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U.S. Net International Investment Position

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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.

Two Perry Anderson Quotes From His Recent London Review Of Books Articles

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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!

Perry Anderson On Brexit, Again

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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:

  1. The European Coup,
  2. Ever Closer Union?,
  3. The Breakaway

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.

Link

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]

Link

Joan Robinson In NYT From 1976

This is an unbelievably good profile (thanks to Carolina Alves on Twitter) of Joan Robinson in The New York Times from 1976.

One of the best things in the article is about bastardisation of Keynes/Keynesian economics. Bastardisation is the process of intentionally misinterpreting a theory or an ideology to suit one’s political purposes. The economics profession largely bastardised Keynes to dilute his message. But the best thing is that Keynes himself allowed this bastardisation. He had it right but then said a lot of wrong things which allowed economists to do that. Like by doing: “what do you mean, Keynes himself said that”.

According to the article:

In essence, she concedes, “this was Keynes himself enunciating the Bastard Keynesian doctrine.” Clearly this side of Keynes frustrates her. “We, the younger chaps working with him, were to his left,” she remarked.

Joan Robinson On Central Banking And Deficits

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Jo Michell reminded everyone in a tweet of a quote from Joan Robinson with the comment: “Joan Robinson covered pretty much all of MMT in half a page in 1937.”

😉

It’s a passage from her book Introduction To The Theory Of Employment, pages 72-74 (in the second edition):

CREATION OF MONEY THROUGH A BUDGET DEFICIT

A budget deficit financed by borrowing from the Central Bank has effects similar to those of gold-mining. We have already seen how a budget deficit influences incomes. If there is an increase in government expenditure without any corresponding increase in tax receipts there will be an increase in incomes and activity. This is true equally whether the government borrows from the public or from the Central Bank. If the borrowing is from the public there is no further effect to be considered. But if borrowing is from the Central Bank, then on top of the direct effect of the deficit upon income there is the effect of an increase in the quantity of money. For the Central Bank, in lending to the government, increases the ” cash” of the banks, just as it does by buying securities or by buying gold. The direct effect of the deficit comes to an end as soon as the budget is balanced, but the effect upon the quantity of money remains as a permanent legacy.

The increase in the quantity of money, which takes place cumulatively as long as the deficit is running, will tend to produce a fall in the rate of interest and (unless confidence has been badly shaken) the effects of an increase in investment, induced by lower interest rates, will be superimposed upon the direct effects of the budget deficit in increasing consumption.

At first there will be a drag upon the fall in the rate of interest because the direct effect of the budget deficit in increasing incomes raises the demand for money, since the requirements of the active circulation depend upon the level of income. But the increase in demand for money will be very slight (so long as money wages do not rise) compared to the increase in supply, and it is a once-andfor-all effect, while the increase in the supply of money is cumulative.

…

The whole difference between a budget deficit financed by creating money and one financed by ordinary borrowing lies in this reaction upon the rate of interest.

Gita Gopinath On Fiscal Policy

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Gita Gopinath, the IMF’s chief economist is now arguing for a coordinated fiscal expansion, and that “coordinated spending is better than the sum of the individual parts” (CNN interviewer quoting her) and that “it is time for a global synchronised fiscal push to lift up prospects for all” (FT article referred in the CNN interview.

This is of course welcome! A lot of countries can’t do it alone and a coordinated expansion would allow them to raise output, keeping balance of payments in check.

It’s sad however, that the message was this late (although anything better than never). Also the characterisation of the problem as if we’re in a liquidity trap is dubious as they just want to say that fiscal policy will work only now, not after a recovery. But fiscal policy always works.