans being implemented by the government, and the younger generation of Party members, most notably Jacek Kuroń and Karol Modzelewski, were demanding democracy. This would have been a polite discussion were it not for rising discontent in the country at large over shortages of food and other basic articles of consumption, the result of the government’s economic mismanagement.

In the wake of the Six-Day War in 1967, the government tried to redirect criticism towards internal enemies who sympathised with the Israeli defeat of Poland’s Arab allies. Outraged by this accusation by inuendo from a government that claimed to be of the Left, Osiatyński went to a meeting of his Party cell to demand that the Party leader, Władysław Gomułka state clearly who were the internal enemies sympathetic to international Zionism. Osiatyński was expelled from the Party.

Worse was to follow. Public institutions started drawing up lists of Jewish staff who were to be sacked and expelled from the country. Most of Poland’s Jewish population had been killed by the Nazis during the War. The poorer sections of the communities that survived left for Israel after the establishment of that state, leaving only the assimilated Jewish people, who no longer considered themselves to be particularly Jewish, in the middle and professional classes. A particular target after March 1968 were student protestors who were accused of abusing their privileges in a workers’ state by criticising that state while living off the labour of ‘ordinary working people’. Osiatyński’s doctoral thesis on ‘Comparative advantage in the analysis of economic growth factors in socialism’ (Korzyści komparatywne w analizie czynników wzrostu gospodarki socjalistycznej)prepared under the supervision of Kazimierz Łaski, was failed. (It eventually passed, under the formal supervision of Henryk Fiszel, in 1973, after the fall of Gomułka).

Very few institutions were able to resist the purge of Jews and ‘revisionists’ who wanted a more democratic socialism. Among those institutions was the Polish Academy of Sciences, whose staff had no teaching duties and so were unable to corrupt revisionist-minded students. Here Tadeusz Kowalik was leading a research group that was publishing the collected works of Oskar Lange. Following the death of Kalecki in April 1970, a job was created for Jerzy to edit the collected works of Kalecki.

Support came from Kalecki’s friends in Cambridge UK, where Joan Robinson helped to secure visiting fellowships for Osiatyński and Kowalik. In Cambridge Osiatyński acquired a taste for Stilton cheese and material for his post-doctoral thesis (praca habilitacyjna) on the Cambridge capital controversies, that was published in Poland in 1978 under the title Kapitał, podział, wartość: kryzys ekonomii neomarginalistycznej (Capital, distribution, value: the crisis of neomarginalist economics). Between 1979 and 1988, six volumes of works by Kalecki appeared in Polish with Osiatyński’s extensive background notes. There were other visits to the Institute for Development Studies at Sussex University and Oxford University. In 1988, his book on Kalecki’s economics of socialism Michał Kalecki on a Socialist Economy was published by Palgrave, with a foreword by Włodzimierz Brus, despite Kalecki’s disagreement with Brus over market socialism, that Osiatyński made clear in his book.

Both Osiatyński and Kowalik became involved in supporting the workers’ movement Solidarity that emerged in the 1970s and in the informal study groups that were set up to discuss forbidden literature. When the first semi-free elections were held in 1989 Osiatyński was elected to the Polish Parliament and started a political career. He was appointed Minister of Planning in the first non-Communist Government of Tadeusz Mazowiecki, taking over the premises of the old Planning Commission where Kalecki had worked and criticised. By then the Ministry had been reduced to providing economic forecasts while at the Finance Ministry Leszek Balcerowicz with his adviser Jeffrey Sachs pushed through the shock therapy that devastated the Polish economy for the next two decades, and eventually brought to power the present right-wing populists (a fine example of Kalecki’s belief that the immiseration of the working class brings out the worst as well as the best in all classes).

In 1992, Jerzy had his chance at the Finance Ministry. But by then it was too late. The damage to Poland’s industrial infrastructure and institutions had been done, and the Finance Ministry reduced to little more than fending off demands for debt repayments. Political commitments coincided with the publication by Oxford University Press of the English edition of Kalecki collected works, from 1990 to 1997, now in seven volumes. He threw himself into consultancy work in Post-Communist countries on behalf of multilateral financial institutions. But his political career could not survive the fragmentation of the liberal social democratic politics on the fringes of the old ruling party. In 2001 he lost his parliamentary seat. However, he retained his position in the Institute of the History of Science at the Polish Academy of Sciences (Instytut Historri Nauki Ekonomicznych Polskiej Akademii Nauk) until 2004, when he moved over to the Economics Institute of the Academy. In 2010 he was appointed economic adviser to the Polish President Bronisław Komorowski. Three years later he resigned from this position to become a member of the Monetary Policy Committee of the Polish central bank, Narodowy Bank Polski.

