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Showing posts from November, 2012

Another Cambridge debate: Keen vs. Rendhal

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Steve Keen and Pontus Rendahl did a very rare thing. they had an open debate between an heterodox and a mainstream economist. Worth checking it out. Keen linked to the audio here. Rendahl calls it a debate between Keenonomics and Metrodox Equilibrium (see here), whatever that is. If you ask me Rendahl shows the same confusion that most younger -- by which I mean educated post capital debates, and once the new notion of equilibrium (intertemporal short term equilibrium, without a uniform rate of profit) became dominant -- mainstream economists seem to be stuck with (see my previous post too).

Ramblings on 21st century macroeconomics

Guillermo Calvo wrote a post on what he thinks is the new macroeconomics. Minsky gets cited, but that's pretty much the only concession to heterodox macroeconomics. The interpretation of what the "new" macro for the 21st century should be is basically New Keynesian price/wage rigidities models cum debt-deflation (the finance and Minsky part). But even the understanding of debt-deflation is limited to the notion of sudden stops (slowdown or reversal of capital inflows).

According to him:
"many of us have been involved in developing and testing theories in which imperfections in financial markets play a central role – and coining new terms like Sudden Stop and Phoenix Miracles. The dominant view, however, was that financial crises in EMs reflected weak institutions in that part of the world, and could not possibly take place in advanced economies. Unfortunately, the subprime crisis revealed, to the dismay of many in advanced economies, especially in Europe, that the …

More on Italy: on Dean Bakers hypothesis

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Dean Baker has suggested to Krugman that one reason for the lower productivity in Italy is that actual employment was higher before the euro, or if you prefer disguised unemployment was rampant. Then with the entry in the euro several workers that were not legally hired were, and as a result it only seems that productivity fell a lot. That is, it looks like a lot more workers are not doing that much more in terms of production, when in fact the actual increase in employment was not that large, and, hence, the fall in productivity not as big. Certainly an interesting possibility. Below the employment in Italy and in France compared (1970=100).
Note that, in fact, up to the 1980s employment grew faster in Italy than in France, and by the mid-1990s this trend was reversed. While it is true that in the late 1990s, with the euro, it seems that employment again grew faster in Italy (which may be due to Dean's suggestion), note that the proportional increase is relatively small (about 3…

What's the matter with Italy? A reply to Krugman

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Krugman has noted in a recent post that productivity in Italy, when compared to France, has been dismal, particularly since the late 1990s, after the launch of the euro. He correctly points out that the size of the Welfare State should not be the main culprit, since in France it is also large (larger according to him). The graph below shows the real GDP in both countries (1980=100) in domestic currency.
Note that since the launch of the euro Italy's GDP is considerably below that of France. In other words, Italy has grown considerably less than France since 1999. The real rate of growth of France was around 1.6% while that of Italy was closer to 0.7%. It should come as no surprise for those that think that the evidence is strong for the Kaldor-Verdoorn Law, which says that productivity results from the need to innovate when the economy is close to full employment, that productivity is higher in France. It's the lack of demand, caused by restrictive policies and the need to re…

Galbraith on the Fiscal Cliff

Jamie Galbraith argues here (he appears at around minute 10) that there is no economic reason to be concerned about the fiscal cliff, and that the cause for the 'crisis' is that certain groups want to roll back social spending.

PIGS in Madrid

This is the introduction by Sergio Cesaratto at the Meeting in Madrid Economy4Youth held 22-3 November 2012. Press coverage includes here, here, here, here and here, so far. The videos are here, but some better quality videos will likely be posted.

PIGS in Madrid

By Sergio Cesaratto* (Cesaratto@unisi.it)

Dear students and colleagues, ladies and gentlemen, companeros y companeras (if I am allowed to say so), I wish first of all to thank the organisers and the supporters of this event. I believe this is a beautiful opportunity to work side by side with the young people who are fighting against the present state of things and the critical economists. This is not a conference against Europe, or of one part of Europe against the other. As people of “troubled Europe” we feel perhaps more concerned than the majority of our northern fellows. But I think that the message of this meeting should arrive especially at your young northern fellows not just asking for solidarity (a word that I per…

Changes in the international order and the current South American Economic Situation

Here, here and here are Franklin Serrano's remarks at the conference. For the Q&A session go to Revista Circus.

Eduardo Crespo on Latin American development

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Eduardo Crespo, from the Universidade Federal do Rio de Janeiro (UFRJ), at the ESHET conference.

And the rest below, which deals with the contractionary and inflationary effects of exchange rate devaluations.

