Back of the envelope calculation: BNDES lending and the Marshall Plan

So, a few days ago, someone (my bad, can't remember who did it) posted on FB a piece (in Portuguese and behind a wall; but this post is mostly about the role of historical comparisons really, so you can skip the piece altogether) on the Brazilian National Development Bank (Portuguese acronym is BNDES, btw) and how it lend more than the US government with the Marshall Plan. The guy did a back of the envelope calculation (I did check and bringing the US$ 13 billion to present value, with the GDP deflator would be about 106 billion, roughly what he calculated) and concluded that the BNDES lending, which was higher, was very ineffective. Hm. Where to start?

Sure one can assume that the important thing is just to calculate how much money was lent in current values and one gets a reasonable picture of the impact. However, it should be clear that the US was lending dollars, and access to imports that were vital for the survival of Europe. Harder to put a dollar figure on that. But a better way to go around would be to calculate the magnitude of that loan for the US economy back then. What was the size of the commitment is a better question.

It turns out that the Marshall Plan (the 13 billion) corresponded to about 4.7% of the US GDP in 1948. That would translate in terms of the GDP of more than 18.5 trillion in 2016 to slightly less than 900 billion dollars now (or a bit larger than the 2009 fiscal package). At the exchange rate of 3.15, that the author uses, the figure would be more than 2.7 trillion reais, which would dwarf the 400 billion reais lent by BNDES (assuming that his number is the correct one).

BNDES lending wasn't 25% larger than the Marshall Plan, it was about 15% of the size of the Marshall Plan. A tiny fraction, when compared to the size of the US commitment. And that seems more accurate. Not only the US was lending in dollars, the international reserve currency, but also it was a massive aid program (which was essentially promotion of American firms, since a lot of the European demand reverted back to the US). This cannot be compared in any sort of reasonable way with the lending in reais by the Brazilian bank.

Don't get me wrong, that's just a back of the envelope calculation like the one he did (I think more accurate, or giving a more reasonable picture, but that's another question). Note that the Marshall Plan was aid (not lending, if you didn't get this before), and again that it was a mechanism to provide dollars, necessary for importing American goods, essential for the survival of Europe (and to avoid, you know, the specter of communism, just to make sure you got that). And done in a context in which the US basically unilaterally opened its economy to Western Europe and Japan to allow for the recovery (both seen as "Miracles").

BNDES role lending to foreign governments that hired Brazilian firms is more akin to the Ex-Im Bank and that perhaps would be a better analogy. Yes some of the lending included firms that paid bribes and that is a problem (don't get me wrong corruption should be investigated and punished, but I wouldn't imagine the State Department would just seat while the judiciary system destroyed US corporations; there is a clear understanding in the US that security goes hand in hand with economic hegemony, something that is lost to Brazilian elites). The lesson there is that American elites are not trying to destroy their own corporations (even Trump that seemed to be against the Ex-Im Bank now apparently favors it, admittedly in a weird way).

Historical analogies can be illuminating, no doubt. But for that the context matters, and an understating of institutions and their evolution is often important. For example, to understand that the US had the capacity of lifting the European external constraint, and eliminate dollar scarcity, and that this was a central component of both the economic recovery, and the geopolitical strategy of containing Soviet expansion in Western Europe would be relevant. Note that BNDES was part of a considerably more modest strategy of the left of center government of Brazil, that of promoting autonomous development by supporting and building up competitive national corporations (the so-called national champions) and to provide some regional support for Brazilian corporations, consolidating an alternative to US backed corporate globalization in the region (where many left of center governments had flourished in that period). There were certainly flaws in the BNDES experience, and a comparison with, for example, the South Korean experience of promoting national champions might be fruitful (and has been done, to some extent).

