Saturday, January 31, 2015

Galbraith on Greek Hope

"Fifty-four years ago, in his inaugural address, President John F. Kennedy declared, “Let us never negotiate out of fear. But let us never fear to negotiate.” They were not the most soaring sentences in that short speech, but they were among the most important. For they signaled, deliberately and unmistakably to the Soviet Union, that the Cold War might be ended without turning hot, and that the world need not live forever under bluster, threat, and the shadow of nuclear war.

Today, Europe faces a negotiation over debt and depression. On one side there will be the young government of Greece. On the other, the financial powers of Europe and the world. Now as then, the question of fear cannot be escaped."

Read rest here.

Friday, January 30, 2015

‘Economists also need competition’

By André Orléan*

In these same columns on 4 July 2012, several major figures in the social sciences asked the French government to guarantee pluralism in all institutions engaged in research and teaching in economics. Without this pluralism, our country cannot possibly engage in informed and rigorous democratic debate. The objective at that time was to draw lessons from the 2008 financial crisis, which had demonstrated how counterproductive economic thinking characterized by excessive uniformity and an overweening self-confidence could be. Today, however, we have to acknowledge that these lessons have not been heeded: nothing has changed, either in research programs or in teaching. This is due to the monopoly position that so-called ‘mainstream’ approaches occupy today. Let us be clear: we do not in any way deny the value of these approaches, nor their influence and nor are we demanding that they be in any way constrained. However, we would argue that, both in France and abroad, there are other intellectual traditions which, although very appealing to academics and students, are fettered by a short-sighted adherence to majority rule, which enables the dominant approaches to enjoy exclusive control of economic thinking.

Awareness of this situation subsequently increased, the most visible sign of it being the founding of the AFEP (Association Française d’Economie Politique), whose membership now includes more than 600 PhDs in economics and the social sciences. This association proposed that, by way of experiment, a new research and teaching space should be opened up for four years in order to enable this alternative approach to economics, ‘rooted in the social sciences’, to stay afloat. At the end of these four years, it would be decided either to continue the experiment or to put an end to it, depending on the results. This balanced proposal which, let us reiterate most strongly, takes nothing away from the activities of mainstream economists or the resources devoted to them, attracted considerable support from academic economists – even before its existence, 300 of them (out of a total of 1800) signed a solemn declaration in which they expressed their wish to contribute to such a space as soon as it was established.

The urgency of the problem, the simplicity of the proposed solution and the strong support it received in the academic community convinced the ministry, which at the beginning of December 2014 announced the launch of a new field of teaching and research on ‘economics and society’, which would join the 80 or so sections already in existence. The reaction to the announcement of this agreement was both rapid and violent. The chair of the current ‘Economics’ section threatened to resign if the ministerial decree was not abrogated! A number of deans of economics faculties and he himself declared in the Figaro of 4 January 2015 that the new section would serve only ‘as a home for the failures and frustrated elements’ of the university system, ‘those who do not succeed in getting their work published in reputable journal’. They added, for good measure, that ‘the minister has been taken in by the leftists’. We thought that such an argument, advanced not by self-radicalized net surfers but by the most senior figures in the world of academic economics, would enable ministers to gauge precisely the state of pluralism and dialogue in our universities. It clearly demonstrates the reality of what we have repeatedly declared when we explain that, in the current situation, divorce is the best solution, one that will enable us to start talking to each other again. The Ministry could also have questioned the logic of an argument that declares 300 academics to be ‘failures’ or ‘frustrated’ while at the same opposing their departure with the utmost vehemence.

Economics is most assuredly a complex and, at times, confusing discipline. The belief that one is absolutely right and all the others have absolutely nothing to contribute is suicidal. Have we forgotten the terrible failure of economists to warn the world of the 2008 crisis? Should we not react? Let it not be forgotten that for twenty years financial efficiency was proclaimed from the rooftops as the ‘economic proposition with the most solid empirical foundations’! To be innovative in a changing world is not necessarily to go where the majority are already located. Now in France we have in our possession a treasure house, namely the way of doing economics that goes back to the Annales School and to Braudel and includes authors as diverse as Commons, Marx and Keynes. It has a long history and many supporters. It cannot be easily summarized in a few words since it likes to think of itself as fiercely pluralist. It takes the view that progress results from an amalgamation of economics and the other social sciences. Many researchers and students identify with this approach. Good for them! Allowing them to follow their intuitions takes absolutely nothing away from those who wish to do things differently. This new section must be seen as an asset for everyone, for those who are keen to prove that their theory works as well as for the mainstream, which certainly needs the spur of competition if it wishes to advance and continue to be innovative. Is this not a proposal that all economists should be able to understand?

