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Showing posts from January, 2015

On the blogs

The One Percent, Updated -- Greg Mankiw on Piketty and Saez inequality measures, and clueless as always. He thinks nobody noticed that inequality increased starting in the 1980s. Seriously?! It's all over the place in, for example, Jamie Galbraith's Created Unequal in the late 1990s.

Did Argentina Default? -- T. Sabri Öncü and Jorge Vilches say no. Via Yves Smith.

Q. and A. With Charles Plosser of the Fed -- Charles Plosser, Real Business Cycle and inflation hawk president of the Philadelphia Fed, fears that the Fed is retreating too slowly from its stimulus campaign. Oh well.

Graph/Table of the Week: Bernanke’s Fed and Yellen’s choices -- My URPE blog post. I fear the opposite, that the Fed will retreat to fast. Don't go over too much, but the point is WE ARE NOT AT FULL EMPLOYMENT; the natural rate (which doesn't exist, even if there is a capacity limit) is not 5.5%.

4th Quarter GDP: Happy Days Are Here Again (not) -- Dean Baker on why the annual 2.5% growth is not that …

Galbraith on Greek Hope

"Fifty-four years ago, in his inaugural address, President John F. Kennedy declared, “Let us never negotiate out of fear. But let us never fear to negotiate.” They were not the most soaring sentences in that short speech, but they were among the most important. For they signaled, deliberately and unmistakably to the Soviet Union, that the Cold War might be ended without turning hot, and that the world need not live forever under bluster, threat, and the shadow of nuclear war.

Today, Europe faces a negotiation over debt and depression. On one side there will be the young government of Greece. On the other, the financial powers of Europe and the world. Now as then, the question of fear cannot be escaped."

Read rest here.

‘Economists also need competition’

By André Orléan*

In these same columns on 4 July 2012, several major figures in the social sciences asked the French government to guarantee pluralism in all institutions engaged in research and teaching in economics. Without this pluralism, our country cannot possibly engage in informed and rigorous democratic debate. The objective at that time was to draw lessons from the 2008 financial crisis, which had demonstrated how counterproductive economic thinking characterized by excessive uniformity and an overweening self-confidence could be. Today, however, we have to acknowledge that these lessons have not been heeded: nothing has changed, either in research programs or in teaching. This is due to the monopoly position that so-called ‘mainstream’ approaches occupy today. Let us be clear: we do not in any way deny the value of these approaches, nor their influence and nor are we demanding that they be in any way constrained. However, we would argue that, both in France and abroad, ther…

Petition "For pluralism, now!"

From the Association Française D'Économie Politique (AFEP). 

"In what direction is our economic system heading ? Where are our societies that suffered violently with the turmoil going? How did we get here? How to react?

The current situation not only reveals an economic crisis, but also a profound intellectual crisis, that of economic thinking. The causes of this crisis are many, the solutions among others must rely in theoretical, practical and policy innovation. Yet there is an institutional issue which blocks the creativity with which a fast and simple political response could take place. A solution that would immediately restore vitality in the reflection on the economic and social affairs of our time: the creation of a new section of the National Council of Universities (CNU) to develop a different way of thinking about the economy."

To sign the petition and read more go here.

Mario Seccareccia on Greece and the European Crisis

Nice interview by Mario for INET. The main point in his words: "In the medium term, Greece could create some form of parallel currency set at par with the euro, like Argentina did in the early 2000s. The government in Argentina used 'patacones' to buy things and pay employees and they became quite acceptable because ultimately regular people could pay taxes with this currency. The Greeks could have a parallel national currency without altogether abandoning the euro.  So these various short-to-medium-term measures may well be available to prevent default, but, at the end, if the Greek government cannot renegotiate its crushing debt burden — without some form of debt forgiveness in however form it will be disguised — you could see a Greek default happen. If it reaches that point, I don’t think there’s anything in the Eurozone treaties that would prevent Greece from retaining the euro. In this case, it will have to learn from the experiences of dollarized countries such as …

Robert Reich on the Trans Pacific Partnership

I have posted on this topic here. For the problems of the conventional (mainstream) trade theory go here or the Ricardian here. For a discussion of alternative trade theories go here (and here).

