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An Important Note By The United Nations On The IMF And The World Order

I recently came across a phrase, social silence, which Gillian Tett of FT describes:

As Pierre Bourdieu, the French anthropologist and intellectual, observed in his seminal work Outline of a theory of practice, the way that an elite typically stays in power in almost any society is not simply by controlling the means of production (i.e. wealth), but by shaping the discourse (or the cognitive map that a society uses to describe the world around it.) And what matters most in relation to that map is not just what is discussed in public, but what is not discussed because those topics are considered boring, irrelevant, taboo or just unthinkable. Or as Bourdieu wrote: “The most successful ideological effects are those which have no need of words, but ask no more than a complicitous silence.”

Very few talk of the world order and how it operates. The current world order can be described as a neoliberal. It is a system of free trade (or more generally globalization), tight fiscal policy, deregulation and privatization.

The IMF is one institutional which has been responsible for maintaining this world order. Since governments need exceptional financing, they are arm-twisted by the IMF.

A recent United Nations General Assemby notePromotion Of A Democratic And Equitable International Order, has recognized this and criticizes the IMF strongly. Many economists and pundits deny there’s something called neoliberalism but the note is open about the ideology and the word.

In fact, IMF advocacy of structural adjustment has privileged powerful corporate interests and created a vicious cycle of dependence for borrower countries. As noted by Peter Dolack:

Ideology plays a critical role here. International lending organizations … consistently impose austerity. The IMF’s loans, earmarked … to pay debts or stabilize currencies, always come with the same requirements to privatize public assets (which can be sold far below market value to multi-national corporations waiting to pounce); cut social safety nets; drastically reduce the scope of government services; eliminate regulations; and open economies wide to multi-national capital, even if that means the destruction of local industry and agriculture. This results in more debt, which then gives multi-national corporations and the IMF, which enforces those corporate interests, still more leverage to impose more control, including heightened ability to weaken environmental and labour laws.

and also:

IMF still appears more committed to the obsolete neoliberal economic
model.

The report is 18 pages long and critical of the IMF from the start to the end. Please read. You won’t find any discussion of the report in the mainstream media.

Link

Gennaro Zezza — Modeling The Macroeconomic Effects Of A Universal Basic Income

In August, Gennaro Zezza and his co-authors Michalis Nikiforos and Marshall Steinbaum had a paper for the Roosevelt Institute, studying the effects of a Universal Basic Income. The model uses the Levy Institute‘s model.

The idea is simple. If a basic income is provided for everyone, it raises domestic demand because of higher consumption and hence leads to higher output. This is easy to see if there’s no rise in tax rates. If tax rates are increased so that the income provided matches the taxes raised, it’s still a stimulus to the economy, since the propensity to consume for people with lower incomes (or no income otherwise) is higher.

From the introduction;

We examine three versions of unconditional cash transfers: $1,000 a month to all adults, $500 a month to all adults, and a $250 a month child allowance. For each of the three versions, we model the macroeconomic effects of these transfers using two different financing plans – increasing the federal debt, or fully funding the increased spending with increased taxes on households – and compare the effects to the Levy model’s baseline growth rate forecast. Our findings include the following:

  • For all three designs, enacting a UBI and paying for it by increasing the federal debt would grow the economy. Under the smallest spending scenario, $250 per month for each child, GDP is 0.79% larger than under the baseline forecast after eight years. According to the Levy Model, the largest cash program – $1,000 for all adults annually – expands the economy by 12.56% over the baseline after eight years. After eight years of enactment, the stimulative effects of the program dissipate and GDP growth returns to the baseline forecast, but the level of output remains permanently higher.
  • When paying for the policy by increasing taxes on households, the Levy model forecasts no effect on the economy. In effect, it gives to households with one hand what it is takes away with the other.
  • However, when the model is adapted to include distributional effects, the economy grows, even in the tax-financed scenarios. This occurs because the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending. In other words, the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume. Thus, even when the policy is tax- rather than debt-financed, there is an increase in output, employment, prices, and wages.

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Marc Lavoie On New Behavioural Economics

So,

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017 was awarded to Richard H. Thaler “for his contributions to behavioural economics”.

as per the Nobel Prize’s website.

