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Showing posts from August, 2013

Poverty, Cognition, and Human Potential: Another Crack in The 'Bell Curve' Myth

New research published in Science on how poverty affects mental capacities, in many respects, supports Maslow's pyramid of needs theory, namely, less demands for basic needs opens the mind to higher-order cogitation and creativity. Economic deprivation imposes such a massive cognitive load that little brain bandwidth is left over to maximize human potential.
In a series of experiments run by researchers at Princeton, Harvard, and the University of Warwick, low-income people who were primed to think about financial problems performed poorly on a series of cognition tests, saddled with a mental load that was the equivalent of losing an entire night’s sleep. Put another way, the condition of poverty imposed a mental burden akin to losing 13 IQ points, or comparable to the cognitive difference that’s been observed between chronic alcoholics and normal adults.  The finding further undercuts the theory that poor people, through inherent weakness, are responsible for their own poverty –…

A Tale of Two Depressions?

Eichengreen & O'Rourke wrote back in 2009 a very popular post on Vox.eu here, updated in 2010 (and here) which suggested the different nature of the two events (one depression and a recession really). Their data was global. Looking at GDP, rather than industrial output, in the US alone, we have something like the figure below (data from Measuringworth).
Note that it's hard to compare the two events. Clearly automatic stabilizers like unemployment insurance do work. Also, the Fed reaction and the fiscal stimulus worked quite well, at least in precluding a collapse of output of the same proportions. And yes the pace of the recovery is much slower now than what it was when it finally started in the 1930s.

Introduction to the Second Edition of "The Theory of Monopoly Capitalism"

Introduction to the Second Edition of "The Theory of Monopoly Capitalism" by John Bellamy Foster:
The Theory of Monopoly Capitalism: An Elaboration of Marxian Political Economy was initially written thirty years ago this coming year as my doctoral dissertation at York University in Toronto. It was expanded into a larger book form with three additional chapters (on the state, imperialism, and socialist construction) and published by Monthly Review Press two years later.2 The analysis of both the dissertation and the book focused primarily on the work of Paul Baran and Paul Sweezy, and particularly on the debate that had grown up around their book, Monopoly Capital: An Essay on the American Economic and Social Order (1966).3 In this respect The Theory of Monopoly Capitalism was specifically designed, as its subtitle indicated, as an “elaboration” of their underlying theoretical perspective and its wider implications.  My original motives for the analysis were twofold: (1) to p…

Central Banking in Theory and Practice: Roundtable

The Modern Money Network (MMN, check their blog here) has updated their "Money Series schedule here. This event might be of interest (but all of them are worth your time, if you're near New York City).

Central Banking in Theory and Practice
Date: Monday, September 23th, 6.15pm
Location: Room 103, Jerome Greene Hall, Columbia Law School

Moderator: Richard Clarida, C. Lowell Harriss Professor of Economics and International Affairs, Columbia University

Speaker 1: Lord Adair Turner, Senior Fellow, Institute for New Economic Thinking and former Director, U.K. Financial Services Authority

Speaker 2: James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government, University of Texas at Austin

Speaker 3: Matias Vernengo, Associate Professor, Bucknell University & former Senior Research Manager, Central Bank of Argentina

Is India on the verge of a BOP crisis?

Last week Krugman pointed out quite correctly that India is NOT on the verge of a Balance of Payments (BOP) crisis. Yes the rupee has depreciated sharply and the current account deficit is somewhat larger than what would be the comfort zone. Yet as he noted, foreign denominated debt is very low and, one should add, reserve coverage is reasonably large.

That does not mean that everything is fine. As noted here before (and here by Suranjana Nabar-Bhaduri, and a longer paper here), the development strategy in India, based on service-led growth, does suffer from significant limitations.

But obviously it is preposterous to argue, as the The Economist does, that more liberalization can in the long run, by attracting investors, reduce the limitations of the BOP constraint. In particular, services (think of call centers as the exemplar case) do not lead to higher wages for Indian workers in the long run, but rather to lower service costs for foreign corporations. Besides, even service export…

A Freedom Budget for All Americans: Recapturing the Promise of the Civil Rights Movement in the Struggle for Economic Justice Today

