The United Nations 🇺🇳 Conference On Trade And Development (UNCTAD) publishes wonderful annual reports on trade and development. These are written by heterodox authors many times. Alex Izurieta, Francis Cripps, Jayato Ghosh are a few contributors. This year’s report is here. 200 pages!The report has detailed discussion on robots and its impact. This is quite different from what one hears normally.From the press release:With the United States withdrawing from its role as global consumer of last resort, recycling surpluses is a key element in rebalancing the global economy.  The report turns the spotlight on the eurozone – especially Germany – which is now running a large surplus with the rest of the world. The recent Group of 20 proposal made by Germany – a Marshall Plan for Africa – is

John Cassidy has a nice article titled A New Way To Learn Economics for The New Yorker on a new online introductory economics curriculum. produced by a lot of collaborators.I went to the website which has the full book. Although there seems to be some progress, I have a strong reservation against it.The chapter titled “Banks, money and the credit market” has a much better description on it than textbooks widely used, such as the ones by Paul Samuelson, Gregory Mankiw or Paul Krugman. On a cursory look, I didn’t find anything about the “money multiplier” model. Instead, the book says that central banks set short term interest rates and this has an effect on aggregate demand. If I missed something and if you find something orthodox, please let me know.The chapter on fiscal policy looks like

Dirk Bezemer On How Wynne Godley And Some Other Economists Saw The Crisis ComingDirk Bezemer had investigated who saw the crisis coming and why. Now he has written a short piece for the Financial Times‘s readers.It’s not an easy task. Many may have said that “there is going to be a crisis”. Some may even say the same thing their whole life. Even a broken clock is right twice a day!So one has to choose some criteria to separate good analysis from fluke.Also, What Bezemer observes is that the common theme of economists who saw it coming is the use of flow of funds accounting.One small quibble in the latest article: Bezemer claims that lending to the financial sector “crowds out” production. I am not sure that’s the case. But it’s not important here.The page title is the link.

Alex Izurieta On The UN Global Policy ModelAlex Izurieta compares and contrasts the UN Global Policy Model with models of other international organizations such as the IMF, the OECD and the EU:A central proposition in this essay is that global models cannot be taken to represent objective and scientific tools for policy analysis. Clearly, all models have to make simplifications and in doing so they will fail to capture some dimensions of economic reality. … Unfortunately, the dominant models proposed by the mentioned IOs ignore essential features of the socio-economic system and therefore deliver a seriously distorted view of policy impacts. Most salient are their assumptions about economic growth, distribution, fiscal and monetary policy, and their failure to address problems of global

Jayati Ghosh — After Neoliberalism, What Next?Jayati Ghosh in Red Pepper: The question ‘what is your alternative?’ is a familiar one for most progressives, and too often we are overly defensive or self-critical about our supposed lack of alternatives. In truth, there are many economically-viable, socially-desirable alternative proposals in different contexts. The problem is not their lack of existence but their lack of political feasibility, and perhaps their lack of wider dissemination. …While rejecting the totalising theory, it is possible to think of a broad framework around which there could be much agreement, even among people who do not necessarily identify themselves as of the ‘left’, but are nevertheless dissatisfied with current economic arrangements at both national and

Post-Keynesians frequently highlight the Kaldor-Verdoorn Law which states that aggregate demand affects the supply side. This was even used by economists who prepared the economic plan for Bernie Sanders’ presidential campaign in the United States, as explained well by John Cassidy for The New Yorker. Although, the law is not generally known, economists roughly understand it as a theory of “hangovers”.The Kaldor-Verdoorn Law is:rate of growth of productivity = constant1 +  constant2  × rate of growth of productionwhere constant1 is the exogenous rate of growth of productivity.These constants will be different for every nation and are to be found empirically.Of course, productivity is not the only measure of the supply side, but that gives an idea about the general notion

