How one Swedish teenager armed with a homemade sign ignited a crusade and became the leader of a movement

ROLLING STONE MARCH 26, 2020

https://www.rollingstone.com/politics/politics-features/greta-thunberg-climate-crisis-cover-965949/

ONLY TWO COVID-19 MONTHS AGO, BUT IT FEELS LIKE A YEAR

Trump Economic Advisor Reduces Workers to ‘Human Capital Stock’

HASSETT REVEALS THE REAL SOURCE 

OF CAPITAL'S  WEALTH

“Our capital stock hasn’t been destroyed, our human capital stock is ready to get back to work,” Kevin Hassett said

WIPE THAT SMIRK OFF HIS FACE

CNN’s Dana Bash and Senior White House Economic Adviser Kevin Hassett.
CNN/Screencap

By  PETER WADE  MAY 25, 2020

While discussing whether the U.S. economy might recover this fall after the coronavirus downturn, a Trump economic advisor referred to the American worker as “human capital stock.”

Senior White House Economic Adviser Kevin Hassett made the wildly insensitive remark, first flagged by Aaron Rupar on Twitter, on Sunday after CNN’s Dana Bash asked whether unemployment numbers would remain in double digits come November.

“Our capital stock hasn’t been destroyed, our human capital stock is ready to get back to work, and so there are lots of reasons to believe that we can get going way faster than we have in previous crises,” Hassett said.
pic.twitter.com/TCPj4rbgHU
— PoliticsVideo23 (@politicsvideo23) May 25, 2020

Calling people “stock” is next level apathetic, and the way Hassett used the term so casually lines up with the lack of empathy shown to the victims of the coronavirus by Trump’s administration and Republicans since the crisis began months ago.

Trump has moved ahead with attempts to cut food stamps during the crisis while Republicans in Congress have balked at passing a second stimulus package and are looking to phase out coronavirus-related unemployment benefits.

Hassett was also asked about increasing funding for food stamps and said he hadn’t raised the topic with Trump, saying, “I have not discussed with the president.”

Hassert also called the requests for additional funding coming from states “absurd” and “radical.”

“There’s already a lot of money for state and local governments… I think that a lot of the requests for state and local bailouts that you’re seeing out there up on the Hill are, like, radically, radically more money than the expected shortfall for the year… And the requests are kind of absurd,” Hassert said.

A thoughtful and commonsense debate can be had about whether or not the funding requests from states are “absurd.” But calling human beings “stock” — especially as essential workers are putting their lives and bodies on the line right now — is undeniably absurd and heartless.

IN CAPITALISM THERE ARE TWO FORMS OF CAPITAL

FIXED; BUILDING, LAND, MACHINERY, RAW MATERIALS

VARIABLE: LABOUR

ONLY THROUGH LABOUR IS VALUE CREATED

THAT RED REVOLUTIONARY SCOTSMAN ADAM SMITH

What Happened to America’s Mayor?

Rudy Giuliani was once a national hero who refused to let Donald Trump buy him breakfast. 

How did he become who he is today?

WHERE'S RUDY?
WHO WANTS TO KNOW?!
HE DISAPPEARED RIGHT AROUND THE IMPEACHMENT

NOBODY I KNOW MENTIONED NO CEMENT SHOES

By SETH HETTENA

Spencer Heyfron/Redux

This story appears in the June 2020 print edition of Rolling Stone.

Not long ago, Rudy Giuliani was traveling in a car across New York City with Jon Sale, his longtime friend, when some construction workers saw the former mayor and approached the vehicle. Giuliani lowered the window. “One of them,” Sale recalls, “said, ‘Mr. Mayor, I would like to shake your hand and thank you for what you did for New York. I wish you were still mayor.’ ”

This happens a lot to Rudy Giuliani, and it reflects what he once represented to most Americans: a man whose steady response to the attacks of September 11th, 2001, transcended partisan politics and transformed him into a national hero. Christened “America’s Mayor,” Giuliani for years was an immensely popular figure who appeared destined for a lucrative, decorated career at the spires of American business and government.

Two decades later, Giuliani is in free fall. The past few years on the national stage have left his reputation in tatters, marked in history for his role in the Ukraine extortion scandal that got a president impeached. He has seemed, at times, unstable and incoherent, contradicting both himself and the president in wild appearances on cable news, while spinning a web of conspiracy theories with Joe Biden at the center.


Giuliani’s ever-dwindling circle of friends — “I got about five friends left,” he was overheard telling someone near a reporter for the New York Daily News in one of his frequent phone mishaps — maintains that Rudy is still Rudy. A bit older at 76 (as of May 28th), sure, but still the same brash maverick he always was, and anybody who says otherwise has an ax to grind.

