There was a conference on the 10th death anniversary of Wynne Godley last year. If you haven’t seen it, the video recordings/presentation/remarks are in that link.
Now, there’s a special issue by the JPKE about the conference with papers as in the cover:
Happy reading!
Marc Lavoie: Godley Versus Tobin On Monetary Matters
The 2021 Godley-Tobin lecture is by Marc Lavoie and the recording is available now.
The paper will be available in the journal Review Of Keynesian Economics in a future edition.
Fantastic stuff!
Review Of African Political Economy Issue On Samir Amin
Historically advanced countries have developed at the expense of poor countries. It doesn’t have to be that way, and that offers some optimism, but it is crucial to recognise this to make an alternative world without imperialism.
The latest issue of Review of African Political Economy has a special on Samir Amin who developed the dependency theory. For Amin, the international aspect of political economy is central to the subject, not something which needs to be added in the end as a sort of technicality.
In a laissez-faire world, there is no convergence in the fortunes of economies but polarisation. Anyone who is left-leaning in political ideology and is looking for other reasons while ignoring this to explain the world is fooling themselves.
Dependency theory is quite consistent with Post-Keynesian theory. There is an explicit framework of how this happens and that framework is Kaldorian growth theory.
A new world would work to make countries economically independent and reduce the role of the hegemon, the United States in world affairs. It would work in practice by a plan like Keynes’ plan involving significant transfers from the rich to the poor.
A lot of people simply claim that countries just need to copy the Scandinavian model. It’s true that those countries have some things better than the US, but it’s not like everything is great. For example their economic orthodoxies weren’t better than Washington wisdom after the economic and financial crisis which started in 2007. Also, in recently these countries voted against removing intellectual property protections for rich countries for vaccines. When the Scandinavian countries’ governments are themselves part of imperialism, that should raise doubts about the model. More importantly, international constraints put a barrier on trying to become like these countries minus their imperialism.
Articles free to read till March end. The title is the link.
A good macroeconomic model would use national accounts and the flow of funds with behavioural hypotheses. It’s complicated by the fact that prices of goods and services change. It’s not just that if prices of goods and services change, you’re consumption would change in response to that, but also because say the deposits you hold in the bank is worth less.
So your behavioural equations need to be modified. It’s not easy. Wynne Godley recalls in his book Monetary Economics:
And no lesser authority than Richard Stone (1973) made the same mistake because in his definition of real income he did not deduct the erosion, due to inflation, of the real value of household wealth.
…
References
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Stone, R. (1973) ‘Personal spending and saving in post war Britain’ in H.C. Bos, H. Linneman and P. de Wolff (eds), Economic Structure and Development: Essays in Honour of Jan Tinbergen (Amsterdam: North Holland), pp. 75–98.
The system of national accounts does recognise the importance of this but there aren’t any real variables defined. Real as opposed to nominal. Instead holding gains (formal phrase for “capital gains”) is divided into two parts: real holding gains and neutral holding gains. So,
Nominal holding gains = real holding gains + neutral holding gains.
Assets prices can rise differently than prices of goods and services. Para 12.89 says:
The real holding gain on an asset is defined as the difference between the nominal and the neutral holding gain on that asset. The values of the real holding gains on assets thus depend on the movements of their prices over the period in question, relative to movements of other prices, on average, as measured by the general price index. An increase in the relative price of an asset leads to a positive real holding gain and a decrease in the relative price of an asset leads to a negative real gain, whether the general price level is rising, falling or stationary.
Of course we should consider holding gains and losses on liabilities as well.
This is anyway complicated practically. I haven’t yet seen national accounts of any country producing such tables. But the SNA—including the 2008 SNA—doesn’t have any framework beyond this. This is because it considers that economic behaviour would be different for real holding gains or losses, as opposed to just the flow aspect.
In other words, if your (nominal) income is $100 and there’s a 10% inflation, your consumption would fall. But you might not react the same if you have a real holding loss of $10.
But to a first approximation you could simplify and bring real holding gains into real income. I have simplified quite a bit and these are quite challenging things, so I refer you to Wynne Godley and Marc Lavoie’s (G&L)’s book Monetary Economics.
I wrote this post after an online discussion about the government “inflating away the nominal debt”. Although such claims are loaded, there is some logic to it. In inflation accounting, holding gains/losses appear in incomes. Modeling involves going back and forth between real and nominal variables.
An original writing is that of Wynne Godley (and Ken Coutts and Graham Gudgin)—a 1985 paper titled Inflation Accounting Of Whole Economic Systems. In that you see the equation:
(Snipped from the 2012 reprint).
So the government disposable income (in addition to taxes and central bank profits, also has the holding losses due to the fact that prices of goods and services has increased in the period, not just because of changes in prices of government bonds).
Of course, there’s also the loadedness of the phrase “inflating away the debt”. That’s a different matter, my point here is to address the intuition of why inflation can be thought of as bringing revenue to the government and reducing its debt.
This year’s Godley-Tobin lecture is by Marc Lavoie who is talking about Wynne Godley’s versus James Tobin’s approaches.
You can register here.
James Tobin pioneered the stock-flow consistent modeling. He won the Nobel Prize for it. You can find his Nobel lecture Money And Finance In The Macroeconomic Process here.
