Paul Krugman on The Economics of The Welfare State

By Paul Krugman

Social expenditure comprises cash benefits, direct in kind provision of goods and services, and tax breaks with social purposes. Benefits may be targeted at low Income households, the elderly, disabled, sick, unemployed, or young persons. To be considered “social”, programmes have to involve either redistribution of resources across households or compulsory participation.

See rest here.

Dean Baker on The Checkered Past of Ben Bernanke

By Dean Baker

The retrospectives of Ben Bernanke on his leaving the Fed seem to be coming in overly positive. While there is much that is positive about his tenure as Fed chair, many of these accounts have a rather selective view of history.
The part that is clearly wrong is treating Bernanke as a bookish academic who got plucked down in the middle of a financial crisis that was not his making. While Bernanke had a distinguished academic career, he had been in the middle of the action in Washington since 2002. That was when he was selected to be a governor of the Fed. He served as a governor at Greenspan’s side until he went to serve as head of President Bush’s Council of Economic Advisers in June of 2005. After a brief stint as the chief economist in the Bush administration he returned to take over as chair of the Fed in January of 2006.
It was during the period that Bernanke was at the Fed and his tenure in the Bush administration that the housing bubble grew to such dangerous levels. While Bernanke does not deserve as much blame for this as Greenspan, there were few people better positioned to try to deflate the housing bubble before it posed such a large risk to the economy. During this time Bernanke was dismissive of suggestions that the unprecedented run-up in house prices posed any problem. There is no evidence that he dissented in any important way from Greenspan’s view that the Fed need not be concerned about the housing bubble or the innovations in the financial industry that was supporting it.

Read rest here

Heterodox Microeconomics

Tae-Hee Jo, Fred Lee, Nina Shapiro, and Zdravka Todorova have compiled a list of readings in Heterodox Microeconomics that deserves attention and praise (available here). The only classic book that was central in my formation that I see missing is Paolo Sylos-Labini's Oligopoly and Technical Progress (1962). My favorite graduate textbook still is the one by Fabio Petri here.

Yes, The Cambridge Capital Controversies Do Matter

From Unlearning Economics:

I rarely (never) post based solely on a quick thought or quote, but this just struck me as too good not to highlight. It’s from a book called ‘Capital as Power’ by Jonathan Nitzan and Shimshon Bichler, which challenges both the neoclassical and Marxian conceptions of capital, and is freely available online. The passage in question pertains to the way neoclassical economics has dealt with the problems highlighted during the well documented Cambridge Capital Controversies:

The first and most common solution has been to gloss the problem over – or, better still, to ignore it altogether. And as Robinson (1971) predicted and Hodgson (1997) confirmed, so far this solution seems to be working. Most economics textbooks, including the endless editions of Samuelson, Inc., continue to ‘measure’ capital as if the Cambridge Controversy had never happened, helping keep the majority of economists – teachers and students – blissfully unaware of the whole debacle.

A second, more subtle method has been to argue that the problem of quantifying capital, although serious in principle, has limited practical importance (Ferguson 1969). However, given the excessively unrealistic if not impossible assumptions of neoclassical theory, resting its defence on real-world relevance seems somewhat audacious.

The second point is something I independently noticed: appealing to practicality when it suits the modeller, but insisting it doesn’t matter elsewhere. If there is solid evidence that reswitching isn’t important, that’s fine, but then we should also take on board that agents don’t optimise, markets don’t clear, expectations aren’t rational, etc. etc. If we do that, pretty soon the assumptions all fall away and not much is left.

However, it’s the authors’ third point that really hits home:

The third and probably most sophisticated response has been to embrace disaggregate general equilibrium models. The latter models try to describe – conceptually, that is – every aspect of the economic system, down to the smallest detail. The production function in such models separately specifies each individual input, however tiny, so the need to aggregate capital goods into capital does not arise in the first place.

