Tuesday , May 21 2019
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Matias Vernengo

Matias Vernengo

Econ Prof at @BucknellU Co-editor of ROKE & Co-Editor in Chief of the New Palgrave Dictionary of Economics

Articles by Matias Vernengo

Exchange rates and income distribution in a surplus approach perspective

3 days ago

Old paper, presented two years ago in México, and to be published soon by the university press there. In Spanish. For those interested. The model is the same (with minor changes) one used to discuss inflation, in an old paper, eventually published here in a book on Post Keynesian economics edited by Forstater and Wray. Link here.

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Forget the Natural Rate, says the Head of the Minneapolis Fed

5 days ago

Low rates are here to stay

The head of the Minneapolis Fed agrees with something that I discussed several times here (or here for the use of alternative unemployment measures like U6) in the blog, that the unemployment level (U3) is not a good measure of the slack in the labor market. Neel Kashkari says:
No one knows how many more Americans want to work. But if the job market continues to improve with only modest wage growth and below-target inflation, it can be safely assumed that maximum employment isn’t here yet and there is no present need to raise interest rates.
So we’re NOT at full employment (neutral or natural rate in their parlance) even with 3.6%. Note that a few years back they thought it was closer to 6%. Reality has an heterodox bias.

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On Karl Polanyi and the labor theory of value

7 days ago

The other great transformation

I have discussed Polanyi on the blog before, but not in great detail (see this video posted a few years back from Fred Block for a more in depth discussion). However, writing about Bob Heilbroner’s views of economics, and in particular the labor theory of value, reminded me why I have reservations about Polanyi, something that often surprises my friends, since I often cite some of his ideas, and I did put his book on the Top 10 list.Polanyi has been, indeed, one of the most influential social scientists of the 20th century, even if economists never read him. His notion that markets are embedded in society has been used by political scientists and sociologists to understand the rise of neoliberalism, and the policies of austerity that have had incredible

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The New School for Social Research at 100: A view from the Econ. Dept.

12 days ago

From a late 1990s catalogue; Lance Taylor (center), and also in no particular order

and from what I can remember (Ellen Houston, Adalmir Marquetti, myself (with goaty

on the left side), Margaret Duncan, Josh Bivens and Carlos Pinkusfeld (Orozco Room)

The New School for Social Research was founded 100 years ago by a group of academics dissatisfied with the direction of American high education. Economics was central to the early history of the New School, and my brief, very incomplete, and certainly idiosyncratic historical account emphasizes the Economics Department of what used to be called the Graduate Faculty.Thorstein Veblen, one of the founders, had written his famous Higher Learning in America, which in a sense is the original critique of the corporate university. The idea was

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Top blogs

13 days ago

Naked Keynesianism has been featured in the Top 100 Economics Blogs of 2019. I haven’t been very active, and appreciate to be included in the company of much more interesting blogs. See all here.

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Interview on Central Bank’s exchange rate policy in Argentina

19 days ago

My interview with Nicolás Fiorentino and Cecilia Camarano from Led.fm yesterday (in Spanish) on the Argentinian situation and the new central bank policy.
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I basically suggest that the new policy to control exchange rates using the IMF loans (with IMF authorization) might control the exchange rate, but will finance essentially capital flight, and tries to interfere with the elections later this year.

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Structural Change in China and India: External Sustainability and the Middle-Income Trap

21 days ago

Shouldn’t listen to the IMF anyway

New working paper co-authored with Suranjana Nabar-Bhaduri, and published by the Political Economy Research Institute (PERI) from UMass-Amherst. From the abstract:This paper focuses on the different development strategies of China and India, particularly regarding the role of manufacturing and services for long-run productivity growth, external competitiveness and financial fragility. The findings appear to support the argument that productivity improvements in manufacturing drive productivity improvements in other sectors. They also substantiate previous findings that the Indian services-led growth trajectory has had limited success in transferring surplus labor from agriculture to other sectors. Furthermore, the trajectories have affected the

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Review of Keynesian Economics on the economics of negative interest rates

25 days ago

We are delighted to announce the publication of Volume 7, Issue 2 of the Review of Keynesian Economics. We invite you to visit the website where you can read all the article abstracts and download two free articles.Over the last several years economic recovery has led to some monetary tightening in the United States, but it is likely that a future recession will restore the issue of negative interest rates to the fore of policy debate. That is also true for Europe where there has been a weaker recovery in the euro zone and the European Central Bank still has a zero interest rate. In many ways, as participants in this symposium suggest, negative interest rate policy (NIRP) is a throwback to pre-Keynesian ideas according to which interest rates can adjust private spending to a level

