Many pundits and policymakers are calling for drastic reductions in government budget deficits throughout the world. Their fear is that the weight of accumulating government debt will eventually lead to disaster as it drives up interest rates, causes inflation, and forces defaults. What may appear to be reasonable policy today, they caution, will bring catastrophe in the not too- distant future. The groundswell of fear is so great that calls for budget balancing have spilled into grass-roots internet campaigns and political movements to adopt balanced-budget requirements for national governments.
These are not the only voices, however. Just as vehement are those arguing that the real danger lies not in increasing, but reducing deficits and debt. They say that government spending is, by definition, private sector earning and that warnings regarding national bankruptcies are based on a flawed understanding of modern fiscal budgeting and financial markets. They point to the unemployment and stagnation created by austerity programs as evidence of what reducing spending and raising taxes really accomplishes.
World Economic Review
Call for Submissions
The World Economic Review will be publishing an issue devoted to untangling these rival perspectives by determining what core premises separate them, outlining how fiscal expenditures really work, and offering evidence regarding which approach truly points the way toward real economic recovery.
We anticipate publication in Spring 2016.
from David Ruccio
The other day, I expressed my doubts about Paul Mason’s arguments about postcapitalism. But others see his argument in a much more positive light, including some friends of mine, Jenny Cameron, Katherine Gibson, and Stephen Healy [ht: sk].
They, too, however, assert that “technology does not in and of itself guarantee a better future.” What are needed, and which they see emerging in the midst of capitalism today, are “explicit ethical commitments that are developed independent of online apps and cyber networks.”
Technology is augmenting relations of care for others. Technology does not bring these relations into being.
In our research on the diverse economic practices that exist outside the purview of mainstream economics, we find people are forging new types of economies around six ethical concerns:
- What do we need to survive well?
- What happens to surplus, or what is left over after our survival needs have been met?
- How do we act responsibly to those whose inputs help us to survive well (whether other people or the environment)?
- How much and what do we consume in order to survive well?
- How do we care for the commons – the gifts of nature and intellect that we rely on?
- How do we invest so that future generations can also live well?
from Lars Syll
The microfoundationalist’s fantasy has a powerful hold on macroeconomists. They recognize that an agent-by-agent reconstruction of the economy is not feasible, but they argue that it is something that we could do “in principle,” and that the in-principle claim warrants a particular theoretical strategy. The strategy is to start with the analysis of a single agent and to build up through ever more complex analyses to a whole economy …
The implicit argument in favor of representative-agent models as empirically relevant to aggregate economic data runs something like this: a representative-agent model is not itself an acceptable representation of the whole economy … but it is a first step in a program which step by step will inevitably bring the model closer to the agent-by-agent microeconomic model of the whole economy … I call this argument eschatological justification: it is the claim that there is a plausible in-principle game plan for a reductionist program and that the conclusions of early stages of that program are epistemically warranted by the presumed, but undemonstrated, success of the future implementation of the program in the fullness of time …
from Dean Baker
In the recent debate on trade policy most reputable economists argued for fast track trade authority and the approval of Trans-Pacific Partnership (TPP), which is likely to be the first trade deal to be covered by the new fast-track rules. Their argument was simple; the reduction of tariffs and other trade barriers will increase efficiency and economic growth. This is the standard argument for free trade.
Given the general view within the economics profession that TPP is good policy, it is striking that so few economists have been outspoken in opposition to the reauthorization of the Export-Import Bank. The reason is that the whole point of the Export-Import Bank is to have the government subsidize selected companies by giving them access to credit at below market interest rates. This is 180 degrees at odds with free trade. It means the government is allocating credit rather than markets. It would be expected to lead to the same type of economic distortions as tariffs and quotas.
The arguments put forward in support of the Ex-Im Bank should have been especially painful to economists since they are exactly the same arguments made in support of protectionist trade measures. For example, proponents of the Ex-Im Bank routinely talked about the number of jobs supported by the bank’s loans, implying that all of these jobs would somehow disappear without subsidized loans from the Ex-Im Bank. Read more…
Statement by the Office of Yanis Varoufakis, former Minister of Finance, Member of Parliament, Hellenic Republic
During the Greek government’s negotiations with the Eurogroup, Minister Varoufakis oversaw a Working Group with a remit to prepare contingency plans against the creditors’ efforts to undermine the Greek government and in view of forces at work within the Eurozone to have Greece expelled from the euro. The Working Group was convened by the Minister, at the behest of the Prime Minister, and was coordinated by Professor James K. Galbraith. (Click here for a statement on the matter by Professor Galbraith).
It is worth noting that, prior to Mr Varoufakis’ comfirmation of the existence of the said Working Group, the Minister was criticized widely for having neglected to make such contingency plans. The Bank of Greece, the ECB, treasuries of EU member-states, banks, international organisations etc. had all drawn up such plans since 2012. Greece’s Ministry of Finance would have been remiss had it made no attempt to draw up contingency plans.