New Book byPaul Le BlancandMichael D. Yatesfrom the Monthly Review Press While the Civil Rights Movement is remembered for efforts to end segregation and secure the rights of African Americans, the larger economic vision that animated much of the movement is often overlooked today. That vision sought economic justice for every person in the United States, regardless of race. It favored production for social use instead of profit; social ownership; and democratic control over major economic decisions. The document that best captured this vision was the Freedom Budget for All Americans: Budgeting Our Resources, 1966-1975, To Achieve Freedom from Want published by the A. Philip Randolph Institute and endorsed by a virtual ‘who’s who’ of U.S. left liberalism and radicalism. See rest here

INET PhD student workshop in Foz do Iguaçu - Brazil

Foz do Iguaçu, Brazil
December 8-10, 2013

The Institute for New Economic Thinking will offer a PhD student workshop in Foz do Iguaçu, Brazil. The event will take place on December 8-10, 2013, right before the 41st Brazilian Economics Meeting, the largest annual convening of the Brazilian economics academy. The workshop is being organized in cooperation with ANPEC, the Brazilian Association of Graduate Programs in Economics, and will consist of lectures by selected senior scholars as well as paper presentations by young scholars.

Lectures

The Institute will offer the mini course Growth in Developing Countries, taught by Nelson Barbosa from Universidade Federal do Rio de Janeiro, and Lance Taylor from the New School for Social Research. The course will analyze the growth experience of developing countries from a structuralist perspective. A detailed course description will be posted here soon.
More info here (h/t Laura Carvalho).

Unemployment, welfare and the budget battles

As part of the plan to 'end welfare as we knew it' (Clinton, remember?) the new Temporary Assistance for Needy Families (TANF) program replaced the New Deal era Aid to Families with Dependent Children (AFDC). As shown by the Center on Budget and Policy Priorities (CBPP) during the last recession TANF did not increase hand in hand with unemployment.
While unemployment almost doubled, TANF cases increased by slightly more than 10% during the crisis. The program that expanded the most during the crisis was the Supplemental Nutrition Assistance Program (SNAP), which used to be called food stamp program. But hey, no worries, Republicans want to cut the program significantly.

Geography, culture, institutions and economic growth

Acemoglu, Johnson and Robinson (p. 406) used a very effective visual aid to show that institutions and not culture of geography are the main or fundamental determinants of economic growth. A version of the graph using Maddison's data is shown below.
The graph does show that even though South and North Korea share the same culture and geographic conditions, they do have significantly different growth patterns after the 1970s, with GDP per capita in South Korea reaching more than US$20,000 by 2008, while North Korea never takes off, and after the collapse of the Soviet block reverts to the initial levels. This would suggest that institutions are central for growth.

There is the whole issue of which institutions are relevant, of course. Acemoglu et al. emphasize private property rights and the rule of law, which would allow entrepreneurs to invest. In their view, supply side factors are central. I would argue that demand forces are more relevant, and that symbiotic relation with US h…

Canes, I mean Keynes for Kids

And when you think you've seen everything... There is a website on Keynes for Kids (h/t Alberto Vázquez for the link)! Not sure how many kids would get the 45o degree Keynesian Cross (renamed after Samuelson in the site), but it's worth a try. If there are tons of sites about evolution for kids, why not one about Keynesianism.

Larry Summers as Ineffectual Regulator: Tall Tales From the White House

From Dean Baker:
The Obama administration push to get Larry Summers as Federal Reserve Board Chair is moving into overdrive, as they pull out all the stops. Last week they gave the public the story of Larry Summers as a prescient but frustrated regulator. Summers saw the problems in the subprime housing market way back in 2000, but couldn’t get anything through an obstructionist Republican Congress. Exhibit A in this story is a joint report on predatory lending by the Treasury Department and the Department of Housing and Urban Development (HUD) that was issued in June of 2000, back when Larry Summers was Treasury Secretary. The report lists many of the abuses that underlie the explosion of bad loans in the housing bubble years.  Unfortunately the report’s recommendations were blocked... Read Rest here.

Krugman vs. Galbraith via Lars Syll

Lars dug up this on-line debate from the 1990s between Paul and Jamie. He linked to the full debate here. The part he posted is about the use of math and models in economics. There are other interesting parts in the debate, even if it is dominated by a discussion of the effects of free trade policies on manufacturing wages in the US (these was after the publication of Adrian Wood's book on North and South trade; mind you my problem with Wood's book is that it still uses Heckscher-Ohlin, but that is a different discussion).