Obama on Middle Class Economics: the Dangers of Bipartisanship

In general, progressives were happy with Obama's State of the Union address. And with good reason. He defended increasing the minimum wage, hiking capital-gains tax on the wealthy, slapping a new levy on big banks and closing a loophole which allows capital-gains tax to be avoided. All good stuff. Until he got to trade issues. From the transcripts:

More on the "Consumer Revolution"

I have noted before (and here and here) the neglect of the role of demand in more recent historical accounts of the Industrial Revolution. The typical view used to emphasize demand, like in Landes' Unbound Prometheus, but more recent accounts like Allen or Mokyr emphasize technological change and supply side forces.

Thankfully, there is a whole new literature that puts an emphasis on the so-called Consumer Revolution, in particular the work of Maxine Berg. T. H. Breen in The Marketplace of Revolution goes further and suggests that the economic reasons behind the American Revolution were also associated to the transformation in consumer culture. In his words: "What gave the American Revolution distinctive shape was an earlier transformation of the Anglo-American consumer marketplace. This event, which some historians have called a 'consumer revolution,' commenced sometime during the middle of the eighteenth century, and as modestly wealthy families acquired ever large…

What will happen in Greece?

That's the question everybody is asking. And no, I don't have the answer. But we do know thatTsipras promised to renegotiate the debt, and that Yanis Varoufakis, who has been suggested as the probable finance minister has said that the current policies are a: "kind of fiscal waterboarding policies that have turned Greece into a debt colony." You may want to read Yanis Modest Proposal, co-authored by Jamie Galbraith and Stuart Holland and linked here too. Also, this paper by Dimitri Papadimitriou, Michalis Nikiforos and Gennaro Zezza might be of interest to understand the possibilities and constraints Greece is currently facing.

On the blogs

Government spending multipliers in good times and in bad: Evidence from U.S. historical data -- Valerie Ramey and Sarah Zubairy suggest that fiscal multipliers are as large in booms as they are in recessions, with a zero bound interest rate. Their estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were large, but because government spending was great. Same thing we suggest here with Nate.

Alexander Hamilton's Comeback -- Justin Fox on Michael Lind's book on US economic history. I tend to agree on the advantages of Hamilton over Jefferson, in this respect.

The Federal Reserve and Shared Prosperity: A Guide to the Policy Issues and Institutional Challenges -- Tom Palley on bringing back the full employment goal, raising the inflation target and not hiking the rate of interest too soon.

Private Employment under Obama and Bush -- simple, but revealing graphs by Menzie Chinn.

Graph/Table of the Week: Tax in Sca…

Cuba, the United States and Our America

It often comes as a surprise to most Americans that Latin Americans generally resent that in the United States people think of themselves as uniquely American—as if the rest of the continent somehow has another name. Latin America is, in fact, a name created by the French, supported by local elites, that invaded Mexico to collect foreign debt and to try to re-establish European colonialism. The Latin heritage, being a common one between Maximilian’s new court and the Mexican people, gave the region its appellative, but a tarnished one. That is why José Martí, the hero of Cuban independence, referred to “Our America,” to contrast it with the other, the one Americans fancy as the only one.
Read rest here.

