Monthly Archives: March 2019

Some Extreme Reactionary Views Of The Neochartalists

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Recently, Doug Henwood critiqued Neochartalism aka “modern monetary theory” for many of its reactionary views.

More and more of Neochartalists’ reactionary views are becoming apparent now. So according to a recent Warren Mosler presentation at the New School, he proposes the following:

🤯

Not just that, he thinks that the 70% tax rates proposed by Alexandria Ocasio-Cortez “(d)oes not materially alter distribution of income”, “(d)oes not alter distribution of consumption” and “(d)elays alternative measures that are materially effective”.

Matt Bruenig has collected some other reactionary positions.

So for example, in a presentation in 2012 at Levy Institute, she has the following slide, proposing to eliminate the welfare structure:

Gerald Epstein’s Critique Of Neochartalism

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Gerald Epstein of PERI has written a fine paper The Institutional, Empirical and Policy Limits of ‘Modern Money Theory’ critiquing the shortcoming of Neochartalism.

Epstein’s main critique is that Neochartalism ignores the role of international financial markets and the constraint it puts on fiscal policy. Abstract:

Modern Money Theory (MMT) economists acknowledge a number of empirical and institutional limitations on the applicability of MMT to macroeconomic policy, but they have not attempted to explore these empirically nor have they adequately addressed their implications for MMT’s main macroeconomic policy proposals. This paper identifies some of these important limitations, including those stemming from modern international financial markets, and argues that they are much more binding on the policy applicability of MMT than many of MMT’s advocates appear to recognize. To address these limitations, MMT analysts would have to enter the messy institutional, policy and empirical realms that undermine their simplistic policy conclusions that might be appealing to some policy-oriented followers of MMT. My conclusion is that, in light of these limitations, MMT’s major macroeconomic policy suggestions are of little practical relevance today for progressive politicians and activists, much less to macroeconomic policy formulation in general.

In addition, Epstein has a blog post, Is MMT “America First” Economics?, at INET, which is a short summary of his paper. Excerpt:

To start, even though MMT advocates claim that its macroeconomic framework applies to all countries with “sovereign currencies,” there is significant evidence that it does not apply to the vast majority of such countries in the developing world that are integrated into global financial markets. As is well-known, these countries are subject to the vagaries of international capital flows, sometimes called “sudden-stops.” The problem is that in light of these flows, these countries have limited fiscal and monetary policy space, surely insufficient to conduct MMT-prescribed monetary and fiscal policies for full employment. Wray argues that that flexible exchange rates are sufficient to provide sufficient policy space for these countries to undertake MMT macro-policies. Occasionally the issue of capital controls is briefly mentioned but not seriously discussed as a complementary policy. But a careful survey of the empirical evidence casts grave doubts on the effectiveness of flexible rates for giving policy autonomy or insulating these countries from the vagaries of global financial flows. This problem is worse for countries that cannot borrow in their own currencies, but also applies to small, open countries that are able to borrow in their own currencies. The upshot is that only countries that issue their own internationally accepted currency might have the policy space to conduct MMT policies.

Even for those countries that issue their own international currencies, the sustainability and “exploitability” of the international role is not absolute. The country that has the greatest fiscal and monetary space is the United States, which issues the predominant key currency, the US dollar. Whereas Wray has written that the predominance of the dollar is not something we will need to worry about in our lifetime, historical and empirical evidence suggests that even considerable forces for persistence of key currency positions can weaken over time, perhaps even rapidly and dramatically …

A note

It’s usually assumed that fiscal sustainability is the condition on the rate of interest, r, and the rate of growth, g. However Wynne Godley showed that it is neither necessary or sufficient. You can read more here from my blog.

Link

Jason Hickel — The Divide

Jason Hickel is a great economist and today I was looking up his 2018 book The Divide.

