An international student call for pluralism in economics
It is not only the world economy that is in crisis. The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in. We, over 65 associations of economics students from over 30 different countries, believe it is time to reconsider the way economics is taught. We are dissatisfied with the dramatic narrowing of the curriculum that has taken place over the last couple of decades. This lack of intellectual diversity does not only restrain education and research. It limits our ability to contend with the multidimensional challenges of the 21st century – from financial stability, to food security and climate change. The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. Such change will help renew the discipline and ultimately create a space in which solutions to society’s problems can be generated.
United across borders, we call for a change of course. We do not claim to have the perfect answer, but we have no doubt that economics students will profit from exposure to different perspectives and ideas. Pluralism will not only help to enrich teaching and research and reinvigorate the discipline. More than this, pluralism carries the promise of bringing economics back into the service of society. Three forms of pluralism must be at the core of curricula: Read more…
A) The 1992 Bundesbank ‘Geschäftsbericht 1992′ shows that the Bundesbank did not use to have any problem with buying government bonds. It even provided credit to non-general government companies.
B) In this 1981 piece (Stopping moderate inflations) Thomas Sargent is unusually clear about his opinion of central banking and Margaret Thatcher. He was wrong that disinflation could be easy.
C) Tourism in the EU is far above pre-crisis levels.
D) Robert Vienneau has an interesting input-output study about income distribution and price levels (which I still have to digest a little): ” an empirical exploration, with data from countries worldwide, of Sraffian, Marxian, and classical political economy… Labor values predict market prices better than prices of production do. Labor values also predict market prices better than they predict prices of production. In short, a simple labor theory of value is a surprisingly accurate price theory for economies around the world”. Which is, by the way, in line with Eurozone ‘Troika’ policies. Mind, however, that contrary to another assumption of these policies low wages do not exclude large current account deficits or slow export growth.
E) Non-EU citizens twice as likely to be at risk of poverty or social exclusion as nationals in 2013. Differences are increasing. And there are large differences between countries which implies that this difference is (also) policy sensitive.
Deirdre McCloskey has written a lengthy Piketty criticism – and she totally agrees with Piketty. It’s Friedmanian in spirit: a self-concious, eloquent (even more eloquent than Friedman!) defense of the market based upon clever arguments and our experience with markets, though also more literate and less US centered than the typical Friedman piece. But it’s a somewhat weird piece. She states that she totally disagrees with Piketty. But she doesn’t. In fact she totally shares his vision: it’s all about g. She defines ‘g’ as ‘The great enrichment’. And states, just like Piketty, that g, or the high growth rate of our economy, saved us from becoming a rentier economy. And just like Piketty she does not seem to understand balance sheets. More on that below.
I agree with many points and surely with the first three of its main arguments: Read more…
Two leading conservative German economists, Hans-Werner Sinn and Otmar Issing, once agreed with Mario Draghi: Eurozone inflation should not become too low. Do they still agree?
Today, the ECB published a Mario Draghi speech on is website. From the summary:
He added the ECB would continue to meet its responsibility: “We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us. If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” Mr Draghi said.
This is totally in line with a 2003 Otmar Issing speech. In this speech this former ECB banker (1998-2006) states that Eurozone inflation should not become too low, among other reasons to prevent outright deflation in any of the member countries. And in 2000 another leading conservative German economist, Hans-Werner Sinn, stated (with Michael Reutter) in a 100% Krugman proof paper that inflation should not become too low to prevent interest policies from becoming ineffective as well as to enable individual countries to become more competitive (i.e. obtain a lower relative price level compared with other countries) without outright deflation. Again, prevention of deflation in individual member countries is stressed. In those days, Germany was on the brink of deflation and Sinn argued for higher inflation (4%?) in the periphery. Today, Spain and Italy and Greece are beyond the brink of inflation but I do not hear Sinn or Issing arguing for 4% inflation in Germany (they do want some countries to leave the Eurozone). Read more…
The UK is supposed to have a flexible labour market. Flexible labour markets are supposed to end rigid ‘dual’ structures of labour markets by improving the position of marginal workers and the unemployed as workers with jobs can be fired more easily. Does this work? Hmmm… (source: the new ONS earnings report).
