Showing posts from August, 2014

Mundell-Fleming, Independent Central Banks, Inflation and Openness

Bucknell's Academic West (Bertrand Library in the background)
Teaching international finance this semester, after a long while. At Utah I taught mostly intermediate macro and Latin American Development for undergrads (and macro and history of thought for graduate students), and the eventual elective. But here the course was up for grabs, so to speak. Decided to use Peter Montiel's International Macroeconomics, since his books always provide competent presentations of the mainstream views, plus having worked at the IMF and World Bank, he always tries to cover real problems with plenty of developing country examples.

The limitation of the book is, as it should be expected, that the mainstream analytical view is, as Montiel's (p. x) says: "a generalized and modernized [sic] version of the original Mundell-Fleming model." The book does present in the last chapter the 'modern' intertemporal approach to the current account. In a later post I'll discuss the …

Ben Fine on British Coal Industry's Contribution To Work of Paul Sweezy

My research has delved me into the plethora of work produced by the 'Monthly Review School'. Interestingly enough, I came across this article by Ben Fine, which I found to be quite illuminating. 
From the abstract: Paul Sweezy has been a central figure in the understanding and development of Marxist political economy both in the United States and more widely in the West. For a long period, much like his counterparts in the United Kingdom, Maurice Dobb and Ronald Meek, his was almost a lone voice along with his close collaborators, most notably Paul Baran. Much has changed in the last twenty years with the renewed intellectual interest in Marxism following the student activisim of the sixties-so much that Marxism has even attained the status of academic respectability. This has meant that whilst there was always opposition to the Sweezy problematic (as represented by the “Monopoly Capital” or Monthly Review school), only in recent years has it been substantially criticised and…

Tim Dickinson on The Biggest Tax Scam Ever

Today, Tim Dickinson was on Democracy Now talking about the ways in which US Corporations have engineered a global scam to avoid tax obligations.  His article in Rolling Stone provides extensive details.

By Tim Dickinson
In July, the American pharmaceutical giant AbbVie, maker of the world's top-selling drug – the arthritis treatment Humira – reached a blockbuster deal to acquire European rival Shire, best known for the attention-deficit medication Adderall. The merger was cheered by Wall Street, not for what the deal will do to advance pharmaceutical science, but because it will empower the bigger firm, AbbVie, to renounce its U.S. citizenship. At $55 billion, the AbbVie deal is the largest in a cavalcade of corporate "inversions." A loophole in American tax law permits companies with just 20 percent foreign ownership to reincorporate abroad, which means that if a big U.S. firm acquires a smaller company located in a tax haven, it can then "invert" – that is,…

Leo Panitch on how the US still decides the future of global capitalism

Leo Panitch offers an antidote to the growing consensus that the new development bank launched by the BRICS manifests a significant challenge to US hegemony.

From The Guardian:
International attention has been diverted away from this year’s G20 meetings in Australia by the declaration from the leaders of Brazil, Russia, India, China and South Africa, at their meeting in Fortaleza Brazil this July, that they would launch a new “Brics bank”. Created by the US Treasury in the wake of the Asian financial crisis at the end of the 1990s, the G20 was designed to get the major “emerging market” states to take responsibility alongside the G7 for the “new international financial architecture”. This was seen as providing legitimacy for the continuing central role of the US in superintending a greatly expanded but increasingly volatile global capitalism Read rest here.

Elise Gould on Why America’s Workers Need Faster Wage Growth

In the previous post, see here, Matias shared an EPI video on the need for significant wage growth to curb inequality, specifically starting with raising the minimum wage. As a follow up, below is from a briefing paper by EPI economist Elise Gould.

