Tuesday, August 4, 2015

Public debt crisis, austerity and deflation: the case of Greece

From the new issue of the Review of Keynesian Economics (ROKE). By Marica Frangakis from the Nicos Poulantzas Institute, Athens, Greece. From the abstract:
Greece is the country in which the eurozone's public debt crisis began in late 2009. The policy response of the EU elites was to provide financial assistance on condition that a strict austerity-cum-deregulation policy is applied under the watchful guidance of the European Commission, the European Central Bank and the IMF (the so-called Troika). Five years later, the country is in an economic, social and political limbo, as a debt-deflation process has set in. Greece, however, is not a special case. Rather, it illustrates the failures of the prevailing economic and political orthodoxy in the EU. At best, it can serve as an example of the cost of ignoring the lessons of the 1930s Great Depression.
Read full text here

Monday, August 3, 2015

Galbraith on the plan B for Greece

Slow (really slow) posting this summer. Here a few links to Jamie's role on the Greek Ministry of Finance Working Group convened by Varoufakis. Here he clearly says that: "At no time was the Working Group engaged in advocating exit or any policy choice. The job was strictly to study the operational issues that would arise if Greece were forced to issue scrip or if it were forced out of the euro." So it was a plan B in case of Grexpulsion, not a tactical negotiation tool or a threat of Grexit.

Below a podcast on the same topic (first half in which Jamie is interviewed).

Again it confirms it was a contingency plan, and no there was no plan to hack taxpayer accounts to prepare a return to the drachma.

Wednesday, July 22, 2015

Who is the real revolutionary figure in modern macro, Friedman or Lucas?

Who's your daddy?

Just finished my summer macro class (last Friday actually; grades were due Monday). One of the things that always becomes important in the course is how to define the break between Keynes, or at least Keynes and the Old Neoclassical Synthesis, on the one hand, and Friedman and Lucas, in the case of the latter both the New Classical models (monetary misperception) and Real Business Cycle (RBC) models, on the other. Many authors suggest that Lucas should be considered, after Keynes himself, the great scientific revolutionary, and that Friedman's break is incomplete. It is the implicit view in Alessandro Vercelli's book  Methodological Foundations of Macroeconomics: Keynes After Lucas or explicitly in the more recent book by Michel De Vroey's Keynes, Lucas, d'une macroéconomie à l'autre.

The reasons adduced are associated to Friedman's model, which remains in many respects similar to the Neoclassical Synthesis one, that is, an ISLM with a Phillips Curve (PC) with gradual adjustment to the equilibrium position. In one sense it is true that in Lucas' equilibrium model endogenous variables are determined on the basis of real phenomenon, technology, preferences, and factor endowments. The model, which was further developed by RBC authors, emphasizes the intertemporal choices of between leisure and consumption, and the fact that production takes time, and requires inputs over several periods, and has led many to label it Walrasian, in contrast to the supposedly Marshallian model used by Friedman and the Neoclassical Synthesis Keynesians. The other significant difference is that stochastic processes, rather than deterministic ones, become relevant, and Dynamic Stochastic General Equilibrium (DSGE) became dominant [more on that in another post; issues have been dealt to some extent here].

Traditionally a Walrasian model is a General Equilibrium (GE) one, while a Marshallian model represents partial equilibrium. In that sense, the label is a bit of a misnomer, since the ISLM cum Phillips Curve model behind the Friedman’s aggregate demand and aggregate supply model is also a GE model. The Neoclassical Synthesis model solves for the simultaneous equilibrium of the goods, labor, money and bond markets. What Friedman added explicitly is the natural rate. The supply constraint.

The difference between Friedman and Lucas is really that in the Neoclassical Synthesis and Monetarist models some behavior is not derived from intertemporal maximization of individual agents, while that is not true in the RBC models. That should be seen not as a Walrasian feature, but as a result of the abandonment of the Principle of Effective Demand (PED), and the use of a Ramsey Intertemporal model to determine consumption. That is, a dynamic version of Say's Law. In that sense, like the New Classical School, the fundamental change, in this context, is that the equilibration between savings and investment is done by changes in the rate of interest, not income, and that only rigidities would deviate investment from full employment savings.