Minister, at a time when pluralism is so widely proclaimed, we urge you to see your project through to completion. Give the freedom to express heterodox ideas in economics a chance and establish the new ‘Economics and Society’ section!

* Originally published in Le Monde in French here. Many economists co-signed, including yours truly.

Petition "For pluralism, now!"

From the Association Française D'Économie Politique (AFEP). 

"In what direction is our economic system heading ? Where are our societies that suffered violently with the turmoil going? How did we get here? How to react?

The current situation not only reveals an economic crisis, but also a profound intellectual crisis, that of economic thinking. The causes of this crisis are many, the solutions among others must rely in theoretical, practical and policy innovation. Yet there is an institutional issue which blocks the creativity with which a fast and simple political response could take place. A solution that would immediately restore vitality in the reflection on the economic and social affairs of our time: the creation of a new section of the National Council of Universities (CNU) to develop a different way of thinking about the economy."

To sign the petition and read more go here.

Mario Seccareccia on Greece and the European Crisis

Nice interview by Mario for INET. The main point in his words:
"In the medium term, Greece could create some form of parallel currency set at par with the euro, like Argentina did in the early 2000s. The government in Argentina used 'patacones' to buy things and pay employees and they became quite acceptable because ultimately regular people could pay taxes with this currency. The Greeks could have a parallel national currency without altogether abandoning the euro. 
So these various short-to-medium-term measures may well be available to prevent default, but, at the end, if the Greek government cannot renegotiate its crushing debt burden — without some form of debt forgiveness in however form it will be disguised — you could see a Greek default happen. If it reaches that point, I don’t think there’s anything in the Eurozone treaties that would prevent Greece from retaining the euro. In this case, it will have to learn from the experiences of dollarized countries such as Ecuador that have been surviving under very severe constraints on fiscal policy but without the oil revenues that until recent times have served well to replenish Ecuador’s coffers."[Italics added]
Not sure if Mario is against Greexit, meaning exit from the euro, but the suggestions is that even with default there is no need for exit. I am not against his perspective, and that was the view that Wynne Godley had about Europe and the euro, for the former, but against the way the latter was implemented without fiscal federalism, and significant transfers. I also noted before that devaluation or exit does not solve all the problems.

Thursday, January 29, 2015

Robert Reich on the Trans Pacific Partnership

I have posted on this topic here. For the problems of the conventional (mainstream) trade theory go here or the Ricardian here. For a discussion of alternative trade theories go here (and here).

Wednesday, January 28, 2015

Obama on Middle Class Economics: the Dangers of Bipartisanship

In general, progressives were happy with Obama's State of the Union address. And with good reason. He defended increasing the minimum wage, hiking capital-gains tax on the wealthy, slapping a new levy on big banks and closing a loophole which allows capital-gains tax to be avoided. All good stuff. Until he got to trade issues. From the transcripts:
"21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world's fastest-growing region. That would put our workers and businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. That's why I'm asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren't just free, but fair.
Look, I'm the first one to admit that past trade deals haven't always lived up to the hype, and that's why we've gone after countries that break the rules at our expense. But ninety-five percent of the world's customers live outside our borders, and we can't close ourselves off from those opportunities. More than half of manufacturing executives have said they're actively looking at bringing jobs back from China. Let's give them one more reason to get it done."
The push for trade promotion authority is essential if the Trans Pacific Partnership (TPP) is to be approved. I have written on the issue before, specifically on the TPP and how it has made strange bedfellows (see here). This is one of the issues in which he may actually find common ground with the new Republican Senate. And it's a cautionary tale for those that think that bipartisanship is always good.

Tuesday, January 27, 2015

More on the "Consumer Revolution"

I have noted before (and here and here) the neglect of the role of demand in more recent historical accounts of the Industrial Revolution. The typical view used to emphasize demand, like in Landes' Unbound Prometheus, but more recent accounts like Allen or Mokyr emphasize technological change and supply side forces.

