Monthly Archives: May 2020

Thomas Piketty On The Winners Of Globalisation

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Thomas Piketty gets dismissed a lot: from the right-wing since they either think there’s much inequality or that it’s unimportant. From the left, he gets ridiculed for not being a Marxist or even Post-Keynesian/Keynesian enough. Whatever the criticisms, there are some things which he says which are useful and highly important in the current political climate. My view is that he is a bit late to it but some of his analysis adds more light.

Snapshot from a promotional video for Seuil.

In his book Capital And Ideology, he talks of how the dynamics of winners against losers of globalisation creates interesting politics. For example in pages 812-817:

Will the Democratic Party Become the Party of the Winners of Globalization?

…

Nevertheless, other factors cast doubt on the long-term viability of a transformation of the Democratic Party into the party of the winners of globalization in all its dimensions: educational as well as patrimonial. First, the presidential debates of 2016 showed the degree to which cultural and ideological differences remain between the Brahmin and merchant elites. Whereas the intellectual elite stressed values of level-headed rationality and cultural openness, which Barack Obama and Hillary Clinton sought to project, business elites favored deal-making ability, cunning, and virility, of which Donald Trump presented himself as the embodiment.16 In other words, the system of multiple elites has not yet breathed its last because at bottom it rests on two different and complementary meritocratic ideologies. Second, the 2016 presidential election showed the risk that any political party runs if it becomes too blatantly identified as the party of the winners of globalization. It then becomes the target of anti-elitist ideologies of all kinds: in the United States in 2016, this allowed Donald Trump to deploy what one might call the nativist merchant ideology against the Democrats. I will come back to this.

Last but not least, I do not believe that this evolution of the Democratic Party is viable in the long run because it does not reflect the egalitarian values of an important part of the Democratic electorate and of the United States as a whole …

  1. Note that the recourse to overtly anti-intellectual and anti-Brahmin leaders like Donald Trump is not limited to the US Republican Party: the European right has gone in a similar direction as shown by the choice of a Silvio Berlusconi in Italy or a Nicolas Sarkozy in France.

and on the EU referendum/Brexit, page 861, Chapter Sixteen, Social Nativism: The Postcolonial Identitarian Trap:

… in all three countries [United Kingdom, United States, and France], the “classist” party systems of the period 1950–1980 gradually gave way in the period 1990–2020 to systems of multiple elites, in which a party of the highly educated (the “Brahmin left”) and a party of the wealthy and highly paid (the “merchant right”) alternated in power. The very end of the period was marked by increasing conflict over the organization of globalization and the European project, pitting the relatively well-off classes, on the whole favorable to continuation of the status quo, against the disadvantaged classes, which are increasingly opposed to the status quo and whose legitimate feelings of abandonment have been cleverly exploited by parties espousing a variety of nationalist and anti-immigrant ideologies.

Link

Jeremy Corbyn On His And Tony Benn’s Positions On The EU And Brexit

Jeremy Corbyn appeard in a recent episode of the podcast Benn Society and at around 13:31 in the audio, he is asked about his and Tony Benn’s position on Brexit since both were opposed to the EU.

Of course, as expected his answer was messed up as he never took a clear position but you can listen to what happened directly from him and how it cost Labout the election.

Image credit: Jeremy Corbyn on Twitter

Neochartalists’ Rhetoric Against Raising Taxes

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Neochartalists (“MMTers”) have a strange political positions. Although many of their proposals can be left-leaning, some of their proposals are highly right-wing. So Warren Mosler argues for removal of most taxes for example.

In a recent “webinar”, Monetary Finance In The Age Of Corona Virus: MMT And The Green New Deal, Stephanie Kelton is seen making similar rhetoric.

click to see the video on YouTube

The irony is that she has been an advisor to Bernie Sanders, the politician who has proposed large increases on taxes on the rich and has even said that billionaires shouldn’t exist (i.e., nobody should have a net worth above $1 bn).

Roughly, her argument is that the super-rich’s expenditure as a proportion of income and wealth is less than the poor and if the US economy has full employment and the US Congress wants to do additional spending it will have to raise taxes to offset the demand rise due to the additional expenditure. But matching $-for-$ doesn’t help, as billionaires only a small fraction of their income and wealth.

But this is a ridiculous argument. Taxes can be calibrated so the government expenditure rise can be matched $-for-$ with a fall in the super-rich’s expenditure. So if the US government wants to spend $1 additionally, it can calculate how much billionaires need to be taxed so that their expenditure falls by $1.