Academic freedom watch: academically disguised lobbying at the University of Kansas

I noted before the news about hiring practices at Florida State being influenced by the Koch's brothers ideological agenda. Now the news suggest that the Koch have been funding an ideologically biased center at the University of Kansas (KU). Art Hall, who worked for the the Koch's, and now runs KU's Center for Applied Economics, has been at the center of the controversy.
There is a new and troubling development in the story. Professor Hall has filed to block a group of students that wanted more information about the relation between him and the Koch brothers. Schuyler Kraus the president of Students for a Sustainable Future, the group behind the information request, suggested that: “It just seems more obvious that there’s something going on that they want to hide.” Indeed.
The connections of wealthy individuals, with strong views on the economy, funding research on economics is always problematic. Not surprisingly, this is happening at a Business School, which are often h…

Amado and Rollemberg Mollo on the ‘developmentalism’ debate in Brazil

New ROKE Paper by Adriana Moreira Amado and Maria de Lourdes Rollemberg Mollo

From the abstract:
This article analyses different approaches to ‘developmentalism,’ emphasizing their theoretical origins and identifying their different economic policy implications. Based on the theoretical and empirical characteristics of different growth regimes in Brazil (that is, export-led, demand-led, debt-led, profit-led, and wage-led), the paper recommends that Brazil adopt a ‘social developmentalist’ growth strategy. Read rest here (free download).

The NAIRU or why economics is not a serious science

This is from Watson's AER paper from last year (another version here). Same methodology he has used before, with Staiger and Stock, as far as I can tell, to measure the non-accelerating inflation rate of unemployment (NAIRU) or natural rate. The estimation is based on the Phillips curve (PC), in which inflation is the result of deviations of unemployment from its natural level, that is, essentially demand. He estimates that it is at 6.3%, but will soon return to its pre-2007 crisis level of 5.5%, basically were we are now.
Couple of things. In the estimation of the PC he does, as normally is done, include supply shock elements. My guess (results are not clearly shown in the tables) is that a good chunk of inflation is actually explained by this rather than the unemployment gap. In other words, cost matters for inflation, and whether unemployment was above 10%, as right after the crisis, or 5.6% like now, has little impact. Also, that means that the unemployment gap is basically o…

More on the National Accounts: Gross versus Value Added Exports

Yes, still teaching that. So end up thinking and reading about the stuff. At any rate, an interesting paper by Robert Johnson (here; subscription required), suggests that with the rise of global supply chains gross exports overstate the amount of domestic value-added in exports. Note that now exports have a greater content of imports, so gross trade is not a good measure of value added. Johnson says that: "estimates suggest that value-added exports are equal to 70–75 percent of the value of gross exports."
Interestingly there is more value added in services than the data on gross exports indicates, as can be seen above. In other words, manufacturers exporters tend to buy a lot of local services, and that ends up being part of gross manufacturing export numbers, undervaluing the role of valued added service exports.
The lowest value added to gross exports ratios are in East Asian countries, in the data presented South Korea and Taiwan, which is not surprising. China and Mexi…

Masters of Money: Marx

Got to see the one on Marx, which is below. Come to think about it, not only Hayek is an odd choice for a conventional view of capitalism (even Friedman, I suggested Schumpeter in the previous post, would be a better one), but also the title is a weird one. Not sure Marx was a master of money, whatever that means.

The whole thing is a bit shallow. The equalization of Stalinism and the limits of the Soviet system with Marx's theories, and even the complete lack of discussion of Marx's ideas (on that read this). Seriously, Rajan and Roubini never read Marx. No serious economics scholar of Marx was interviewed. Yes Harvey and Ali, or Zizek for that matter, are not economists, even if they have read Marx. And Marx was, above all, an economist, even if that's the field in which he is not studied anymore. Also, the notion that capitalism is just profit seeking behavior is preposterous (for more on that). On the positive side, from my perspective, the type of crisis discussed is…

Post-neo-Malthusianism -- a global demographic transition?

OK, all you Malthus enthusiasts out there, after a way-too-long hiatus, here are some of my latest graphs and interpretations:

First, let's look at global population levels since C.E. 0. The data are mostly, of course, from Angus Maddison (R.I.P.), with UN data spliced after 2008.

You can see a liftoff in the late middle ages, some acceleration in the early modern era, and an exponential explosion starting about the industrial revolution era and continuing until now. As I recently argue, this level growth is sufficient to claim that the correlated growth in aggregate demand is sufficient to explain many things, in particular the great growth in (and supply to) demand for capital to meet the aggregate consumer demand, all correlated with the English and later industrial revolutions.

