This week it became clear that the World Bank has chosen Paul Romer as its next Chief Economist. As Chief Economist he’ll have the overall responsibility of the Bank’s research program and be able to shape the developments of the highly influential development institution. Commentators have named the choice of Chief Economist impressive, great, huge news, bold, and forward-thinking. The choice of World Bank Chief Economist rarely garners this much attention – so, why the fuss?
Once again, the New Keynesians are cherry-picking from post-Keynesian and Marxian critiques of economic theory. This time the subject is macroeconomics – the whole thing. Justin Wolfers out of the University of Michigan recently posted a slideshow he presented at a lecture in celebration of former IMF chief economist Olivier Blanchard. The contents are largely what has come out of the RRPE for the past 50 years with some key omissions.
On March 1st 2016 The New School Economic Review celebrated the launch of its 8 volume with talks by Professors Ramaa Vasudevan (Colorado State University) and Paulo dos Santos (The New School) on ‘Money, Power, and Capitalism’. See the video of the event below.
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.
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.
Last week, I was lucky enough to catch my colleague Adam Hayes presenting his new research on cryptocurrencies. Adam has produced three papers from this research, all of which you can download here.
For the uninitiated, cryptocurrencies are a form of electronic payment that operate on an anonymous peer-to-peer network. The ‘coins’ used in these networks each have a unique numerical code that conforms to an algorithm and exist in a user’s digital ‘wallet’ – a registry of coins for a particular user that is anonymous apart from its own identifying numerical code. Coins are generated endogenously through a decentralized process called ‘mining.’ Mining involves allocating a portion of digital memory to solving an algorithm generated by the network which are designed to yield a certain quantity of coins at a fairly regular interval.
What Adam shows in his papers is that the value of cryptocurrencies when pegged to Bitcoin – the first and most popular cryptocurrency – generally reflect those currencies’ marginal cost of production in terms of electricity generation. Furthermore, Adam insists that cryptocurrencies are no longer money (he allows that they may have been at one point) even though to me they bear a strong resemblance to Marxian commodity money.
As soon as the battle between Greece and its creditors ended, with the two sides agreeing to a four-month extension of Greece’s financial bailout, the battle over who had won began. James Surowiecki
Certainly, Eurozone negotiations, written in a technocratic language of “creative ambiguity”, are quite difficult to interpret, even among the very actors who sign the agreements. For Schäuble and most of the European establishment, “Greece had relented” and agreed to continue the pro-austerity, recessionary measures of the former government. For Draghi, significant divergences with the former agreement had emerged, which left important leeway to the Syriza cabinet to reverse recessionary austerity and were to be closely supervised. For Varoufakis, the Memorandum of Understanding and the troika were now dead: by ditching the draconian (according to Eichengreen) primary surplus target of 4.5% and being able to implement their own policies, Greece had finally recovered its sovereignty.
Last Friday the German Bundestag approved the 4-month extension. Hardliner Schäuble declared: “For all Greece’s sacrifices which I have always acknowledged, pensions, wages & living standards still higher than other € states“. For the southern European, such a bold statement can only be regarded as straightforward psychopathy: over 44 percent of the Greek population had an income below the poverty line in 2013 according to estimates by the Public Policy Analysis Group of the Athens University of Economics and Business (AUEB). Incidence of breast cancer among Greek women has skyrocketed: many of them cannot pay for any surgery so they are simply left with the tumor inside them to die in agony.
In the case of Spain, please watch the following video to note how “austerity” and “debt repayment” look like: last week in Madrid six riot police vans and a bulldozer appeared with no judge order and no notification in order to demolish the fifty-year-old home of three families, including elderly and children, which were to be left homeless in the street. Protesters tried to resist the eviction peacefully – which according to newly passed legislation can be considered an act of terrorism. The journalist who was recording the eviction was also arrested, since the legislation also bans recording police interventions.
Spaniards and Greeks have become privileged witnesses of the smooth functioning of the efficient market. It may not be a coincidence then that most of victims of evictions are diagnosed with post-traumatic stress disorder – just like in a situation of war.
Much to my amusement, the Kick It Over campaign at the Allied Social Science Association (ASSA) put on by the American Economic Association (AEA) actually managed to ruffle some feathers. Although it hasn’t managed to capture the attention of the Twitterati (when will economics finally be cool?!), parts of the economics blogosphere are livid.
Those economists – primarily those leaning to the right of whatever the center of economics might be – are trying desperately to stake out a territory that presents them as open to critique, but dismissive of anything that might pass for substantive reevaluation of the discipline’s theoretical underpinnings.
By Aldo Caliari, Director of Rethinking Bretton Woods Project at the Center of Concern.
Last week, the Human Rights Council adopted a resolution condemning the activities of vulture funds for their impacts on the capacity of governments to fulfill their human rights obligations.
In a resolution passed with 33 of the votes of members, only 5 countries voting against (United States, Germany, Japan, UK and Czech Republic) and 9 abstentions, the Council held that debt repayment to the aforementioned funds, under predatory abusive conditions, bears a direct negative effect on human rights.
Although the upheaval created by US courts’ recent ruling on a case between Argentina and some of its creditors – NML v Argentina case – did, no doubt, add momentum for this decision by the Council, the Council built on the work carried out since several years ago by the Independent Expert on Foreign Debt and Human Rights on issues that extend far beyond the Argentina debt restructuring.
In fact, in an amicus curia filed with the Supreme Court in the course of that litigation, debt campaigning organization Jubilee USA network argued that “Allowing the decision below to stand would…equip financial companies that prey on the poorest nations and people of the world with a game-changing legal precedent to accelerate their predation.”
When I was in undergrad, I took an investment analysis class. The class taught me two things: First, to disdain business administration majors (during exams, we econ students would take our tests with our eyes on our exams, while the business students would take their tests with their eyes on our exams – the professor graded on a curve). Second, how to adjust your investment portfolio over your lifetime.
The percentage of bonds in one’s portfolio, we were told, should be approximately equivalent to one’s age. The reasoning was rather simple: bonds are far less volatile than stocks and other securities. Early in one’s life, the game is making money, but later in life, the game becomes keeping money. Of course, the unspoken caveat was that one must first possess so much money as to make having an investment portfolio an option.