On economic development in Latin America

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Roundtable remarks at the ESHET conference in Buenos Aires, with Eduardo Crespo and Franklin Serrano (h/t Alejandro Fiorito and Revista Circus). The very last remarks are in the additional video below.

Capital controls and exchange rates

This was the topic of the RBI/ADB conference in Mumbai. No particular surprises. The consensus is that capital controls affect the composition of flows, but not their volume, and even the IMF, represented by Jonathan Ostry, suggested that capital controls should be part of the tool kit used by central banks. Also, some skepticism on the efficiency of short term (or episodical controls, such as the ones used by Brazil) was raised. Of course there are still differences on what circumstances capital controls are actually necessary.

Most of the discussion was related to the use of capital controls to reduce the risk of appreciation, since in the last decade developing countries have had to deal with inflows and a depreciating dollar. Note, however, that capital controls were not thought when originally defended by Keynes and White at Bretton Woods to be necessary for reducing appreciating tendencies, but to limit capital flight (and avoid and external crisis) and provide monetary autonom…

University of Western Sidney

Sign the petition requesting the University to keep the heterodox major open here.

More on the Indian Economy

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In Mumbai for a conference sponsored by the Reserve Bank of India (RBI) and the Asian Development Bank (ADB). On my way, I read an op-ed by Arvind Panagariya in the Times of India, in which he defends that the Bharatiya Janata Party (BJP) should embrace the reform agenda, followed by Congress and by the same BJP when in power. His views [remember that Panagariya is a fairly conventional free trade mainstream economist] are fairly conventional, but interestingly he suggests that "the Indian public today fully appreciates the benefits of reforms."

The notion that the majority of the Indian people are for the Washington Consensus reforms is surprising to say the least. The basis for his proposition is very flimsy indeed. He suggests the following:
"The opposition parties had claimed that the latest package of reforms would damage millions of shopkeepers (FDI in retail), transport workers (diesel price hike) and urban households (subsidised LPG cylinders). Yet, none could …

Economic myth and meaning

Earlier this year I had posted on Triplecrisis a critique of the mainstream views of the crisis, pointing out that they were still lagging behind the heterodox discussions and had much to gain from incorporating the insights of progressive economists. One of the surprising things about the readings I did for that post was that Robert Shiller actually was not very prescient about the housing bubble. In the famous paper with Karl Case he argued, as I noted, that: “judging from the historical record, a nationwide drop in real housing prices is unlikely, and the drops in different cities are not likely to be synchronous: some will probably not occur for a number of years. Such a lack of synchrony would blunt the impact on the aggregate economy of the bursting of housing bubbles” [emphasis added].

Now, I'm reading Tom Palley's latest book, The Economic Crisis: Notes from the Underground, and discover that the phenomenon is all too common. He notes (p. ix) that Raghuran Rajan, the e…

An Alternative Vision for the Eurozone Crisis

The Eurozone crisis has been reduced, according to the mainstream diagnosis, to a fiscal crisis caused by excessive public spending and a competitiveness gap between North and South. The mainstream solution is to close this gap by means of ‘expansionary fiscal austerity’ and wage reductions. This has been admitted even by the IMF to be a dead end.

In our opinion the root of the Euro crisis lies in both the inadequate institutional set up of the Eurozone, which lacks a genuine lender of last resort and sufficiently coordinated fiscal and wage policies, and on an over-liquid and under-regulated international financial market that was more than happy to finance any imbalance - no matter how unsustainable it was.

What we had in Continental Europe were mutually dependent models of growth. The mercantilist export-led growth of the North could not have been sustained without a (remarkably easy-to-finance) debt-driven model in the South, accumulating trade deficits and private and public …

Labor Theory of Beer

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The graph above shows the number of minutes that workers have to work to buy 500ml of beer (h/t to Renata Lins of chopinhofemenino, great blog if you read Portuguese). By the way, a pint in the US is slightly less than that (around 473ml). Note that the amount of time a worker needs to work depends on the price in dollars. So, for example, China is at the bottom of the list, with workers getting to bliss (yep a General Equilibrium concept bitches) in less than ten minutes, because beer is cheap in dollars, not as a result of high wages. Japanese workers, on the other hand, with higher wages, need to work more like 15 minutes because beer is really expensive.

Heterodox economics under attack

The University of Western Sydney, where Steve Keen teaches, is proposing to shut down its economics program. For an explanation of what is going on go here.

Can we trust each other?