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Some unpleasant Keynesian arithmetic

April 11, 2019

By Thomas I. Palley (Guest Blogger)The last decade has witnessed a significant revival of belief in the efficacy of fiscal policy and mainstream economics is now reverting to the standard positions of mid-1970s Keynesianism. On the coattails of that revival, increased attention is being given to the doctrine of Modern Money Theory (MMT) which makes exaggerated claims about the economic costs and capability of money-financed fiscal policy. MMT proponents are now asserting society can enjoy a range of large government spending programs for free via money financed deficits, which has made it very popular with progressive policy advocates. This paper examines MMT’s assertion and rejects the claim that the US can enjoy a massive permanent free program spree that does not cause inflation. As

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What’s Wrong With Modern Money Theory (MMT): A Critical Primer

April 10, 2019

By Thomas I. Palley (guest blogger)Recently, there has been a burst of interest in modern money theory (MMT). The essential claim of MMT is sovereign currency issuing governments do not need taxes or bonds to finance government spending and are financially unconstrained. MMT rests on a triad of arguments concerning: (i) the macroeconomics of money financed budget deficits, (ii) the employer of last resort or job guarantee program, and (iii) the history of money. This primer analyzes that triad and shows each element involves suspect economic arguments. That leads MMT to underestimate the economic costs and exaggerate the capabilities of money financed fiscal policy. MMT’s analytic shortcomings render it poor economics. However, its simplistic printing press economics is proving a popular

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The Mueller Report

March 27, 2019

Perhaps worth reposting what I said about Russiagate, now that the Mueller Report led to no additional indictments and validated the No Collusion slogan we’re going to hear for the next year and a half.
Just a brief note on the
whole firing of Comey scandal that is still unfolding, and the
incredible degree of anxiety on the left, which somehow thinks this
means that there is a ‘pee’ tape and that Trump will be eventually impeached (here,
for example; too many of these). This is at least the second event
compared to Nixon’s firing of the Attorney General, the infamous Saturday night massacre. The other being the firing the Acting Attorney General Sally Yates.All of these is very unproductive and dangerous for progressives in my
view. It emphasizes an interpretation of the election

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Bretton Woods and corporate defaults

March 22, 2019

In the Eatwell and Taylor book, Global Finance at Risk, they had, I think, a graph with the percentage of corporate bonds in default in the US (I don’t have the book here, it’s my office). I think this is a close one, with data that is more recent (from this Moody’s report).

The graph shows corporate bond default rates (and also the speculative-grade bond defaults). Note that defaults fall significantly during the Bretton Woods era of capital controls and low interest rates.

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Galbraith on MMT and the Hyperinflation Boogeyman

March 17, 2019

From his recent piece: "Does this mean that ‘deficits don’t matter’? I know of no MMT adherent who has made such a claim. MMT acknowledges that policy can be too expansionary and push past resource constraints, causing inflation and exchange-rate depreciation – which may or may not be desirable. (Hyperinflation, on the other hand, is a bogeyman, which some MMT critics deploy as a scare tactic.)"Also, this: "And MMT is not about Congress ordering the Fed to use its “balance sheet as a cash cow.” Rather, it is about understanding how monetary operations actually work, how interest rates are set, and what economic powers the US government has. This, in turn, requires recognizing that the dual mandate is not a collection of empty words, but something that can – and should – be pursued on a

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Lara-Resende and MMT in the Tropics

March 12, 2019

So André Lara-Resende, who I discussed here before, is again writing on the crisis of macroeconomics (in Portuguese and you might need to have a subscription), and now instead of embracing the Fiscal Theory of the Price Level (FTPL), has supposedly embraced Modern Money Theory (MMT). Many US MMTers cheered this as a demonstration of the reach of MMT in other countries. I would be less cheerful.Lara-Resende, let me explain to non-Brazilian readers, was a student of Lance Taylor at MIT, and then a professor at the Catholic University in Rio, being a key author of inertial inflation, an heterodox view of inflation, that was central for the failed Cruzado Stabilization Plan back in 1986. He then participated in the successful stabilization of the economy with the Real Plan, when Fernando