Good. Now, lets look at the really interesting, at least to me, information somewhat buried in this first graph. The next graph is in log differences of the population levels, so showing the change in …

On the blogs

Don’t Bet on a Stronger Dollar -- Barry Eichengreen on why the US boom is not very strong and predictions of a stronger dollar might be bunk

The Invisible Hand of Alan Blinder -- John Komlos takes Blinder to task for his review of Jeff Madrick's book Seven Bad Ideas
‘New Keynesian’ haiku economics -- Lars Syll, partly influence by a NK post I think, reflects on the limits of New Keynesian macroeconomics

Fed shouldn't raise interest rates too quickly -- Steve Pressman and Rob Scott on... well the title gives it away. The point is household income has not grown sufficiently even if unemployment is down

Is Canada becoming a right-wing country? -- LP Rochon on the Canadian turn to the right, or not

Encyclopedia of Central Banking

So LP Rochon has edited this Encyclopedia, with Sergio Rossi.
LP sent me the entry on Bretton Woods Regime, by Omar Hamouda, as a teaser.
"Bretton Woods is a location, period of history, beginning of an era in the twentieth century, birth of an international organization, but, most of all, an international monetary system to regulate trade, peg currencies to one standard, and maintain a regime of fixed exchange- rate parity.

In July 1944 at Bretton Woods, New Hampshire, 44 nations under official British and American leadership set up economic measures for post- war reconstruction. The US dollar – pegged to gold – was approved as the new monetary standard. Two new insti tutions were also established with specific tasks: the Stabilization Fund (International Monetary Fund, IMF), a “special organization” (Horsefield, 1969, p. 39), to be a watchdog facilitating and promoting trade through monetary stabilization, and the International Bank for Reconstruction and Development (World Ba…

Masters of Money: BBC Documentary on Marx, Keynes, and Hayek

The one on Keynes below. I already noticed before that Hayek is not really an intellectual of the same stature of Keynes, or Marx one might add. In terms of Austrians, in fact, Schumpeter might be the only one that is on the same league (even if I disagree with almost everything he wrote, the exception being his discussion of the Tax State).
A few interesting people are interviewed. Peter Clarke and Will Hutton, for example, the former author of a really good book on the political struggle to develop Keynesian policies. They also have some less interesting ones, like Mervin King, the ex-governor of the Bank of England, and Ken Rogoff, of Rogaine and Braveheart fame, complaining of very high debt levels now which preclude the space for fiscal expansion ("there is no magic bullet," he says).
The outcome is not particularly good. The discussion of Treaty of Versailles and German hyperinflation is completely biased presenting a Monetarist interpretation that is not dominant amo…

Triffin Dilemma and the collapse of Bretton Woods

Harry Dexter White and Keynes at Bretton Woods
I had promised to post on this a while ago. According to Triffin Dilemma view the US economy could not guarantee the convertibility of dollars into gold at the fixed parity, since the supply of gold did not keep pace with the increase in the level of income in the world economy. The U.S., on the other hand, provided liquidity to the world economy, increasing the supply of dollars, to avoid creating a liquidity problem. So the ratio of dollars to gold was not fixed, and the parity was unsustainable. The excess supply of dollars caused, in this view, a confidence crisis. The Bretton Woods system failed because the fixed parity commitment was not credible, in the context of an expanding economy.
For heterodox Keynesians (I prefer the term classical-Keynesian), the abandonment of the fixed parities is not connected to the loss of credibility in the face of an expanding economy. This view emphasizes the role of financial liberalization in the…

The rise of vulgar economics and the end of dissent

Funny thing, the rise of vulgar economics, which I discussed before (here, here, and here; see also this and this papers for more on the topic) didn't just lead to the ostracism of heterodox approaches to economics. It also led to a significant decrease in the debate within the mainstream. Or at least is what the figure below, from the interesting blog post by Joe Francis, seems to indicate. At some point in the 1960s, more than 20% of the papers in the main journals were a reply, a comment or a rejoinder to the work of someone else. Not anymore.
It is clear that the Great Depression and the Keynesian Revolution seemed to increase debate within the mainstream, and that, as Joe says, the: "decline in debate... appears to have been associated with the emergence of a ‘neoliberal’ hegemony from the 1970s onwards." That's essentially correct.