But others, even those with a deep affinity for Rudy, have been stunned as a man they barely recognize pokes at his iPad in Fox News interviews or drools through a boozy lunch with a reporter. Raoul Felder, his divorce lawyer, tells Rolling Stone “the Rudy Giuliani that I knew was a very careful, brilliant lawyer. . . . It’s hard to comport what I see and the way he was.”

Rick Wilson, the GOP political consultant who credits Giuliani with making his career, says he will defend to his dying breath the Giuliani of 9/11, but he adds, “It’s a cliché that if you live long enough, you’ll see your heroes become villains.”

As Giuliani’s friends have slipped away over the years, some have been replaced by people who the Rudy of 35 years ago would have put in prison. Now, the U.S. attorney’s office he once ran is taking a hard look at his Ukraine activities, while many in the White House view Giuliani as toxic and blame him for the president’s impeachment.

FEATURE ARTICLE LONG READ

https://www.rollingstone.com/politics/politics-features/rudy-giuliani-new-york-trump-997712/

Pompeo is helping Trump destroy US credibility around the world — according to a former assistant secretary of state


May 25, 2020 By Alex Henderson, AlterNet



President Donald Trump has made it abundantly clear that he prefers loyalists in his administration. And Trump has no greater loyalist than Secretary of State Mike Pompeo, whose unquestioning devotion to the president is the focus of a scathing op-ed by Michael H. Fuchs (former deputy assistant secretary of state for East Asian and Pacific affairs) for The Guardian.

“Donald Trump’s disdain for the people, country and values his office is supposed to represent is unmatched in recent memory,” Fuchs asserts. “And he has found in the secretary of state, Mike Pompeo, a kindred spirit who has embraced his role as Trumpisms number one proselytizer to the world.”

Fuchs cites the recent firing of former State Department Inspector General Steve Linick as a glaring example of Pompeo’s adherence to Trumpism. Linick’s cardinal sin, in Pompeo’s mind, was that he was not a devoted Trump loyalist — and for that reason, he had to go.

“Pompeo doesn’t wield nearly as much power or have the jurisdiction to inflict damage on as wide a range of issues as the president,” Fuchs notes. “He’s not as crass or erratic as Trump, and his Twitter feed seems dedicated more to childish mockery than outright attacks. But when it comes to foreign policy, Pompeo’s penchant for undermining America’s credibility is top-notch.”

Pompeo, Fuchs explains, deeply resented the scrutiny he was getting from Linick.

“According to news reports,” Fuchs notes, “Pompeo was being investigated by the inspector general for bypassing Congress and possibly breaking the law in sending weapons to Saudi Arabia, even though his own department and the rest of the U.S. government advised against the decision. He was also supposedly organizing fancy dinners — paid for by taxpayers — with influential businesspeople and TV personalities that seemed geared more towards supporting Pompeo’s political career than advancing U.S. foreign policy goals. And he was reportedly being scrutinized for using department personnel to conduct personal business, such as getting dry cleaning and walking his dog.”

During the Ukraine scandal, Fuchs recalls, Pompeo “defended Trump while throwing under the bus career State Department officials, like the ousted U.S. ambassador to Ukraine. Marie Yovanovitch, who spoke out.” Moreover, Fuchs adds, Pompeo “has regularly ignored Congress, withholding documents from lawmakers — including during the Ukraine impeachment investigation – and refusing to appear for testimony.”

Fuchs concludes his op-ed by stressing that when Trump damages the United States’ credibility in the world, he does so with Pompeo’s help.

“The fish, they say, rots from the head,” Fuchs asserts. “And Pompeo, like his boss, is actively undermining the values embodied by the state department, its professionals and the Americans they represent.”

Is planet Earth as a whole likely to be wage-led?

Arslan Razmi

Keywords: demand regime; income distribution; wage-led growth; neo-Kaleckian open-economy models

Published in print:Jul 2018

Category:Research Article

DOI:https://doi.org/10.4337/roke.2018.03.01

Pages:289–306

Download PDF (145.9 KB)

Open-economy considerations that create the possibility of ‘beggar-thy-neighbor’ effects offer one explanation for why the relationship between distribution, demand, and growth may be complicated in the short run. Several authors have argued recently, however, that even if demand and growth are profit-led in many individual countries, the global economy is likely to be wage-led since the planet as a whole runs balanced trade. This paper shows that this argument, while intuitively appealing, does not hold up to careful examination. Although the world economy as a whole is a closed system, it is not isomorphic to a closed economy, thanks to repercussion effects, relative price movements, and cross-country heterogeneity. Using asymmetries in consumption as a simple illustrative device I show that, in a two-country world, the effects of global redistribution depend on the nature of the constituent economies. This conclusion holds in spite of balanced trade at a planetary level, and regardless of whether one or both economies have excess capacity or whether zero-sum effects are present or not.

