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Brexit and all that

March 30, 2017 3 comments

Bavariafrom: Merijn Knibbe

 

Update: 14:05. Graph adapted (new, double, timeline)

Brexit should not have happened. But, understandably, it did. Brussels bears a large part of the blame: they could and should have known. The title of this blog is an allusion to the 1992 Wayne Godley article ‘Maastricht and all that’ in which he predicted the present day troubles of the Eurozone. People (in Brussels) should have listened. People (in Brussels) should still listen. If a country does not have its own money it is not really sovereign – unless it has democratic power on a higher level. If that’s not the case it might be treated as a kind of colony. Think Ireland. Think Greece. The EU should not be like that. But it was. And is. And people voted for Brexit.

But that’s not all to there is to Brexit. it’s not just about Brussels and power and politics. It is about policies, too. It is enlightening to compare unemployment in Greece with unemployment in East Germany (graph 1); the Greek data have been shifted backward in time to enable comparison with the East German crisis. East German unemployment data from the ‘Bundesagentür für Arbeit’ have (based upon a comparison for total Germany) been cut with 10% to make them compatible with the Eurostat unemployment data. The graph clearly shows that even within a democratic country which, at that time, had monetary sovereignty,  ‘Greek’ levels of region unemployment were accepted for decades. While it also shows that even in a benign situation (same rules and quality of government as in West-Germany; totally free movement of people, shared language and, to an extent, culture; massive government transfers and the transfer of the government to Berlin) über-unemployment can last for decades. Compare this with the German ‘Wirtschaftwunder’ of the fifties when, despite mass immigration and post war dislocation, German unemployment directly started to come down and kept coming down! Aside – events during the boom years 2007 and 2008, when unemployment did decline with 2% a year, show that supply side rigidities did not prevent such a decline! In their book ‘Shifting sands. Full employment abandoned:

shifting sands and policy failures’ Joan Muysken and Bill Mitchell argue (based on pre-Great Financial Crisis data) that such events are not due to market failures but, consistent with the Godley argument, NEOLIBERAL policy failures (here the book, here an extended summary by the authors, here an extension of their argument by me, based on an extended set of countries, times series which are extended to the post 2008 period and including data on broad unemployment). Small wonder that people choose to abandon a federation which pursues such policies, especially when part of the redundant labor force is forced, by policies which accepts such rates of unemployment, to seek for labor in your country. I back the EU free labor ideal – but only if it is not meant to be a panacea for economic problems caused by deregulation of capital markets (and deregulated capital markets do lead to economic fragility, as argued in this recent Voxeu piece by Aida Caldera, Alain de Serres, Filippo Gori, Oliver Röhn while undercapitalization of banks does not lead to a higher incidence of financial crises but does lead to much longer and deeper downturns after such crises, as convincingly argued by Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor in the NBER report Bank Capital Redux: Solvency, Liquidity, and Crisis. We really do have to push for higher capital of banks. But these are policies oriented to mitigating future crises. To solve the present crisis, we will have to pursue a more aggressive policy towards resolving bad debts (as Richard Werner argues: financed by the central bank and of course for creditors and debtors alike). We can’t make up for lost time. We might try to mitigate the problem of lost generations. To do this, we need another EU.

Trade denialism continues: Trade really did kill manufacturing jobs

March 29, 2017 9 comments

from Dean Baker

There have been a flood of opinion pieces and news stories in recent weeks wrongly telling people that it was not trade that led to the loss of manufacturing jobs in recent years, but rather automation. This means that all of those people who are worried about trade deficits costing jobs are simply being silly. The promulgators of the automation story want everyone to stop talking about trade and instead focus on education, technology or whatever other item they can throw out as a distraction.

This “automation rather than trade story” is the equivalent of global warming denialism for the well-educated. And its proponents deserve at least as much contempt as global warming deniers.

The basic story on automation, trade and jobs is fairly straightforward. “Automation” is also known as “productivity growth,” and it is not new. We have been seeing gains in productivity in manufacturing ever since we started manufacturing things.

Productivity gains mean that we can produce more output with the same amount of work. Before the trade deficit exploded in the last decade, increases in productivity were largely offset by increases in output, making it so the total jobs in manufacturing did not change much.

Imagine that productivity increased by 20 percent over the course of a decade, roughly its average rate of growth. If manufacturing output also increases by 20 percent, then we have the same number of jobs at the end of the decade as at the beginning. This is pretty much what happened before the trade deficit exploded.

Read more…

America’s killing fields

March 28, 2017 3 comments

from David Ruccio

mortality

We don’t need Louisiana Detective Rodie Sanchez coming out of retirement to solve the crime against the members of the working-class currently being committed in the United States.

