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Showing posts from October, 2015

Growth slowsdown in the third quarter

BEA released the advanced estimate for GDP growth in the third quarter, 1.5%, well below the 3.9% growth of the second quarter. One can see that the recent recovery is slow even when compared to the Clinton and Bush II recoveries.

So, nothing new, the slow recovery continues. If the budget deal gives some hope that at least we're not going to shutdown the government, and as a result avoid an even worse slowdown, there is very little reason to hope for the kind of fiscal stimulus we need.

James Galbraith on the European Crisis

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Lecture at the Renner Insitute in Vienna, October 6.

On the Way to the Great Depression: The Demand Regime of the US Economy (1900-1929)

New Working Paper by Ahmad Borazan. From the abstract:
It has become commonplace to raise the analogy between the recent experience of the dynamics of income distribution and growth, and that of the era before the Great Depression. However, no study of the demand regime has been done for the early twentieth century period; this study attempts to fill that gap in the literature. Based on a Kaldorian model, I estimate whether the demand regime of the pre-Great Depression era for private domestic output was wage-led or debt-led. The results of the study show the demand regime was wage-led with a considerable role of private debt in driving aggregate demand. Furthermore, I discuss the Roaring Twenties period and argue that increased income inequality led to the rise of destabilizing channels that propped up demand which contributed to increasing economic fragility on the way to the Great Depression. Read paper here.

Amit Bhaduri and Diane Elson win the 2016 Leontief Prize

Tufts Global Development and Environment (GDAE) Institute announced the Leontief winners for next year. From the press release: GDAE will award its 2016 Leontief Prize for Advancing the Frontiers of Economic Thought to Diane Elson and Amit Bhaduri. This year's award, titled "Development and Equity," recognizes the contributions that these researchers have made to economic understandings of development, power, gender, and human rights.

“As the free market and waves of globalization have left some peoples behind, Diane Elson and Amit Bhaduri demonstrate why the current theories of development have excluded the poor and disenfranchised from the growth process,” said GDAE Co-Director Neva Goodwin. “Their cross-disciplinary work and profound understanding of economic development is appropriately recognized in an award that bears Leontief's name.” Read announcement here.

Causality and the new World Economic Outlook (WEO)

I often say that causality is the main, but not the only, difference between mainstream and heterodox approaches in macroeconomics. It's true for differences between Say's Law versus the Principle of Effective Demand, for discussions of exogenous/endogenous money, and also for interpretations of the relation between growth and productivity.

The new WEO is out (here). This one the first under Maurice Obstfeld, who substituted Oliver Blanchard. The explanation for lower growth in Obstfeld's intro says the following:
What underpins forecasts of moderating growth? First, the ongoing experience of slow productivity growth suggests that long-run potential output growth may have fallen broadly across economies. Persistently low investment helps explain limited labor productivity and wage gains, although the joint productivity of all factors of production, not just labor, has also been slow.* So low productivity growth causes low output and employment growth, rather than vice ver…

On the blogs

Economics textbooks: when the model becomes the message -- Lars Syll on mainstream textbooks' use of consumption Euler equation models and the problems with that

Monetary Conspiracy Theories -- Paul Krugman explains why he thinks that Taylor and Ryan's claim that QE was an attempt to “bail out fiscal policy” is crazy. That's how Eccles justified it in the 1930s (to support fiscal expansion), actually, and I don't think there is anything wrong with that. Of course you need to use fiscal policy, if the Fed maintains the long-term rates low, for it to make sense

Understanding 'Secular Stagnation' -- Jayati Ghosh and C.P. Chandrasekhar on why inadequacy of domestic demand resulting from worsening functional distribution of income maybe the most important cause of long-term 'secular stagnation'

A Post-Keynesian Interpretation of the Spanish Crisis

New paper with Esteban Pérez published by the Levy Economics Institute.

From the abstract:
The Spanish crisis is generally portrayed as resulting from excessive spending by households, associated with a housing bubble and/or excessive welfare spending beyond the economic possibilities of the country. We put forward a different hypothesis. We argue that the Spanish crisis resulted, in the main, from a widening deficit position in the nonfinancial corporate sector—the most important explanatory factor behind the country’s rising external imbalance— and a declining trend in profitability under a regime of financial liberalization and loose and unregulated lending practices. This paper argues that the central cause of the crisis is related to the nonfinancial corporate sector’s increasingly fragile financial position, which originated from the financial convergence that followed adoption of the euro. Read it here.

