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What’s Left On “Open Borders”

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Aimee Terese and Benjamin Studebaker have a podcast named What’s Left.

In their latest episode they discuss the idea of “open borders”. This idea these days is presented as some sort of a binary and is frequently conflated with the idea of “no borders” with a world government among other things.

In the episode, they make a convincing case that “open borders” is a neoliberal idea serving corporate interests.

In my view, lots of things need to happen before we have have relaxed migration controls. There needs to be a coordinated fiscal expansion with a reform of WTO with planned trade with balance of payments targets. Instead we have tight fiscal policy and balance-of-payments constraint in a world of free trade. If employment creation is high, a nation can allow migrants to come in and even expand more. Tight fiscal policies constrains output and hence employment and additional labour supply from migrants becomes a cheap labour policy.

Link

Dimitri B. Papadimitriou, Michalis Nikiforos And Gennaro Zezza — Can Redistribution Help Build A More Stable Economy?

The latest Strategic Analysis report from Levy Institute.

Interesting chart and explanation:

The main reason for the relative stability of the trade and current account balances is presented in Figure 4d. Since the beginning of the recovery, the trade deficit in goods except for petroleum products has been following its precrisis trend.3 At the end of 2018 it reached its precrisis peak—and for that matter its historical peak—of around 4.4 percent. However, at the same time this increase has been counteracted by the improvement in the trade balance of petroleum goods, related to shale gas extraction. The trade deficit of petroleum goods is now close to zero, compared to 2.2 percent of GDP when shale gas extraction started in 2011 and 3 percent before the crisis. It is not then hard to calculate that, had it not been for this improvement in the petroleum products trade balance, the overall trade deficit of the US economy would be close to 7 percent, or more.

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Notes

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  1. To be more precise, the trade balance of non-petroleum goods started slowly improving in 2006, more than a year before the economy officially entered the recession. This improvement had to do with two main factors: (1) the slowdown of the US economy that had started already in 2006, and (2) the significant depreciation of the dollar that started in 2002 and continued up until 2008.

Alan Shipman: Wynne Godley, A Biography ‼️

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Alan Shipman has written a biography of Wynne Godley!

Links:

Description:

This  timely biography of the economist  Wynne Godley (1926-2010) charts his long and often crisis-blown route to a new way of understanding  whole economies. It shows how early frustrations as a policy-maker enabled him to glimpse the cliff-edges other macro-modellers missed, and re-arm ‘Keynesian’ theory against the orthodoxy that had tried to absorb it. Godley gained notoriety for his economic commentaries – foreseeing the malaise of the 1970s, the Reagan-Thatcher slump, the unsustainable 1980s and 1990s booms, and the crises in the Eurozone and world economies after 2008. This foresight arose from a series of advances in his understanding of national accounting, price-setting, the role of modern finance, and the use of economic data, especially to grasp the interlinkage of stocks and flows. This biography also gives due attention to Godley’s life outside academic economics – including his chaotic childhood,  truncated career as a professional oboist, equally brief stints as a sculptor’s model and economist in industry, and a longer spell as  as a Treasury adviser with a mystery gift for forecasting.

This first full-length biography traces Wynne Godley’s long career from professional musician to public servant, policymaker, tormentor of conventional macroeconomics and creator of a workable alternative – all after escaping a childhood of decaying mansions and draconian schools, and rescuing his private world from the legacy of two Freuds. Drawing on Godley’s published and unpublished work and extensive interviews with those who knew him, the author explores Godley’s improbable life and explains the lasting significance of his work.

Chapters:

  1. Life Before Economics
  2. Under Treasury Rules 1956–1964
  3. Short-Term Forecasting
  4. Public Expenditure
  5. Planning, Tax Reform and Structural Change
  6. Gatecrashing the Cambridge Tradition
  7. Public Expenditure Revisited
  8. Sector Balances and ‘New Cambridge’
  9. Balance of Payments, Deindustrialisation and Protection
  10. Spectating on Thatcher and Major
  11. ‘Macroeconomics’
  12. The Research Council Showdown
  13. Wilderness and Wisdom
  14. Cassandra Across the Atlantic
  15. The Long Road to Redemption
  16. Monetary Economics and After
  17. The True Self

Graham Gudgin On Exiting The EU

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Graham Gudgin has two recent fine articles on leaving the EU:

Link

Distributional Financial Accounts Of The United States

The Distributional Financial Accounts (DFAs) provide a quarterly measure of the distribution of U.S. household wealth since 1989, based on a comprehensive integration of disaggregated household-level wealth data with official aggregate wealth measures. The data set contains the level and share of each balance sheet item on the Financial Accounts’ household wealth table (Table B.101.h), for each of four percentile groups of wealth: the top 1 percent, the next 9 percent (i.e., 90th to 99th percentile), the next 40 percent (50th to 90th percentile), and the bottom half (below the 50th percentile). The quarterly frequency makes the data useful for studying the business cycle dynamics of wealth concentration–which are typically difficult to observe in lower-frequency data because peaks and troughs often fall between times of measurement. These data will be updated about 10 or 11 weeks after the end of each quarter, making them a timely measure of the distribution of wealth.

Also check the FEDS note and the working paper linked on the right in the Federal Reserve site.

Some Extreme Reactionary Views Of The Neochartalists

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Recently, Doug Henwood critiqued Neochartalism aka “modern monetary theory” for many of its reactionary views.

More and more of Neochartalists’ reactionary views are becoming apparent now. So according to a recent Warren Mosler presentation at the New School, he proposes the following:

🤯

Not just that, he thinks that the 70% tax rates proposed by Alexandria Ocasio-Cortez “(d)oes not materially alter distribution of income”, “(d)oes not alter distribution of consumption” and “(d)elays alternative measures that are materially effective”.

Matt Bruenig has collected some other reactionary positions.

So for example, in a presentation in 2012 at Levy Institute, she has the following slide, proposing to eliminate the welfare structure:

Gerald Epstein’s Critique Of Neochartalism

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Gerald Epstein of PERI has written a fine paper The Institutional, Empirical and Policy Limits of ‘Modern Money Theory’ critiquing the shortcoming of Neochartalism.

Epstein’s main critique is that Neochartalism ignores the role of international financial markets and the constraint it puts on fiscal policy. Abstract:

Modern Money Theory (MMT) economists acknowledge a number of empirical and institutional limitations on the applicability of MMT to macroeconomic policy, but they have not attempted to explore these empirically nor have they adequately addressed their implications for MMT’s main macroeconomic policy proposals. This paper identifies some of these important limitations, including those stemming from modern international financial markets, and argues that they are much more binding on the policy applicability of MMT than many of MMT’s advocates appear to recognize. To address these limitations, MMT analysts would have to enter the messy institutional, policy and empirical realms that undermine their simplistic policy conclusions that might be appealing to some policy-oriented followers of MMT. My conclusion is that, in light of these limitations, MMT’s major macroeconomic policy suggestions are of little practical relevance today for progressive politicians and activists, much less to macroeconomic policy formulation in general.

In addition, Epstein has a blog post, Is MMT “America First” Economics?, at INET, which is a short summary of his paper. Excerpt:

To start, even though MMT advocates claim that its macroeconomic framework applies to all countries with “sovereign currencies,” there is significant evidence that it does not apply to the vast majority of such countries in the developing world that are integrated into global financial markets. As is well-known, these countries are subject to the vagaries of international capital flows, sometimes called “sudden-stops.” The problem is that in light of these flows, these countries have limited fiscal and monetary policy space, surely insufficient to conduct MMT-prescribed monetary and fiscal policies for full employment. Wray argues that that flexible exchange rates are sufficient to provide sufficient policy space for these countries to undertake MMT macro-policies. Occasionally the issue of capital controls is briefly mentioned but not seriously discussed as a complementary policy. But a careful survey of the empirical evidence casts grave doubts on the effectiveness of flexible rates for giving policy autonomy or insulating these countries from the vagaries of global financial flows. This problem is worse for countries that cannot borrow in their own currencies, but also applies to small, open countries that are able to borrow in their own currencies. The upshot is that only countries that issue their own internationally accepted currency might have the policy space to conduct MMT policies.

Even for those countries that issue their own international currencies, the sustainability and “exploitability” of the international role is not absolute. The country that has the greatest fiscal and monetary space is the United States, which issues the predominant key currency, the US dollar. Whereas Wray has written that the predominance of the dollar is not something we will need to worry about in our lifetime, historical and empirical evidence suggests that even considerable forces for persistence of key currency positions can weaken over time, perhaps even rapidly and dramatically …

A note

It’s usually assumed that fiscal sustainability is the condition on the rate of interest, r, and the rate of growth, g. However Wynne Godley showed that it is neither necessary or sufficient. You can read more here from my blog.

