Keynes on people who have their heads fuddled with nonsense

March 29, 2015 1 comment

from Lars Syll

The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years … 0616_ig-john-maynard-keynes_1024x576Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.

John Maynard Keynes (1929

Ancient to Modern Mashriq

March 29, 2015 1 comment

from Ali Kadri

The earliest places to develop into sedentary cultures were to be found in the present-day Mashriq (Ancient Syria and Mesopotamia) pursuant to the early agricultural revolution. The crevice at the end of the Great African rift known as the Fertile Crescent is a natural gathering ground for domesticable animals; it enjoyed regular rainfall and a variety of easily cultivable cereals. Good soil quality circa 2000 B.C. produced about the same tonnage of barley as in early 1970 (Hilou, 2004). The steady development of tools and modes of social organisations required regulation and the pacification of the labouring class. Measures for trade and laws to attenuate repression and limit the appetite of the clergy represent the first set of written rules intended to steady the course of development – the Code of Ur-Nammu, 2100 B.C. The code addresses three vital points: the ruling on weight for trade, a limit to what the clergy could extract in tribute and, a statement ensuring the protection of the vulnerable from the transgression of the powerful. These precepts crown the notion of the ‘Just Man’ of the East (Al-Alawi, 2009).  Read more…

Categories: Uncategorized

What’s inside the neoliberal mind? Part 2 – Marketfundamentalist Marxism, kind of

March 28, 2015 Leave a comment

The latest ECB Economic Bulletin states: “In Portugal, the 2009-13 reforms have already raised the levels of productivity and potential GDP. According to OECD estimates the reforms will have resulted in a 3.5% increase in these variables by 2020″.  This quote, from an article titled “Progress with structural reforms across the euro area and their possible impacts”, reminds one of the 1947 Isaac Asimov story about the endochronic nature of thiotimoline, the compound which “will dissolve before the water is added“. I mean – is it 2020 already?

The article is profoundly researched when it comes to neoclassical models – but lacks a proper diagnosis of the present situation and totally ignores even ECB papers which, when looking at the present day situation in the Eurozone in a serious way, produce results which makes the neoclassical view of events crumble.  Read more…

Categories: Uncategorized

A detailed program proposal for creating a parallel currency in Greece

March 28, 2015 3 comments

from Trond Andresen and Robert W. Parenteau

The premise for the proposal to be presented in the following is that the government has a breathing space of a couple of months. At the end of that period a parallel electronic currency shall be put into circulation.

But first, how does a parallel currency (to the euro) work?

Proposals resembling the following have been put forth earlier by Andresen, for instance in [1], and recently by Hillinger [2]. The additional (“parallel”) circulating medium of exchange to be proposed may be designated a Tax Anticipation Note (TAN), a term introduced by Parenteau [3]. The TANs are used by the government to partly pay wages, pensions and for domestic purchases. The TAN enjoys confidence since anyone can use it to pay taxes with one TAN counting as one euro (more on this below). Transactions are done via mobile phone/SMS, and automatically received and accounted for on a server with ample capacity at the country’s Central Bank or perhaps preferably, for political reasons, at a bank-like facility established for this purpose at the Treasury – from now on just called the TB: “Treasury Bank”.  Read more…

Categories: Greece

Conspicuous construction

March 27, 2015 1 comment

from David Ruccio

skyline

The high times aren’t going away in New York.

The city of just six years from now will be dramatically taller, with a series of luxury high-rises towering above Central Park, a new West Side development and downtown spires.

Read more…

Economics as Superstructure

March 26, 2015 2 comments

Norbert Häring‘s presentation for the seminar “Economics and Power” on 23 March 2015, House of Lords, London:

Ladies and Gentlemen, To pay tribute to the Marxist jargon, in which Lord Skidelsky has phrased the title of my subject, I would like to start with a quote from Karl Marx: “The ideas of the ruling class are in every epoch the ruling ideas. … The ruling ideas are nothing more than the ideal expression of the dominant material relationships, … the relationships which make the one class the ruling one, therefore, the ideas of its dominance.” In my own words, that says that not all economic ideas are created equal. Some ideas make it into the leading academic journals, others can hardly be published. Some ideas make those who develop them successful in academics or even famous and influential. Other ideas sentence those who develop them to a life at the margin at best.

Ideally, this would all be a function of how convincing the idea is and how good the academic is at developing the idea, writing it down and marketing it. But we all know, that excellence by itself does not get you very far. Another important ingredient for a successful career is how convenient your subject of study and your results are for powerful interests in society.

Read more…

Why Paul Krugman is no real Keynesian

March 26, 2015 4 comments

from Lars Syll

Keynes’s insights have enormous practical importance, according to Lance Taylor and Duncan Foley (who jointly received the Leontief Prize for Advancing the Frontiers of Economic Thought at Tufts University’s Global Development and Environment Institute on Monday.)