A global macroeconomics – yes, macroeconomics, dammit – of inequality and income distribution

James K. Galbraith

Published in print:Jan 2019

Category:Research Article

DOI:https://doi.org/10.4337/roke.2019.01.01Pages:1–5

Download PDF (53 KB)


This article does not contain an abstract

Full Text

According to an approximate count, there are 848 sub-categories in the classification codes of the Journal of Economic Literature. Of these, five relate to income inequality. Two are classed under Microeconomics: D31 ‘Personal Income, Wealth and Their Distribution’ and D33 ‘Factor Income Distribution.’ Two are classed under ‘Health, Education and Welfare’: I14 ‘Health and Inequality’ and I24 ‘Education and Inequality.’ One is classed under Labor: J31 ‘Wage Level and Structure/Wage Differentials.’

Under Macroeconomics there is nothing, unless you count E25 ‘Aggregate Factor Income Distribution,’ which surely means the analysis of factor shares – Wages, Profits, Rent – also known as the functional distribution. Under International Economics there is no reference to inequality at all. Nor under Development Economics. Simon Kuznets, whose immortal 1955 presidential lecture predates – I believe – the JEL classification scheme, is spinning in his grave.

So if your interest is in the global macroeconomics of inequality – in the personal or household distribution or pay structures considered over time and across continents and countries, you are what is known in the technical literature as shit-out-of-luck. From a formal standpoint. So far as the American Economic Association is concerned, affecting the structure of journals and the assignment of referees, you have nowhere to publish, no place to go. It is, therefore, nice to be here.

There are perhaps two main reasons why the study of economic inequality has been ghettoized in this way: the theory and the data. From a theoretical standpoint distribution is the essence of micro, of market relations and of supply-and-demand. The discipline exists, largely, to explain factor returns. If it doesn't explain – I don't say ‘justify’ – the pay of the worker and the return to capital, then the rest of what it does would not sustain it.

The data element stems from the preference of empirical microeconomists for sample surveys, focused on the characteristics of persons or households, amenable to econometric estimations, capable of addressing venerable preoccupations with race, gender, age, and education. Against these advantages, applied economists sell their souls. They sacrifice control over their research agenda to the designers of surveys. They cannot ask questions about matters not already covered – or at least implicit – in the survey instruments. Which, very often, they did not design and cannot control.

And by considering that surveys are all there is, economists limit the reach of their research to those places and times where surveys were actually taken. This is a problem because surveys are expensive. The survey record in much of the world is therefore sparse, and where surveys do exist they were often taken for differing situations by different teams with differing concepts and methods and research agendas. This makes comparative and historical work difficult and results often inconsistent, even on the most basic issues, such as the definition of income or the nature of the survey unit, especially if the unit is something so malleable and socially constructed as the household.

Wynne Godley correctly insisted that economic models should respect the rules of accounting and the laws of arithmetic. In particular, he urged that the parts should add up and that changes in stocks should be consistent with flows. These maxims are not entirely unrelated to the idea, advanced by Robert Lucas, that there should be a consistent relationship between micro and macro observations.

Let me stand with Lucas on this point. The division of our subject between micro and macroeconomics is a political compromise that originates with the ‘neoclassical synthesis.’ It exists to permit the coexistence of mortally opposed and inconsistent worldviews within academic economics. It cannot be defended. It is a source of intellectual embarrassment, as well as of bewilderment for students. Christmas exists, as economists know, only so the more discerning and therefore troubled undergraduates can forget the first semester before moving on to the second.

But having made a correct point about the folly of teaching two incompatible subjects, both as received truths, within the same discipline, Lucas made the wrong choice. He decreed that micro takes precedence – that the house is built on microfoundations. Godley did not have patience for this. Surely the house is better built on solid steel-and-concrete pilings, on macrofoundations, with micro-shingles on the roof? To switch metaphors, perhaps the tree has macro-roots and micro-leaves?

Ping Chen showed years ago that if the underlying micro-units – the households of the neoclassical imagination – are truly independent in their preferences and their actions, then the law of large numbers precludes fluctuations in aggregate GDP on the scale observed. Indeed if households had independent preferences as micro-theory insists, changes in aggregate behavior would be several orders of magnitude smaller than what we observe. Animal spirits, herd behavior, are indispensable to understanding our world as it actually exists.

But if investors, consumers, and governments run in herds, if they are guided by habits and institutions, then it follows immediately that disaggregation past a certain point is pointless. No additional information is gained, by going to the micro level, while time and effort and computational power are wasted. Cut a salami as fine as you like, each slice is still a slice of salami. You don't learn anything more about how it is made.

Let me therefore advance a Godley-like proposition about inequality. The first and second moments of a distribution are not actually independent. The study of one should be consistent with the study of the other. The growth of the whole, when it occurs, is usually driven by the differential growth of certain parts, and therefore entails changes in inequality. In general, a small number of macro- or meso- economic forces should be sufficient to explain changes in both the average level and the dispersion of a distribution. Given sufficient data, a search for macrofoundations can proceed.

