Saturday , November 18 2017
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Articles by V. Ramanan

New Book: Advances In Endogenous Money Analysis

12 days ago

There’s a nice new book titled, Advances In Endogenous Money Analysis, edited by Louis-Philippe Rochon and Sergio Rossi.There’s a great chapter on Nicholas Kaldor’s views on money over the years by John E. King and another by Marc Lavoie titled, Assessing Some Structuralist Claims Through A CoherentStock–Flow Framework. John E. King also discusses the importance of fiscal policy in Kaldor’s work:Kaldor continued to insist on the importance of fiscal policy. The first point in his ‘constructive programme of recovery’ from the world stagflationary crisis of the early 1980s was international agreement on ‘coordinated fiscal action including a set of consistent balance of payments targets and “full employment” budgets’ (Kaldor, 1996, pp. 86, 87). Existing budget deficits, he maintained,

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Thomas Palley — The General Theory At 80

17 days ago

Thomas Palley — The General Theory At 80Thomas Palley’s new paper titled, The General Theory At 80: Reflections On The History And Enduring Relevance Of Keynes’ Economics:This paper reflects on the history and enduring relevance of Keynes’ economics. Keynes unleashed a devastating critique of classical macroeconomics and introduced a new replacement schema that defines macroeconomics. The success of the Keynesian revolution triggered a counter-revolution that restored the classical tradition and now enforces a renewed classical monopoly. That monopoly has provided the intellectual foundations for neoliberalism which has produced economic and political conditions echoing the 1930s. Openness to Keynesian ideas seems to fluctuate with conditions, and current conditions are conducive to

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Do Bank Recapitalisation By The Government Lead To Higher Fiscal Deficits?

24 days ago

Yesterday, the Indian government announced a $32 billion plan to recapitalise some banks. These banks have large government ownership. Such issues remain controversial because the government is seen as allowing a lot of bank debtors get away with defaulting on their loans. At any rate, the topic for this post is whether the government plan leads to a rise in deficit or not.The Chief Economic Advisor clarified on Twitter than according to international standards, it doesn’t lead to a rise in fiscal deficits over the periods during which recapitalisation happens. But people don’t seem to be convinced. So here’s an attempt.In short, a recapitalisation of banks by the government by an amount of say $100 doesn’t lead to an increase of $100 in deficit. There are some complications, as

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An Important Note By The United Nations On The IMF And The World Order

October 13, 2017

I recently came across a phrase, social silence, which Gillian Tett of FT describes:As Pierre Bourdieu, the French anthropologist and intellectual, observed in his seminal work Outline of a theory of practice, the way that an elite typically stays in power in almost any society is not simply by controlling the means of production (i.e. wealth), but by shaping the discourse (or the cognitive map that a society uses to describe the world around it.) And what matters most in relation to that map is not just what is discussed in public, but what is not discussed because those topics are considered boring, irrelevant, taboo or just unthinkable. Or as Bourdieu wrote: “The most successful ideological effects are those which have no need of words, but ask no more than a complicitous silence.”Very

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Gennaro Zezza — Modeling The Macroeconomic Effects Of A Universal Basic Income

October 10, 2017

Gennaro Zezza — Modeling The Macroeconomic Effects Of A Universal Basic IncomeIn August, Gennaro Zezza and his co-authors Michalis Nikiforos and Marshall Steinbaum had a paper for the Roosevelt Institute, studying the effects of a Universal Basic Income. The model uses the Levy Institute‘s model.The idea is simple. If a basic income is provided for everyone, it raises domestic demand because of higher consumption and hence leads to higher output. This is easy to see if there’s no rise in tax rates. If tax rates are increased so that the income provided matches the taxes raised, it’s still a stimulus to the economy, since the propensity to consume for people with lower incomes (or no income otherwise) is higher.From the introduction;We examine three versions of unconditional cash transfers:

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Marc Lavoie On New Behavioural Economics

October 9, 2017

So,The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017 was awarded to Richard H. Thaler “for his contributions to behavioural economics”.as per the Nobel Prize’s website.In his book, Post-Keynesian Economics: New Foundations, (2014), Marc Lavoie has a nice discussion on what’s called “New Behavioural Economics”:click to view on Google Books

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Anthony Thirlwall On How He Became A Kaldorian

October 6, 2017

There was a conference last year in honour of Nicholas Kaldor organized by Corvinus University of Budapest.The papers by the speakers has now been published by Acta Oeconomica in their September issue.Anthony Thirlwall’s paper Nicholas Kaldor’s Life And Insights Into The Applied Economics Of Growth (Or Why I Became A Kaldorian) is notable. You can access it here if you can’t access the journal.photo via Alberto BagnaiExcerpt:The second paper which struck an intellectual chord was Kaldor’s address to the Scottish Economic Society in 1970 entitled ‘The Case for Regional Policies’ (Kaldor, 1970). Here, at the regional level, he switches focus from the structure of production in a closed economy to the role of exports in an open regional context in which the growth of exports is considered the

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Unsustainable Processes Of The EU

September 29, 2017

Unsustainable Processes Of The EUStephen Kinsella on his new web app:Wynne Godley’s Seven Unsustainable Processes (1999) examined the medium-term prospects for the US economy. It shows that in the United States, growth in that period was associated with seven unsustainable processes related to fiscal policy, foreign trade and payments, and private saving, spending, and borrowing. Given unchanged US fiscal policy and growth in the rest of the world, in order to maintain growth, the excessive indebtedness implied by these processes would be so large as to create major problems for the US economy and the world economy in the future. Godley was right. This web application aims to replicate Godley’s analysis for all of the countries in the EU, to see whether or not these unsustainable processes

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UNCTAD On The Case For A Global New Deal

September 15, 2017

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

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A New Way To Learn Economics?

September 12, 2017

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

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Dirk Bezemer On How Wynne Godley And Some Other Economists Saw The Crisis Coming

September 8, 2017

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.

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Alex Izurieta On The UN Global Policy Model

August 14, 2017

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

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Jayati Ghosh — After Neoliberalism, What Next?

August 7, 2017

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

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Hangovers And Economic Ideology

August 2, 2017

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

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After The Economist, The IMF Now Emphasizing Surplus Countries’ Responsibility

July 29, 2017

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.,

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The Upshot NYT On The Kaldor-Verdoorn Law

July 25, 2017

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

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How The Economist‘s Cover Story Is Causing Discomfort

July 15, 2017

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

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Stock-Flow Consistent Agent-Based Models

July 15, 2017

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

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John Maynard Keynes On Surplus Nations’ Obligations

July 13, 2017

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.

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Public Debt And Current Account Deficits, Part 2

July 11, 2017

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

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Nicholas Kaldor On Say’s Law And The Principle Of Effective Demand

July 8, 2017

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

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The Economist On Germany’s Balance Of Payments

July 6, 2017

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

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Thomas Palley — A Theory of Economic Policy Lock-in And Lock-out Via Hysteresis: Rethinking Economists’ Approach To Economic Policy

July 4, 2017

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

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Public Debt And Current Account Deficits

July 1, 2017

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

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Jayati Ghosh On Imperialism

June 30, 2017

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

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Noam Chomsky And Ha-Joon Chang In Conversation On Globalization

June 28, 2017

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

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The Los Angeles Review Of Books On Liberalism

June 26, 2017

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

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Morris Copeland’s Monetary Economics

June 19, 2017

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

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Noam Chomsky On Neoliberalism: It’s Market For You But State Power For Me

June 3, 2017

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

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What Is Equilibrium?

May 31, 2017

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

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