Author Archives: V. Ramanan

Michał Kalecki On The Effect Of Wages On Employment

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… a wage rise showing an increase in the power of the trade unions leads-contrary to the precepts of classical economics-to an increase in employment. Conversely, a fall in wages showing a weakening in their bargaining power leads to a decline in employment. The weakness of trade unions in a depression manifested in permitting wage cuts contributes to the deepening of unemployment rather than to relieving it.

– Michal Kalecki, 1971 in Class Struggle And The Distribution Of National Income, in Collected Works Of Michal Kalecki, Volume II. Capitalism: Economic Dynamics

Noam Chomsky On Propaganda And Indoctrination

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Recently, Noam Chomsky turned 90, and Current Affairs reminded us of this wonderful section from an interview from 1984, on propaganda and indoctrination:

To use the term “double standard” for our approach is to really abuse the term; it goes beyond anything that you could call a double standard. It’s almost a kind of fanaticism. It’s a reflection of the extreme success of indoctrination in American society. You don’t have any other society where the educated classes, at least, are so effectively indoctrinated and controlled by a propaganda system.

Let’s talk about that propaganda system. You’ve referred many times to the “state propaganda apparatus.” What role do the media play in promoting and serving state interests?

One should be clear that in referring to the “state propaganda apparatus” here I do not mean that it comes from the state. Our system differs strikingly from, say, the Soviet Union, where the propaganda system literally is directed and controlled by the state. We’re not a society which has a Ministry of Truth which produces doctrine which everyone then must obey at a severe cost if you don’t. Our system works much differently and much more effectively. It’s a privatized system of propaganda, including the media, the journals of opinion and in general including the broad participation of the articulate intelligentsia, the educated part of the population. The more articulate elements of those groups, the ones who have access to the media, including intellectual journals, and who essentially control the educational apparatus, they should properly be referred to as a class of “commissars.” That’s their essential function: to design, propagate and create a system of doctrines and beliefs which will undermine independent thought and prevent understanding and analysis of institutional structures and their functions. That’s their essential social role.

I don’t mean to say they’re conscious of it. In fact, they’re not. In a really effective system of indoctrination the commissars are quite unaware of it and believe that they themselves are independent, critical minds. If you investigate the actual productions of the media, the journals of opinion, etc., you find exactly that: a very narrow, very tightly constrained and grotesquely inaccurate account of the world in which we live.

This is quite relevant in Economics, where monetary theorists play the role of “commissars”. The part on being conscious of it is debatable, but I will leave that for another time!

Happy birthday, Noam Chomsky!

Rare Wynne Godley Video Clips

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You might be aware of the hour-long Wynne Godley’s interview with Alan Mcfarlane from 2008 titled, Interview On The Life And Work Of Wynne Godley. But there’s a 90-second clip and a 19-second clip I found from 1993 on Getty Images with the descriptions:

Budget discussions
Budget discussions; INT CMS Prof Wynne Godley (Cambridge University) CMS Prof David Currie (London Business School) Cambridge CMS Prof Wynne Godley (Cambridge University) intvw SOF – Doubtful whether economic turn around will take place as too many people do not have the money/ unemployment is rising and the devaluation will bring about increase in prices/ the ’81 recovery was a dead end/ it was a consumer boom that ended in disaster London CMS Prof David Currie (London Business School) intvw SOF – Can be sure that output will increase but will not feel like a recovery/ unemployment will continue to rise/ ‘Feel Good’ factor could take a year to find its place

and

Budget discussions
Budget discussions; Cambridge CMS Prof Wynne Godley (Cambridge University) intvw SOF – It would take 2-3 percent growth to bring down unemploment [sic] and Govt state it will be one percent

Wynne Godley, 1993

Enjoy!

Link

Pierre Kohler And Francis Cripps — Do Trade And Investment (Agreements) Foster Development Or Inequality?

A recent UNCTAD/GDAE working paper. Abstract:

This paper proposes to revisit the debate on trade and investment agreements (TIAs), development and inequality, looking at the role of Global Value Chains (GVCs) and transnational corporations (TNCs). It first presents stylized facts about trade and investment (agreements), declining global economic growth and rising inequality under the latest round of globalization. It then provides a long-run perspective on the mixed blessings of external opening, summarizing some key contributions of the mainstream literature, which are converging with long-standing research findings of more heterodox economists, and the eroding consensus today. Based on this stock-taking, it takes a fresh critical look at the TIAs-GVCs-TNCs nexus and their impact. Using data on value-added in trade and new firm-level data from the consolidated financial statements of the top 2000 TNCs going back to 1995, it examines whether the fragmentation of production along GVCs led to positive structural change or rather stimulated unsustainable trends in extractive and FIRE sectors. It then turns to the role of TNC-driven GVCs as a vehicle for economic concentration. Finally, it presents evidence linking TIAs and their correlates to rising inequality. Key findings include the fact that the ratio of top 2000 TNCs profits over revenues increased by 58 percent between 1995 and 2015. Moreover, the rise in top 2000 TNCs profits accounts for 69 percent of the 2.5 percentage points decline in the global labour income share between 1995 and 2015, with the correlation coefficient between annual changes in both variables as high as 0.82. The paper concludes by calling for a less ideological policy debate on TIAs, which acknowledges the mixed blessings of external financial and trade opening, especially their negative distributional impact and destabilizing macro-financial feedback effects, which both call for policy intervention. As an alternative to short-sighted protectionism, it further discusses possible options for anticipating undesirable effects arising from TIAs (e.g. rising carbon emissions, economic instability, inequality, etc.) and addressing those in TIAs themselves.

Link

Jason Hickel Features On Citations Needed

The latest episode Neoliberal Optimism Industry of the podcast Citations Needed features Jason Hickel, who has done a lot of work to bust the narrative of the World Bank on poverty.

Excerpt:

Jason Hickel: So Gates is sort of the forefront of this aid narrative and the way that I see this as problematic is because it effectively ends up obscuring the real causes of the problems that are at stake. Right? So we’re all concerned about global poverty and human suffering, etcetera. But what’s really causing these problems? So the aid discourse makes it seem as though what’s needed is like little technocratic fixes here and there, some more malaria bed nets here and there, but it distracts our attention away from the fundamental structure of the international economy and you know, the rules that govern international trade and that’s really what needs to be addressed because effectively if you look into the way that that system operates, it’s effectively designed in such a way that facilitates the siphoning of wealth and cheap labor and resources from the South to the North.

I am not a fan of degrowth in the episode but the podcast is for an hour and worth your time. The title is the link to the audio and transcript. You can alternatively find the episode on iTunes.

Link

Angela Nagle — The Left Case Against Open Borders

Angela Nagle writing for American Affairs:

The destruction and abandonment of labor politics means that, at present, immigration issues can only play out within the framework of a culture war, fought entirely on moral grounds. In the heightened emotions of America’s public debate on migration, a simple moral and political dichotomy prevails. It is “right-wing” to be “against immigration” and “left-wing” to be “for immigration.” But the economics of migration tell a different story.

…

Today’s well-intentioned activists have become the useful idiots of big business. With their adoption of “open borders” advocacy—and a fierce moral absolutism that regards any limit to migration as an unspeakable evil—any criticism of the exploitative system of mass migration is effectively dismissed as blasphemy. Even solidly leftist politicians, like Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are accused of “nativism” by critics if they recognize the legitimacy of borders or migration restriction at any point. This open borders radicalism ultimately benefits the elites within the most powerful countries in the world, further disempowers organized labor, robs the developing world of desperately needed professionals, and turns workers against workers.

[the title is the link]

Fine Jeremy Corbyn Speech From 2010

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I came across this fine Jeremy Corbyn Speech in which he explicitly talks about the ideology of the ruling class which is utterly deflationary to output. It’s from 2010, and shows how clear his understanding of the way the world works, is. It is extremely rare and in my opinion, no politician has come even remotely close to it.

Some excerpts, link below.

I was at the European Social Forum last week and we heard what is happening in Greece, in Spain, in Portugal, in France and other places where the government is imposing wage cuts, where thousands tens of thousands are you losing their jobs and the media say well it’s all to do with the psychology of the Greek people, it’s all to do with the manana concept in Spain, it’s all to do with the wine in Portugal.

Utter tosh!

…

The economic medicine that’s being imposed on those countries now is exactly the same economic medicine that’s been imposed on sub-saharan African and Latin American and South Asian countries for decades where they’ve been forced to pay an unpayable debt, where they’ve been forced to privatize public services, where they’d be forced to destroy all the gains they thought they’d made on independence from colonies.

Well that whole philosophy is now coming home to roost.

Are we going to accept this economic orthodoxy that creates poverty creates misery and creates division or are we going to fight back against it? Are we going to stand up for the values of the labor movement for socialism, for peace, for justice, for the needs of education, housing and everything else?

… They, the world’s bankers, International Monetary Fund, European Union, they are utterly United in what they want. Utterly united in deflation, suppressing the economy and creating unemployment. Utterly united in that. We need to be equally united not just across every union in this country, in every community in this country and every social demand in this country but all across Europe and internationally to show that the voice of those campaigning for peace, justice and socialism will not be silenced by these people. We will win through we will defeat them and we will win that decency that we want in this world.

