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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

Financialization revisited: the economics and political economy of the vampire squid economy

20 days ago

New paper by Thomas Palley. From the abstract:This paper explores the economics and political economy of financialization using Matt Taibbi’s vampire squid metaphor to characterize it. The paper makes five innovations. First, it focuses on the mechanics of the “vampire squid” process whereby financialization rotates through the economy loading sector balance sheets with debt. Second, it identifies the critical role of government budget deficits for the financialization process. Third, it identifies the critical role of central banks, which are the lynchpin of the system and now serve as de facto guarantors of the value and liquidity of private sector liabilities. Fourth, the paper argues financialization imposes a form of policy lock-in. Fifth, it argues financialization transforms

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The Biden administration should ignore the debt ceiling

21 days ago

The administration run excessive budget deficits, and accumulated too much debt in the face of successive economic crises. As a result, it was forced to compromise politically in order to avoid a catastrophic default, and the subsequent political crisis brought about chaos, and the collapse of the established institutions. Of course, this is not a cautionary tale about the United States. It is a description of the economic crisis that led to the French Revolution.But in spite of the apocalyptical rhetoric in Washington nothing like this is even faintly possible in the case of the United States. Public debt in the US is in domestic currency, the safest financial asset, and not owed to foreign bankers or in foreign currency, which is not controlled by the administration. It is also not debt

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On the irrelevance of inflation expectations: the return of the working class

22 days ago

There are many myths about the Phillips Curve and the so-called Monetarist Counter-Revolution of the 1960s and 1970s. Forder’s book is a good read on some of these issues. Jeremy Rudd’s recent paper is also a must read, and has now been accepted for publication in the Review of Keynesian Economics (ROKE).It debunks the myth about the importance of inflationary expectations for explaining the Great Inflation of the 1970s, and casts doubts about the Monetarist Counter Revolution, the Rational Expectations one, and that would include the more recent New Keynesian developments that include a lot from both. Rudd’s paper suggests that there is a simpler explanation for the acceleration of inflation back then, and the Great Moderation since the 1990s. In his words:"Another way of stating this

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Merkel, Scholz, the German Social Democrats and the Meaning of the Left

28 days ago

Angela Merkel is stepping down, and as often happens in these circumstances (or when someone of historical importance passes; see here for my review of Thatcher and Volcker obits) there is a flood of analysis of their contributions. Merkel is no exception, and most ‘serious’ outlets have suggested that she was a great stateswoman, and that she managed to save the euro (an honor she often shares with Mario Draghi), the European Union and provided leadership in the midst of the vacuum caused by Donald Trump (see here, or here, for example). The newspaper of record, linked there, says that: "Chancellor Angela Merkel steered Europe through crises, and Germany has boomed during her tenure." I kid you not! Yes, boomed. The actual real GDP growth was about 1.1 percent during her tenure (as per

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Debt in foreign currency or Too Much Government Intervention?

September 24, 2021

[embedded content]Interview with an Argentinean radio (yes, in Spanish) on the Evergrande collapse and its possible consequences. It is clear to me that the dangers come more from having debt in foreign currency than the typical critique about crony capitalism, and the lack of credibility that The Economist, for example, has put forward. In The Economist view:Evergrande shows the importance of deeper financial reforms. But what might they look like? Liberal reformers have longed for a clean-up of bad debts, a loosening of controls over prices (including the exchange rate), transparency and independent courts that can enforce property rights. Such a system would allocate capital better and be less prey to moral hazard.Seriously. For those that think that the craze about financial

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Tom Palley on Anti-China Fever in the US

September 21, 2021

Short post by Tom on the Sinophobia that has become more common in the US with the rise of the trade wars and the pandemic. He says: "Much of the United States (especially Washington, DC) is in the grip of a contagious lethal anti-China fever which is spreading fast. Even people I usually admire and respect have become infected. Reason and facts have lost all capacity to inoculate."Read rest here.

