Noam Chomsky on the Corporatization and ‘Death’ of American Universities

The following is an edited transcript of remarks given by Noam Chomsky to a gathering of members and allies of the Adjunct Faculty Association of the United Steelworkers in Pittsburgh, Pennsylvania:

The effective owners are the trustees (or the legislature, in the case of state universities), and they want to keep costs down and make sure that labor is docile and obedient. The way to do that is, essentially, temps. Just as the hiring of temps has gone way up in the neoliberal period, you’re getting the same phenomenon in the universities. The idea is to divide society into two groups. One group is sometimes called the “plutonomy” (a term used by Citibank when they were advising their investors on where to invest their funds), the top sector of wealth, globally but concentrated mostly in places like the United States. The other group, the rest of the population, is a “precariat,” living a precarious existence.

Read rest here.

Banks colluded to alter the price of foreign currencies says USJD

Ramanan suggested to me that this is old news. If it is I missed it the first time. At any rate the Department of Justice is prosecuting banks now for rigging the foreign exchange markets.

Baumol's disease Prize?

So Monday they'll announce the Sveriges Riksbank Prize (aka Nobel). Both The Guardian and Tyler Cowen at Marginal Revolution Blog bet on William J. Baumol, who was nominated for his work on entrepreneurism. Baumol would be a worthy winner for the 'Nobel.' But that's not his best work, in my view, since it relies on the same mainstream flawed supply-side stories to explain economic growth. But Baumol's Disease is an important insight, and one of the few regularities in economics treated like a scientific law and named after the economist that observed it, together with Okun's Law, Thirwall's Law, the Prebisch-Singer Effect, the Balassa-Samuelson Effect, and Kaldor-Verdoorn's Law.

PS: Baumol's contributions are extensive, from money demand, to history of ideas (including this paper on Say's Law, which is named after an economist, but is not a regularity and it's not really a law), to the analysis of productivity, including work with Marxist author Ed Wolff.

CIGI Senior Fellow Miranda Xafa on State of The Eurozone

Centre for International Governance Innovation Senior Fellow Miranda Xafa comments on the "State of the Eurozone" discussions which took place on October 6th, 2014 at the the German Marshall Fund of the United States in Washington, D.C. Xafa notes that the recent ECB announcement on asset purchases and the likelihood of a relatively successful forthcoming banking union may help to reduce Euro fragmentation and possibly ease credit issues. She cautions, nevertheless, that such structural reforms alone will not be enough to get the Eurozone out of its current long-run low-growth equilibrium.

New Book By Eric Helleiner - Forgotten Foundations of Bretton Woods, Int. Dev. & Making of Postwar Order

Professor Helleiner is an astounding international political economist and economic historian. His archival research is impressive, and his explications and understandings of international finance are not only lucid and prolific, but extensively articulate & eloquent. His new book on Bretton Woods, like many of his other works, is certainly a tour de force.

Eric Helleiner's new book provides a powerful corrective to conventional accounts of the negotiations at Bretton Woods, New Hampshire, in 1944. These negotiations resulted in the creation of the International Monetary Fund and the World Bank—the key international financial institutions of the postwar global economic order. Critics of Bretton Woods have argued that its architects devoted little attention to international development issues or the concerns of poorer countries. On the basis of extensive historical research and access to new archival sources, Helleiner challenges these assumptions, providing a major reinterpretation that will interest all those concerned with the politics and history of the global economy, North-South relations, and international development. The Bretton Woods architects—who included many officials and analysts from poorer regions of the world—discussed innovative proposals that anticipated more contemporary debates about how to reconcile the existing liberal global economic order with the development aspirations of emerging powers such as India, China, and Brazil. Alongside the much-studied Anglo-American relationship was an overlooked but pioneering North-South dialogue. Helleiner’s unconventional history brings to light not only these forgotten foundations of the Bretton Woods system but also their subsequent neglect after World War II.

See rest here.