General equilibrium models have serious theoretical and empirical weaknesses whose details have attracted much attention. Their most important problem, though, comes not from what they try to explain, but from what they ignore, namely capital. Their emphasis on disaggregation, regardless of its epistemological feasibility, is an ontological fallacy. The social process takes place not at the level of atoms or strings, but of social institutions and organizations. And so, although the ‘shell’ called capital may or may not consist of individual physical inputs, its existence and significance as the central social aggregate of capitalism is hardly in doubt. By ignoring this pivotal concept, general equilibrium theory turns itself into a hollow formality.

In essence, neoclassical economics dealt with its inability to model capital by…eschewing any analysis of capital. However, the theoretical importance of capital for understanding capitalism (duh) means that this has turned neoclassical ‘theory’ into a highly inadequate took for doing what theory is supposed to do, which is to further our understanding.

Apparently, if you keep evading logical, methodological and empirical problems, it catches up with you! Who knew?

Mosler on Krugman, The Unconcious Liberal

 By Warren Mosler,

Yes, unemployment- source of the greatest economic loss as well as a social tragedy and a crime against humanity, is always the evidence deficit spending is too low. There is no exception as a simple point of logic. The currency is a simple public monopoly, and the excess capacity we call unemployment- people looking to sell their labor in exchange for units of that currency- is necessarily a consequence of the monopolist restricting the supply of net financial assets. 

Read rest here.

Tim Koechlin on Soaring US Inequality and Why It Matters

By Tim Koechlin

The United States is, by every reasonable measure, the most unequal of the world’s rich countries. And this is not new development. Evidence of extreme and rising economic inequality in the US is quite overwhelming. In 1979, the top 1% earned about 9% of all income; in 2013, they earned 24%. The incomes of the top 0.1% have grown even faster. More than half of all economic growth since 1976 has ended up in the pockets of the top 1%. Meanwhile, the incomes of the shrinking middle class have stagnated, and the incomes of those with a high school education or less have fallen substantially. The purchasing power of the minimum wage has fallen by about 15% since 1979. One in five kids lives in poverty. 

Read rest here

Was the devaluation in Argentina good and inevitable: A reply to Rapetti

Back in the mid-1990s I was a student of John Eatwell (his last TA in the microeconomics course at the New School, I think, before he went back to Cambridge), and one thing that has stuck with me over the years is that he argued no economic debate was ever solved by empirical evidence. Hyperbole aside, and I should say it is not a great exaggeration, logic has also not been particularly good a clarifying debates in economics (just think of the Capital Debates).

So last week I wrote this post on why the Argentine devaluation is not a traditional Balance of Payments crisis. As I noted it was a policy decision in the works for a long while. At any rate, neither the real exchange rate, nor the current account are in a position that per se is unsustainable. That is still true, however, Martín Rapetti from the Centro de Estudios de Estado y Sociedad claims I am confused in my criticism of his work, as much as that of Frenkel and Bresser-Pereira, the so-called New Developmentalists, which believe that devaluation is good for growth.

He suggests now that he does not claim that devaluation is good for long run growth (my quote from Bresser in the previous post was very clear suggesting that is in fact what New Developmentalists think). In his words:

"Formulations like mine seem to be the source of another confusion in Matias’ analysis. He argues that people like Luiz Carlos Bresser Pereira, Roberto Frenkel and me were advocating for a devaluation because we support the idea that maintaining a competitive real exchange rate (CRER) is good for growth."

He argues now that the reason for wanting a devaluation was:

"based on the inconsistencies of macroeconomic policy and not on my frustration about the abandonment of the competitive RER strategy that Argentina carried out between 2002 and circa 2008."

Althought Martín does not quite spell out what the contradictions are (and they are not the current account or the real exchange rate apparently, since he says: "He [that would be me, Matías] is right: the current account deficit was only 0.5% of GDP in 2013 (although it would higher without the import controls) and the RER is certainly not as overvalued as in Brazil (which, by the way, is very overvalued [that has no run on the currency, I might add])." The imbalances are one might assume inflation, and the cause of inflation as Frenkel and others have suggested is the excess demand (read fiscal deficits). So he wanted, and by the way I've heard this from almost anybody connected to CEDES, more fiscal adjustment. In fact, in the CEDES story, the government started to move away from good macro policy when Roberto Lavagna, which included several CEDES insiders, left the government at the end of 2005.

