Wednesday, October 22, 2014

On the blogs

Jean Tirole, A Practitioner Of New Industrial Organization -- Robert Vienneau discusses the new IO, based on game theory of the new 'Nobel' winner, and the old IO, which was based on the classical surplus approach and barriers to entry

Crony Capitalism, or Plain Old Capitalism? -- Arthur MacEwan dissects the right wing attack on the Export-Import Bank

These states, Part I and Part II -- Max Sawicky on how labor markets have done in States with gubernatorial elections

Capitalism, Episode 3

Episode 3 of Capitalism, in French though. English version coming soon.

Tuesday, October 21, 2014

Where revenue comes from

Not sure if I posted something similar before. At any rate, no surprises. Before the New Deal excise and other indirect taxes were the vast majority of the administration's revenue. Since then the individual income tax become the central source of revenue. Since the 1970s corporate income taxes fell, and were essentially compensated by higher payroll taxes. In other words, first more progressive, then more regressive. Updated data here.

Friday, October 17, 2014

Tony Aspromourgos on Piketty, future of capitalism, growth & theory of distribution

By Tony Aspromourgos

From the abstract:
This essay reviews Thomas Piketty’s Capital in the Twenty-First Century (2014). The focus is upon the conceptual framework and theoretical interpretation of the empirical findings assembled in the book, rather than those empirical findings themselves (which are, in any case, broadly incontestable). The core theoretical logic of the distributional dynamics is explained and subjected to scrutiny with respect to the theory of distribution in particular, but also the theory of growth. 
Read rest here. For other posts on Piketty, see herehereherehere, here, and here.

Thursday, October 16, 2014

Development and Change Forum 2014

All papers are, at least for now, open for download here. Codrina rada's assessment of UNCTAD's Trade and Development Report 2012 is, for example, available here. Guy Standing's discussion of the precariat is here. Enjoy!

Wednesday, October 15, 2014

Tuesday, October 14, 2014

More on the IMF and fiscal policy and Blanchard's rethinking of macroeconomics

I wrote a few days ago on the IMF's persistent views on fiscal policy, and how these views are rooted in an unchanged perception of how the macroeconomy works.  The new Fiscal Monitor tends to support my previous position. The policy recommendations, in the case of advanced economies, suggest that:
"Fiscal efforts in the last five years have stabilized the average debt-to-GDP ratio. Nevertheless, it is still expected to exceed 100 percent of GDP at the end of the decade. It is important to continue to reduce debt to safer levels and rebuild fiscal buffers.
Further fiscal adjustment is needed in most advanced economies to bring down debt ratios to safer levels... reining in age-related Debt (percent of GDP) spending could reduce longer-term fiscal risks."
Why debt ratios have to fall is an incognita, given that we now know that there is no evidence for a 100 percent, or any other for that matter, threshold that leads to lower growth. And it's really annoying that they still want to cut spending on pensions, and perhaps push for privatization (even Chile's famous case now is not an example anymore). For developing economies:
"the time has come to rebuild the fiscal buffers used during the crisis, and to strengthen the institutional fiscal policy framework."
In this case, the notion is that inflation is around the corner, and, hence, that 'emerging' markets are close to full employment. In sum:
"Fiscal consolidation is called for in many economies, advanced and emerging, to reduce high public debt ratios and rebuild fiscal buffers used during the crisis."
More importantly the IMF warns that the higher rates of interest in advanced economies might lead to a crisis in the developing world. They say:
"The historical record indicates that the unwinding of monetary policy support in advanced economies can have a material impact on emerging market public debt costs and on the incidence of fiscal stress episodes."
This suggests that emerging markets have to make an additional effort to promote fiscal adjustment, since the interests costs will go up soon. I'm not only very skeptical about the idea that developing economies are close to their potential output levels, but also about the risk that interest rates will grow substantially in advanced economies. Just check the IMF growth forecasts for the developed world, and you'll see that the probability of higher rates of interest anytime soon are exaggerated.

