here (in Portuguese, I'm afraid). A general intro to all country experiences and the chapter on Argentina by yours truly (and updated version of the paper on Argentina will be posted later).
Thursday, July 24, 2014
Wednesday, July 23, 2014
here, Matias provided a graph that displayed the fiscal results for the US as a share of GDP from 1993-2014, along with a discussion of the misconception that democrats are nothing but tax/spend liberals. I thought it would be pertinent to post this paper by Dean Baker and David Rosnick providing conclusive evidence on the effects of stimulus packages and fiscal consolidation during the recent economic crisis.
From the abstract:
From the abstract:
The first part deals with the most important literature on the subject, the consensus in the research of the past decade attests a clear counter-cyclical effect of stimulus packages during a prolonged recession. The second part deals with the impact of changes in government consumption and investment to growth. For this data for developed countries in 1980 are analyzed. Consistent with much of the previous literature have increased government spending during a crisis has a positive effect on economic growth. In addition, the period is simulated after the crisis, the multiplier effect is around 1.5. The third part focuses on the production potential, which has declined sharply due to the economic crisis. This would have to include a comprehensive model that analyzes the effects of an economic stimulus package with, since the effect could turn out relative to the size of the stimulus package as significant.Read rest here.
Tuesday, July 22, 2014
This is from an unpublised paper by Fernando Maccari Lara, Roberto de Souza Rodrigues, and Carlos Pinkusfeld Bastos.* Figure below shows the nominal and primary balances as a share of GDP, and the financial expenditures, which make the difference between the two balances (i.e. a primary surplus becomes a nominal deficit after the interest payments on outstanding debt). All figures as a share of GDP.
Note that during the whole Lula, and the first two years of Dilma, the Brazilian government kept primary surpluses, as it has done essentially for a few decades now, with few exceptions. There is a tendency for the expenses with interest rates to go down, they remain at 3.5% of GDP (in 2012), which means that it remains the largest 'social' program in Brazil, larger than the Bolsa Familia.
From the asbtract:
Brazilian economy adopts a set of economic policies after the crisis in the end of the 1990s decade. Setting a target for the primary fiscal surplus was the main objective of the fiscal policy, and it has been in used since then. In fact, the Workers Party (PT), which was initially critical to this policy, maintained it after assumed the government in 2003. Therefore, this article analyzes the fiscal policies during this party government period from 2003 to 2012. To achieve this objective it will be used both government's official raw data and a calculation of fiscal impact of outlays and taxation. We conclude that there is no clear rationale behind the determination of primary fiscal surpluses which became more of a political dogma than a useful policy instrument. In terms of economic growth one cannot say that the fiscal policy has been effectively contractionist but in some years it most certainly did not contribute to a more robust rate o economic growth and did not respond to stabilization policy needs.
* To be published in the Annals of the Brazilian Keynesian Association Meetings.
Federal Reserve Board Chair Janet Yellen made waves in her Congressional testimony last week when she argued that social media and biotech stocks were over-valued. She also said that the price of junk bonds was out of line with historic experience. By making these assertions in a highly visible public forum, Yellen was using the power of the Fed’s megaphone to stem the growth of incipient bubbles. This is an approach that some of us have advocated for close to twenty years. Before examining the merits of this approach, it is worth noting the remarkable transformation in the Fed’s view on its role in containing bubbles. Just a decade ago, then Fed Chair Alan Greenspan told an adoring audience at the American Economic Association that the best thing the Fed could do with bubbles was to let them run their course and then pick up the pieces after they burst. He argued that the Fed’s approach to the stock bubble vindicated this route. Apparently it did not bother him, or most of the people in the audience, that the economy was at the time experiencing its longest period without net job growth since the Great Depression.Read rest here.
Monday, July 21, 2014
And yes a lot of the investment that will come will likely (and I would say hopefully) be on infrastructure (I say this since in one of the meetings of the Bank of the South, in Quito years ago, an activist told me I was a neoliberal for supporting infrastructure rather than community based projects; by the way, not against those, but as I said back then, if you want schools or sanitation for local communities, you'll need roads, electricity, sewer facilities and so on, which is what I mean by infrastructure). Stephany Griffith-Jones provides here the sort of defense of development banks I would agree with.
The new arrangements include a Contingent Reserve Arrangement which is more interesting than the bank itself, since it purports to provide “a self-managed contingent reserve arrangement to forestall short-term balance of payments pressures, provide mutual support and further strengthen financial stability.” In other words, not simply provide funding for development projects, but more widely to provide finance for balance of payments problems, which are at the center of developing countries problems. So, all in all, this seems to be something to be celebrated.
My two concerns are not directly connected to the new institutions. The first issue would be implementation. The Bank of the South has been in the works for almost a decade, and has been established since 2009. As I had noted here, barriers to implementation have basically meant that it is an irrelevant institution, at least so far (what I said back in 2009 was that lack of implementation might come from political differences, in the case of the Bank of the South, given its role vis-à-vis the Brazilian National Development Bank, BNDES). Note that in the case of the Bank of South it duplicated to some extent the work done by the Corporación Andina de Fomento (CAF), another regional development bank, also headquartered in Caracas. Not only it has so far failed, but in addition it has precluded the further development of existing institutions.
