Adam Tooze has a nice essay on evolution on Paul Krugman’s views. It’s decent although I would critique much more if I were to write it.
There was one part which was quite amusing to me:
The hour and a half Krugman spent laying out his new trade theory at the National Bureau of Economic Research in July 1979 was, he later wrote, ‘the best ninety minutes of my life. There’s a corny scene in the movie Coal Miner’s Daughter in which the young Loretta Lynn performs for the first time in a noisy bar, and little by little everyone gets quiet and starts to listen to her singing. Well, that’s what it felt like: I had, all at once, made it.’
Imagine being so wrong but feeling this way.
Paul Krugman has shifted his views but it’s not as if he has changed for the better to benefit mankind. He is still doing whatever as an establishment hack, trying to preserve power for top corporations.
Glenn Greenwald has a new article at Substack explaining how corporations wear costumes of social justice to prettify imperialism.
The sarcasm in the article is wonderful:
Who could possibly be opposed to an institution that offers such noble gestures and works behind such a pretty facade? How bad could the GCHQ really be if they are so deeply committed to the rights of gay men, lesbians, bisexuals and trans people? Sure, maybe they go a little overboard with the spying sometimes, and maybe some of their surveillance and disinformation programs are a bit questionable, and they do not necessarily have the highest regard for law, privacy and truth. But we know that, deep down, these are fundamentally good people working within a fundamentally benign institution. Just look at their flamboyant support for this virtuous cause of social justice.
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Large corporations have obviously witnessed the success of this tactic — to prettify the face of militarism and imperialism with the costumes of social justice — and are now weaponizing it for themselves …
You have to appreciate the genius of the propaganda. It helps people pretend that they stand for right causes.
Joe Biden has been a neoliberal ghoul all his life and has helped oligarchs from a position of power. In recent times—perhaps due to pressure and threat from populists—he has adopted policies such as the recent large stimulus.
Biden is also talking of raising taxes on corporations and Janet Yellen, the US Treasury Secretary has proposed a minimum tax on corporations across countries, to prevent a race to the bottom policies.
Of course none of this means that they’re ditching neoliberalism. It is just a change to maintain the status quo. Elite preservation, basically.
There have been apologia from the left such as by J.W. Mason who has announced that there is a decisive break from neoliberalism! In general the left loyalty in the United States is the highest now, and that’s a sad thing. You won’t find for example, economists criticising Janet Yellen for conflicts of interests after taking $7.2 million in speaking fees from Wall Street, a kind of a bribe.
But there’s something even worse now. Stephanie Kelton one of the leading voices of neochartalism (or “MMT”), has a new opinion articleBiden Can Go Bigger And Not ‘Pay for It’ The Old Way for The New York Times with the description:
By focusing on how much revenue they hope to raise from tax increases on the well-off, Democrats risk limiting the scope of their ambitions.
The article is deceitful too, claiming it’s not opposed to tax hikes but in the ending we see:
If Congress and the White House want to be responsible stewards of both society and the U.S. dollar’s value, then rather than focusing on taxation of the rich, they should prioritize and supply exactly what it would take, in terms of real resources, to electrify the nation’s power grid, repair every deficient bridge, give caretakers a living wage, upgrade our railways, and deliver clean drinking water and high-speed broadband to every home.
So you know, trying to out-right-wing Joe Biden, the neoliberal ghoul!
The trouble with neochartalists is that while it’s true that output can be expanded by increasing government expenditure and not increasing tax rates, that doesn’t mean that one can have like government expenditure equivalent to 50% of GDP, with taxes at some 25%. Taxes have to rise, and while more output bring in more taxes, it might not be sufficient enough and tax rates have to rise too.
Obviously, neochartalists’ political positions are a suspect. Obviously the Biden administration’s language is like from a book on neoclassical economics with arguments about “fiscal responsibility” etc, but one of the most reactionary politician has agreed to raise taxes and that is some bare minimum in the path to economic equality, so why try to puncture it?
There was a recent critique of neochartalism by Costas Lapavitsas and Nicolás Aguila at the Developing Economics blog titled Monetary Policy Is Ultimately Based On A Theory Of Money: A Marxist Critique Of MMT.