But isn’t Keynes now mainstream? No, say Foley and Taylor. The mainstream still sees economies as inherently moving to an optimal equilibrium … It still says demand causes short-run fluctuations, but only supply factors, such as the capital stock and technology, can affect long-run growth.

EVEN PAUL KRUGMAN, a self-described Keynesian, Nobel laureate, and New York Times columnist, writes in the 2012 edition of his textbook: “In the long run the economy is self-correcting: shocks to aggregate demand affect aggregate output in the short run but not in the long run” …

KeynesUpsidedownKrugman does point to one exception: If interest rates are nearly zero, as during the financial crisis, markets lose restorative force. But, Taylor asks, what’s the logic?

Keynes saw capitalism’s general state as allowing almost arbitrary unemployment: hence his “General Theory.” Full employment was a lucky exception.

To Taylor, calling full employment the general state and allowing one unlucky exception turns Keynes upside down. And look where this confusion has brought us, he adds. Take the current eurozone disaster. For two decades, the European Union bureaucracy in Brussels, the German Council of Economic Experts, and a chorus of others, branded Germany, the “sick man of Europe,” as suffering from a sclerotic supply side: rigid labor unions, impediments to layoffs, a burdensome welfare state. But German labor costs to produce output sank steadily, and Germany generated huge trade surpluses — hardly signs of a sclerotic supply side. Yet growth has barely averaged 1 percent a year since 2000.

Jonathan Schlefer

I can’t but agree with Taylor and Foley here. To a large degree one does get the impression that Krugman thinks he is a Keynesian because he is a stout believer in John Hicks IS-LM interpretation of Keynes.  In a post on his blog, self-proclaimed “proud neoclassicist” Paul Krugman has argued that Read more…

Categories: New vs. Old Paradigm

Links. The value of assets, Worldbank rhetorics and an answer. Two graphs.

March 26, 2015 Leave a comment

1) Do we know how rich we are? One of the problems with the (invaluable) work of Piketty is how to value assets. GDP accounts basically use transaction prices – but many assets are not traded and we have to use other values or prices like book value, assessed market prices, rebuilding value or something like that. Think of the valuation of natural reserves of oil or dikes (the discounted value of assessed future streams of income is not used by statisticians, as this measure is too fickle – if measurable at all, as in the case of dikes). This means that assessed asset values can be quite volatile – as shown by the estimated value of Dutch net international assets (graph) – using another assessment method of the stock value leads to a 100 billion difference - even though estimated current account surpluses (a flow) stayed basically stable. Not that despite decades of current account surpluses in 2008 the Netherlands had a negative international investment position (the ‘Dutch black hole’, caused by bad investments…). The large change in the net position is also caused by the fact that it is… a net position. A relatively small change in total assets or liabilities can show up as a relatively large change in the net position. Even then, 100 billion is a lot…

Howrichdowethinkweare

2) Does she sing like a bird (spoiler: yes)? Does she roar like an Antonov plane? Also. Frances Coppola about the recent default of the Austrian government: Read more…

Categories: Uncategorized

Efficient Allocations?

March 25, 2015 4 comments

from Peter Radford

Willford King has written:

“It is easy to find a man in almost any line of employment who is twice as efficient as another employee, but it is very rare to find one who is ten times as efficient. It is common, however, to see one man possessing not ten times but a thousand times the wealth of his neighbor … Is the middle class doomed to extinction and shall we soon find the handful of plutocrats, the modern barons of wealth, lined up squarely in opposition to the propertyless masses with no buffer between to lessen the chances of open battle? With the middle class gone and the laborer condemned to remain a lifelong wage-earner with no hope of attaining wealth of even a competence in his old age, all the conditions are ripe for a crowning class-conflict equaling in intensity and bitterness anything pictured by the most radical follower of Karl Marx. Is this condition soon coming to pass?” [Emphasis in original]

That was in 1915. My how times change.

Well maybe not. That comment about the middle class has a very contemporary ring to it.

A couple of things pop out at me when I read that quote – no doubt you will find your own emphasis.  Read more…

Herman Daly: “Essays Against Growthism”

March 25, 2015 3 comments

Essays Against Growthism

Herman Daly

Published 25 March 2015 by WEA Books, $10.00
This book is available to download in PDF, EPUB (for iPad etc.) and MOBI (for Kindle etc.)

Contents

  1. The Economy as Subsystem of the Ecosphere
  2. An Economics Fit for Purpose in a Finite World
  3. Integrating Ecology and Economics
  4. Dualist Economics
  5. Three Limits to Growth
  6. Depletion of Moral Capital as a Limit to Growth
  7. A Population Perspective on the Steady-State Economy
  8. The Guardian and Monbiot versus Forbes and Worstall
  9. Use and Abuse of the “Natural Capital” Concept
  10. Cold War Left-Overs
  11. Krugman’s Growthism
  12. Full Employment versus Jobless Growth
  13. The Negative Natural Interest Rate and Uneconomic Growth
  14. Top 10 Policies for a Steady-State Economy

Read more…

Categories: WEA Books

Inside the neoliberal mind part 1 – the rebranding of failure.

