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Showing posts from January, 2017

Beware of Trump's appointees

No, not to the SCOTUS position. I'll leave that for more qualified analysts. I'm just saying that it seems that Trump will appoint more hawkish appointees for the two vacancies on the Fed’s Board of Governors, which are part of the FOMC, that decided monetary policy (the other 5 are the Governor of the NY Fed, and governors of the rotating member banks). It seems that Trump wants higher interest rates, even if that contradicts his rhetoric about the dollar being appreciated and hurting manufacturing at home. If monetary policy turns significantly more contractionary, unless he really goes for fiscal expansion, he might after all throw the economy into a recession. So far just more uncertainty.

On the blogs

The Macroeconomics of Reality-TV Populism -- Krugman mildly critical of Dornbusch's idea of macroeconomic populism, which is good. The problem with redistribution and high wages is not that it produces a crash, at least not because of unsustainable public debt. In the case of Latin America it was always the external accounts. And he is right, it is far from clear that Trump will be a populist in that sense
Keynesian Economics without the Consumption Function -- Roger Farmer wants to get rid of the multiplier, that is, of effective demand. He says that wealth effects matter, not income effects. Beyond the question of whether it's empirically correct, I would say that Keynesian economics without effective demand (the multiplier) is not Keynesian
Festschrifts for Sraffians -- Robert Vienneau lists several books in honor of Sraffian scholars (not sure all in the list are Sraffians though; list is worth looking anyway). He suggests we are in the third generation of Sraffa scholars. N…

Voluntary unemployment: what it really means

I was teaching the conventional labor market story in the intermediate macro class last week. I showed students how, involuntary unemployment would be by definition a contradiction in terms in the neoclassical model, since unemployment, other than frictional and voluntary, was not possible in equilibrium. In disequilibrium, unemployment results from some friction or market imperfection, or a shock, but it can be solved by lower real wages.

But in equilibrium, unemployment basically means that the person, even though was looking for job, was unable to find one because it decided not to work at the given real wage. As I told students, they have accepted, more or less uncritically, from their principles textbook, the notion that involuntary unemployment does not exist. I joked that all of them accepted without knowing the idea that workers that are unemployed are lazy, and do not want to work basically (jokes aside that's actually what the model suggests).

Yesterday thisexposé of th…

Tariffs or sales tax and corporate tax reduction?

The announcement, and backtracking, on a 20% tax on Mexican imports caused a lot of confusion yesterday. I assumed like most that this was a proposal for a tariff, which would both ditch NAFTA rules and run afoul of the WTO rules. The wall and the tariff led to a cancellation of the Mexican president's trip, and a souring of the diplomatic relations. But in all fairness, it seems that this had little to do with Mexico.

The Republican Tax Plan basically is to eliminate the corporate income tax, and to substitute if with a destination based cash flow tax (DBCFT, is the clumsy acronym of the beast; on this see Jared Bernstein). The idea is that this would reduce the incentive of US corporations to relocate abroad to scape the income tax, and to basically introduce a national sales tax. The tax is border adjusted, so to speak, since imports sold in the US would pay taxes, but exports wouldn't.

So it seems to me that Trump was trying to use the GOP tax plan, that already existed, …

Adam Smith on the origins of first generation public banks

I discussed in a previous post the reasons why the Bank of England is considered a central bank, but not its precursors. I did not pay enough attention in that post to the reasons for which the early public banks were created. Adam Smith discussed that in his magnum opus. From the Wealth of Nations: “The currency of a great state, such as France or England, generally consists almost entirely of its own coin. Should this currency, therefore, be at any time worn, clipt, or otherwise degraded below its standard value, the state by a reformation of its coin can effectually re-establish its currency. But the currency of a small state, such as Genoa or Hamburg, can seldom consist altogether in its own coin, but must be made up, in a great measure, of the coins of all the neighbouring states with which its inhabitants have a continual intercourse. Such a state, therefore, by reforming its coin, will not always be able to reform its currency… In order to remedy the inconvenience to which thi…

Are Negative Interest Rates Dangerous? A debate on negative interest rates

A debate between Tom Palley and Adam Posen. From Tom's argument: A negative interest rate policy (NIRP) appears revolutionary, but its justification rests on failed, pre-Keynesian “clas- sical” economics. This claims that lower interest rates can al- ways solve aggregate demand shortages and lead to full employment. Keynes discredited classical economics by showing that saving and investment might not respond, as assumed, to lower interest rates. Read the debate here.

