Who’s in control? Wall Street Consensus, state capitalism, and spatialised industrial policy — Developing Economics

By Seth Schindler, Ilias Alami and Nick Jepson

Recent trends may well have puzzled critical observers of global development policy. On the one hand, we witness the rise of what Daniela Gabor has aptly termed the ‘Wall Street Consensus,’ an emerging paradigm promoting the mobilisation of private finance as a developmental priority. Southern states are encouraged to re-engineer their domestic financial systems around securities and derivatives […]

Who’s in control? Wall Street Consensus, state capitalism, and spatialised industrial policy — Developing Economics

Can tax cuts reduce inflation?

TaxCutsHere in the UK, foreign secretary Liz Truss, leadership candidate for the Conservative Party and potentially our future Prime Minister, has promised immediate tax cuts should she win the contest. She claims that these cuts will boost economic growth and lower inflation. With this approach to policy she will thus somehow solve two of the major current afflictions of the UK economy. Although she has been criticised by a number of party grandees and former ministers, she is claiming Thatcherite precedent for her views. Her rival for the top job, former finance minister Rishi Sunak, has responded by framing her ideas as ‘fantasy’ economics. Indeed her pronouncements do have a whiff of what has been called ‘cakeism’ (ie having your cake and eating it too). This is a key character trait of our ‘caretaker’ Prime Minister Boris Johnson, who is famously unwilling to deliver bad news, preferring instead to rely on ‘boosterism’ to try and please his audience.

So how could tax cuts deliver the economic goodies? The UK economy has performed poorly since the mid-2000s, compared both with its own history and with other comparable countries. Growth in output and productivity has been weak. Raising productivity growth is vital to improving living standards, including the delivery of high quality public goods and services such as health, education and infrastructure, which also support a vibrant private sector. Continue reading

Quote of the week: the need for a Green New Deal

WindTurbines

The following extract was penned in a book on globalisation published back in 2017 which, given the global crises which have subsequently occurred, seems like some time ago. However, its spirit and application across the world are surely needed now more than ever. The longer that governments leave such interventions on the back burner, the more perilous and costly the economic, social and environmental future is likely to be. The scale and disruptive nature of the change that is required will only increase the longer these kinds of policies are neglected.

“The overarching policy need for all countries, domestically and through international co-operation, is to pursue a Green New Deal. This needs to include investing in domestic and industrial energy efficiency to reduce the demand for energy; investing in renewables – wind, solar, hydroelectric, wave and tidal power – to meet these (reduced) energy needs; cutting transport emissions through regulation, innovation and localisation; altering consumer behaviour through public engagement and involvement; and shifting corporate behaviour and management decision-making through the use of legislation, regulation and taxation, and by promoting greater corporate diversity. This increased corporate diversity should include the active use of public enterprise. A small number of companies acting in environmentally friendly ways can have important knock-on effects for other companies in their networks. This is one use to which new public enterprises could be put. Increased corporate diversity should also include stronger co-operative, mutual and employee-owned sectors. Such firms may be more suited to local, regional and national operation rather than global, which is a further benefit in terms of strengthening the local in the economy – across the world.”

Jonathan Michie (2017), Advanced Introduction to Globalisation, Cheltenham: Edward Elgar, p.125-6.

Robert Reich destroys minimum wage myths

In this video, Robert Reich, former labour secretary under Bill Clinton, and founder of Inequality Media, destroys a number of the myths surrounding the minimum wage, which in the US has not risen since 2009. In particular, he challenges the notions that raising it will kill jobs, damage business, raise inflation and even benefit the wrong people. In fact, it is likely to raise productivity, reduce worker turnover and training costs, boost demand by increasing consumer spending and have a negligible impact on the inflation rate. It will also reduce both racial inequality and the need for welfare spending to support those on the lowest incomes. As he says, if business owners rely on paying workers ‘starvation wages’ in order to survive, they should not be in business!

