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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

Functional Finance, MMT and Blanchard’s Presidential Address

1 day ago

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

2 days ago

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

9 days ago

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

11 days ago

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

15 days ago

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

21 days ago

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

28 days ago

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

29 days ago

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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Financialization and the low burden of public debt

December 13, 2018

Financialization is a fuzzy concept. There are many definitions, and none is clear cut, at least to characterize the changes of the last 40 years or so, which is the period most authors associate with financialization. I’m not suggesting it’s not a useful concept though.* In some sense, financialization refers to the last phase in the capitalist system (even if there are ways in which one might argue that capitalism was always financialized).

At any rate, going to the point I wanted to make, the financial burden of public debt went down in the 2000s, but that is not necessarily a good sign. I was trying to check the financial burden of public debt (i.e. the total spending on interests, out of total current spending) in the United States. The figure above shows that the

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Middle Income Trap or the Return of US Hegemony

December 12, 2018

Short essay in Spanish for the special (40 year anniversary of the journal Coyuntura y Desarrollo, published by the Fundación de Investigaciones para el Desarrollo, FIDE). It is essentially a critique of the concept of middle-income trap and the idea of how the demographic transitions (discussed here before) affect the process of development. It suggests that the deindustrialization of the Latin American periphery results as much from the decisions in the hegemonic country to open up China, as from the decisions of the local elites to adopt neoliberal policies to punish its labor class. It is also noted that the deindustrialization of the central countries (particularly the US) should be taken with a certain degree of skepticism (see this old post), since manufacturing output went up

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Garegnani on Sraffa and Marx, with an intro by Petri

December 1, 2018

The Review of Political Economy has done a great service to those interested in political economy, and in particular those concerned with the revival of the surplus approach. It has published the manuscript of Pierangelo Garegnani’s unpublished paper.From Fabio Petri’s introduction:
In the last year of his life, Pierangelo Garegnani (1930–2011) worked on revising a paper on Marx’s labour theory of value drafted 30 years before, which had remained unpublished. This revised paper is what is reproduced below. 

The paper had been read at a 1980 Conference on Marx in Bielefeld, Germany. It was a new version, in English, of the paper ‘La teoria del valore: Marx e la tradizione marxista’, published, together with an early Italian version of Garegnani (1984) as well as some other material,

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Jamie Galbraith on Robert Skidelsky’s new book Money and Government

November 26, 2018

The review was just published in American Affairs.

The Past and Future of Political Economy

by James K. Galbraith

In this remarkable work, Robert Skidelsky—historian, biographer, and tribune of Keynesian ideas in the House of Lords—unites his experience, knowledge, and talents in a sweeping account of money and power. His topic is not money and power in the familiar (one might say Trumpish) sense of the use of one to obtain the other. Rather, he presents an intellectual history of the control over money as an instrument of state power.Whether money ought to be conceived as such an instrument is a matter of historic controversy and remains a contested theme in political economy. On one side are those who justify government control over money as a tool of policy: mercantilists,

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Arguments for austerity, old and new

November 21, 2018

Here what I think may be is Fernando Cardim de Carvalho’s last published paper (who passed away recently), published in Intervention. From the abstract:
Much of the criticism directed at austerity programs implemented after the 2007/2008 financial crisis, more forcefully in the eurozone, have relied on the same arguments Keynes and others raised against the (British) Treasury View developed in the 1920s and 1930s. Austerity, however, has been proposed most insistently in the 2010s by European authorities, led by the German Federal Ministry of Finance, the Bundesfinanzministerium (BMF). While the arguments for austerity then and now share some common elements, there are enough original arguments being presented by the BMF to make many of the criticisms ineffective. The paper reconstructs

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Heterodox Central Banking in the Periphery

November 11, 2018

Our paper with Esteban Pérez on Prebisch’s missions as a Money Doctor during the Fed-led missions directed by Triffin to Paraguay and Dominican Republic has been publish in Research in the History of Economic Thought and Methodology. From the abstract:
Traditionally, monetary policy in Latin America followed the recommendations of the missions of the monetary “doctors” who defended an independent central bank and a pro-cyclical monetary policy, adhering to the automatic adjustment of the gold standard. A key function of central banks was to support fiscal stability. The effects of the Great Depression and its aftermath in the periphery countries questioned these recommendations and gave way to a shift in monetary policy. An illustrative example is provided by the creation of the Central

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The End of Brazilian Democracy

November 2, 2018

As noted in my previous post on this, there was a good chance that the Neo-Fascist candidate Jair Bolsonaro would win the election in Brazil. And he did, with approximately 39 percent of all votes. There are only a few things that I want to point out about this.

