Citations Needed — Episode 92: The Responsibility-Erasing Catch-All Of ‘Automation’
The latest episode of the podcast Citations Needed has a great discussion of the political economy around “automation”. It features Mark Weisbrot of CEPR and Peter Frase of Jacobin.
The episode talks of the misleading discourse and and post-truths in mainstream economics and media. For example Weisbrot points out how the US trade imbalance has a lot to contribute to reduction in manufacturing employment.
Last year, Paul Krugman had an article on globalisation and how he got it wrong. Of course, typically, the ones doing mea culpa rarely admit it that they were totally wrong and spin it the way which is most opportunistic. I had a post on it.
Recently Bloomberg published an excerpt from it.
Noam Chomsky wrote a book Profit Over People in 1999 with an Introduction by Robert McChesney who had a fanstastic description of globalisation:
And nowhere is the centrality of governments and policymaking more apparent than in the emergence of the global market economy. What is presented by pro-business ideologues as the natural expanson of free markets across borders is, in fact, quite the opposite. Globalization is the result of powerful governments, especially that of the United States, pushing trade deals and other accords down the throats of the world’s people to make it easier for corporations and the wealthy to dominate the economies of nations around the world without having obligatons to the peoples of those nations. Nowhere is the process more apparent than in the creation of the World Trade Organization in the early 1990s, and, now, in the secret deliberations on behalf of Multilateral Agreement on Investment (MAI).
Fantastic Critique Of Liberalism By Perry Anderson
Liberalism has always contained different shades, and its dominant version has varied across countries and periods. In the capitalist world, going back to the eighties, the line of division separating a liberal politics from a politics of the left is their respective attitudes to the existing order of things: does it require structural change or situational adjustment? The degree envisaged of each defines relative locations on either side of the dividing-line. To see where Tooze’s position might lie requires a sense of the dominant liberalism of the period. That comes in two inter-related packages. Between states, the ‘liberal international order’ has for thirty years been the touchstone of geopolitical reason: free markets, free trade, free movement of capital and other human rights, policed by the most powerful nation on earth with help from its allies, in accordance with its rules and its sanctions, its rewards and its retributions. Within states, ‘neoliberalism’: privatization of goods and services, deregulation of industries and of finance, fiscal retrenchment, de-unionization, weakening of labour, strengthening of capital—compensated by recognition of gender and multicultural claims.
The first has reigned far more unchallenged than the second. Very few liberals have seriously contested the principles of free trade, the primacy of the United States, or the rule of international law as enshrined in a United Nations whose decisions the us has for the most part been able to determine at will. The liberal international order remains a precious icon. Many, on the other hand, have questioned or resisted the full application of neoliberal measures within their own societies, nowhere implemented in their entirety. The extent to which the first shapes the intellectual universe of contemporary liberalism can be judged by the adaptation of leading minds once on liberalism’s left to its requirements: thinkers like Rawls, Habermas and Bobbio all furnishing apologetic glosses on us wars of intervention against states declared outlaws by Washington, with or without the affidavit of the Security Council. Tooze has never compromised himself in this way. But the language of ‘global economic governance’, cleansed of any reference to its most prominent innovation, the proliferation of sanctions to strangle or bludgeon recalcitrant countries into line—‘war by other means’, as Ambassador Blackwill candidly describes it—offers a route to much the same.
Adam Tooze’s book Crashed seems popular. The book and two reviews have some good appreciation of Wynne Godley’s work used in the book to explain why the crisis happened. The two reviews, both published in New Left Review:
In the acknowledgments section of his book Adam Tooze writes:
Wynne Godley was a mentor and teacher of a very different kind. Spontaneously warm and generous in spirit, he took me under his cape in my first year at King’s and introduced me, and a group of my contemporaries, to what was, at the time, a highly idiosyncratic brand of economics. In so doing he provided a model of intellectual warmth and vitality. He also confirmed doubts that had been gestating in me about the IS-LM model that was my first great love in economics. Wynne introduced me to the importance of looking “beyond the flows” and insisting on stock-flow consistency in macro models. I don’t think this book, written almost thirty years later would have been the same without his early influence.