Here is a brief comment by Jamie on two other topics that are quite relevant today, and that 'serious' economists did not (and still don't) agree.
"The merits of cutting the budget deficit. Do serious economists all agree that cutting the budget deficit will raise savings and investment, and increase the rate of productivity growth? They do not. The late, great Bill Vickrey, who died just three days after receiving this year's Nobel Mem…

A Decade of Flat Wages: Protracting The Long-term Trend

Wages for the typical U.S. worker did not rise at all in the 2000s, and annual compensation only grew slightly, protracting a long term trend (since roughly the early 1970's) of declining labor share of the total product of the US economy. An extensive analysis has been produced by Lawrence Mishel and Heidi Shierholz in a new EPI briefing paper, which can be seen here.

The sanctity of contracts, or why some contracts are more equal than others

Dean Baker on the crisis of pension system in Detroit (discussed before here) on "All In with Chris Hayes" last night.
The message from the White House is that AIG contracts are sacrosanct while worker's pensions can be broken anytime. It does have implications for North like notions of the role of institutions, and contractual security, in promoting economic development (also discussed here before). And yes it is part of the push for privatization of Social Security.

See the whole video here.

Economists with K, or rediscovering something never lost

So there is a certain buzz about the two old Ks, Keynes and Kalecki, and what Krugman and Konczal, the new Ks, have been saying about their theories. Mike is more of a journalist, and it is certainly good that journalists get Keynes right. And even better if they get Kalecki. On Krugman I said enough. He should take a page from Keynes and learn that by 1936 he was:
"no longer of the opinion that the concept of a 'natural' rate of interest, which previously seemed ... a most promising idea, has anything very useful or significant to contribute to our analysis." In all fairness, for heterodox economists this rediscovery of Keynes/Kalecki is both welcome and a bit frustrating (check the comments in Quiggin post; someone thinks that DeLong was the first to point the relevance of Kalecki's "The Political Aspects of Full Employment").

But here is my advice to recovering neoclassical economists, check these other economists with K, you might learn something: …

The Quality of Monopoly Capitalist Society: Culture and Communications

From the editors of Monthly Review:
Below is a hitherto unpublished chapter of Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966). The text as published here has been edited and includes notes by John Bellamy Foster. The style conforms to that of their book. Part of the original draft chapter, dealing with mental health, was still incomplete at the time of Baran’s death in 1964, and consequently has not be included in this published version.  &
The culture of a society includes the education of its young, its literature, its theater, music, the arts—in short whatever contributes to the “training and refinement of mind, tastes, and manners…the intellectual side of civilization.” To inquire further into the culture of monopoly capitalism, we have here selected for attention two areas which offer a larger body of specialized research and which we judge to be decisive for the quality of culture as a whole: book publishing …

Tax wars (Episode I, the Payroll Menace)

A long time ago in a galaxy far, far away... Oh well, in the US in the last 80 years or so the structure of taxes changed quite a bit. The figure below shows the share of individual and corporate income taxes, excise and payroll taxes since 1934 to 2013 (last year is an estimate; source here).
Excise taxes fall from high levels to relatively low levels, making the whole tax structure more progressive. On the other hand, corporate income tax revenues fell from the 40% peak of the WW-II period, to around 10% [but remained above 20% until the 1970s, one should note] making it less progressive. Also, changes in the marginal tax rates in the individual income tax, particularly after the 1980s, made the system more regressive.

Note, however, that the largest increase as a source of revenue is the payroll tax. This suggests that increasingly the social safety net is paid by workers. That, of course, will not stop the conservative political forces to continue to try to privatize social secur…

Recovery in the US and Europe

Yep, the recovery has not been great in the US, with employment levels still below the previous peak. But compared to Europe (see graph below; source here).
The Euro Area is 3% below the previous peak, while the US is slightly more than 4% above. The magnitude of the collapse in Europe is incredible. Note that Germany, the successful European story, is far from good.

Internet access and relative economic development

There are a few alternative measures of economic well being. GDP per capita is one, and a measure of output (Gross National Income) was complemented in the 1990s with life expectancy and education in the well-known index of Human Development (HDI). The figure below shows access to internet around the world.
Note that this measure shows a very similar result to the HDI. US, Canada, Western Europe, Australia and Japan (South Korea too and some of the Gulf States) have high levels of access to the internet. The Southern Cone in Latin America, Russia, Eastern Europe and a few Arab counties are in the middle, with China, part Eastern Europe not far behind. Then the low access countries are in Africa and Southern Asia.

