Lawrence Summers On The Failure Of The New Consensus
Larry Summers has a Twitter thread in which he talks of how the economics profession got it wrong by downgrading fiscal policy. He also concedes to Post-Keynesians:
We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.
The title is the link.
Matias Vernengo — Forty Years Of Balance Of Payments Constrained Growth And Thirlwall’s Law
According to Matias Vernengo, Review Of Keynesian Economics (ROKE) will soon publish a special issue on Thirlwall’s Law, with a contribution by Anthony Thirlwall himself.
Matias’ post has a scan of Thirlwall’s notes where he penned y = x/π.
Marc Lavoie has a new paper in Review Of Political Economy in which he explains how the Bank of Canada, the central bank of Canada 🇨🇦 is able to maintain the target interest rate at the center of the corridor with high perfection despite zero reserve requirement and clearing happening privately.
Abstract:
In a number of ways, implementing monetary policy in Canada stands apart from monetary policy in most other industrial countries. Commercial banks and other participants to the main clearinghouse – the large-value transfer system (LVTS) – hold no reserves at the central bank. Clearing and settlement is both in real time and net, while only settlement occurs on the books of the central bank. The Bank of Canada does not conduct open-market operations and rarely intervenes in the repo market; and despite this, the collateralized overnight rate always remains within 2 or 3 basis points of the target interest rate. The paper explains why this is so by describing the setup of the Canadian clearing and settlement system, including the rules that have been put forward in case a bank defaults on its due payments before settlement occurs. Some puzzles that arose through the years are also discussed, as well as the unlikely prospect of introducing blockchain technology in the Canadian clearing and settlement system.
Dani Rodrik — Globalization’s Wrong Turn And How It Hurt America
Some comments on globalisation by Bill Clinton and Tony Blair caught my attention in a recent article by Dani Rodrik for Foreign Affairs:
Globalization, exclaimed U.S. President Bill Clinton, “is the economic equivalent of a force of nature, like wind or water.” British Prime Minister Tony Blair mocked those who wanted to “debate globalization,” saying, “you might as well debate whether autumn should follow summer.”
Rodrik’s article takes issue with this, explaining how globalisation’s rules of the game aren’t immutable by going through its history.
As Noam Chomsky says, the term globalisation has been appropriated by a narrow sector of power and privilege to refer to their version of international integration and it makes sense for them to own the term because anyone who is opposed to their version becomes anti-globalisation—someone who is primitive and wants to go back to the stone age and that everyone likes international integration but not the investor rights version of it.
Although Rodrik proposes changes to the system/order, his proposals aren’t radical enough. He also presents it as if before neoliberalism became mainstream, it was great for poor countries but this isn’t the case. It was always unfair but became more unfair in the neoliberal era. Anyways, worth a read.
BadMouse On How The Left Abandoned Opposing The EU
BadMouse, the vlogger on the EU and Brexit:
The right has been a stickler when it comes to appropriating leftist talking points, as I have spoken numerous times now. The EU used to be lot more of a conservative tradition opposed by many factions of the left including, of course, the late Tony Benn. But after sections of the right-wing discourse took it by their shoulders, all the left could seem in response was to go, “No! EU good”.
The EU is an undemocratic monolithic entity that controls large hegemony over the continent. This is something the left has always been against and now we seem to have all been been shovelled into the pro-EU corner just to own the right is baffling. How dare they! How dare we allow them to take control of this narrative, on the topic of narratives.
An old article, worth your time.
Excerpt:
In the course of his Inaugural Lecture at Cambridge in 1966 on the causes of the U.K’s slow growth rate, Kaldor (1966) presented a series of “laws” to account, for growth rate differences between advanced capitalist countries; he later elaborated these laws in a lecture at Cornell University (1967). These laws, and their interpretation and validity, have been the subject of considerable scrutiny and debate, and Kaldor himself has clarified and modified his own position since their enunciation. The basic thrust of the model consists of the following propositions:1
- The faster the rate of growth of the manufacturing sector, the faster will be the rate of growth of Gross Domestic Product (GDP), not simply in a definitional sense in that manufacturing output is a large component of total output, but for fundamental economic reasons connected with induced productivity growth inside and outside the manufacturing sector. This is not a new idea. It is summed up in the maxim that the manufacturing sector of the economy is the “engine of growth.”