Figure 2: Annual percentage change in median full-time gross weekly earnings for all employees and those in continuous employment, UK, April 2005 to 2014
The unemployment rate in Germany is, though surley not low, one of the lowest of the European Union – and declining. Also, at this moment employment as well as hours worked per employed person are increasing. This combination is pretty special for Germany. Between 1991 and 2005 the total number of hours worked declined with almost 10% (graph 1) which did not lead to even higher unemployment because the number of hours worked per person declined with about the same amount (graph 2). After 2005 the number of hours first increased in the boom period 2006-2008 but stagnated afterwards which, as the number of hours per worker kept declining, led to an increase of unemployment. At this moment, however, employment as well as the number of hours is increasing, despite a stagnating economy. The continuous decline of the number of hours indicates that, if need be, at least part of the problems of the rapidly ageing German society can be solved by increasing the number of hours per person instead of only increasing the ‘Rentenalter’ (I’m not against such increases – but I’m getting a bit fed up with the ‘ageing society’ panic). And, as I already indicated, unemployment can still go down a few notches, too. Read more…
For my view on the British labour market look here (nice long-term productivity graph), here (where I predict that the decline of productivity will end quite soon, I totally stick to this prediction), here (some historical comparative data on unemployment which show how terrible the Eurozone is doing while the UK experience is much more in line with post WW II developments and the post WW II implicit social contract.Yes, that was betrayed in the UK, too, but that does not compare to what happened in the Eurozone with regard to Spain, Italy, Ireland, Portugal and Greece Update: Krugman hits the nail on the head today, deconstructing some remarks of the increasingly extreme Weidmann, boss of the BuBa, who wants to inflict even more pain on these countries. 45% unemployment?) and here (where I indicate that UK broad unemployment is not doing as well as normal unemployment, to say the least). Mind also that government expenditure increased quite a bit, in 2014. Despite all caveats, the British labour market keeps beating my expectations. The very good thing about this is that this gives people the chance to exit crappy jobs and ´self-underemployment´. One large risk: the continued Eurozone crisis might lead to lower British exports, causing a rapidly increasing current account deficit forcing the UK into austerity and the further betrayal of the post WW II social contract. Read more…
from David Ruccio
According to NBC news [ht: db], U.S. corporations are for the first time holding more than $2 trillion overseas, a sixfold increase over the past 12 years.
That total is now greater than the amount held within the United States, which totals just under $1.9 trillion.
1) In India, the government and, well, another part of the government (the central bank) are bickering about who is allowed to set an inflation target (should a rather narrow variable like consumer price inflation be targeted anyway? In India, this will mainly be about very volatile food prices!):
Finance Minister Arun Jaitley has given the go-ahead for a major overhaul of the current monetary policy framework wherein the Centre will specify ‘inflation targets’ for the Reserve Bank of India (RBI) to achieve. Under the proposed new regime, the RBI will set inflation as its top priority in its policy statements. The decision departs from the recommendation of an expert committee of the RBI, appointed to examine monetary policy. Headed by Reserve Bank Deputy Governor Urjit R. Patel, the committee had recommended that the monetary policy decision-making should be vested with a monetary policy committee, chaired by the RBI Governor. Other recommendations were that the apex bank adopt the new Consumer Price Index (CPI) as the measure of the nominal anchor for monetary policy. And that the RBI set the target CPI inflation level at 4 per cent (+/- 2 per cent) to be achieved through its monetary policy tools. A senior Ministry official told The Hindu that the Modi government decided that the RBI “cannot set for itself an inflation target level of 4 per cent for all times to come…the Centre will set this target.” Another Ministry source said: “It is best that inflation targets are set by the governments elected by the people and not a bunch of bureaucrats and economists sitting in the Reserve Bank.”
from J.C. Bloem (Dutch poet, 1887-1966). Translation: John Irons
It’s raining and it is November:
Autumn lays siege now to the heart
That sadly, though more wont than ever,
Endures its secret pains apart.