By Elise Gould
The last year has been a poor one for American workers’ wages. Comparing the first half of 2014 with the first half of 2013, real (inflation-adjusted) hourly wages fell for workers in nearly every decile—even for those with a bachelor’s or advanced degree. Of course, this is not a new story. Comparing the first half of 2014 with the first half of 2007 (the last period of reasonable labor market health before the Great Recession), hourly wages for the vast majority of American workers have been flat or falling. And even since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline—even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth.…

If you care about inequality, raise the minimum wage

From the Economic Policy Institute (EPI). Yes wages in general should grow, starting with the minimum wage. A no brainer.

Gerald Epstein on the Fed Signaling a Possible Policy Shift

Jerry Epstein was interviewed by the Real News Network. Among other things he said that:

"Typically in the past the Federal Reserve has been inviting a lot of investment bankers and financial market economists to the Jackson Hole Conference. This year's a little different. Janet Yellen and the Fed people didn't invite so many investment bankers. Instead, they invited a bunch of labor economists, which was a big change. Nevertheless, despite signals of an apparent shift in attention towards bringing unemployment down, Fed policy still remains toothless in helping out working Americans."

Full transcripts here.

Amato and Fantacci on reforming international money

New Cambridge Journal of Economics paper by Massimo Amato and Luca Fantacci.

From the abstract:
In the face of the current crisis, there is growing demand for regulation, often invoked in terms of a ‘return to Bretton Woods’. The Bretton Woods Conference of 1944 was indeed the last explicit attempt to define a rule for international settlements. In fact, post-World War II currency negotiations gave place to a confrontation between two alternative visions of the international monetary system. The two plans set forth by the U.S. and by the U.K. embody two alternative principles: the first aims at producing international liquidity on the basis of a reserve currency (White’s plan for an International Stabilization Fund); the second aims at providing a pure means and measure for the multilateral clearing of current accounts in the form of a currency unit (Keynes’s plan for an International Clearing Union). The former has undoubtedly prevailed. However, it is questionable whether it is the…

Labor productivity comparisons

A simplified graph with the GDP per worker employed in 2013 (i.e. labor productivity) in US dollars converted to Purchasing Power Parity (PPP) is shown below.
Note that it is better than per capita income (which is more of a measure of living standards) as a measure of the economic potential of an economy, and that labor productivity avoids the pitfalls of Total Factor Productivity (TFP). The measure in PPP rather than market exchange rates distorts things a bit (but that is another issue). The graph with all the countries, and the link to the Conference Board data set here.

PS: Picture changes a little with productivity per hours worked, which is also available. For example, Norway would be slightly more productive if we used the labor productivity per hour measure.

The theory of global imbalances: mainstream economics vs. structural Keynesianism

By Tom Palley

Prior to the 2008 financial crisis there was much debate about global trade imbalances. Prima facie, the imbalances seem a significant problem. However, acknowledging that would question mainstream economics’ celebratory stance toward globalization. That tension prompted an array of explanations which explained the imbalances while retaining the claim that globalization is economically beneficial. This paper surveys those new theories. It contrasts them with the structural Keynesian explanation that views the imbalances as an inevitable consequence of neoliberal globalization. The paper also describes how globalization created a political economy that supported the system despite its proclivity to generate trade imbalances.

Read more here.

Why interest rates will (likely) stay low

Or they need to stay low. That's what the editorial board of the NYTimes says, quite correctly in my view, after the Jackson Hole speech by Janet Yellen last Friday. Yellen is more cautious and it is not exactly clear what will happen next. She said:
Earlier this year, ... with the unemployment rate declining faster than had been anticipated and nearing the 6-1/2 percent threshold, the FOMC recast its forward guidance, stating that "in determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee would assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation." As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve's dual mandate. I'm not going to try numerology or any other dark science t…

Bill Lucarelli on The Euro: A currency in search of a state

New paper concerning Euro by Bill Lucarelli
From the abstract: To understand the structural dynamics of the current eurozone crisis, it is necessary to examine the longstanding internal contradictions that the system has inherited from its inception under the Maastricht Treaty and the neoliberal strategy which has governed its evolution from the first experiments in economic and monetary union in the 1970s. A brief narrative of the evolution of the European Monetary Union yields some insights into its peculiar institutional design. More specifically, the article examines the dangerously self-reinforcing logic between speculative bond markets and cascading, deflationary policies of austerity imposed on those countries encountering severe debt crises. This examination reveals the fragile foundations upon which the eurozone was constructed [...] The stark contrast between US monetary and exchange rate policies and the straightjacket imposed in the eurozone by the ECB during the financia…

Keynesian vs. Supply-side Economics: Causality

In one graph.