Professor James K. Galbraith’s statement on the Ministry of Finance Working Group convened by former finance minister Yanis Varoufakis
I spent five months from early February through early July in close association with the Greek Finance Minister, Yanis Varoufakis, and was part of the Working Group that did contingency planning for potential attempts to asphyxiate the Greek government, including aggressive moves to force the country out of the euro. Since a great deal of public confusion has now arisen over this effort, the following should be stated:
(1) At no time was the Working Group engaged in advocating exit or any policy choice. The job was strictly to study the operational issues that would arise if Greece were forced to issue scrip or if it were forced out of the euro.
from Dean Baker and Nicholas Buffie
Last year, President Obama called for increasing the federal minimum wage to $10.10 an hour by the end of 2015. He argued that after 2015, increases in the minimum wage should be tied to inflation, with the minimum wage rising in line with the consumer price index.
The purchasing power of the minimum wage peaked in the late 1960s at $9.54 an hour in 2014 dollars. That is over two dollars above the current level of $7.25 an hour. While raising the minimum wage to $9.54 would provide a large improvement in living standards for millions of workers who are currently paid at or near the minimum wage, it is worth asking a slightly different question: what if the minimum wage had kept in step with productivity growth over the last 44 years? In other words, rather than just keeping purchasing power constant at the 1968 level, suppose that our lowest paid workers shared evenly in the economic growth over the intervening years. Read more…
from Lars Syll
They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions are just as arbitrary as the institutional rigidities and inertia they find objectionable in other theories of business fluctuations … I try to point out how incapable the new equilibrium business cycles models are of explaining the most obvious observed facts of cyclical fluctuations … I don’t think that models so far from realistic description should be taken seriously as a guide to policy … I don’t think that there is a way to write down any model which at one hand respects the possible diversity of agents in taste, circumstances, and so on, and at the other hand also grounds behavior rigorously in utility maximization and which has any substantive content to it.
Real Business Cycle theory basically says that economic cycles are caused by technology-induced changes in productivity. It says that employment goes up or down because people choose to work more when productivity is high and less when it’s low. This is of course nothing but pure nonsense — and how on earth those guys that promoted this theory (Thomas Sargent et consortes) could be awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is really beyond comprehension. Read more…
from Steve Keen
The great polymath and humanitarian Hugh Stretton died this weekend. I can do no better than to reproduce another great Australian’s tribute to him.
The following is from Geoff Harcourt.
Hugh died last Saturday at the age of 91 after a long illness. I had known him since 1958 when I first came to Adelaide where he was the much-admired Professor of History. In later years we became firm friends, though I continued to regard him with awe and admiration. He was a giant intellect, easily Australia’s most deep and progressive thinker, and a remarkably kind and humane man who lived up to his ideals in many practical ways.
Having established an excellent History department, he resigned from his chair so that he could write. The first product of this new phase was The Political Sciences, published by Routledge in 1969, and named in the Times Literary Supplement as a work of ‘near genius’. It contains a most profound analysis of the inseparability of analysis and ideology in the social sciences. He published privately his ground-breaking book, Ideas for Australian Cities in 1970, which then became a bestseller. Housing and Government, his Boyer Lectures, were published in 1974. His Cambridge University Press book, Capitalism, Socialism and the Environment, (1976), was so far ahead of its time that it has not received the attention it should have. His volumes of essays analyse vital social, political and economic issues in Australian society. His ‘anti-Samuelson’ economics textbook, Economics: A New Introduction (1999), presents to students a viable alternative to mainstream economics.
Most of all, he was a loving and lovable person, always extraordinarily generous and supportive to his many friends and admirers (overlapping sets), and lovingly supportive and proud of his children. He and Pat had many years of deep love and support for one another. I doubt that we shall see his like again.
Geoff Harcourt Professor Emeritus G C Harcourt School of Economics, UNSW Business School
from Peter Radford
Yes. I agree.
The negotiations concerning the Greek bail-out were absurd. They showed in vivid highlight just how foolish the entire Euro exercise is. Countries with economies as varied as those of Europe ought not bind themselves together without going the whole way into some sort of federal political and budgetary union. That would allow funds to move about internally so that regions falling into distress can get help ‘anonymously’ without the need for the tragic farce we have just witnessed.
This is what happens inside the United States. Funds routinely move about, Federal programs make sure that some basic services – such as Social Security – are paid from a central source so if a state like Florida gets into difficulty bills still get paid and services are still provided. Were this not so, and if Florida had been responsible for, say, those pensions back in 2009, it would have faced a crisis similar to that in Greece. Indeed the imbalances in the flow of funds into and from Washington are what allows many states in America to pretend that they are fiscally secure. Read more…
from David Ruccio
Certainly not in the United States.
from Lars Syll
Neoclassical economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules, axiomatized by Ramsey (1931) and Savage (1954) – that is, they maximize expected utility with respect to some subjective probability measure that is continually updated according to Bayes theorem. If not, they are supposed to be irrational, and ultimately – via some “Dutch book” or “money pump”argument – susceptible to being ruined by some clever “bookie”.