And the decline in debate explains why Lucas could say in the early 1980s that: "at research seminars, people don't take …

Mitchell and Clark on the business cycles

Starting my seminar on business cycles this week. Mainly theories and then a discussion of both Great Depression and Recession. In the US the original authority, and the intellectual driving force of the analysis of the cycle which started at the National Bureau of Economic Research (NBER), was undoubtedly Wesley Clair Mitchell. The figure above comes from an early analysis of global cycles published in the New York Times back in 1926 (subscription required). The Times quotes him saying that there was: "a trend in the direction of a world economy in which all nations will prosper or suffer together." In other words, a tendency to a global cycle.

In fact, Mitchell is often remembered more as a founder of the NBER and of the quantification of business cycles than his role as a disciple of Veblen and a founder of American Institutionalism.* His institutionalism, however, is often reduced to empiricism. In other words, Mitchell generally is not considered as a theorist. Howard …

Is Krugman open to debate?

So I used to post some comments on Krugman's blog, but over the last few years when I post something in it doesn't get published. The Kman likes conversation, provided nobody calls him up on his bs. So in his critique of heterodox economists he said:
"So if you [presumably heterodox economist] go around claiming that model-oriented, quantitative economics gave rise to austerity mania, you’re getting the story all wrong. Worse, you are in effect covering up for the austerians’ intellectual sins." My comment was:
"Have the courage to publish my comments (which have been banned for years now). If you claim to be a serious person open to debate. Seriously, heterodoxy is NOT about model-oriented, quantitative economics giving rise to austerity. It is about a model that against logic and evidence suggests that the market returns to its natural rate unless there are imperfections. And in that sense, even New Keynesian like you that defend more fiscal stimulus miss the…

On the blogs

‘What are economists for? To make people laugh’: vale, Charlie Hebdo’s Bernard Maris -- Steve Kates on the late Bernard Maris, a post-Keynesian economist and victim of the attack on Charlie Hebdo

Unemployment and Productivity Growth -- JW Mason on productivity growth and Verdoorn's Law among other things

Secular stagnation: a neo-paleo-Keynesian perspective -- Roger Farmer on secular stagnation, Larry Summers' style, and neo-paleo-Keynesian economics (wow, is that a thing now?!)

Orthodoxy, Heterodoxy, and Ideology -- Krugman on orthodoxy and heterodoxy (as always he discusses something else, distorting the meaning of heterodox as being against formalization, and not the acceptance by the mainstream of the natural rate hypothesis and the need for imperfections; this was discussed here before and in many other posts)

Unemployment down, participation rate too

The Bureau of Labor Statistics has published the new Employment Situation Summary. The unemployment rate is down to 5.6%, and again (like in November 2014) more than 200K (252K in December, in fact) jobs were created (as I noted here a healthy recovery should create more or less double that number). But, at the same time, labor force participation rate edged down by 0.2%, and the employment to population ratio remained constant. The number of employed workers increased by a bit more than 110K, so now the rate of unemployment is falling both because some additional workers find jobs, but also as a result of less workers in the labor force. Not terrible, not good enough. My concern is that as we edge towards what the mainstream believes is full employment (aka the natural rate), somewhere closer to 5.2% or so, the pressure for less stimulative monetary policy (fiscal is a lost case right now) will increase.