On this new position, let me refer again to my previous post (from March 2012) in which I quoted a paper Frenkel presented at a conference organized by Bresser, in which he said:

“the monetary and fiscal policies required to accompany the adoption of a SSCRER target must also have special features: the permanent expansionary stimulus that is part and parcel of the SSCRER heightens the importance of the restraining role to be played by fiscal and monetary policies.”

Let me emphasize this, the notion was that a stable and competitive real exchange rate is so powerful (permanent expansionary stimulus he says, sic) as an instrument for growth that you need fiscal and monetary contraction. Note that devaluation and macroeconomic contraction are the traditional tools of the IMF for countries with balance of payments problems. Part of what I suggested in my previous post is that heterodox authors tended to be more circumspect about the incredible advantages of depreciation. Martín's nuance about disequilibria (fiscal expansion) and not the effects of devaluation on growth are really not clear. If I was confused, he must explain how. Did Frenkel and him changed their position? If so I'm glad, but certainly I'm NOT the one confused here.

His other critique is decidedly bizarre. He argues

"Matías seems to miss the important point that as long as expected depreciation at the exchange rate that the Central Bank is defending is higher than the yield of domestic assets, there would be an excess demand for foreign currency that would eventually lead to the depletion of FX reserves and the collapse of the domestic currency."

First of all, in the post Martín criticizes I say the following:

"Note that if the government on top of the current measures adds fiscal contraction (monetary tightening is a given, since higher rates of interest will be needed to avoid more capital flight; and the effects of monetary contraction can be compensated by subsidized public credit) as the New Developmentalists wanted (since for them inflation was caused by excess demand) then the slowdown will be significant and even a recession could take place."

In other words, yes the government must increase the rate on interest to avoid the expectations of a devaluation. My point indeed was that back in 2012 they should have done that, when the blue was closer to 5, and it was easier to do and avoid a depreciation (which Martín wanted and I didn't) and that he used to think it was good, but now that happened he has second thoughts (you'll see why in a second).

Second, exactly because the problem is the low rates of interest when compared with holding dollars, you see that this is not a problem associated to the exchange rate being overvalued or the current account being unsustainable in the short run. It is something that could have been solved long ago with a higher rate of interest. Mind you, Martín is simply wrong when he says that since 2010 the Central Bank of Argentina was using the nominal exchange rate as an anchor for prices (he is really confused on this one; just check the rate of depreciation), and I should know since I was at the bank at some point during this period (actually Brazil did that, and that explains lower inflation in Brazil).

But here comes the cherry on top of the ice-cream. Why would depreciation still be good for Martín? Because the long-term exchange rate elasticity of exports is actually high. The short-term isn't and that's why in the short run the depreciation will be contractionary and he has some doubts about it. But in the long run things are hunky dory. So here is NOT about imbalances, but depreciation is good for growth because it increases competitiveness and exports (wink, wink, devaluation is not good, but yes it is; and I'm confused!). In his words:

"The problem is that Matías confuses an important distinction between short-run and long-run effects of the real exchange rate on economic performance. In Krugman-Taylor, a real devaluation (a change in the RER) has a negative effect on output and employment in the short run; in Frenkel-Taylor, a competitive RER level has a positive effect on long-run growth."

I guess I missed that class by Lance, and that's the source of my confusion. I should note that I had a few exchanges with Martín on Twitter (see below in Spanish) on which he also suggested that in the long run was good for growth.

@mgrapetti @SSAlfredo y Martin si cambiar los precios relativos resuelve el problema externo, cual es la elasticidad? Pq no das el numero
— Matías Vernengo (@NakedKeynes) June 16, 2013

Here is the problem, Martín (neither him, nor Frenkel or anybody else as far as I know) has shown this great long-term elasticities that show that depreciation in the long-run (the Frenkel-Taylor, not Krugman-Taylor story) is good for growth. The evidence I cited here (from this paper by Fiorito and Silvio and Nahuel Guaita) actually shows that there is no indication of a positive elasticity in any run. If Martín shows that there is some evidence on positive and significant long-term real exchange elasticities for exports (I'm really interested in what methodology he suggests for finding this result, and separate the short and long run elasticities), like Keynes I will change my mind, and try to prove Eatwell wrong on the role of empirical evidence in economic debates. But if you (Martín) cannot come up with evidence to support your nice theoretical model (the Frenkel-Taylor that rules in the long run, are we clear?!), what should we call you? Confused does not seem the correct definition for someone that keeps defending an idea for which there is no evidence (don't worry, I'm not in the game of name calling).