On the basis of these changes, it is hard to say that Lucas is the more revolutionary figure in modern macro. True, in Lucas framework, the main Monetarist conclusions are less effective or irrelevant. Only unanticipated monetary shocks have effects, and those are strange things to conceive. When shocks are anticipated, monetary shocks have no effects. However, when forced to discuss the Great Depression, Lucas admits that there is little evidence for the RBC view.

Lucas asks: “where is the productivity shock that cuts output in half in that period? Is it a flood or a hurricane? If it really happened, shouldn’t we be able to see it in the data?”* Lucas, even though he has accepted that most cycles are explained by productivity shocks remains convinced that the Great Depression resulted from a monetary contraction by the Fed, as in the Monetarist views of Friedman. And one wonders why that monetary contraction was unanticipated.

Also, even if more extreme, the results do not change the situation in the long run. That is, for Friedman too in the long run (anticipated or not) monetary shocks have no effects. The crucial theoretical variable is the natural rate.

In this sense, it seems that Friedman, and the return of the natural rate of unemployment, and implicitly the interest and output ones too, is crucial for explaining the return of the pre-Keynesian Wicksellian framework that is dominant with the New Macroeconomics Consensus (NMC). Even if Friedman had exogenous money, and a quantitative rule, rather than an interest one, and even if he believed in monetary shocks, rather than the real ones that Wicksell and modern macroeconomists emphasize. Modern macro is neo-Wicksellian, but it owes that to Friedman, more than to Lucas.

* Cited in DeVroey and Pensieroso here.

Friday, July 17, 2015

Lapavitsas Calls for Exit as the Only Strategy for Greek People



Lapavitsas says exit is the only option. He may be right, of course, since the European institutions are impermeable to change. Via Real News Network.

Thursday, July 16, 2015

Greece, Europe, and the United States

"A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long."

By James K. Galbraith

The full brutality of the European position on Greece emerged last weekend, when Europe’s leaders rejected the Greek surrender document of June 9, and insisted instead on unconditional surrender plus reparations. The new diktat—formally accepted by Greece yesterday—requires 50 billion euros’ worth of “good assets”–which incidentally do not exist—to be transferred to a privatization fund; all financial legislation passed since SYRIZA took control of parliament in January to be rolled back; and the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) to return to Athens. From now on, the Greek government must get approval from these institutions before introducing “relevant” legislation—indeed, even before opening that legislation for public comment. In short: as of now, Greece is no longer an independent state.

Comparisons have been drawn to the Treaty of Versailles, which set Europe on the path to Nazism after the end of World War I. But the 1968 Soviet invasion of Czechoslovakia, which ended a small country’s brave experiment in policy independence, is almost as good an analogy. In crushing Czechoslovakia, the invasion also destroyed the Soviet Union’s reputation, shattering the illusions that many sympathetic observers still harbored. It thus set the stage for the final collapse of Communism, first among the parties of Western Europe and then in the USSR itself.

Read rest here.

SYRIZA betrays the resounding NO vote of the Greek people and signs a 3rd troika austerity program

Not yet!

The Left should create a popular front against the EU

By Stavros D. Mavroudeas* (Guest blogger)

In the 5th of July 2015 the huge majority of the Greek people (61%) rejected the insolent demands of the EU for the extension and deepening of the austerity and pro-capital restructuring policies in Greece. These demands were codified in the so-called Juncker Plan for Greece that set barbaric terms for the extension of the previous austerity program (the 2nd Economic Adjustment Program for Greece) in exchange for releasing much delayed tranches of the troika loans to Greece. These tranches were urgently needed for repaying instalments of previous loans by the troika. As I have argued in a previous note (‘The Greek referendum and the tasks of the Left’) SYRIZA was led unwillingly to call this referendum because of the failure of its unrealistic program for a ‘decent compromise’ with the EU and for ‘staying in the Eurozone at any cost’. Moreover, the whole affair proved beyond any doubt that EU is a capitalist and imperialist integration that cannot be reformed towards serving peoples’ needs.