By Rudi von Arnim (Guest Blogger)

About four years ago, the collapse of Lehman Brothers marked the beginning of the Great Recession. The world is still reeling from the consequences of this all-encompassing financial crisis. What, though, were the causes of the crisis? Much has been said about derivatives, failed regulations and greed. These things matter, but here I would like to offer a simpler and maybe deeper explanation: Globalization forces countries to hollow out their social contracts. Reduced real wages promise gains through investment and exports, but ultimately undermine growth everywhere.

If real wages do not sustain growth globally, what can? The answer is that a global credit bubble—from California and Florida to Spain and Ireland—could, until it couldn’t any longer. The underlying trends ultimately catch up: If real wages do not keep up with productivity growth, the labor share of income is falling. The global credit bubble often manifests locally—for example, as a real…

Core and Periphery Countries: Lessons From Economic History and the History of Economic Thought

A fairly interesting meeting of historians of economic thought from Europe and Latin America will be held this year in Buenos Aires. The conference is part of the European Society for the History of Economic Thought (ESHET) activities taking place outside Europe and is the second in Latin America.  More info here. Program and papers (or at least most of them) here (h/t Alejandro Fiorito and Revista Circus).

Whatever happened to Latin American Structuralism or memories of underdevelopment

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I was at a conference organized by Luis Bértola (November 5 and 6) on the relevance of the economic ideas of Raúl Prebisch at the Economic Commission for Latin America and the Caribbean (ECLAC, pictured above), and the launch of a new website (in Spanish here; the Spanish version is for now more developed, and soon there will be a Portuguese version too) with resources (e.g. this paper on Prebisch's views on central banking and monetary policy, co-authored with Esteban Pérez) on the second (not first) Executive Secretary of that venerable Latin American institution.

In my view, ECLAC has evolved, like most institutions, partly reflecting its internal dynamics, but also reflecting the evolution of the societies in which they are inserted. In that sense, if Prebisch and the push for Import Substitution Industrialization, and also the overcoming of structural heterogeneity (the fact that the structure of production, and the patterns of consumption and exports are not in sync), domin…

Galbraith on the Fiscal Cliff

By James K. Galbraith
In the tense run-up to Hurricane Sandy, I clicked on one of those headlines that appears on the right side of the screen: “Civilization May Not Survive This, Economist Says.”

Once there, I knew I’d been had. It was about … the public debt. It cited one Lawrence Kotlikoff of Boston University, one of America’s most talented artificers, who “estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.” Compared to that, what’s a thousand mile-wide hurricane?
Read the rest here.

What to expect when you are electing

Today the United States will choose between a moderate Republican, with a pro-business agenda, or Mitt Romney. Yes President Obama has saved the economy from a 1930s like catastrophe with a smaller than necessary, but still very effective, fiscal package, and monetary easing has precluded a collapse of the banking and financial sector like the Great Depression one, but his economic views and the outlook of his policies remains to the right of Richard Nixon. Obama did not disagree with Mr. Romney that government does not create jobs, and has accepted the anti-Keynesian rhetoric of the need of reducing the fiscal deficit, even though the recovery, which is undeniable, has been very slow.

Read the rest here.

Confusion and the Failure of Marginalism

In my last post I briefly discussed the Austrian approach. One interesting point, discussed in more detail in the comments, is that several Austrians do not understand that they are neoclassical. Note that the core of neoclassical economics is the determination of prices, initially at least it was long-term prices, by the interaction of supply and demand.

I find a bit surprised that several neoclassical or marginalist economists do not understand the basics of their own theory. This confusion is compounded by the fact that several heterodox economists do not understand it either, and tend to be confused, as a result, on how they depart (when they do) from the mainstream.

I'll give you an example. If you think that prices (long-term normal prices, for those that think that these are analytically important) are determined by supply and demand, then you basically must believe that (with the exception of rigidities and other imperfections) full employment is the natural tendency of th…

On Austrian Business Cycle

This is not a topic I would normally write about. In particular, because I do not think Hayek was a particularly relevant theorist, even within the mainstream. By the way, that's the reason why within the neoclassical/marginalist school Austrians are sort of marginal. Note that marginal means that they are in the minority, but by no stretch of the imagination Austrians should be seen as heterodox [this is prove that Wikipedia, if you have doubts, is not entirely reliable. Again proper definition of heterodoxy means accepting that distribution is exogenous, and prices do not reflect relative scarcities, and that output and employment are demand determined in the long run, both positions that the Austrians would not accept].

But I got a few questions about Austrians and I think it is important to make one thing clear about their theory of business cycle, namely: it is not particularly different than mainstream theories, and is fundamentally Wicksellian in outlook, whether Austrians…