Obviously for reasons already given the data cannot come from surveys. Nor can they come from tax records. Apart from the occasional virtue of separating capital from labor income, for comparative purposes tax records are in some ways worse than surveys. Tax records of income are dependent on tax law definitions of income, and on the effective enforcement of the tax code. In these matters only a handful of countries have reliable data and many have no data at all, and those with good data sometimes change their legal definitions so that the meaning of top-share statistics changes over time. And while tax havens should be suppressed for many reasons, the key one from a research standpoint is that they are a data black hole.

Is there a substitute? Is there anything else? Actually there is: a plentiful, abundant substitute lying in plain sight. Administrative data on payrolls and employment by industry and sector, as well as on incomes and populations of political jurisdictions at all geographic levels, are ubiquitous. They are the routine work-product of functioning governments for at least a half-century and often more. And while the observational frame is necessarily limited – just as a window allows only a sliver of the sky to be seen – the fractal or self-similar character of income and pay distributions means that often – not always, but often – what you see when you measure inequality across these accounting categories is a faithful simulacrum of the evolution through time of the entire distribution.

The core properties of self-similarity and macrofoundations have underpinned the research of the University of Texas Inequality Project for several decades. We have demonstrated the capacity of even relatively coarse category schemes to generate inequality measures that effectively track available survey measures of inequality. We have demonstrated the capacity of harmonized industrial classification schemes to generate inequality measures that effectively track the relative levels of inequality across countries – so far as these can be measured by surveys – almost everywhere in the world. We have demonstrated the capacity of the elements of a Theil statistic to illustrate the sources – whether geographic entities or industries or sectors – of a rise or decline of inequality through time. Most important, we have demonstrated the capacity of these data sources to fill in the historical record left uncovered by survey instruments.

There is another advantage: cost and speed. I note that Professor Piketty, along with a hundred colleagues, has just released a World Inequality Report, with sections on the evolution of global income and nine chapters giving details on – nine, just nine – particular countries and regions. Overall this work now covers up to sixty countries, as against about 150 in the UTIP data sets, from 1963 forward. Among the great findings, we read: ‘most countries saw rising inequalities in the 1980s.’ Oh wait. That sentence isn't actually from Piketty in 2018, although something similar – ‘At the global level, inequality has risen sharply since 1980’ – can be found there. The first sentence is from Inequality and Industrial Change, edited by James Galbraith and Maureen Berner, published by Cambridge University Press in 2001. Seventeen years ago, if I calculate correctly. Similarly for findings of declining inequalities in Latin America after 2000; similarly for the first measures showing declining inequality after the mid 2000s in China; similarly for Russia. Survey takers and tax records get there eventually; my students and I got there first.

Jim Tobin was the American Keynesian mainstream macroeconomist who came closest to appreciating that Keynes was above all a monetary theorist. Tobin fought a valiant but losing battle against the rise of monetarism, against rational expectations and structure-free macroeconomic data exercises of the vector-autogressive type. He insisted on the diversity of monetary and financial instruments and the centrality of portfolio theory. He was not a fan of the neutrality of money and encouraged my early work on the House Banking Committee in developing quasi-coercive or at least effectively annoying congressional oversight of the Federal Reserve. I think that Jim would have appreciated the answer to which our work now points: that financial power, financial policy, and financial dispositions are the driving force behind the rise of inequalities the world around.