We already know many of the details of the crime. We also know the identities of both the victims and the serial killer. The only real mystery is, what’s the country going to do about it?   Read more…

As the rich received a bigger piece of the pie, everyone else got relatively less.

March 28, 2017 1 comment

from Steven Pressman

According to Thomas Piketty (2014), between 1980 and 2010 the share of total US income going to the top 10% of earners rose from around 30-35%, where it stood for several decades, to nearly 50%. These are very conservative estimates. Piketty’s figures come from the distribution of adjusted gross income (AGI), reported by the US Internal Revenue Service. AGI subtracts from income things like investment losses, retirement account contributions and their returns (see Pressman 2015, Chapter 2). With large adjustments, someone can make a lot of money but have little AGI; or, as in the case of Donald Trump, you can report a negative AGI of nearly $1 billion. In addition, tax-free income (such as unrealized capital gains and interest on municipal bonds), as well as returns on money hidden in tax havens, are not reported to the IRS and do not appear in AGI. Like the adjustments helping Trump avoid taxes, this income mainly goes to the wealthy and has been growing for several decades (Zucman, 2015).

As the rich received a bigger piece of the pie, everyone else got relatively less. We can see this in the falling share of income going to the middle-three income quintiles (Figure 1).   Read more…

Trumponomics: End globalization and bring the jobs home

March 27, 2017 2 comments

from L. Randall Wray

Trump has put forward a number of proposals related to the theme of ending globalization – including renegotiating NAFTA and pulling out of the TPP – many of which were directed at China and other exporters. Like many American politicians, Trump has claimed that China is a “currency manipulator” and promises to pursue an investigation. He’s proposed large tariffs to be slapped on imports (variously suggested as 45% on Chinese exports to the US, 20% on all imports, and 35% on Mexican imports)[1], and particularly on American firms that move jobs overseas (proposing a 15% tax on firms that do so). As mentioned, he promised to create 25 million good jobs over the next decade, many of those by bringing the jobs home. One of his first acts was to “save” jobs at Carrier that had been destined to go to Mexico – supposedly proof of his touted negotiation skills – and suggests he will continue to put pressure on individual firms to stay put.   Read more…

Your model is consistent? So what!

March 26, 2017 8 comments

from Lars Syll

In the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.

errorineconomicsThere is a difference between having evidence for some hypothesis and having evidence for the hypothesis relevant for a given purpose. The difference is important because scientific methods tend to be good at addressing hypotheses of a certain kind and not others: scientific methods come with particular applications built into them … The advantage of mathematical modelling is that its method of deriving a result is that of mathemtical prof: the conclusion is guaranteed to hold given the assumptions. However, the evidence generated in this way is valid only in abstract model worlds while we would like to evaluate hypotheses about what happens in economies in the real world … The upshot is that valid evidence does not seem to be enough. What we also need is to evaluate the relevance of the evidence in the context of a given purpose.

Even if some people think that there has been a kind of empirical revolution in economics lately, I would still argue that empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. The one-sided, almost religious, insistence on axiomatic-deductivist modeling as the only scientific activity worthy of pursuing in economics, still roosts the roost.

Original sin?

March 26, 2017 1 comment

from David Ruccio

fredgraph

No one ever accused American conservatives of being particularly original. They started with a story about the failure of government programs and they stick with it, against all evidence.

Originally, conservatives targeted African Americans, who (so the story goes, e.g., in the Moynihan Report) were mired in a culture of poverty and increasingly dependent on government hand-outs. In order for blacks to regain America’s founding virtues (so the story continues)—especially marriage and industriousness—well-meaning but ultimately destructive government programs should be abolished so that they would once again be able to enjoy the security of marriage and dignity of work.

That exact same story has now been transferred to the white working-class. Anyone who’s read Charles Murray and J. D. Vance will recognize the “the pejorative Moynihan report on the black family in white face.”  Read more…

Can Trump overcome secular stagnation?

March 25, 2017 9 comments

from James K. Galbraith and RWER no. 78

Could the economic program of President Donald Trump, if enacted, overcome secular stagnation? This essay addresses part of that question, focusing on the effects of a changing macroeconomic policy mix and thrust in the present US national and global context. A separate essay will address considerations on the supply side.

The phrase “secular stagnation” is usually attributed to the early post-war Harvard economist Alvin Hansen, one of the first American disciples of John Maynard Keynes, who used it to argue that the American economy would return to the Great Depression once the Second World War ended. Today, secular stagnation is defined by Lawrence Summers, who defines it as the condition of a “low real neutral rate of interest”, or in Fed-speak a “low R* world”. A neutral rate of interest (“R*”) is said to be the one that neither increases nor restrains the economic growth rate. If such a rate exists and if it is close to zero, then monetary policy cannot spur growth, and a big-deficit fiscal policy is required.