The Workers’ Party (PT) candidate received about 32 percent of all votes. Note that 29 percent or so did not vote, in one way or another. So PT maintained almost one third of the electorate in this election, while its rival in the previous 6 elections (PT was the winner or close runner up going back to 1989), the Social Democrats (PSDB) have vanished. And the defeat of PT was possible only with years of judicial harassment, the illegitimate imprisonment of the party leader (Lula), the blocking of his candidacy, precluding

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The Global Crisis: Beyond Secular Stagnation

October 23, 2018

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My talk last year (2017) at the Critical Economics Summer School of the Unviersidad de Valldolid (in Spanish). It was great to meet and interact with lots of progressive thinkers in Spain.

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Symposium on “Milton Friedman’s Presidential Address at 50”

October 23, 2018

Here all the links to the papers of the last issue of the Review of Keynesian Economics:Thomas Palley and Matías Vernengo: Milton Friedman’s Presidential Address at fifty
Robert Solow: A theory is a sometime thing 
Robert J. Gordon: Friedman and Phelps on the Phillips curve viewed from a half century’s perspective
 David Laidler: Why the fuss? Friedman (1968) after 50 years 
Roger E. A. Farmer: The role of financial policy 
James Forder: Why is labour market adjustment so slow in Friedman’s presidential address? 
Thomas Palley: Recovering Keynesian Phillips curve theory: hysteresis of ideas and the natural rate of unemployment 
Antonella Stirati and Walter Paternesi Meloni: A short story of the Phillips curve: from Phillips to Friedman… and back? 
Servaas Storm: The wrong track also

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The budget, the fragile recovery and the next recession

October 21, 2018

I’m not a forecaster. I do macro, and worked for Wynne Godley at the Levy, but I feel that there are too many dangers in forecasting. Wynne was also, btw, more concerned with what he called medium term scenarios, than pinpointing when a recession would take place. The obvious joke applies here. Economists have predicted 10 of the last 9 recessions. Having said that let me do the exact opposite and throw caution to the wind.So I’m going out on a limb here. Everybody thinks the recession is around the corner. I’m more skeptical. Let me start by looking at what Martin Wolf has said in his last column, since he seems to be close to what consensus views would argue. He resuscitates old views about confidence cycles. For him: "Bull markets, it is said, climb a wall of worry… so much

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US technological hegemony

October 18, 2018

Where the Digital Things Are

I have suggested for a while here (this entry from May 2011) that deindustrialization in the US has not meant a decline in technological hegemony. Consider big tech digital firms in that respect. From the new Trade and Development Report:
The widening gaps across firms have been particularly marked in the digital world. Of the top 25 big tech firms (in terms of market capitalization) 14 are based in the United States, 3 in the European Union, 3 in China, 4 in other Asian countries and 1 in Africa. The top three big tech firms in the United States have an average market capitalization of more than $400 billion, compared with an average of $200 billion in the top big tech firms in China, $123 billion in Asia, $69 billion in Europe and $66 billion in Africa.

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Brazil is Falling Under an Evil Political Spell

October 14, 2018

By Thomas Palley (guest blogger)Brazil is falling under an evil political spell. The leading candidate in the presidential election is Jair Bolsonaro, an extreme right-wing politician. It is as if voters are sleepwalking their way to destruction of Brazilian democracy. Under the spell’s influence, they have become blind to the truth about Brazilian politics and blind to their better nature.

Read rest here.

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Bob Solow on Friedman’s Presidential address and the natural rate failure

October 13, 2018

His full paper was published in the Review of Keynesian Economics. He reminds us that it was a talk to undermine ‘eclectic Keynesianism’ about which he says:
Milton Friedman’s famous presidential address of 1968… aims to undermine the eclectic American Keynesianism of the 1950s and 1960s, the habits of thought to which Joan Robinson attached the (unintentionally) complimentary label of ‘bastard’ Keynesianism. I will only say a little about what that was. In fact, the adjective ‘eclectic’ is meant to remind you that it was not a tight axiomatic doctrine but rather the collection of ideas in terms of which people like James Tobin, Arthur Okun, Paul Samuelson and others (including me) discussed macroeconomic events and policies.
More substantively, he argues, correctly my view, that

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The Brazilian Election or Brazilian Fahrenheit 11/9

October 7, 2018

#nothim protest in São Paulo

This is, hands down, the most important election in Brazilian recent history. Haven’t seen any exit polls, but if the last polls are trustworthy expect a second round between an openly fascistic candidate, Bolsonaro, and the Workers’ Party (PT in Portuguese) and Lula’s candidate Haddad. Maybe Ciro Gomes has a shot. The US and international media have been part of the problem, in all fairness, for the rise of Neo-Fascism. They suggest that Bolsonaro is not acceptable (like many in Brazil that have protested, pictured above), but they suggest that the Workers’ Party is as dangerous and radical, but on the left of the political spectrum. Red scares continue to dominate the media decades after the collapse of Soviet communism. It’s a bit tiring.Note that as I