Here are the key findings of our work.
There are global turning points in the path of pay inequality. They occur around 1971, around 1980, and around 2000. These correspond in each case to major shifts in the worldwide financial regime: to the breakdown of Bretton Woods, to the outbreak of the global debt crisis, and to return to low interest rates and rising commodity prices that followed the NASDAQ slump and the 9/11 attacks, along with the rise of China in world trade. Inequality as a global trend fell after the first turning point, rose sharply for two decades after the second, and stabilized or declined slightly after the third. From these facts, we know that global forces, and not idiosyncratic national forces dependent on the whims of national policymakers, are mainly driving the movement of inequalities around the world.
We know also that there are regional patterns, corresponding to patterns of economic integration, so that again the national or the local market unit is not the correct one with which to analyse inequalities.
There is a close correspondence between pay inequality measured across industrial sectors and income inequalities measured across households, for most countries for which both types of information exist. The advantage of pay inequality measures is that one can compute many more of them, filling in the global coverage and the historical record. No doubt, tax records can supplement this information for top earners, but for broad international comparisons they aren't available, while the varying coverage of tax filers and definitions of income and of households makes comparative information from tax files problematic.
Institutions and political changes and wars and revolutions affect the timing and abruptness of changes in inequalities, largely dictated by outside pressure.
We have learned that there advantages to maintaining relatively low and stable inequalities over time. Countries with more compressed pay and income structures have consistently better unemployment performance than those with higher inequalities – contrary to the mainstream call for ‘labor market flexibility’ and for the obvious reason, among others, that high inequalities provoke inefficient job searches; people leave the bad jobs in the hopes of landing one of the good ones. Further, countries with lower pay inequalities may enjoy higher rates of productivity growth over time, as their economic climate is more favorable to advanced technologies and less tolerant of low-end businesses that require low-end labor. This is the Scandinavian model.
We have learned that inequality rose primarily from 1980 through 2000 with some stabilization thereafter. The patterns correspond to the debt crisis, the collapse of communism and the Asian crisis, in sequence. And as inequalities rose, sector and geographic data point almost everywhere, including in Russia and China, to the dominant role of finance. The rising share of income appropriated by the financial sector corresponds closing to the rising relative incomes of financial capitals, such as New York, London, Paris, Moscow, or Shanghai.
The existence of common global and regional patterns, corresponding to major financial developments on the world scale, establishes that in the relative scale of things, local labor market phenomena are, for practical purposes, nearly negligible; their weight in inequality changes is essentially nil; they are a distraction. There is no ‘race between education and technology’ that plays a meaningful role in the structure of wages.
We have learned that pay inequalities and the degree of industrialization together largely determine the inequalities of income between households, as measured by surveys. There are some further factors and forces at work, such as capital incomes and the changing structure of households over time. But if you know the structure of industrial pay and the degree of industrialization, you can calculate the survey-based measures of gross household income inequality for most developed and transitional economies, and for many developing economies as well, to within a few Gini points.
As for what determines the movement of pay inequalities? We have found, finally, that the movement of exchange rates, usually if not invariably against the dollar, is a major determinant of the movement of pay inequalities – which as I've just said is a major determinant of the movement of measured household income inequalities. The line of causation, here, is unambiguous. It flows from the international capital markets to pay inequalities to household income inequalities – and so strongly confirms that the movement of inequalities is, indeed, a global, macroeconomic, and precisely Keynesian phenomenon, a matter of speculative developments having real – and often very harsh – effects.In closing, let me say a few words about how we came to these conclusions. We did not start from any fixed theoretical view. My students in the early days were trained in physics, operations research, accounting, and political science. None had a strong theoretical training in economics. Instead we set out in Chinese fashion, to ‘seek truth from facts.’ A fortuitous background, on my part, in exploratory data analysis and numerical taxonomy helped set the path. A colleague at the LBJ School introduced me to Theil and his statistics. Only when the patterns emerged from the data did the truth – as we have come to understand it – emerge from the facts. Godley was right. Tobin was right. Keynes, Minsky, and John Kenneth Galbraith were right. Those are facts; our work serves to document those facts, and that is quite enough.


BIBLIOGRAPHY


Alvaredo Facundo , Chancel Lucas , Piketty Thomas , Saez Emmanuel & Zucman Gabriel , ' ‘World Inequality Report 2018,’ ', ( World Inequality Lab , Paris 2018 ).
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Galbraith James K. , Created Unequal: The Crisis in American Pay , ( The Free Press , New York 1998 ).
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Galbraith James K. , Inequality and Instability: A Study of the World Economy Just Before the Great Crisis , ( Oxford University Press , New York 2012 ).
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Galbraith James K. , Inequality: What Everyone Needs to Know , ( Oxford University Press , New York 2016 ).
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James K. Galbraith & Maureen Berner (eds), Inequality and Industrial Change: A Global View , ( Cambridge University Press , New York 2001 ).
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Related work on-line at http://utip.lbj.utexas.edu .

Affiliations

Galbraith, James K. - Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin, USA

The Godley–Tobin lecture*: Keynesian economics – back from the dead?

Robert Rowthorn

Keywords: macroeconomics; Keynesian economics; Keynes; MMT

Published in print:Jan 2020  

Category Research Article

DOI:https://doi.org/10.4337/roke.2020.01.01Pages:1–20

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This paper surveys some of the main developments in macroeconomics since the anti-Keynesian counter-revolution 40 years ago. It covers both mainstream and heterodox economics. Amongst the topics discussed are: New Keynesian economics, Modern Monetary Theory, expansionary fiscal contraction, unconventional monetary policy, the Phillips curve, hysteresis, and heterodox theories of growth and distribution. The conclusion is that Keynesian economics is alive and well, and that there has been a degree of convergence between heterodox and mainstream economics.

1 INTRODUCTION

When Thomas Palley asked me to give this year's Godley–Tobin Lecture, he suggested that I might present my views about modern developments in macroeconomics. At first, I baulked at the idea of covering such a vast field, but then I decided it would be an interesting challenge.

To the extent that there is one, the underlying theme of my lecture is that, since the initial anti-Keynesian counter-revolution 40 years ago, Keynesian economics has made something of a comeback. It would be an exaggeration to say that ‘we are all Keynesians now’, but surveys indicate that many leading economists in the USA and the UK have Keynesian sympathies (CFM 2014; IGM Forum 2014).

