new issue of Real-World Economics Review

real-world economics review
Issue no. 80 
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Inequality, democracy and the ecosystem Politics, preferences, and prices: the political consequences of inequality          2 Luke Petach          download pdf The triumph of Pareto          14 Gary Flomenhoft          download pdf Do we need a new economics for sustainable development?          32 Peter Söderbaum         download pdf From green growth towards a sustainable real economy          45 Jørgen Nørgård and Jin Xue          download pdf Money Split-circuit reserve banking – functioning, dysfunctions and future perspectives          63 Joseph Huber          download pdf The coming revolution in political economy          85 Tim Di Muzio and Leonie Noble          download pdf Keynesian issues Derivation of involuntary unemployment from Keynesian microfoundations          109 Philip George          download pdf Asymmetric price adjustment: the missing link in Keynesian macroeconomics          121 Victor Beker          download pdf Nations Chinese economics as a form of ethics          148 Kazimierz Poznanski           download pdf A brief history of Pakistan’s economic development          171 Muhammad Iqbal Anjum and Pasquale Michael Sgro          download pdf         Review essays Negating 1984: Michael Hudson’s antidote to doublespeak in economics          179 Jamie Morgan          download pdf Deserving economics          186 Peter Radford          download pdf A note Trade imbalances are undesirable          193 Leon Podkaminer          download pdf Board of Editors, past contributors, submissions and etc.          197 Leave comments here

Brexit, don’t forget how we got here

from Jamie Morgan

Understanding Brexit requires us to consider the political economy of tax justice and the abuse of wealth protection.

At a time when a general election has dominated the press for the last two months and Brexit has been a shadow of anxiety – a most remarkable event that the political parties have been steadfastly refusing to remark upon in any meaningful way – it is important to recall just how we got to the current state of affairs; a state that Craig Berry refers to as ‘undemocracy’.  A narrow majority decision based on (at best) limited information has become a fait accompli empowering government to pursue a position regarding which the populous are still in ignorance.  It is difficult to see what kind of mandate follows from this, but it is not difficult to see that the longstanding problem is one of increasing separation between citizenry and those who they elect to represent them.

Disintegration, distrust and any number of additional alliteratively phrasable and parsable terms and concepts have general and specific causes.  If we are to understand how we got here there is a political economy to be considered.  Financialisation has also meant the accumulation of financial assets creating wealth stocks and income flows for the few far more than for the many. Inequality is a process based on asymmetrical ownership of such assets.  This has been both a product of and a contribution to the difference between a 1% and the 99%.  

Trumponomics: Causes and Consequences

paperback now available from the Amazon pages listed below

508 pages

Here are links to the book’s pages on the various Amazons
United States $28, Brazil, Canada, France, Germany, India, Italy, Japan, Mexico, Spain, United Kingdom

Where will global demand come from? (4 charts)

from C.P. Chandrasekhar and Jayati Ghosh

For several decades, the US economy functioned as the principal agent of global demand, sucking in vast amounts of imports from the rest of the world as it built up vast current account deficits. Of course, it was easily able to finance these deficits with capital inflows, benefiting from its status as the holder of the only viable global reserve currency. But just as the US was able to make the rest of the world in effect pay for its own domestic economic expansion, this expansion had positive effects on growth in the rest of the global economy.

The US functioned as the primary source of demand for major exporting nations, thereby pulling much of the rest of the world economy along with it in the intermittent periods of boom. In the 1990s and again in the 2000s, there were prolonged periods during which the current account deficits of the US grew and then remained at very high levels, generating demand for others in the world economy. While major exporting nations like Germany, China and to a lesser extent Japan, were obviously the chief beneficiaries of this, the expansion trickled down to other countries and regions.

This was clearly not the ideal mode of global expansion, since it created imbalances that were bound at some point to become unsustainable, and possibly erupt in crises, as they indeed did in 2001 and again more severely in 2008-09. The problem was that countriestried to export their way to growth and therefore relied on an external stimulus for demand expansion, which had to be at the expense of others. A better and morepreferable route to global growth would be to enable and allow domestic expansion within countries – but that requiresinternational co-ordination.

Such co-ordination has been lacking in the recent past. This is unfortunate, because since  the Global Financial Crises, in which the US economy was the epicentre, the US economy’s net stimulus to the rest of the world has been on a declining trajectory. And the absence of other demand stimuli condemns the global economy to its low “new normal”.  