The referendum’s victory with such huge margin was unexpected even for the NO supporters. In the short one-week campaign the Greek economic and political elites unleashed a blatant terror and misinformation campaign through their mass media purporting that a NO vote would destroy Greece and that EU’s terms should be unconditionally accepted. In this unconcealed blackmail the Greek politico-economic elite was directed and abetted by the EU with direct interventions by J.C.Juncker, the German government and the rest of EU’s high priesthood. Moreover, the EU proceeded to literally slowly strangle the Greek economy by curtailing, through the ECB, the injection of liquidity to the moribund – because of the troika policies – Greek banking sector. This led the SYRIZA government – on top of foolishly (?) emptying the state coffers for paying previous troika installments – to impose capital controls the very day that pensions were going to be paid. This alienated significant portions of the middle and lower strata and turned the previously almost sure NO victory to a gamble.
On top of that, SYRIZA for almost half the campaign week dragged its feet; flirting with canceling the referendum, revoking its support for NO and with several of its prominent members and ministers covertly helping the YES coalition. Only the last two days SYRIZA actually threw its support behind the NO campaign. Last but not the least, the Communist Party also facilitated the elite’s assault by campaigning for a null vote or abstention; a move that cost it dearly in its electoral support. Only the independent and extra-parliamentary Left and grass-roots initiatives and movements fought from the very beginning for NO.

Despite all these adversities, the NO ended winning by a landslide. It was a silent landslide because in the mass media and the public debate there was a suppressing dominance of the YES instigated by the Greek politico-economic elite and by the incompetent acts of SYRIZA (particularly the banking ‘holiday’, the capital controls and the problems in paying pensions and wages). It was also a class landslide in that the working people, the peasants, the lower middle strata and overwhelmingly the unemployed youth voted for No whereas the bourgeoisie and the upper middle strata voted for YES (see http://www.publicissue.gr/en/2837/greek-referendum-2015-no-voter-demographics/).
It is now evident that SYRIZA’s leadership and systemic centers did not welcome this landslide. They expected the win of NO or YES to be by a small margin that would facilitate them to argue that there is no popular support for a confrontation with the EU and thus proceed to an agreement with EU’s high priesthood. As all evidence suggests the NO landslide caused panic not only to the politico-economic establishment and the EU but also to the SYRIZA leadership. Thus, immediately the day after SYRIZA threw away the referendum result and its clear message for a confrontation with the EU despite the financial strangulation by the EU and the pain already felt by ordinary people. A.Tsipras convened a meeting of the leaders of parliamentary political parties (excluding the neo-nazi Golden Dawn) which had either openly (New Democracy, PASOK, River) or implicitly (Communist Party) opposed the NO vote. In this meeting they all agreed – with the exception of the Communist Party – to field a new proposal to the EU that was exactly on the same lines of the rejected in the referendum ‘Juncker plan for Greece’. Moreover, after a few initial skirmishes, SYRIZA accommodated itself again with the systemic mass media that have implemented the terror campaign for YES.

EU’s high priesthood replied to SYRIZA’s new overtures by toughening its position and demanding even more austerity and anti-popular measures and threatening with the immediate strangulation of the Greek banking sector and even a Grexit. In front of this assault SYRIZA and Alexis Tsipras capitulated unconditionally and they themselves proposed a new 3rd austerity and restructuring troika program for Greece. This was a complete somersault the extent of which was unexpected even by most of SYRIZA’s harsher critics. It denotes that SYRIZA’s leadership aimed from the very beginning for a deal with the EU which they knew that it would be barbaric and they simply played for time in order to consolidate their power and their position in Greek politics. The EU played along but also indicated – and the SYRIZA leadership was fully aware of it – that a delayed deal would be more costly. In a nutshell the SYRIZA leadership delayed in order to gain ‘political capital’ at the expense of ‘economic capital’. Its last gamble was the referendum. Once this trick back-fired the SYRIZA leadership blinked and retreated in panic. It proposed not simply an extension of the previous troika austerity program under the conditions of the ‘Juncker plan for Greece’ but a new 3-year program in exchange for either a debt haircut or a debt reprofiling, a new loan and some funds for development aid.

