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Showing posts from December, 2014

The meaning of Structuralism: a very short reply to Krugman

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Praying at the altar of the Natural Rate
So the K-man explains what's the meaning of structural variables (structural confusion indeed). In his words: "Normally, what we mean by 'structural' — usually as opposed to 'cyclical' — is 'something that can’t be cured with higher demand'." He complements this definition with a comment: "there used to be a Latin American school of thought which saw inflation as structural, but I don’t think it ever made much sense."
So first the definition. Yes, structural is the antipode of cyclical (well duh), but it is by no means something that cannot be affected (cured if you think of unemployment as a disease) by demand. The only reason to think that the trend cannot be affected by demand is because Krugman believes (based on faith, since logic and evidence are against it) on the Natural Rate. Output is supply constrained in the long run, in his view. Actually, you can bring the average rate of unemployme…

A brief and dispassionate note on 'GDP'

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The book, not the concept. I've been reading "GDP: A Brief but Affectionate History." First, I should say I personally like brief and simple. Better than long, drown-out and complex. That's why I'm not sure why it's presumed that brief must somehow be antagonistic, and brevity should be tempered by affection. At any rate, I do like the GDP concept.

It measures material production, which is a key feature of capitalist economies, centered on the accumulation of material wealth. It was not designed to measure everything. Certainly not sustainability. Or happiness, for that matter. And although Diane Coyle, author of the book, suggests that it can't be used as a measure of well-being, GDP per capita is certainly employed as an index of welfare, even though no serious (I don't mean mainstream) economist would take GDP per capita as the only indicator of development. Finally, it isn't a measure of inequality, but functional income distribution, the sha…

The Forgotten Bubble

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Over the years I've heard of a new story about the 1920s. Mostly in class comments or in the papers of my undergraduate students. First in Utah, now here at Bucknell. The notion is that the 1920-21 recession was solved by laissez-faire policies. This fits the revisionist view about the Great Depression defended by Amity Shlaes and others. In other words, the depression was prolonged by the New Deal policies (I discussed those here).

A new book by James Grant, The Forgotten Depression, suggests exactly that the recovery in 1922 was the result of the lack of government intervention. The notion is that there was no fiscal stimulus, and yet the economy recovered. By the way, the book also suggests that the cause of the recession was the Fed's policy. I guess it was the first Fed caused crisis in this view, in line with Friedman's explanation of the Depression as the Great Contraction.

There is a relatively well-know and established story about the 1920s recovery and boom, whi…

America’s wealth gap is widest on record

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From Pew Research Center:
A new Pew Research Center analysis of wealth finds the gap between America’s upper-income and middle-income families has reached its highest level on record. In 2013, the median wealth of the nation’s upper-income families ($639,400) was nearly seven times the median wealth of middle-income families ($96,500), the widest wealth gap seen in 30 years when the Federal Reserve began collecting these data. Read rest here.

How Stimulative Has Fiscal Policy Been Around the World?

So a student asked me if I wrote something about how fiscal policy should have been more stimulative after the crisis. The paper written in 2010 with Esteban Pérez seems to hold well after more than 4 years. From Challenge Magazine's short intro:
The current credit crisis and worldwide policy response have resurrected the reputation of fiscal policy. But the authors contend that it is still widely misunderstood. Many of those who now support fiscal stimulus—such as more government spending—have a limited view of its usefulness, one advocated by the pre-Friedmanite economists of the University of Chicago. It stands in contrast to the more thorough Keynesian revolution, which they argue now more than ever needs to be understood. The result has been far smaller fiscal stimulus packages than are necessary to return nations to rapid growth. I still like more the original title: All is quiet on the fiscal front. We were worried that fiscal stimulus was not big enough, and concerned tha…

New Website For Union For Radical Political Economics (URPE) Up and Running

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The official website for Union For Radical Political Economics (URPE) has been refurbished, with a new layout design, including new drop-down menus, etc. See here.