Finally, I should add here, that while I do think that the government has committed mistakes, and allowing the blue (the black market) exchange rate to depreciate and not hike interest rates earlier  is one of those (I would add the need for a more aggressive Import Substitution policy to reduce the external constraint, something I defended as early as March 2012; see here), I still think that this government should be supported and is much better than the alternative (Martín is certainly not in favor of the government).

EPI: Recovery Fails To Reach Escape Velocity in 2013

By Josh Bivens

We now know that the U.S. economy grew at a 3.2 percent annualized rate in the last quarter of 2013, and grew 1.9 percent during all of 2013. This is simply too slow to generate a full recovery from the damage inflicted by the Great Recession in a reasonable amount of time. Too many policymakers seem eager to move on to other economic issues, but the necessary condition for addressing almost every other economic challenge—be it boosting job quality or increasing opportunity or checking the rise of extreme inequality—is a return to full employment, and that should be the nation’s first priority.

See rest here and here

Pivetti on Advanced Capitalism and the Determinants of the Change in Income Distribution: A Classical Interpretation

Massimo Pivetti

Technological change, though paramount in the dominant theoretical approach to distribution in terms of the relative scarcity of factors, also plays a significant role in the alternative classical surplus approach.

See rest here

Tom O'Brien From Alpha to Omega Podcast on the Role of the Dollar

I was interviewed by Tom O'Brien of the "From Alpha to Omega" podcast. Episode also available here.



For more of Tom's interviews go here. The paper discussed in the interview is this one.

Living Paycheck to Paycheck: Nearly 44% of Americans Have Less Than 3 Months' Worth of Savings

 

The 2014 Assets & Opportunity Scorecard finds that liquid asset poverty rates have barely budged. The percentage of households in the US who lack the savings needed to weather a financial storm like a job loss or medical emergency is holding tight at 44%, suggesting that almost half of Americans are on the brink of financial calamity. The Scorecard also found that problems like growing student loan debt and high rates of consumers with sub-prime credit—especially among households of color—are to blame for Americans’ lingering inability to get ahead and build a more secure financial future for themselves and their families.

Mark Weisbrot on Economic and Social Policy and the Problems of the Eurozone and European Integration

By Mark Weisbrot

It was not because of the power of financial markets or because the Germans didn't want to "help" the Greeks that Europe suffered through about three years of recurring crises, in which the continued existence of the euro was thrown into question, until August 2012. It was because the European authorities were using these acute crises and did not want to resolve them until they had extracted certain "reforms" from the weaker European economies (and possibly even some of the stronger ones, if we consider the European Fiscal Compact and what the French government has been doing recently). We know this because as soon as the European Central Bank (ECB) wanted to do so, it put an end to these crises in a matter of weeks, in July-August 2012, by effectively establishing a ceiling on the interest rates of Italian and Spanish bonds - something it could have done at any time in the prior three years.

Read the rest here.

Kevin Gallagher on capital controls in developing countries

From the letters section in the Financial Times.

For the piece Kevin is responding to go here (subscription required)

Palley on why Krugman and other New Keynesians are NOT Keynesians

Yes, while it is true that New Keynesians do agree with Post Keynesians (or classical-Keynesians, in the sense of the Old Classical Political Economy School revived by Sraffa) in many policy propositions, like the need for more stimulus, Tom is absolutely right that they do occupy a position in the policy debates which precludes real Keynesian ideas to become more generally accepted.

For the full video go here.

Gerald Epstein on why the Fed is pushing interest rates higher

Gerald Epstein

The quantitative easing is when the Federal Reserve essentially prints money and then buys Treasury bills and mortgage-backed securities and other things like that. And they've been doing about $85 billion a month and are now tapering--what they call tapering it down to $65 billion a month. And by doing that, they're putting less money and credit into the economy. And when there's less money and credit in the economy, that tends to raise interest rates. And hence you've seen a big shift in financial markets here in the U.S. and all over the world as a result of this expectation that both short-term and long-term interest rates are going to go up.

