Yearly Archives: 2019

Endogeneity Of Income Elasticities Of Trade

Robert Blecker and Mark Setterfield have a new book, Heterodox Macroeconomics: Models Of Demand, Distribution And Growth.

In that there’s a chapter, Balance-Of-Payments Constrained Growth II: Critiques, Alternatives And Synthesis. It has an interesting section where income elasticities of trade are themselves thought to be endogenous.

There are of course many critiques of balance-of-payments constraint growth and Thirlwall’s law but the better ones are more about improvements than anything damaging for the theory. The ideas of Nicholas Kaldor stand.

As emphasised by the authors themselves (page 485), the endogeneity of income elasticities itself is consistent with the Kaldorian idea of circular and cumulative causation. 

Till now, circular and cumulative causation was thought via price effects:

Higher production → higher productivity → higher price competitiveness

But there’s no reason that success can’t increase non-price competitiveness itself, i.e., income elasticities.

The book discusses some of the studies.

It’s interesting to note that it was Paul Krugman who first proposed the idea that income elasticities aren’t fixed and that growth can lead to change in the elasticities. But he refused to accept the causality as implied by Thirlwall’s law. The right causality is both ways. Circular and cumulative causation!

Link

A 1957 James Meade Paper On The Effect Of A Free-Trade Area On Full Employment

I came across this interesting paper by James Meade arguing that free-trade might not be consistent with full employment for Europe.

Although James Meade’s argument isn’t perfect, the fact that he’s asking such questions implies that such ideas were known at the time. Totally forgotten now by economists. Another example is the Treaty Of Rome, from the same year, which had a full chapter on ensuring balance-of-payments “equilibrium”!

UK Elections 2019 And Brexit

The nicest prison in the whole world fought an election to become the Prime Minister of the UK 🇬🇧 and lost. Jeremy Corbyn isn’t just a nice person but the politician with the best politics, not just in the current times, but maybe ever. And he ran the most compassionate campaign and appealed to a lot of voters.

Jeremy Corbyn with El Gato

It looks like Brexit was a huge factor in the election. In many constituencies Labour has always won since almost 100 years and has now suffered losses. So there’s a backlash against Labour. Before the election, Labour had promised to do put together a trade deal with the EU and then put that to vote with the other option to remain in the EU. Labour voters don’t seem to have liked this and revolted by voting for other parties, such as the Conservatives.

Jeremy Corbyn has resigned, although he will continue to be an MP from Islington North. It’s unfortunate given that Jeremy Corbyn is—in my opinion—the number one Brexiter. In this video clip from 2009, he is seen saying that that the EU is a massive, great Frankenstein. Lovely clip, one of his best.

So Jeremy Corbyn cannot be blamed for this mess. The problem is inside Labour, their cheerleaders, and the general consensus which fails to understand the damage globalisation causes. It looks like Corbyn had to cave in to them.

Oh, Jeremy Corbyn 💔

Ha-Joon Chang — Economics For People

Ha-Joon Chang has a lecture series Economics For People made available by INET.

The INET post is here, but it seems to not be updated so you can see them directly at their YouTube playlist.

The total playlist length is 12 hours, 41 minutes and 55 seconds.

Enjoy! 🖖

Link

Michael Hardt And Antonio Negri — Empire, Twenty Years On

The latest issue of New Left Review is out. Has an interesting article by Michael Hardt and Antonio Negri on how globalisation isn’t dying but just shifting to a path where global powers want to change it to their advantage. Again!

Twenty years ago, when our book Empire first appeared, the economic and cultural processes of globalization occupied centre stage: all could see that some kind of new world order was emerging. Today globalization is once again a central issue, but now commentators across the political spectrum are conducting its postmortem. Establishment political analysts, especially in Europe and North America, lament the decline of the liberal international order and the death of the Pax Americana. Newly dominant reactionary forces call for the return of national sovereignty, undermining trade pacts and presaging trade wars, denouncing supranational institutions and cosmopolitan elites, while stoking the flames of racism and violence against migrants. Even on the left, some herald a renewed national sovereignty to serve as a defensive weapon against the predations of neoliberalism, multinational corporations and global elites.

Despite such prognostications, both wishful and anguished, globalization is not dead or even in decline, but simply less easily legible. It is true that the global order and the accompanying structures of global command are everywhere in crisis, but today’s various crises do not, paradoxically, prevent the continuing rule of the global structures. The emerging world order, like capital itself, functions through crisis and even feeds on it. It works, in many respects, by breaking down. The fact that the processes of globalization are less legible today makes it all the more important to investigate the trends of the past twenty years in both the variegated constitution of global governance, which includes the powers of nation-states but extends well beyond them, and the global structures of capitalist production and reproduction.

Interpreting the primary structures of rule and exploitation in a global context is the key to recognizing and furthering the potential forces of revolt and liberation. The emerging global order and networks of capital undoubtedly constitute an offensive operation, against which we should support resistance efforts; but they should also be recognized as responses to the threats and demands forwarded by the long history of revolutionary internationalisms and liberation struggles. Just as today’s Empire was formed in response to the insurgencies of the multitudes from below, so too, potentially, it could fall to them, as long as those multitudes can compose their forces into effective counter-powers, and chart the path towards an alternative form of social organization. Today’s social and political movements are, in many respects, already pointing in this direction.