Recently, The Economist had a cover story saying that surplus nations bear responsibility for global imbalances and weak economic growth. Now, the IMF is also advising surplus nations to expand domestic demand.The IMF tweeted this, with a link to a new report (2017 External Sector Report) on global imbalances:click to see the tweet on TwitterAs I have said before, this is the biggest concession to Keynes’ idea that surplus countries bear the responsibility.In an article, The General Theory In An Open Economy, published in 1996, Paul Davidson says:Keynes was well aware that the domestic employment advantage gained by export-led growth ‘is liable to involve an equal disadvantage to some other country’ (p. 338). When countries pursue an ‘immoderate policy’ (p. 338) of export-led growth (e.g.,

Neil Irwin writing for The Upshot seems open to the idea that aggregate demand affects aggregate supply, quoting the work of J.W. Mason:… But what if this is the wrong way of thinking about it? What if productivity growth is not so much an external force that proceeds in random fits and starts, but is rather deeply intertwined with the overall state of the economy and labor market?It’s a chicken or egg problem: Does low productivity cause slow growth, or does slow growth cause low productivity?Discussion of such matters was also welcomed by Narayana Kocherlakota on Twitter.Recently, Simon Wren-Lewis also wrote recently in a post on his blog, Mainly Macro, titled, Why Recessions Followed By Austerity Can Have A Persistent Impact.In standard economic theory, productivity rises explains the

The recent cover story of The Economist on Germany’s trade surpluses—titled The German Problem: Why Germany’s Current-Account Surplus Is Bad For The World Economy— is the biggest concession the magazine has made to Keynesianism. Of course, it’s not as if the publication is now a full Keynesian but still, it’s a large admission.I have two previous posts on this:The Economist On Germany’s Balance Of PaymentsJohn Maynard Keynes On Surplus Nations’ ObligationsSo it was expected that The Economist‘s story was going to be opposed by other publications pandering to the establishment. For example, FT‘s Martin Sandbu who wrote a piece, Germany Bashing Falls Flat.Handelsblatt had this response:Sandbu’s main point is:That means the accusation against Germany comes about five years too late. There was

I wasn’t too excited about “agent-based models” before this, but I saw this paper What Drives Markups? Evolutionary Pricing In An Agent-Based Stock-Flow Consistent Macroeconomic Model by Marc Lavoie (co-authored with Pascal Seppecher and Isabelle Salle) and it got me a bit interested.From the paper:ABMs are conceived to analyze out-of-equilibrium dynamics and adaptation processesfrom heterogeneous and interacting entities … On a more specific note, we use a stock-flow consistent (hereafter, SFC) framework … there has been a multiplicity of macroeconomic models that combine two important features: the principle of decentralization/disaggregation which is found in ABM and the principle of stock-flow consistency … In an ABM, macroeconomic variables are the result of a simple process of

Recently, The Economist‘s cover story declared that the government of Germany ought to expand domestic demand and its refusal to do so is a threat to the world economy. It also said, “Germany’s surpluses are themselves a threat to free trade’s legitimacy.”Post-Keynesians have long recognized this problem with the world economy. Keynes himself said in 1941:It is characteristic of a freely convertible international standard that it throws the main burden of adjustment on the country which is in the debtor position on the international balance of payments. … The contribution in terms of the resulting social strains which the debtor country has to make to the restoration of equilibrium by changing its prices and wages is altogether out of proportion to the contribution asked of its creditors.

This is a continuation of a recent post at this blog, Public Debt And Current Account Deficits, in which I argued that the current account balance of payments affects the public debt.A usual objection to the connection is that the two deficits—current account deficit and the budget deficit—although connected by an identity, don’t move together and in fact move in the opposite direction frequently. This point was raised by the blog Econbrower, yesterday.The identity in question is:NL = DEF + CABwhere, NL is the private sector net lending, DEF is the government’s deficit and CAB is the current account balance of payments (and is to a zeroth order approximation, exports less imports).This is not a behavioural hypothesis but still a useful tool to build a narrative. Also, the causality