March 24, 2015 6 comments

Troika economists have a problem. It’s huge: cutting wages clearly did not work as intended, which goes against their deepest convictions. In such a situation people tend to rationalize. To quote Goethe: “intelligent people are sharpest when they are… wrong“. Some recent publications enable us to investigate the rationalization process of among others ECB economists.  One of these is a Voxeu piece by Eric Bartelsman (head of the department of economics of the Vrije Universiteit van Amsterdam), Filippo di Mauro (senior advisor in the research department, ECB) and Ettorre Durucci (head of the convergence and competitiveness division, ECB) which clearly shows that cutting wages did not work as intended (see their figure 1). How did they cope with this?

Figure 1. Relative prices and activity in selected Eurozone countries (change between the year of the ULCT-deflated REER peak and 2014 projected)

di mauro fig1 16 mar

Figure 1 shows that

* As a consequence of austerity the ‘Real Effective Exchange Rate (REER)’ of countries like Spain, Ireland, Greece, Latvia and the like declined a lot (i.e.: exports became much cheaper). This was totally intended.

* But this did not lead to the expected increase in net (!) exports Read more…

Categories: Uncategorized

On the value of theoretical models in economics

March 24, 2015 9 comments

from Lars Syll

Chameleons arise and are often nurtured by the following dynamic. First a bookshelf model is constructed that involves terms and elements that seem to have some relation to the real world and assumptions that are not so unrealistic that they would be dismissed out of hand. monocle_chameleon_2The intention of the author, let’s call him or her “Q,” in developing the model may be to say something about the real world or the goal may simply be to explore the implications of making a certain set of assumptions. Once Q’s model and results become known, references are made to it, with statements such as “Q shows that X.” This should be taken as short-hand way of saying “Q shows that under a certain set of assumptions it follows (deductively) that X,” but some people start taking X as a plausible statement about the real world. If someone skeptical about X challenges the assumptions made by Q, some will say that a model shouldn’t be judged by the realism of its assumptions, since all models have assumptions that are unrealistic …

Read more…

Categories: methodology

Links for today: Wren-Lewis, Häring and Mitchell go for the facts, expose austerity disinformation

March 23, 2015 2 comments

1) Simon Wren-Lewis looks at the facts and finds that The UK prime minister lies about Greece. The truth:

The real travesty however is in the implication that somehow Greece failed to take the ‘difficult decisions’ that the UK took. ‘Difficult decisions’ is code for austerity. A good measure of austerity is the underlying primary balance. According to the OECD, the UK underlying primary balance was -7% in 2009, and it fell to -3.5% in 2014: a fiscal contraction worth 3.5% of GDP. In Greece it was -12.1% in 2009, and was turned into a surplus of 7.6% by 2014: a fiscal contraction worth 19.7% of GDP! So Greece had far more austerity, which is of course why Greek GDP has fallen by 25% over the same period“.

2) Norbert Häring looks at the facts and finds that the ARD (German television) lies about Greece (In German, a whole list of inaccuracies, outright mistakes, wrong data and dishonest reporting)

3) Bill Mitchell goes the additional theoretical and empirical miles to take down a crucial austerity document from Brussels. The truth: lowering wages did not work anymore once everybody started to do this (and not just Germany).

Categories: Uncategorized

The rise and decline of US median family income

March 23, 2015 Leave a comment

Economic Policy Institute

Amazing companies

March 22, 2015 Leave a comment

Soon, I’ll write a little about ‘inside the neoliberal mind’. To be able to do this I have to establish my credentials: no, I’m not just an armchair economists but also do know a little about lots of real life companies (largely thanks to the internships of my students) and I will blog about these so now and then. Lots of these companies are truly amazing and worth telling about. Not all companies are amazing – but I tell my students that even crappy ones are survivors which in a competitive economy is quite an accomplishment.