Cédric Durand says:
What, then, are the conceptual underpinnings of Tooze’s work? In Crashed, none are made explicit. Nevertheless, in his emphasis on balancesheet vulnerabilities he implicitly follows the lead of post-Keynesian research, one of the more creative currents in contemporary economics, deriving from a synthesis of Keynes with a specific form of Marxian macroeconomics pioneered in the 1940s by Michał Kalecki. Tooze appears to draw in part upon the post-Keynesian ‘stock-flow consistency’ model, an approach that seeks to combine the ‘real’ and financial spheres of the economy. The term ‘stockflow’ implies attentiveness to the build-up of vulnerabilities in the ‘stock’ of financial assets and liabilities, beyond the financial ‘flows’ themselves: for example, when a sector’s prolonged deficit results in an unsustainable stock of debt. This approach has become increasingly popular since the crash, and was incorporated in the Bank of England’s policy-making toolkit in 2016. Initially developed by Nicholas Kaldor in the 1940s, the methodology was transformed in the 1960s and 70s by the work of James Tobin and Wynne Godley, Tooze’s teacher at Cambridge. Godley is credited by Tooze here with introducing him to ‘the importance of looking “beyond the flows” and insisting on stock-flow consistency’.
At the heart of this approach is the idea that macroeconomic dynamics hinge on a three-way interaction between the financial balances of public, private and foreign sectors. This ‘three balances’ perspective arguably supplies the unstated backbone of Tooze’s general argument. His achievement is to dress the dryness of this technical skeleton with the dense and complex sensitivity of historical flesh. If this framework were to be made explicit, it would suggest that the adventures of the private-sector balance drove a spectacular upward distribution of wealth that ultimately backfired in the political arena as resurgent nationalism and xenophobia. Public-sector balances were the scene of dramatic deliberations about crisis-containment strategy, with central bankers standing far above the other actors in the hierarchy of policy-making. Finally, the international balance-sheet perspective sheds light on a multipolar world where monetary policy, currency reserves and financial sanctions can be as effective as military force in deciding geopolitical outcomes and national fates.
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Tooze’s mentor Wynne Godley observed in 1992 that the establishment of a single currency on the Maastricht model ‘would bring to an end the sovereignty of its component nations’, leaving them with the economic autonomy of ‘a local authority or colony’, while no central government could emerge with sufficient fiscal muscle to take decisive economic action. As a result, in the case of a major macroeconomic shock, the populations of countries deprived of the power to devalue, and not benefiting from a system of fiscal equalization, will see ‘emigration as the only alternative to poverty’. This sounds like an impressive, prescient account of the role of macro-institutional systems—and not just bad policy-making, as Tooze would have it—in the fates the Greek, Portuguese and Spanish people have had to suffer. Political, geopolitical and economic dimensions are structurally intertwined via institutions in the process of crisis making and management. While Tooze perfectly demonstrates the latter, in particular in his magnificent account of the balance-sheet intricacy at the heart of the 2008 crisis, he doesn’t account for the former.
Perry Anderson:
Durand observes, its narrative is no simple—or rather in this case, of course, highly complex and intricate—empirical tracking of the crisis and its outcomes. It possesses definite ‘conceptual underpinnings’, suggested by Tooze himself in acknowledging his debt to Wynne Godley’s use of ‘stock-flow consistency’ modelling of the financial interactions between public, private and foreign sectors. This in Durand’s view supplies ‘the unstated backbone’ of Tooze’s general argument.