In 1990, he hosted at his flat in Warsaw a reunion of his colleagues from SGPiS who had lost their jobs and been forced into exile in the 1968 purges. He felt very keenly their exile and their eventual passing away. This was particularly so in the case of Kazimierz Łaski, who had directed the work of both Kalecki and Osiatyński at SGPiS in 1960s, and had been exiled to Austria. Łaski died in 2015. Osiatyński arranged for the publication of Łaski’s exposition of Kaleckian macroeconomics, in his Lectures in Macroeconomics, and its translation into English, published by Oxford University Press in 2019. In 2018 he visited London for the last time, meeting up with Geoff Harcourt, an old friend from Cambridge, at the launch of the second and final volume of Jan Toporowski’s biography of Kalecki. In 2019 he helped to put together a conference at the OECD in Paris, commemorating the 75th anniversary of the Bretton Woods conference by exposing the criticisms made by Kalecki and Raul Prebisch of the Keynes and White Plans. I was working with him on editing the conference volume when he entered hospital in January. He died on the 4 February.

Jerzy Osiatyński was awarded the title of Professor in 1989. In the following year he was given an honorary doctorate by New York University. He leaves a widow, Elżbieta.

* I am grateful to Dr. Grzegorz Konat of SGH for additional information and corrections to an earlier draft.

On Garegnani's contributions to economics

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.

Garegnani: Ten Years After

This event organized by the Italian Post Keynesian Network. I wrote about Garegnani's contributions when he passed away here in the blog. We will discuss some of the issues he raised, but also the new directions of Sraffian economics.

 

Life among the Econ: fifty years on

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.

Read paper here.

PKES webinars: Post-Keynesian economics and developing countries

22 Apr 2021 None –27 May 2021 None


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"

Joining link



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

Joining link



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"

Joining link
Organising committee

Pablo Bortz, Florencia Medici, Engelbert Stockhammer

Godley versus Tobin on Monetary Matters by Marc Lavoie

 

The 4th Godley-Tobin Lecture given by Marc Lavoie, a co-author of Wynne Godley, and one of the leading Post Keynesian authors.

Reflections after the Post Keynesian Economics Workshop

By Santiago Graña Colella (Guest blogger)

During my bachelor’s degree, I have little access to heterodox literature. What is worst, in most subjects, it was explained that the economy works in a particular fashion everywhere and every time, but without stating that this way was one interpretation of the economy, particularly the neoclassical interpretation. Consequently, most students do not know many alternatives to the economic theory thought to them and after five years (in Latin America) end up thinking that the economy works as in a neoclassical world and that any attempts of applying alternative economic policy it is following an ideological foundation. In this sense, I think it is important to promote heterodox ideas, because it allows critical students to know which schools of thought that are different from the neoclassical school. The problem, however, is having access to heterodox papers and having heterodox teachers within the courses taken. Personally, only in the last years of my bachelor, I had access to some heterodox courses, but this was the exception.

While the division between orthodox and heterodox is somehow necessary it is difficult to select a criterion to define each group. Some authors like Lavoie (2014) derive their classification from the value theory each school considers and sociological features. Other authors like Vernengo prefer to take a more theoretical definition separating strands by the assumptions or mechanisms consider in each school. Finally, mainly among student organizations, there is a more instrumental definition where orthodox is associated orthodox to models and mathematics and heterodox to more social approaches. It is understandable that, after years of neoclassical indoctrination, with models and maximization functions as main tools, critical student movements end up being against the utilization of these tools. However, this last definition is somehow flawed since some heterodox schools such as the post-Keynesian and some part of Marxist school use mathematics and, some orthodox authors, such as the Austrian, reject the use of mathematics.