I found a nice passage:

The stated goal of the World Trade Organization is to create a ‘level playing field’ among trading partners. Each member has to play by the same rules — the same low tariffs and the same ban on subsidies. But in reality the idea of a level playing field is something of an illusion. when rich countries step onto the playing field they do so with industries that are immensely powerful and competitive — precisely because they spent their formative years of development under heavy protection. Poor countries, for their part, step onto the playing field with industries that have never had the benefit of protection and therefore have no hope of competing with their counterparts in rich countries. It may be a level playing field, but what good is a level playing field in a match between schoolchildren and a Premier League team? The rules are the same for both sides, but that doesn’t mean the game is equitable …

…

Even if we assume that the game is in fact equitable, if we look more closely it becomes clear that the ‘level playing field’ is actually not very level at all: the rules are unfair even by the WTO’s own standards. Theoretically, the WTO requires every country to reduce their tariffs and subsidies to the same level, but in reality these cuts are applied selectively in favour of rich countries.

In the book Hickel attempts to prove among many things that:

Poor countries are poor because they are integrated into the global economic system on unequal terms.

Link

Jason Hickel — Global Inequality: Do We Really Live In A One-Hump World?

The elephant chart is a propaganda chart, misleading you into believing that there’s some convergence of fortunes of people across the planet. As if it’s not enough, there’s a new infographic: transformation from a two-hump world to a one-hump world.

Jason Hickel does an alternative analysis, and finds that the “income gap between the average person in the North and the average person in the South has nearly quadrupled in size, going from $9,000 in 1960 to $35,000 today.”

Hickel says:

… there has been no “catch up”, no “convergence”. On the contrary, what’s happening is divergence, big time.

…

Why is this happening? … the global economy has been designed to facilitate the North’s access to cheap labour, raw materials, and captive markets in the South – today just as during the colonial period. Sure, some important things have obviously changed. But the countries of the North still control a vastly disproportionate share of voting power in the World Bank and the IMF, the institutions that control the rules of the global economy. They control a disproportionate share of bargaining power in the World Trade Organization. They wield leverage over the economic policy of poorer countries through debt. They control the majority of the world’s secrecy jurisdictions, which enable multinational companies to extract untaxed profits out of the South. They retain the ability to topple foreign governments whose economic policies they don’t like, and occupy countries they consider to be strategic in terms of resources and geography.

These geopolitical power imbalances sustain and reproduce a global class divide that has worsened since the end of colonialism. And yet this injustice is conveniently erased by the one-hump graph, which offers a misleadingly rosy narrative about what has happened over the past half century.

Check his excellent infographic. 📉

WikiLeaks Leak On Reforming The World Economic System

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What is the main problem of the world? It’s that there is no market mechanism to resolve imbalances in balance of payments and international investment positions. So official mechanisms are needed and countries look for reform the world order to make the world work better.

Defend Wikileaks recently reminded us of cables from 2009 on how the US and UK governments worked to prevent the reform the world economic and financial system.

  1. Confronting the UN

The UK and US have worked together to prevent reform of the world financial system.

In May 2009 Douglas Alexander, Secretary of State for International Development and John Sawers, then UK permanent representative to the UN who later that year became chief of MI6, held a meeting with US ambassador to the UN, Susan Rice. A US cable notes that:

Alexander and Sawers began the meeting by noting their concern that Cuba, Iran, Venezuela and other ‘radical’ G-77 countries would use the upcoming June 1-2 UN Conference on the World Financial and Economic Crisis and its Impact on Development to push for an outcome document that would for the first time, give the UN General Assembly a role in negotiations on revamping the Bretton Woods financial institutions and the world financial system.

To counter this:

Sawers urged the United States to work with the UK to monitor preparatory meetings for the conference, quickly push back against the introduction of activist policy language into the outcome document, and split off more moderate G-77 countries who are already G-20 members.

Rice agreed, stating that:

It would be important to work with the Netherlands (a co-facilitator for the negotiations on a conference outcome document) to tone down expectations and ensure that moderate G-77 countries continue to see the G-20 discussions as the proper venue for discussing BWI [Bretton Woods Institutions] reform.[32]

The link in the endnote has the link to the cable.