Joan Robinson On Public Sector Deficits And Debt

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Some good quotes by Joan Robinson on deficits and debt:

In Introduction To The Theory Of Employment, Chapter 5, Change In Thriftiness, in the section A Budget Deficit, 1937:

A special kind of reduction in thriftiness is represented by a budget deficit. If the state is paying out more money in salaries to civil servant, commissions to contractors and so forth, than it is receiving in taxation, and is borrowing the difference by issuing Treasury bills or otherwise raising loans from the public, then it is in just the same position as an individual who is spending on current consumption more than his income, by means of drawing on past accumulated wealth or getting into debt. In short the state is dis-saving. The result is to increase incomes and expenditure all round. Suppose that the state keeps its outlay constant and remits taxation. Then out of the increased net income of taxpayers part will be spent, and this extra spending will raise the incomes of those on whose output the expenditure is made. Out of this extra income, again, a part will be spent; and so on. Just as in the case of investment, the extra expenditure will lead to such an increase in incomes that the public are saving more than they otherwise would have done at just the same rate the government is borrowing.

The idea that a budget deficit is good for trade is often found to be shocking, but it is a fact which has become obvious to the governments of the world since the great depression began in 1929. The argument used to be common, particularly in England, that a budget deficit upsets the confidence of entrepreneurs, and so does more indirect harm to employment than direct good. But this is a case where “thinking makes it so”, and it is found nowadays that a deficit accompanies by the right kind of propaganda can have a very beneficial effect.

The mere fact that a deficit is good for trade is not a sufficient argument for having a deficit, since other methods of improving trade may be preferable. It can, however, be regarded as a merciful dispensation that budgets have a tendency to come unstuck when trade is very bad. Taxes fail to yield as much as was expected, while expenses in connection with unemployment go up, and the government is forced to borrow to meet its current outgoings. This has the effect if preventing the decline in employment from going so far as it would if the budget were kept balanced.

In The Problem Of Full Employment, Chapter 9, Some Fallacies, 1943:

1. “THE TREASURY VIEW”
During the great slump it was the official view that Government investment cannot increase employment. The argument ran: there is a certain amount of saving going on at any time, and if more savings are invested by the Government, less will be available for private enterprise. This overlooks the fact that if there is more investment there will be a higher level of activity and of incomes and consequently more saving. The argument is so childish that it would not deceive anyone who had not a strong wish to believe it. Nevertheless, it was for many years the basis of Government policy, and was set out in a famous White Paper in 1929.

2. “ECONOMY”
The National Government which was formed in 1931 went in for a great economy campaign. Local authorities were compelled to cease work on building schemes, roads, fen drainage, and so forth. An emergency budget was introduced, increasing taxation, cutting unemployment allowances and reducing the pay of public servants, such as teachers and the armed forces. Private citizens felt it was patriotic to spend less. Some Cambridge Colleges gave up their traditional feasts as a recognition of the crisis. All this helped to increase unemployment and make the economic situation of the country still more depressed. Nowadays there is considerably more understanding of how things work and it is unlikely that such a completely idiotic policy will be tried again.

3. THE BURDEN OF THE NATIONAL DEBT
The National Debt is often brought forward as an argument against public spending to create employment. There is a good deal of confusion between the National Debt and the debt of an individual. An individual who is in debt has to pay interest to someone else, and will be obliged to return the sum borrowed to the lender. A nation which is in debt has to pay interest to its own citizens (a foreign debt is a different story and is much more like a private debt). That is to say, the Government has to raise taxes from Peter and Paul and pay interest to Paul and Peter. Taking the country as a whole, there is no burden of the debt. Moreover, the debt need never be repaid. As one lot of bonds fall due to be redeemed a fresh lot can be sold to the public. If the debt is finally repaid, it is repaid out of the wealth of the citizens of the country, and this, like interest payments, is merely a swap round among the members of the community.

At the same time there are genuine objections to a large National Debt. It means that there is a large volume of rentier income (the interest on Government bonds), so that the active part of the population has to allot a large share of the proceeds of production to the mere owners of wealth. This objection is all the stronger if the holders of the National Debt are mainly the richer part of the community, while taxes to pay their interest are raised from the population as a whole. This drawback can be kept within bounds, first, by keeping interest rates low, and second, by arranging the tax system so that the same class which gets the interest has to pay the extra taxes. But however well the national finances are managed, some objection must remain.