Even the IMF thinks Vulture Funds are a problem

Since I criticized recently the IMF on its timid changes on macroeconomic policy advice, and the persistence of austerity based programs, it is worthwhile noticing that on the question of debt restructuring they have come clearly on the side limiting the power of Vulture Funds. In a new report on Sovereign Debt Restructurings the IMF suggests that:

The recent litigation involving Argentina has generated significant concerns regarding the impact that the New York court decisions may have on the overall restructuring process. In light of these concerns, there has been considerable progress in both the design and use of a modified pari passu clause that explicitly excludes the obligation to pay creditors on a ratable basis. It is recommended that the Fund support the widespread use of such a modified pari passu clause in international sovereign bonds.

Note that this might have an impact on future debt renegotiations, but is of little help for Argentina right now. But if the IMF is doing this, it means that the US Treasury is not particularly happy with judge Griesa's decisions.

PS: Here and here two parts of an interview for the radio program Debates Económicos of the Universidad Nacional de Colombia (in Spanish). 

Piketty debates Shaikh and Boushey at the New School

Piketty at the New School's Schwartz Center for Economic Policy Analysis (SCEPA). I personally don't agree with Anwar that Piketty is working in the critical tradition that includes Smith, Ricardo, Marx, Keynes and Kalecki (around minute 51). But worth watching in full.

Bill Black: Too Big to Jail

Bill Black author of the fantastically titled The Best Way to Rob a Bank is to Own One on Bill Moyers explains why nobody has been prosecuted in Wall Street after the 2008 crisis. 

How Much has the IMF Changed in Response to the Global Crisis?

Following the 2008 Global Crisis the notion that the International Monetary Fund (IMF) has moved away from orthodox views on a range of issues, but particularly regarding the need for austerity, has been pervasive. For example, Paul Krugman has argued, in his influential blog, that Olivier Blanchard, IMF’s director of research (or economic counselor) is “helping make at least one international institution less austerity-mad than the others.”

So what is this new view, exposed by Blanchard? For example, in the preface to the last World Economic Outlook, Blanchard tells us that:

Potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of labor market institutions, to increasing competition and productivity in a number of nontradables sectors, to rethinking the size of the government, to examining the role of public investment.

Read rest in Triple Crisis here.

What macroeconomic policies were relevant for unemployment reduction in Latin America?

I was reading the book by Giovanni Andrea Cornia on Falling Inequality in Latin America, which suggests that the reduction of the skill premium and macroeconomic policies, together with the expansion of social assistant, in particular but not only by left of center governments, is behind the trend. I'll have more on some of the issues related to the skill premium, which rely heavily on both neoclassical labor market and trade theories. However, the chapter on the macroeconomic causes of reduced inequality caught my eye. The chapter, a previous version can be found here, written by Mario Damill and Roberto Frenkel says that:

"A competitive RER [Real Exchange Rate] provides a conductive environment for growth and development. This view has long been stressed by development economists* and recently documented in many econometric studies. The growth-enhancing attributes of a competitive RER operate through the enhancement of tradable sector profitability."

The idea is that a depreciated currency allows for more exports, less imports, a more relaxed current account, and higher levels of activity and employment. The real depreciation is expansionary. Also, the paper suggests that fiscal policies had been during the last decade more restrictive, and presumably this was a good thing. They say:

"...many countries implemented fiscal rules, fiscal responsibility laws or took discretional decisions oriented at correcting the pro-deficit bias of the past. In many countries these changes contributed to a generalized improvement in fiscal results as well as to a declining trajectory of the outstanding public debt."

Not clear why public debt in domestic currency was a problem. Arguably, they think that fiscal restraint was relevant for supposedly allowing for more price stability, since Frenkel usually has argued that inflation has been caused by excessive demand, which was also conducive to reduction in inequality.

However, the evidence in favor of these views is very thin at best. In fact, the whole mechanism by which a depreciated RER would lead to higher growth, lower unemployment and some improvement on income distribution, which is the change in relative prices and the effects on exports and imports, is never discussed. As I pointed out before, the best evidence still suggests that depreciation is contractionary (see the paper by Fiorito, Guaita and Guaita here, in Spanish).