In addition, Blanchard, the IMF counselor, has published a new paper in line with his previous effort to re-think and evaluate macroeconomics. The interesting thing is that now he suggest more openly that there is a certain consensus between Rational Expectations authors like Lucas and New Keynesians like him and say Krugman. He tells us that:
"the old fresh water/salt water distinction has become largely irrelevant... Fifty years ago, Samuelson (1955) wrote: 
'In recent years, 90 per cent of American economists have stopped being 'Keynesian economists' or 'Anti-Keynesian economists.' Instead, they have worked toward a synthesis of whatever is valuable in older economics and in modern theories of income determination. The result might be called neo-classical economics and is accepted, in its broad outlines, by all but about five per cent of extreme left-wing and right-wing writers.'
I would guess we are not yet at such a corresponding stage today. But we may be getting there."
The consensus is the New Keynesian (NK) model as represented by Clarida et al (1999) and Woodford (2003), neo-Wicksellian really, but that's another story. Funny thing though. According to him: "One striking (and unpleasant) characteristic of the basic NK model is that there is no unemployment!" He explains that this can be circumvented by assuming that:
"unemployment arises from the fact that the labor market is a decentralized market, where, at any time, some workers are looking for jobs, while some jobs are looking for workers... this implies that the wage—and by implication, the cost of labor, employment, and unemployment—depends on the nature of bargaining... It allows one to think about the effects of labor market institutions on the natural rate of unemployment."
Doesn't matter how much lipstick you put on a pig, it's still a pig. The search model proposed basically suggests that unemployment results from frictions, and it would still be true that to solve it, eliminating frictions and reducing wages would lead to the ubiquitous natural rate. Truly Gattopardo Economics, as Tom Palley has called it.

PS: The comic strip above, Mafalda, got it right back in the 1960s. Her mom asks her to pick up her knitted sweater she left on the floor, and she says that she doesn't need to obey, since in her playdate with her friends she was a president. Her mom, astutely as Mafalda perceives, tells her she is the World Bank, the Paris Club and the IMF. Even kids in the periphery know who is really in charge.

Massimo Pivetti on Interest Rates and Gross Profit Margins In Recent Experience of Advanced Capitalism

From a paper prepared for the colloquium “What have we learnt on Classical economy since Sraffa?” Paris, October 2014
According to the monetary explanation of distribution, as elaborated over the past 25 years on the basis of a well known suggestion by Sraffa, the normal rate of profit would be arrived at in each sphere of production by adding up two autonomous components: the rate of interest on long-term riskless financial assets, plus a normal rate of profit of enterprise, viewed as a component of normal production costs and reflecting objective (or widely perceived as objective) elements of risk attached to each different productive employment of capital. Since the normal margins for profit, given production techniques, depend on normal profit rates, the same two variables, the rate of interest and the rate of the profit of enterprise, would govern also the course of net normal profit margins in the different production spheres. For any given set of profits of enterprise, the long-term rate of interest would thus act in the economy as the regulator of the ratio of prices to money wages. Once the normal profit of enterprise in each sphere of production is taken as given, in that it is determined separately from both the rate of interest and the rate of profit, attention is focused in this approach on the rate of interest.
Read rest here.

Monday, October 13, 2014

In Memoriam of Angelo Reati: "A Note on Some Misunderstandings of Sraffa's System"

From Review of Radical Political Economics:
Author Angelo Reati, an independent scholar and former United Nations economist based in Brussels, was killed in a cycling accident in July 2013. Angelo was a meticulous and open-minded scholar who believed deeply that economists have a responsibility to work towards the achievement of a more humane and more just society. His death is a great loss to the community of progressive economists. The editors wish to express their respect and affection for this true gentleman, true scholar, and true friend of humanity.
Reati's last paper, titled "A Note on Some Misunderstandings of Sraffa's System", can be seen here (subscription required).

Friday, October 10, 2014

Heinrich Bortis on Europe's Need For Classical-Keynesian Political Economy

By Heinrich Bortis
Based on theoretical reasoning this article suggests that a radically new conception of Europe is required to get out of the present economic and political crisis situation. Neo-liberal Europe must give way to a social-liberal Europe...Europe needs a new type of economic theory, classical-Keynesian political economy to wit, to shape institutions and socio-economic policies
Mind you, it's not just Europe that needs CKPE...

Read rest here (N.B. the article starts on page 4).