January 2013

Trade Elasticities, Floating Exchanges And Debt Sustainability

30 January 2013

[Although the following is a response aimed at one comment, it can be read in general] In my post on the connection between balance of payments and debt sustainability, I got a “you are wrong” comment saying the analysis is based on the notion of trade elasticities which doesn’t exist (or is a chimerical notion) […]


Mario Draghi – Euro Saviour?

26 January 2013

Recently Mario Draghi, the European Central Bank President, has been going around telling everyone that “fiscal consolidation” is the absolutely essential to resolve the Euro Area crisis, given some positive developments. Although, this view of his is known and this has had a big influence on policy, he has become more and more vocal about […]


The Beggar-My-Neighbour Game

19 January 2013

How did Keynes and the Cambridge Keynesians (such as Joan Robinson, Richard Kahn, Nicholas Kaldor and Wynne Godley) think the world economy works? A few important principles relevant here and of course not exhaustive: First, real demand, output and employment is determined by the fiscal and monetary policies of the government with the former having […]


Claims Economists Make

17 January 2013

Economists struggle with simple things. Two examples. National Saving, Trade Deficits etc. In a blog article Has Anyone Heard of the Trade Deficit?, Dean Baker uses the sectoral balances identity to make a claim which is presented like a no-go theorem. Baker says: Fans of arithmetic (a tiny minority among DC policy types) like to point […]



14 January 2013

I was very happy to have found a small mention in a recent Wired article on the “one trillion coin” – till the idea was killed by the U.S. Treasury and the Federal Reserve. You may have certainly heard of the proposed $1T platinum coin even if you are not from the United States. The United […]


“Free Trade Doctrine, In Practice, Is A More Subtle Form Of Mercantilism”

10 January 2013

Dani Rodrik has written a very interesting article The New Mercantilist Challenge for Project Syndicate.  Perhaps it is the main aim of this blog to argue how the sacred tenet of free trade is devastating to the world as a whole and why a sustainable resolution of a crisis can only be achieved by new international agreements on […]


Wynne Godley And The Dynamics Of Deficits And Debts

5 January 2013

In a five-part series in his blog, Functional Finance and the Debt Ratio Scott Fullwiler claims that if the interest rate is held below the growth rate of output, sustainability of the public debt/gdp ratio is guaranteed in the sense that the ratio converges and does not keep increasing forever. This is erroneous and his conclusions are […]