The plutonomy is doing fine

Double posting on the Credit Suisse Global Wealth Report (2015) (other post here). I had discussed the previous issue here. Below the Global Wealth Pyramid.

Not much difference with previous one, but a bit worse. Now 71% of the population holds 3% of the wealth (before it was the 67% at the bottom held 3.3% approximately). And the top 0.7% of the population holds slightly more than 45% of total wealth.

By the way, the US has added more people at the top, while Japan and Europe have lost a few. If you are interested on how many really wealthy people there are (not the 34 million people at the top of the figure above, which are the ones worth more than 1 million), here is what the report says:
We estimate that there are 123,800 UHNW individuals worldwide, defined as those whose net worth exceeds USD 50 million. Of these, 44,900 are worth at least USD 100 million and 4,500 have assets above USD 500 million. UHNW means Ultra-High Net Worth (or what a decade ago Citigroup analysts called …

Branko Milanovic on Global Inequality

You can hear the podcast of this interview at Bloomberg's Taking Stock here. You can also read this interview from last year. Graph below is from the latter. As he explains:
The graph (for year 2008) shows on the horizontal axis a person’s position in their own country’s income distribution, and on the vertical axis, a person’s position in global income distribution. Thus, the poorest Americans (points 1 or 2 on the horizontal axis have incomes that put them above the 50th percentile worldwide). Note that 12% of the richest Americans belong to the global top 1%.  It turns out that—depending on the year and how detailed your data are—some 50 to 60 percent of income differences between individuals in the world is due simply to the mean income differences between the countries where people live. In other words, if you want to be rich, you’d better be born in a rich country (or emigrate there). It's always good to remember that those that suggest that globalization has been good …

Wealth Concentration, Income Distribution, and Alternatives for the USA

New paper by Lance Taylor, Özlem Ömer and Armon Rezai. From the abstract: US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin). Download paper here.

Angus Deaton wins the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

For his work on "consumption, poverty and welfare" according to the press release. It wasn't Atkinson, for inequality, as I suggested it was possible, but given the other possibilities cited this is quite good. Deaton had received last year the Leontief prize, which usually goes to heterodox economists (the other Nobel to win the Leontief was Sen), together with Jamie Galbraith.

I should say, I recently read his The Great Escape. An interesting book, full of relevant data. But it does maintain the conventional neoclassical view on growth. Supply side constrained, and dependent on investment in education (aka human capital), and the institutions to guarantee investment (e.g. property rights, rule of law). The Douglas North New Institutionalist view. In his words:
“possession of common knowledge does not imply that all countries should have the same living standards. To be able to use rich-country methods of production requires rich-country infrastructure—roads, railways,…

Brazil´s Sudden Neoliberal U-Turn

By Franklin Serrano

A sharp slowdown in the Brazilian economy presents a critical challenge for the Workers’ Party (PT) government led by Dilma Rousseff. Between 2011 and 2014, economic growth averaged only 2.1 percent annually, compared with 4.4 percent in the 2004-2010 period.

The recent downturn can be squarely blamed on economic policies implemented by Rousseff’s first administration (2010-14). This policy change sought to reduce the state’s role of directly promoting the expansion of aggregate demand through fiscal stimulus and promoting supply side structural change through public investment, a strategy that had been done quite successfully until 2010. Meanwhile, inclusionary social policies concerned with decreasing inequality remained in place.

Read rest here.

On the blogs

The Trans Pacific Trade charade -- Joseph Stiglitz and Adam Hersh on TPP too (I posted quite a bit the week on this). I should note that even if TPP was only about free trade in goods in services it might not be good either.

Why choose this course? Steve Keen and some students explain why learning economics with critical perspective is the way to go. Kingston in that sense is not that different from Bucknell.

The Sraffian Supermultiplier as an Alternative Closure to Heterodox Growth Theory -- Circus has a link to an important paper by Franklin Serrano and Fabio Freitas

2 economists tried to replicate a bunch of published economic studies, & the results were disturbing -- Not a blog post, but essential reading

More on Trans Pacific Partnership (TPP)

So, a bit busy this week, but as promised here is a more specific, if short, discussion of the Trans Pacific Partnership. The agreement was reached this week, and now approval must be obtained in Congress, and my guess is that there is a decent chance that it will pass with bi-partisan support (after all fast track was approved and that is why the Obama administration could reach an agreement). My guess is that several people that seem less than supportive right now, will come around, like, for example, Orrin Hatch in the Republican camp, who has said he has reservations, or Hillary Clinton, whose PBS interview has been seen as a reversal of her pro-free trade views.

