Americans, as we know, are forced to have the freedom to labor more hours than do workers in other advanced countries.
from Gustavo Marqués
According to the dominant view of financial markets, access to easy credit driven by central banks in both the U.S. and the developed countries of the European Union, should have led to economic growth. The transmission mechanism is the following: availability of easy credit (at rates of zero or near zero interest) will raise the price of stocks (including real estate within this category), generating a wealth effect that will in turn increase consumption and the GDP. See some testimonies.
“Before the current turmoil began, Federal Reserve Chairman Ben Bernanke’s hope was that rising asset prices would lead to a ‘wealth effect’ that would encourage the American consumer to start spending again, and thus help the American economy finally leave the ‘Great Recession’ behind” (Keen, 2013, p. 3).
Alan Greenspan has been even more explicit. Read more…
from Neva Goodwin
There are some true and useful things to be learned in standard 20th century economics, such as the basic concepts of supply and demand intersecting to create wages and prices. However if you ever took an economics course you may have since discovered that many other things also affect prices, such as advertising, or consumers’ lack of information. And wages involve even more complicated human interactions, habits and expectations. These complexities and exceptions don’t get much hearing in introductory courses – and, surprisingly, they get even less at the upper levels, where, instead, progressively more mathematics are imposed on a progressively more abstract picture of an economy. Meanwhile the students are also being taught a lot that is dangerous. Here are some of the take-aways from the standard economics course: Read more…
According to INSEE, the French statistical institute, the French labour market became much more flexible. But it also became less flexible, according to the same study…
How to explain ‘Ces constats apparemment contradictoires?’
Apparently, more flexibility led to ever shorter contracts at the bottom of the labour market and therewith to segmentation and less dynamism, many people are increasingly trapped:
tout ceci suggère que le fonctionnement du marché du travail se rapproche d’un modèle segmenté, où les emplois stables et les emplois instables forment deux mondes séparés, les emplois instables constituant une « trappe » pour ceux qui les occupent
Grumpy update: yes, I can and do read french, albeit somewhat slowly, and more people talking about France should be able to do that.
Should this problem be solved by a more flexible upper half of the labour market? Hmmm… that’s the USA solution, a country characterized by extreme income inequality and loads of ‘working poor’. And when we look at the 1995-2014 period less than impressive job growth and a declining participation rate. I do not say that French labour market rules, habits and culture are perfect. But economists should stop analysing the labour market assuming a situation of full employment. But we we’ll first have to solve the macro-economic problems: mind that european countries with medium or, regionally, even low unemployment like Switzerland, Germany and the Netherlands have been able to fill the macro economic ‘spending gap’ with current account surpluses of 7 to (over) 10% and even this did not prevent a double dip in Germany and outright stagnation the Netherlands… Also and obviously not every country can have such surpluses at the same time. A ‘flexible’ labour market in a situation of high output gaps (look at the high rates of unemployment) is a totally different ball game than in a situation of full employment and will trap people into poverty.
from David Ruccio
Neil King, Jr., for the Wall Street Journal, is perplexed:
It is in many ways both the ultimate economic puzzle and the great political challenge: Why have American incomes remained so flat, for so long, and what can be done to change that?
Uh, well. Maybe it’s this, maybe it’s that. King just can’t be bothered to figure it out.
So, let’s help him out: American incomes are flat precisely because of the anti-union, free-trade, decrease-taxes, cut-social-programs, don’t-raise-the-minimum-wage policies
The labour market in the UK is doing well. Unemployment is going down, employment is going up, contrary to the situation in the USA participation rates are slightly increasing and total wage income is increasing too, especially in the lower brackets. And the number of real jobs relative to
day labourers self employment might increase a little (look here at EMPo1, quarterly data to correct for the privatization of the Royal Post). Time to tighten? Hmmm… unemployment is still high (i.e. above 6%) and wage increases are at a historical low. There are, at this moment, NO signs of wage inflation. There are ever clearer signs of a housing bubble and house price inflation – but that kind of inflation does not require higher interest rates but a land tax and, as far as I know the British situation, more construction, especially in and around London. If Scotland becomes independent they can only hope to leave before this bubble bursts and they really have introduce a Scottish currency asap and to curb any Scottish housing bubble right away. That might save them quite a bit of economic fall out.
from Lars Syll
Twenty years ago, yours truly had an article in History of Political Economy (no. 25, 1993) on revealed preference theory.
Paul Samuelson wrote a kind letter and informed me that he was the one who had recommended it for publication. But although he liked a lot in it, he also wrote a comment — published in the same volume of HOPE — saying:
Between 1938 and 1947, and since then as Pålsson Syll points out, I have been scrupulously careful not to claim for revealed preference theory novelties and advantages it does not merit. But Pålsson Syll’s readers must not believe that it was all redundant fuss about not very much.