Europe’s third alternative: leapfrogging Putin

from Robert Locke

One big problem  in orthodox economics is the inability of its market orientation to cope with strategic implications of economic and political geography. I pointed that out in an article published in the rwer (“Reassessing the basis of economics:  from Adam Smith to Carl von Clausewitz,” #61, 26.09.2012, 100-114), to which nobody responded.  But the issue won’t go away and is especially pertinent today, because of the uproar caused by Trump’s failure to support the invocation of article 5.  This issue is being discussed within the framework of US post WWII geographical hegemony.  As Thomas Paley’s post “Trump and the Neocons: doing the unilateralist walz,” May 20 2017, states under the rubric The future of international relations, the implication is that

“Trump’s unilateralism may…reflect enduring neocon leanings within the current U.S. polity. Though the intensity of those leanings will ebb and flow, they are now a permanent feature…that has ramifications for the international relations order that foreign governments around the world will need to digest. One concern is excessive export dependence on the U.S. market which renders countries economically vulnerable to U.S. punitive market access restrictions. A second is U.S. corporate takeovers of foreign country champion firms. Europe also needs to recognize it may suffer negative backwash effects from unilateral U.S. interventions in the Middle East and elsewhere. In contrast, the U.S. is protected by the Atlantic and Pacific oceans, and that protection may even foster U.S. military recklessness.”

Discussing the subject within this context gives Europeans two policy-making options, to make some sort of accommodation with Putin or to let Trump call the tune.  But, if we explore the geographical options differently, there is a third possibility, leapfrogging Putin to China.  

Trump and the Neocons: doing the unilateralist waltz

from Thomas Palley

The neocon factor dramatically changes the interpretation of the Trump administration’s unilateralist international economic policy chatter.

Donald Trump’s first one hundred days have revealed his inclination for unilateralism in international relations. That inclination reflects his opportunistic and bullying disposition, and it also fits well with his anti-globalization pose.

Trump’s unilateralism has also spawned a dangerous waltz with Washington’s neocon establishment. The opportunistic Trump looks to gain establishment support, while the neocon establishment looks to the opportunist-in-chief to implement its own unilateralist view of the world.

The waltz is clearly visible in recent military actions but it also extends to international economic policy which is an area of budding neocon concern.

A further twist is that neocon unilateralism can be exercised against both rivals and allies. Power is at the core of the neocon project. And power can be used to block rivals or bend allies.

No rivals tolerated

The neocon project derives its appeal inside the United States from the belief that never again should there be a power, like the former Soviet Union, capable of rivalling the United States.

Originally, the neocon project represented ultra-conservative Republican thinking, but it has substantially become mainstream thinking. 

The 10 most viewed RWER Blog posts in 2016

1. Poll Results: Top 10 economics books of the last 100 years
2. Summary of the Great Transformation by Polanyi      Asad Zaman
3. Reflections on the “Inside Job”      Peter Radford
4. The tiny little problem with Chicago economics      Lars Syll
5. Money and the myth of barter     David Ruccio
6. What is Post Keynesian Economics?     Lars Syll
7. The seven countries most vulnerable to a debt crisis     Steve Keen
8. The 15 largest arms exporters per capita     Joseph Buzaglo
9. Re-thinking the definition of “Public Goods”     June Sekera
10. 25 graphics showing upward redistribution of income and wealth in USA since 1979     David Ruccio

Comparing income inequality in the United States and France

The bottom 50 percent of income earners makes more in France than in the United States even though average income per adult is still 35 percent lower in France than in the United States (partly due to differences in standard working hours in the two countries).⁹ Since the welfare state is more generous in France, the gap between the bottom 50 percent of income earners in France and the United States would be even greater after taxes and transfers.