Joan Robinson On Diagrams

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Marjorie Shepherd Turner in Joan Robinson And The Americans has a good description of the useless nature of economic diagrams in general:

Robinson saw general equilibrium, then, as a block to appropriate analysis, for it had assumed away the economic problems. She objected to economists who admired equilibrium analysis for its “logical elegance and completeness” even though they knew it was “useless”: “Human life does not exist outside history and no one has correct foresight of his own future behavior, let alone of the behavior of all the other individuals which will impinge upon his. I do not think that it is right to praise the logical elegance of a system which becomes self-contradictory when it is applied to the question that it was designed to answer.”25

On the other hand, Robinson reserved the right to compare positions of equilibrium “each with its own past and its own expectations about the future.” She complained that American economist “Dr. Findlay” (Ronald Findlay) failed to recognize the difference between such a comparison of existing positions and “the analysis or a process going on through time, with expectations changing.26

To the end or her life she believed that “mainstream teaching” had “been inculcating defective methodology,” especially in the United States:

The exposition both of general equilibrium and of long-run accumulation seems generally to be conducted by drawing a two-dimensional diagram on a black-board and then introducing historical events into it. A change cannot be depicted on the plane surface or the blackboard. Changes occur in time, and as soon as a point moves off the blackboard into the third dimension of time, it is no longer bound by the relationships shown in the diagram.27

Robinson was particularly critical or Samuelson who, as a mathematician,

… knows that a functional relationship is timeless and makes no reference to history or to the direction of change … However, Professor Samuelson continues to use his construction to describe a process or accumulation that raises wages, alters technology, and changes a stock or inputs made, say, or wood into one made of iron and then into copper … To Kornai. Harcourt, and myself, this methodology is unacceptable, but Professor Samuelson assures us that it is quite all right.”28

…

Endnotes

  1. JR 1978a:126-136.
  2. CEP 3:50.
  3. CEP 5:69. Elsewhere in the article (60), JR associated mainstream teaching with the United States.
  4. CEP 5:88. Samuelson feels that JR refused to understand what he was arguing. Samuelson Interview 1985 and see Chapter 10.

…

References

Robinson, Joan
…
⸻ (1965a) Collected Economic Papers vol. 3. Oxford: Basil Blackwell 1975.
…
⸻ (1978a) Contributions to Modern Economics, New York: Academic Press.
…
⸻ (1979g) Collected Economic Papers vol. 5. Oxford: Basil Blackwell 1980.
Reprinted by MIT Press.

Link

Bob Rowthorn: Keynesian Economics – Back From The Dead?

Bob Rowthorn delivered this year’s Godley-Tobin lecture on March 1 in New York.

Bob Rowthorn, New York, 2019

Among other things, he talks of Neochartalism! He says he hadn’t heard about it till recently and suggests that their idea that the central bank could buy bonds says nothing about the exchange rate.

He seems to suggest that heterodox ideas seem to become mainstream but I do think that while heterodox ideas are more noticed, the level of imperialist propaganda is the strongest and it will be quite a battle.

Wynne Godley And Alex Izurieta — One-Club Golf Is For Losers

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Here’s a fantastic 2003 article in The Guardian by Wynne Godley and Alex Izurieta, one among many predicting the economic and financial crisis which started in 2007.

h/t Jo Michell.

Excerpt:

In fact the new regime is not working. After years of euphoric growth, the world has become locked into a stagnation which gets worse by the day. Large imbalances, particularly in trade and in personal debt, have been allowed to develop in the US and Britain which mean that the growth we have is unsustainable. Given the existing policy regime, medium term prospects begin to look frightening.

The US is already in a growth recession because private investment has fallen while a record balance of payments deficit has been bleeding the circular flow of income on an increasing scale. These negative forces have been partly offset by an unsustainable splurge in household borrowing, a consequence of the fall in interest rates and the boom in house prices, in the absence of any control over credit expansion.

The reference to golf is from British politics from 1989. Go to “Column 750” in the link.

Link

Maria Cristina Marcuzzo — Joan Robinson, The Rational Rebel

Maria Cristina Marcuzzo on Joan Robinson’s critique that economics ought to be driven by science and not ideology:

… In her view, the main problem with contemporary economic theory was that it made fundamental issues increasingly obscure rather than clear. Her last paper, which was published posthumously, had a telling title “Spring Cleaning”: “It seems to me that the whole complex of theories and models in the textbooks is in need of a thorough spring cleaning. We should throw out all self-contradictory propositions, un-measurable quantities and indefinable concepts and reconstruct a logical basis for analysis with what, if anything, remains.”