Tag Archives: thomas palley

Thomas Palley On Nord Stream Pipeline Attack Whodunnit

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As John Mearsheimer says—and which I believe is right—the United States bears the primary responsibility for the crisis in Ukraine.

Thomas Palley has written some good articles on this and in his latest, he address the issue of whodunnit on the attack on the Nord Stream pipeline. The article is titled Sabotaging Germany, Blaming Russia: Another View Of The Nord Stream Pipeline Attack.

Unfortunately discussion of US imperialism is now forbidden and even Post-Keynesians smear Palley. An example in this discussion.

Here’s Tony Blinken, US Secretary of State saying how this is a good opportunity!

Here’s Jeffrey Sachs saying he thinks that it’s the United States which did it and talks about how saying this is now taboo.

This crisis has shown how anti-imperialism is a rare thing in the West. It’s sad but perhaps scholars need to update their theories and reevaluate the role of the left in the West as providers of a left cover for imperialism.

Thomas Palley On NATO Expansionism And The Russian Invasion Of Ukraine

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Thomas Palley has written some fine stuff on the NATO/Russia/Ukraine. He had predicted a Russian invasion while at the same time identifying NATO expansionism as the root cause of the crisis, a totally rare combination!

In his latest blog post Ukraine: What Will Be Done And What Should Be Done? he is straight and accurate:

The inevitable has happened. Russia has invaded Ukraine. It was inevitable because the US and its NATO partners had backed Russia into a corner from which it could only escape by military means.

In effect, Russia confronted a future in which the US would increasingly tighten the noose around its neck by further eastward expansion of NATO, combined with military upgrading by the US of its Eastern European NATO proxies.

Accompanying that militarization was the prospect of a ramped-up propaganda war in which western media fanned the flames of public animus against Russia. Side-by-side, US government financed entities (such as the National Endowment for Democracy and the German Marshall Fund) would seek to influence European and Russian politics with the goal of regime change.

At this stage, there are two questions. What will be done? And what should be done?

Thomas Palley had predicted all this in two previous posts:

  1. A Crisis Made In The USA: Why Russia Will Likely Invade Ukraine, written Jan 16th,
  2. American Exceptionalism And The Liberal Menace: The US And Ukraine, written Feb 13th.

In Brazil, Lula’s Worker Party had initially blamed NATO expansionism but soon withdrew the statement. It’s not easy saying such things. And the sort of culture also discourages independent thought. Hence it’s important to denounce NATO expansionism if you really are anti-imperialist.

Neochartalism And International Acceptance Of Currencies

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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.

Another Thomas Palley Critique Of Neochartalism

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The new issue of Review Of Keynesian Economics (ROKE) is out. Thomas Palley has another critique of Neochartalism or “Modern Modern Theory”, tilted What’s Wrong With Modern Money Theory: Macro And Political Economic Restraints On Deficit-Financed Fiscal Policy. 

I don’t agree with many things but it’s worth a read, as has his other critiques been. From a political economy perspective, the problem of the world is the the liberal international economic order which exists and is totalising. This imperialism needs to be overthrown and new order needs to be established. This is completely missed by the neochartalists because they tend to think that as long as a country’s currency is truly floating, fiscal policy can do the trick. Dismissing the constraints brought from international trade, this way.

Globalists need to be defeated.

Neochartalists also do all sorts of verbal gymnastics in throttling any debate about increase in tax rates. In fact Warren Mosler argues for removal of most taxes. Oh wow! How did us mortals miss such a simple solution to the problem of the world!

Basically neochartalists blur the distinction between two separate issues:

  1. Tax rates needn’t rise to increase domestic demand and output.
  2. Tax rates ought to rise for a fair distribution of the national income.

One can believe both (1) and (2) consistently as typically economies run at less than full employment. Neochartalists however use (1) to throttle the debate on (2).

But if you discuss these issues with them, they concede this but yet the next time seem to argue like before. Another way to see this is that they have no proposals to raise taxes even though they have all sorts of proposals everywhere.