Positional analysis: what it is and why economists need it

from Peter Söderbaum, Judy Brown and Małgorzata Dereniowska and WEA Commentaries

What would an alternative economics and economy look like for a sustainable future? As with any normative vision, such as that of a sustainable economy and society, a variety of responses and perspectives can be legitimately sought. Out of those, for many economists, only the perspectives that result in outcomes that are (potentially) Pareto improvements are economically meaningful. But sustainability and democratic legitimization of sustainability values in some respects displays some inefficiency in terms of utility (e.g., loss of time needed to implement democratic procedures or to collectively develop a shared normative vision of sustainability), or can be judged differently depending on the process employed in arriving at a sustainable outcome. Indeed, the inherent ethical dilemma of sustainable development between economic efficiency, social equity, and environmental conservation are not practically separable. What if we turned around the question to think about an alternative vision of economics, economic analysis, and decision making approaches that makes room for plural normative criteria without predefining their ranking within decision processes, and illuminates social conflicts, instead of obscuring them with value-neutral ‘representational’ claims? This alternative idea underlies positional analysis (PA) that addresses both the outcome and the process, with explicit attention paid to their ethical and political content, at the level of analysis, planning, and decision making.  

America’s hidden pains

from William Neil

We begin with some gross numbers from Das’ Age of Stagnation: the loss of wealth from the Great Recession of 2008-2009. Citing the work of three economists at the Federal Reserve Bank of Dallas (Tyler Atkinson, David Luttrell and Harvey Rosenblum), the figures they put on the loss to the U.S. economy come to 6-14 trillion dollars, “equivalent to U.S. $50,000 to U.S. $120,000 for every American household, or 40-90% of one year’s economic output”. We’ve seen figures of family distress ranging from $20,000-$60,000, largely representing losses in the stock market, which seem on target from direct personal experience. The other factor driving towards a more lasting economic pain are those who lost enough in straight financial terms to forestall market re-entry, matched with a psychological aversion to ever trusting it again. Additionally, pension fund retirement viability was affected by the same dynamics. These factors must be considered, as difficult as they are to quantify, to qualify the otherwise impressive performance after 2010 in the financial markets, they being supported by all the permutations known as Quantitative Easing, American and European versions.  

The market paradigm versus the production paradigm

from Robert Wade

Why have the large majority of professional economists, especially in the academy and in western-dominated international organizations like the World Bank and IMF, been committed to free trade policy, downplaying theoretical and empirical weaknesses in order to remain so?

The teaching of economics in just about all universities of the western world, and in large parts of the developing world, socializes students into belief in the rightness of the “market” paradigm, and the more “rigorous” the training the more thoroughly socialized they become.[1]  The paradigm focuses on price competitiveness – free labor markets, flexible prices, free international trade – as the key to national competitiveness. It treats the market system as “self-organizing”, firms being essentially passive except for competing in price. It treats technology as external to production, as something which firms can buy on the market. It has no built-in process of innovation, no conception of an “industrial ecosystem” of firms competing and cooperating with each other.[2] With all these things stripped out, the culture of the profession elevates belief in comparative advantage and free trade as the litmus test of competence to be an economist, as the earlier quote from Krugman suggests. 

Trump is repeating exactly the same script that has guided neoliberal policy for over three decades.

from Jim Stanford

However it is explained in economic theory, the fundamentally productive, entrepreneurial role of capitalist investment is essential to the political and social legitimacy of the elites who lead the system – and who own and profit from the bulk of its wealth. Indeed, the thriftiness of the early capitalists, and their willingness to plough their savings back into growth, accumulation, and innovation, is precisely what endeared this dynamic new class to the classical economists. Smith, Ricardo, and their colleagues celebrated the productive leadership of capitalists, and developed policy recommendations which consistently favoured that class accordingly: everything from tariff reduction on imported food (to reduce real wage bills) to the expansive enshrinement of property rights. Anything that granted more money and certainty to productive, ambitious investors would be good for the economy, and the rest of society would benefit accordingly. That core idea (albeit perverted by the analytical twists and inconsistencies of neoclassical theory) lives on in the “trickle-down” policy vision which defined neoliberalism from the outset. Neoliberalism was a response to the deceleration of private accumulation after the long postwar boom. That slowdown was due in part to constraints on business imposed by workers, governments, and liberation movements in the former colonies.  