2 BACKGROUND

Forty years ago macroeconomics was dominated by Keynesians. Many of their views could be traced back to Keynes, although there had also been various innovations by authors such as Alvin Hansen, John Hicks, Abba Lerner and William Phillips. The defining features of Keynesian economics included a rejection of Say's law: the notion that supply creates its own demand; the paradox of thrift whereby an attempt to save more may result in less total saving because of its negative impact on aggregate income; a clear distinction between saving as abstention from consumption and investment as expenditure on productive capital; the view that saving and investment are brought into equality by variations in aggregate income.

Keynesians believed that a capitalist economy is crisis-prone and in the absence of an external stimulus may get stuck in a prolonged depression. They believed that conventional monetary policy is ineffectual in such a situation – ‘like pushing on a string’ – and that fiscal policy (tax cuts, more government expenditure) is a more effective way to promote recovery. This was probably their most important tenet. Some Keynesians believed that persistent unemployment is explained by the (inescapable) downward rigidity of money wages. Others disagreed. Some Keynesians believed in the existence of a stable trade-off between unemployment and inflation (the Phillips curve). Some believed in the importance of dynamic returns to scale (Verdoorn's law, learning by doing). Like Keynes himself, many stressed the importance of radical uncertainty in economic behaviour as opposed to quantifiable risk which is such a prominent feature of modern dynamic stochastic general equilibrium (DSGE) models.

By the late 1960s, and especially during the oil crisis of the 1970s, governments were finding it difficult to reconcile full employment with low inflation. This failure led to a backlash against Keynesian economics and ensured a hearing for economists who rejected much of the Keynesian heritage. These were known as the ‘New Classical economists’ – not to be confused with Neoclassical (Hoover 1988).

The main theoretical innovations of the New Classical economics were: the Lucas critique, microfoundations, time inconsistency and rational expectations. I should like to discuss these topics in depth, but there is no time.

READ ON

https://www.elgaronline.com/view/journals/roke/8-1/roke.2020.01.01.xml

Keynesian economics: can it return if it never died?

Barry Eichengreen

Keywords: Keynesian economics; monetary policy; fiscal policy

https://www.elgaronline.com/view/journals/roke/8-1/roke.2020.01.03.xml

Published in print:

Jan 2020

Category:

Research Article

DOI:

https://doi.org/10.4337/roke.2020.01.03

Pages:

23–35

Download PDF (117.3 KB)

Appreciation of the Keynesian synthesis was enhanced by the events of the last decade. The global financial crisis highlighted the fragility of financial markets and the capriciousness of animal spirits. The depth of the downturn pointed to the value of not just automatic stabilizers but also discretionary fiscal policy as tools of macroeconomic management. Keynesian models and not their New Classical challengers provided the practical analytical framework for policy design. Models of the anti-Keynesian effects of fiscal consolidation received little support from actual consolidation experience. The secular-stagnation debate that followed the crisis lent legitimacy to the view that policy-makers with fiscal space were wise to use it.

Full Text

1 INTRODUCTION

A symposium with the title ‘Keynesian economics – back from the dead?’ begs two questions. Does everyone mean the same thing when they say Keynesian economics? And who says it died in the first place?

My own interpretation of Keynesian economics derives from two sources. The first is James Tobin – appropriately for a symposium organized around the Godley–Tobin Lecture – from whom I took graduate macro- and monetary economics. Tobin's definition of Keynesian macroeconomics, as he taught it or at least as I learned it, was Hicks's IS–LM model augmented with a financial sector distinguishing assets with different durations and risk characteristics, where asset demands were specified consistently and subject to explicit stock–flow relationships and adding-up constraints (see Tobin 1969; Brainard and Tobin 1968).

The second source was discussions and debates with Alec Cairncross, with whom I collaborated in the 1980s. Alec and I had friendly disagreements about how to model monetary and fiscal policies in the three devaluations of sterling about which we were writing. 1 Specifically we disagreed about whether monetary policy was still effective in an environment of low interest rates, or whether the economy was entirely dependent on fiscal policy for impetus under such circumstances. Having been one of the co-authors of the Radcliffe Report (Radcliffe Committee 1959), Alec doubted the existence of a stable link between monetary policy and economic activity in the presence of low interest rates, and for that matter in a variety of other circumstances. I explained what I had learned at the knee of Tobin: that monetary policy, by altering relative supplies of different financial assets, as in the case of Operation Twist, the Federal Reserve's early 1960s experiment, could still influence relative returns, portfolio allocations, and investment and other spending decisions. Alec looked at me and responded, ‘Well, Keynes didn't see it that way when I was at Cambridge in the 1930s.’ That put an end to the matter.