Both judgements appear sound. But in Durand’s exposition a paradox attaches to each of them, since by the end of his review, somewhat different notes are struck. For Godley, one of the key advantages of the stock-flow consistency approach was that it integrated the financial with the real economy, as alternative models did not. Durand, however, remarks that Crashed ‘does not discuss the concrete intertwining of the financial and productive sectors in the global economy at all’, and so ‘fails to set the financial crisis in the context of the structural crisis tendencies within contemporary capitalist economies.’ This observation in turn generates another, which might seem to put in question Durand’s overall tribute to the book. For there he writes of ‘Tooze’s unwillingness to investigate the relations between the political and the economic’, a reluctance that ‘ultimately undermines his account of the crisis decade.’ Logically, the question then arises: do these two apparent contradictions lie in Tooze’s work, or in Durand’s review of it? Or can both be coherent in their own terms?
So Adam Tooze is appreciated in using the correct mathematical formulation but not paying much attention to political economy. Of course Wynne Godley’s work is based with a background in Kaldorian/Post-Keynesian economics, so the critique doesn’t apply to him. Tooze has a preface to his response to Anderson which will appear soon.
The economics Nobel Prize was announced on Monday.
There has been a good Twitter debate on the 2019 Nobel prize in economics, led by women in heterodox economics.
In my opinion, the award delegitimises the political economic causes of poverty. I like this tweet by Sara Stevano:
Experiments to alleviate poverty = correct the biases of the poor through narrow interventions and RCTs with huge issues in terms of ethics and research rigour. Seems completely odd at a time when many economists have come to realise we need to rethink the Global economic order!
Then a Twitter thread today by Ingrid Kvangraven linking to her article. She points out:
This movement towards “thinking small” is a part of a broader trend, which has squeezed out questions related to global economic institutions, trade, agricultural, industrial and fiscal policy, and the role of political dynamics, in favor of the best ways to make smaller technical interventions.
Plus another thread by Ingrid from Monday, after the Nobel Prize annoucement which really got everyone’s attention.
A prize to be expected. Banerjee, Duflo & Kremer rely on key tenets of mainstream Econ. While founded on behavioral econ and assumption that tweaks to individual actions can alleviate global poverty, their work is often wrongly presented as purely empirical, objective & radical.
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Then an article by Farwa Sial and Carolina Alves (also linked in the thread) which points out:
Poverty alleviation, however, is a hugely complex subject that touches on the strengthening of institutions, the health of governance, the structure and dynamics of markets, the workings of social classes, macroeconomic policies, distribution, international integration and many other issues, none of which can be replicated from one context to another. That means that analyses of poverty have to be based on a critical examination of processes and actors that cannot be ‘controlled’ against—thus violating the principle of RCTs.
Recent developments in economics have failed to account for these fundamental determinants of poverty. Instead, the success of RCTs can be narrowed down to essentially statistical arguments that seek to identify ‘what works’ and ‘which interventions’ should therefore be employed to improve the lives of the poor.
Anthony Thirlwall — Thoughts On Balance-Of-Payments-Constrained Growth After 40 Years
ROKE (Review Of Keynesian Economics) has a special issue, Thirlwall’s Law At 40, celebrating Thirlwall’s law which Anthony Thirlwall discovered in 1979.
Thirlwall himself has an article in the issue.
Interesting, from the conclusion:
Structural change almost certainly requires a country to design an industrial policy embracing a national innovation system to facilitate the flow of technological knowledge across all sectors of the economy. The market mechanism itself is unlikely to bring about the required structural changes needed. I am attracted to the concepts of growth diagnostics (Hausmann et al. 2008) and self-discovery (Hausmann and Rodrik 2003). Growth diagnostics involves locating the binding constraints on a country’s economic performance and to target these directly, giving the most favourable outcome from the resources available compared to the ‘spray gun’ approach to economic policy-making which may not hit hard enough the binding constraints on growth that really matter. In the case of the BoP, it would involve targeting exports with growth potential, and identifying imports where there is import substitution potential. Government expenditure on R&D to enhance export quality could reap high returns. Self-discovery involves seeking out new areas of comparative advantage and then implementing the most appropriate policies to foster them. Hausmann and Rodrik point out that there is much randomness in the process of a country discovering what it is best at producing, and a lack of protection reduces the incentive to invest in discovering what goods and services they are. Governments need to encourage entrepreneurship and invest in new activities, but the first best policy is not by the traditional means of tariffs and quotas, but public sector credit and guarantees which reward the innovator (and not the copy-cats), and can be withdrawn if firms do not perform well after a certain period of time.