Exacerbation of the contradiction between democracy and capitalism

from Alicia Puyana

While the 2008 crisis called into question the fundamentals of economic theory over which the model of global growth had been sustained for the last three and a half decades, today we witness the crisis of liberal democracy and neo-liberal economics (Bauman, 2016), of the Social Democracy doctrine, the New Labor and waning The Third Way, as well as the fading out of the unrestricted support of globalization (Rodrik, 2017). Some foresee it as the end of the Pax Americana, or US hegemony established since the end of the Second World War and the world order that emerged thereafter (Roubini, 2017). For Trump, the costs of maintaining US imperialism are unacceptable; qualifying NATO as obsolete and its members as free riders and suggesting nuclear proliferation of Japan and Korea while keeping the USA “at the top of the pack” (Trump 2017) would be a sensible strategy, as it would reduce for the US the cost of defending these countries. In reality he is not an isolationist. He aims at controlling word order in his own terms: reinforcing the military power elements of the international security policy and weakening the elements of world peace, that inspired the II WW peace agreements and described in  F.D. Roosevelt 1944  State of  the Union Speech (Roosevelt, 1944), for whom security was not only preventing foreign aggressions but also avoiding any threats to  economic, social and moral security, because a basic element of world peace is  “a decent standard of living for all individual men and women and children in all Nations” (Roosevelt, 1944). Furthermore, for Roosevelt, peace depended on “…freedom from fear which is eternally linked with freedom from want” (Roosevelt, op cit.).  

Trumponomics: Neocon neoliberalism camouflaged with anti-globalization circus

from Thomas Palley

A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy.

As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests. He will also feed his political base’s racist immigration policy as long as that does not adversely impact corporate profitability.

Lastly, Trump expresses neocon unilateralist tendencies that play well with much of the US electorate. His neocon unilateralism is not a one-off temporary political aberration. Instead, it reflects intrinsic and enduring features of the current US polity. That has profound implications for the international relations order, and is something many Western European governments may not yet have digested.

How Trump succeeded

Trump’s political success was based on a two-sided attack on the establishment. First, he ratcheted up the existing Republican “illiberal” cultural values agenda into full-blown racist authoritarian nationalism. Second, he captured the progressive critique of the neoliberal economy, especially the critique of globalization.

Trumponomics and social prosperity

from Robert Locke

The management principles Trump evokes in Think Big and Kick Ass are those for self-enrichment reminiscent of robber barons during the Gilded Age. In his election campaign Trump promised to use his knowhow to restore prosperity to the dispossessed white middle class in rust belt communities. Will his management principles, if they served him and other billionaires well, do the same for the white middle class communities? This is a question economists seldom ask since they exclude management systems and methods from their analytical purview. It is also a question that Trump has not asked, inasmuch as he attributes the impoverishment of industrial America’s white middle class to NAFTA and other trade agreements, misguided environment policies that destroy jobs, e.g., in coal-mining regions, and tax provisions that encourage corporations to move manufacturing off shore. If economists and Donald Trump ignore the management question, historians have not, and for good reason.

History involves specificities that differ in time and place. The specific time referred to here in US history is when in the 1980s and 1990s the old staple mass production industries (automobiles, steel, rubber, consumer electronics, and their suppliers) succumbed to Japanese competition. Trump is a great believer in what the Germans call the Führerprinzip (leadership principle), which he thinks is the key to success. A good leader is needed to harness the will and energy of the people in the enterprise and the nation, for “without leadership,” he says, “organizations slowly stagnate and lose their way… Leaders influence behavior, change the course of events and overcome resistance and therefore leadership is regarded as crucial in implementing decisions successfully.” 

Can we avoid another financial crisis?

In 2008, conventional economics led us blindfolded into the greatest economic crisis since the Great Depression. Almost a decade later, with the global economy wallowing in low growth that they can’t explain, mainstream economists are reluctantly coming to realise that their models are useless for understanding the real world.

How did mainstream economists not see the crisis coming? Was it unpredictable, as they now assert, or did their theory blind them to the real causes? Will another financial crisis occur?

These questions and others are asked and answered in Steve Keen‘s new book Can we avoid another financial crisis? , a short (25,000 word) explanation for the lay reader of how we got into this economic mess, and why we are unlikely to get out of it.

Reviews: 

What does Trumponomics mean for developing countries?

from Jayati Ghosh

Mr Trump’s policy stance will, however, mean that the United States – which has been providing less and less of a positive demand stimulus to the rest of the world economy ever since the Global Financial crisis – will continue to shrink its import demand and add to the forces that are making global trade decelerate and even decline.