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The End of Bretton Woods

August 14, 2021

[embedded content] End of Bretton Woods with Barry Eichengreen, myself and Lilia Costabile, organized by L-P. Rochon and the Review of Political Economy.

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Nixon ends dollar convertibility

August 13, 2021

50 years ago this Sunday. A debate with Barry Eichengreen on that today at 1pm NY time, and you can register here.
[embedded content]My paper can be read here.

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Financialization, Deindustrialization, and Instability in Latin America

August 2, 2021

New working paper at the Political Economy Research Institute (PERI). From the abstract:The paper analyzes the relation between premature deindustrialization in Latin America with what is termed premature financialization. Premature financialization is defined as a turn to finance, organized as an industrial concern, which is a vehicle for accumulation before the process of industrialization has reached maturity. This contrasts with developed countries where financialization occurs after an advanced stage of economic and social development is reached, and where the growth of the financial sector, beyond a certain threshold, can be detrimental to economic activity. The paper examines the consequences of premature financialization for investment, growth, and financial stability.Read full

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The Consolidation of Dollar Hegemony after the Collapse of Bretton Woods: Bringing power back in

July 29, 2021

Collapse, ma non troppo!New IDEAS Working Paper on the alternative views of the collapse of Bretton Woods. From the abstract:Contrary to conventional views which suggest that the collapse of Bretton Woods represented the beginning of the end of the global hegemonic position of the dollar, the collapse of the system liberated American policy from convertibility to gold, and imposed a global fiat system still dominated by the floating dollar. The end of Bretton Woods and the set of regulations that imposed capital controls were part of the agenda of many powerful groups within the US, and led to the creation of a more dollarized world. The challenge to the dollar might arise, eventually, from the decline in the United States’power to determine the pricing of key commodities in global

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The economics of New Developmentalism

July 28, 2021

New versus Classical DevelopmentalismNew paper by Tom Palley, titled “The Economics of New Developmentalism: A Critical Assessment” which has been published in Investigacion Economica. Palley argues that "the issues raised will be a key element in the 2022 Brazilian presidential election that will likely pit Ciro Gomes versus Lula in the first round. Gomes aligns with New Developmentalism. Lula inclines to Classical Developmentalism. Of course, economic analysis is just part of the development problematic. It must be reconciled and integrated with the political reality of Latin America’s unethical economic elite, its corrupted political class, and the omnipresent threat of US intervention against change that challenges the economic status quo."

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The Price of Peace by Zachary D. Carter

July 14, 2021

Each era gets its own version of Keynes. The post-war era got the sanitized biography by his disciple and friend Roy Harrod. It emphasized the somewhat late Victorian values of what he called the presuppositions of Harvey Road, Keynes’ birth place at Cambridge, representing the ethical principles that he received from his parents. Not only it avoided any discussion of Keynes’ sexuality, that was verboten at that time, and not just because Keynes’ mother was still alive, but also it was well suited to the moderate Neoclassical Synthesis version of Keynesianism that came dominate American academia and the profession with its emphasis on wage rigidities and imperfections. Lord Robert Skidelsky famously argued that Harrod’s biography was “an exercise in covering up and planting false trails”

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Laissez-faire policies, self-adjusting market system, and neoliberalism

July 9, 2021

Classical political economics was in part a discourse for the rising bourgeoisie, and as such most of its members – that accepted some version of the labor theory of value and that distribution was conflictive – were for laissez-faire policies. That was certainly the case of the Physiocrats, and of Adam Smith and David Ricardo, the two most accomplished of the British political economists.However, the classical analytical scheme did not assume full employment of labor or that the economic system was self-adjusted. Competition meant that market prices fluctuated around the natural prices, but those did not imply efficient allocation of resources. The notion that markets are self-adjusting with a tendency to full employment is a development of the last quarter of the nineteenth-century, and

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The Demise of Bretton Woods

July 8, 2021

ROPE will be hosting a special Zoom Webinar, hosted by Lilia Costabile. The webinar is on August 13, 2021, at 1 pm, NY time (Bretton Wood collapsed on August 15, 1971) . To register, please use the following link.