- The faster the rate of growth of manufacturing output, the faster will be the rate of growth of labor productivity in manufacturing owing to static and dynamic economies of scale, or increasing returns in the widest sense. Kaldor, in the spirit of Allyn Young (1928), his early teacher at the L.S.E., conceives of returns to scale as macroeconomic phenomena related to the interaction between the elasticity of demand for and supply of manufactured goods
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- The growth of manufacturing output is not constrained by labor supply but is fundamentally determined by demand from agriculture in the early stage of development and exports in the later stages. Export demand is the major component of autonomous demand in an open economy which must match the leakage of income into imports. The level of industrial output will adjust to the level of export demand in relation to the propensity to import, through the working of the Harrod trade multiplier:2 the rate of growth of output will approximate to the rate of growth of exports divided by the income elasticity of demand for imports (see Thirlwall, 1979).
- A fast rate of growth of exports and output will tend to set up a cumulative process, or virtuous circle of growth, through the link between output growth and productivity growth. The lower costs of production in fast growing countries make it difficult for other (newly industrializing) countries to establish export activities with favorable growth characteristics, except through exceptional industrial enterprise.
This catalogue of propositions is more or less the full Kaldor model of growth rate differences in advanced capitalist countries …
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Notes
- Some of the propositions are not as Kaldor originally stated them, but we shall
return to the original argument later.- For an exposition and an elaboration of the Harrod trade multiplier, see Kennedy and Thirlwall (1979) and Thirlwall (1982).
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References
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Kennedy, C, and Thirlwall, A. P. “Import Penetration, Export Performance and Harrod’s Trade Multiplier.” Oxford Economic Papers, July 1979.
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Thirlwall, A. P. “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences.” Banca Nazionale del Lavoro Quarterly Review, March 1979.
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⸻, “The Harrod Trade Multiplier and the Importance of Export Led Growth.” Pakistan Journal of Applied Economics, 1(1), Summer 1982.…
Young, A. “Increasing Returns and Economic Progress.” Economic Journal, December 1928
Links:
Lance Taylor — Macroeconomic Stimulus À La MMT
Lance Taylor on troubles with Neochartalists; ideas of stimulus without raising tax rates and implications for the external imbalance.
Lance Taylor had an excellent review of the book Monetary Economics by Wynne Godley and Marc Lavoie, if you remember and you can find the reference in his post.
Has interesting stories from Cambridge:
Anthony Thirlwall provides us with this aphoristic nugget that sums it all up: “The distinguished development economist Ajit Singh tells how, when he first went to Cambridge to study economics, Nicholas Kaldor taught him three things: first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise is being dishonest!” (Thirlwall quoted in Hein 2014, p. 178, footnote 35).
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References
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Hein, E. (2014). Distribution and growth after Keynes: A post-Keynesian guide. Cheltenham: Edward Elgar.
Nicholas Kaldor on how neoliberalism weakened labour power:
The centrepiece of the Government’s economic strategy, the control of the money supply, however genuinely believed in by some people, is really only a façade or a smokescreen. The important consequence of the strategy is to alter the balance of bargaining power, to weaken the trade unions through the intensification of unemployment and through the loss of jobs, through factory closures and bankruptcies, and thereby to succeed in bringing wage settlements well below the rate of inflation; that is to say, to reduce real wages.
– Nicholas Kaldor, The Economic Consequences of Mrs. Thatcher, page 62
Nicholas Kaldor, picture from National Portrait Gallery
To understand how labour power has been weakened, you need to understand monetary economics.
Happy Labour Day 🥂
There’s a nice new video posted by the UK Labour Party on Twitter on the multiplier effect of spending with the complication about the propensity to consume of the super-rich vs. others.
This isn’t the first time, it has got Keynesianism right. In August last year, there was another video which got the economics right.