This is a very short note, prompted by the increasing fears of the default and its consequences, which I think it’s greatly exaggerated, and the relatively optimistic views about the effects of monetary tightening. Sure enough, as I noted recently, an adjustment, and lower spending, associated either with an agreement with Congress Republicans (very unlikely) or as contingency plans (14th Amendment of other solutions) are implemented, could certainly through the economy into a recession. But I’m somewhat skeptical about that scenario.On the other hand, I’m less sanguine than Krugman on the possibility of a soft landing. Note that I don’t think our situation is as good as the unemployment numbers show, and that the recovery, while fast, brought is back to a position with underutilized

New paper by Adriana Calcagno. From the abstract:This paper focuses on the intellectual path through which Raúl Prebisch placed industrialization at the center of his economic thought and policy recommendations. It shows how the changing international  context  of  the  1930s  and  1940s  made  him  depart  from  laissez-faire  and  adopt counter-cyclical policies, gradually abandoning the agrarian export-led growth model and finally embracing industrialization as the new growth strategy for Argentina and Latin America.Published here, and working paper open for download here.

In 1967, Milton Friedman launched a counterrevolution in economics that overturned the Keynesian theory of inflation. Three years later, economist James Tobin issued a powerful theoretical rebuttal — but in the economics mainstream, it’s been all but forgotten.Read full interview here.

There is a lot of discussion about the debt ceiling, most of it somewhat exaggerated and panicky. In a recent WAPO op-ed it was called Financial Armageddon. From a run on the dollar to the complete collapse of the economy, one can find almost anything in the news. And sure enough there are reasons to be more concerned this time than in previous disputes between a Republican House and a Democratic White House, which is always the pattern when it comes to the debt ceiling, an institutional feature that very few countries have, btw (old post here, and piece in Dollars & Sense).*First, let me say a few things about the consequences. If the debt limit is breached, and a default occurs, the first and most direct consequence is that a series of government functions that require government

[embedded content]Short clip of part of an interview. I discussed that in an old paper here, and in another interview here.

New working paper by Tom Palley. From the abstract:Keynes’ General Theory was a massive step forward relative to classical economics, but it was also a step backward in its denial of the conflictual nature of capitalism. There is need to understand Keynes’ technical contributions regarding the workings of monetary economies, but also need to understand the flaws within his thinking and the consequences thereof. Keynes made a fundamental contribution elucidating the mechanism of effective demand, and he also has claim to be the preeminent monetary theorist. However, owing to his denial of conflict, he had a flawed view of capitalism which is why establishment Keynesianism struggles to explain contemporary stagnation. That flawed view also undermines the case for Social Democracy. Contrary

New Paper by Julia Braga and Franklin Serrano. From the abstract: The conflicting claims approach to the theory of inflation so thoroughly surveyed and well presented in Chapter 8 of Lavoie’s (2022) book is deservedly becoming increasingly consensual among heterodox (and even some notable mainstream) macroeconomists. However, the relevance of a concept (and the very existence of) a NAIRU (Non-Accelerating Inflation Rate of Unemployment) derived consistently from the very premises of the conflicting claims approach is still very controversial. In this review article, we will be to argue that a NAIRU is not really useful for the conflicting claims approach. First, it can only properly be derived under quite restrictive assumptions; second, if a NAIRU actually existed, it would render demand

The debate between Tom Palley and
Steve Kamin on central bank independence and the several rescues of banks after financial crises, including the more recent rescue of the Silicon Valley Bank.[embedded content]Tom suggests that central banks are dominated by financial interests, and that this has been a problem. At the same time he avoids the libertarian notion of free banking, and suggests that a central bank at the service of public interest would require alternative views, I would directly say related to working class interests.

[embedded content]My talk (in Spanish) at the Instituto de Investigaciones Económicas of UNAM (virtually) on inflation. The talk starts at minute 20 or so.

I have written on deindustrialization before (see here and here), and commented on the CHIPS Act, and how it was one of the first, if not the first, re-shoring of manufacturing jobs into the US. Krugman just wrote a column on that, noting that the concern with manufacturing is now bipartisan, as Biden policies follow Trump’s, he argues the former more successfully than the latter. Also, I should note that the the pressures for US corporations to reorganize their supply chains away from China is bipartisan, but that might take a long while.I mostly agree with Krugman’s take. But there are two issues with his argument, in my view. One more conceptual, and the other just observational. Krugman says that "we shouldn’t fetishize manufacturing. A good job is a good job; there’s nothing

[embedded content]Franklin Serrano on inflation (in Portuguese). More or less what I have been saying on the issue, with some interesting discussions on the changes in the New Consensus Model, and the changing views of some of the key authors like Larry Summers.