A cat can't change its stripes. I will therefore argue that Keynesian economics in the sense of IS–LM augmented by a fully specified financial sector never died, although it may have gone into hibernation. If anything, its influence, intellectually and over policy, increased as a result of the global financial crisis. In contrast, the Keynesian argument that monetary policy has no impact on economic activity, in general and specifically at the zero lower bound, suffered a mortal blow as a result of this recent history. This particular aspect of Keynesian economics is not back from the dead. The 2008–2009 financial crisis and the policy response were just the last nails in its coffin.

How low can we go? The limits of monetary policy

Steven Pressman

Keywords: NIRP; monetary transmission; monetary policy; negative interest rates

Published in print:

Apr 2019

Category:

Research Article

DOI:

https://doi.org/10.4337/roke.2019.02.02

Pages:

137–150

Download PDF (107.8 KB)

Central banks have recently pushed interest rates below zero. This was done after some considerable time with interest rates being near zero and unemployment remaining very high in many countries. The hope was that negative rates would reinvigorate monetary policy and rescue countries suffering from high unemployment and slow growth. This paper argues that negative rates are not an effective solution to the problems of high unemployment and economic stagnation, and that this policy proposal fails to understand both the nature of negative interest rates and how far interest rates might be pushed below zero percent. Rates a little bit below zero are possible because of insurance and carrying costs. Anything substantially below this would result in considerable economic harm that would exceed any economic benefits from the lower rates. This being the case, fiscal policy must be the policy of choice in difficult economic times.

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1 INTRODUCTION

Macroeconomics today is quite unlike macroeconomics in the past, particularly regarding interest rates. Homer and Sylla (2005) proffer no instances, throughout 5000 years of human history, of nominal interest rates going negative, although the Swiss National Bank did push rates on foreign deposits below zero in the 1970s to prevent capital inflows and currency appreciation. Yet shortly after the last edition of their classic work was published this was no longer true. During the Great Recession, central banks lowered interest rates below zero on bank reserves as a way around the zero lower bound (ZLB). Furthermore, $11.7 trillion of negative-yield sovereign debt has circulated, including $7.9 trillion of Japanese securities and more than $1 trillion of French and German securities (Durden 2016).

This paper examines whether negative interest rates can help developed nations solve their current macroeconomic problems. It answers ‘no’ because there are limits to how far rates can be pushed below zero, and because, at some point, negative interest rates do more harm than good. We proceed as follows. Section 2 provides a brief history of negative interest rates. Section 3 explains why rates cannot be pushed very far below zero. Sections 4 and 5 explain why interest rates a bit below zero cannot solve serious macroeconomic problems. Section 6 concludes by arguing for a revitalized fiscal policy.

https://www.elgaronline.com/view/journals/roke/7-2/roke.2019.02.02.xml

Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality

Stefan Ederer and Miriam Rehm

Keywords: Post-Keynesian; model; wealth; saving; inequality; Piketty; simulation

Published in print:Apr 2020

Category:Research 

Article DOI:https://doi.org/10.4337/roke.2020.02.04Pages:195–219

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https://www.elgaronline.com/view/journals/roke/8-2/roke.2020.02.04.xml

If Piketty's main theoretical prediction (r > g leads to rising wealth inequality) is taken to its radical conclusion, then a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly, simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth inequality, which characterizes the current state of high-income countries: the wealth share of capitalists rises to over 60 per cent, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.

1 INTRODUCTION

Thomas Piketty's best-selling book, Capital in the Twenty-First Century (Piketty 2014), triggered a renewed interest in empirical research regarding the accumulation and distribution of wealth, and a lively debate about their causes and consequences. Wealth determines income, power and opportunities, and lies at the very heart of economic inequalities. Understanding the dynamics of wealth accumulation and distribution is thus crucial to tackle these inequalities.

In a nutshell, Piketty's (2014) theoretical argument is that, since the profit rate is usually higher than the growth rate in an economy (an empirical regularity which he finds for most countries and time periods for which his detailed archival work provides data), over time wealth increases faster than income. This entails a more unequal distribution of income, because the share of profits increases and wealth ownership and capital income are more concentrated than labour income. A rising income inequality finally feeds back into a more unequal distribution of wealth, so that wealth will be ever-increasingly concentrated in the hands of a small elite. Piketty (2014) nevertheless carefully balances such a radical interpretation of his analysis with theoretical counter-tendencies, historical analysis and empirical work.

Empirically, Piketty (2014) provides extensive data on the historical evolution of wealth-to-income ratios, wealth, and personal income distribution. He shows that the wealth-to-income ratio has risen, and that wealth and income have become more unequally distributed in high-income countries since about the 1980s. Regarding the profit rate and the growth rate, he argues that they have been largely stable over the long run, but that the former is empirically higher than the latter.