Business Schools, Liberal Arts Education and Heterodox Economics

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So we're having a discussion about the new Management College at Bucknell. Traditionally resources are the main problem in the relation between business schools and economics departments. Often, as in the University of Utah, were I was before, there are issues related to the curriculum, in particular if the economics department is heterodox. In a liberal arts environment, the issues are not only associated to resources, but also to the teaching of what is assumed to be more practical knowledge or marketable skills in a milieu in which the main goal of education is to develop the essentials for civic life, where critical thinking and the ability of learning how to learn are at the center of the curriculum.

Is it possible? Or would the management goals undermine the liberal arts experience. Note that many think that liberal arts education is doomed anyway (an old topic by the way). The fear is that students cannot (given tuition costs) afford the luxury of an education for educatio…

New Book: The 2015 Hampton Reader, Selected Essays and Analyses from the Hampton Institute

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A collection of essays and analyses from the The Hampton Institute - A Working Class Think Tank. Includes, articles by David Fields, and Hampton's most popular essays from 2013-14 in addition to exclusive content that can only be read here. From a follow-up to Sean Posey's timely analysis of Youngstown, Ohio as a microcosm of the post-industrial American "rustbelt" to Andrew Gavin Marshall's in-depth research on "the intellectuals and institutions of American imperialism," the 2015 Hampton Reader is sure to generate ideas, spark debate, and cultivate dialogue.

See here.

Book Review of Foster & McChesney's "The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China"

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The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China. John Bellamy Foster & Robert W. McChesney Hardcover: 224 pages. Publisher: Monthly Review Press (September 1, 2012). Language: English. ISBN-13: 978-1583673133

By David Fields

Over-accumulation stemming from the so-called golden age of global capitalism has ensued an era of underconsumption as exemplified by low profit rates and chronic excess capacity. As such, what has taken place is an historical transformation towards the process of financialization. With an inability to absorb effectively economic surpluses, concerning the promotion of rising wages along with productivity, NFCs, or non-financial corporations, are coerced to paying a larger share of their internal funds, specifically via debt leveraging (including consumers), to financial institutions. These financial institutions, which are increasingly concentrated in the hands of fewer and fewer people, hav…

Al Campbell on Neoliberalism as an Attack on Labor

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Izmir University Department of Economics Workshop on “The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created?"

The Chutzpah of The Economics Profession

New discussion paper by Marion Fourcade, Etienne Ollion, and Yann Algan
From the abstract
In this essay, we investigate the dominant position of economics within the network of the social sciences in the United States. We begin by documenting the relative insularity of economics, using bibliometric data. Next we analyze the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled e…

Argentina and the Vulture Funds

A short piece that appeared in the last issue of Challenge. From the conclusion:
"a rhetoric of debt forgiveness has been disseminated but indebted nations are still punished, and austerity measures are encouraged. Argentina’s fate in the hands of the vultures, like the countries in the periphery of Europe facing the austerity policies of the Troika (the European Central Bank, the European Union, and the International Monetary Fund), is just the most recent example of the limits of the globalization cum financialization process, and of the need to reform the international financial system. For now, the lesson of the Argentinean conflict with the vultures is that the American justice system asymmetrically favors the claims of creditors, and should be avoided at all costs." Read here.

ILO's Global Wage Report: Nothing to be happy about

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The GWR 2014/15 has been published and is available here. I'm sure I'll post more on it later. Here just one of the several things to take into account. Wages in advanced economies fell in 2008 and 2011, and have grown very little since the beginning of the crisis in 2008. Basically stagnated. Disaggregating by country you get the figures below.
The declines are in Japan, Italy, UK, Portugal, Ireland, Spain and Greece. Japan in eternal deflation, and the European periphery under Troika's adjustment programs. In Greece a collapse of about 24% since 2009. This is not only result of the austerity policies, but also of specific policies to reduce wages, like a 22% cut in the minimum wage for unskilled workers aged 25 and over and a 32% cut for those under 25, the weakening of collective bargaining, and the massive cuts in public wages and employment. Internal devaluation. But the recovery of the current account balance, I'd bet, is related to collapse of imports, not expa…

The mystery of productivity: what mystery?

