Monday , May 21 2018
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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

Fernando Cardim de Carvalho – RIP

5 days ago

Fernando, Cardim for most in Brazil, and Carvalho in the US and abroad, has sadly passed away. I took his macro class back in 1992 at the Federal University in Rio, before he actually moved there definitely as full professor two years later. We used his book Mr. Keynes and the Post Keynesians (still somewhere here in my bookshelf) as a textbook, even though most of the course was based on several papers.From that period I remember reading his papers on time and expectations, which were two of his main concerns within post-Keynesian economics. Although much of his course was theoretical, most of his later work seemed to be related to the workings of international financial institutions, and real world macro issues. He wrote extensively, and there are papers on the role of the IMF, and

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Top Blogs

6 days ago

No ‘On the Blogs’ section last Sunday (was traveling) and slow to react to events (at a pedagogy seminar for a couple of days, learning about teaching techniques). At any rate, the good news is that Naked Keynesianism has been featured in the Intelligent Economist’s Top 100 Economics Blogs of 2018. According to them they have "made an effort to create a well-balanced list which contains blogs of all kinds political affiliations, schools of economic thought, and beliefs, in particular by focusing on smaller blogs and female economists." Pluralism does work, after all.

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A brief comment on the Argentinian Crisis

11 days ago

This was faster than even I expected (for my views on what Macri meant as soon as he was elected see this and for a more recent assessment go to this post). Let me first say that I don’t think is quite like the 2001/02 crisis. It is unlikely that there will be a default anytime soon. The level of reserves is at about US$ 56 billion, and the IMF is happy to finance the very Neoliberal government of Macri (because the IMF has changed a lot, remember?).The economy with Macri has not performed very well, as expected. Inflation has remained high, since the depreciation of the peso has persisted, and that was no accident. It allowed to erode real wages, which I noted from the beginning was part of their goals. Also, the rate of growth has been lackluster, and if the IMF is to be believed real

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On the Blogs — The Video Edition

15 days ago

Political Economy of World Systems (PEWS) Conference 2018

Steve Keen on Alternative Foundations for Macroeconomics — Lord Keynes posted a video by Steve Keen

Bill Mitchell on the failure of economics — Lars Syll linked to a lecture by Bill Mitchell

Life and Thought – Immanuel Wallerstein — Jan Milch sent me the link to this video about Immanuel Wallerstein (both of us depicted above in the recent PEWS conference)

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Corporate Debt in Latin America and its Macroeconomic Implications

16 days ago

New paper by Esteban Pérez and co-authors published by the Levy Institute. From the abstract:
This paper provides an empirical analysis of nonfinancial corporate debt in six large Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), distinguishing between bond-issuing and non-bond-issuing firms, and assessing the debt’s macroeconomic implications. The paper uses a sample of 2,241 firms listed on the stock markets of their respective countries, comprising 34 sectors of economic activity for the period 2009–16. On the basis of liquidity, leverage, and profitability indicators, it shows that bond-issuing firms are in a worse financial position relative to non-bond-issuing firms. Using Minsky’s hedge/speculative/Ponzi taxonomy for financial fragility, we argue

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The end of neoliberalism?

17 days ago

A while ago I promised to return to this topic and discuss Mirowski’s reply in the INET debate to my comment on his paper. And yes it’s been quite a while since that debate. At any rate, I was at the Political Economy of World Systems (PEWS) conference last weekend, and we had some time to discuss Wallerstein (with him, I’m glad to say), his views on the structural crisis of capitalism. And someone (can recall who did) said something to the effect that the collapse of the economy in 2008 and the events after that (particularly the European situation with Brexit and the rise of right wing populism) suggest that the Neoliberal era is over (that was the title of a subsection of a chapter in David Harvey now classic book on Neoliberalism).So let me tackle that issue, captured beautifully

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On the Blogs — The Macro Edition

22 days ago

Did macroeconomics give up on explaining recent economic history?– Simon Wren-Lewis on the Phillips Curve, the time varying NAIRU, Cowles metrics versus VARs and more. ROKE published a paper by him a while agoFiscal Rules: Make them Easy to Love and Hard to Cheat– From the IMF blog, suggesting limits to spending, and to the size of fiscal deficits as in the European Union. It’s more abut the rules really, but also a reminder of how much the IMF has changed… not! For a discussion on how much the IMF has changed go hereLow Bond Yields Have Little to Do With Lax Monetary Policies– Lars Christensen for Bloomberg on mainstream views about the low natural rate of interest, meaning higher savings from an older population (i.e. a loanable funds theory of interest determination). On the

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The Italian crisis in historical perspective

24 days ago

In one graph. Source is this twitt from Gennaro Zezza. Real consumption per capita, not GDP (just making sure nobody gets confused).