For this reason, it is argued, the great recession-cure of “Quantitative Easing”, so highly touted a few years back, proved to be mostly a dud. But fiscal policy would have better luck, whether through increased public spending or tax cuts, although only so long as the fiscal push is not offset by higher interest rates. If interest rates rise, in a “low R* world” then the fiscal expansion will fail. This tension between fiscal and monetary forces is of great importance just now, as Donald Trump assumes the presidency on a program of infrastructure spending and tax cuts, while interest rates are starting to rise.   Read more…

Deaths of Despair. The Case/Deaton paper about mortality of White Americans. Some remarks.

March 25, 2017 5 comments

Anne Case and her husband Angus Deaton have published a new paper about the deteriorating health of non-hispanic Whites in the USA. The use of more refined and more granular data as well as another year of data again shows a grim picture of ever rising ‘Deaths of Despair’. For those familiar with ‘Decline of the USA’, a book written by the editor of this blog Edward Fullbrook,  their findings won’t come as a total surprise. But the situation stays abhorrent.

Deaton graph

Death rates of those white people are going up. And they keep going up. Life expectancy is falling – especially life expectancy of the less educated. Which is totally anomalous in a historical sense as well as compared to other countries, according to the authors (I do not entirely agree, see below). And not because health care is imploding. But because people seem to give up. Some remarks: Read more…

Flipped economics classroom

March 25, 2017 Leave a comment

from Maria Alejandra Madi and the WEA Pedagogy Blog

Recent active learning experiences have been associated with “flipped” or “inverted” classroom (Norman and Wills, 2015). Indeed, this method has been receiving increasing attention by professors that search for alternatives to traditional lectures so as to cover some topics of the course content.

By adopting the flipped  classroom in economics instruction, professors out to enhance a larger pre-class involvement of the students not only by reading the selected bibliography but also by watching instructional videos.

Before the class, professors provide instructional short videos (five to fifteen minutes) that cover the main ideas related to a selected topic of the syllabus. The videos generally emphasize theoretical approaches, definitions, formulas and graphs. Recent evidence shows that many professors actually record a narration of the lecture slides and notes.

As students should watch the video before the class, professors can privilege active learning methods during class time. Therefore, the class activities aim to apply the material that was covered in the videos in order to enhance a real-world approach to economics education. These activities- that are supervised and oriented by professors – can include, for instance:  read more

The man who crushed the mathematical dream

March 24, 2017 23 comments

from Lars Syll

b00dshx3_640_360Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concerns the question of how to select the specific systems of axioms that mathematics are supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproved truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing a deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics.

Read more…

Graphs of the day: vacancies and wages.

Jobs

Costs

 

Via Eurostat (look here and here) information about the labour market: vacancy rates and wages. Vacancies are up, wages are rising at a very moderate rate (and in many countries, like Spain, not at all). Read more…

The capital-mobilising deal maker

March 23, 2017 19 comments

from Jamie Morgan and RWER no. 78

As a brand, Trump is also a particular kind of contemporary businessman. He positions himself as a maker of “deals” rather than a maker of things, though his wealth is rooted in construction and property. He is an owner of portfolio assets, who uses these to leverage new ventures where he is able to conjure personal gain from situations where material benefits to the many may be lacking. His skill set is one of concentration and extraction of returns, and the externalisation of costs and losses. Based on that skill set profits can artfully appear and equally disappear (with tax consequences) in ways that have little to do with the simplistic concepts of theory of the firm. The solution to any problem is an additional incorporation, a

transfer of assets, a lawsuit that deters others, a no fault out-of-court settlement that protects oneself, a debt restructure or perhaps a timely Chapter 11 bankruptcy declaration. Being proficient along these lines can make one a billionaire, particularly if one starts with a core of inherited wealth for collateral and has access to a network.[1]

Read more…

The fall of the US middle class

March 23, 2017 3 comments

from Steven Pressman and RWER no. 78

According to Thomas Piketty (2014), between 1980 and 2010 the share of total US income going to the top 10% of earners rose from around 30-35%, where it stood for several decades, to nearly 50%. These are very conservative estimates. Piketty’s figures come from the distribution of adjusted gross income (AGI), reported by the US Internal Revenue Service. AGI subtracts from income things like investment losses, retirement account contributions and their returns (see Pressman 2015, Chapter 2). With large adjustments, someone can make a lot of money but have little AGI; or, as in the case of Donald Trump, you can report a negative AGI of nearly $1 billion. In addition, tax-free income (such as unrealized capital gains and interest on municipal bonds), as well as returns on money hidden in tax havens, are not reported to the IRS and do not appear in AGI. Like the adjustments helping Trump avoid taxes, this income mainly goes to the wealthy and has been growing for several decades (Zucman, 2015).