And in the room, where resignation
Sees daily life pass as it may,
From streets that speak of desolation
A bleak light falls at close of day.
The years pass by but never alter,
The difference will soon be gone
Between dim memories that falter
And what is lived and is to come.
Lost are the ways I knew of gaining
Release from time in earlier days;
Always November, always raining,
Always this empty heart, always. Read more…
from Dean Baker
According to the plan designed for Italy by the European Commission, Italy must regain competitiveness with Germany by forcing down wages. A prolonged period of high unemployment is an essential part of this process.
There can be little doubt that the main problem with Italy’s economy is a lack of demand. When the housing bubbles that were driving the euro zone economies burst in 2008, there was nothing to replace this source of demand. Italy joined other countries in the euro zone and around the world in using fiscal stimulus to boost demand, but then was forced to revert to austerity in 2010.
Its economy has been shrinking ever since, as would be predicted by textbook Keynesian economics. GDP in 2014 is projected to be almost 9.0 percent less than the 2007 peak. According to the I.M.F.’s projections, which have consistently been overly optimistic, Italy’s GDP will still be 3.5 percent below the 2007 level in 2019. This would imply twelve years with cumulative negative growth, a performance far worse than any major country saw in the Great Depression.
The shrinkage of the economy has been disastrous for Italy’s workers. The employment rate for prime age workers is down by almost six full percentage points. The employment rate for young people is down by ten percentage points, translating into youth unemployment rates of close to 40 percent.
Of course the pain for workers is the strategy. The plan designed for Italy by the European Commission is have Italy regain competitiveness with Germany by forcing down wages. A prolonged period of high unemployment is an essential part of this process. Read more…
from David Ruccio
It is a glaring omission in his otherwise remarkable discussion of the relationship between Karl Marx and Abraham Lincoln, An Unfinished Revolution, that Robin Blackburn neither discusses nor does he include the text of Lincoln’s First Annual Message to Congress(the equivalent of what we refer to today as the president’s State of the Union) , of 3 December 1861.
Composed at least in part as an answer to Jefferson Davis’s President’s Message of 18 November, in which Davis decries the actions of a president turned despot and celebrates the slave South’s “unconquerable will to be free,” Lincoln responds as follows: Read more…
Update: @Twundit, who was there in 1989, is a kind of ‘life-twittering’ the pictures he made in Berlin.
Twenty five years ago the Berlin Wall came down. Which was and is a good thing: East Germany was a stagnating bureaucratic dictatorship. After ‘Die Wende’, West-Germany kind of adopted East-Germany and the West-Germans paid trainloads of money to enable a ‘one system’ reunification. I read somewhere that the costs must have been around 2 trillion or between 30.000 and 40.000 Euro per West-German. That’s a lot. In an economic sense, however, reunification was less than a total success. Unemployment (unknown in East-Germany, at least in its open variant, hidden unemployment may have been considerable) not only became sky-high (15% in 1994, i.e. four years after reunification) but even increased to an unheard of maximum of 18,7% in 2005 (graph 1). Read more…
Via Detroit news (ht: @AMvanRijsbergen) And yes – I do know that this might, indirectly, via a global banking/hedge fund/investment/securitization channel, affect my Dutch pension rights in a negative way. In the short run. So?
In a bankruptcy case about numbers — $18 billion in debt, 32,000 pensioners, 35,000 broken streetlights — a judge needed 75 seconds Friday to approve a plan to undo decades of financial decline.
U.S. Bankruptcy Judge Steven Rhodes went on to deliver a nearly two-hour speech sprinkled with sympathy for residents of the insolvent city and praise for a plan to shed $7 billion in debt, shield the city’s art collection and minimize cuts to retiree pensions.
Rhodes read from a 50-page script that laid out the legal reasons why Detroit’s bankruptcy plan was feasible, fair and in the best interest of creditors, and spoke directly to residents angry about losing money and elected representation. Read more…
1) Kudo’s for the ECB: the bank published the infamous letter which supposedly bullied Ireland into submission to the Troika. And bullying it was. My takes:
(A) an unelected official like Trichet should never use this kind of bullying tone (see especially the letter of October 15) whenever he or she writes to the head of a democratic state. This alone should have been enough to return the letters – whatever the consequences. Trichet was acting far outside his mandate.