She actually does not say she is against, and only says after being prompted a second time that she is not in favor of TPP as it currently stands. She adds that she thinks the agreement might not live to her high standards, but she is very clearly for free trade agreements, the ones that bring high wages and more jobs to…

The Bank of Sweden prize in memory of Alfred Nobel

Prize will be awarded soon (next Monday). Thomson-Reuters prediction, based on citations, below.

ECONOMIC SCIENCES Sir Richard Blundell, CBE FBA Ricardo Professor of Economics, Department of Economics, University College London and Research Director at Institute for Fiscal Studies, London UK For microeconometric research on labor markets and consumer behavior John A. List Homer J. Livingston Professor of Economics, University of Chicago, Chicago, IL USA For advancing field experiments in economics Charles F. Manski Board of Trustees Professor in Economics, Northwestern University, Evanston, IL USA For his description of partial identification and economic analysis of social interactions Full list of forecasts here. Other people high on the speculation list are Orley Ashenfelter, Robert Barro, David Card, Peter C. B. Phillips and Paul Romer. I've read someone suggesting Anthony Atkinson, for his work on inequality, since Piketty is a no-no.

PS: Given that the econ 'Nobel' is not …

Trans Pacific Partnership and the argument for Free Trade

The final agreement on the Trans Pacific Partnership was reached yesterday. Now it must be approved in Congress. I had noticed before (here, here and here) the bi-partisan support for TPP (not all bipartisanship is good after all) and the limitations of the agreement itself. Will write something later this week on the specifics revealed by the agreement (no big surprise, btw).

If you need a crash course on the limitations of 'free' trade based on Ricardian or Heckscher-Ohlin-Samuelson (HOS) models see the posts below, which include also a response to Mankiw's defense of TPP and Free Trade and an older discussion of the Free Trade Agreement (FTA) with Colombia:

On 'free' and managed trade (Ricardian model)

More on "free" trade (HOS model)

On free trade and economics consensus: a response to Mankiw

The Colombia FTA: Only Corporations Win

You can also read my paper "What do undergrads really need to know about trade and finance." It was a response to …

On the blogs

The Blanchard Touch -- Krugman on WAPO's Blanchard profile. I've written on Blanchard's 'changes' at the IMF before (and herehere and here). Probably will have more on the myth of the reformed IMF later again
Kregel on the Vulture Funds -- Multiplier Effect (the Levy blog) transcribes the interview with the Buenos Aires Herald
Is the Devil in the Details? Estimating Global Poverty -- Sanjay Reddy on the pitfalls of the World Bank's measures of poverty

Austerity, class warfare and weak labor markets

Labor market still weak. New BLS report says that: "total nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent." Also: "average hourly earnings of private-sector production and nonsupervisory employees were unchanged" and revisions meant that "employment gains in July and August combined were 59,000 less than previously reported." Not enough job creation, labor participation falling, and wages stagnant. Secretary of Labor said, correctly, that an infrastructure bill would be needed to get us out of the slow recovery. That used to be a bipartisan policy. Nobody was against fixing roads and bridges.

But the chances for expansionary fiscal policy are nil. The US has adopted, basically since 2011, a contractionary stance. This basically results from the politics of hostage taking in Congress, and while we narrowly avoided a government shutdown this week, it is very likely that the budget and the…

Unlimited Targets? Some pointers

By Sergio Cesaratto (Guest Blogger)

In this short note I will not add anything of substantial to the debate with Marc Lavoie on the nature of the Eurozone (EZ) crisis in view of Target 2 (T2). Readers have numerous papers to look at (including Lavoie 2015a/b, Cesaratto 2013, 2015a/b) and posts (Vernengo 2015, Ramanan, 2015). However, although most of relevance has already been said, there is perhaps still some space for few qualifications.

1. Subject of the dispute is on whether the EZ crisis can be considered a balance of payment (BoP) crisis in view of the existence of T2 and of the Eurosystem semi-authomatic refinancing mechanism, or if it should be considered a crisis derived from flawed institutional mechanisms that led, in particular, to a belated intervention by the ECB to sustain peripheral sovereign debts.

Marc believes that given the existence of T2 and refinancing mechanisms, a BoP crisis cannot occur in a monetary union:
“The point that I have tried to make on a number…