Thomas Palley warns us against this hilarity. He says:

More generally, it is pure semantics whether taxes raise money to finance government spending, or taxes destroy money in order to create the space for reissue of money to finance spending. Taxation and spending occur simultaneously, and taxes are an intrinsic part of the system and cannot be done away with. Even when the economy is far from the full employment/inflation target, taxes are needed to finance the vast bulk of spending. Money-financed budget deficits provide some space at the margin for temporary additional spending, which eventually either has to be cut or be financed by some combination of taxes and borrowing when the economy’s constraints bite.26

…

  1. If the economy is away from steady state, and the inflation rate and the money–GDP ratio are both rising, then there will be additional temporary financial space along the traverse to the steady state.

Fiscal policy is hugely important and mainstream economists underplay the role of fiscal policy even after so much fiscal policy came to the rescue in this new lockdown crisis. But the problems are much deeper. Imperialism has to be defeated. A new international economic order with planned trade instead of free trade, together with coordination of policies (including fiscal policy) needs to be established. Without the imperial power of either the United States or other international institutions. But something democratic at the international level. Nor is neochartalists’ claims about the importance of fiscal policy original as there’s a tradition of Post-Keynesian economics stressing the importance.

Glenn Greenwald — Is China Merely A Competitor Of The U.S., Or An Adversary Or Even An Enemy?

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The topic of China in political economy brings out so many bad opinions even from the left. Lots of people write apologia for China despite its large human rights violation. Although it’s communist, CEOs of large companies in the United States, the masters of mankind, also speak positively about it and their tone is different from when they’re speaking of Latin American countries, for example, which have socialist governments.

China is mercantilist and uses all sorts of unfair economic practices to further its interests. From the United States’ viewpoint itself, China allows US companies to offshore jobs and allows exploitation. China is a huge beneficiary of the rules of the game under the WTO, at the expense of both advanced and poor countries.

The US net indebtedness is around 50% of GDP now, the result of accumulated current account imbalances in balance of payments. This implies the United States needs to do something by political economic means to reverse this dynamic.

The latest episode of Glenn Greenwald’s weekly show System Update podcast talks discusses the issue with Kishore Mahbubani and Matt Stoller.

From the write-up:

… while hawkish, pro-war political elements in both parties speak of China as an adversary that must be confronted or even punished, the interests of powerful western financial actors — the Davos crowd — are inextricably linked with China, using Chinese markets and abusive Chinese labor practices to maximize their profit margins and, in the process, stripping away labor protections, liveable wages and jobs from industrial towns in the U.S. and throughout the west.

That is why standard left-wing anti-imperialism or right-wing isolationism is an insufficient and overly simplified response to thinking about China: policy choices regarding Beijing have immense impact on workers and the economic well-being of citizens throughout the west.

Of course Glenn Greenwald is wrong that it can’t be analysed by standard left-wing anti-imperialism. It’s mainly a problem of failure of social scientists currently, not of left-wing political economy itself. There are exceptions of course. Thomas Palley has analysed it well. But otherwise Glenn Greenwald is quite sharp in his analysis.

On The Fall Of The Liberal International Economic Order, Part II

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In the last post, I linked to John J. Mearsheimer’s paper Bound To Fail: The Rise And Fall Of The Liberal International Order. The paper was more from a political perspective than from a perspective of political economy, although it did go into the economics of it.

There’s a Post-Keynesian paper by Thomas Palley published last year, I thought I should recommend reading, since it goes into the political economy aspect of it. Also it is rooted more in the heterodox Keynesian perspective, unlike Mearsheimer who although criticises the US establishment, seems to want to propose an order which benefits the United States the most, not a new economic order which benefits the whole world.

The liberal international economic order benefited the United States, or at least the “top 1” but because of countries gaming the system, started to backfire. The US has large current account deficits as a consequence of which its negative net international investment position grew larger and larger as this BEA chart indicates:

The solution is to dismantle the liberal international economic order in favour of new rules of the game which benefit everyone, not just oligarchs.