On the other side of the fence, the EU had its own internal antagonisms. While all of them were united in blackmailing Greece to capitulate they were divided in how much pain they were to inflict after the capitulation. The French and the Italians, reminiscent of their own economic problems and the fact that their turn might come soon, were keen on milder terms. They were supported in this by the distant but non-negligible pressures by the US. The latter does not actually care about the Greek case as such but it uses it as a lever to weaken German hegemony and the ability of the EU to dispute its economic supremacy. One of the major issues of disagreement between the US (and the IMF) and Germany is whether the Greek program would involve a debt haircut or not; the former press for it and the latter bitterly oppose it.

In the end, a very onerous (for Greece) provisional deal was struck. First, in order to ‘regain the debtors’ trust’, the SYRIZA government should revoke all legislation contradicting the troika austerity program and also legislate through fast track procedures (that violate parliamentary rules) deep cuts in pensions and wages, extensive privatizations and the transfer of public property worth 50bn euros to an independent company (that initially was humiliatingly suggested to be based in Luxemburg but afterwards agreed to be in Athens). This first move essentially means that the conditions of the 5th review of the old troika austerity program should be fulfilled. Second, once this done, the EU and the ECB should slowly restore liquidity to the Greek banking sector and release some of the due funds in the form of a bridge-loan. Third, only after the legislation of several other austerity measures new negotiations would begin negotiations for a new 53bn euros loan. This new loan would comprise by old tranches, some new funds from the ESM and a 35bn euros very dodgy development plan. This last item is supposed to comprise of already available National Strategic Reference Framework (NSRF) funds that were not actually absorbed because of the deep recession of the Greek economy and the lack of proposals and supplementary national funding. Of course, all these would be under strict conditionality and a return of the despised troika in Athens for close scrutiny and control. In these future negotiations there is a vague reference that some alleviation of the Greek total debt (through either reprofiling or haircut) would be considered.

The new austerity measures are extremely recessionary and anti-labor. They cost more than 13bn euros only for the 2015-6 period that would worsen the crisis of the Greek economy. Moreover, they would be paid by the working people and the lower middle strata. Several other pro-capital structural reforms are included (e.g. mass firings, semi-automatic mechanisms for fiscal cuts if the public budget is derailed). The new 3rd austerity and restructuring program would push Greek economy and society further down towards impoverishment and Balkanization. They will definitely foment popular discontent as already shown from the current popular mobilizations.

This grave situation poses a serious challenge for the Greek Left. One futile course is followed by the SYRIZA left. They voted against the deal but support the government and refuse to leave the party. This will expose them to popular wrath as willing or unwilling accomplices to the new austerity. The second futile course is that of the Communist Party that preaches the coming of socialism as a solution to everything while at the same time recognizing that this is not on the current agenda. At the same time refuses to fight against the EU because it considers this as intra-capital antagonism. This alienates it from and rank and file communists and the working people as it does not offer a solution to the immediate popular problems and a transitional program for social change. If these two dead alleys prevail then only the extreme Right would remain as the receiver of popular discontent and wrath against the EU and its austerity.

It is of paramount importance for the Left not to leave the field free to the extreme Right as it had happened in West Europe. A Left popular front against the EU should be urgently organized. This should involve political forces and grassroots popular organizations, fight austerity and capitalist restructuring and strive for the total disengagement of Greece from EU (that is for a popular Grexit involving leaving the whole structure and not solely the monetary union). It is the task of the independent and militant Left and the combatant forces of labor to instigate this front.

* Stavros Mavroudeas is a Professor of Political Economy in the Economics Department of the University of Macedonia.