Obama's Minimum Wage Hike Excludes Thousands and Fails to Look at Roots of Income Inequality

David Cay Johnston:

It's important that we restore the minimum wage. We're not talking about raising it. We're talking about restoring it. Back in the mid '60s, it was almost $11 an hour. And education is certainly very important and too much neglected in this country. We put huge barriers to bright but poor and middle-class children getting first-rate educations, especially at college. But we have much more fundamental problems than that. Many of these problems involve things like government rules that hardly anybody knows about that take money from the many and redistribute it to the few, the use of tax dollars to build factories, office buildings, and shopping malls, the rules that allow multinational corporations--not domestic, not mom-and-pop corporations, but multinational corporations-- to actually profit off their corporate income taxes by delaying payment of them for 30, 40, 50 years and having you and I let them deposit that money with the government to collect interest while the value of the tax they owe erodes.

The State of the Worldly Philosophy at the New School

How bad is the Argentine crisis?

There is a certain view about current events in Argentina that tends to emphasize the potential effects of the devaluation as the collapse of the economic model, and, and, hence, suggest that the post-default process of economic growth should not be taken as an alternative for other countries in distress, like for example Greece and other Southern European countries. This kind of view, expressed for example by Walter Molano in the Financial Times (subscription required; minus the strange argument that the Argentine problem is "geographical"), suggests that policies should be aimed at pleasing international financial markets since the goal is to promote "confidence in the country’s economic management," and that devaluation is necessary for solving the "unsustainable economic imbalances."

First, it must be understood that the current devaluation, which was of the order of 20% in nominal terms in the last days of last week, is part of a plan that was most likely in the works, since the change in the economic team at the end of last November, when the current finance minister, Axel Kicillof, became the sole commander of the economy displacing Guillermo Moreno, and to a lesser extent Mercedes Marcó del Pont (full disclosure, I worked in the central bank during her tenure as president) in the internal domestic dispute.

In other words, this is not a balance of payments crisis (or a currency one) per se, even though it might become one, since it was actually part of a policy decision, first to accelerate the depreciation of the currency, which started in the last month of 2013 after the new finance minister assumed his position, and that culminated with the renegotiation of the debt with the Paris Club (to regain access to international financial markets), and the gradual liberalization of the exchange market, trying to move the official rate closer to the 'blue,' that is, the black market rate. Note that the current account, as I noted before here, is not in a terrible situation, the Brazilian position has been far worse for a longer period, and the real exchange rate was not more appreciated than in Brazil either.

Before discussing my views of what might happen, it is important to note the New Developmentalist views, which are often associated to Bresser-Pereira and in Argentina to Roberto Frenkel and his co-authors, that the re-alignment of the real exchange rate was inevitable and necessary to promote more competitiveness and growth does not hold water (see my previous critique here, and Fiorito and Amico's here). Bresser has in fact argued that this devaluation is likely to be good for Argentina. In his words (the whole article here):

"the peso retrieved the lost competitive equilibrium; the government declared that the peso had reached the desired level, and, without fearing an increase in the dollar's official price, it suspended several restrictions to the purchase of dollars , in order to draw the parallel down. If this strategy of keeping the exchange rate at the competitive level is successful, profit expectations will rise, business enterprises will invest again, the current account surplus will be restored, and the Argentinian crisis will be over."

Martín Rapetti (a Frenkel co-author) remains more skeptical here (in Spanish), but insists it was inevitable (the exchange rate realignment).

In my view, the devaluation was not inevitable and is not particularly good. First, it will be inflationary, and as I noted a few years back, also might be contractionary, so expect less growth this year. The reduced growth is what will hold the current account in a reasonable situation, by the way. Hence, devaluation will not solve either the inflationary problem, nor the external constraint one. In this sense, the crisis (manufactured as it is) is worse than most people understand, since it won't solve any of the pressing problems in Argentina.