(B) the bullying, triumphant tone should have warned the Irish of a hidden agenda and a certain amount of bluff
(C) the ‘Troika’ (cc’s of the Trichet letters were sent to Olli Rehn, EU commissioner for economic and monetary affairs and Joaquin Almunia, EU commissioner for competition…) was, in hindsight, more than a little wrong about the economics. And at the time they could and should have known better
2) Via Marginal Revolution: one more reason why neoliberal policies, based upon hyperindividualism, are a total disaster for family life. Read more…
In the first quarter of 2014 the UK government deficit was 0,5% of GDP larger than in the fist quarter of 2013. Somewhat trivial, but it’s hard to call this ‘austerity’. In the second quarter, however, the deficit was a non-trivial 1,5% of GDP larger than one year earlier, despite a 4 to 5% growth rate of nominal GDP: austerity (not!). This sure does explain part of the economic upswing of the UK. This was, I guess, connected to the ardent wish to keep Scotland in the UK – can you imagine any British government which would not have pushed the expansionary pedal to the metal to keep the country together?
2) A Shari’a economic festival, in Indonesia and hosted by the Indonesian central bank
3) Shari’a government bonds look a lot like sixteenth century European pre-reformation land backed private bonds (when Greece had issued such bonds bondholders would, after the default, have owned quite some Greek property).
5) This is so different… Germany is the only 2008 Euro member where 2013 GDP per capita is higher than before the crisis (but remember: it took till 1953 until Dutch GDP per capita surpassed the 1929 level)
6) This year, Halloween costumes (which are increasingly popular in Europe) were scarier than ever
Most inflation targeting central banks target consumer prices. I have no idea why, I can’t find anywhere anything which explains why they do not target a broader set of prices. And just targeting consumer prices might lead central banks astray: when the ECB twice increased the interest rate in 2011 consumer prices where showing an increase slightly above the ECB target – but the price level changes of government consumption (primary education etcetera) and investment in fixed assets were at a historical low! Small wonder that the ECB had to lower interest rates later that year.
But there is more to this. Read more…
Almost all inflation targeting central banks target the consumer price index – remarkable, as consumer spending is only about 50-60% of total spending. And western central banks generally have a 2% inflation target while the central banks of countries like Indonesia and India have targets of 4-5%. Are these policies based upon carefull deliberation, deep thinking and elaborate economic models? The Central Bank of Sweden (an early inflation targeter and an example for many other banks) is surprisingly honest: it was decided on the fly. They had to do something, the consumer price index was available and inflation was about 2% at the time. Also, the Zeitgeist made them forget about more realistic useful policies aimed at a much broader concept of financial stability, policies which at this moment are being re-discovered (see also this slack wire blogpost): Read more…
Last sunday, the ECB published the results of its stress test. Via Janis Varoufakis, the view of Klaus Kastner, a former banker: bankers did take it seriously but it’s not stringent enough. But too much has already been written about banks. Fortunately, central banks do not just publish data on banks but also on households and companies. What kind of financial stress do these data show?
1) The exemplary Irish financial statistics summary chart pack shows that the amount of non-performing mortgages is, though slowly declining, still very high.
2) Italian data show non performing loans, especially of non-financial companies, which despite an already high level are still rapidly increasing. Bad household loans are also increasing, though at a lower rate (look here, p. 30).
3) Spanish data (look here, especially p. 26-28) show a very considerable drop in credit advanced to non-financial companies while there seems to be quite a bit of debt restructuring. Despite this, the amount of non-performing loans is still increasing for all sectors of the economy (data: end of 2013) and the rate of growth of non-performing loans has been 20 to 40% for years in a stretch. interestingly, loans to Portuguese companies and households are much more ‘doubtful’ than loans to South-American countries.
Summary: financial stress for households and non-financial companies in Ireland is still high, in Italy and Spain it’s still increasing.