Krugman on Friedman, Austrians, and Paradise Lost

I was a bit busy this week and did not weigh in on Krugman's latest incursion (and here too) on the history of economic ideas. He correctly dismisses Conservative economists in pre-Keynesian times, and particularly Hayek (and Austrians), who suggested that recessions and depressions were useful, as not relevant. And also, notes Friedman was more sophisticated. He also notes correctly (as was pointed out here before), that Friedman used when he was forced to present a complete model and ISLM with a Phillips Curve, that was not very different from the more Keynesian versions of the model done by the Neoclassical Synthesis authors.

He is more positive about Friedman because:
"He [Friedman] was willing to give a little ground, and admit that government action was indeed necessary to prevent depressions. But the required government action, he insisted, was of a very narrow kind: all you needed was an appropriately active Federal Reserve... [But Krugman does not ] want to put Frie…

Print version of the paper on the dollar is now out

The full paper is here (previous post here). The abstract says:

This paper suggests that the dollar is not threatened as the hegemonic international currency, and that most analysts are incapable of understanding the resilience of the dollar, not only because they ignore the theories of monetary hegemonic stability or what, more recently, has been termed the geography of money, but also as a result of an incomplete understanding of what a monetary hegemon does. The paper argues that the dominant view on the international position of the dollar has been based on a Metallist view of money. In the alternative Cartalist view of money, the hegemon is not required to maintain credible macroeconomic policies (i.e., fiscally contractionary policies to maintain the value of the currency), but to provide an asset free of the risk of default. Further, it is argued that the current crisis in Europe shows why the euro is not a real contender for hegemony in the near future. My affiliations are no…

Political Economy of the Environment: A Conference of the Union for Radical Political Economics Co-sponsored by New Politics

A Conference of the Union for Radical Political Economics Co-sponsored by New Politics St. Francis College, Brooklyn, NY • Saturday, October 5, 2013 Call for Workshop Presentations
If you would like to make a workshop presentation related to the theme of this conference, please send an email to the URPE National Office at urpe@labornet.org.

We are living in a period of increasing environmental crisis and growing inequalities within and between the countries of the world. The obstacles to sustainable development and the equitable distribution of the products of our labor lie in the ways in which our political economic system operates. The necessary technology is already available, and the resources required to end the use of fossil fuels, for example, exist. But multinational corporations, and the governments they control, base their decisions on the maximization of profits, not on the well-being of the world’s people. Understanding and challenging capitalism is therefore essential …

Introductory Essay for Newsletter of Marxist Sociology Section of ASA

Below is the introductory essay that I wrote for the recent relaunching of the newsletter for Marxist Sociology Section of the American Sociology Association, which can be seen here.

Over the years, the intellectual agendas of critical social scientists have taken a decidedly pluralist turn. Leading thinkers have begun to move beyond established alternative paradigms opening up new lines of analysis, manifesting a turn to a more cross fertilization of ideas, which seemingly suggests that the once powerful embracement of Marxism by the infamous Radical Caucus has waned. The relaunching of the newsletter of the Section on Marxist Sociology of the American Sociological Association is a testament to the fact that this supposed decline in radical scholarship is certainly not the case. On the contrary, the praxis of the Sociology Liberation Movement carries on as unquestionably substantive in the assessment and articulation of pertinent contemporary and historical social, political, economi…

The natural rate in pure exchange, intertemporal models

One more clarification on the previous discussion about the natural rate in Austrian models. In his reply,  Mr. Rallo suggests (in Spanish) that I confused the natural rate that can be derived from a barter economy with the one derived from intertemporal equilibrium model. So let's start by clarifying that barter refers to whether there is money or not, while the notion of intertemporal equilibrium is associated to the nature of equilibrium, whether it is short-term or long-term.  You can have an intertemporal model of equilibrium with barter as several Arrow-Debreu models actually are.

Traditional notions of equilibrium, like the classical authors had, are not intertemporal, but several of those were based on barter ideas. Equilibrium in classical economics is a tendency associated to the process of competition that leads to a uniform rate of profit. Some authors had the real (meaning non-monetary) rate of profit govern the system and also the rate of interest, like Ricardo, whil…

A note on profit-led/wage-led growth models

By Sergio Cesaratto (Guest blogger)

As a follow up on Matías' post on real exchange rate (RER) and growth I want to make a point about "profit/wage led growth", although this is not central in the discussion about RER/Exports.

