Dispatches from ASSA: Part IV

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The problem of the term “heterodox” manifests itself occasionally on panel discussions. Its ambiguity can lead to a gulf of subject matter, the depths of which can not be adequately plumbed in a standard follow-up discussion. The label of “heterodox” is used to describe everyone from Marxians, Sraffians, Austrians, Keynesians, Kaleckians and whatever remains in between. My last day at ASSA would best be described as heterodox.

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Dispatches from ASSA: Part II

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If you don’t know Scott Carter, he’s a man worth knowing. He is unlike most economists in that he actually appears human when talking about economic issues. While most economists are usually very congenial and calm during an ASSA session, Carter’s wild gesticulations and earnest roars match the grave urgency of the subjects he’s discussing. I was lucky enough to share a panel with Scott yesterday morning and see him again in a session on Sraffian economics later in the afternoon.

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Dispatches from ASSA: Part I

I was fortunate enough to have the self-awareness to plan to arrive in San Francisco a day before the conference. This meant foregoing any plans for New Year’s Eve. My airline, however, was insistent that I go to the club – even if the dance floor was occupied by rows of seating. Flying Virgin Air was by far the most bizarre experience I have ever had on an airplane. To understand what I mean, I recorded a video (below) of the in flight announcements.

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Polanyi and Mattei’s “Market Fundamentalism and Fascist Politics in Europe”

In this blog post I would like to address the presentation on “Market Fundamentalism and Fascist Politics in Europe”, delivered by Clara Mattei (NSSR Visiting Scholar and PhD Candidate, Scuola Superiore Sant’Anna, Pisa) at the Economics Department Seminar of the past October 20, in conversation with some thoughts after the talk “Polanyi’s Vision of a Socialist Transformation” by Karl Polanyi’s daughter, Kari Polanyi-Levitt, and Nancy Fraser.

Clara Mattei’s work follows perfectly from Polanyi’s well-known dictum, “laissez-faire was planned – planning was not”, which underlies his 1942 masterpiece The Great Transformation, a seminal book of economic history that practically founded the entire discipline of economic anthropology. In that work, Polanyi set a historical puzzle for neoclassical economists: “Why did a prolonged period of relative peace and prosperity in Europe, lasting from 1815 to 1914, suddenly give way to a world war followed by an economic collapse?”. Polanyi argued persuasively against the 19th-century ideology of market liberalism, founded on the utopian belief that human society should exclusively be subordinated to the laissez-faire forces of the self-regulating free market: he noted, by comparing the eroding effects of laissez-faire capitalism on the European social fabric both in the Great Depression and during the 19th century, that the relentless expansion of the free market would always inevitably unleash destructive forces upon the bare fabric of society in a way that society would inevitably respond back in order to protect itself, either in the form of fascism (Mussolini, Hitler, Franco) or socialism (Stalin). This constitutes the core Polanyian argument of the “double movement”.

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Free Capital as Anti-Democracy

That deterministic herald of creative destruction, globalization, was held in check by political barriers, namely capital controls, for the better part of the twentieth century.  Incidentally, this age of capital controls aligned more or less exactly with the age of shared growth we now call the Golden Age of Capitalism.  (an aside: it’s a sad irony of history that much of what is remembered as the achievements of capitalism are actually the achievements of not-capitalism).

But now this mainstay of globalization has resumed its inexorable march, except in India and China and a few other countries that have managed to rapidly develop, and capital controls have mostly given way to unrestricted short-term capital flows.  And just as political conditions once allowed for control of capital, now capital controls political conditions.

Take the following story:

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Why We Must Pay Attention to Rojava

One of the many characteristics of the economic orthodoxy is a tendentious relationship with the sphere it considers ‘non-economic’. The dominant strategies seem to be either to attempt to tame them with the amoral brutality of rational choice, or to ignore them (no matter how glaring their importance). It’s an ironic position- a far cry from the spirit of Adam Smith, their purported godfather, who sought to understand capitalism only because it was a revolutionary, newly emergent social order. The events of the last four years in Rojava may well be the first sapling of something truly new. If not, it is not for lack of ambition, effort or bravery on the part of Kurdish Syrians. And yet, we economists (along with too much of the media) have all but ignored it, and at our peril.

Despite the fact that Sinam Muhamed, the co-president of the People’s Council for Western Kurdistan, who spoke Monday at the CUNY Graduate Center spent the bulk of her speaking time explaining the political situation in Rojava, she was careful not to exclude economics. Most notably, she proclaimed that Rojava aimed to implement an “economic system based on morality.” This is a striking statement in a field in which luminaries such as Paul Krugman proclaim the amorality of economics with some degree of pride. By way of concrete example, Muhamed mentions that agriculture in Rojava- destroyed by the Al-Nusra Front, long before the current conflict with ISIS began- has recently seen a resurgence through the use of agricultural cooperatives. These cooperatives have rapidly become the dominant form of agricultural production in Rojava, and the cooperative model is spreading past the agricultural sector. Muhamed noted the present role of private enterprise in Rojava as well, but added that laws are in place to prevent “profit in the face of suffering,” the immorality of which she seems to take as given and unquestioned.