In order to provide evidence for the positive effect of the RER on growth Damill and Frenkel used a partitioned regression. First they regress growth of GDP on the real exchange rate, they make a residual variable, GDP not affected by RER, and then regress unemployment change on the residual GDP and the RER, in what they term a variation of Okun's Law (sic). They find that unemployment is affected by the exchange rate, but to say that the model is misspecified, and that suffers from an omitted-variable bias is an understatement.

The current account in Latin America improved mostly because of a positive terms of trade (TOT) shock, and was not the result of a depreciated RER, which at any rate as the authors note, was almost at the same level as before the boom by the end of 2000s [that's why Frenkel keeps asking for depreciation to promote growth]. The improved TOT were relevant because they allowed for fiscal expansions without leading to current account problems, and on top, the expansion of the economy allowed for increasing tax revenue and balanced fiscal accounts. In other words, the fiscal rules were not the cause of primary fiscal surpluses, but the result of the economic boom.

Fiscal expansion, and the expansion of real wages, were certainly more important for the reduction of unemployment. The authors are correct, however, in emphasizing the role of employment generation in reducing poverty and inequality. Note, also, that as real wages expanded all countries experienced RER appreciation, but the evidence suggests that income expansion is what led to a reduction in current account surpluses. That's why depreciation cum fiscal adjustment, that Frenkel correctly connects (in Spanish) with IMF policies, are not the solution.

By the way, unemployment fell because GDP grew, and the old and simple Okun's Law, without the exchange rate, still works very well.

* In fact, many development economists starting with Hirschman and the Diaz-Alejandro, later formalized by Krugman and Taylor, suggested the opposite, that depreciation was contractionary. See here.

Financialization and the Resource Curse in Brazil

"Financialization and the Resource Curse: The Challenge of Exchange Rate Management in Brazil"

By Kevin P. Gallagher and Daniela Magalhães Prates

Indeed, Brazil has been blessed and cursed with high commodity prices (from 2003 to mid-2008 and 2009-2011) and low interest rates in the core economies after the 2008 global financial crisis. Such an environment, coupled with the high domestic policy rate and the sophistication of the Brazilian financial system, has made Brazil a much sought after destination for carry trade operations through short-term financial flows that are largely transmitted through the foreign exchange derivatives market. Speculative operations into this market have accentuated the upward pressure on the exchange rate, which has come with higher commodities prices, leading to what we refer to here as a financialization of the resource curse (pp. 2).

Read rest here.

Duncan Foley and Lance Taylor win Leontief Prize

GDAE will award its 2015 Leontief Prize for Advancing the Frontiers of Economic Thought to Duncan Foley and Lance Taylor. This year's award, titled "Macroeconomics in the Age of Climate Change," recognizes the contributions that these researchers have made to our understanding of the relationships between environmental quality and the macroeconomy.

“Our Institute’s work has been much influenced, and has greatly benefited, by the ways in which Dr. Foley and Dr. Taylor have crossed the boundaries between economics and other disciplines to produce the kind of rigorous analytical work that the Leontief Prize was created to recognize,” said GDAE Co-Director Neva Goodwin. “Dr. Taylor’s research has integrated relevant social relations into macroeconomic models, and is of critical importance for understanding present and future environmental realities and challenges. Dr. Foley’s unique approach to combining research on political economy with advances in statistics and a broad grasp of the relevant data has produced a deeper appreciation of the policy consequences of economists’ choices in theories and models.”

The ceremony and lectures by the awardees will take place in the spring of 2015 at Tufts University; further details will be forthcoming.

For more go here.

Kaldor-Verdoorn's Law for Latin America

The Kaldor-Verdoorn’s Law (KVL) suggests that the rate of growth of labor productivity is determined by the expansion of demand. In other words, KVL suggests that there is a strong correlation between the growth of labor productivity and the rate of growth of economic activity.

The graph shows KVL for 7 Latin American Economies between 1950 and 2006. For similar analysis for the US see this paper.