Thursday, October 30, 2014

If markets voted...

As I noted yesterday, the Wall Street Journal and The Economist long for a time in which markets, or people with means, voted, not the people in general. From the February 1, 1933 New York Times (p. 29).

If it is not clear, it says: “The Boerse recovered today from its weakness when it learned of Adolf Hitler’s appointment, an outright boom extending over the greater part of stocks." Markets are always right, aren't they?

Wednesday, October 29, 2014

The L-word

Lowflation is the new dirty word now. The Economist says that deflation, not lowflation, in Europe is the world's biggest economic problem. But they also suggest that low inflation (lowflation is the neologism; some suggest that the term was coined by Reza Moghadam from the IMF) is as bad as deflation. In a recent article they note that most countries are undershooting their official or unofficial inflation targets. The Economist says:
"In America, Britain and the euro zone central banks have a 2% target for inflation. In all three, it is below that target. In Italy, Spain and Greece, which have experienced wrenching crises and recessions, it is below zero (as it also is in Sweden and Israel). Japan, which finally escaped from deflation in 2013 after more than a decade of struggle, is battling not to return. Leave out the effects of a consumption-tax increase and inflation there is barely half way to its 2% target. Even in China inflation is below 2%, compared with a 4% central government target (see chart 1)."

They also suggest that the: "the catalyst for the latest deflation scare is ... [the fall in] the price of a barrel of oil ... from $115 at the end of June to about $85 today, prompting a sharp drop in headline inflation." Yes lower commodity prices might play a role, but it is the weak recovery and the excessively contractionary policies in developed countries that are to blame for lowflation.

The Economist at least gets the dangers of lowflation/deflation right, and it's pure Keynes. They say that: "The belief that money made tomorrow will be worth less than money today stymies investment; the belief that goods bought tomorrow will be cheaper than goods bought today chokes consumption." Keynes version of debt-deflation emphasized more the effects of falling prices on debt and investment that consumption, but is essentially the same point. He said: "if the fall of wages and prices goes far, the embarrassment of those entrepreneurs who are heavily indebted may soon reach the point of insolvency, — with severely adverse effects on investment."

Also, The Economist reports that even Wall Street economists (admittedly Buiter is an Old Keynesian with ties to Jim Tobin) like:
"Willem Buiter of Citigroup thinks this [fiscal expansion] would be a 'no-brainer' for America, which badly needs better public infrastructure and which can issue virtually unlimited volumes of treasury bills thanks to the dollar’s reserve currency status. In Europe, Mr Buiter says, the equivalent would be for the EU to permit peripheral countries to run larger deficits with the ECB independently initiating QE to buy the resulting bonds."
This is relevant, since today many expect the Fed to announce the end of QE. 

Markets and democracy

Meanwhile the Wall Street Journal and The Economist remind us that they think that markets (wealthy investors really) and not people should vote. Because when people vote there is: "much ruin in a nation." These are just the opening salvos in the battle for austerian policies in Brazil, as noted by Pedro Zahluth Bastos here (in Portuguese).

Monday, October 27, 2014

Ideology, theory and investment

Krugman is basically correct in today's New York Times to argue that investment is low because of ideology. In his words, the "inability to invest doesn’t reflect something wrong with 'Washington'; it reflects the destructive ideology that has taken over the Republican Party", which ultimately is based on "an overwhelming hostility to government spending of any kind." And he is also correct that the solution would be the "obvious policy response to this situation: public investment."

The graph below shows Gross Capital Formation (investment) as a share of GDP. It is at a low level indeed. And the recovery since the Great Recession has been moderate at best.
Krugman in his post seems to suggest that, since "America has been awash in savings" and there is a "mismatch between desired saving and the willingness to invest", then this is what "has kept the economy depressed." Notice that this diagnostic would be perfectly compatible with the confidence fairy that he argues always against. If the government didn't cause investors to be unwilling to invest, everything would be okay, or so the argument would go (remember that Krugman likes his fairies too; in his argument the Fed has to increase the expectations of future inflation and that would lead to investment), since savings are large enough to finance investment.