Note that while the crisis is considerably less profound (right axis for the current one), it is already going to be considerably more prolonged. Not sure what’s worse really.

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The Wall Street Journal and the future of Greece

26 days ago

Greece’s Business Prospects Brighten After Lost Decade. Or so says the Wall Street Journal. I fail to see how. And the graph below is their illustration.

Note that the reason for the brighter situation is merely that it has stopped falling. I had a similar graph not long ago comparing it just with the Depression in the US.

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On the blogs – Labor Theory of Value (LTV) Edition

29 days ago

Marx’s Refusal of the Labour Theory of Value– David Harvey on Marx and the LTV

Marx’s law of value: a debate between David Harvey and Michael Roberts– Michael Roberts reply to the post above (Harvey’s further response is also linked)

Sraffa and Marxism or the Labor Theory of Value, what is it good for?– old post by yours truly, which I offer (for now) in lieu of an actual post on the above debate, since I think there are problems with both views

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Business Cycles in the Modern World System: Past, Present and Future

April 18, 2018

In case anybody is in the area around New York, the Program of the PEWS conference below.
Thursday, April 26, 2018 — 4:30 – 5:20 p.m.

Reception in the DiMenna-Nyselius Library Room 107 C

5:20 p.m.

Formal Opening of the Conference Library Multimedia Room

Welcome: Eric Mielants (Sociology)

Katsiaryna Salavei Bardos (Finance)

Introduction of Keynote Speakers

Dean Greenwald (CAS)

Immanuel Wallerstein (Sociology, Yale University)

“Cycles Within Structures versus Structural Crises”

Matías Vernengo (Economics, Bucknell University)

“From Financial Instability to Secular Stagnation”

Friday, April 27, 2018

9 – 10:30 a.m. DiMenna-Nyselius Library Multimedia Room

Panel 1: Theoretical Models and Business Cycles

Moderator: Michael Puleo (Fairfield University)


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Corporate tax cuts use in one graph

April 17, 2018

So it seems that a good chunk of the GOP/Trump tax cuts will go to buybacks, and to fuel the bubble in the stock market, according to Robin Wigglesworth in the FT (subscription required). Bad news for those that think that higher earnings lead to higher investment (meaning gross formation of capital). My impression is that if you want tax cuts to be stimulative, you should target consumption, in particular for lower income groups, which tend to spend a higher proportion of their income.

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On the Blogs—The Inequality Edition

April 15, 2018

Why So Few American Economists Are Studying Inequality—Alana Semuels at the Atlantic provides a nice summary of the problems in the profession, and cites the work by a few economists like Jamie Galbraith and the two cited below (Milanovic and DeLong)Chinese income distribution in 2002-3 and 2013—Branko Milanovic on how Chinese inequality, did not increase much in that period, even though it is high, and how it converged to the US levelsGlobalization: What Did Paul Krugman Miss?—Brad DeLong more on globalization really, but there again, globalization has been at the core of the debates on inequality (how much it hurt the Rust Belt here, or how it raised incomes in the South, China and India mostly)

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More on China and the US

April 12, 2018

So, if there is a reason for concern regarding China in the US, it is definitely the use of their developmental state to promote technological innovation.

And as the graph shows they are catching up on spending, at least. I’m not sure I agree with the WSJ here, but they are certainly moving into high tech areas like AI.

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China and US Trade Tensions in one graph

April 10, 2018

The graph below illustrates the reasons for the concerns in the US and the somewhat erratic, but more combative position of the Trump administration.

Note, also, that China is closing the gap on R&D spending and on the technological front, at a faster pace that I would have predicted (more on that for a later post).