Note that if the government on top of the current measures adds fiscal contraction (monetary tightening is a given, since higher rates of interest will be needed to avoid more capital flight; and the effects of monetary contraction can be compensated by subsidized public credit) as the New Developmentalists wanted (since for them inflation was caused by excess demand) then the slowdown will be significant and even a recession could take place. The Plan Progresar (that gives money to young students without jobs) might indicate the opposite disposition, but the crisis might force the government to slowdown the economy to avoid a more serious current account deficit.

A more benign scenario would be that the Central Bank manages to control the depreciation, and stabilize the real exchange rate, likely at a somewhat depreciated rate (how much will depend on wage resistance, and how much inflation we get; my guess is that some real depreciation will take place, and lower real wages will follow, which also will add a contractionary force in domestic demand), but this does not turn into a run on the currency.

As I noted before, there are good reasons to believe that lack of growth in advanced economies and low rates of interests in the center will preclude outflows of capital, if higher real rates of interest are imposed in Argentina (they are still negative now) like Brazil has done. Also, the plateau of commodity prices indicates that the balance of payments will not worsen immediately, so there will still be space to solve the long-term problems associated with excessive dependence on the export of commodities, and to pursue the difficult but necessary process of import substitution.

In short, the default and the process of growth (which was possible because of favorable external conditions, but NOT caused just by that; as I noted several times terms of trade improved less in Argentina than in Brazil, and the former grew far more during the commodity boom period), which was based on fiscal expansion and income redistribution is an alternative to Neoliberal policies. And the way to deal with the limits to the model (which are associated to the external constraint) are not related to the exchange rate, but to industrial policy.

PS: Here a video in which Fabián Amico provides a similar analysis (in Spanish).

Ernesto Screpanti: Global Imperialism and the Great Crisis - The Uncertain Future of Capitalism

 

 From Monthly Review

In this provocative study, economist Ernesto Screpanti argues that imperialism—far from disappearing or mutating into a benign “globalization”—has in fact entered a new phase, which he terms “global imperialism.” This is a phase defined by multinational firms cut loose from the nation-state framework and free to chase profits over the entire surface of the globe. No longer dependent on nation-states for building a political consensus that accommodates capital accumulation, these firms seek to bend governments to their will and destroy barriers to the free movement of capital. And while military force continues to play an important role in imperial strategy, it is the discipline of the global market that keeps workers in check by pitting them against each other no matter what their national origin. This is a world in which the so-called “labor aristocracies” of the rich nations are demolished, the power of states to enforce checks on capital is sapped, and global firms are free to pursue their monomaniacal quest for profits unfettered by national allegiance. 

See rest here

Highly Educated, Highly Indebted: The Lives of Millenials

From The Atlantc:

What's are today's young adults really like? For those who've spent too much time gazing into the dark recesses of Thought Catalog or obsessing over "Girls," the Department of Education has a new report that offers up some enlightening answers. In the spring of 2002, the government's researchers began tracking a group of roughly 15,000 high school sophomores—most of whom would be roughly age 27 today—with the intention of following them through early adulthood. Like myself, many of those students graduated college in 2008, just in time to grab a front-row seat for the collapse of Lehman Brothers and the economic gore fest that ensued. In 2012, the government’s researchers handed their subjects an enormous survey about their lives in the real world. Here, I've pulled together the most interesting findings.

Read rest here

State of Power 2014 and Davos Man

Global elites are meeting in Davos this week. Davos Man is all for 'stakelholder' society, meaning corporate self-rule. New Report State of Power 2014 exposes the abuses of the Davos elites. Above the graph showing the 25 biggest corporations by revenue and by asset value.

 

Do ideas matter?

By James K Galbraith

First, a preliminary. It is my position, pace the public-choice school and the Marxists, that policy ideas are an independent ideological force.

Some economists, and more political scientists, disbelieve this. Many doubt there exists any role whatever for intellectual persuasion in politics, whether deductive, inductive, or "purely rhetorical." Models, characterized by their attention to the self-interest of bureaucrats and legislators, have been advanced in volume to explain the imperatives of political decision making. If these models are wholly right, then special interests govern all, the scope for discretion and hence persuasion in politics is negligible, and the study of the rhetoric of such discussion can be of only iconological interest.