I came to think about this little episode when, prepairing for a lecture on the law of demand, I re-read Stanley Wong’s minor classic on Samuelson’s revealed preference theory. And I have to admit I still find the theory much fuss about not very much. Read more…
On the ‘Cato at liberty‘ blog Steve Hanke states:
In 1981, Margaret Thatcher was prime minister and my friend and collaborator, the late Sir Alan Walters, was her economic guru. Britain’s fiscal deficit was relatively large, 5.6% of its gross domestic product, and the economy was in the middle of a nasty slump. To restart the economy, Thatcher instituted a fierce fiscal squeeze, coupled with an expansionary monetary policy. This was immediately condemned by 364 dyed-in-the-wool Keynesian economists – virtually all of the British establishment. In a letter to the Times, they wrote, “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”
Thatcher and Walters were vindicated quickly. No sooner had the 364 affixed their signatures than the economy turned around and boomed for the next five years. That result provoked disbelief among the Keynesians. After all, according to their dogma, the relationship between the direction of a fiscal impulse and economic activity is supposed to be positive, not negative.
The 364’s dogma was proven wrong. Thatcher and Walters were right.
NO, they weren’t. After 1981 the British economy tanked and British unemployment rapidly increased to a post war high of 12% in…1984. Hanke, possibly inspired by the year ‘1984’, rewrites history.
from Dean Baker
If there had been political support for massive spending in these areas, the Depression could have ended in 1931 instead of 1941.
Today marks the sixth anniversary of the collapse of Lehman Brothers. The investment bank’s bankruptcy accelerated the financial meltdown that began with the near collapse of the investment bank Bear Stearns in March 2008 (saved by the Federal Reserve and JPMorgan) and picked up steam with Fannie Mae and Freddie Mac going under the week before Lehman’s demise. The day after Lehman failed, the giant insurer AIG was set to collapse, only to be rescued by the Fed.
With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment to bail out the banks. In a message repeated endlessly by the punditocracy ever since, the failure to cough up the money would have led to a second Great Depression.
The claim was nonsense then, and it’s even greater nonsense now. Read more…
from David Ruccio
Americans, as we know, work many more hours than people in other advanced countries. As it turns out, they also work many more strange hours: on weekends and at night.
from Lars Syll
Earlier this autumn yours truly was invited to participate in the New York Rethinking Economics conference. A busy schedule didn’t allow me to “go over there.” Fortunately some of the debates and presentations have been made available on the web, as for example here . Listening a couple of minutes into that video one can hear Paul Krugman strongly defending the loanable funds theory.
Unfortunately this is not an exception among “New Keynesian” economists.
Neglecting anything resembling a real-world finance system, Greg Mankiw — in the 8th edition of his intermediate textbook Macroeconomics — has appended a new chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds.”
On the subject of financial crises he admits that Read more…
from David Ruccio
from Maria Alejandra Madi and the WEA Pedagogy Blog
Global business has been overwhelmed by the financialisation of wealth. Beyond financial and “rationalization” strategies, social conflicts and tensions have been strengthened as labor relations need to be adjusted to capital mobility and short-run returns. In this historical setting, it is worth noting that, in spite of the enormous literature on financial development and inequality, few attempts have been successful in rethinking the intersection between contemporary financial and labor markets in Economics Curriculum.
Indeed, in the current context of “institutionalized short-termism”, the expansion of global finance contributes to the redefinition of labor relations. Investors and managers have enlarged profits in the context of a business model that favors downsizing and cost reduction at the expense of employment. As labor costs are frequently considered large expense items, corporations must tightly managed and documented those costs in order to minimize risk of non-compliance, particularly public companies. Accordingly the Global Labor Union IUF, the current global business scenario fosters changing working conditions that result from: read more
The technological development process that allows electronic transaction instead of exchanges using physical currency, has the same merciless and irreversible character as the advent of the electronic calculator in the 70s and digital photography in the 90s: it meant the unavoidable death of the slide rule (then) and photographic film (more recently). Based on the nature of technological innovations and the market economy’s exploitation of such, we may predict the death of physical currency; bills and coins. It is probably a question of when, not if, this will take place. This paper will discuss some positive possibilities for reform of the financial and monetary system that emerge as a side effect of the unstoppable advances of technology in this field.
A modern financial system consists of a Central Bank (CB) and an extensive network of private financial units. The role of a CB has up to this day been as an interest-rate setter behind the scenes and – in crisis – “lender of last resort” for the network of private licensed (“commercial”) banks and non-bank financial institutions (NBFIs).