In his book, Post-Keynesian Economics: New Foundations, (2014), Marc Lavoie has a nice discussion/critique on what’s called “New Behavioural Economics”:

click to view on Google Books

Anthony Thirlwall On How He Became A Kaldorian

There was a conference last year in honour of Nicholas Kaldor organized by Corvinus University of Budapest.

The papers by the speakers has now been published by Acta Oeconomica in their September issue.

Anthony Thirlwall’s paper Nicholas Kaldor’s Life And Insights Into The Applied Economics Of Growth (Or Why I Became A Kaldorian) is notable. You can access it here if you can’t access the journal.

photo via Alberto Bagnai

Excerpt:

The second paper which struck an intellectual chord was Kaldor’s address to the Scottish Economic Society in 1970 entitled ‘The Case for Regional Policies’ (Kaldor, 1970). Here, at the regional level, he switches focus from the structure of production in a closed economy to the role of exports in an open regional context in which the growth of exports is considered the major component of autonomous demand (to which other components of demand adapt) which sets up a virtuous circle of growth working through the Verdoorn effect – similar in character to Gunnar Myrdal’s theory of circular and cumulative causation in which success breeds success and failure breeds failure (Myrdal, 1957). This is one of his challenges to equilibrium theory that free trade and the free mobility of factors of production will necessarily equalise economic performance across regions or countries.

 

Link

Unsustainable Processes Of The EU

Stephen Kinsella on his new web app:

Wynne Godley’s Seven Unsustainable Processes (1999) examined the medium-term prospects for the US economy. It shows that in the United States, growth in that period was associated with seven unsustainable processes related to fiscal policy, foreign trade and payments, and private saving, spending, and borrowing. Given unchanged US fiscal policy and growth in the rest of the world, in order to maintain growth, the excessive indebtedness implied by these processes would be so large as to create major problems for the US economy and the world economy in the future. Godley was right. This web application aims to replicate Godley’s analysis for all of the countries in the EU, to see whether or not these unsustainable processes can be seen. It goes beyond Godley in forecasting each important ratio. The accompanying paper gives full details of the ratios and their construction.

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UNCTAD On The Case For A Global New Deal

The United Nations 🇺🇳 Conference On Trade And Development (UNCTAD) publishes wonderful annual reports on trade and development. These are written by heterodox authors many times. Alex Izurieta, Francis Cripps, Jayati Ghosh are a few contributors. This year’s report is here. 200 pages!

The report has detailed discussion on robots and its impact. This is quite different from what one hears normally.

From the press release:

With the United States withdrawing from its role as global consumer of last resort, recycling surpluses is a key element in rebalancing the global economy.  The report turns the spotlight on the eurozone – especially Germany – which is now running a large surplus with the rest of the world. The recent Group of 20 proposal made by Germany – a Marshall Plan for Africa – is welcome, but so far lacks the requisite financial muscle. The trillion-dollar Belt and Road Initiative of China is much bolder, even as its surplus has dropped sharply over the last two years.

The report draws lessons from 1947, when the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade and the United Nations joined forces to rebalance the post-war global economy, and the Marshall Plan was launched. Seven decades later, an equally ambitious effort is needed to tackle the inequities of hyperglobalization to build inclusive and sustainable economies.

In response to the political slogan of yesteryear – “there is no alternative” – the report outlines a global new deal to build more inclusive and caring economies.  This would combine economic recovery with regulatory reforms and redistribution policies, and do so with speed and at the requisite scale. The successes of the New Deal of the 1930s in the United States owed much to its emphasis on counterbalancing powers and giving a voice to weaker groups in society, including consumer groups, workers’ organizations, farmers and the dispossessed poor. This is no less true today.

In today’s integrated global economy, Governments will need to act together for any one country to achieve success. UNCTAD urges them to seize the opportunity offered by the Sustainable Development Goals and put in place a global new deal for the twenty-first century.

In addition, you can see the two short videos here.

A New Way To Learn Economics?

John Cassidy has a nice article titled A New Way To Learn Economics for The New Yorker on a new online introductory economics curriculum. produced by a lot of collaborators.

I went to the website which has the full book. Although there seems to be some progress, I have a strong reservation against it.