As the rich received a bigger piece of the pie, everyone else got relatively less. We can see this in the falling share of income going to the middle-three income quintiles (Figure 1).

Read more…

Trumponomics: causes and consequences – Part I – RWER issue no. 78

March 22, 2017 1 comment

download whole issue

Preface          download pdf

Trumponomics: everything to fear including fear itself?          3
Jamie Morgan          download pdf                                                                           

Can Trump overcome secular stagnation?          20
James K. Galbraith            download pdf                             

Trump through a Polanyi lens: considering community well-being          28
Anne Mayhew            download pdf                                                                                    

Trump is Obama’s legacy. Will this break up the Democratic Party?          36
Michael Hudson          download pdf

Causes and consequences of President Donald Trump          44
Ann Pettifor               download pdf                                

Explaining the rise of Donald Trump          54
Marshall Auerback          download pdf 

Class and Trumponomics          62
David F. Ruccio          download pdf 

Trump’s Growthism: its roots in neoclassical economic theory          86
Herman Daly          download pdf 

Trumponomics: causes and prospects          98
L. Randall Wray          download pdf 

The fall of the US middle class and the hair-raising ascent of Donald Trump
Steven Pressman          download pdf          112

Mourning in America: the corporate/government/media complex          125
Neva Goodwin          download pdf 

How the Donald can save America from capital despotism          132
Stephen T. Ziliak          download pdf 

Prolegomenon to a defense of the City of Gold          141
David A. Westbrook          download pdf 

Trump’s bait and switch: job creation in the midst of welfare state sabotage
Pavlina R. Tcherneva           download pdf          148

Can ‘Trumponomics’ extend the recovery?          159
Stephanie Kelton           download pdf 

Board of Editors, past contributors, submissions and etc.          173

We’re #1!

March 22, 2017 11 comments

from David Ruccio

wealth

According to calculations by Kenneth Thomas (based on data in the latest Credit Suisse Global Wealth Report), the United States has the most unequal distribution of wealth of any rich nation.   Read more…

To be a good economist one cannot only be an economist

March 21, 2017 9 comments

from Lars Syll

The master-economist must possess a rare combination of gifts …. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.

John Maynard Keynes

Economics students today are complaining more and more about the way economics is taught. The lack of fundamantal diversity — not just path-dependent elaborations of the mainstream canon — and narrowing of the curriculum, dissatisfy econ students all over the world. The frustrating lack of real world relevance has led many of them to demand the discipline to start develop a more open and pluralistic theoretical and methodological attitude.  Read more…

Graph of the day 3. Turkish and Kurdish fertility

Turkey.png

I made this graph (in fact: map) because of remarks by Erdogan, the Turkish president, that Turkish women in Europe should get more children: 5 instead of 3: wasn’t the birth rate (total fertility rate) in Turkey already way below 3? Thanks to a recent press release of Turkstat I discovered that, surprisingly (at least to me), the birthrate in many western areas of Turkey , about 1,6 or even lower, is as low as in countries like Italy, Spain, Portugal, Greece etcetera. The entire northern part of the Mediterrenean world now knows birthrates which are well below the 2,1 repleacement rate! Remarkably, the Kurdish are in Turkey knows birthrates which are about twice as high as in western Turkey (the Zaza are another minority which more or less identify as Kurds).

Dual economies and the vanishing middle-class

March 21, 2017 3 comments

from David Ruccio

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

productivity  Read more…

Why Krugman and Stiglitz are no real alternatives to mainstream economics

March 20, 2017 9 comments

from Lars Syll

verso_978-1-781683026_never_let_a_serious_crisis__pb_edition__large_300_cmyk-dc185356d27351d710223aefe6ffad0cLittle in the discipline has changed in the wake of the crisis. Mirowski thinks that this is at least in part a result of the impotence of the loyal opposition — those economists such as Joseph Stiglitz or Paul Krugman who attempt to oppose the more viciously neoliberal articulations of economic theory from within the camp of neoclassical economics. Though Krugman and Stiglitz have attacked concepts like the efficient markets hypothesis … Mirowski argues that their attempt to do so while retaining the basic theoretical architecture of neoclassicism has rendered them doubly ineffective.

First, their adoption of the battery of assumptions that accompany most neoclassical theorizing — about representative agents, treating information like any other commodity, and so on — make it nearly impossible to conclusively rebut arguments like the efficient markets hypothesis. Instead, they end up tinkering with it, introducing a nuance here or a qualification there … Stiglitz’s and Krugman’s arguments, while receiving circulation through the popular press, utterly fail to transform the discipline.

Paul Heideman

Despite all their radical rhetoric, Krugman and Stiglitz are — where it really counts — nothing but die-hard mainstream neoclassical economists. Just like Milton Friedman, Robert Lucas or Greg Mankiw.

Read more…