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Impact factor

July 6, 2021

The Review of Keynesian Economics (ROKE) Clarivate impact factor has gone up again. The five year one is a bit higher at 1.397. For a critical discussion of the role of impact factors and journal rankings see this old post from when ROKE was just 3 years old and was ranked for the first time. Next year it will be the 10th anniversary of the journal.

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Bitcoins and El Salvador

June 30, 2021

I haven’t written about bitcoin in a long while, in part because it is somewhat irrelevant, like all notions of a future dominance of private currencies (another of Hayek’s incredible blunders; more problems with Hayek here and here). Note that nation states are fine and well, and not going anywhere, and hence national currencies will remain dominant. Only a weak state without its own currency (El Salvador is dollarized; on that see here and here) would make bitcoins legal tender. But more on that later.Even though it’s discussed in my old post, let me first explain why bitcoin makes little sense as a currency. The first thing to note about bitcoiners is that they think that the state management of the currency is prone to abuse, and that the value of money, and, hence the price level (or

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From developmental to failed state

June 28, 2021

[embedded content]The talk I gave for Rethinking Economics Peru (in Spanish). Go check their website and materials here or if you don’t speak Spanish there’s a lot of interesting material in the general (in many languages) Rethinking Economics here. An older post, in English, that discusses essentially the same thing.

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The end of Friedmanomics?

June 22, 2021

Friedman’s adviseesZachary Carter, of Price of Peace fame (a good book that I recommend, btw), wrote an interesting piece on Milton Friedman’s legacy, which I think is, as Hyman Minsky said of Joan Robinson’s work, wrong in incisive ways. But even before we get to his main point, that the era of Friedmanomics is gone, it is worth thinking a bit about the way he approaches the history of ideas. This is clearly a moral tale for Carter, with good guys and bad guys. Gunfight at high noon. It is more about vision than analysis, in the terminology of Schumpeter.He starts, like Nancy MacLean in her Democracy in Chains — I discussed only tangentiallythe issue here — with Brown v. Board of Education, and Friedman’s, rather than Buchanan’s, insidious behavior favoring policies that allowed the

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Was Keynes a Liberal or a Socialist?

May 23, 2021

[embedded content]A shorter version at the ISET conference of my Will Lyons Lecture at Franklin & Marshall. And yes, I think Harrod and Skidelsky were right (not Crotty and O’Donnell). He was definitely an Asquith Liberal.

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Prebisch After ECLAC and UNCTAD

April 30, 2021

[embedded content]My talk at the Universidad Nacional de Colombia last Friday, in Spanish of course. Part of the argument is that Prebisch, contrary to what is often assumed, moved from an argument that emphasized the role of the external constraint in leading to underdevelopment during his United Nations years, to one that put the emphasis on the patterns of domestic consumption, and its negative impact on the surplus, following the literature on stagnation, in his last book on peripheral capitalism. I suggest that the change is problematic.

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Gatekeepers and herd behavior: On Tooze and the radicalization of Krugman

April 27, 2021

"But that one is holding the poop!"Adam Tooze, the author of the monumental Crashed (who was, incidentally,  student of Wynne Godley, one of my mentors), wrote a piece for the London Review of Books that has received a lot of praise. While it reviews Paul Krugman’s latest book, it provides an overview of the radicalization of New Keynesians, or at least some, that dominate both in academia, and in the corridors or power. The gatekeepers of knowledge and academic  and intellectual influence, with a close connection to power, so to speak. He tells us at the outset that Krugman, the economist that was a bulwark of free trade, even when the theories for which he received his Sveriges Riksbank Prize (aka the Nobel) suggested that some degree of intervention might be good, and that remained

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Life among the Econ: fifty years on

April 21, 2021

By Thomas Palley (Guest blogger)Almost fifty years ago, the Swedish econographer Axel Leijonhufvud (1973) wrote a seminal study on the Econ tribe titled “Life among the Econ”. This study revisits the Econ and reports on their current state. Life has gotten more complicated since those bygone days. The cult of math modl-ing has spread far and wide, so that even lay Econs practice it. Fifty years ago the Econ used to say “Modl-ing is everything”. Now they say “Modl-ing is the only thing”. The math priesthood has been joined by a priesthood of economagicians. The fundamental social divide between Micro and Macro sub-tribes persists, but it has been diluted by a new doctrine of micro foundations. The Econ remain a fractious and argumentative tribe.Read paper here.