John J. Mearsheimer — Bound To Fail: The Rise And Fall Of The Liberal International Order

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I came across this fantastic article by John J. Mearsheimer, from earlier this year, on how the liberal international order is failing. It’s written more from a political perspective (and mainstream too) than from a heterodox political economy perspective but it’s worth a read.

From the introduction:

Abstract

The liberal international order, erected after the Cold War, was crumbling by 2019. It was flawed from the start and thus destined to fail. The spread of liberal democracy around the globe—essential for building that order—faced strong resistance because of nationalism, which emphasizes self-determination. Some targeted states also resisted U.S. efforts to promote liberal democracy for security-related reasons. Additionally, problems arose because a liberal order calls for states to delegate substantial decisionmaking authority to international institutions and to allow refugees and immigrants to move easily across borders. Modern nation-states privilege sovereignty and national identity, however, which guarantees trouble when institutions become powerful and borders porous. Furthermore, the hyperglobalization that is integral to the liberal order creates economic problems among the lower and middle classes within the liberal democracies, fueling a backlash against that order. Finally, the liberal order accelerated China’s rise, which helped transform the system from unipolar to multipolar. A liberal international order is possible only in unipolarity. The new multipolar world will feature three realist orders: a thin international order that facilitates cooperation, and two bounded orders—one dominated by China, the other by the United States—poised for waging security competition between them.

Introduction

By 2019, it was clear that the liberal international order was in deep trouble. The tectonic plates that underpin it are shifting, and little can be done to repair and rescue it. Indeed, that order was destined to fail from the start, as it contained the seeds of its own destruction.

The fall of the liberal international order horrifies the Western elites who built it and who have benefited from it in many ways. These elites fervently believe that this order was and remains an important force for promoting peace and prosperity around the globe. Many of them blame President Donald Trump for its demise. After all, he expressed contempt for the liberal order when campaigning for president in 2016; and since taking office, he has pursued policies that seem designed to tear it down.

It would be a mistake, however, to think that the liberal international order is in trouble solely because of Trump’s rhetoric or policies. In fact, more fundamental problems are at play, which account for why Trump has been able to successfully challenge an order that enjoys almost universal support among the foreign policy elites in the West. The aim of this article is to determine why the liberal world order is in big trouble and to identify the kind of international order that will replace it.

…

Also see: Part II.

Link

Lawrence Summers On The Failure Of The New Consensus

Larry Summers has a Twitter thread in which he talks of how the economics profession got it wrong by downgrading fiscal policy. He also concedes to Post-Keynesians:

We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.

The title is the link.

Two Papers By Thomas Palley On Globalisation

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Thomas Palley has two new papers on globalisation:

  1. Globalization Checkmated? Political and Geopolitical Contradictions Coming Home to Roost
  2. Three Globalizations, Not Two: Rethinking The History And Economics Of Trade And Globalization

The first paper places Donald Trump’s trade wars in a broader political economy perspective. The second paper divides modern globalisation in two periods: 1945-90 and 1990-present.

I especially liked the footnote 5 in the first paper where he says that the public has been right on international trade and not economists:

The trade deficit has been a major channel of deindustrialization. This channel is easily understood by the general public, which has therefore made the deficit a catch-all symbol for the negative effects of globalization. Of course, other macroeconomic factors are also involved in determining the deficit, and economist advocates of neoliberal globalization try to belittle the public for not getting this. The public are not economists, and they are also right about the trade deficit’s deleterious economic effects. If anything, it is the economists who have misunderstood the deficit (Palley, 2012, Chapter 7). In the 1980s, economists invented the “twin deficits” hypothesis that blamed the trade deficit on the budget deficit. That hypothesis collapsed in the 1990s when the budget moved to surplus but the trade deficit kept growing. After that, economists invented the “saving shortage” hypothesis which blamed the deficit on lack of household saving. That hypothesis collapsed in the 2000s when the trade deficit continued even as the economy suffered from demand shortage. There is a macroeconomic linkage between the trade deficit, the budget deficit, and household saving, making them cousins (Blecker, 2013). However, structural factors (e.g. globalization) and an over-valued dollar exchange rate have been the decisive factors (Palley, 2015). In sum, the general public has been more right than economists.

