Monthly Archives: February 2019

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Doug Henwood In Jacobin On Neochartalism

On Facebook, Doug Henwood says that he wanted the title The Phantasmic World Of Modern Monetary Theory, A Late Imperial Fever Dream for his piece critiquing Neochartalism but Jacobin editors changed it to Modern Monetary Theory Isn’t Helping.

Henwood has written an excellent critique of Neochartalism, a cut above most critiques. I liked the part about Beardsley Ruml who is quoted frequently by the Chartalists but it turns out that he is a right-wing nut, against taxes 😁

It’s important because as Henwood argues in this piece, Neochartalists do not seem to want high taxes. In my view they get deceived by their own rhetoric.

And the article contains an important discussion of Turkey, highlighting how Neochartalists avoid discussion of balance of payments problems:

When I asked Mosler what MMT had to offer Turkey, a country whose currency has been losing value for the last four years and had something of a financial crisis in the summer of 2018, he responded with a bit of avian whimsy: “Without our recipe for Turkey they’re a dead duck.”

However this recommendation to read his article shouldn’t be taken as an endorsement of all of Henwood’s views. Fiscal policy supremely matters. Just not the Neochartalist way. Henwood seems to not understand the importance. The cover of the issue is silly, as Bernie Sanders himself does soft imperialism.

Randall Wray On Current Account Deficits

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Randall Wray has a new article Does America Need Global Savings To Finance Its Fiscal And Trade Deficits? at American Affairs. 

Wray repeats the standard Neochartalist argument that the United States does not have to worry about its trade deficits. But a look at his previous predictions would warn us on such arguments.

Here’s from his chapter What A Long, Strange Trip It’s Been: Can We Muddle Through Without Fiscal Policy? in the book Post-Keynesian Principles of Economic Policy written in 2006:

click to view on Google Books

🤦🏻‍♂️

The root of the confusion lies on the fact that imports are paid in the domestic currency (although that’s not always the case). That the importing nation creates credit to purchase does not mean that it’s not debt and without consequences. The recent experience of Turkey: the rapid fall in its currency, rise in interest rates to attract financial flows to stabilise its exchange rates and the slowdown of its economy shows the problem with current account deficits.

The United States of course is not Turkey but such arguments should warn us of the pitfalls. It’s difficult to foresee how a balance-of-payments crisis will look for the United States, considering that some its creditors are large and their actions might be damaging to themselves. Perhaps they could reduce their holdings over time and then this advantage is not available to the US.

But even if there’s no immediate risk of an external financing crisis doesn’t mean that trade isn’t damaging to the United States. Expenditure multiplier would have been bigger had the US trade parameters been in its favour. As a consequence unemployment rate would have fallen much faster after the economic and financial crisis which started in 2007.

Recent data has indicated that the US NIIP continues to deteriorate. At the end of Q3, 2018 it was −$9.62tn which is around −46% of GDP. Surely can go lower but won’t stabilise unless the US does something about its trade imbalance.

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Jason Hickel — A Letter To Steven Pinker (And Bill Gates For That Matter) About Global Poverty

Jason Hickel writes:

Dear Steven,

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Your argument is that neoliberal capitalism is responsible for driving the most substantial gains against poverty.  This claim is intellectually dishonest, and unsupported by facts.  Here’s why:

The vast majority of gains against poverty have happened in one region: East Asia.  As it happens, the economic success of China and the East Asian tigers – as scholars like Ha-Joon Chang and Robert Wade have long pointed out – is due not to the neoliberal markets that you espouse but rather state-led industrial policy, protectionism and regulation (the same measures that Western nations used to such great effect during their own period of industrial consolidation).  They liberalized, to be sure – but they did so gradually and on their own terms.

Not so for the rest of the global South.  Indeed, these policy options were systematically denied to them, and destroyed where they already existed.  From 1980 to 2000, the IMF and World Bank imposed brutal structural adjustment programs that did exactly the opposite: slashing tariffs, subsidies, social spending and capital controls while reversing land reforms and privatizing public assets – all in the face of massive public resistance.  During this period, the number of people in poverty outside China increased by 1.3 billion.  In fact, even the proportion of people living in poverty (to use your preferred method) increased, from 62% to 68%.  (For detailed economic data and references to the relevant literature, see Chapter 5 of The Divide).

…

In other words, the imposition of neoliberal capitalism from 1980 to 2000 made the poverty rate worse, not better.

Since 2000, the most impressive gains against poverty (outside of East Asia) have come from Latin America, according to the World Bank, coinciding with a series of left-wing or social democratic governments that came to power across the continent.  Whatever one might say about these governments (I have my own critiques), this doesn’t sit very well with your neoliberal narrative.

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Trinity Colleagues Pay Tribute To Robert Neild, 1924-2018

Hashem Pesaran, Partha Dasgupta and Gregory Winter remember Robert Neild.

Dasgupta:

Robert Neild was the last surviving member of a triumvirate that shaped the intellectual climate of economics at Cambridge in the 1970s. That influence lasted for over two decades. Together with Brian Reddaway (Professor of Political Economy) and Wynne Godley (Director of the Department of Applied Economics), Robert encouraged an approach to economics that was in sharp contrast to the then growing attention given in the leading university departments of economics in the UK and USA to economic theory and econometrics. The latter approach drew on mathematical techniques not only because they enabled one to reach conclusions with clarity, but also because they allowed one to trace those conclusions to the underlying hypotheses and data on which the studies were based. In modern economics policy is often kept at a distance. In contrast, the approach that Robert favoured insisted on a tight and constant link between analysis and policy; so much so that the separation between analysis and policy was wafer-thin.