The chapter titled “Banks, money and the credit market” has a much better description on it than textbooks widely used, such as the ones by Paul Samuelson, Gregory Mankiw or Paul Krugman. On a cursory look, I didn’t find anything about the “money multiplier” model. Instead, the book says that central banks set short term interest rates and this has an effect on aggregate demand. If I missed something and if you find something orthodox, please let me know.

The chapter on fiscal policy looks like being written by fiscal hawks. There is a description of the government expenditure multiplier, which is not much different from other textbooks. There’s no mention of the more complicated nature of this process because of interactions between stocks and flows. For example, in stock-flow coherent (SFC) models, this one-step multiplier has a limited role.

Now, fiscal policy has strong effects and the book hardly does justice to any of this. It reads more like a defense of the establishment wisdom.

But it is in the area of international trade and globalization under the current rules of the game that the book is the most disappointing. The authors do tell students that it can produce “losers” but the problem of such an approach is that it doesn’t appreciate the fact that it leads to polarisation and divergences in fortunes of nations, instead of individuals. The assumption and conclusion (the same thing in most of economics!) is that if losers are compensated, fortunes of nations can converge.

This by Nicholas Kaldor, written in 1980, is change.

Not the new book, The Economy. 

As Morris Copeland emphasised, the root problem of economics is the total confusion of anyone and everyone on what money is. And his approach shows us that it’s not complicated. One just needs to study flow-of-funds or social accounting. There is hardly any emphasis of this in the book. Till then, students will remain confused and ignorant about the way the world works.

Link

Dirk Bezemer On How Wynne Godley And Some Other Economists Saw The Crisis Coming

Dirk Bezemer had investigated who saw the crisis coming and why. Now he has written a short piece for the Financial Times‘s readers.

It’s not an easy task. Many may have said that “there is going to be a crisis”. Some may even say the same thing their whole life. Even a broken clock is right twice a day!

So one has to choose some criteria to separate good analysis from fluke.

Also, What Bezemer observes is that the common theme of economists who saw it coming is the use of flow of funds accounting.

One small quibble in the latest article: Bezemer claims that lending to the financial sector “crowds out” production. I am not sure that’s the case. But it’s not important here.

The page title is the link.

Link

Alex Izurieta On The UN Global Policy Model

Alex Izurieta compares and contrasts the UN Global Policy Model with models of other international organizations such as the IMF, the OECD and the EU:

A central proposition in this essay is that global models cannot be taken to represent objective and scientific tools for policy analysis. Clearly, all models have to make simplifications and in doing so they will fail to capture some dimensions of economic reality. … Unfortunately, the dominant models proposed by the mentioned IOs ignore essential features of the socio-economic system and therefore deliver a seriously distorted view of policy impacts. Most salient are their assumptions about economic growth, distribution, fiscal and monetary policy, and their failure to address problems of global aggregation—that is, of adding up variables for each world region to account for all relevant macroeconomic factors.

Also an important point on “structural reforms”,

In a different model, such as the UN GPM, structural reforms that depress wages and increase inequality in one country have negative repercussions in other countries that tend to reduce aggregate demand in the world as a whole

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Link

Jayati Ghosh — After Neoliberalism, What Next?

Jayati Ghosh in Red Pepper: 

The question ‘what is your alternative?’ is a familiar one for most progressives, and too often we are overly defensive or self-critical about our supposed lack of alternatives. In truth, there are many economically-viable, socially-desirable alternative proposals in different contexts. The problem is not their lack of existence but their lack of political feasibility, and perhaps their lack of wider dissemination. …

While rejecting the totalising theory, it is possible to think of a broad framework around which there could be much agreement, even among people who do not necessarily identify themselves as of the ‘left’, but are nevertheless dissatisfied with current economic arrangements at both national and international levels.

The obsessively export-oriented model that has dominated the growth strategy for the past few decades must be reconsidered. This is not a just a desirable shift – it has become a necessity given the obvious fact that the US and the EU are no longer engines of world growth through increasing import demand in the near future. This means that both developed and developing countries must seek to redirect their exports to other countries and most of all to redirect their economies towards more domestic demand. This requires a shift towards wage-led and domestic demand-led growth, particularly in the countries with economies large enough to sustain this shift.