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Trumponomics and the next recession

October 5, 2018

Progressives for balanced budgets and free trade

It was the best of times; it was the worst of times. Or that is what you would think if you follow the economics press lately. Sebastian Mallaby has a column on Trumponomics a while ago, suggesting Trumponomics is not working. I wouldn’t disagree with the verdict, but the explanation is far from correct, and that is a common feature of discussions of Trumponomics in the media, and frankly by many progressive (not just liberal, in the US sense of the word) economists. On the other hand, you can expect a lot of praise in conservative circles (and bragging from the Trumpsters) about the unemployment level reaching 3.7%, the lowest since the Kennedy/Johnson boom of the 1960s. Many would say we are at full employment, and in a sense they

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Dollarization in Argentina?

September 15, 2018

So I have no insider knowledge on what the Argentinean government plans to do. And the White House is a mess; they don’t have any knowledge on what they plan to do. But Larry Kudlow, the Director of the National Economic Council, said that the Treasury is deeply involved in a plan to dollarize the Argentinean economy (Guillermo Calvo, an influential conservative economist, has also spoken in favor of dollarization; see here in Spanish).
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He supports a Currency Board to solve the run on the currency, and the long-term external problems. That worked well in the 1990s, he said, without a hint of irony. The notion is that the problem, again difficult to believe this type of stuff is still around, is a fiscal problem. So, no fiscal deficits, no printing of money, no

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The Godley-Tobin Lecture

September 14, 2018

Tobin and Godley
The Review of Keynesian Economics (ROKE) created of the Godley-Tobin Lectures, an annual lecture to be delivered at the Eastern Economic Association meetings. James Galbraith provided the first lecture, to be published in the first issue of 2019.Wynne Godley and James Tobin represent the best among Keynesian economists. Both scholars insisted they were non-hyphenated Keynesians, meaning Keynesianism transcends the political disputes that often accompany economics. There is a deeper scientific validity to Keynesianism, something we reaffirmed in our inaugural statement of purpose for ROKE [see Palley, Rochon, and Vernengo, 2012].Wynne Godley was an Oxford-trained economist, influenced by Philip Andrews and the views of the Oxford Economic Research Group on full-cost

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Job Guarantee Programs: Careful What You Wish For

September 14, 2018

Thomas Palley (guest blogger)Some progressive economists are now arguing for the idea of a Job Guarantee Program (JGP), and their advocacy has begun to gain political traction. For instance, in the US, Bernie Sanders and some other leading Democrats have recently signaled a willingness to embrace the idea. In a recent research paper I have examined the macroeconomics of such a program. Whereas a JGP would deliver real macroeconomic benefits, it also raises some significant troubling economic and political economy concerns. Those concerns should be fully digested before a JGP is politically embraced. The real benefits of a JGP
The starting point for discussion should be recognition that a JGP delivers multiple benefits. First, it ensures full employment by making available a job to all

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Prebisch manuscripts for his classes on economic dynamics

September 8, 2018

There is a trend in the history of economic thought field to depend more on archival research. It is certainly nothing new, since some of the best research in the history of ideas, e.g. Sraffa’s reconstruction of Ricardian theory, was essentially dependent on archives. The publication of Keynes collected papers have also sparked a wealth of interpretations about his theories, not all worth reading. I have done some research in Marriner Eccles archives at the University of Utah.In part, this trend results from the fact that there is increasingly more archival material for modern economists that are closer in time to us. Letters, unpublished papers, class notes and so on. That might be useful sometimes, but it can also lead to lamppost driven research or the streetlight effect, where

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Economic and technological determinism

August 28, 2018

Mind blowing stuff
A while ago now I discussed technological determinism, and the existence of economic laws, even if not in the same sense that in the so-called hard sciences. This semester I’m teaching a class for first year students (non Econ majors, to clarify for those outside the US) titled somewhat facetiously ‘From Fire to Uber.’ In fact, the first reading is Heilbroner’s 1967 paper discussed in the first link provided above, on whether machines make history.Bob was on the side of technological determinism. The epigraph was Marx’s famous dictum according to which: "the hand-mill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist." And he essentially argued that the computer (he also discussed atomic energy technology, but not

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Economic Development in the XXIst century Webinar Series

August 27, 2018

This seminar series focuses on the analysis of Economic Development in the XXIst century. The notions of distribution, industrial policy and balance of payments constraints will be profoundly analyzed during these four sessions. As there is much disagreement about what drives economic development – and at the same time it is a central objective for developing economies – this question merits deep reflection. Through these seminars there will be a particular focus on the external constraints that developing economies face that make economic development challenging. Although the seminars will deal with small open economies, given that the balance of payment constraint will be part of the discussion, scholars working on the Eurozone may also find the discussion on interesting for their

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