Recently, a U.S. politician Rick Perry cited Say’s Law:Here’s a little economics lesson: supply and demand. You put the supply out there and the demand will follow.Just saying that implicitly rejects the Keynesian principle of effective demand.But it’s interesting to see that according to Nicholas Kaldor, the principle of effective demand is not a rejection of Say’s Law.What is Say’s Law. Usually this paragraph—from Jean Baptiste Say’s book, A Treatise On Political Economy; Or The Production, Distribution, And Consumption Of Wealth, published in 1821, page 38—is referred:It is worth while to remark, that a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his

The Economist‘s latest cover is about the German balance of payments. The subheading of its editorial says, that it “[t]he country saves too much and spends too little”.That’s welcome, although the article claims that the German government’s policy is not mercantilist, while at the same time saying that wages have been held down to achieve more competitiveness in exports.🤦🏻‍♂️Anyway, it’s good that it has recognized that this is a problem for the world economy. Funnily, the editorial is still defending free trade, without realizing that the ideology is based on the assumption that market forces will resolve imbalances. If the magic of the price mechanism works, why do you need active policy?It’s important to remember that John Maynard Keynes recognized that active policy measures are

Thomas Palley — A Theory of Economic Policy Lock-in And Lock-out Via Hysteresis: Rethinking Economists’ Approach To Economic PolicyThomas Palley:This paper uses hysteresis to develop the concept of policy lock-in and lock-out. Policy changes may near-irrevocably change the economy’s structure, thereby changing the distribution of wealth, income and power. That may lock-in policy by changing the political equilibrium. Exit costs that block policy reversals also cause lock-in. Conventional thinking treats policy as a dial which is adjusted according to the economy’s state. Policy lock-in questions the dial formulation and raises new issues for optimal policy design. It also offers insights into economic and political crisis theory. Policy lock-in is illustrated with examples that include tax

Yesterday, there was an article at Vox which takes issue with a statement from Donald Trump which connects the US public debt with current account deficits.Trump ran his campaign on dividing people, is out to destroy health care and wants a regressive system of taxation and so should be resisted. At the same time, a blanket opposition is counterproductive, especially when it is an important matter.Vox quotes Trump:For many, many years the United States has suffered through massive trade deficits; that’s why we have $20 trillion in debt.In response, Vox claims:The US trade deficit refers to the fact that the US imports more from the world than it exports. The national debt is the result of the fact that the US government spends more revenue than it collects. There’s no direct relationship

Excellent Jayati Ghosh interview with The Real News Network, from earlier this week, titled Jayati Ghosh On Imperialism In The 21st Century. click to watch on YouTube. Excerpts:… [I]mperialism is fundamentally about the struggle over economic territory. It’s not just about state control or colonial control or any specific kind of control. It’s really the struggle of large capital over different kinds of economic territory. And these could be territories defined in terms of markets, in terms of workers and labor, in terms of natural resources, in terms of new kinds of markets that are developed.…… [I]mperialism has gone through many different forms in the course of its evolution. There was the time when it was explicit colonial control, when it was the control by the state over other

Noam Chomsky And Ha-Joon Chang In Conversation On GlobalizationThere’s a nice interview of Noam Chomsky and Ha-Joon Chang by C.J. Polychroniou of Truthout on the myths of globalization. Of course, as Chomsky and Ha-Joon Chang point out, the debate is not against globalization per se, but globalization under the current rules of the game.Ha-Joon Chang is direct about his views:The assumption that globalization benefits everyone is based on mainstream economic theories that assume that workers can be costlessly re-deployed, if international trade or cross-border investments make certain industries unviable.In this view, if the US signs NAFTA with Mexico, some auto workers in the US may lose their jobs, but they will not lose out, as they can retrain themselves and get jobs in industries that

Emmett Rensin has a fantastic essay The Blathering Superego At The End of History on liberalism for the Los Angeles Review Of Books. Rensin says:The most significant development in the past 30 years of liberal self-conception was the replacement of politics understood as an ideological conflict with politics understood as a struggle against idiots unwilling to recognize liberalism’s monopoly on empirical reason. The trouble with liberalism’s enemies was no longer that they were evil, although they might be that too. The problem, reinforced by Daily Kos essays in your Facebook feed and retweeted Daily Show clips, was that liberalism’s enemies were factually wrong about the world. Just take a look at this chart …And Vox and The New Yorker and so on.  A good example of this is Paul