A) Meet Avonturia. Even a pet shop can be an experience. A constructionworker became disabled which made him turn his hobby -birds- into a living. His sons wanted to join this trade – which meant that they had to expand. The options: three large ‘normal’ pet shops at an A location – or ‘Large and Loony’, i.e. Avonturia Their secret: push it to the limit: inside the shop they have a ‘brasserie‘. Which has the best tea bar I’ve seen in my life. In a pet shop… Also: Schulp fruit juices, again the best. Like the whole shop, including this. Read more…

Categories: Uncategorized

Alternative theoretical practice

March 22, 2015 7 comments

If theoretical models assume uncertainty, however, and assume that agents have epistemic and ontological beliefs consistent with this state of affairs, the proper way to approach the course of economic phenomena should be very different. Particularly in place of mechanisms or economic regularities that keep running independently of agents’ expectations, the decisive role of lobbyists within open-ended processes based on expectations should be incorporated into the analysis. Such an alternative approach to economics could be based on the following set of assumptions which focuses on the lobbyist role of agents and the special kind of practical knowledge and skills they need. Choosing this approach means abandoning the pretense of scientific status desired by Lucas, which is obtainable at the price of assuming PTF. I suggest that the following assumptions could be the philosophical core of a new conceptual framework for economics:  Read more…

Categories: New vs. Old Paradigm

The functions of the lobbying industries

March 22, 2015 Leave a comment

Before the industrial era, was the agrarian era, when the chief type of property whose inheritances determined the aristocracy consisted of land.  With the onset of industrialization, after around 1600, corporate stock emerged increasingly to become the chief form of property whose inheritance determined the aristocracy. No longer was the aristocracy the possessor of the landed estates, which collectively constituted the given nation; the aristocracy increasingly became instead the possessor of the vast corporations, which collectively controlled the nation’s economy. Instead of a nation consisting primarily of its land, it came to consist increasingly of its corporations.

However, just as there was an agrarian-era conflict between the masters and their serfs; that is, between the aristocrats and the public; there came now to be an industrial-era conflict between the corporate owners and their hired servers; that is, between the aristocrats and their workers.

In both eras, there has been this same conflict for control of the government, or of the “State” – the body-politic. Dictatorships during the agrarian era were kingdoms, in which the owners of the landed estates chose the king or equivalent monarch as the supreme ruler. Dictatorships during the industrial era are instead nations, in which the owners of the corporations choose the Duce, Fuehrer, Shah, or other supreme ruler.

Both during the agrarian era, and during the industrial era, there have been political movements for the public, or the demos, to control the government, via democracy – no dictatorship at all. Read more…

The ECB, structural reforms and a long run misconception (graph)

March 21, 2015 1 comment

The most famous Keynes quote is no doubt:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.”.

But ECB economists clearly do not grasp the wisdom of these words. I was reading the recent ECB document: “Progress with structural reforms across the Euro Area and their possible impacts“. I’ll write more about this. For now:  after seven years of continuous decline and/or deflation of the Greek economy and an about 25% contraction the ECB economists dare to state (based upon a 2013 IMF report):

A number of structural reforms were implemented in Greece. The IMF estimates that policies which close roughly half the gap in product and labour markets with the rest of the euro area – which seems to be what Greece achieved … according to changes in the OECD’s product market regulation (PMR) and employment protection legislation (EPL) indicators – could raise real GDP by about 4% after five years and by 10% in the long run.”

About these reforms: the article shows that of all Eurozone countries Finland scores about the highest when we look at ‘product market regulation’ and ‘employment protection legislation’ (‘high’ meaning: approved by neoclassical economists). That’s the template for Greece! But it seems that for Finland, too, the tempestuous season still hasn’t ended…. (graph).

ECB

I do think – but in this case my opinion is humble, as I did not talk with Greek business owners – that Greece should make doing business and more reforms and changes are welcome, like finally completing the cadastral survey. But this alone won’t solve the problems. Not anytime soon. And not in the long run, either.

Categories: Uncategorized

Varoufakis vs. Piketty

March 21, 2015 3 comments

“The rich… divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” Adam Smith, The Theory of Moral Sentiments, Part IV Chapter 1 

“For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Mark, King James Bible, 1611, 4:25

Adam Smith’s optimism and its vulgar neoliberal reincarnation, the ‘trickle down effect’, are thankfully on the back foot these days, steadily losing ground to a more ‘biblical’ narrative (see Mark 4:25 above[1]). The Crash of 2008, the bailouts that followed, and the ‘secular stagnation’ which is keeping the wage share at historic lows (at a time of conspicuous QE-fuelled, bubble-led, asset-price inflation), have put paid to the touching belief that the ‘invisible hand’, left to its own devices, distributes the fruits of human endeavour more evenly across humanity.

Read more…

Categories: Economic Thought

Yellen, patience and the Fed. How economic theory shapes our understanding of the facts.

March 21, 2015 Leave a comment

A long post from Erwan Mahébut immensely readable. It shows how ideas from academic scribblers (especially about the nature of money and (un)employment) directly guided central bank discussions and policies in a crucial period (some articles are even explicitly mentioned by Yellen!). Don’t forget, however, the anonimous data produced by economic statisticians, which with their strengths, weaknesses and unavoidable biases guide policy too. In the end it’s about wich theory is, at a central bank, used to understand this data. MK. Read more…

Categories: Uncategorized
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