Jeremy Corbyn, Durham Miners Gala, 2010

You can watch the video on YouTube.

Link

UNCTAD Trade And Development Report 2018

The United Nations 🇺🇳 Conference On Trade And Development, UNCTAD publishes a detailed trade and development report every year and this year’s is titled: Power, Platforms and The Free Trade Delusion.

It stressed how free trade and globalisation has led to protectionism and that although the latter is not the solution, free trade isn’t the alternative either. The report details how free trade has led to rising power for a small number of corporations.

From the Overview:

Arguably the greatest damage of all has been dwindling trust in the system. Here economists have no excuses, at least if they have bothered to read Adam Smith. In any system claiming to play by rules, perceptions of rigging are guaranteed eventually to undermine its legitimacy. The sense that those who caused the crisis not only got away with it but profited from it has been a lingering source of discontent since 2008; and that distrust has now infected the political institutions that tie citizens, communities and countries together, at the national, regional and international levels.

The paradox of twenty-first century globalization is that – despite an endless stream of talk about its flexibility, efficiency and competitiveness – advanced and developing economies are becoming increasingly brittle, sluggish and fractured. As inequality continues to rise and indebtedness mounts, with financial chicanery back in the economic driving seat and political systems drained of trust, what could possibly go wrong?

Marc Lavoie — Was Hyman Minsky A Post-Keynesian?

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A good lecture by Marc Lavoie on whether Hyman Minsky was a Post-Keynesian. The answer is in the end and I won’t give out the answer!

One of the points Marc discusses when discussing the financial instability hypothesis is that Minsky’s analysis avoids discussing dynamic effects: a rise in production of firms leads to a rise in demand for their products because of incomes generated and will hence generate profits for firms. Hence firms’ debt ratios needn’t worsen necessarily. Minsky’s narrative makes it look like it is always worsening. Also Minsky assumes that the rise in supply of debts will raise interest rates, which has a sound of the loanable funds model to it.

Which is no to say that the hypothesis is irrelevant but just that a better articulation is required.

Marc Lavoie at Poznan Summer School 2018

The video was live at the Review Of Political Economy‘s page on Facebook but still available.

Some background papers on this:

  1. Minsky’s Financial Fragility Hypothesis: A Missing Macroeconomic Link?, Marc Lavoie and Mario Seccareccia, 2001.
  2. Loanable Funds, Endogenous Money and Minsky’s Financial Fragility Hypothesis, Marc Lavoie, 1997.

There’s now a paper, Was Hyman Minsky A Post-Keynesian Economist?, at Review Of Evolutionary Political Economy.

Link

IMF Paper On How Export Sophistication Is The Determinant Of Growth

Missed this working paper Sharp Instrument: A Stab At Identifying The Causes Of Economic Growth from May 2018 from three IMF authors with an impressive conclusion.

From the abstract

We find that export sophistication is the only robust determinant of growth among standard growth determinants such as human capital, trade, financial development, and institutions. Our results suggest that other growth determinants may be important to the extent they help improve export sophistication.

Note, not only is it saying that it is robust but that other factors are important as long as they improve export sophistication.

Cambridge Keynesians were clear on this. Here’s Wynne Godley in a 1993 article Time, Increasing Returns And Institutions In Macroeconomics, in Market And Institutions In Economic Development: Essays In Honour Of Paolo Sylos Labini, page 79:

… In the long period it will be the success or failure of  corporations, with or without active help from governments, to compete in world markets which will govern the rise and fall of nations.

and Nicholas Kaldor in Causes Of Growth And Stagnation In The World Economy, first published in 1996 and based on lectures given in 1984:

The growth of a country’s exports thus appears to be the most important factor in determining its rate of progress, and this depends on the outcome of the efforts of its producers to seek out potential markets and to adapt their product structure accordingly. The income elasticity of foreign countries for a particular country’s products is mainly determined by the innovative ability and the adaptive capacity of its manufacturers. In the industrially developed countries, high income elasticities for exports and low income elasticities for imports frequently go together, and they both reflect successful leadership in product development. Technical progress is a continuous process and it largely takes the form of the development and marketing of new products which provide a new and preferable way of satisfying some existing want. Such new products, if successful, gradually replace previously existing products which serve the same needs, and in the course of this process of replacement, the demand for the new product increases out of all proportion to the general increase in demand resulting from economic growth itself. Hence the most successful exporters are able to achieve increasing penetration, both in foreign markets and in home markets, because their products go to replace existing products.

[italics: mine]

The IMF paper is surprising, since the IMF believes in free trade in which market mechanisms work to achieve convergence in fortunes of nations, so exports is hardly important.