Some of the other allegations, like the one that BNDES subsidized credit caused the higher rates of interest of the central bank, belong to the Latin American tradition of magical realism. At any rate, BNDES lending was important, funded a considerably part of investment in the country, but it was not what lifted the external constraint in Brazil during the 2000s (in the case of Brazil it wasn't even the commodity boom, even though that helped). That resulted from the relatively low international interest rates which allowed for significant inflows that were accumulated as reserves.

Finally, I'm not sure, but I would assume that BNDES' loans will be recouped for the most part, so this is not like an aid program. There is very little in BNDES lending in the 2000s that is illuminated by the comparison with the Marshall Plan, other than the limitations of this kind of analysis.

Keen on financial crises ahead

I was listening to Steve on the radio yesterday. Here a short video of the Bloomberg Surveillance. 

Slow Posting, Hyperventilation, and the Wrong Lesson for the Left

Still grading, so slow posting for a while. Just a brief note on the whole firing of Comey scandal that is still unfolding, and the incredible degree of anxiety on the left, which somehow thinks this means that there is a 'pee' tape and that Trump will be eventually impeached (here, for example; too many of these). This is at least the second event compared to Nixon's firing of the Attorney General, the infamous Saturday night massacre. The other being the firing the Acting Attorney General Sally Yates.

All of these is very unproductive and dangerous for progressives in my view. It emphasizes an interpretation of the election that is deeply flawed. That Hilary was a strong candidate, that she was progressive, that she would have won (yeah, I know she did win the popular vote; but that's not the way it works) if Comey didn't discuss the emails days before the election, or the Russians didn't hack her campaign, or if Wikileaks didn't expose them.

It exempts the Dems from being just the other pro-business, slightly less crazy, but pro-business nonetheless, pro-free-trade, pro-Wall-Street party. It reinforces the already strong Neoliberal wing of the Party, that with the help of Obama and the Clintons (all making huge amounts of money in the speaking circuit) elected Perez for the DNC, and might end up with another candidate that will loose the election in the Rust Belt (here and here for my views on the election).

The real danger is eight years of this madness (and my guess, that's much more probable than an impeachment right now), unless progressives within the Democratic Party take over. So sure, investigate, resist, but please, pretty please, let's stop with this notion that all was the result of Russia, and that the Neoliberal wing of the Democratic Party is blameless.

Economists Behaving Badly

That's the title of a paper on economists that publish in predatory journals, published by Wallace and Perry last year and available here. In the abstract they suggest that "A surprising number of authors who are in the RePEc top 5% also published in predatory journals in 2015." 39 journals of the more than 1600 in RePEc are considered predatory, by the way. I don't have the list, but acceptance rates seem pertinent for a discussion of predatory behavior. The authors say in that regard:

Acceptance rates are not available on the homepage for most of the journals in the data set. Just a third of the thirty-nine journals report acceptance rates, and these range from 5% to 62% for 2015. The six journals that report rates between 5% and 25% provide no supporting data. Six others show data on submissions and acceptances on their homepages allowing calculation of acceptance rates that range from 39% to 61%. The other journal reports a 62% rate but no other data are provided.

The interesting part is the number of top publishers (I guess that's one measure of productivity) that do publish in predatory journals. Again from the paper:

The surprise from the data is the large number of highly experienced authors with publications in predatory journals. As previously noted, twenty-seven registered authors are top 5% authors in RePEc. These top 5% authors have 2120 total publications, a mean of 79 publications per author, of which 104, or 4.9%, are in predatory journals.

My guess is that's by mistake. They get an invitation to publish and they do not do the homework on the journal. But, of course, I might be wrong.

Monetary Policy and the Punch Bowl: The Case for Quantitative Policy and Wage Growth Targeting

By Thomas Palley

Federal Reserve Chairman William McChesney Martin famously declared that the Federal Reserve “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” This paper uses the punch bowl metaphor to analyze how the Federal Reserve can improve monetary policy so as to deliver shared prosperity with greater financial stability. The problem is the party starts earlier on Wall Street than Main Street, so the Fed may remove the punchbowl before the party reaches Main Street. Ensuring Main Street attends the party requires a new recipe for the punch, new serving rules, and a new punch master. Additionally, there is a deeper problem that current neoliberal growth model has the economy addicted to monetary punch. Resolving that requires a cure that goes beyond the punch bowl.