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Modern Money Theory (MMT) vs. Structural Keynesianism

April 9, 2018

By Thomas PalleyA journalist sent me some questions about MMT. My answers are below. 1. What are the major flaws you see within Modern Monetary Theory? (A.) I like to say that MMT is a mix of “old” and “new” ideas. The old ideas are well known among Keynesian economists and are correct, but the new ideas are either misleading or wrong.The essential old idea, which everybody knows, is government has the power to issue money. We used to talk of “printing” money. In today’s electronic world we talk about “keystroke” money created by electronic credit entries.Everyone knows that because government has the capacity to create money, it can always pay its bills and debts by printing money. But having the capacity is not the same thing as saying it should, which is the beginning of where MMT

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On the blogs — The Measurement Edition

April 8, 2018

Here are 15 Common Data Fallacies to Avoid– Jeff Desjardins at Visual Capitalist on some common mistakes. I like the McNamara fallacy, which is probably common in economics

Welfare Versus GDP: What Makes People Better Off– Geoffrey Bannister and Alexandros Mourmouras at the IMF blog on alternative measures of well-being

Inequality and Poverty– Chris Dillow at Stumbling and Mumbling on the limits of the Gini coefficient

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A predator–prey model to explain cycles in credit-led economies

April 6, 2018

A paper in the new issue of ROKE by Óscar Dejuan and co-author. From the abstract:
This paper develops a predator–prey model to explain cycles in credit-led economies. The predator is the part of the financial sector that issues credit money for non-output transactions. It increases the indebtedness ratio and inflates bubbles that eventually have a negative impact on the real rate of growth (the prey). From this basis, we build a couple of models that may lead to self-contained or explosive cycles. Even in the first case, there is a risk of a financial collapse when certain variables move far away from their long-term equilibrium positions. In order to tame the cycle and avoid extreme positions, governments should ban the expansion of credit money for the purchase of assets and

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Employment losses in historical perspective

April 5, 2018

My colleague Chris Magee sent this graphs around about employment losses during different recessions. The first one below show all the recession from the 1970s onwards.

The next one, which I modified to show just the Great Recession and the Great Depression, is below, and gives a sense of the dimension of the Depression.

The sheer size of the Depression is impressive. Even though the last recession is an outlier, it pales in comparison with the Great Depression. You can see in the graph very clearly the Roosevelt recession of 1937-38, and also the fact that the recovery was very slow, even though as one can see from the graph above the current recovery was also slow, by historical standards.I’m not sure what lessons Chris derived from his graphs, but I would argue that is safe to say

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On the blogs — Economic History Edition

April 1, 2018

When did sustained growth start?– Dietrich Vollrath on a paper by Jane Humphries and Jacob Weisdorf, in which they show the increase in real wages in the 1600s and preceding the Industrial RevolutionDo we really care whether the profits from American Slavery were reinvested to spur faster growth or not?– Brad DeLong on Gavin Wright’s presentation on the topic of the centrality of slavery for economic growth and the Industrial RevolutionWhat Happened to The Standard of Living During the Gilded Age?– Bradley Hansen on living standards during the latter part of the 19th century in the US (he suggests the situation was not as bad as some historians think)

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Goodbye Lula, Hello Failed State

March 31, 2018

"We are building the Anti-Lula."

"So are we."
In October 2002, Luiz Inácio Lula da Silva won Brazil’s presidential election and famously argued that hope had defeated fear. In fact, to preempt the fears of local and international finance elites, which threatened capital flight if the Workers’ Party (PT) candidate won, Lula had already signed the infamous “Letter to the Brazilian People” in which he pledged to follow relatively orthodox economic policies. Predictions about his government, and the global economy in general, were not particularly optimistic; fear was greater than hope in many quarters.Sixteen years later, Lula—the leading candidate in Brazil’s October 2018 presidential election—has been convicted on corruption charges and could be jailed as soon as April 4, officially

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The uses and abuses of economics

March 29, 2018

Alan Blinder wrote a few days ago in the Wall Street Journal that economic theory has been often abused by politicians. He refers to what he calls the Lamppost Theory of Economic Policy, the notion that: "Politicians use economics the way a drunk uses a lamppost—for support, not illumination." His concerns are fairly conventional. He says:
By 2020, higher spend­ing and tax cuts will push the fed­eral bud­get deficit above 6% of gross do­mes­tic prod­uct—higher than it ever was in the Rea­gan years. Even deficit doves like me think that’s far too high ab­sent a re­ces­sion. Pres­i­dent Trump may be tak­ing the U.S. into a mul­ti-­front trade war, against the ad­vice of al­most all econ­o­mists. And Amer­i­ca’s po­lit­i­cal lead­ers refuse to en­act a car­bon tax, the rem­edy for

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Is the US hypocritical to Criticize Russian Election Meddling?