Note that, as discussed several times in this blog, investment basically responds to income growth (in all fairness sometimes Krugman remembers this, and his column today says correctly that "Corporations are earning huge profits, but are reluctant to invest in the face of weak consumer demand"). The accelerator works. So investment is low because the recovery is weak. That's why government spending is the solution. Because the Federal government can inject autonomous spending. That also means that savings is the endogenous variable (autonomous spending, which includes public investment, determines income, and the part not consumed of income would be saved).

It is important to get this right to avoid the confidence fairy argument. Not just ideology has been a problem, but also the reluctance of reasonable mainstream economists to part with the neoclassical theory of investment, in which the latter depends on its productivity and, hence, its remuneration (or expected remuneration). In this sense, as I have said before, Krugman's arguments would be more coherent, and stronger from the point of view of evidence, if he parted with neoclassical theory. On the ideology front he is fine, he knows that sometimes government is the solution.

Friday, October 24, 2014

Frederic S. Lee

Sad news for the heterodox community, Fred Lee has passed away. He was a tireless builder of institutions, an activist for Post Keynesian, and institutionalist economics, creating space for heterodox economists and he will be sorely missed. Below one of his last presentations.

Check also his website here. His short bio from the website below.
I attended a small state college in Maryland where I majored in history and took a bit of philosophy. After graduating in 1972, I took some more philosophy courses. But then I got interested in economics and began reading books and articles by Smith, Ricardo, Marx, J. B. Clark, Schumpeter, Joan Robinson, Keynes, Kalecki, Sraffa (or at least I tried to) and others. After working in Saudi Arabia for a couple of years, I returned to the States and attended Colombia University (1976-77) where I picked my undergraduate economic courses. While there I read about everything I could find on costs, pricing, the determination of the mark up, and the business enterprise; and the economists I read included Philip Andrews, Adrian Wood, Harcourt, Hall and Hitch and many others. Because I was a Post Keynesian economist (although I did not know it), it was suggested to me that I go talk to an economists called Alfred Eichner. I did so and became part of the Post Keynesian movement. After Colombia, I went to the University of Edinburgh for a year; and then returned to Rutgers University where I got my Ph.D. My teachers included Jan Kregel, Paul Davidson, Nina Shapiro, and Eichner. In my first year, I took an independent study with Kregel and he told me that I should read the Keynes-Harrod letters regarding the General Theory which had just been published. I did so and wrote a paper which became the basis of my first article, "The Oxford Challenge to Marshallian Supply and Demand: The History of the Oxford Economists’ Research Group." I left Rutgers to take up a one-year teaching position at the University of California-Riverside; and after 3 years there I obtained a tenured position at Roosevelt University in Chicago. In 1990 I went to England where I taught at De Montfort University in Leicester for the next decade. In August 2000 I moved to Kansas City to take up my current at UMKC.

My research interests are Post Keynesian microeconomics, Post Keynesian industrial organization, and the history of economics in the 20th century, with special emphasis on the history of heterodox economics. I am currently writing a monograph on Post Keynesian microeconomic theory. In addition, I am engaged in three other projects, the history of heterodox economics in the United Kingdom since 1945, market governance in the U.S. gunpowder industry, 1865 to 1900, and Congressional response to the problem of corporate size, monopoly and competition, 1945 to 1980. This last project is quite exciting because it enables me to explore the administered price controversy, examine in detail various institutional economists such as Walton Hamilton and John Blair, and examine the way neoclassical economists used their institutional power to suppress heterodox economics. These four projects are generating a great many but more specific projects that are just perfect for Ph.D. dissertations.
PS: Barkley Rosser has written a nice post on Fred here. Other posts by Stephany Kelton, Lars Syll, David Ruccio and others have been linked here.

New School Economic Review (NSER) Call for Papers

Submission Deadline: February 20th 2015/Publication: May 2015

The NSER is a peer-reviewed, student-run economics journal that publishes original and high-quality articles. We encourage diversity of subject matter and writing style covering a wide range of topics in economics. Submissions can be in the form of but not limited to, scholarly articles, commentaries, book reviews, guest editorials, and announcements. The papers will be reviewed by a committee of New School alumni. The NSER welcomes submissions from academics, practitioners and students of all levels seeking to broaden and strengthen the foundational structure of the study of economic systems.