It should not be a surprise that John Maynard Keynes is often seen as being relatively conservative by many progressively inclined or radical economists, that often tend to prefer the views of Michal Kalecki, or the more radical approach of Keynes’ favorite disciple, Joan Robinson. That is not the case in James Crotty’s book Keynes Against Capitalism, who takes a diametrically opposite view. He tells us that: “It is almost universally believed that Keynes wrote his magnum opus, The General Theory of Employment, Interest and Money [GT from now on], to save capitalism from the socialist, communist, and fascist forces that were rising up during the Great Depression era”, but in his view, that “was not the case with respect to socialism. The historical record shows that Keynes wanted to

Brief visit to Argentina to visit my dad. Some brief reflections here. At any rate, it was perfectly timed with the news of the collapse of exports associated to the draught, which will lead to a decline in export revenues of the order of somewhere between 15 to 20 billion dollars. A problem, since Argentina already doesn’t have reserves and dollars are tightly controlled. This came with the news that the IMF had eased the international reserve targets, which were somewhat hard to reach even before the export news.The drama was heightened by the banking crisis, and the additional rise of interest rates in the US, which makes a recession in the US, with global consequences, more likely. That was followed by the defense, by some well-known economists, of the notion that the country will not

Everybody in the heterodox community, in the United States at least, seems very happy with Jon Stewart’s performance interviewing Larry Summers. And of course, Stewart is very good at this kind of stuff. But in all fairness, in this he is canalizing some of the ideological views of the left, which on inflation are fundamentally incorrect. Stewart presents at the beginning the adding up theory of inflation, thirty percent demand, twenty five percent wages and the rest corporate greed. His argument is that not all of inflation was caused by demand (I would say none of it was). He is correct on the fact that the stimulus during the pandemic was good and not exaggerated, and that monetary policy (the interest rate hikes are wrong). But he accepts the notion that the labor market is tight,

By Thomas Palley(1) The origins of the Ukraine conflict lie in the ambitions of US Neocons. Those ambitions threatened Russian national security by fuelling eastward expansion of NATO and anti-Russian regime change in the Republics of the former Soviet Union.(2) The Ukraine conflict is now a proxy war. The US is using Ukraine to attack and weaken Russia.(3) Russia will eventually prevail. We may already be approaching “game over” because Ukraine’s forces have been eviscerated. Ukraine is now press-ganging military conscripts in Kiev and Lviv.(4) Once Russia imposes its will, the US will be forced to step back but it will have achieved its strategic goal of weakening Russia and separating Western Europe (especially Germany) from Russia.(5) Ukraine will be effectively destroyed. It will be

Q&A Session The lecture here. Note that it missed a few minutes at the beginning and the slides are not showing, with Professor Stiglitz at the upper right corner. It is still pretty engaging and wroth reading. There is a link to the slides that are not showing up. The actual lecture will be published in the first issue of ROKE in 2024. [embedded content]I’ll post link to the published version when it’s done.

If Cohen and De Long (2016) are to be believed, there is an American Political Economy tradition, that harks back to Alexander Hamilton, that goes against the free market canon of the profession. In their view, the American Political Economy tradition consist of an interventionist approach to economic policy, that arguably should be seen as neomercantilist [1]. Classical political economy, as represented by their main figures in the United Kingdom, Adam Smith and David Ricardo, upheld the laissez-faire and free market tradition, and in this view the same would be true for the marginalist or neoclassical tradition. In that respect, some might see a continuity between both schools of thought and the American Political Economy tradition would be a somewhat heterodox tradition from its

The issue is back in the news. This time in Brazil (it was briefly an issue here when Trump did not reappoint Yellen, and then complained about Powell’s interest rate where too high). At any rate, I always thought that there were good reasons for skepticism about central bank independence (CBI). As noted by Massimo Pivetti in this old piece on the Maastricht Accord and the, at that time, plan for the euro, the main reason to be doubtful is related to the interaction of monetary policy and fiscal policy. And as Quantitative Easing in the post-Global Financial Crisis has shown, central banks have become again fiscal agents of the state (never stopped being that, in all fairness).The other important reason alluded by Pivetti for doubting CBI is the effects of the interest rate on the

Working paper on the Post Keynesian Economics Society website. From the abstract: The current debate on the causes of inflation is dominated by a particular view of what caused the inflationary acceleration in the 1970s, the so-called Great Inflation. In this view inflation is always and everywhere a demand phenomenon and requires contractionary monetary policy to be kept under control. The alternative view put forward by many heterodox authors emphasize what might be termed the oligopolistic view of inflation. In this paper we trace the limitations of both views for the center and the periphery. Download paper here.

At the ASSA in San Diego, before the pandemic It is hard to believe that Barkley has passed away. I met Barkley long ago, when I was still a PhD student in the 1990s, at the Eastern Economic Association Meeting, which still is one of the organizations that congregates both mainstream and heterodox economists with some degree of interaction. Perhaps the only such conference that still exists in the US. Barkley moved in between the mainstream and the heterodoxy. He should be seen, to a great extent, in the way he described the heterodoxy, as trying to break away from orthodox thinking. Although I disagreed about that definition as a description of heterodox economics, I think his definition reflected very well what he was trying to do.His view of heterodoxy was based on the idea that the

Krugman and the editors of ROKE  Paul Krugman’s lecture, reflecting on the contributions of James Tobin is now published by the Review of Keynesian Economics. The paper can be downloaded here.