I believe that heterodox economy should englobe schools which consider that, in the current economic system, there is a group (women, workers, poor people, developing countries) which cannot achieve another group (men, capitalist, reach people, developed countries) better position due to intrinsic mechanisms of the system and therefore, the state intervention is needed to overcome this situation. Differently, orthodox believe, that despite some failures that should be fixed, the intrinsic mechanism of the economic system leads to an optimal outcome and that state intervention will only be needed exceptionally.

Particularly, the post-Keynesian school is part of the heterodox group since has systematically mentioned the most distinctive features of capitalism and pointed out policies that could be applied by the state to overcome it. I believe that one of the main contributions of the post-Keynesian approach was disarming the neoclassical theory showing fundamental flaws in its analysis such as the one raised in the capital controversy. Furthermore, the post-Keynesian approach has evolved from their criticisms to the neoclassical school constructing logic and solid models that explain the economic process based on more realistic assumptions. However, there seems to be room for further development. Post-Keynesian has focused mainly on traditional macroeconomics issues like growth, distribution, and inflation without deeply analyzing the complexity of some other phenomena related to them such as poverty and the social dimension of development. Besides, other issues such as gender and environment are assessed with the same old perspective. For instance, some post-Keynesian papers regarding gender have tried to answer which is the effect of the gender gap on long-term growth, abstracting from the complexities that the gender issue has. However, these limitations can also be understood as opportunities for further developments.

Personally, after taking a mostly neoclassical bachelor, I decided to continue studying post-Keynesian economics because, despite a personal preference for macroeconomics and development topics, I considered that its economic theory always follows strong logical procedures and it is based in solid assumptions achieving, consequently, satisfactory policies recommendations. Furthermore, the post-Keynesian community has a lot of different strands that always raise interesting discussion within this school. Finally, as a general criticism of all heterodox schools, there is very little debate among them, which is needed to present a more solid discussion to the neoclassical hegemony.

Mainstream Economics/Sold Out?

I recently taught a short workshop (online) on Post Keynesian Economics (PKE) for Summer Academy for Pluralist Economics. I basically discussed the definitions of heterodox and Post Keynesian economics, and some critical issues in the theory of output, employment, money and inflation, and income distribution and growth. Students were from several countries, backgrounds, disciplinary fields and stages in their academic careers (from undergraduates to PhD candidates). I will post some brief reactions from a few students on their views on PKE and how they got interested in it, which I think might be of interest, since many have told me over the years that this blog was the only source they had on heterodox economics.

New issue of ROKE is out

The April Issue of the Review of Keynesian Economics is now out. The issue contains a collection of articles covering a spectrum of important issues. It opens with a debate over New Developmentalism which pits development relying on macro prices (especially the exchange rate) against historical state-led development policies. Next, there is an article on the role of the wage share in determining exchange rates. Thereafter, there are several articles on Post Keynesian growth theory. One addresses the evolution of income and wealth inequality, while others empirically assess alternative approaches to theorizing demand growth.

Two paper are open: "A Structuralist and Institutionalist developmental assessment of and reaction to New Developmentalism" by Carlos Aguiar de Medeiros and "Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality" by
Stefan Ederer and Miriam Rehm.

Thirlwall at 40

Thirlwall and McCombie

The new issue of ROKE is out. Three papers are freely downloadable (linked below). Check it out!

Thirlwall's law at 40 by Esteban Pérez Caldentey and Matías Vernengo

Why Thirlwall's law is not a tautology: more on the debate over the law by J.S.L. McCombie

Thoughts on the balance-of-payments-constrained growth after 40 years by A.P. Thirlwall

Larry Summers on Effective Demand

On of the issues between more mainstream Keynesians and their more heterodox counterparts is whether frictions are central for Keynesian results or not. Since the Neoclassical Synthesis the conventional view is that some rigidity or friction was behind the problems of unemployment, be that the liquidity trap (the Keynesian case with the flat LM, since Hicks 1937), the rigidity of wages (since Modigliani 1944), or some other coordination problem (mostly in the New Keynesian literature).

In this recent thread (worth reading all) Summers (as shown above) notes that posties might have been right on emphasizing the fundament issue of effective demand. That of course is closer to what Keynes himself would have thought. The paper he cites, by Tom Palley, co-editor of the Review of Keynesian Economics (ROKE) is free and available here.