Technological determinism and economic growth

Technological determinism is widespread. The Solow model basically suggests that it is technological progress, measured incorrectly as Total Factor Productivity (TFP), that drives growth. The same is true of Schumpeterian models with a demiurgic role for the innovating entrepreneur.

But technological determinism is not just typical of economics, historians too tend to accept that technology drives history. Leo Marx and Merritt Roe Smith tell us in the intro to their edited book titled Does Technology Drive History?that:
The collective memory of Western culture is well stocked with lore on this theme. The role of the mechanic arts as the initiating agent of change pervades the received popular version of modern history. It is embodied in a series of exemplary episodes, or mini-fables, with a simple yet highly plausible before-and-after narrative structure. Before the fifteenth century, for example, Europeans are said to have known little or nothing about the western hemisphere; after …

The Flaw, inequality and the financial meltdown

Marie Duggan asked me about econ films the other day. Regarding the 2008 crisis Inside Job remains essential, but another documentary about the causes of the financial crisis, The Flaw directed by David Sington, is also worth watching. Around minute 22 you can see Louis Hyman (the short clip here is the initial part of that segment), Robert Wade and Robert Frank suggest that inequality was at the heart of the crisis. You can watch the whole thing on Youtube (for a fee) or on Hulu (with adds).

PS: An anonymous reader reminded me of Inequality for All by Robert Reich linked before here.

Classic Paper by Arestis & Eichner: "The Post-Keynesian and Institutionalist Theory of Money and Credit"

Recently, (see here) Matias posted a link to Fred Lee's collection of a classic set of by papers by the late Alfred S. Eichner. He mentioned that this not a complete set of Eichner's remarkable work, and that there are plenty of other exceptional pieces; in particular is Eichner's paper with Philip Arestis: "The Post-Keynesian and Institutionalist Theory of Money and Credit." This work has influenced my research tremendously (especially concerning the authors adherence to the tradition of Veblenian Institutionalism, and their emphasis of an 'open-systems' approach to political economy).

From the Introduction (which is worth quoting at length):
The purpose of this article is two-fold: first, to identify the main elements of what constitutes post-Keynesian and institutionalist monetary theory and, second, to put forward a model general enough to encapsulate most, if not all, of the constituent elements of the post-Keynesian and institutionalist theory of m…

Alfred S. Eichner's papers

Have been posted by Fred Lee and are available here. These are not a complete set of papers and books by Eichner, and I assume that they are the ones that are part of Fred's collection. Still worth checking out.

Below the text of the New York Times obituary (the pdf of the article here). Eichner had been a student of Eli Ginzberg, who was in turn a student of Wesley Mitchell and John Maurice Clark (his not too kind comments on his teachers here), and was the link to the institutionalist tradition.
Alfred S. Eichner Is Dead at 50; Major Post-Keynesian Economist
Alfred S. Eichner, a leading member of the post-Keynesian school of economics and a professor at Rutgers University, died of a heart attack Wednesday in Closter, N.J., where he lived. He was 50 years old.

Dr. Eichner suffered the attack while playing racquetball. He was pronounced dead at Pascack Valley Hospital in Westwood.