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MMT and its Discontents: Again (Wonkish and Longish)

March 9, 2019

Modern Monetary Theory (MMT) has been in the news again, and for good reasons. I actually had a post with the same title back in February of 2012, hence the again in the title. But now, with the irruption of Alexandria Ocasio-Cortez in the political scene ,and with the discussion of a Green New Deal (discussed here 7 years ago) and the feasibility of higher taxes (here, also long ago, among the many on the topic) taking the center of the political debate, MMT has become trendy. The rise of democratic socialist ideas, since Bernie’s 2016 campaign, has brought the fiscal feasibility or responsibility, in the more conservative terminology, of such progressive  plans into the center of economic policy debates. Also, the fact that Stephanie Kelton a prominent MMTer is an advisor to Bernie,

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Keynesian Economics: Back from the Dead

March 8, 2019

The Godley-Tobin Lecture by Bob Rowthorn, to be published by the Review of Keynesian Economics.
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Rowthorn suggests that many Keynesian features are part of the mainstream now, in particular showing a stable Phillips Curve without a natural rate. I remain more skeptical about the return of Keynesianism within the mainstream, but worth listening to his thoughts.

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Inequality and Stagnation by Policy Design

February 18, 2019

By Thomas Palley (guest blogger)This paper argues the mainstream economics profession is threatened by theories of the financial crisis and ensuing stagnation that attribute those events to the policies recommended and justified by the profession. Such theories are existentially threatening to the dominant point of view. Consequently, mainstream economists resist engaging them as doing so would legitimize those theories. That resistance has contributed to blocking the politics and policies needed to address stagnation, thereby contributing to a political vacuum which is being filled by odious forces. Those ugly political consequences are unintended, but they are still there and show the dangerous consequences of the death of pluralism in economics. The critique of mainstream economists is

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Still time to save the euro

January 26, 2019

New book edited by Herr, Priewe and Watt. Free download at the website (both pdf and for e-reader). I’ve only seen it now, and have been reading the great chapter by Cesaratto and Zezza. But look forward to others by Uxó, Álvarez and Febrero, Priewe, Bibow, Dullien, Simonazzi, Celi and Guarascio,  and Bofinger to mention a few.Read full book here.

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On the crisis in Venezuela

January 25, 2019

I wrote a few entries over the last few years that might be useful to understand what is going on in Venezuela. This one from 2016, tries to explain how the crisis is related to an old problem, the dependence on oil exports and the balance of payments constraint. Venezuela can’t manage to get beyond the oil dependence in the boom, since a sort of Dutch Disease sets in. One can certainly blame the Chavista governments for not breaking with that dependence, but in all fairness conservative governments also were unable to do it. In the period of a fall in international oil prices a crisis normally occurs (this one is probably already worse than the Caracazo).Here for context the data on exports (note that about 90 percent of exports are basically oil, and those go mostly to the US that has

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Functional Finance, MMT and Blanchard’s Presidential Address

January 21, 2019

So Olivier Blanchard gave the AEA presidential address at the Atlanta meetings earlier this year. If you missed it you can watch it here. The paper is also here. In all fairness, there is nothing new there. He notes the famous rule by Evsey Domar about sustainability of public debt, meaning that if the rate of interest on debt is lower than the rate of growth, debt-to-GDP ratios tend to be stable and you are in no danger in pursuing active fiscal policies.Note that functional finance is in many ways compatible with Old Neoclassical Synthesis Keynesianism, and it should not be a surprise that New Keynesians accept some of the same arguments. Certainly Domar was an Old Keynesian in that mold, and although he was more difficult to classify, Abba Lerner the founder of functional finance

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A global macroeconomics – yes, macroeconomics, dammit – of inequality and income distribution

January 20, 2019

Below the text of the first Godley-Tobin Lecture by James K. Galbraith.According to an approximate count, there are 848 sub-categories in the classification codes of the Journal of Economic Literature. Of these, five relate to income inequality. Two are classed under Microeconomics: D31 ‘Personal Income, Wealth and Their Distribution’ and D33 ‘Factor Income Distribution.’ Two are classed under ‘Health, Education and Welfare’: I14 ‘Health and Inequality’ and I24 ‘Education and Inequality.’ One is classed under Labor: J31 ‘Wage Level and Structure/Wage Differentials.’Under Macroeconomics there is nothing, unless you count E25 ‘Aggregate Factor Income Distribution,’ which surely means the analysis of factor shares – Wages, Profits, Rent – also known as the functional distribution. Under

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Trade and Finance

January 14, 2019

Teaching a course on international economics (trade and finance) for international relations students. More on that later. Just wanted to post the exports to GDP ratio for the world.