Now, I don’t think that there is any Marxist theory of money, The true description of money and everything else can only be via using national accounts and the flow of funds, like Post-Keynesian stock-flow consistent models but the article has some interesting critique:
For Marxist political economy, monetary sovereignty depends on the relationship between capitalist accumulation in a nation-state and the ability to acquire world money, which in turn reflects a country’s place in the world market. The need for world money becomes clear once we consider capitalism as a global system, as it is needed for commodity transactions, the transfer of value, and the settlement of obligations among different parts of the world. The passage from the national to the international realm is a major problem for neo-Chartalist theory as there is no supranational state choosing units of account or having the power to tax at the international level.
The capacity to acquire world money necessary for participation in the world market differs dramatically among nation-states, and thus the global monetary system is hierarchically structured. In contemporary capitalism, one country, the U.S.A., issues quasi-world money, subject to competition by others. The lack of monetary sovereignty for other countries, far from being a policy choice, results from their subordinated position in the international hierarchy. This is particularly relevant for analysing economic policy in developing countries, where MMT prescriptions lose much of their appeal …
As long as countries are trading goods and assets with the external world, the acceptability of the currency is critical. Here taxing residents isn’t sufficient to make the currency acceptable to foreigners.
There’s an implicit wrong idea in neochartalism that the exchange rate adjusts smoothly to make things fine. A sort of an invisible hand sneaked in.
So unlike what neochartalists (the ones calling their theory “MMT”) say, floating the value of the currency won’t do the trick. It’s not like there’s always a price, sometimes there is no price to clear the foreign exchange market and the government might need to step in and meet the demands of investors.
Fiscal policy has a strong role to play, but ultimately exports have to rise in the long-run and fiscal policy becomes endogenous to it as Nicholas Kaldor had argued.
To make matters complicated, neochartalists also say similar things without saying that they realised these things only after they were challenged and forced to make changes. Big changes!
Thomas Palley likes to point out that neochartalism is a mix of old and new and the new is significantly wrong. The new relies heavily on claims about acceptance of currencies in the international markets. Such erroenous notions make them claim things like current account deficits are indefinitely sustainable. As long as acceptability of the domestic currency is not cast in stone, that’s of course not true.
There was a conference on the 10th death anniversary of Wynne Godley last year. If you haven’t seen it, the video recordings/presentation/remarks are in that link.
Now, there’s a special issue by the JPKE about the conference with papers as in the cover:
Historically advanced countries have developed at the expense of poor countries. It doesn’t have to be that way, and that offers some optimism, but it is crucial to recognise this to make an alternative world without imperialism.
The latest issue of Review of African Political Economy has a special on Samir Amin who developed the dependency theory. For Amin, the international aspect of political economy is central to the subject, not something which needs to be added in the end as a sort of technicality.
In a laissez-faire world, there is no convergence in the fortunes of economies but polarisation. Anyone who is left-leaning in political ideology and is looking for other reasons while ignoring this to explain the world is fooling themselves.
Dependency theory is quite consistent with Post-Keynesian theory. There is an explicit framework of how this happens and that framework is Kaldorian growth theory.
A new world would work to make countries economically independent and reduce the role of the hegemon, the United States in world affairs. It would work in practice by a plan like Keynes’ plan involving significant transfers from the rich to the poor.
A lot of people simply claim that countries just need to copy the Scandinavian model. It’s true that those countries have some things better than the US, but it’s not like everything is great. For example their economic orthodoxies weren’t better than Washington wisdom after the economic and financial crisis which started in 2007. Also, in recently these countries voted against removing intellectual property protections for rich countries for vaccines. When the Scandinavian countries’ governments are themselves part of imperialism, that should raise doubts about the model. More importantly, international constraints put a barrier on trying to become like these countries minus their imperialism.
Articles free to read till March end. The title is the link.
A good macroeconomic model would use national accounts and the flow of funds with behavioural hypotheses. It’s complicated by the fact that prices of goods and services change. It’s not just that if prices of goods and services change, you’re consumption would change in response to that, but also because say the deposits you hold in the bank is worth less.