Although quite brilliant, there are many shortcomings in James Tobin’s approach. The genius of Wynne’s approach was to overcome those.
Interview With Sergio Cesaratto: Draghi And The Italian Melodrama
Mario Draghi is set to become the next Prime Minister of Italy!
From a recent interview with Sergio Cesaratto at Brave New Europe:
Will he be able to do it?
Draghi is a many-headed dragon. He is a Catholic socio-conservative. Somehow a Christian Democrat able to please almost everybody – German friends know what I mean. This is his real skill, which he has shown in running the ECB by skilfully keeping the German representatives’ hardliners at bay. Consensus is important. And he will need a heavy German endorsement (and not all Germans like him). Many in Italy fear his conservative facade. Draghi has been many things: the wretched privatiser of Italian public industry just before he went to work for Goldman Sachs; he declared that the European welfare state had had its day; but in 2014 he made it clear that Europe’s anti-Keynesian economic policy was wrong. There is something for everyone! In his tesi di laurea he even argued that the euro was a bad idea! Let’s remember, however, that in 2023 Italy must hold new elections, and although Renzi (who is a former Christian Democrat) shares Draghi’s Christian social-conservative visions (more CSU than CDU), he is unlikely to have the capacity to create a political background for him. Certainly Renzi might have had something like this in mind (recall that he comes from Tuscany, the land of Machiavelli!).
[The title is the link]
Although the release is more than a month old, I missed the release. The US international investment position is worsening and in unsustainable territory.
Chart from the BEA release dated 29 December, 2020, with last data point from Q3, 2020:
It’s not plotted relative to gdp, but work that out in your head 😉
Wynne Godley’s analysis before 2008 was simple: the US private sector balance—the difference between private expenditure and private income—was negative continuously and was unsustainable. The reversal—private expenditure falling relative to private income—would lead to a large crisis. And meanwhile the US trade was also weak and a large fiscal stimulus would be needed but because of international trade, the fiscal multiplier won’t be large enough and the recovery would be weak. His papers also forecast rising negative net international position mirrored by large rise in public debt relative to gdp, so to keep a sustainable configuration, the US government should directly address international trade, or else face slow growth.
Wynne’s intuition was that:
… financial balances (relative to income flows) must stay within certain limits if debts are not to grow excessively, implying that the monitoring of these balances may yield a warning that unsustainable processes are at work.
Also, the “investment income” in balance of payments—the flows—stays positive. A lots has been written on it but on the question of sustainability it’s not too important in my view, although of course, once it turns negative it accelerates the already unsustainable position.
As mentioned in my previous post, Perry Anderson has three essays in London Review Of Books on Brexit, where he is quite critical of the EU.
Two quotes:
Everyone has an idea what a nation-state is, and many know that 27 countries (with the UK’s departure) are member states of the European Union. What is the conceptual difference between the two? Bickerton’s definition is succinct. ‘The concept of member state expresses a fundamental change in the political structure of the state, with horizontal ties between national executives taking precedence over vertical ties between governments and their own societies.’
and
After a referendum campaign of ten weeks, 58 per cent of Tory, 37 per cent of Labour and 96 per cent of Ukip voters opted for Leave, yielding an overall majority of 52 per cent for Brexit, rising to 64 per cent in the poorest three categories of the population, C2DE. The only socioeconomic group where a majority voted to Remain was the most affluent stratum of the population, composed of members of categories A and B. All others preferred Leave. But if voters were divided not by income but by age and education, the result looked very different. Of those between 18 and 24 who voted, 73 per cent chose Remain; between 25 and 34, 62 per cent; between 35 and 44, 52 per cent; the majority of those over 44 voted for Leave. Similarly, 57 per cent of those with university degrees opted to Remain, 64 per cent with higher degrees, and 81 per cent in full-time education. Geographically, in England it was in university towns alone that Remain won handsomely.
So the ‘Remain’ camp consisted of globalists trying to defend their interests!
The EU is based on the idea of laissez-faire. The official website of the European Union itself says on trade:
Free trade among its members was one of the EU’s founding principles, and it is committed to opening up world trade as well.
So it was initially shocking for me in early 2016 why UK leftists were supportive of the UK remaining in the EU. But over time I have come to realise that the left is just fake and is imperialist, manufacturing consent for the ruling class. Academia is so far ahead of the media in manufacturing consent.
Nicholas Kaldor was the most vocal among economists for not joining the EU in the ’70s and I am sure he would have been vocal about leaving the EU had he been alive.
Perry Anderson wrote recently on Brexit in New Left Review and has now written again for London Review Of Books. Not one but three!
Links:
Now, they’re criticisms of the EU but given that Perry Anderson has a lot of respects in many circles, it could have come much earlier when it was most needed. When personal costs are high, it’s brave. At any rate, better late than never!
45,746 words over three essays! Happy reading.
ROPE: Development Economics: Aptly Or Wrongly Named?
Underdevelopment is rooted in a specific connexion, created in a particular historical setting, between an internal process of exploitation and an external process of dependence.
– Celso Furtado, 1973, republished in ROPE, Volume 33, 2021, Issue 1.
The latest issue of Review Of Political Economy is about how the idea of development economics to emulate the west has failed.
How can it work, as the liberal international order works for the “north” at the expense of the “south”.
The issue includes two articles by Celso Furtado from the 70s but unpublished before.
[The title is the link]