Web: http://stavrosmavroudeas.wordpress.com

Wednesday, July 15, 2015

Europe in its Labyrinth, Greece on its Knees

The results of the new Greek bailout announced Sunday should not be a surprise. The program requires tax increases, pension cuts, weakening of collective bargaining clauses, and “ambitious” primary surplus targets, which would require € 13 billion in spending cuts, in exchange for € 50 billion to avert default and the collapse of banks. The adjustment program will deepen the already incredibly prolonged and severe collapse of the Greek economy. It implements a draconian fiscal adjustment, that has utterly and visibly failed, and that was overwhelmingly rejected by the Greek people in a referendum last week. In many ways Prime Minister Alexis Tsipras and Syriza had an impossible mandate, to remain in the Eurozone, and to deflect the austerity policies that are the only solution accepted by the Troika – the European Commission, the European Central Bank, and the International Monetary Fund.

Also, the proposed program is not the end of the story. It is unclear that the new agreement would pass in the Greek parliament, and it seems that several members of Tsipras’s party will vote against it. Left Platform, a subgroup of Syriza, would most likely vote against it. If the bailout is approved, which seems probable, it will be with the support of the traditional parties and ultimately with those that supported the Yes vote in the referendum. In that sense, those that suggest the bailout was a coup d’état, and that it undermined democracy are on the right track.

...

Originally published in The Wire. Read rest here.

Tuesday, July 14, 2015

Thanks to the departure of an arrogant negotiator, serious negotiations can now begin

Via the Economistes Aterrés blog a dispatch from the 1919 Peace negotiations.


Thanks to the departure of an arrogant negotiator, serious negotiations can now begin

The negotiations on the Treaty of Versailles have so far been disrupted by the attitude of a British negotiator, a certain John Maynard Keynes. He has a flamboyant personality and dubious morals, and has consistently employed an arrogant and professional tone to crush other negotiators with his contempt.

Ignoring the elementary lessons of economics, Mr Keynes has argued that countries running current account surpluses, and which have made significant efforts, are just as responsible as countries running deficits in creating economic imbalances. Moreover, he has asserted that in times of underemployment, the surplus countries should spend more, thereby encouraging prodigality. He has claimed that in periods of economic hardship, public spending should be increased, and has mocked officials who naturally believe that a country cannot increase its output by spending less in order to save more. He has supported the view that Germany should be allowed to reconstruct its economy by cancelling its debts, whereas crushing Germany under the weight of repayments would push the country into misery, and so encourage its far right. In fact, it is of course clear that even a partial cancellation of debts would set a dangerous precedent, and favour waste. Lastly, he has called on all countries to scrap policies decided unanimously, which support the return to gold parity at pre-war levels. Moreover, he has claimed that this objective is not only costly and unfeasible, but has also been responsible for Europe’s weak growth, while Mr Keynes has refused to accept that wages are excessive.

Having alienated all the reasonable representatives and delegations, Mr Keynes has chosen to resign. This is good news for peace in Europe.

Original in French here.

Monday, July 6, 2015

The Greeks Have Said No to Failed Policies, Not to Europe or the Euro


The referendum that just took place in Greece in which 61.3% of voters rejected the terms of an international ‘bailout’ package should not be read as a vote in favour of leaving the euro. The ‘No’ vote – όχι in Greek – is, as correctly pointed out by James K. Galbraith, the only hope for Europe. On the other hand, it may very well be used by the Troika – the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF) – as an instrument for expelling Greece from the monetary union. If that happens, we have a Grexpulsion and not a Grexit, the more common name for the abandonment of the euro. After all, it is very clear that SYRIZA knows that the costs of leaving the euro may very well outweigh the advantages, and that Greece is not Argentina, as noted by its Finance Minister (as it turns ex) Yanis Varoufakis recently.

The relationship between West European powers and the Greek Left has been problematic for a long while. In the aftermath of World War II, the British and then the Americans, sided with collaborationists, rather than with the resistance, which had communist leanings, and was seen potentially allied to the Soviets. As Tony Judt says of Greece in Postwar: A History of Europe Since 1945, “despite a significant level of wartime collaboration among the bureaucratic and business elites, post-war purges were directed not at the Right but the Left. This was a unique case but a revealing one.” The British and Americans preferred a conservative government, even if it meant dealing with businessmen who had collaborated with Fascists, rather deal with a communist or socialist threat.

Read rest here.

Sunday, July 5, 2015

No we can!


Nobody knows what it means yet, but the no vote is the only one that at least gives some hope.