This does not mean that fear of increasing the National Debt is a sound objection to having a full employment policy. The drawback of having a swollen rentier class is trivial compared to the loss of wealth and of happiness, and of life itself, which is entailed by unemployment.

If, however, we are to have a full employment policy in any case, the problem must be viewed in a different light. Government outlay covered by taxation on the rich is to be preferred to borrowing. A full employment policy conducted according to the rules of Sound Finance is far more radical than a policy of deficits, and Government loan expenditure can only be justified as a concession to the status quo.

Joan Robinson On Michal Kalecki’s Claim To Priority

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Keynesian policy is popular again. Many fiscal hawks are now arguing for stimulus, although they want to do it only temporarily. I came across this 1976 article Michal Kalecki: A Neglected Prophet by Joan Robinson where she argued once again for Michal Kalecki’s originality.

Robinson:

He told me that he had taken a year’s leave from the institute where he was working in Warsaw to write his own General Theory. (When his early Polish essays were published in English, it became clear that he had worked out the main points by 1933.) In Stockholm someone gave him Keynes’s book. He began to read it—it was the book that he had intended to write. He thought, perhaps further on there will be something different. No, it was his book all the way. He said: “I confess, I became ill. Three days I lay in bed. Then I thought—Keynes is better known than I am. These ideas will get across much quicker with him and then we can get on to the interesting question, which is of course the application of these theoretical ideas to policy-making. Then I got up.”
Kalecki did not make any public claim to his independent discovery of what became known as Keynes’s General Theory. I made it my business to blow his trumpet for him, but I was often met with skepticism. In the US, only Lawrence Klein recognized (in The Keynesian Revolution, 1947) that Kalecki’s system of analysis was as complete as Keynes’s and in some respects superior to it.

At the end of his life Michal told me that he felt he had done right not to make any claim to priority over Keynes. It would only have led to a tiresome kind of argument. Perhaps people have been skeptical of Kalecki’s contribution to the history of economic theory precisely because he did not demand recognition himself. Such dignified behavior is rare in this degenerate age. The only reference Kalecki ever made to the question is in the preface to a selection of essays, published, alas, posthumously. “The first part includes three papers published in 1933, 1934, and 1935 in Polish before Keynes’ General Theory appeared, and containing, I believe, its essentials.”3

3Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970 (Cambridge University Press, 1971), p. vii.

There are many other by Joan Robinson where she argued this, especially this.

Picture credit: Poland Today

Planned Trade

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The latest edition of The Economist has this cover, worrying about the rise in the idea of national self-sufficiency.

Obviously, The Economist whose purpose is to promote the propaganda of free trade doesn’t like this as any country achieving self-sufficiency would mean a reduction of market share of large corporations whose interests the magazine has spoken since 1843, the year it was founded.

John Maynard Keynes wondered about national-self sufficiency too. In an article titled National Self-Sufficiency in the year 1933, which he argued:

Of course self-sufficiency is one thing, but there’s also the idea of planned trade. These two concepts are related but are potentially different.

One of the promoters of planned trade was Nicholas Kaldor. In The Role Of Increasing Returns, Technical Progress And Cumulative Causation In The Theory Of International Trade And Economic Growth, Economie Appliquée, 34(4): 593–617, 1981, he motivates the reasons for a planned trade:

At the moment the world suffers from an insufficiency of demand for industrial products which most industrial countries however are not in a position to remedy, because of the need to avoid deficits in their balance of payments. It does not follow therefore that free trade leads to the maximum development of trade: if it involves chronic imbalances it might lead to a situation in which the world economy is in a state of continued recession, which cannot be effectively counterbalanced by national policies of economic management. Most governments and economists are in constant fear lest the state of recession will lead to the haphazard introduction of protective measures to domestic industries, which on balance will cause a further shrinkage of world demand. This may well happen in the absence of a coordinated policy, but my own prescription would not be that we must stick to free trade (whatever the cost), but to introduce a system of planned trade between the industrially developing countries, so as to remove the balance of payment constraint on their internal expansion.11

Contrary to the actual policies adopted—which put trade restrictions mostly on imports from low wage developing countries—I would allow such imports freely since these countries have an unlimited appetite for manufactured imports of capital goods, which is only restrained by their ability to pay for them. Contrary to the general view, therefore, it is not the imports coming from the developing countries, but the import penetration of goods produced in developed countries which threatens major industries of other developed countries (such as the motor car industry in Britain or the television industry in the U.S.) and which requires some system of regulation of trade if we wish to remove existing impediments for the expansion of production and employment in the industrial countries of the world.12

11 The French Government in the year preceding the legislative election, under the leadership of M. Barre, advocated something similar with their slogan “Croissance ordonnée des échanges”. It is possible however that it was a temporary slogan for the sake of electoral popularity since not much was heard about these policies after the last French elections.