What does all this mean for developing countries? First, that those who are worried are right to be worried, but perhaps not for the reasons most commonly cited, such as the threat of trade protectionism. Rather, Mr Trump presents a disruptive force in an already febrile and volatile global economic environment, which is weakened not by his election, but because global capitalism had clearly reached the limits of pushing that particular strategy of accumulation. This was increasingly evident in the “secular stagnation” that seemed impervious to massive injections of liquidity and near zero or even negative interest rates, and in economic trajectories that no longer seem to generate stable and regular employment.  In turn, the disruption that Mr Trump generates in turn is only partly because of his actions, and probably even more because of the very impact that his statements and the surrounding chatter have on expectations, both in financial markets and in real economic activities.  

Trumponomics and the inadequacies of the mainstream neoclassical economics orthodoxy.

from Julie Nelson

I thought that any reasonable person would be revolted by the narcissistic, juvenile, bullying, lying behavior of the Republican candidate, and realize that he was clearly unfit for office. As an economist, I was taken aback by the variously kleptocratic and fantastical aspects of Trump’s intended economic directions. As a feminist and ecological economist, I was especially appalled by Trump’s braggadocious pussy-grabbing and climate-change-denying. While, according to the popular vote, a majority of voters saw Trump this way, my assumptions clearly did not apply to a substantial and vocal minority.

On further reading, conversing, and reflection, however, I’ve come to think that the causes of this disastrous event are not unrelated to something that I’ve been writing about for a long time: the inadequacies of the mainstream neoclassical economics orthodoxy. Mainstream economics and liberal political philosophy have in common a particular story about human beings and how we relate to each other in society. Both have emphasized individuality, reason, freedom, and a marketplace or public sphere in which agent-citizens interact, at somewhat of a distance, as peers and equals.  Both have, correspondingly, neglected much about what makes us human, and about how we evolved as social beings. My serious mistake was in thinking that we, as a discipline and a society, might be able to move past this one-sided view in a positive direction.  read more

 

The elite globalization consensus

from Robert Wade

In this context globalization refers to the opening of domestic markets and the integration of global production via multinational corporations (MNCs). More broadly, it refers to  movement in the world economy towards “one country”, or “deep (not shallow) integration”, where nation states have no more influence over flows of goods, services, capital, finance, ideas and people across borders than South Dakota or the other US states have across theirs. Ever since the 1980s leaders of western states – including shareholders and top executives of MNCs – have agreed that states, on their own and cooperating (in free trade agreements, and in inter-state organizations like the World Bank, IMF, World Trade Organization, European Union), should push for ever more globalization, more “market access” for their corporations, and less state “intervention” or “regulation” in markets.

Here is Martin Wolf of the Financial Times, one of the world’s most influential economic commentators:

“It cannot make sense to fragment the world economy more than it already is but rather to make the world economy work as if it were the United States, or at least the European Union… The failure of our world is not that there is too much globalization, but that there is too little. The potential for greater economic integration is barely tapped… Social democrats, classical liberals and democratic conservatives should unite to preserve and improve the liberal global economy against the enemies mustering both outside and inside the gates” (emphasis added).[1]

Here is Renarto Ruggiero, former head of the WTO: 

Globalization and The Great Reversal

from Jacques Sapir

Globalization is not, and never was, “happy” whatever various ideologues said. The idea that “sweet commerce”, was to be substituted for warlike conflicts, was much propagated. But, in truth, it was only a myth. Still, the warship preceded the merchant ship. The dominant powers have constantly used their strength to open up by force markets and modify the terms of trade as they see fit. The globalization that we have witnessed for nearly 40 years has been in combination with financial globalization, which has taken place with the unraveling of the system inherited from the Bretton Woods agreements in 1973. We are seeing today the result: a generalized march to regression, both economic and social, which strikes first the so-called “rich” countries but also those designated as “emerging” countries. It has led to the overexploitation of natural resources, plunging more than one and a half billion human beings into ecological crises that are getting worse every day. It has caused the destruction of social ties in a large number of countries, and there are also countless masses in the specter of the war of all against all, to the shock of an exaggerated individualism that suggests other regressions.[1]

At the root of this reversal we see the decline in incomes of the lower middle classes and the working class. And this drop is largely due to globalization.[2] The gap between the highest 1% and the lowest 90% has greatly increased since the 1980s as shown in Thomas Piketty’s work.[3] This discontinuation was confirmed by another study dating from 2015.[4] This discrepancy is also reflected in the drop-off between the rate of increase in labor productivity and the rate of hourly wages. While the two curves appear almost parallel between 1946 and 1973, which implies that productivity gains have also benefited wage earners and capitalists alike, it is no longer the case after 1973.