Bayesianism reduces questions of rationality to questions of internal consistency (coherence) of beliefs, but – even granted this questionable reductionism – do rational agents really have to be Bayesian? As I have been arguing elsewhere (e. g. here, here and here) there is no strong warrant for believing so.
In many of the situations that are relevant to economics one could argue that there is simply not enough of adequate and relevant information to ground beliefs of a probabilistic kind, and that in those situations it is not really possible, in any relevant way, to represent an individual’s beliefs in a single probability measure. Read more…
“Green Capitalism: The God that Failed is essential reading for
anyone opposed to planetary suicide.”
from Truthout and David Klein
Green Capitalism: The God that Failed, by Richard Smith,
World Economics Association eBooks
The climate crisis is the greatest threat humanity has ever faced. At the current rate of global greenhouse gas human civilization …” Adding to that, the biosphere faces massive pollution, resource depletion, species extinctions, ocean acidification, among other looming dangers.emissions, warming of the planet will shoot past two degrees Celsius by mid-century and reach 4°C to 6°C beyond pre-industrial averages by 2100. The magnitude of the impending catastrophe was eloquently described by Hans Schellnhuber, director of the Potsdam Institute for Climate Impact Research, when he said, “the difference between two and four degrees is
But can we save ourselves? In his new book, Green Capitalism: The God that Failed, Richard Smith argues compellingly that “sustainable production is certainly possible but not under capitalism” and even more forcefully, “capitalism and saving the planet are fundamentally and irreconcilably at odds.” To this central question, Smith brings an impressive command of economics and an engaging conversational style of writing. He explains and illustrates with devastating clarity the key mechanisms of capitalism that force it to grow unendingly, and these explanations are supported with a broad array of examples of corporate and national economic practices from around the world. read more
from Dean Baker
Like many people following the negotiations between Greece and its creditors, I was inclined to see Wolfgang Schauble, Germany’s finance minister, as the villain of the story. After all, Mr. Schauble insisted on severely punitive measures for Greece as a condition for continuing support from the European Central Bank (ECB). He appeared to be the bad cop relative to others in the negotiations, such as German Chancellor Angela Merkel, who was willing to make at least some concessions to keep Greece in the euro. But a more careful analysis arguably leads to the opposite conclusion.
Schauble did not argue for throwing Greece out of the euro simply as a punitive measure, although he quite obviously disapproved of the way Greece had run its budget and its economy. He argued, quite possibly sincerely, that at least a temporary departure from the euro zone would be the best path forward for Greece. Read more…
from Lars Syll
It is, perhaps, not uninteresting to point to some of the economic implications which are included in “perfect foresight”. It will immediately be recognized that this assumption could never lie at the basis of the theory of equilibrium, and they who attribute this to such authors as Walras and Pareto, who are included as representatives of equilibrium theory, are in error. ln the first place, strange to say, it happens that even material assertions can be made about such an economy on the basis of the assumption of perfect foresight.They are fundamentally of the negative type. For example, no lotteries or gambling will exist, for who would play if it were well-established where the profit went? Telephone, telegraph, newspapers, bills, posters, etc. would, likewise, be superfluous, obviously; but, also, the very important industries, based on them, with all their affiliated industries, would be absent. Only packages and letters implying documentary evidence would need to be delivered by post, for to whom would letters be written? The tale need not be carried further, for it is obvious how little considered are the “fundamental assumptions” so frequently employed in theoretical economics, where really a matter of nonsense is at issue.
This book critiques economics in the context of ideals such as collective decisions and democracy, freedom, justice, and development. Taking off from the idea that social evaluation using the familiar metric of GDP is extremely limited and drawing inspiration and certain basic insights from the writings of Amartya K. Sen, the work also brings in, within a reconstructive methodology, ideas from various thinkers including those coming from major contemporary philosophers such as Rawls and Habermas, as well as classical thinkers such as Aristotle, Adam Smith, J.S. Mill, and Marx. Within the general reconstructive intention, the author raises questions, old and new, pursues and develops both familiar and original insights, and suggests various linkages and inter-connections, as well as integrative perspectives towards developing conceptions of certain basic social ideals that would be relevant to such a broader and more complex kind of evaluation of various social institutions. Institutional and policy realization and feasibility issues are also considered at length—especially in connection with less developed society contexts—as these relate to the major social ideals being suggested.
from Yanis Varoufakis
Dominique Strauss Kahn: “to my German friends”
“But the demon that makes us repeat our errors of the past is never far away.”
Hollande stood his ground. Merkel faced up to those who didn’t want an agreement at any price. It’s to their credit. There is a good chance a plan will be put in place, reducing if not removing the risks of a Grexit. It’s not enough, but it’s welcome.
The conditions of the agreement, however, are positively alarming for those who still believe in the future of Europe. What happened last weekend was for me profoundly damaging, if not a deadly blow.
There are of course those who do not believe in that future, who will be rejoicing. And they are many, from two different camps.