There’s a nice new video posted by the UK Labour Party on Twitter on the multiplier effect of spending with the complication about the propensity to consume of the super-rich vs. others.
This isn’t the first time, it has got Keynesianism right. In August last year, there was another video which got the economics right.
Paul Krugman has endorsed an article by Jason Furman and Lawrence Summers on fiscal policy. It has a mix of pre-Keynesian orthodoxy and the Keynesian thinking of the 40s.
The economics profession got it wrong on fiscal policy, claiming it is impotent for raising real output and is now making it look like they already knew this.
For comparison, here’s Nicholas Kaldor, free of all pre-Keynesian orthodoxies:
It is impossible to judge intelligently the system of taxation, or the scale of public expenditures, without a quantitative record of the total economic activity of the nation, which forms the background. This is perhaps even more important in war-time, when the Government controls so much larger a part of the national income; but it is vital in peace-time as well. If a statement of this kind had been presented year by year, simultaneously with the Budget, many financial mistakes of past Governments might have been avoided.
Moreover, the regular publication of this document would stimulate both Government and Parliament to look upon the level and the stability of the National Income, rather than the conventional and narrowly financial standards, as the true criterion of budgetary policy; to regard the movements of the national expenditure, and not merely of the expenditures of public departments, as within their province. It is on the assumption of this wider responsibility that our best hope lies for the post-war world.
– Nicholas Kaldor, The White Paper On National Income And Expenditure, 1941
There’s a new book, The Elgar Companion To John Maynard Keynes, edited by Robert W. Dimand, Harald Hagemann. Chapter 76 titled Nicholas Kaldor is written by Anthony Thirlwall.
Thirlwall reminds us of Kaldor’s dislike to enter the common market in the 70s:
The Labour Party lost power in 1970 and Kaldor had more time to campaign on two main public issues which concerned him greatly. The first was the acceptance by economists and policy-makers of the doctrine of monetarism which had spread with the virulence of a plague from the University of Chicago under the influence of Milton Friedman to infect policy thinking at the highest level in the UK. The second concerned the UK’s entry into the Common Market (now the European Union). With regard to monetarism, Kaldor led the intellectual assault worldwide against the monetarist view that inflation is always and everywhere a monetary phenomenon in a causal sense caused by excessive government expenditure financed by money creation. On the contrary, argued Kaldor, because money consists largely of credit, and credit only comes into existence if it is demanded, money is endogenous to an economy not causal in the determination of output and prices. The major cause of inflation, at least in mature industrial countries, is rising wages and other costs. Kaldor could find no evidence in the UK. or across countries, of any relationship between the size of countries’ budget deficits and measures of broad money (Kaldor 1980c). Kaldor lost the battle against monetarism in the UK, but won the war because the doctrine of monetarism is now dead.
On the issue of the UK joining the Common Market. Kaldor was highly sceptical of the alleged dynamic benefits stemming from a larger market for the export of goods and services. He argued that because imports are likely to grow faster than exports, as trade barriers come down, the UK would need to deflate the economy to preserve balance of payments equilibrium, and this would slow growth. In addition to this, the budgetary contribution would be huge, the price of food would rise leading to wage increases and Britain would be letting down the Commonwealth countries which had a preferential access to the UK market. The vote in 1975 against joining the Common Market was lost, but Kaldor appears to have been correct in his predictions. The dynamic benefits of having become a member of the European Union are nowhere to be seen. If anything, productivity growth has been slower post-1975 than pre-1975 (although other factors have also been at work).
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REFERENCES
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Kaldor, N (1980c), Memorandum of Evidence on Monetary Policy submitted to the House of Commons Select Committee on the Treasury and the Civil Service, 17 July, London: HMSO.
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Nicholas Kaldor, picture from Cambridge Journal Of Economics
Jason Hickel Features Again On Citations Needed
The latest episode of the podcast Citations Needed features Jason Hickel again who together with the hosts Nima Shirazi and Adam Johnson explain how the mainstream narrative hides the correct story about success and failure of nations by spreading the wrong idea that corruption is the main factor.
Jason Hickel: So, of course I teach on global economics and, and one of the questions I like to ask my students at the beginning of term is something along the lines of, okay, so we have this massive inequality between global north and global south, rich countries and poor countries, why do you think poor countries are so poor? And I would say, you know, 80 and 90 percent of the students will put their hands up and say they believe it’s because of corruption, you know, because the global south has corrupts leaders. But the problem with that story is it erases, you know, the history of colonization, the history of structural adjustments, the history of unfair trade arrangements. And so it’s a very de-politicized way of thinking about the drivers of impoverishment because the focus is solely on the nation states as opposed to the relationships between nation states and geopolitical regions of the world. And that’s really what I want to draw attention to.