To be sure, special interests are important. Ulterior motives are endemic in politics. And not all of the scholarly cynicism is misinformed. Council of Economic Advisers Chairman Murray Weidenbaum, when asked directly what weight of influence, on a scale of one to ten, economists had enjoyed in drafting the original tax program of the administration, replied, "Zero."

But special interests do not exhaust the interesting phenomena of politics. There is the opposing view of Keynes on ideas: "the world is ruled by little else." In my experience, ideas and interests interact; neither fully dictates any outcome. Interests are never absent from the discussion and often prevail. But there was always a sense that there was discretion, there were choices, and that the interests occasionally could be outsmarted by ingenuity in rhetoric, including as part of rhetoric various tricks of policy design.

Excerpt from "The grammar of political economy," in The consequences of economic rhetoric, edited by A. Klamer, D. McCloskey, and R. M. Solow.

Geoff Schneider on Adam Smith and Karl Marx

Available here the Power Point presentation for Geoff's Principles class on Smith and Marx. For more you can read chapters 2 and 3 in his textbook Introduction to Political Economy (here if you want to buy it).

Al Campbell: Designing Socialism - Visions, Projections, Models

Edited by Al Campbell

This highly readable volume explores what contemporary models of socialism have to offer for envisioning a better world and developing feasible alternatives to neoliberalism and pervasive inequality. The book is organized around clearly stated questions that capture core issues and debates. Concise contributions from leading thinkers address the theoretical and historical justification for socialism, what a socialist society would look like, how self-interest and the interests of society can be reconciled, the stages and productive forces of socialism, and how socialist growth differs from capitalist growth. Two related book reviews are included. This volume was originally published as a special issue of Science & Society VOLUME 76, NO. 2, APRIL 2012

See here.

G-24 Policy Brief: Capital Flow Management and the Trans-Pacific Partnership Agreement

A recent Global Economic Governance Initiative (GEGI) G-24 policy brief by Kevin P. Gallagher, Anna Maria Viterbo, and Sarah Anderson asses the degree to which the final draft of Obama's TPP (Trans-Pacific Partnership) deal must include significant safeguards to prevent and mitigate financial crises. The authors provide an alternative legal language that could be incorporated in future trade deals such that nations have the space and flexibility requisite to ensure financial stability. In my view, however, it is perhaps highly unlikely that the power brokers of TPP would even consider or critically reflect on the far-reaching proposals. From the Intro:

The Trans Pacific Partnership (TPP) being negotiated by 12 governments represents an important opportunity for a fresh approach to the treatment of capital flow management measures in trade agreements. Most regional and bilateral free trade agreements (FTAs) and bilateral investment treaties (BITs) enacted in the past two decades have encouraged capital account liberalization based on the view that this policy choice would facilitate more efficient international allocation of resources and spur foreign investment and growth in developing countries. In recent years, however, there has been a major re-thinking on the issue of capital account liberalization. In December 2012, the International Monetary Fund (IMF) issued a new “institutional view” that endorses the regulation of cross-border finance in some circumstances. The IMF also pointed out that many trade and investment treaties do not provide the appropriate level of policy space to regulate cross-border finance when needed. While the IMF’s new position was the outcome of many years of analysis, it was no doubt influenced by the 2008 financial crisis and the fact that a number of governments have used various forms of capital flow management measures (CFMs) in recent years to address financial volatility. The Trans-Pacific Partnership, as the first major trade negotiations since the 2008 crisis, presents an important arena to ensure coherence between current thinking on CFMs, including the IMF’s “new view," and trade and investment agreements.

Read rest here.