Nice papers on the globalisation backlash.

Noam Chomsky On Neoliberalism: It’s Market For You But State Power For Me

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Radio Open Source has a nice intervew of Noam Chomsky by Christopher Lydon where they discuss neoliberalism among other things.  Audio, transcript.

What is neoliberalism?

This question is asked frequently, especially by those who deny that such a thing exists (not the interviewer of course!). In my experience, those who deny it the most are the most neoliberal. At any rate—although I’ll try to describe what it is—it’s not important to get the definition right. Isn’t the creation of the Euro Area without a central government neoliberalism?

In the above interview, Chomksy is faced with this question:

CL: You famously said about neoliberalism that it’s not new, and it’s not liberal. Do you want to define it for people who just landed from Mars?

NC: Well, it’s a kind of a mixture. The rhetoric is free market, individual choice and so on. That’s the rhetoric. The reality is rather different. It’s individualism and market for you but state power for me. So take a look, say, at the actual institutions like the World Trade Organization or NAFTA, what are called the “free trade agreements.” The media calls them “free trade agreements.” They’re not free trade agreements. They’re investor rights agreements. They’re highly protectionist. They provide unprecedented protection backed by state power for major conglomerates like the pharmaceutical industry, media conglomerates, others.

That’s quite accurate, although Chomsky didn’t take the effort to define it but just described it as it is.

A lot of people try to distinguish neoliberalism and the New Consensus of economics. It’s certainly true that you can find examples of economists who believe in neoclassical economics or the new consensus or whatever you call it but don’t exactly advocate policies of neoliberalism. But, I’ll just categorize them as being deceived by economists. Orthodox economics is neoliberalism, except for minor differences. The former is an academic subject built to defend the latter, which is a political ideology. New Consesus Economics exists in academia because neoliberals and conservatives in political positions award them. Neoliberals then quote their research to defend policies.

Neoliberalism is based on three extremely damaging ideas of neoclassical economics: free trade, tight fiscal policy and the production function.

After the economic and financial crisis, it’s true that economists have conceded that fiscal policy has strong positive effects. Yet, it’s situational in most occasions. When a neoliberal party is in power, they might advocate fiscal expansion, at least make it look like they’re doing it. Also, although they sound as if they are unorthodox about it, they’ll rarely concede that they had a different position before the crisis. They’ll make it look like they have always believed their current positions since their undergraduate days. They’ll also pander to people who might want to hear otherwise. So they have different public and private positions. In other words, doublespeak about fiscal policy is the hallmark of a neoliberal.

But although economists have shifted their positions on fiscal policy—at least when it suits them—their voice about free trade has grown stronger. It is here that Chomsky’s point about “market for you but state power for me” appears the most illuminating. Rich nations are rich due to their success in international trade and they try to impose it on poor nations by hook or crook. This requires the cooperation of governments because agreements are negotiated by governments. Poor nations generally are sceptical about economists’ narratives but are arm-twisted by governments of rich nations and there is an establishment around the government which pushes such things both directly and indirectly by controlling the narrative (or control of opinion and manufacturing consent, as Chomsky might say).

Another aspect about neoliberalism is the politics around wages. As Thomas Palley says,

With regard to income distribution, neoliberalism asserts that factors of production—labor and capital—get paid what they are worth. This is accomplished through the supply and demand process, whereby payment depends on a factor’s relative scarcity (supply) and its productivity (which affects demand).

The theoretical basis for this is the narrative build in neoclassical economics using the notion of a production function and marginalism. Reality check: In the late 70s and early 80s, orthodox economists promoted government policies of high interest rates and this created unemployment and led to drastic weakening of labour unions. They were also weakened by laws. Again, markets for you but state power for me.

To quote Chomsky again from the interview,

[neoliberalism’s] crucial principle is undermining mechanisms of social solidarity and mutual support and popular engagement in determining policy.