PS: Note that average hourly earnings decreased a little bit. So no indication …

Sachs is wrong on Krugman and the recovery

Washed out, has-been pop icon and Bono
Jeffrey Sachs, Columbia professor and the foremost advocate for development aid to save development countries, attacks again. Back in the 1980s he was a neoliberal advisor to the governments of Bolivia (on stabilization), and Poland (on transition to a market economy, favoring the so-called 'shock therapy') among others. He was also the director of the Harvard Institute for International Development (HIID), which was basically a consultancy oriented institution, at the time of the Harvard-Russia Aid Scandal.*

Now in a recent op-ed he criticizes Krugman (and essentially anybody that believes that the current recovery in the US is not that good) on his predictions about the recovery. The argument is basically that, in spite all fears of lack of fiscal expansion, the economy has done pretty well. In his words:
For several years, and often several times a month, the Nobel laureate economist and New York Times columnist and blogger Paul Krugma…

Who reads the World Bank reports?

I don't. At least not regularly like I do with ECLAC, ILO, IMF and UNCTAD reports. There are a few ones that become highly controversial and had a broad readership, like the infamous East Asian Miracle Report back in 1993, written by a team that included Joseph Stiglitz, when the chief economist was Larry Summers, which presented the market-friendly approach to development, even if it made some concessions about the role of the State and industrial policy (basically saying that interventions that are market friendly are okay). The concessions to the role of State intervention were basically pushed by the Japanese government, that wanted to provide a theoretical framework more in accordance with its own development experience, and were resisted by the Bank's staff and the US. The market-friendly approach had been fully developed in the World Development Report 1991, the Bank's flagship publication.

Another World Development Report that was infamous was the 2000/2001 one. T…

Growth forecasts and Latin American underperformance

The Economist's growth forecast is out, available here. 2.9% for the global economy, somewhat below the IMF's forecast (in WEO, not sure if they updated that) of 3.8% for 2015. Map below shows that now the dual recovery is more complex. The US for one seems to be growing at a faster pace, even if the benefits are not felt by the vast majority, and the labor market is less tight than official unemployment indicates. Europe, and Japan continue basically stagnated.
On the other hand, most of the periphery will grow healthily. China's slowdown seems to be to a still impressive 7% or so. What region among the developing ones is the underperforming, you may ask. Drum roll, wait for it... yes, no surprise, Latin America [and for those that think that political instability matters a lot, note that the MENA region will do better]. On this one the IMF is in the same ballpark, as is ECLAC.

There are certainly effects from lower terms of trade, caused by lower commodity prices, but t…

Samuelson as a historian of economic thought

Steven Medema, together with Anthony Waterman, has published a series of papers by the late Paul Samuelson on the history of economic thought. Note that the scale and the range is more impressive than I expected. As they say in the intro:
"Paul Samuelson once referred, self-disparagingly, to 'the 5 per cent of my published papers that deal with the history of economic science' (54, 3). But D.P. O’Brien (2007, 336) regards this as a 'significant underestimate.' Nearly 140 articles, essays, or memoirs listed at the end of this volume, appearing over a period of forty-four years from 1946 to 2009 and comprising perhaps 20 percent of his scholarly publications, are clearly identifiable as studies of the history of economic thought." I only know a bit of his writings on the Keynesian Revolution, and on Marx, who he famously, and incorrectly in my view, labeled as a "minor post-Ricardian." Now I learn that Samuelson thought also that Ricardo, in his esti…

Internal devaluation and the Greek crisis

Last month, using the ILO's Global Wage Report, I noticed that real wages in Greece had collapsed by an outstanding 24% since 2009. Further, I suggested that my guess was that this internal devaluation was NOT the cause of the improvement in the current account (CA), which as can be seen below did in fact improve (2014 is an IMF estimate).
The question is whether real exchange rate depreciation, in this case a reduction of real wages, since the  nominal exchange rate is fixed (so to speak) with respect to other Euro countries, was a significant force behind the improvement in the CA balances.  Note that the improvement is basically all due to the collapse of imports, since the growth of exports (both shown below) has been basically zero (again 2014 figures are estimates).
Lower real wages had an impact, if they did, on demand, not in leading to higher exports associated to lower domestic costs. In other words, less demand associated to lower wages and a collapsing domestic econom…