March 26, 2018

By Thomas PalleyThomas Carothers has recently written an article in Foreign Affairs, the prestigious elite journal published by the US based Council on Foreign Relations. The article asks is the US hypocritical for criticizing Russian election medlling? Given the place of publication, the unsurprising conclusion is it is not. The problem is the US is a champion meddler. Consequently, the argument crumbles every time Mr. Carothers reaches for substance.
At the end of the day, the defense reduces to the claim that we (the US) are good and they are evil, so that our meddling is a net good and theirs bad: “the trends of US and Russian behavior are divergent, not convergent – with Russia on the negative side of the divide.”That is a moral superiority defense which is doubly flawed. First,

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On the blogs

March 25, 2018

U.S.-China Relations in the Age of Trump– An old post by James Fallows, from December 2016, but that I think makes sense to re-read now, after the trade wars with China have been really ignited. Btw, I also recommend Fallows last book, which was on China;

Managing Debt Vulnerabilities in Low-Income and Developing Countries– Tao Zhang at IMF blog on debt vulnerability in developing countries. I wouldn’t read too much on their preoccupations, and not even sure they know what the dangers are

Rethinking macroeconomics– Martin Sandbu on the series of papers published by the Oxford Review of Economic Policy. Not very fond of the exercise which follows Blanchard’s don’t throw the water with the baby approach (meaning keep the natural rate hypothesis)

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NAKED KEYNESIANISM 2018-03-23 21:12:00

March 23, 2018

Ilene Grabel’s new book, When Things Don’t Fall Apart: Global Financial Governance and Developmental Finance in an Age of Productive Incoherence, is out. From Dani Rodrik’s Foreword:
“It happens only rarely and is all the more pleasurable because of it. You pick up a manuscript that fundamentally changes the way you look at certain things. This is one such book. Ilene Grabel has produced a daring and delightful reinterpretation of developments in global finance since the Asian financial crisis of 1997–1998.”
From the jack description:
In When Things Don’t Fall Apart, Ilene Grabel challenges the dominant view that the global financial crisis had little effect on global financial governance and developmental finance. Grabel’s chief positive claim is that the global crisis induced

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On the blogs

March 18, 2018

A response to David Laidler’s review of Macroeconomics and the Phillips curve myth– James Forder on the arguments of his book on the Phillips CurveWhat to Watch on Jobs Day: Putting wage growth in perspective– Elise Gould on a paper on wage stagnation
Outburst of conventional wisdom on trade merits caution– Greg Hannsgen on the recent steel tariffs

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GDP growth in Latin America

March 15, 2018

Writing a paper on Latin America. Nothing particularly relevant to report. I was just checking the date. Many sources to get the data. I suggest both the World Bank Development Indicators and the Conference Board Total Economic Database. At any rate, below GDP growth from the Golden Age (after the Korean War and up to Debt crisis) to the Neoliberal Era (starting in the 1990s).

Clearly growth has been more volatile and at lower rates. So much for the notion that Neoliberalism works.

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Classical Political Economics and the History of Central Banks

March 12, 2018

As promised not long ago, here a short paper on the history of central banks presented at ASSA meeting in Philadelphia. The paper is short, given the submission policy. It discusses the growing literature on the origins of central banks, and essentially disagrees with Charles Goodhart, who is the authority on the topic.The conventional argument is that central banks only become effectively central banks in the late 19th century when a concern with financial stability was developed and the function of Lender of Last Resort (LOLR) was more formally established. The notion is that up to that point central banks were essentially concerned with profit making, as private institutions, and that only when a concern with financial stability as a public good was developed is that they can be

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On the blogs

March 11, 2018

Trying to resurrect my brief look at blogs during weekends. So here are three post/entries/op-ped pieces worth reading (look at this space for three or four of these every Sunday):Will bourgeoisie ever rule the Chinese state?– Branko Milanovic on Arrighi’s question. Funny thing is this weekend I was re-reading Adam Smith in Beijing, since I’m giving one of the keynote speeches at the Political Economy of World Systems (PEWS) meeting in April at Fairfield University (the other being Immanuel Wallerstein. Btw, looking at my notes on the side of the book, I seemed to complain back then (bought the book in 2009 in NY) the absence of a discussion of the Fiscal-Military State in Arrighi.Trump’s steel tariffs are mere political theater– James Galbraith’s piece on The Guardian. More or less

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