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Randall Wray On Current Account Deficits

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Randall Wray has a new article Does America Need Global Savings To Finance Its Fiscal And Trade Deficits? at American Affairs. 

Wray repeats the standard Neochartalist argument that the United States does not have to worry about its trade deficits. But a look at his previous predictions would warn us on such arguments.

Here’s from his chapter What A Long, Strange Trip It’s Been: Can We Muddle Through Without Fiscal Policy? in the book Post-Keynesian Principles of Economic Policy written in 2006:

click to view on Google Books

🤦🏻‍♂️

The root of the confusion lies on the fact that imports are paid in the domestic currency (although that’s not always the case). That the importing nation creates credit to purchase does not mean that it’s not debt and without consequences. The recent experience of Turkey: the rapid fall in its currency, rise in interest rates to attract financial flows to stabilise its exchange rates and the slowdown of its economy shows the problem with current account deficits.

The United States of course is not Turkey but such arguments should warn us of the pitfalls. It’s difficult to foresee how a balance-of-payments crisis will look for the United States, considering that some its creditors are large and their actions might be damaging to themselves. Perhaps they could reduce their holdings over time and then this advantage is not available to the US.

But even if there’s no immediate risk of an external financing crisis doesn’t mean that trade isn’t damaging to the United States. Expenditure multiplier would have been bigger had the US trade parameters been in its favour. As a consequence unemployment rate would have fallen much faster after the economic and financial crisis which started in 2007.

Recent data has indicated that the US NIIP continues to deteriorate. At the end of Q3, 2018 it was −$9.62tn which is around −46% of GDP. Surely can go lower but won’t stabilise unless the US does something about its trade imbalance.

Link

Jason Hickel — A Letter To Steven Pinker (And Bill Gates For That Matter) About Global Poverty

Jason Hickel writes:

Dear Steven,

…

Your argument is that neoliberal capitalism is responsible for driving the most substantial gains against poverty.  This claim is intellectually dishonest, and unsupported by facts.  Here’s why:

The vast majority of gains against poverty have happened in one region: East Asia.  As it happens, the economic success of China and the East Asian tigers – as scholars like Ha-Joon Chang and Robert Wade have long pointed out – is due not to the neoliberal markets that you espouse but rather state-led industrial policy, protectionism and regulation (the same measures that Western nations used to such great effect during their own period of industrial consolidation).  They liberalized, to be sure – but they did so gradually and on their own terms.

Not so for the rest of the global South.  Indeed, these policy options were systematically denied to them, and destroyed where they already existed.  From 1980 to 2000, the IMF and World Bank imposed brutal structural adjustment programs that did exactly the opposite: slashing tariffs, subsidies, social spending and capital controls while reversing land reforms and privatizing public assets – all in the face of massive public resistance.  During this period, the number of people in poverty outside China increased by 1.3 billion.  In fact, even the proportion of people living in poverty (to use your preferred method) increased, from 62% to 68%.  (For detailed economic data and references to the relevant literature, see Chapter 5 of The Divide).

…

In other words, the imposition of neoliberal capitalism from 1980 to 2000 made the poverty rate worse, not better.

Since 2000, the most impressive gains against poverty (outside of East Asia) have come from Latin America, according to the World Bank, coinciding with a series of left-wing or social democratic governments that came to power across the continent.  Whatever one might say about these governments (I have my own critiques), this doesn’t sit very well with your neoliberal narrative.

…

Link

Trinity Colleagues Pay Tribute To Robert Neild, 1924-2018

Hashem Pesaran, Partha Dasgupta and Gregory Winter remember Robert Neild.

Dasgupta:

Robert Neild was the last surviving member of a triumvirate that shaped the intellectual climate of economics at Cambridge in the 1970s. That influence lasted for over two decades. Together with Brian Reddaway (Professor of Political Economy) and Wynne Godley (Director of the Department of Applied Economics), Robert encouraged an approach to economics that was in sharp contrast to the then growing attention given in the leading university departments of economics in the UK and USA to economic theory and econometrics. The latter approach drew on mathematical techniques not only because they enabled one to reach conclusions with clarity, but also because they allowed one to trace those conclusions to the underlying hypotheses and data on which the studies were based. In modern economics policy is often kept at a distance. In contrast, the approach that Robert favoured insisted on a tight and constant link between analysis and policy; so much so that the separation between analysis and policy was wafer-thin.

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Ashoka Mody: Kaldor’s Ghost Is Stalking The Eurozone

Ashoka Mody has done excellent historical work in his book Eurotragedy — A Drama in Nine Acts. Excerpt from his interview with Spiked, reminding us of the wonderful prediction of Nicky Kaldor from 1971:

spiked: When I’ve been to Italy recently I’m struck by the instances of anti-German grafitti. Do you think that one of the greatest ironies of this project of supposed economic and political integration is that it has actually fostered enmity among European nations, rather than unity?

Mody: As I said, Nicholas Kaldor predicted exactly that in 1971. He said that a single currency will amplify existing economic divergences, and, if it does that, it will deepen political divisions. He even quoted Abraham Lincoln: ‘A house divided against itself cannot stand.’ Kaldor’s ghost is stalking the Eurozone.

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!

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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.

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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]