The second concern is regarding the type of integration between Brazil (member of the BRICS) and other Latin American countries (the same is true with some caveats for India, specialized in services, and Russia and South Africa) with China. If the new development bank is one more instrument to pursue a strategy of development in which Latin American economies specialize in commodity exports, to an increasingly manufacturing based China, then rather than solve our long-term balance of payments problems we will end building a new dependent relation, now with the Asian periphery (for more here). Hope springs eternal.
Raising the wage floor for tipped workers is crucial for a number of reasons. Rising income inequality and the accompanying slowdown in improving American living standards over the past four decades has been driven by weak hourly wage growth, a problem that has been particularly acute for low-wage workers (Bivens et al. 2014). Tipped workers—whose wages typically fall in the bottom quartile of all U.S. wage earners, even after accounting for tips—are a growing portion of the U.S. workforce. Employment in the full-service restaurant industry has grown over 85 percent since 1990, while overall private-sector employment grew by only 24 percent.4 In fact, today more than one in 10 U.S. workers is employed in the leisure and hospitality sector, making labor policies for these industries all the more central to defining typical American work life. Ensuring fair pay for tipped workers is also a women’s issue. Women comprise two out of every three tipped workers; of the food servers and bartenders who make up over half of the tipped workforce, roughly 70 percent are women. Allegretto and Filion give an historical account of the tipped-minimum-wage policy and bring much-needed attention to how the two-tiered wage system results in significantly different living standards for tipped versus non-tipped workers. For instance, tipped workers experience a poverty rate nearly twice that of other workers. This contradicts the notion that these workers’ tips provide adequate levels of income and reasonable economic security.Read rest here.
Bivens, Josh, Elise Gould, Lawrence Mishel, and Heidi Shierholz. 2014. "Raising America’s Pay: Why It’s Our Central Economic Policy Challenge." Economic Policy Institute, Briefing Paper #378. http://www.epi.org/publication/raising-americas-pay/
Saturday, July 19, 2014
Friday, July 18, 2014
Prior research on private equity has focused almost exclusively on the financial performance of private equity funds and the returns to their investors. Private Equity at Work provides a new roadmap to the largely hidden internal operations of these firms, showing how their business strategies disproportionately benefit the partners in private equity firms at the expense of other stakeholders and taxpayers. In the 1980s, leveraged buyouts by private equity firms saw high returns and were widely considered the solution to corporate wastefulness and mismanagement. And since 2000, nearly 11,500 companies—representing almost 8 million employees—have been purchased by private equity firms. As their role in the economy has increased, they have come under fire from labor unions and community advocates who argue that the proliferation of leveraged buyouts destroys jobs, causes wages to stagnate, saddles otherwise healthy companies with debt, and leads to subsidies from taxpayers. Appelbaum and Batt show that private equity firms’ financial strategies are designed to extract maximum value from the companies they buy and sell, often to the detriment of those companies and their employees and suppliers. Their risky decisions include buying companies and extracting dividends by loading them with high levels of debt and selling assets. These actions often lead to financial distress and a disproportionate focus on cost-cutting, outsourcing, and wage and benefit losses for workers, especially if they are unionized.
There is an old story about a policeman who sees a drunk looking for something under a streetlight and asks what he is looking for. The drunk replies he has lost his car keys and the policeman joins in the search. A few minutes later the policeman asks if he is sure he lost them here and the drunk replies “No, I lost them in the park.” The policeman then asks “So why are you looking here?” to which the drunk replies “Because this is where the light is.”That story has much relevance for the economics profession’s approach to the Phillips curve.Read more here.
Wednesday, July 16, 2014
By Kevin P. Gallagher
Conveniently scheduled at the end of the World Cup, leaders of the BRICS countries travel to Brazil in mid-July for a meeting that presents them with a truly historic opportunity. While in Brazil, the BRICS hope to establish a new development bank and reserve currency pool arrangement. This action could strike a true trifecta — recharge global economic governance and the prospects for development as well as pressure the World Bank and the International Monetary Fund (IMF) — to get back on the right track. The two Bretton Woods institutions, both headquartered in Washington, with good reason originally put financial stability, employment and development as their core missions. That focus, however, became derailed in the last quarter of the 20th century. During the 1980s and 1990s, the World Bank and the IMF pushed the “Washington Consensus,” which offered countries financing but conditioned it on a doctrine of deregulation.
Read rest here.
Tuesday, July 15, 2014
Previously there was some talk about the Fed keeping the fed funds rate low as long as unemployment was higher than 6.5% and inflation was close to the 2% unofficial target. Since last month the unemployment rate crossed that barrier, and is now at 6.1%, there might have been doubts about what would Janet Yellen do or simply What Would Janet Do (WWJD).
The good news is that, quite correctly, Yellen seems to believe that the recovery is still weak, the labor market is slacking and there is no sign of impending inflation acceleration. So the natural rate (which does not exist) is NOT 6.5% for the Fed.