A native of Washington, he was a graduate of Columbia College and received his doctorate in economi…

On Paul Krugman and his call to stop listening to paranoid inflationists

From Alternet:
It’s been nearly six years since the demise of Lehman Brothers “ushered in the worst economic crisis since the 1930s,” and New York Times columnist Paul Krugman would like to move on. But he can’t, and by extension we can’t, because recovery is nowhere near complete. And going for the wrong policies at this moment of fragile improvement but enduring “economic weakness” would spell disaster, and possibly “permanent depression,” according to Krugman. The years since the start of the crisis have been largely defined by two camps, the “too-muchers” and “not-enoughers,” The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now —  within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “ri…

Paul Davidson on The Gross Substitution Axiom, Heart of Mainstream Economics

By Paul Davidson, [h/t] Lars P. Syll
The gross substitution axiom assumes that if the demand for good x goes up, its relative price will rise, inducing demand to spill over to the now relatively cheaper substitute good y. For an economist to deny this ‘universal truth’ of gross substitutability between objects of demand is revolutionary heresy – and as in the days of the Inquisition, the modern-day College of Cardinals of mainstream economics destroys all non-believers, if not by burning them at the stake, then by banishing them from the mainstream professional journals. Yet in Keynes’s (1936, ch. 17) analysis ‘The Essential Properties of Interest and Money’ require that:
1. The elasticity of production of liquid assets including money is approximately zero. This means that private entrepreneurs cannot produce more of these assets by hiring more workers if the demand for liquid assets increases. In other words, liquid assets are not producible by private entrepreneurs’ hiring of addi…

Gerald Epstein on Deconstructing Fischer's Grim Economic Forecast

Gerald Epstein discusses how Fed Vice Chair Stanley Fischer's has ignored real solutions to improve the economy, like increasing wages.

Regional Reserve Funds

The last issue of the Economic Commission for Latin America and the Caribbean (ECLAC) journal, CEPAL Review, has a paper on extending Latin American Reserve Fund (FLAR; Spanish acronym). The topic of regional reserve funds has been in the news as a result of the Contingent Reserve Fund proposed by the BRICS last month.

From the abstract:

"This paper analyses the viability, implications and challenges of expanding the Latin American Reserve Fund (FLAR) to Argentina, Brazil, Chile, Mexico and Paraguay. A regional reserve fund should be viewed as one of a broad range of mechanisms offered by the international financial architecture to address balance-of-payment difficulties. A fund with resources of between US$ 9 and US$ 10 billion at its disposal would be able to cover the potential funding needs of its members in the most likely scenarios, without necessarily becoming the lender of last resort for all its members. In more extreme scenarios, the fund should be able to "broade…

Jeff Faux on Brad DeLong’s Defense of NAFTA

By Jeff Faux
Brad DeLong recently criticized an op-ed I wrote about the negative impact of the twenty-year-old North American Free Trade Agreement on American workers. The stakes here are higher and more immediate than the rehash of an old ideological dispute. This is not so much about the past as about the future. Corporate lobbyists are pushing President Obama and congressional Republicans to pass the NAFTA-like eleven-country Trans-Pacific Partnership” (TPP)—right after the November election. Since it took effect in 1994, NAFTA has been the template for the subsequent series of trade agreements that have accelerated the globalization of the U.S. economy. But its failure to deliver as promised has soured the public and many in Congress on so-called “free trade.” Getting lawmakers to swallow the TPP will be easier if its promoters can somehow make lemonade out of the NAFTA lemon. To start with, DeLong fails to tell the reader that he is evaluating a law he helped to produc…

Mishel, Shierholz & Schmitt on Wage Inequality, A Story of Policy Choices

Economists Lawrence Mishel, Heidi Shierholz and John Schmitt have published a new paper in New Labor Forum titled Wage Inequality: A Story of Policy Choices about the causes of wage stagnation and wage inequality in the United States.

Full PDF here.