The commercial bank network has historically been quite dense, with branches of competing banks within a reasonable distance from customers. The reasons for this geographical diversity has been twofold:
from Neva Goodwin
Adam Smith, generally regarded as the begetter of modern economic theory, stressed issues of growth and distribution, based on an image of smoothly functioning markets. The pieces of Smith’s legacy that remained significant for what I will refer to as 20th century economics (though I will focus especially on the second half of the past century) were the emphasis on growth, and admiration for markets. This truncated legacy greatly reduced the emphasis on distribution, while also missing Smith’s concern that markets might not always function optimally. He especially pointed to monopolistic behavior as a problem, and supported various kinds of government intervention to keep the market on track. Ignoring these caveats, 20th century economists pursued the optimistic program of modeling a world in which perfect markets lead to optimum social outcomes.
The classical economists – those holding the stage approximately until Marshall’s time – also included Karl Marx, whose concerns for inequality and class conflict were shared by Smith (though they expressed themselves very differently). Read more…
from David Ruccio
According to Gallup’s latest annual Work and Education Survey [ht: db],
Adults employed full time in the U.S. report working an average of 47 hours per week, almost a full workday longer than what a standard five-day, 9-to-5 schedule entails. In fact, half of all full-time workers indicate they typically work more than 40 hours, and nearly four in 10 say they work at least 50 hours.
The Economist (a British weekly) in its September 6 issue, p. 67, dances to the tune of the neoliberal piper as it, when defining potential growth’ implicitly uses neoclassical models which by assumption exclude the possibility of involuntary unemployment. Potential growth is supposed to be: ‘the speed at which the economy can expand while keeping inflation in check’. Wrong.
Following the lead of Harrod, 1939 and Domar, 1946 and defying Solow (who, to get rid of the expenditure flow consistentcy of the Harrod and Domar models, ruled out unemployment in his famous 1956 article about growth, in retrospect a textbook case of scientific retrogression!) we have to define ‘potential growth’ as ‘the speed at which the economy can and has to expand while keeping unemployment low’. See about this also this recent article by Fazarri et al and this Slack wire blogpost about the article. Empirically, the German, Spanish, Irish and Greek experiences seem to be described much better by the Harrod/Domar ideas than by the Solow model, Germany since 1991 being affected by Domar style endemic deflationary forces.
In a practical sense the definition of The Economist, which does not take structural unemployment into account, would restrict potential Spanish and Greek growth to 3% a year, the Harrod and Domar insights however show that both countries can grow much, much faster for quite some time as unemployment is sky-high.
Of course, potential growth is not necessarily the same thing as sustainable growth. Which makes things complicated. But inflation is no serious restriction, at least not for Greece and Spain. One overlooked aspect of the Spanish bubble before 2008 is by the way that wage increases were relatively restricted (really, check the data, and unit labour cost increases in manufacturing were restricted, too) as these were mitigated by large increases in immigration as well as a fast increase in the participation rate of women.
from David Ruccio
from Lars Syll
Paul Krugman has often been criticized by people like yours truly and other Minskyites for getting things pretty wrong on the economics of Hyman Minsky.
When Krugman has responded to the critique, by himself rather gratuitously portrayed as about “What Minsky Really Meant” or “What Keynes Really Meant,” the over all conclusion is — “Krugman Doesn’t Care.”
The reason given for this rather debonair attitude seems to be that history of economic thought may be OK, but what really counts is if reading Minsky — or Keynes — give birth to new and interesting insights and ideas. Economics is not religion, and to simply refer to authority is not an accepted way of arguing in science.
Although I have a lot of sympathy for Krugman’s view on authority, there is a somewhat disturbing and unbecoming coquetting in his attitude towards the great forerunners he is discussing — as his rather controversial speech at Cambridge, commemorating the 75th anniversary of Keynes’ General Theory, bears evidence of.
Sometimes — and this goes not only for children — it is easier to see things if you can stand on the shoulders of elders and giants. If Krugman took his time and really studied Keynes and Minsky, I’m sure even he would learn a lot. Read more…
from today’s Guardian
Surging carbon dioxide levels have pushed greenhouse gases to record highs in the atmosphere, the World Meteorological Organisation (WMO) has said.
Concentrations of carbon dioxide, the major cause of global warming, increased at their fastest rate for 30 years in 2013, despite warnings from the world’s scientists of the need to cut emissions to halt temperature rises.
Experts warned that the world was “running out of time” to reverse rising levels of carbon dioxide (CO2) to tackle climate change.
Data show levels of the gas increased more between 2012 and 2013 than during any other year since 1984, possibly due to less uptake of carbon dioxide by ecosystems such as forests, as well as rising CO2 emissions.
The annual greenhouse gas bulletin from the WMO showed that in 2013 concentrations of CO2 in the atmosphere were 142% of what they were before the Industrial Revolution.
Other potent greenhouse gases have also risen significantly, with concentrations of methane now 253% and nitrous oxide 121% of pre-industrial levels.
Between 1990 and 2013 the warming effect on the planet known as “radiative forcing” due to greenhouse gases such as CO2 rose by more than a third (34%).