Why Macroeconomists, Not Bankers, Should Set Interest Rates - Mainly Macro
Economic Policies Pursuant to the Global Crisis: A Critique - Mainly Macro
Tom Engelhardt: An Exceptional Declince for the Exceptional County? The Empire as Basket Case - Naked Caplitalism
Nearly Half of New Small Businesses Established by Black And Hispanic Women Shut Down Within A Year - USAPP
To be published soon. A Festschrift for Jane D'Arsita. From the dust-jacket:
"Jane D’Arista is one of those towering figures who thinks way ahead of the conventional understandings. A generation ago she recognized the distorted architecture of finance and banking and described in lucid detail the reform agenda for restoring a stable and equitable system. Written in the tradition of D’Arista, the essays in this important collection point the way toward overcoming the recurrent financial disorders of our gilded age. Like Jane D’Arista’s work, this timely volume demands the attention of both policy experts and the politicians who must do the reconstruction."
William Greider, author of Secrets of the Temple: How the Federal Reserve Runs the Country
For more info go here.
Thursday, July 10, 2014
A bit of World Cup humor.
If you read in Portuguese, here is an interview with yours truly on the Vulture Funds.
Si mandamos a @Mascherano a negociar con los fondos buitres trae vuelto !!!!!Translation: If we send Mascherano to negotiate with the Vulture Funds, he will bring back some change!!!!!
— Toro Palladino (@Toropalladino) July 10, 2014
If you read in Portuguese, here is an interview with yours truly on the Vulture Funds.
By Barry Eichengreen, Arnaud J. Mehl, Livia Chițu, & Gary Richardson
This paper reconstructs the forgotten history of mutual assistance among Reserve Banks in the early years of the Federal Reserve System. We use data on accommodation operations by the 12 Reserve Banks between 1913 and 1960 which enabled them to mutualise their gold reserves in emergency situations. Gold reserve sharing was especially important in response to liquidity crises and bank runs. Cooperation among reserve banks was essential for the cohesion and stability of the US monetary union. But fortunes could change quickly, with emergency recipients of gold turning into providers. Because regional imbalances did not grow endlessly, instead narrowing when region-specific liquidity shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe.
Read rest here (subscription required).
Wednesday, July 9, 2014
This paper looks at whether the data support such a conclusion. It finds that there is no statistically significant relationship between the increase in the terms of trade (TOT) for Latin American countries and their GDP growth. There is, however, a positive relationship between the TOT increase and an improvement in the current account balance. It may be that this allowed countries to avoid balance of payments crises or constraints.
Read rest here.
Tuesday, July 8, 2014
So everybody hates the Gross Domestic Product! The New York Times and the Financial Times have recently published articles criticizing the main measure of production in the economy. This is certainly not new, and criticism of the value of GDP for certain purposes, as a measure of well-being, for example, have led in the past to the creation of other variables like the United Nations Development Programme's Human Development Index, which includes GDP per capita (actually Gross National Income per capita), life expectancy at birth and average years of schooling for adults.
In fact, the NYTimes article basis for the supposedly dramatic "Rise and Fall of the GDP" is it's inability to measure well-being, and in it the author emphasizes its disadvantages when compared to the HDI. The NYTimes piece quotes Sen, the godfather of HDI, complaining about the "silliness about identifying growth with development." Of course, since GDP is only about the material growth of the economy, it would be an incomplete measure of development.
The most common type of critique is that GDP does not count many things, like environmental degradation, or happiness (yep, I know; check Putnam's ideas in the NYTimes piece; talk about silliness), or all non-market transactions for that matter, or is slow to adjust to new products and services introduced in the market, and that it's not particularly good for understanding inequality (Robert Reich's complaint in FT's piece; check the full list of complaints in both articles linked above). The best defense is provided by William Nordhaus, who argues compellingly that: “if you want to know why GDP matters, you can just put yourself back in the 1930 period, where we had no idea what was happening to our economy.”
First, GDP is not a measure of everything, and it certainly has limitations. But it does measure relatively well the material production in a given year, and provides the basis for understanding the process of accumulation, which is central for understanding the dynamics of capitalism. And actually, if you look at functional distribution of income in the National Income and Product Accounts (NIPA), which are used to calculate GDP, you do have one of the best measures of income inequality! Yes growth of the flow of goods and services produced in a country in a year is not tantamount to development, but without growth developing countries cannot achieve the levels of well-being of advanced economies, so growth is kind of a pre-requiste (and yes, growth involves environmental degradation, and we should try to minimize it). Further, with GDP one can obtain a fairly good measure of productivity (labor productivity), which is the basis for the Wealth of Nations, if you believe that dude Adam Smith.
My beef with the profession is not the use of GDP growth as a measure of material progress, but the fact that a limited, supply-constrained, individual maximizing utility, market-friendly, neoclassical version of the process of growth and development is the dominant one. But GDP is fine. Like price indexes, which also are limited and sometimes inaccurate, is an essential tool for understanding the real world.