12 It also requires the recycling of OPEC surpluses—a function which has been performed up to now, not by official institutions such as the IMF, but mainly American private banks, operating through the Euro-dollar market. While I have no time to develop this theme on the present occasion, I think I ought to mention that I would favour as an instrument of such planning the introduction of some licensing system for imports of manufactures which is directly linked to exports, so that imports and exports are kept in some agreed balance.

Basically in the regime of free trade, the market mechanism does not bring balance-of-payments imbalances in balance. The price mechanism to keep global imbalances in check simply doesn’t work. Instead it works by putting a deflationary bias on the whole world.

Hence there is a need for using official mechanisms to keep imbalances in check without output suffering.

Conference Recordings Of The Legacy Of Wynne Godley

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Yesterday, March 13th had a special event, a virtual conference in honour of the great Wynne Godley.

If you hadn’t joined it, you can still view the recordings which have now been made available, thanks to Gennaro Zezza, who organised the event.

Here’s another poster, prior to the event. You can find the picture here.

Picture credit: Levy Institute on Twitter.

All videos now seem available. Check again with the conference page for the presentation or write-ups.

Mainstream bourgeois economics which is what occupies a hegemonic position in the academic world today is often criticized for being “unreal”, for proceeding on the basis of assumptions that obviously do not correspond to reality. This criticism however, though valid, does not capture its real intent, which is to serve as a means of camouflaging imperialism. The theoretical content of mainstream bourgeois economics is to advance a set of propositions about the functioning of capitalism which deny any need for, and hence any role of, imperialism in capitalist development. Since imperialism has in fact been a crucial element in the functioning of capitalism, these propositions, needless to say, are “unreal”; but simply underscoring their “unreal” character is not enough. This “unreal” character serves a purpose; and this fact must not be missed.

Prabhat Patnaik, Economics And Imperialism

Glenn Greenwald — Is China Merely A Competitor Of The U.S., Or An Adversary Or Even An Enemy?

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The topic of China in political economy brings out so many bad opinions even from the left. Lots of people write apologia for China despite its large human rights violation. Although it’s communist, CEOs of large companies in the United States, the masters of mankind, also speak positively about it and their tone is different from when they’re speaking of Latin American countries, for example, which have socialist governments.

China is mercantilist and uses all sorts of unfair economic practices to further its interests. From the United States’ viewpoint itself, China allows US companies to offshore jobs and allows exploitation. China is a huge beneficiary of the rules of the game under the WTO, at the expense of both advanced and poor countries.

The US net indebtedness is around 50% of GDP now, the result of accumulated current account imbalances in balance of payments. This implies the United States needs to do something by political economic means to reverse this dynamic.

The latest episode of Glenn Greenwald’s weekly show System Update podcast talks discusses the issue with Kishore Mahbubani and Matt Stoller.

From the write-up:

… while hawkish, pro-war political elements in both parties speak of China as an adversary that must be confronted or even punished, the interests of powerful western financial actors — the Davos crowd — are inextricably linked with China, using Chinese markets and abusive Chinese labor practices to maximize their profit margins and, in the process, stripping away labor protections, liveable wages and jobs from industrial towns in the U.S. and throughout the west.

That is why standard left-wing anti-imperialism or right-wing isolationism is an insufficient and overly simplified response to thinking about China: policy choices regarding Beijing have immense impact on workers and the economic well-being of citizens throughout the west.

Of course Glenn Greenwald is wrong that it can’t be analysed by standard left-wing anti-imperialism. It’s mainly a problem of failure of social scientists currently, not of left-wing political economy itself. There are exceptions of course. Thomas Palley has analysed it well. But otherwise Glenn Greenwald is quite sharp in his analysis.

Essays In Honour Of Marc Lavoie And Mario Seccareccia

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Hassan Bougrine and Louis-Philippe Rochon have edited two volumes of essays in honour of Marc Lavoie and Mario Seccareccia!

Publisher’s pages for the books:

  1. Credit, Money And Crises In Post-Keynesian Economics:
  2. Economic Growth And Macroeconomic Stabilization Policies In Post-Keynesian Economics

Volume 1

Volume 2

The contents of the two books are available in the links to the publisher’s website above.

Cover images credits: Louis-Philippe Rochon on Twitter.