Baker & Bernstein on The Incipient Inflation Freak-out

By Dean Baker and Jared Bernstein  As predictable as August vacations, numerouseconomists and Federal Reservewatchers are arguing that the nation’s central bank must raise interest rates or risk an outbreak of spiraling inflation. Their campaign has heated up a bit in recent months, as one can cherry pick an indicator or two showing slightly faster growth in prices or wages. But an objective analysis of the recent data, along with longer-term wage trends, reveals that the stakes of premature tightening are unacceptably high. The vast majority of the population depends on their paychecks, not their stock portfolios. If the Fed were to slam on the breaks by raising interest rates as soon as workers started to see some long-awaited real wage gains, it would be acting to prevent most of the country from seeing improvements in living standards. To understand why continued support from the Fed is unlikely to be inflationary, consider three factors: the current state of key vari…

Josh Bivens With Another Reminder About the Stupidity of Austerity

By Josh Bivens

[...] there are multiplier effects, so if actual federal government spending was $118 billion higher today (that’s the gap between actual and “should be” spending identified), then overall GDP would be roughly $180 billion higher. So, the policy decision to pursue austerity is costlier (in GDP terms) than just the difference between government spending levels [...] Government transfers—Social Security, unemployment insurance, food stamps, Medicaid, Medicare—are not classified as government consumption and investment spending in the GDP accounts. Instead, they show up as increased consumption spending [...] Most of the political argument has centered on the recovery phase of this cycle, simply because the actual recession began before the Obama administration took office. Further, it’s really only been since 2011 that government spending has been a truly significant drag on growth. Before then, between the Recovery Act and what we have called “ad hoc stimulus measures” (…

Kevin P. Gallagher On The Fed, Emerging Markets, & Role of The Dollar

By Kevin P. Gallagher

From Foreign Policy Magazine
Emerging-market and developing countries resented U.S. Federal Reserve Chair Ben Bernanke during his spell in office. In 2012, Brazilian President Dilma Rousseff scolded Bernanke and the Fed's loose monetary policy for creating a "tsunami" of financial flows to emerging markets that was appreciating currencies, causing asset bubbles, and exporting financial instability to the developing world. It may just turn out that they dislike Janet Yellen even more.Although it was Bernanke who started tapering the Fed's loose policy, Yellen will be the one to end quantitative easing and, eventually, raise short-term interest rates. And those could be an even bigger problem for emerging markets than the initial tsunami.Yellen's recent confirmation that quantitative easing (QE) will cease in October 2014 is the latest and firmest signal that U.S. monetary policy is reversing direction. The Fed began the year tal…

Tim Wise on African Land grabs & Responsible Agricultural Investment

Timothy A. Wise By Timothy A. Wise  Originally posted on TripleCrisis  Can land grabs by foreign investors in developing countries feed the hungry? So says the press release for a recent, and unfortunate, economic study. It comes just as civil society and government delegates gather in Rome this week to negotiate guidelines for “responsible agricultural investment” (RAI), and as President Obama welcomes African leaders to Washington for a summit on economic development in the region.
At stake in both capitals is whether the recent surge in large-scale acquisition of land in Africa and other developing regions needs to be better regulated to ensure that agricultural investment contributes to food security rather than eroding it by displacing small-scale farmers.
- See more at: Can land grabs by foreign investors in developing countries feed the hungry? So says the press release for a recent, and unfortunate, economic study. It…

Eileen Appelbaum on the Argentine Technical Default

By Eileen Appelbaum

There is no way to construe as fair the United States court ruling that Argentina cannot pay 93 percent of its creditors, unless it first pays a small group of hedge funds. It's not fair to the 93 percent of bondholders who negotiated a restructuring of Argentina’s debt in 2005 and 2010 with reduced payments. What gives Judge Thomas Griesa the right to take them hostage in order to force payment to the "vulture funds" that still demand full payment?

It's not fair to the government of Argentina, which cannot pay the vulture funds without facing demands from other creditors to be paid in full, a move which would open the country up to many billions of dollars of claims that it cannot possibly pay. Although the news media reports that Argentina has defaulted to the restructured bondholders, this is not clear. The government did make the latest $539 million payment to these bondholders, but Judge Griesa is not allowing the New York bank …

BRICS Bank mini-symposium at the IDEAS Network

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