The reception of the book in Post-Keynesian economics has been mixed. On the one hand, Post-Keynesian economists recognize the empirical contributions of the book: the collection of historical data and the carving out of observable patterns therein (Rowthorn 2014; Rehm and Schnetzer 2015; King 2017). On the other hand, Piketty's Neoclassical theoretical framework by which he explains the dynamics of wealth and income inequality has attracted the criticism of Post-Keynesian economists, in whose theoretical frameworks distribution has long played a major role (for example, Galbraith 2014; Palley 2014; López-Bernardo et al. 2016a). Based on the Cambridge equation (Pasinetti 1962), they point out that the wealth distribution in the long run can be stable, a statement that is clearly in contradiction to a reading of Piketty that takes his Neoclassical theory to its radical logical conclusions. Ederer and Rehm (2020) show that the empirical distribution of wealth is still less unequal than the one implied by a parameterized Post-Keynesian model.

Both Piketty and Post-Keynesians, however, consider the transition phase – the world in which this and the next generation lives – as the relevant reference point for economic analysis. The development of income and wealth inequality over the next decades matters. The goal of this paper is to develop a Post-Keynesian model that explains this short-run dynamic of wealth accumulation and distribution, for which Piketty (2014) presents abundant empirical evidence. We therefore do not focus on the long-run equilibrium steady state. In the ‘transitional phase’, that is, when the wealth share of capitalists is below its long-run equilibrium value, a rising wealth-to-income ratio and increasingly unequal distributions of wealth and income can be described well by our Post-Keynesian model. Due to its focus on the long run, these short-run dynamics have not been investigated by Piketty's Post-Keynesian critics so far. This paper intends to close this gap.

To do so, we build a Post-Keynesian model in the tradition of Bhaduri and Marglin (1990) which incorporates an endogenous wealth distribution. We extend the model by blended incomes of workers and capitalists, differential rates of return, and capital gains. We show that a stable wealth share is a likely outcome in the long run, and both the euthanasia and the triumph of the rentier are special cases, and thus we reiterate the critique of Piketty's hypothesis of an ever-increasing wealth concentration. Furthermore, we use the model to explain a ‘transitional dynamic’ that resembles the empirical evidence presented by Piketty and his projections to the future. A rising wealth-to-income ratio, rising wealth and income inequality and a profit rate that is higher than the growth rate of the capital stock (and thus income) are all consistent with our extended Post-Keynesian model.

Piketty, like many Post-Keynesians, is concerned with the factors that might disturb this long-run capitalist path towards an equilibrium. He worries that the world of increasing inequality, which his data describes, might be prone to upheavals, social unrest and war. This is why Piketty focuses on finding democratic, political solutions – such as a wealth tax – to the ever-rising importance of inherited wealth over wealth acquired through work. We follow his suggestion and implement a wealth tax in the model and show that this stabilizes both wealth and income inequality.

The structure of the paper is as follows. The literature review in Section 2 discusses both Piketty and his Post-Keynesian critics, as well as the Post-Keynesian models of distribution. Section 3 describes the model and its short- and long-term equilibria in detail. Section 4 presents the transitional dynamics of the model. Section 5 discusses the model extensions. Section 6 presents a numerical simulation of both short-run dynamics and the long-run equilibrium. Section 7 discusses the effects of a wealth tax. Section 8 concludes

CAPITALISM WITH A CHINESE FACE

Xi Says China Won't Return to Planned Economy, Urges Cooperation

(AP)
Saturday, 23 May 2020

Chinese President Xi Jinping said he won’t let the world’s second-largest economy return to its days as a planned economy, pushing back against U.S. criticism that the nation has failed to deliver on promised reforms.

“We’ve come to the understanding that we should not ignore the blindness of the market, nor should we return to the old path of a planned economy,” Xi told political advisers gathered in Beijing for their annual legislative sessions on Saturday, according to the official Xinhua news agency. He reiterated the government’s stance that markets should play a “decisive role” in the economy.

The comments come as China faces mounting pushback from the Trump administration on a range of issues from trade to its handling of the coronavirus outbreak. The White House this week issued a broad critique of China’s economic and military policies in a report to Congress, including accusations of intellectual property theft and economic protectionism.


Xi said the virus has put considerable pressure on China’s economy, and the country should seek “development in a world that is increasingly unstable and uncertain” as he listed risks ahead including a deepening global recession, a significant drop in trade investment, financial market turmoil, reduced international interactions and rising geopolitical tensions.

Chinese lawmakers on Friday abandoned their usual practice of setting a numerical target for economic growth this year due to the turmoil caused by the virus, breaking with decades of Communist Party planning habits in an admission of the deep rupture that the disease has caused.

They’re also using the legislative meeting to pass a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong, prompting swift pushback from pro-democracy activists in the city and condemnation from American politicians.

Xi didn’t address the legislation in his speech, but stressed that China should “stand on the right side of history,” adhere to multilaterism and maintain an “open, cooperative” attitude despite rising protectionism.





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