So your behavioural equations need to be modified. It’s not easy. Wynne Godley recalls in his book Monetary Economics:
And no lesser authority than Richard Stone (1973) made the same mistake because in his definition of real income he did not deduct the erosion, due to inflation, of the real value of household wealth.
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References
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Stone, R. (1973) ‘Personal spending and saving in post war Britain’ in H.C. Bos, H. Linneman and P. de Wolff (eds), Economic Structure and Development: Essays in Honour of Jan Tinbergen (Amsterdam: North Holland), pp. 75–98.
The system of national accounts does recognise the importance of this but there aren’t any real variables defined. Real as opposed to nominal. Instead holding gains (formal phrase for “capital gains”) is divided into two parts: real holding gains and neutral holding gains. So,
Assets prices can rise differently than prices of goods and services. Para 12.89 says:
The real holding gain on an asset is defined as the difference between the nominal and the neutral holding gain on that asset. The values of the real holding gains on assets thus depend on the movements of their prices over the period in question, relative to movements of other prices, on average, as measured by the general price index. An increase in the relative price of an asset leads to a positive real holding gain and a decrease in the relative price of an asset leads to a negative real gain, whether the general price level is rising, falling or stationary.
Of course we should consider holding gains and losses on liabilities as well.
This is anyway complicated practically. I haven’t yet seen national accounts of any country producing such tables. But the SNA—including the 2008 SNA—doesn’t have any framework beyond this. This is because it considers that economic behaviour would be different for real holding gains or losses, as opposed to just the flow aspect.
In other words, if your (nominal) income is $100 and there’s a 10% inflation, your consumption would fall. But you might not react the same if you have a real holding loss of $10.
But to a first approximation you could simplify and bring real holding gains into real income. I have simplified quite a bit and these are quite challenging things, so I refer you to Wynne Godley and Marc Lavoie’s (G&L)’s book Monetary Economics.
I wrote this post after an online discussion about the government “inflating away the nominal debt”. Although such claims are loaded, there is some logic to it. In inflation accounting, holding gains/losses appear in incomes. Modeling involves going back and forth between real and nominal variables.
An original writing is that of Wynne Godley (and Ken Coutts and Graham Gudgin)—a 1985 paper titled Inflation Accounting Of Whole Economic Systems. In that you see the equation:
So the government disposable income (in addition to taxes and central bank profits, also has the holding losses due to the fact that prices of goods and services has increased in the period, not just because of changes in prices of government bonds).
Of course, there’s also the loadedness of the phrase “inflating away the debt”. That’s a different matter, my point here is to address the intuition of why inflation can be thought of as bringing revenue to the government and reducing its debt.
James Tobin pioneered the stock-flow consistent modeling. He won the Nobel Prize for it. You can find his Nobel lecture Money And Finance In The Macroeconomic Processhere.
Although quite brilliant, there are many shortcomings in James Tobin’s approach. The genius of Wynne’s approach was to overcome those.
Mario Draghi is set to become the next Prime Minister of Italy!
From a recent interview with Sergio Cesaratto at Brave New Europe:
Will he be able to do it?
Draghi is a many-headed dragon. He is a Catholic socio-conservative. Somehow a Christian Democrat able to please almost everybody – German friends know what I mean. This is his real skill, which he has shown in running the ECB by skilfully keeping the German representatives’ hardliners at bay. Consensus is important. And he will need a heavy German endorsement (and not all Germans like him). Many in Italy fear his conservative facade. Draghi has been many things: the wretched privatiser of Italian public industry just before he went to work for Goldman Sachs; he declared that the European welfare state had had its day; but in 2014 he made it clear that Europe’s anti-Keynesian economic policy was wrong. There is something for everyone! In his tesi di laurea he even argued that the euro was a bad idea! Let’s remember, however, that in 2023 Italy must hold new elections, and although Renzi (who is a former Christian Democrat) shares Draghi’s Christian social-conservative visions (more CSU than CDU), he is unlikely to have the capacity to create a political background for him. Certainly Renzi might have had something like this in mind (recall that he comes from Tuscany, the land of Machiavelli!).