The Global Political Economy of Raúl Prebisch

New book edited by Matias Margulis. We have a chapter with Esteban Pérez, a new updated version of this paper really. Many interesting contributions from Eric Helleiner, Peter Ho and Robert Wade to cite three well-known scholars of development. From the blurb:
The Global Political Economy of Raúl Prebisch offers an original analysis of global political economy by examining it through the ideas, agency and influence of one of its most important thinkers, leaders and personalities. Prebisch’s ground-breaking ideas as an economist – the terms-of-trade thesis and the economic case for state-led industrialization – changed the world and guided economic policy across the global South. As the head of two UN bodies – the Economic Commission for Latin America and the Caribbean (ECLAC) and later the United Nations Conference on Trade and Development (UNCTAD) – he was at the frontline of key North–South political struggles for a fairer global distribution of wealth and the regulation of transnat…

Electoral quakes and the establishment: A new world approaching?

By Denis Melnik and Andrés Lazzarini (Guest bloggers)
As the first days of Donald Trump’s presidency unfold, the prevalent attitude to his surprising victory among the various breed of the liberal intelligentsia all over the globe is pretty much the same as it was on the morning of November 9, 2016 — that of a profound shock. Apart of purely emotional reactions (ranging from desperate ‘Bernie could have won’ to hopeful ‘Trump will be impeached almost immediately’), this shock reveals itself in attempts to rationalize what those intellectuals regard as ‘irrational’ in familiar and comforting terms. The terms were provided by what had started as a pre-election narrative postulating why a ‘bigot’, ‘misogynist’, ‘white supremacist’, ‘fascist’, etc. simply could not have won the election, and was supposed to culminate in authoritative post-election covers of Madam President’s victory. That narrative was happily going hand-in-hand with the data provided by political scientists. The latter …

On the blogs

Making America Great Again!
Rex Tugwell of FDR's Brain Trust -- by Tony Wikrent, with a paper by Tugwell on the New Deal. Tugwell was the guy responsible for taking Eccles from Utah to DC, to the Treasury, before he moved to the Fed

AD/AS: a suggested interpretation -- Nick Rowe on how you must start with Aggregate Demand and Supply to explain macro, to do it right. More on this soon, if I have time

Chart of the day -- h/t to David Ruccio, after all it's sometimes true that a chart (reproduced above) is worth a thousand words

Top 20 most productive departments of the top 100 national liberal arts colleges

So Bucknell is on that list, according to Chen Qian, Steven B. Caudill and Franklin G. Mixon, Jr. (2016) “Engaged in teaching, and scholarship too: economics faculty productivity at national liberal arts colleges,” International Journal of Pluralism and Economics Education, 7, 360-372 (subscription required).
Not sure how useful this kind of data is. Very much like the data on journal rankings discussed before, this should be taken with a grain of salt. But the schools with heterodox, or pluralist departments do relatively well, I think.

President Trump and Fiscal Policy: Austerity Big Time?

I can already see some of the cuts ;)
The Hill suggests that we should expect a huge decrease in government spending. According to them:
Overall, the blueprint being used by Trump’s team would reduce federal spending by $10.5 trillion over 10 years. The proposed cuts hew closely to a blueprint published last year by the conservative Heritage Foundation, a think tank that has helped staff the Trump transition. In all fairness, I am not, or at least was not until now, expecting big spending cuts and austerity. I expected the cuts in social programs, like say health, to be more than compensated by military and infrastructure spending. The recent historical record is that all Republicans since Gerald Ford have increased spending and the fiscal deficit. Maybe the Hill is right, and President Donald will throw the economy into a recession, following the rightwing/lunatic fringe's ideological hate of Big Government. That would make Trumponomics very different than Reaganomics. To be seen…

The “Natural” Interest Rate and Secular Stagnation

New paper by Lance Taylor in Challenge Magazine. From the blurb:
Can America recover ideal rates of growth through interest-rate policies? This important analysis suggests that most economists misunderstand the issue. Updating Keynes, the analysis suggests that fiscal stimulus, labor union bargaining power, and more progressive income taxes are needed to support growth. (The article includes some algebra, which some readers may choose to skip.) Read full paper here.

On the blogs

On Ajit Sinha On Sraffa -- by Robert Vienneau; I also recommend the reply by Heinz Kurz to Sinha available here (subscription required). In particular, Kurz takes issue with how much of the early equations Sraffa developed were influenced by Marx's schemes of reproduction, and also with the notion that Sraffa didn't deal with counterfactuals, although I would use the term ideal types for what he discusses there

Infrastructure Delusions -- Paul Krugman, who predicted before a run on the dollar (his famous phrase was "it seems likely that there will be a Wile E. Coyote moment when investors realize that the dollar’s value doesn’t make sense, and that value plunges"), predicts that there will be no fiscal expansion (to be seen). The main reason? He asks: "who really believes that this crew is going to come up with a serious plan?" Yeah, who would predict this crew would win the election, right? Hope he keeps his prediction track record intact