Anthony Thirlwall, via Wikipedia
Gennaro Zezza has shared a 1987 paper by him and Wynne Godley modeling the Italian economy using a “real stock flow monetary model”
I came across the Cambridge Political Economy Society digital archive today. It has scans of papers which aren’t available elsewhere.
There’s an interesting article, Causes Of Growth And Recession In World Trade, there, by Francis Cripps, in which he describes the Cambridge Keynesian idea of achieving balanced trade, because nations face a balance-of-payments constraint:
The main conclusion of the analysis presented below is that demand creation by means of fiscal and monetary action at the national level is very unlikely to be able to procure a recovery from world recession, because it does not offer a solution to the structural problem of imbalances in trade. On the other hand, demand creation at the international level, designed to boost countries’ import capacity in a manner analogous to a national budgetary stimulus of domestic spending, could in principle ensure a steady world reflation. But the political obstacles to an international programme of income creation are immense, partly because this would implicitly or explicitly involve massive transfers of income from surplus countries to deficit countries.
The alternative to a programme of income creation and redistribution would be an effective mechanism for the adjustment of trade shares, making it possible for individual countries to balance their payments at a high level of domestic activity. Exchange rate changes have hitherto been accorded this role, but experience during the past decade of large exchange rate adjustments has shown that they are quite inadequate for this purpose. The exchange rate mechanism therefore needs to be reinforced, or replaced, by some other system of trade discrimination. Import restrictions, already widely used by developing countries to regulate their trade balances, are at present more or less prohibited for Western industrial countries. Many of these could achieve a recovery of their own economies if they were allowed to introduce import controls. But such action on the part of industrialised countries would not help developing countries. Indeed to sustain growth of output and employment in every country, trade controls would have to be operated on a multilateral basis with positive discrimination in favour of the weakest. Given the desperate plight of some very poor countries, the case for positive discrimination in their favour is now becoming urgent.
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The analysis developed below treats world trade as a demand-determined system in which the level of demand is governed by balance-of-payments constraints facing individual countries and the way these interact. …
The latest issue of Real World Economic Review is titled Modern Monetary Theory And Its Critics with 204 pages of papers is your weekend reading.
Marc Lavoie talks of how the neochartalists have made it look like all Post-Keynesian monetary theory has been discovered by neochartalists themselves. Lack of credit, basically. Jo Michell challenges them on open economy issues. Thomas Palley points out how their arithmetic doesn’t add up.
Long read. Just my initial impressions.
I have a few comments on Jo Michell’s article with his two co-authors. Jo points out that monetary sovereignty is a spectrum. Some neochartalists such as Fadel Kaboub and Nathan Tankus also say the same without these are contradictory to neochartalists’ claims. The idea of external constraints is an important part of Post-Keynesian work and these authors look like they are erasing the work of Kaldor, Godley, Cripps and Thirlwall and making it look like it’s all part of “M.M.T”.
Marc Lavoie — Advances In The Post-Keynesian Analysis Of Money And Finance
There’s a new article by Marc Lavoie in a newly released book which is an interesting read. Abstract:
This chapter focuses on the various monetary themes that have been emphasized by post-Keynesian economists and that turned out to have been validated by the events that occurred during and after the subprime financial crisis. These include interest rate targeting by the central bank, interest rate spreads, endogenous money, the reversed causality between reserves and money, the defensive role of central banks, the links between the central bank and the government, banks as very special financial institutions, the different role of the shadow banking system, and whether there are limits to the amounts of credit that banks can create. The chapter analyzes unconventional monetary policies, including quantitative easing (QE), QE for the people and 100% reserves. It also discusses the consequences, for the theory of endogenous central bank money, of the adoption of a system where the target interest rate is the interest rate on reserves.