The Urban Fiscal Crisis as Neoliberal Shock Therapy: A Cartalist Fiscal-Sociological Approach

An article of mine has been posted by The Hampton Institute, A Working-Class Think Tank. From the intro:

My attempt is to suggest that, although laudatory, the neo-Marxist contributions to fiscal sociology put forward by James O'Connor's (2002 [1973]) The Fiscal Crisis of the State and Erik Olin Wright's (1977) Class, Crisis, and the State ultimately fail to accurately explicate the contradictions concerning the logic of capital during times of urban economic duress. I incorporate a dialectically materialist framework that manifests the interconnections between urban governance, capital accumulation and the structure of the state, with an emphasis on what I call a Cartalist sociological approach to money as an institution of social power to make my argument. The empirical backdrop is the United States, and the aim is to reassess the theoretical significance of the so-called 'fiscal crisis of the state' and its effect on the American urban built environment, in order to reconsider the broad historical contingencies that lead to the transformation from the so-called Keynesian managerial metropolis to the 'neoliberal city' (Harvey, 2009). I emphasize that the transformation was more the result of a deliberate policy by the federal government, so as to set in motion a set of institutional rigid social, political, and economic constraints (structural reforms is the euphemism) to enhance the process of rent-seeking, empirically manifested by the process of austerity & gentrification. 

Read rest here; a preliminary analysis was posted on NK here

Nassif and Feijó on why Brazil doesn't grow since the 1980s

New paper by André Nassif and Carmen Feijó in the Brazilian Journal of Political Economy (Revista de Economia Política). From the abstract:

"The main goal of our paper is to provide analytical arguments to explain why Bra- zil has not been able to restore its long-term capacity for economic growth, especially compared with its economy in the 1950-1979 period (7.3 per cent per year on aver- age) or even with a select number of emerging economies in the 1980-2010 period (6.7 per cent per year on average, against 2.3 per cent per year on average in Brazil in the same period). We build our idea of convention to growth based on the Keynesian concept of convention. For our purposes, this concept could be briefly summarized as the way in which the set of public and private economic decisions related to different objectives, such as how much to produce and invest, how much to charge for products and services, how to finance public and private debt, how to finance research and development, and so on, are indefinitely — or at least until there is no change — carried out by the political, economic and social institutions. This analytical reference can be connected to the Neo-Schumpeterian National Innovation System (NIS) concept, which emphasizes not only institutions associated with science and technol- ogy per se, but also the complex interaction among them and other institutions. In this paper we identify two conventions to long-term growth in the last three decades in Brazil: the liberal and the neo-developmental. We show that the poor performance in the Brazilian economy in terms of real GDP growth from the 1980s on can be explained by a weak coordination between short-term macroeconomic policies and long-term industrial and technological policies. This weak coordination, in turn, can be associated with the prevalence of the liberal convention from the 1990s on, which has emphasized price stabilization to the detriment of a neo-developmental strategy whose primary goal is to sustain higher rates of growth and full employment in Brazil."

 The whole issue is available here.

Gerald Friedman: The ACA and America’s Health-Care Mess

By Gerald Friedman

While it was enacted in 2010 without a single Republican vote, the Patient Protection and Affordable Care Act (ACA), a.k.a. “Obamacare,” was built model first proposed by the conservative Heritage Foundation in the 1990s and implemented by Republican Governor Mitt Romney in Massachusetts in 2006. The ACA extends the public safety net to more of the working poor but otherwise keeps the private health insurance system intact. Rather than replacing the private system—and far from the “government takeover of health care” its critics claim—it provides subsidies for individuals to buy private health insurance through state-level “exchanges.”

 Read rest here

Felipe & McCombie: The Aggregate Production Function And The Measurement Of Technical Change

 

In a recent post, see here, it was explicated that TFP only leads to confusion in mainstream analysis of economic growth. Jesus Felipe & John S.L. McCombie's new book provides an invaluable extensive analysis of the issue at hand. 

Felipe and McCombie have gathered all of the compelling arguments denying the existence of aggregate production functions and showing that econometric estimates based on these fail to measure what they purport to quantify: they are artefacts. Their critique, which ought to be read by any economist doing empirical work, is destructive of nearly all that is important to mainstream economics: NAIRU and potential output measures, measures of wage elasticities, of output elasticities and of total factor productivity growth. – Marc Lavoie, University of Ottawa, Canada

See here

Lord Keynes' List of Heterodox Blogs

Available here. A useful list of blogs, and other pages, for those interested in Post Keynesian, Modern Monetary Theory and other Heterodox discussions in economics.