Monthly Archives: June 2023

Michael A. Landesmann On Nicholas Kaldor On The Centrifugal Forces At Work In The Euro Area

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I have noted many times since the Euro Area crisis started how Nicholas Kaldor foresaw it much earlier than anyone else. The year: 1971 ‼

I came across this article Nicholas Kaldor And Kazimierz Łaski On The Pitfalls Of The European Integration Process by Michael A. Landesmann, published in Dec 2019, which is really good. I like the phrase centrifugal forces in the abstract, as the Euro Area is designed to cause countries in it to fly apart.

An interesting snippet:

In sum, Kaldor’s analysis of the pitfalls of the Common Market comprises three components:

  • the almost unavoidable processes leading to ‘structural external imbalances’;
  • the detrimental impact of the Common Agricultural Policy (CAP), for a country like the UK …
  • the fact that external imbalances would result in a ‘deflationary bias’ in the deficit countries … This tendency would be strengthened in a fixed exchange-rate regime and, even more so, in a monetary union that would not be complemented by a fiscal union.

…

Kaldor’s analysis points to an issue that is of central importance in the set-up of the EC (and continues to be of great relevance in the EU): the likelihood of what he calls the emergence of ‘structural (external) imbalances’. He refers in this respect to G. Myrdal’s ‘circular and cumulative causation’ processes … Which are the cumulative processes that Kaldor alludes to when predicting that integrated groups of countries will experience ‘structural external imbalances’?

Economists On US Manufacturing And Trade

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Recently, Paul Krugman wrote two articles in The New York Times on recent surge in US manufacturing: Making Manufacturing Great Again (June 6, 2023) and Making Manufacturing Greater Again (April 20, 2023).

Post-Keynesians stress the importance of manufacturing and exports/international trade. Before the economic and financial crisis which started in 2007, Wynne Godley was worried about all this and proposed to improve exports and take measures such as imposing non-selective protectionism, as he thought—rightly—that a crisis would happen and fiscal policy should be used and would be used but that alone will not be sufficient. In other words, the market mechanism won’t do the trick.

The reason manufacturing is important is because of the potential for expansion of exports.

Economists however have been denying all this. Especially with the rise of Donald Trump when attempts to improve the US balance of payments/international investment position were looked upon as clownish. But now the establishment has accepted that it needs to be addressed. But they don’t want to accept that they were behind. At the same time, Joe Biden has gone beyond measures that Trump has taken.

However, there are many economists who still live with old dogmas. For example, see Adam Posen’s article America’s Zero-Sum Economics Doesn’t Add Up for Foreign Policy.

So we have two types of mainstream economists: a) those who grudgingly accept that they were wrong and b) who are still wedded to dogmas.

There’s of course a limit to this, so the solution to the problems lie in disbanding the system of free trade and move toward a system of balance-of-payments targets.