Morris Copeland was the discoverer (or inventor?) of the flow of funds approach. The U.S. Federal Reserve publishes the statistics every quarter but is largely ignored. Copeland was of the view that it is essential to get rid of myths in economics. He said:The subject of money, credit and moneyflows is a highly technical one, but it is also one that has a wide popular appeal. For centuries it has attracted quacks as well as serious students, and there has too often been difficulty in distinguishing a widely held popular belief from a completely formulated and tested scientific hypothesis.  I have said that the subject of money and moneyflows lends itself to a social accounting approach. Let me go one step farther. I am convinced that only with such an approach will economists be able to

Radio Open Source has a nice intervew of Noam Chomsky by Christopher Lydon where they discuss neoliberalism among other things.  Audio, transcript.What is neoliberalism?This question is asked frequently, especially by those who deny that such a thing exists (not the interviewer of course!). In my experience, those who deny it the most are the most neoliberal. At any rate—although I’ll try to describe what it is—it’s not important to get the definition right. Isn’t the creation of the Euro Area without a central government neoliberalism?In the above interview, Chomksy is faced with this question:CL: You famously said about neoliberalism that it’s not new, and it’s not liberal. Do you want to define it for people who just landed from Mars?NC: Well, it’s a kind of a mixture. The rhetoric is

The new paper by Gennaro Zezza and Michalis Nikiforos for the Levy Institute, surveying the literature on stock-flow consistent models has a discussion on the concept of equilibrium:In the short run, “equilibrium” is reached through price adjustments in financial markets, while output adjustments guarantee that overall saving is equal to investment. However, such “equilibrium” is not a state of rest, since the expectations that drive expenditure and portfolio decisions may not be fulfilled, and/or the end-of-period level for at least one stock in the economy is not at its target level, so that such discrepancies influence decisions in the next period.In theoretical SFC models, the long-run equilibrium is defined as the state where the stock-flow ratios are stable. In other words, the

Thomas Palley — Trump And The Neocons: Doing The Unilateralist WaltzThomas Palley:The neocon factor dramatically changes the interpretation of the Trump administration’s unilateralist international economic policy chatter.Donald Trump’s first one hundred days have revealed his inclination for unilateralism in international relations. That inclination reflects his opportunistic and bullying disposition, and it also fits well with his anti-globalization pose.Trump’s unilateralism has also spawned a dangerous waltz with Washington’s neocon establishment. The opportunistic Trump looks to gain establishment support, while the neocon establishment looks to the opportunist-in-chief to implement its own unilateralist view of the world.The waltz is clearly visible in recent military actions, but it

Recently, Amy Goodman of Democracy Now interviewed Noam Chomsky with an audience at Cambridge, Massachusetts. Chomsky has a new book, Requiem for the American Dream: The 10 Principles of Concentration of Wealth & Power.The ten principles are:Reducing democracyShaping ideologyRedesigning the economyShift the burden on the poor and the middle classesAttack the solidarity of the peopleLet special interests run the regulatorsEngineer election resultsUse fear and power of the state to keep the rabble in lineManufacture consentMarginalize the populationI loved the line about neoliberalism:So, the neoliberal programs were basically taking off right around 1980. It escalated—started a little with the late Carter, escalated under Reagan, went on more under Clinton and so on. 2007 was the peak of

King Jeremy the wicked 🤩Jeremy Corbyn spoke today in central London about the Manchester attack and Labour’s plan for addressing terrorism.In this brilliant speech, Corbyn talks about how the West’s foreign policy is responsible for terrorism. Corbyn said:Many experts, including professionals in our intelligence and security services have pointed to the connections between wars our government has supported or fought in other countries, such as Libya, and terrorism here at home.That assessment in no way reduces the guilt of those who attack our children. Those terrorists will forever be reviled and implacably held to account for their actions.But an informed understanding of the causes of terrorism is an essential part of an effective response that will protect the security of our people,