Basil Moore (1933-2018)

Basil Moore

I first met Basil in 2000 or 2001, which was quite late, since I've read his work as an undergraduate back in the late 1980s. I was Assistant Director of the Center for Economic Policy Analysis (CEPA, now the Schwartz Center) at the New  School, and we invited him for a talk, which was about his forthcoming (at that time) book Shaking the Invisible Hand: Complexity, Endogenous Money and Exogenous Interest Rates  which was published considerably later (my review here).

Basil came down from Wesleyan, were he was for most of his career before retiring to South Africa, and we had an interesting debate on the relevance of the Keynesian (not the monetary one, on that we agreed) multiplier, which he considered a mistake, and on dollarization, which, at least at the time, he favored. The biggest surprise in my conversations with him that day and after that was what seemed to be a lack of understanding of how much the mainstream had incorporated the notion of endogenous money, in Wicksellian fashion. And I should note that the mainstream has not acknowledged the relevance of Post Keynesians, like Basil, in pushing them into the endogenous money camp.

My debates with him showed how much Post Keynesians could disagree both on theoretical and policy issues, and dispelled any notion that this was a group with monolithic or closed views on economic issues. In fact, it suggests that Posties should be seen more as a collection of schools, that depart from some aspects of marginalism/neoclassical economics.

Basil's contributions were essentially associated to the notion of endogenous money, more in line with the Kaldorian tradition, in which central banks accommodate to money demand, than to the Minskian notion of financial innovation. He was, together with Paul Davidson, Alfred Eichner, Hyman Minsky and Sidney Weintraub a key founding member of the American Post Keynesian School, perhaps less recognized than the others, and being the most focused on a particular topic. I'm sure that many obituaries will discuss his contributions in depth. At any rate, a loss for the profession, and for those of us that enjoyed his pluralistic openness to alternative views.

Post Keynesian Summer School in Toronto next week

Updated program below. I'll be discussing the history of central banks.

This is parallel to the HES conference.

Summer School at the Universidad de Valladolid

Organized by the Asociación de Economía Crítica, the organization that publishes the Revista de Economía Crítica (last issue online here; I'm on the board). I will teach on post-Keynesian views of the crisis, on the same day as Gérard Duménil , who will do a similar thing for Marxist approaches, I imagine. Program and registration form here.

Misconceptions about Heterodox Economics in general and Sraffian in particular

I had discussed before the meaning of heterodox economics. I suggested a definition based on positive contributions (rather than as a critique of the mainstream) and based on concepts rather than schools of thought. In my view the two principles that were central for defining heterodoxy were the Principle of Effective Demand (PED), based on Keynes and Kalecki's ideas, and the idea that distribution is the result of class conflict, which in my view is best expressed in Sraffa's recovery of the surplus approach. And I suggested that several authors within various schools of thought (Post Keynesians, Marxists, Institutionalists, Sraffians, Feminists, Ecological economists, Structuralists, and even some Evolutionary or Schumpeterian economists) could probably accept both propositions (not Austrians, which are a fringe version of Marginalism, and as a result not an heterodox school per se). In that sense, there could be a view of heterodoxy as not necessarily fragmented set of Schools of Thought.

However, it is a different proposition to suggest that something like a consensus between heterodox schools is really emerging. That I actually doubt. John King suggests that this would be Fred Lee's position in his new book Advanced Introduction to Post Keynesian Economics (there is no direct quote, but I always interpreted Fred as suggesting that a more cohesive heterodox approach was possible rather than it was actually taking place in reality, but I might be wrong).

In fact, it is my view that, in general, not only heterodox groups, which by definition tend to be small and often concerned with specific topics, but the mainstream is quite fragmented. On macro issues, even with the New Neoclassical Synthesis, there is a lot of disagreement between New Keynesians and RBC types, particularly on policy issues. So it should not be surprising that heterodox groups are quite fragmented too. Sometimes the fragmentation within the mainstream gives the false impression that some groups are breaking away, or on the edge (see my view on that here). And it is not just fragmentation, but also confusion. Even in the mainstream there is lack of understanding about the meaning of the mainstream (see here for example).