The NSER editorial board reserves the right to suggest both minor and substantive revisions to accepted works. Finally, following the standard practices of North American scholarly journals, the NSER is not in a position to offer payments for accepted and published manuscripts.

In preparing your submissions, we ask that follow the journal’s procedures and editorial practices. Papers should be submitted in PDF as well as either MS Word or LaTeX. We will accept submissions of a variety of lengths, however, please no longer than 25 pages. All papers should be in line with The Chicago Manual of Style.

All submission should be sent to There is no submission or publication fee.

Kind regards,

The New School Economic Review editorial board

See more here.

Thursday, October 23, 2014

Kicking away the ladder too

The table below comes from Broadberry and O’Rourke's The Cambridge Economic History of Modern Europe. It shows that national control of the money supply, the monopoly of emission, is a 19th century phenomena, something we discussed with L-P. Rochon in this paper back in 2003.

Note that before the mid-19th century period, which Charles Goodhart aptly calls the Victorian era, central banks had been created for supporting the State’s financing needs. Also, the role of lender-of-last resort (LOLR) in the late 19th century, associated to Bagehot, did not lead to a significant change in the Victorian preoccupation with price stability.

It is only with the Great Depression that the Victorian dreams of a self-adjusting economy with a tendency to full employment and an orderly division of labor, where the periphery only produced commodities and imported manufactured goods, were utterly shattered. In my view, an contrary to Goodhart, the crucial element on the rise of Keynesian Central Banks was the abandonment of Say's law, not of the Real Bills Doctrine, as we discuss here with Esteban Pérez.

I wrote a paper (in Spanish), when I was at the Central Bank of Argentina, that has not been published on these topics, titled 'Kicking Away the Ladder Too,' in obvious allusion to Ha-Joon Chang's use of List's expression. The point is that central banks were used as tools of economic development (the Bank of England for sure), but once central economies went up the ladder they kicked it, suggesting that central banks should only be concerned with inflation. Now that the Keynesian moment has passed, the mainstream has gone back to the inflation obsession.

Wednesday, October 22, 2014

On the blogs

Jean Tirole, A Practitioner Of New Industrial Organization -- Robert Vienneau discusses the new IO, based on game theory of the new 'Nobel' winner, and the old IO, which was based on the classical surplus approach and barriers to entry

Crony Capitalism, or Plain Old Capitalism? -- Arthur MacEwan dissects the right wing attack on the Export-Import Bank

These states, Part I and Part II -- Max Sawicky on how labor markets have done in States with gubernatorial elections

Capitalism, Episode 3

Episode 3 of Capitalism, in French though. English version coming soon.

Tuesday, October 21, 2014

Where revenue comes from

Not sure if I posted something similar before. At any rate, no surprises. Before the New Deal excise and other indirect taxes were the vast majority of the administration's revenue. Since then the individual income tax become the central source of revenue. Since the 1970s corporate income taxes fell, and were essentially compensated by higher payroll taxes. In other words, first more progressive, then more regressive. Updated data here.

Friday, October 17, 2014

Tony Aspromourgos on Piketty, future of capitalism, growth & theory of distribution

By Tony Aspromourgos

From the abstract:
This essay reviews Thomas Piketty’s Capital in the Twenty-First Century (2014). The focus is upon the conceptual framework and theoretical interpretation of the empirical findings assembled in the book, rather than those empirical findings themselves (which are, in any case, broadly incontestable). The core theoretical logic of the distributional dynamics is explained and subjected to scrutiny with respect to the theory of distribution in particular, but also the theory of growth. 
Read rest here. For other posts on Piketty, see herehereherehere, here, and here.

Thursday, October 16, 2014

Development and Change Forum 2014

All papers are, at least for now, open for download here. Codrina rada's assessment of UNCTAD's Trade and Development Report 2012 is, for example, available here. Guy Standing's discussion of the precariat is here. Enjoy!