1) Profit-led growth:

Variations of the normal rate of profit, as such, have no direct and mechanic influence on gross investment, as often argued by post-Keynesian authors of various persuasions. As such, variations of rn only concern the sphere of income distribution. The latter can in turn influence investment decisions:
by affecting expected effective demand: a higher/lower rn might, for instance, negatively/positively affect consumption demand if this is affected by lower/higher real wages; or by being connected to the relative bargaining power of the working class and to the necessity for the ruling class to discipline it by regulating the labour reserve army; but this is generally done by using fiscal, monetary and exchange rate policies …

Paul Krugman's The Phony Fear Factor

Much has been said on how economic demagoguery continues to reign supreme, particularly by heterodox writers, so I won't delve much into this topic. Nevertheless, it is interesting to see that in his NYT op-ed, Paul Krugman, a pretty mainstream economist, disparages the 'confidence fairy' by citing Kalecki's “Political Aspects of Full Employment” (a Monthly Review link, interestingly enough). Though, Krugman somehow can't see much of Marx in Kalecki...does he not want to see it?

From the article:
"We live in a golden age of economic debunkery; fallacious doctrines have been dropping like flies. No, monetary expansion needn’t cause hyperinflation. No, budget deficits in a depressed economy don’t cause soaring interest rates. No, slashing spending doesn’t create jobs. No, economic growth doesn’t collapse when debt exceeds 90 percent of G.D.P. And now the latest myth bites the dust: No, “economic policy uncertainty” — created, it goes without saying, by That Man…

"The Endless Crisis" reviewed in Marxist Sociology Section (ASA) Newsletter

Book Review: The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, by John Bellamy Foster and Robert W. McChesney

Review by David Fields and Daniel Auerbach
The Monthly Review, since its inception, has been carrying on some of the best works in Marxism. The analytical foundations of what has come to be called the Monthly Review School were set out by the economists Paul Baran, Paul Sweezy, and Harry Magdoff. The lucidly rich works like Monopoly Capital by Baran & Sweezy and Magdoff’s piece on Imperialism (along with Harry Braverman’s work on Labor and Monopoly Capital) have sustained Marx’s invaluable insights into the twentieth and twenty-first centuries. Read rest here.

Innagural Issue of Marxist Sociology Section of American Sociological Association Newsletter

Colleagues, I am sure many of you would be interested to know that the Marxist Sociology Section of the American Sociological Association has relaunched its monthly newsletter, of which yours truly is a co-editor (and wrote an introductory essay). Our inaugural issue can be seen here. Our website is here.

Why did Marx understand America better than Europeans do today

I somehow didn't see this one before. On June 28, James Galbraith delivered a keynote lecture to the 50th anniversary symposium of the John F. Kennedy Institute for North American Studies, Freie Universität Berlin. The talk is titled "How Come Europeans Understood the Political Economy of America So Much Better in 1861 than Today, and What Did Karl Marx Have to Do with That?" Listen to the audio here.

On Austrians and the natural rate of interest

I don't often write about Austrians. As I noted before the reason is that, as a school of thought, Austrians are kind of irrelevant. They are part of the marginalist mainstream, but are often confused as heterodox (sometimes even Austrians don't know that they are neoclassical). In fact, Hayek was for the most part forgotten after Sraffa and others showed the inconsistencies of his theories in the 1930s, and if Austrians understood the consequences of the capital debates, their come back in the 1970s would seem even less reasonable.

Throughout their underground period, from the 1940s to the 70s, they were part of 'secret' societies in which only the initiated (complete adherence to the ideology) could participate, like the Mont Pèlerin Society, and creating think tanks, like the conservative Institute for Economic Affairs (IEA), to promote the laissez faire ideology (note this had no basis in theory, since they cannot prove that markets produce efficient allocation of…

Where is the elasticity? (or more on devaluation and growth)

Since 2007 mainstream economists, and often some heterodox (or more precisely eclectic) authors, have suggested that the Argentine economy is on the verge of collapse (see for example my good friend Bresser-Pereira here or this). A typical argument made by both orthodox economists (some of which favored the Convertibility Plan of the 1990s) and the more unconventional is that real exchange rate (RER) appreciation is at the heart of the Argentine problems and the more recent lack of growth.