The 6th Godley-Tobin Lecture will be delivered by Professor Joseph Stiglitz. More information will be made available soon.

Over the past twenty years there has emerged a compelling new discourse on varieties of capitalism. That discourse has an appealing common sense which challenges the view there is no alternative to free market capitalism. The initial view had a microeconomic focus that made firms the fulcrum of analysis. It distinguished between liberal market and coordinated market economies. Subsequently, there has emerged a second-generation literature which adopts a macroeconomic perspective that emphasizes differences in drivers of growth. This book provides a collection of essays that engage those second-generation concerns and questions. More info here.

Pasinetti, Garegnani and the president of Italy in 2010Last week, in my senior seminar on the history of economic thought, I made the kids read a paper by Pasinetti on "Progress in Economic Science", which was published in a book edited by Boehm, Gehrke, Kurz and Sturn. It’s a short defense of pluralism in economics on the basis of the co-existence of Kuhnian paradigms, with a relatively optimistic view of the possibility of progress, in a discipline in which, as he noted, the object of analysis is changing continually, the ideas of the researchers might affect the functioning of the object of study, and value judgments cannot be avoided, in part because they affect everyday material conditions. As he said: "It is enough to think of the devaluation of a currency, or of the movements of

Actual proposal by Haddad and Galípolo at Folha de São PauloLula’s visit to Argentina, during the  Community of Latin American and Caribbean States (CELAC) meeting, brought about a brief discussion of the possibility of a common currency. I have discussed here (as well as many guest bloggers) both currency unions, in particular the euro, and it’s consequences. Note that the FT piece linked suggested that the common currency was the first step in a long process. I doubt it, in part because, if the end goal is a real currency union, it would be a terrible idea. The actual proposal by the current finance minister, Fernando Haddad, and one of his collaborators, Gabriel Galípolo, falls short of a common currency area. It is still a bad idea.The idea is to reduce the use of the dollar for

Teaching two history of thought classes this semester. One more traditional, focusing on the evolution of the theories of value and distribution, and another one, my regular senior seminar, on the co-evolution of ideas and policy in the United States. For the former I used a short piece by Peter Boettke on the reasons for reading the original sources (and they do read a fair amount in my class). The blackboard (pictured above) is based on his discussion. I changed the titles and the definition of the logic a little bit.The archeological approach tries to understand the analytical views of authors in their own historical context, while the theoretical reconstruction tries to understand its relevance for modern theory. BTW, the divide between archeological and theoretical reconstruction was

Calvin Coolidge and Andrew Mellon A new paper by Ahmad Borazan on the 1920-21 recession, often seen in libertarian and Austrian circles as an example of a laissez-faire recovery. From the abstract:The US recovery from the 1920–21 recession has been presented as a triumph of laissez-faire policies and a serious challenge to Keynesian economics. This study interrogates this claim by using previously unutilised data and examines the historical development of the early 1920s recession and recovery. The study refutes the laissez-faire view and shows that the recovery indeed fits Keynes’s perspective. The deflationary recession was largely engineered by the Federal Reserve a la 1980s Volker disinflation. The recovery closely followed the reversal of tight monetary policy and was propelled by

The book (in Spanish) titled "Economía en crisis : la enseñanza de la economía en Latinoamérica y los límites de la teoría ortodoxa" [Economy in Crisis: The teaching of economics in Latin America and the limits of orthodox theory] is edited Andrés Jose Maria Lambertini; Ignacio Silva Neira. The introductory chapter on the role of neoliberalism and its resilience in the region is by Esteban Pérez and myself. There’s a webinar with Carolina Alves and Gabriel Porcile, besides the editors.It will be in Spanish with English subtitles. You can register here.

New paper on the empirical evidence of the relevance of the supermultiplier for explaining economic cycles by Ricardo Summa, Gabriel Petrini, and Lucas Teixeira. From the abstract:The demand-led supermultiplier growth model proposes that business investment is induced by income while autonomous expenditures determine economic growth. The most known versions of the model are presented at high levels of abstraction, focusing on general analytical properties and dynamic stability conditions. Based on those versions, Nikiforos et al. (2021) argue that the supermultiplier model cannot generate business cycles compatible with the empirical observation. In this paper, we show that this conclusion is a consequence of the misspecification of the variable chosen to represent the investment share,

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Partial video (my fault) of the conference about the book edited by the late Jerzy Osiatynski and by Jan Toporowski published by Oxford University Press. Our chapter on Prebisch with Esteban Pérez is available in a preliminary version here.