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Another old one. Trying to catch up after the Thanksgiving break. Mainstream economists seem always puzzled by productivity. It is the source of growth and a mystery (Helpman has a book titled The Mystery of Economic Growth). They refer to trends in productivity as puzzles, in particular the slowdown after 1973.
Alan Blinder: reminds us that after the surge in productivity growth, that for a while at least was referred to as the New Economy, associated to information technologies, has collapsed to even lower levels than the 1973-1995 period. He is, as a good mainstream author, quite puzzled. In his words, "quite surprisingly and still somewhat mysteriously, productivity growth plummeted [after 1973]... We are all in the dark."

In Jeon and Vernengo (2008) we suggest that labor productivity is endogenous, explained essentially by the expansion of demand, and old idea, implicit in Adam Smith's vent for surplus, and part of a well established empirical regularity, the so-ca…

A periodization of Latin American development in the Robinsonian tradition

New Working Paper available here. From the abstract:
This paper analyzes Joan Robinson’s growth model, and then adapted in order to provide an exploratory taxonomy of Growth Eras. The Growth Eras or Ages were for Robinson a way to provide logical connections between output growth, capital accumulation, the degree of thriftiness, the real wage and illustrate a catalogue of growth possibilities. This modified taxonomy follows the spirit of Robinson’s work, but it takes different theoretical approaches, which imply that some of her classifications do not fit perfectly the ones here suggested. Latin America has moved from a Golden Age in the 1950s and 1960s, to a Leaden Age in the 1980s, having two traverse periods, one in which the process of growth and industrialization accelerated in the late 1960s and early 1970s, which is here referred to as a Galloping Platinum Age, and one in which a process of deindustrialization, and reprimarization and maquilization of the productive structure …

John Cochrane on Deflation

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This is a bit old. Cochrane, the medieval dark lord of macroeconomics (Krugman suggests he has been an example of the Dark Age of Macroeconomics), has taken issue with the notion that deflation is a big problem. He suggests that: "Friedman long ago recognized slight deflation as the 'optimal' monetary policy, since people and businesses can hold lots of cash without worrying about it losing value." He explains that the reason for fears of deflation are associated to debt-deflation (the other two arguments are less relevant, namely: sticky wages and space for a higher inflation target).

He argues, however, that debt-deflation is not a problem. For him:
"Again, a sudden, unexpected 20% deflation is one thing, but a slow slide to 2% deflation is quite another. A 100% debt-to-GDP ratio is, after a year of unexpected 2% deflation, a 102% debt-to-GDP ratio. You’d have to go decades like this before deflation causes a debt crisis."In his view, small amounts of…

Quotes

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"Of the tendencies that are harmful to sound economics, the most seductive and, in my opinion the most poisonous, is to focus on questions of distribution." Robert Lucas Jr. (see here, last paragraph).

"Political Economy you [Malthus] think is an enquiry into the nature and causes of wealth; I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation." David Ricardo (see here).

Both cannot be right.

Dean Baker on The Paid Vacation Route to Full Employment

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By Dean Baker:
The economics profession has hit a roadblock in terms of being able to design policies that can help the economy. On the one hand we have many prominent economists, like Paul Krugman and Larry Summers, who say the problem is that we don't have enough demand to get us back to full employment. There is a simple remedy in this story; get the government to spend more money on items like infrastructure, education, and clean energy. This is a simple story, but politically it is a non-starter. Few Democrats are prepared to push for anything more than nickels and dimes in terms of increased spending, nothing close to magnitudes that would be needed. As far as the Republicans in Congress, it would be easier to convert the Islamic State folks to Christianity. (We could also boost demand by lowering the dollar and thereby reducing the trade deficit, but economists don't talk about that one.) The other side of the professional divide in economics doesn't h…