I have discussed this before here with respect to the so-called Sustainable and Stable Competitive Real Exchange Rate literature (see here). The argument for a SSCRER was put forward by Frenkel and Taylor in a well-known paper, but the notion has many defenders (see the good paper by Blecker and Razmi from Setterfield's essential book on growth), including more conventional authors like Rodrik. At the risk of being repetitive let me point out the pros and cons of the arguments for devaluation.

What killed theory? What theory?

So Noah Smith and Paul Krugman are again trying their hand at the history of economic ideas to understand what happened with the profession in the last three decades. Noah calls the changes in theory "more evolution than revolution," and suggests that the dominant view is still compatible with neoclassical economics, which is I think correct, even if it is more involution than evolution.

His understanding of the changes in economics is colored by his views on neoclassical economics, which are fundamentally flawed (see more here). He then brings back the issue of lack of theoretical papers and now refers to it as the "death of theory." He suggests that what led to the demise of conventional theoretical developments within the mainstream is behavioral economics (he might as well have said information economics; sure enough that's what Stiglitz claimed with his post-Walrasian/post-Marxist notion; subscription required).
In his words: "Why did this happen? I&…

Demographic transitions, Malthusian traps and supply constrained growth

Gregory Clark's book The Farewell to Alms re-popularized the Malthusian model (for the relevant chapter go here). The basic idea is that population dynamics and the so-called demographic transition do have an important impact on economic growth. Robert Malthus' idea is relatively well known, even if there is an incredible amount of confusion in the way it is explained by modern neoclassical authors.

As all classical authors, Malthus assumed that real wages tended to be at subsistence levels. He emphasized more than others, eg. Smith or Marx, the physiological elements associated to subsistence, and his theory of population influenced David Ricardo (friends sometimes will push you in the wrong direction, but this should not be exaggerated; Ricardo was no Malthus). And this has nothing to do with some Iron Law of Wages (again this reflects the fact that mainstream authors like Clark have limited, to say the least, understanding of the surplus approach; for Ricardo and other cla…

New issue of ROKE is now out

The new issue of the Review of Keynesian Economics, with papers by Jerry Epstein, Jane Knodell, Bill McColloch, Valerio Cerretano, Juan Matías de Lucchi and Esteban Pérez and an introduction by the President of the Central Bank of Argentina, Mercedes Marcó del Pont, is out. Papers have, for the most part, been presented at the central bank, and are on the issue of the role of central banks in economic development. Enjoy!

Employment continues to grow too slowly

The BEA released its Employment Situation Summary. Only 162,000 new jobs created, when need more like 400,000 per month for a healthy recovery. Unemployment rate fell to 7.4%, nut mostly for the wrong reasons, that is people leaving the labor force. Graph below shows the steady and slow recovery.
Still below the employment levels of before the crisis. And things are going to get worse in the next couple of months with more pressures, associated to the debt-ceiling again, for fiscal spending cuts.

Madrick on why Summers should NOT be appointed to the Fed

Nap time at the White House
After, Dean Baker and Tom Palley, now Jeff Madrick explains why Summers would not be good for the Fed. Jeff says more directly than others that "inflation is his big concern" and that "jobs will remain hostage to Wall Street needs if he is chairman." And by the way, Dean, Tom and Jeff well aware of the limits of Clintonomics (Rubinomics) and the unsustainable bubbles that drove the 1990s and 2000s booms (if we can call the Bush period a boom), while Summers was clueless.
Jeff also picks up the point about how New Kenesians are more Monetarists than Keynesians. He quotes Summers saying that: "As for Milton Friedman, he was the devil figure in my youth. Only with time have I come to have large amounts of grudging respect. And with time, increasingly ungrudging respect." The natural rate, a very anti-Keynesian principle, and Friedman's only really important contribution (a negative one, of course) is what underpins Summers co…

Capitalism, Socialism and all that

Allan Meltzer has written a book in defense of Capitalism (Why Capitalism?). The funny thing is that nowhere he tries to define capitalism, which he seems to equate with market economies and other inane concepts. If there is a definition in his book is that capitalism is a system based on "a foundation of a rule of law, which protects individual rights to property, and, in the first instance, aligns rewards to values produced."* I'll get to some of the issues with the book on another post [I discussed the meaning of capitalism before here].

Note that the term capitalism only became more widely used in the 1930s, when the system was hit by its most severe crisis in history, and when alternative systems became more attractive. The figure below show the use of the various terms, not just modes of production, like Capitalism (and Communism, which does have a connection to an ancient mode of production) but also political ideologies (these two are often confused in political…