This is to give students a sense of the increase in trade in the last few decades, and also the relative stagnation since the 2008 Global Financial Crisis. Note that while exports are about US$ 23 trillion in a year, the daily turnover in the foreign exchange market is about US$ 5 trillion, according to the last time I checked the BIS Report.I put the US recessions bars too. Note that it seems that US recessions always have a significant impact on the expansion of world exports.

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Heterodox Journals and Impact Factors

January 11, 2019

I blogged about journal rankings a while ago. As I said back then, journal rankings matter in decisions about grants and academic promotions, and there are biases against heterodox journals. So even if there are many problems with those measures (read previous post), they are still relevant. The Review of Keynesian Economics (ROKE), founded by Tom Palley, Louis-Philippe Rochon (now at ROPE) and myself, has now an impact factor of 0.738 in last year’s Clarivate Report (Thomson-Reuters citation index, previously known as the Science-Social Science Citation Index, SSCI), up from 0.515 in the 2015 report.For comparison, well-established heterodox journals were somewhat below, with the Review of Radical Political Economics scoring 0.377 and 0.579 in the same reports, and the Journal of

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Raúl Prebish’s Unpublished Manuscripts on the Buenos Aires Lectures on Economic Dynamics

January 7, 2019

By Esteban Pérez CaldenteyRaúl Prebish’s Unpublished Manuscripts on the Buenos Aires Lectures on Economic Dynamics edited by Esteban Pérez Caldentey (ECLAC) and Matías Vernengo (Bucknell University), have been published in the ECLAC Review, August 2018 Raúl Prebisch (1901–1986), the Second Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) which he joined in 1949 is mostly known for his long-run analysis and diagnostic of the development problem of Latin America, which he fully stated in “The economic development of Latin America and some of its principal problems” (1950), also known as Prebisch’s “Manifesto”.However, prior to joining ECLAC Prebisch also devoted a great part of his time and career the analysis of business cycles in theory and in

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The three caballeros: on populism and the economy

January 1, 2019

Cartoonish figures… and Disney toons too

With the incoming inauguration of Jair Bolsonaro in Brazil, the United States and the two largest countries in the Latin American region will have what the press has more or less universally and uncritically referred to as populist leaders in power. It has been very common in the press to compare Trump and Andrés Manuel López Obrador (AMLO) as right and left-wing populists. And although the term has not been applied as often to Bolsonaro, comparisons with Trump abound. Yet, while they do share certain characteristics, I would argue that populism is not one of them. The comparisons that make them all similar are at the end of the day caricatures.Admittedly populism is a complicated and somewhat fuzzy term. It has a complicated history, and

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A primer on the economics of immigration: a surplus approach perspective

December 25, 2018

This is definitely not my topic of research. So you may very well ask why would I venture to wrote about it, beyond the obvious reason that it is probably one of the most debated issues these days in the US, with the government shutdown being related to the now infamous wall. I am myself twice an immigrant, I descend from immigrants (my parents returned to their country of origin, but had emigrated, and on my mother side my grandfather was also an immigrant, and the same goes on my father’s side a few generations before), I might add. But that is not the whole, or the most relevant, reason.Most debates about immigration center on labor market issues, and discuss the issue analytically with the tools of marginalism. The conclusions, by definition, are the logical consequence of the

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Galbraith versus Piketty on Inequality

December 24, 2018

A new paper by James k. Galbraith has been published in Development & Change. It’s along the lines of his arguments in the Godley-Tobin Lecture delivered earlier this year, and to be published in the Review of Keynesian Economics (ROKE) in January. Basically, we need a macro story for inequality (which Piketty r-g framework tries, but ultimately fail to provide) and that the payroll data that Galbraith uses provides a more accurate measure of inequality than the tax records favored by Piketty and his co-authors.From the abstract:
This article reviews the World Inequality Report 2018, a large collaborative data project based on the work of Thomas Piketty and the late Anthony Atkinson, which critiques the entire literature of inequality measurement from survey data and purports to provide

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