Thankfully, there is a whole new literature that puts an emphasis on the so-called Consumer Revolution, in particular the work of Maxine Berg. T. H. Breen in The Marketplace of Revolution goes further and suggests that the economic reasons behind the American Revolution were also associated to the transformation in consumer culture. In his words:
"What gave the American Revolution distinctive shape was an earlier transformation of the Anglo-American consumer marketplace. This event, which some historians have called a 'consumer revolution,' commenced sometime during the middle of the eighteenth century, and as modestly wealthy families acquired ever larger quantities of British manufactures— for the most part everyday goods that made life warmer, more comfortable, more sanitary, or perhaps simply more enjoyable—the face of material culture changed dramatically. Suddenly, buyers voiced concerns about color and texture, about fashion and etiquette, and about making the right choices from among an expanding number of possibilities."
In this view, the demand for new goods (and not so new too), tea, coffee, tobacco, chocolate, china, calicos, silks, etc. was central for the technological revolution of the 18th century. What Breen seems to suggest is that the same Consumer Revolution that was taking place in England was taking place in America, and that the subordinated role in the colonial pact, and the trade restrictions imposed by the many Parliamentary Acts, are at the heart of the movement for independence. In other words, not only demand might be relevant to explain economic growth, but economic growth might be central for political developments.

Monday, January 26, 2015

What will happen in Greece?

That's the question everybody is asking. And no, I don't have the answer. But we do know that Tsipras promised to renegotiate the debt, and that Yanis Varoufakis, who has been suggested as the probable finance minister has said that the current policies are a: "kind of fiscal waterboarding policies that have turned Greece into a debt colony." You may want to read Yanis Modest Proposal, co-authored by Jamie Galbraith and Stuart Holland and linked here too. Also, this paper by Dimitri Papadimitriou, Michalis Nikiforos and Gennaro Zezza might be of interest to understand the possibilities and constraints Greece is currently facing.

Saturday, January 24, 2015

On the blogs

Government spending multipliers in good times and in bad: Evidence from U.S. historical data -- Valerie Ramey and Sarah Zubairy suggest that fiscal multipliers are as large in booms as they are in recessions, with a zero bound interest rate. Their estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were large, but because government spending was great. Same thing we suggest here with Nate.

Alexander Hamilton's Comeback -- Justin Fox on Michael Lind's book on US economic history. I tend to agree on the advantages of Hamilton over Jefferson, in this respect.

The Federal Reserve and Shared Prosperity: A Guide to the Policy Issues and Institutional Challenges -- Tom Palley on bringing back the full employment goal, raising the inflation target and not hiking the rate of interest too soon.

Private Employment under Obama and Bush -- simple, but revealing graphs by Menzie Chinn.

Graph/Table of the Week: Tax in Scandinavian countries -- I posted my weekly graph/table on URPE's blog, showing how high the levels of taxation are in Scandinavian countries. And yes, no problem, quite the opposite.

Friday, January 23, 2015

Cuba, the United States and Our America

It often comes as a surprise to most Americans that Latin Americans generally resent that in the United States people think of themselves as uniquely American—as if the rest of the continent somehow has another name. Latin America is, in fact, a name created by the French, supported by local elites, that invaded Mexico to collect foreign debt and to try to re-establish European colonialism. The Latin heritage, being a common one between Maximilian’s new court and the Mexican people, gave the region its appellative, but a tarnished one. That is why José Martí, the hero of Cuban independence, referred to “Our America,” to contrast it with the other, the one Americans fancy as the only one.

Read rest here.

Academic Freedom Watch: Koch's Brothers and Universities

For the whole documentary go here. For the part specifically about their role in universities forward to minute 17:30 or so.

Academic freedom watch: academically disguised lobbying at the University of Kansas

I noted before the news about hiring practices at Florida State being influenced by the Koch's brothers ideological agenda. Now the news suggest that the Koch have been funding an ideologically biased center at the University of Kansas (KU). Art Hall, who worked for the the Koch's, and now runs KU's Center for Applied Economics, has been at the center of the controversy.

There is a new and troubling development in the story. Professor Hall has filed to block a group of students that wanted more information about the relation between him and the Koch brothers. Schuyler Kraus the president of Students for a Sustainable Future, the group behind the information request, suggested that: “It just seems more obvious that there’s something going on that they want to hide.” Indeed.

The connections of wealthy individuals, with strong views on the economy, funding research on economics is always problematic. Not surprisingly, this is happening at a Business School, which are often heavily dependent on corporate donors, who might have a political agenda that conflicts with the research values that most universities profess to follow.

PS: You may want to check the UnKoch My Campus website here. This quote from Charles Koch in their site is telling: "We should cease financing our own destruction and…[support] only those programs, departments or schools that 'contribute in some way to our individual companies or to the general welfare of our free enterprise system.'"