Read rest here.

International Confederation of Associations for Pluralism in Economics (ICAPE) Call for Papers

Call for Papers, Panels and Workshops

Drexel University, Philadelphia, PA

January 4, 2018

Pluralism and Economics 10 Years after the Crisis

(and 200 Years after Marx’s Birth)

It has now been 10 years since the financial crisis, but there have been very few changes in mainstream economics. Meanwhile, pluralist economists have been developing sophisticated ideas aimed at addressing the major problems confronting contemporary society. It is also interesting that the 10 year anniversary of the financial crisis finds us at the 200th anniversary of Marx’s birth. Marx, of course, railed against the flaws of the mainstream economics of his day, and his work continues to inform the work of many heterodox economists as they seek to understand the dynamics of neoliberal capitalism.

This year’s ICAPE conference has multiple themes regarding what pluralist economists have to offer the economics profession and modern society in general in 2018. Specifically,

· What are the major problems confronting today’s communities, and how can pluralist approaches to economics address those problems?

· How can pluralist economists most effectively deal with the domination of the profession by mainstream economics and the exclusion of pluralist ideas from economics journals, textbooks and curricula?

· Teaching pluralistically is a complicated endeavor. What are the most effective methods, approaches and materials for pluralistic teaching?

· What should younger scholars know about each pluralistic tradition? What are the cutting edge approaches to teaching and scholarship in each tradition?

· What insights do Marx and the other founders of heterodox traditions have for the modern world?

This is a crucial juncture for pluralistic economists to get together to develop robust alternatives and to bolster pluralistic approaches to teaching and research.

The next ICAPE conference will occur on the day before the 2018 ASSA meetings in Philadelphia from 7AM to 5PM at Drexel University near downtown Philadelphia. Drexel is located within a short cab or train ride from the convention hotels. The conference registration fee is $120 ($60 for graduate students/low income), which includes breakfast and lunch, along with coffee and refreshments throughout the day.

One of the purposes of the conference is to bring together economists from a variety of heterodox perspectives. There will be multiple opportunities for people to come together, including breakfast, coffee breaks, and the lunch plenary. Please plan on spending the entire day at the conference. In general, requests to schedule sessions at particular times of the day cannot be granted.

We welcome work from all strands of heterodox economic theory, including evolutionary, ecological, complexity, institutional, feminist, Austrian, Marxian, Sraffian, Post-Keynesian, behavioral/psychological, social, radical political economy, critical realism, agent-based modeling, and general heterodox. We are particularly interested in material from graduate students, sessions on pluralistic teaching, and material on the state of pluralism in economics. And, we are interested in research from any of the perspectives listed above.

Submissions:

The deadline for submitting proposals is Tuesday, September 5, 2017. We welcome proposals for individual papers, full sessions, teaching workshops, research workshops and roundtables. Proposals for complete sessions or workshops with a coherent theme are particularly encouraged, especially those that are pluralistic in nature, reflecting multiple perspectives in the discipline. Those who make a submission will be informed whether their proposal has been accepted by the 20th of September 2017.

Anyone needing an early decision on their submission to secure travel funding should indicate the need for an early decision as part of their submission. Early submissions will be accepted beginning on June 12, 2017.

ICAPE member associations are also encouraged to submit entire sessions or workshops. Current dues-paying ICAPE member associations include: AFEE, AFIT, ASE, IAFFE, and URPE.

For individual papers, please include: Your name, your title and affiliation, an abstract of 300 words or less, 3 keywords, and contact information (address, phone, email). For full sessions of papers, roundtables, workshops, and other formats, please include the above for each contribution, as well as a title for the session, the names of the chair and discussants, and the name and contact information of the session organizer.