The Calico Acts: W…

Bill Gross and the Yield Curve

Tyler Durden at ZeroHedge, and others, are discussing Bill Gross's recent rant on his monthly letter to investors about the yield curve and the possibility of a Trump recession. Bill Gross sees in the decline of the 10-year bond rate since the early 1980s a secular (like Summers and his secular stagnation, it seems everything is secular now) trend, and concludes that the long term rate cannot go above 2.6% or so. In his words:
"So for 10-year Treasuries, a multiple of influences obscure a rational conclusion that yields must inevitably move higher during Trump's first year in office. When the fundamentals are confusing, however, technical indicators may come to the rescue and it's there where a super three decade downward sloping trend line for 10-year yields could be critical. Shown in the chart below, it's obvious to most observers that 10-year yields have been moving downward since their secular peak in the early 1980s, and at a rather linear rate. 30 basis poi…

The World Health Organization warns of outbreak of virulent new ‘Economic Reality’ virus

New paper by Steve Keen. After Paul Romer accused mainstream colleagues of using phlogiston to explain phenomena they don't understand, now we have a better working hypothesis about what is happening with the mainstream. From the abstract: A new virus, known as ‘Reality’, has started to afflict Mainstream Economists, causing them to reject the ‘as if’ arguments they used to use to justify their models. There is no known cure for the virus, and complete avoidance of ‘Reality’ is the only effective strategy to prevent infection. Read full paper here.

The Nature of Capitalism and Secular Stagnation

McCloskey, Lazonick, Despin, and Shaikh (I'm covered)
The joint AEA/URPE session was very lively, but suffered from the last minute absence of Brad DeLong. He did send the notes of what he was going to discuss here. On the topic of stagnation per se only Hans Despin suggested that it was an important phenomenon, but not necessarily for the same reasons Larry Summers and Brad De Long. It was unclear to me, however, that his views were based on a demand side story, and, hence, that this was more like Steindl would call it a question of stagnation policy. All the others, for different reasons were against the idea of secular stagnation.

Deirdre McCloskey, who said she was an Austrian economist (and no, that doesn't make her heterodox, just a different version of the orthodox marginalist approach), argued vigorously against it. I was a bit surprised that nobody pushed back on her explanation of growth as based on ideas, and the notion that the movement of the marginal productivity…

An increase in rents is behind the rise in inequality

Eileen Appelbaum
Eileen Appelbaum delivered the David Gordon Memorial Lecture at the Chicago Meetings of the Union of Radical Political Economics (URPE). The lecture, and the comments by John Schmitt will be published later in the Review of Radical Political Economics (RRPE). The gist of the argument is that ever stronger corporations use their dominant position in markets, patent and copyright protections, and their political influence to obtain favorable regulations and tax breaks to earn monopoly rents at the expense of consumers. She noted that the evidence suggests that inequality has increased more between establishments (firms) than within them, which is impressive given the increasing gap between management and plant salaries. She cited the work by Richard Freeman on how two thirds of the increase in inequality is caused by between establishment differences.

Freeman argument was made popular by his two clones story. According to him: "consider two indistinguishable worker…

ICAPE and the Future of Pluralism in Economics

ICAPE is the acronym for the unwieldy named International Confederation of Associations for Pluralism in Economics. The organization has been somewhat inactive in the recent past, but it seems ready to increase its activities in the near future under the direction of my colleague Geoff Schneider. Here are his remarks on the future of Pluralism at the last ICAPE conference at Roosevelt University in Chicago.
Program from last conference, where these remarks were presented is here.

American Economic Association Meeting in Chicago

I'm off (URPE program here). Pretty busy, and won't post for a while. Talk to each other ;)

PS: Mainstream micro is terrible at describing too, btw. And there are a few heterodox macro people that aren't that bad at describing.

Diffusion and technological change

Map above shows the spread of chess from its original invention in India to the rest of Eurasia. There is an interesting analogy here with the diffusion of a game and of technology. Technological diffusion is a slow process, but an essential one, in which a significant part of the improvements are made. Gun technology, which also started in Asia, and discussed here before, is another case in point. And sometimes the latecomer has an advantage (Gerschenkron's the advantage of backwardness, a topic also discussed by Veblen). Nothing much to say about it, just a neat map. For more on the difficulties of understanding technical change go here and here.

On the blogs

Tariffs and the Trade Balance -- In which Paul Krugman tells us that "capital flows do depend on the potential for trade in goods and services." Hm, so no possibility of capital flows associated to purely financial gain or security? Nobody holds US treasuries just because it's the safe asset in global markets?
Kansas and the myth of trickle-down tax cuts -- Jared Bernstein on Kansas experiment with supply side economics. A bit old, but worth reading
A Socialist Market Economy With Chinese Contradictions -- Lord Turner on the risk of a Chinese crisis, not caused by financial collapse (he correctly points out that: "Most of the debt is owed within the state system... and the government could simply write off bad debts and recapitalize banks, financing the operation with either borrowed or printed money"), but by capital flight