Most important at this aristocratic level of Empire is the extent to which, despite appearances, its general contours remain unchanged. From this perspective, the much-heralded return of the nation-state—along with nationalist rhetoric, threatened trade wars and protectionist policies—should be understood not as a fracturing of the global system, but rather as so many tactical manoeuvres in the competition among aristocratic powers. America first!, Prima l’Italia! and Brexit! are the plaintive cries of those who fear being displaced from their positions of privilege in the global system.

Like the conservative French peasants whom Marx portrayed as being mobilized by memories of lost Napoleonic glory (and who yearned to make France great again), today’s reactionary nationalists aim not so much at separation from the global order as moving back up the rungs of the global hierarchy to their rightful position. In similar fashion, the conflicts between dominant nation-states and the supranational infrastructure—think of Trump railing against ‘globalism’ in his 2018 UN General Assembly address—entail a ploy for a more dominant position within, rather than an attack upon, the global system. The elites leading the dominant nation-states and supranational institutions are all driven by the dictates of a neoliberal ideology irrevocably dedicated to constructing and maintaining the capitalist global order.

… We need today an international cycle of struggles with the intelligence to investigate the structures of the ruling global order. Sometimes, after all, the theoretical work done in social movements teaches us more than that written in libraries. Reversing their invisibility is the first step toward being able to challenge and eventually overthrow the structures of Empire.

Link

New UK Flow Of Funds

The UK Office Of National Statistics (ONS) is planning to publish new flow of funds statistics in the future. Till now, the ONS had just the SNA tables. Although the SNA has lots of details on stocks and flows, flow of funds gives more details.

ONS summary:

See our first combined set of experimental flow of funds statistics using new data sources providing improved breakdowns of how money moves around the UK economy

The article also has a discussion on sectoral balances which has the chart on top of this post.

The 2008 SNA explains this:

On The Fall Of The Liberal International Economic Order, Part II

In the last post, I linked to John J. Mearsheimer’s paper Bound To Fail: The Rise And Fall Of The Liberal International Order. The paper was more from a political perspective than from a perspective of political economy, although it did go into the economics of it.

There’s a Post-Keynesian paper by Thomas Palley published last year, I thought I should recommend reading, since it goes into the political economy aspect of it. Also it is rooted more in the heterodox Keynesian perspective, unlike Mearsheimer who although criticises the US establishment, seems to want to propose an order which benefits the United States the most, not a new economic order which benefits the whole world.

The liberal international economic order benefited the United States, or at least the “top 1” but because of countries gaming the system, started to backfire. The US has large current account deficits as a consequence of which its negative net international investment position grew larger and larger as this BEA chart indicates:

The solution is to dismantle the liberal international economic order in favour of new rules of the game which benefit everyone, not just oligarchs.

John J. Mearsheimer — Bound To Fail: The Rise And Fall Of The Liberal International Order

I came across this fantastic article by John J. Mearsheimer, from earlier this year, on how the liberal international order is failing. It’s written more from a political perspective (and mainstream too) than from a heterodox political economy perspective but it’s worth a read.

From the introduction:

Abstract

The liberal international order, erected after the Cold War, was crumbling by 2019. It was flawed from the start and thus destined to fail. The spread of liberal democracy around the globe—essential for building that order—faced strong resistance because of nationalism, which emphasizes self-determination. Some targeted states also resisted U.S. efforts to promote liberal democracy for security-related reasons. Additionally, problems arose because a liberal order calls for states to delegate substantial decisionmaking authority to international institutions and to allow refugees and immigrants to move easily across borders. Modern nation-states privilege sovereignty and national identity, however, which guarantees trouble when institutions become powerful and borders porous. Furthermore, the hyperglobalization that is integral to the liberal order creates economic problems among the lower and middle classes within the liberal democracies, fueling a backlash against that order. Finally, the liberal order accelerated China’s rise, which helped transform the system from unipolar to multipolar. A liberal international order is possible only in unipolarity. The new multipolar world will feature three realist orders: a thin international order that facilitates cooperation, and two bounded orders—one dominated by China, the other by the United States—poised for waging security competition between them.

Introduction

By 2019, it was clear that the liberal international order was in deep trouble. The tectonic plates that underpin it are shifting, and little can be done to repair and rescue it. Indeed, that order was destined to fail from the start, as it contained the seeds of its own destruction.

The fall of the liberal international order horrifies the Western elites who built it and who have benefited from it in many ways. These elites fervently believe that this order was and remains an important force for promoting peace and prosperity around the globe. Many of them blame President Donald Trump for its demise. After all, he expressed contempt for the liberal order when campaigning for president in 2016; and since taking office, he has pursued policies that seem designed to tear it down.

It would be a mistake, however, to think that the liberal international order is in trouble solely because of Trump’s rhetoric or policies. In fact, more fundamental problems are at play, which account for why Trump has been able to successfully challenge an order that enjoys almost universal support among the foreign policy elites in the West. The aim of this article is to determine why the liberal world order is in big trouble and to identify the kind of international order that will replace it.

Also see: Part II.