So it should not be surprising that, given the fragmentation of the heterodoxy, several misconceptions arise. Sraffians are particularly vulnerable to this since Sraffa wrote so little, and even though his Production of Commodities is not a difficult book to read, it is one that has been often misunderstood. Marc Lavoie has responded, from a Post Keynesian and friendly standpoint, to some of these misconceptions (the fact that some people consider Austrians heterodox, but are not certain about Sraffians speaks volumes about confusion among heterodox groups too).

Yet, I was a bit surprised by some of the misconceptions in John King's book. He says that: "There is no role in Sraffian models for fundamental uncertainty, money or the principle of effective demand." In the quote he suggests that this is the position of Hart and Kriesler (2014), but if he disagrees he does not say anything. So it is safe to assume that he concurs. He complements this by arguing that: "since the relationship between the wage rate and the rate of profit in Sraffian models is monotonically declining, it is difficult (if not impossible) for the their models to incorporate a 'wage-led' growth regime." Hm, were to start.

So Garegnani pointed out long ago (in the 1960s, but the English publication was in the late 1970s; links to the English versions of both the 1960s and 1970s papers here) that not only Sraffians believe in effective demand, but that a coherent presentation of the Principle of Effective Demand requires the abandonment of marginalism (particularly the marginal efficiency of capital argument). Not only that, Garegnani is very clear in his 1960s papers that (from link above):

"As regards consumption, increases in real wages lead to a rise in consumption and hence, provided the economy has accumulation capacity that is not fully utilized, to an expansion of the productive system and to an increase in employment. Given the level of productivity in the economy, the increase in real wages will in fact cause a redistribution of income in favour of a class that consumes a major portion of its income, and with that an increase in the first component of final demand... 

a steady and continuous rise in real wages along with the consequent steady and continuous increase in consumption can serve to instil in entrepreneurs a confidence in the continuous expansion of the market for their products, inducing them to undertake investments and increases in employment and output that will in turn help to raise final demand."

So yeah the economy is wage-led. Actually, in Garegnani's debates with Marxists, with Joan Robinson and other authors on the causes of long run growth, he could be seen exactly as taking the position that profit-led regimes are not possible, in the sense that he understood that firms would not invest because of a higher rate of profit. Firms are interested in adjusting capacity to demand, and to maintain a normal level of capacity utilization. Also, one should note that Garegnani wrote his paper in the 1960s under the direct influence of Sraffa, who might also have understood the idea of the accelerator. That is why Franklin Serrano is correct in suggesting the supermultiplier is Sraffian. Not only Sraffians have effective demand, they do in the long run (not in the short run as a result of imperfections).

Two things are important in this context. First, in Sraffa's price equations, which uses the method of given quantities developed by classical political economy authors, imply that there is class conflict, and an inverse relation between the real wage and the rate of profit. However, in a theory of the determination of output in the long run, output by definition is not given and the effects of income distribution on output might be ambiguous, even if the demand regime is wage-led (for example, higher wages might lead to loss of external competitiveness, and lower exports than more than compensate the increase in consumption associated to higher wages). Second, as I noted on my previous post on Garegnani's 1960s paper, the Sraffian project was the revival of the classical theory of distribution, concomitantly with the extension of the Keynesian Principle of Effective Demand to the long run.

On the absence of money in the Sraffian system also a lot of ink has been wasted. In his Production of Commodities Sraffa famously suggests that it is the rate of interest, as determined by the monetary authority, which is the exogenous variable. So prices and real wages are determined for given technical conditions of production and the long term interest rate as set by the monetary authority. Pivetti referred to this as the monetary theory of distribution. So monetary policy has important distributive implications, and this view is perfectly compatible with Keynes' views on a normal, conventional and not psychological, rate of interest. It is also compatible with endogenous money views, that hark back to Tooke and other Banking School authors. There is money, and not in the sort of Monetarist way in which the central bank controls its quantity.

Finally, on uncertainty. True for Sraffians uncertainty is not central for unemployment (one in three), yet that does not mean is completely irrelevant or that it does not play any role. Here it is important to note that any good discussion of uncertainty suggests that the one that is central is the uncertainty about future demand. See for example Davidson in this example. So the problem is lack of demand. Autonomous demand that is. And that works, as it should, with the supermultiplier.

Grenoble Post Keynesian Winter School

For more info go here.