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Aimee Terese and Benjamin Studebaker have a podcast named What’s Left.
In their latest episode they discuss the idea of “open borders”. This idea these days is presented as some sort of a binary and is frequently conflated with the idea of “no borders” with a world government among other things.
In the episode, they make a convincing case that “open borders” is a neoliberal idea serving corporate interests.
In my view, lots of things need to happen before we have have relaxed migration controls. There needs to be a coordinated fiscal expansion with a reform of WTO with planned trade with balance of payments targets. Instead we have tight fiscal policy and balance-of-payments constraint in a world of free trade. If employment creation is high, a nation can allow migrants to come in and even expand more. Tight fiscal policies constrains output and hence employment and additional labour supply from migrants becomes a cheap labour policy.
The latest Strategic Analysis report from Levy Institute.
Interesting chart and explanation:
The main reason for the relative stability of the trade and current account balances is presented in Figure 4d. Since the beginning of the recovery, the trade deficit in goods except for petroleum products has been following its precrisis trend.3 At the end of 2018 it reached its precrisis peak—and for that matter its historical peak—of around 4.4 percent. However, at the same time this increase has been counteracted by the improvement in the trade balance of petroleum goods, related to shale gas extraction. The trade deficit of petroleum goods is now close to zero, compared to 2.2 percent of GDP when shale gas extraction started in 2011 and 3 percent before the crisis. It is not then hard to calculate that, had it not been for this improvement in the petroleum products trade balance, the overall trade deficit of the US economy would be close to 7 percent, or more.
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Notes
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- To be more precise, the trade balance of non-petroleum goods started slowly improving in 2006, more than a year before the economy officially entered the recession. This improvement had to do with two main factors: (1) the slowdown of the US economy that had started already in 2006, and (2) the significant depreciation of the dollar that started in 2002 and continued up until 2008.
Alan Shipman has written a biography of Wynne Godley!
Links:
Description:
This timely biography of the economist Wynne Godley (1926-2010) charts his long and often crisis-blown route to a new way of understanding whole economies. It shows how early frustrations as a policy-maker enabled him to glimpse the cliff-edges other macro-modellers missed, and re-arm ‘Keynesian’ theory against the orthodoxy that had tried to absorb it. Godley gained notoriety for his economic commentaries – foreseeing the malaise of the 1970s, the Reagan-Thatcher slump, the unsustainable 1980s and 1990s booms, and the crises in the Eurozone and world economies after 2008. This foresight arose from a series of advances in his understanding of national accounting, price-setting, the role of modern finance, and the use of economic data, especially to grasp the interlinkage of stocks and flows. This biography also gives due attention to Godley’s life outside academic economics – including his chaotic childhood, truncated career as a professional oboist, equally brief stints as a sculptor’s model and economist in industry, and a longer spell as as a Treasury adviser with a mystery gift for forecasting.
This first full-length biography traces Wynne Godley’s long career from professional musician to public servant, policymaker, tormentor of conventional macroeconomics and creator of a workable alternative – all after escaping a childhood of decaying mansions and draconian schools, and rescuing his private world from the legacy of two Freuds. Drawing on Godley’s published and unpublished work and extensive interviews with those who knew him, the author explores Godley’s improbable life and explains the lasting significance of his work.
Chapters:
Graham Gudgin has two recent fine articles on leaving the EU:
Britain would have no voice at future WTO discussions about global tariffs
. It would simply have to accept whatever the EU agreed.
With impressive discipline, Remainers ubiquitously link the phrase No Deal to the adjectives ‘catastrophic’ or ‘disastrous’. In this, they have been greatly helped by the BBC and other media which invariably allow such descriptions to pass with no attempt to elicit any evidence.
Graham Gudgin, picture from Policy Exchange
Distributional Financial Accounts Of The United States
The Distributional Financial Accounts (DFAs) provide a quarterly measure of the distribution of U.S. household wealth since 1989, based on a comprehensive integration of disaggregated household-level wealth data with official aggregate wealth measures. The data set contains the level and share of each balance sheet item on the Financial Accounts’ household wealth table (Table B.101.h), for each of four percentile groups of wealth: the top 1 percent, the next 9 percent (i.e., 90th to 99th percentile), the next 40 percent (50th to 90th percentile), and the bottom half (below the 50th percentile). The quarterly frequency makes the data useful for studying the business cycle dynamics of wealth concentration–which are typically difficult to observe in lower-frequency data because peaks and troughs often fall between times of measurement. These data will be updated about 10 or 11 weeks after the end of each quarter, making them a timely measure of the distribution of wealth.
Also check the FEDS note and the working paper linked on the right in the Federal Reserve site.