All proposals should be submitted by email to Geoff.Schneider@Bucknell.eduas a Word or RTF document. Your email must include the corresponding author’s last name, “ICAPE,” and a brief title in the subject line (e.g., “Schneider, ICAPE, Teaching Roundtable”). Please also title the Word document containing your submission in a similar fashion.

Authors who present at the ICAPE conference are encouraged to submit their papers to the American Review of Political Economy (http://www.arpejournal.com/submissions/), edited by Michael Murray and Nikolaos Karagiannis. Papers from the conference will be published in a special issue of the ARPE.

Please address your questions to Geoff Schneider (Geoff.Schneider@Bucknell.edu), Executive Director of ICAPE.

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.

Reagan Era Zombie Tax Plan at the Rick Smith Show

On the Trump tax proposal at the Rick Smith Show

Got disconnected at the end. Link here.

Trumponomics looks more and more like Voodoo Economics

Posting has been slow. Last weeks of classes and too many things to do. At any rate, this is the tax plan (below Trump's, above Laffer's infamous napkin plan; no big difference though).

Nothing much to say. It's vague, as his campaign promises. The only certain thing is lower taxes for the wealthy. As I noted before, there is no big stimulus in his budget (the big infrastructure spending he promised), and most of the stimulus comes from tax cuts for corporations and the wealthy (which shouldn't do much for the economy, other than increase inequality).

Trumponomics: Neocon-Neoliberalism Camouflaged with Anti-Globalization Circus

By Thomas Palley

A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy

As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests.

Read rest here.

Ricardo's Principles turns 200!

On Saturday, April 19th 1817 , David Ricardo published The Principles of Political Economy and Taxation (price was 14s, and 700 copies were printed; later editions had 1000 copies each; my copy above is of the 3rd and definite edition published in 1821, and had at least two previous owners, a college and someone in Philly that signed it in 1901). Most comments on the book tend to emphasize things like rent theory and comparative advantage, but those are not central to the main point of the book (the Wikipedia entry is specially bad). The central question in the book, which follows Ricardo's Corn Essay of 1815 (An Essay On the Influence of a Low Price of Corn on the Profits of the Stock), is that there is an inverse relation between wages and profits, and, distribution is conflictive. That is the essence of the Ricardian theory, and the reason why Marx was a Ricardian, not a minor one as suggested by Samuelson though.

The inverse relation between wages and profits is what led Ricardo to criticize Adam Smith's problematic adding up theory of prices, and abandon the notion of labor commanded for the concept of labor incorporated (to keep the labor theory of value), which then led to the search for absolute value. The solution of the problem was elusive and was only provided by Piero Sraffa, the editor of his Works. For more read this entry on the Labor Theory of Value and this one on Sraffa's Standard Commodity.

Central Bank Independency

Nothing much to say about this really. I don't think I discussed it much here, but I'm certainly skeptical. I don't see why fiscal policy, which is discussed in congress and is an eminently political affair (budgets are negotiated between the executive and the parties in the legislative in most countries), should be different than monetary policy in this respect. But at any rate, the Lacker affair reveals how much the Fed is not independent from the financial sector, and that should be more troublesome than the lack of independence from the executive.

It's a bit of old news, but I've been thinking about it, both because of the new configuration of the Fed will have an impact on monetary policy, and also, since I'm teaching this course on central banking history. Btw, Jeffrey Lacker, passed confidential information to Medley Global Advisors, a research firm, and was essentially forced to resign. His successor, as per Fed rules, will be chosen by the board of directors, which are appointed by member banks. That is, the financial sector appoints the officials that are in charge of monetary policy, and of regulating them. Perhaps cronyism is in belt in the institutional structure of capitalism.

PS: Yes, Lacker was a hawk and for faster hikes in the Fed Fund rate.