John Pilger recently wrote an excellent article, Getting Julian Assange: An Untold Story, about Julian Assange on his website. The article was endorsed by Assange himself on Twitter. It tells the story about how Julian Assange has been made a political prisoner. The article was written in response to the closing of an investigation against him by Sweden. Although this is positive, the United Kingdom police has declared that it will still arrest Assange if he steps out of the Ecuadorian embassy in London.Chelsea Manning was released from prison on May 17, after Barack Obama reduced her punishment. Glenn Greenwald put up a fantastic article on The Intercept telling us how she is one of the biggest heroes of our generation. Greenwald says:Ever since Chelsea Manning was revealed as the

Stock-Flow Consistent Models: A SurveyThere’s a new paper by Gennaro Zezza and Michalis Nikiforos for the Levy Institute.Abstract:The stock-flow consistent (SFC) modeling approach, grounded in the pioneering work of Wynne Godley and James Tobin in the 1970s, has been adopted by a growing number of researchers in macroeconomics, especially after the publication of Godley and Lavoie (2007), which provided a general framework for the analysis of whole economic systems, and the recognition that macroeconomic models integrating real markets with flow-of-funds analysis had been particularly successful in predicting the Great Recession of 2007–9. We introduce the general features of the SFC approach for a closed economy, showing how the core model has been extended to address issues such as

Thomas Palley — Monetary Policy And The Punch Bowl: The Case For Quantitative Policy And Wage Growth TargetingThomas Palley in his new paper:In a famous 1955 speech, William McChesney Martin, the legendary Chairman of the Federal Reserve, declared that the Federal Reserve “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” Martin’s characterization of the Fed and monetary policy is brilliant and enduring. It explains why the stock market celebrates when the Fed stays on “hold”, and why the market is prone to a tantrum when the Fed raises interest rates. Staying on “hold” means more punch, while raising rates may mean sobering up.This paper uses the punch bowl metaphor to explore and illustrate monetary policy, to show what the Fed has been doing with the punch bowl, and to suggest how it might do things better in the future. The essence of the argument is that, for thirty years prior to the financial crisis of 2008, the Federal Reserve ran the economy with too much unemployment and slack, contributing to wage stagnation and income inequality. That undermined the aggregate demand generation process, necessitating monetary policy fueled debt and asset price bubbles to fill the demand shortage. The combination of inequality and debt bubbles has proven disastrous, creating mountainous debt burdens.

Ingrid Kvangraven has a nice article, 200 Years of Ricardian Trade Theory: How Is This Still A Thing? on the blog, Developing Economics. In that, she asks how “the observation of persistent imbalances (and recurring debt crises in the deficit countries) appears to have little impact on the popularity of Ricardo’s theory.”It’s a nice article going into details about the assumptions of the trade theory, but let me just add another perspective. New Consensus Economics is based on the assumption about the magic of prices and market forces acting to resolve imbalances. Government “intervention” (a loaded word), supposedly spoils this magic and economists are trained to think that this is the reason for crisis. So a New Consensus economist doesn’t find this to be contradictory. “Hey government, why did you interfere with the workings of the market”, an economist is likely to say.The role of the government in this model is mainly about law and order and is supposed to balance its books. Whenever a crisis arises, economists tend to blame “fiscal profligacy” and recommend contraction of fiscal policy and “economic reforms”.Of course, since the financial crisis started about ten years back, economists have conceded that they have been wrong about several things. Fiscal policy is one major area where this is so.

Thomas Palley — Trumponomics: Neocon Neoliberalism Camouflaged With Anti-Globalization CircusThomas Palley:A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy.As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests.Trump also expresses neocon unilateralist tendencies that play well with much of the US electorate. His neocon unilateralism is not a one-off temporary political aberration. Instead, it reflects intrinsic and enduring features of the current US polity. That has profound implications for the international relations order, and is something many Western European governments may not yet have digested.Read more by clicking the link (header of this page).