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PKES webinars: Post-Keynesian economics and developing countries

April 20, 2021

22 Apr 2021 None –27 May 2021 NoneThe Global Financial Crisis of 2008 and the COVID pandemic that erupted in 2020 have reinforced criticisms of the main, orthodox current economic theory. At the same time, they highlighted the need for and importance of alternative approaches such as Post-Keynesian Economics (PKE). The Post-Keynesian Economics Society (PKES) is an initiative that fosters research and dissemination within the framework of PKE. Furthermore, PKES is committed to working towards a strengthening and an internationalization of heterodox economics networks. The shift to online events due to the covid crisis provides an occasion for such international collaborations. We have worked with the Italian PK network and want to convene a series of webinars with Argentinean PK scholars,

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Galbraith on the Texas Energy Debacle

February 23, 2021

This piece shows very clearly the limits to deregulation in the case of energy markets. Jamie’s oped was published in Project Syndicate, and a slightly different version is available here at INET, in which we find out that radical free market policies ended up in what he termed ‘selective socialism.’ The relevant paragraph:the price mechanism failed completely. Wholesale prices rose a hundred-fold – but retail prices, under contract, did not, except for the unlucky customers of Griddy, who got socked with bills for thousands of dollars each day. ERCOT was therefore forced to cut power, which might have been tolerable, had it happened on a rolling basis across neighborhoods throughout the state. But this was impossible: you can’t cut power to hospitals, fire stations, and other critical

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10 Years of Naked Keynesianism

February 15, 2021

A day like today back in 2011. First post here. I was at the University of Utah back then, and blogging had been going for a while, but nothing that was close to the kind of heterodox economics that mattered to me. Also, the Review of Keynesian Economics (ROKE) did not exist yet. More than 2000 posts and 4 million visits later the blog has certainly passed its peak. Interestingly enough the post with more visits is about Venezuela, but the second is less of a surprise, the one on the capital debates. Then there are popular posts on Brexit, Capitalism and MMT. It is less an instrument for teaching to me know than it was at the beginning, and I have often thought of just stop blogging. Yet at different times when I debated what to do, I would get an email, or meet a student at a conference

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New Intro to Macro with a classical-Keynesian approach

February 15, 2021

New textbook by Alex M. Thomas, from Azim Premji University, Bengaluru, India. From the back cover:Macroeconomics: An Introduction provides a lucid and novel introduction to macroeconomic issues. It introduces the reader to an alternative approach of understanding macroeconomics, which is inspired by the works of Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and Piero Sraffa. It also presents a critical account of mainstream marginalist macroeconomics. The book begins with a brief history of economic theories and then takes the reader through three different ways of conceptualizing the macroeconomy. Subsequently, the theories of money and interest rates, output and employment levels, and economic growth are discussed. It ends by providing a policy template for addressing the

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Prebisch’s Critique of Bretton Woods Plans

February 11, 2021

Prebisch, Williams and KaleckiNew Working Paper with Esteban Pérez at the networkideas. From the abstract:The name and work of Raúl Prebisch are often associated with the problem of long-term economic development in Latin America. Less well known and explored is Prebisch’s contribution to the study of the monetary and financial problems of the countries of the periphery in relation to those of the center. Prebisch analyzed the post-WW-II monetary plans of John Maynard Keynes and Harry Dexter White from the perspective of their compatibility with his national autonomous monetary policy proposal. He thought that both plans had important shortcomings that would prevent the achievement of their intended objective, international equilibrium in the balance-of-payments. The plans ignored the

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