Link

Jason Hickel — The Divide

Jason Hickel is a great economist and today I was looking up his 2018 book The Divide.

I found a nice passage:

The stated goal of the World Trade Organization is to create a ‘level playing field’ among trading partners. Each member has to play by the same rules — the same low tariffs and the same ban on subsidies. But in reality the idea of a level playing field is something of an illusion. when rich countries step onto the playing field they do so with industries that are immensely powerful and competitive — precisely because they spent their formative years of development under heavy protection. Poor countries, for their part, step onto the playing field with industries that have never had the benefit of protection and therefore have no hope of competing with their counterparts in rich countries. It may be a level playing field, but what good is a level playing field in a match between schoolchildren and a Premier League team? The rules are the same for both sides, but that doesn’t mean the game is equitable …

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Even if we assume that the game is in fact equitable, if we look more closely it becomes clear that the ‘level playing field’ is actually not very level at all: the rules are unfair even by the WTO’s own standards. Theoretically, the WTO requires every country to reduce their tariffs and subsidies to the same level, but in reality these cuts are applied selectively in favour of rich countries.

In the book Hickel attempts to prove among many things that:

Poor countries are poor because they are integrated into the global economic system on unequal terms.

Link

Jason Hickel — Global Inequality: Do We Really Live In A One-Hump World?

The elephant chart is a propaganda chart, misleading you into believing that there’s some convergence of fortunes of people across the planet. As if it’s not enough, there’s a new infographic: transformation from a two-hump world to a one-hump world.

Jason Hickel does an alternative analysis, and finds that the “income gap between the average person in the North and the average person in the South has nearly quadrupled in size, going from $9,000 in 1960 to $35,000 today.”

Hickel says:

… there has been no “catch up”, no “convergence”. On the contrary, what’s happening is divergence, big time.

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Why is this happening? … the global economy has been designed to facilitate the North’s access to cheap labour, raw materials, and captive markets in the South – today just as during the colonial period. Sure, some important things have obviously changed. But the countries of the North still control a vastly disproportionate share of voting power in the World Bank and the IMF, the institutions that control the rules of the global economy. They control a disproportionate share of bargaining power in the World Trade Organization. They wield leverage over the economic policy of poorer countries through debt. They control the majority of the world’s secrecy jurisdictions, which enable multinational companies to extract untaxed profits out of the South. They retain the ability to topple foreign governments whose economic policies they don’t like, and occupy countries they consider to be strategic in terms of resources and geography.

These geopolitical power imbalances sustain and reproduce a global class divide that has worsened since the end of colonialism. And yet this injustice is conveniently erased by the one-hump graph, which offers a misleadingly rosy narrative about what has happened over the past half century.

Check his excellent infographic. 📉

WikiLeaks Leak On Reforming The World Economic System

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What is the main problem of the world? It’s that there is no market mechanism to resolve imbalances in balance of payments and international investment positions. So official mechanisms are needed and countries look for reform the world order to make the world work better.

Defend Wikileaks recently reminded us of cables from 2009 on how the US and UK governments worked to prevent the reform the world economic and financial system.

  1. Confronting the UN

The UK and US have worked together to prevent reform of the world financial system.

In May 2009 Douglas Alexander, Secretary of State for International Development and John Sawers, then UK permanent representative to the UN who later that year became chief of MI6, held a meeting with US ambassador to the UN, Susan Rice. A US cable notes that:

Alexander and Sawers began the meeting by noting their concern that Cuba, Iran, Venezuela and other ‘radical’ G-77 countries would use the upcoming June 1-2 UN Conference on the World Financial and Economic Crisis and its Impact on Development to push for an outcome document that would for the first time, give the UN General Assembly a role in negotiations on revamping the Bretton Woods financial institutions and the world financial system.

To counter this:

Sawers urged the United States to work with the UK to monitor preparatory meetings for the conference, quickly push back against the introduction of activist policy language into the outcome document, and split off more moderate G-77 countries who are already G-20 members.

Rice agreed, stating that:

It would be important to work with the Netherlands (a co-facilitator for the negotiations on a conference outcome document) to tone down expectations and ensure that moderate G-77 countries continue to see the G-20 discussions as the proper venue for discussing BWI [Bretton Woods Institutions] reform.[32]

The link in the endnote has the link to the cable.