Muhamed warns us not to ignore the context of conflict and reconstruction in which Rojava is situated, and not to project dreams of a utopian social order onto the resistance there. Nonetheless, the relative success of Rojava cannot be ignored. 200,000 refugees from the rest of Syria have arrived in Rojava over the past four years. 197,000 have been housed. The reconstruction of Kobanê is well under way, and Muhamed aims for it to be an “ideal city,” and a “living symbol of resistance.” David Harvey, also speaking at the event, noted that on a recent trip to southern Chile, the local Mapuche liberation movement spoke in glowing terms of the developments in Rojava. A successful resistance movement in the face of inhumanity is one thing, but, lest we forget, the social experiment in Rojava began long before ISIS coalesced as a force. It is not merely a case of there being no capitalists in foxholes. Similarly, the relative success of areas of Syria under Kurdish control, as well as the emerging global contagion of the Rojava model imply that, although it is indeed a resistance movement, it is also far more than that. It represents a truly emergent social order that any social theorist would be loath to ignore.

Nonetheless, we cannot pay attention only because the situation is academically interesting. The fight against ISIS is as Muhamed notes “a fight for humanity against barbarity, a fight that is beyond ethnicity, gender or ideology.” If we are to regain a semblance of morality in our field, I see no better place to begin.

Simple Model of Adverse Real Effects of Inflation

Eduardo Bastian of the Federal University of Rio de Janeiro and NSSR’s own Mark Setterfield presented their paper this Tuesday on a simple model of the adverse real affects of inflation.  The paper was presented as an impetus to the post-Keynesian camp to recognize adverse inflationary effects. Their model combines an extended form of a conflicting claims theory of inflation with Kaleckian growth theory in a way that incorporates—in ideological contradistinction with the other influences—Milton Friedman’s view of adverse inflationary effects.

The conflicting claims theory of inflation would apply in situations where both workers and capitalists exercise their bargaining power and allocate a greater portion of the national product to themselves. In this scenario, once one party claims a greater share of income, the other party, if they still have adequate bargaining power, will just give themselves additional income to catch up. Unionized workers demand higher wages, but colluding producers pair this with higher prices. Relative income shares do not swing too drastically, and inflation occurs instead. The version of the theory utilized in this model has this retaliatory feedback loop recurring until one party, probably the workers, loses their ability to bargain, and the inflation spiral halts.

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Experimental Evidence of Sunspot Bank Runs

For all the adoration that the gold standard gets from radical libertarians, currency is surely more stable without it. On the gold standard, currency crises were so regular that social scientists and philosophers came up with all sorts of theories to explain them. Some of them were really weird.

Among the weirdest was the sunspot theory of bank runs. Through several blind leaps of conjecture, William Stanley Jevons connected the occurrence of sunspots as having an (unproven) effect on crop yields which, in turn affects farmers’ debt from seed to harvest.

Later Arthur Pigou and later John Maynard Keynes used the phrase to describe sudden shifts in financial markets not based on changes in the fundamentals. A fluke. A panic. A sunspot. A bankrun.

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Argentina’s Response To Its Debt Crisis

This past Tuesday at the New School, her Excellency Dr. Cecilia Nahón, Argentina’s Ambassador to the United States, delivered an interesting discourse on Argentina’s debt crisis and the policies undertaken to reconstruct the debt. The talk on Argentina’s Response To Its Debt Crisis was of immense importance and relevant to the current Eurozone debt crises, particularly the Greek sovereign debt crisis.

Argentina is the third largest economy in Latin America, a G20 member, with abundant natural resources, strong agricultural and industrial sectors and a highly educated workforce. The country made international headlines in July 2014 when it defaulted on its debt for the second time in 13 years. The Argentine debt crisis is such an important part of the country’s history that a special museum dedicated to its debt opened in 2005 called the Museum of Foreign Debt. I know this may seem unusual, but it is true – the museum is located at the University of Buenos Aires and it showcases photographs of Carlos Saúl Menem (Argentina’s president from 1989 to 1999), photocopies of old currencies, which were frequently changed by the Argentine’s Central Bank, black holes in the museum walls and other artistic objects displayed as painful reminder of the debt consequences. Argentina’s current financial woes have its origins in the 1998-2002 Argentine depression. To understand the relevance of Argentina’s policy response to sustainable debt we look at the country’s historical economic trends. During the 1990s Argentina was the poster child for Neoliberal policies – implementing reforms such as credit liberalization, deregulation of the financial sector and labor market, deindustrialization and an almost complete liberalization of trade. The Convertibility regime, which was adopted to eliminate the country’s high inflation, was another policy reform adopted, that established fixed peso-dollar parity (1 peso = 1 US dollar). However, the real exchange rate was over-valued, which implied that the central bank guided by public policies was forced to sustain this fictitious exchange rate. This created a never-ending need for foreign currency that gave the country an incentive to import rather than export. Consequently, Argentina experienced huge trade deficits that in turn caused the interest rates on investors’ payments to accelerate. The monetary reform was considerably successful at the beginning, but over that period unemployment grew reaching its peak of 19.12% in 1996 and GDP growth was not sufficient to sustain economic growth. Argentina faced difficulties securing dollars to pay its growing debt, which peaked at 180% of GDP, and the Convertibility exchange policy ultimately failed. At the end of 2001, Argentina could no longer meet its obligations to creditors and it defaulted to $82bn of foreign bonds. According to Dr. Cecilia Nahón, Argentina not only defaulted to its creditors but it also defaulted on its people, healthcare and social security systems.

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