What is really going on? — Real-World Economics Review Blog

by Yanis Varoufakis

. . . what is really going on? My answer: A half-century long power play, led by corporations, Wall Street, governments and central banks, has gone badly wrong. As a result, the West’s authorities now face an impossible choice: Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked. […]

What is really going on? — Real-World Economics Review Blog

COVID and the broken global order — Real-World Economics Review Blog

from C. P. Chandrasekhar

When the COVID pandemic affected every one of the world’s nations, the way forward seemed obvious, even if difficult to traverse. Given the rapid spread of the disease and its severity that overwhelmed long neglected health systems, and the cost to lives and livelihoods that shutdowns of economic and social activity […]

COVID and the broken global order — Real-World Economics Review Blog

Quote of the week: Ha-Joon Chang – more equal societies have grown faster in many cases

ha-joon-chang“Not only is there a lot of evidence showing that higher inequality produces more negative economic and social outcomes, there are quite a few examples of more egalitarian societies growing much faster than comparable but more unequal societies.

During their ‘miracle’ years between the 1950s and the 1980s, Japan, South Korea and Taiwan grew much faster than comparable countries despite having lower inequalities. Japan grew much faster than the US, while Korea and Taiwan did so too in relation to the much more unequal countries in Africa and Latin America.

Despite being one of the most equal societies in the world, more equal than even the former Soviet bloc countries in the days of socialism, Finland has grown much faster than the US, one of the most unequal societies in the rich world. Between 1960 and 2010, Finland’s average annual per capita income growth rate was 2.7 per cent, against 2.0 per cent in the US. This means that, during this period, the US’s income rose 2.7 times while Finland’s rose by 3.8 times.

These examples do not prove that higher inequality leads to lower growth. There are other examples where more egalitarian societies have grown more slowly than comparable but more unequal countries. But they are enough to let us reject a simplistic ‘greater inequality is good for growth’ story. Moreover, the majority of statistical studies looking at a large number of countries show a negative correlation (which does not necessarily mean a causality) between a country’s degree of inequality and its growth rate.

Analysis of the same society over time also lends support to the view that inequality has negative effects on growth. During the last three decades, despite the income shares of those at the top rising in most countries, investment and economic growth have slowed down in most of them.”

Ha-Joon Chang (2014), Economics: The User’s Guide, London: Penguin Books, p.321-3.

A paradox of inflation: supply shocks can be caused by excess demand

InflationMartin Wolf of the Financial Times made an important point with regard to the causes of inflation in last week’s economics commentary. His article drew on the latest Annual Report of the Bank for International Settlements. I will quote him in full:

“Explaining away what is happening as due to “exogenous” supply shocks is a big error. What is exogenous to any one economy is often endogenous to all of them. Thus, rapidly expanding demand in a number of significant economies will create a surge in global demand…excess demand will always show up first where prices are flexible, notably in commodities, before spreading.”

Thus today’s high inflation in many economies is not wholly the result of supply shocks due to pandemic-related supply-chain issues and war in Ukraine. It is also, in part, the result of excess global demand. Continue reading

Economics is always ‘political economics’ — Real-World Economics Review Blog

from Peter Söderbaum

Mainstream neoclassical economics is attacked by many and from different angles or vantage points. Neither the defendants nor the critics can claim value-neutrality. “Values are always with us” (Myrdal 1978) and economics is always ‘political economics’. The neoclassical attempt to construct a ‘pure’ economics has failed. Neoclassical theory may still survive as […]

Economics is always ‘political economics’ — Real-World Economics Review Blog

Ha-Joon Chang on the nature of economics

Professor Ha-Joon Chang of SOAS, formerly of Cambridge University, is always good value if one favours a critical, open-minded, heterodox and lively approach to economics, or political economy, the term which he favours.

In this short introductory lecture, Chang discusses how to define economics, and briefly explores and compares three schools of economic thought which have been used to justify free markets in today’s economies: the neoclassical, classical and Austrian.

He is critical of the modern approach which defines economics by its methodology and its supposed ability to explain ‘everything’, rather than it being defined by its subject matter, as the study of the economy itself. He notes that the modern approach failed to predict or satisfactorily explain the greatest economic crisis since the Great Depression and was rather complacent in its belief that economic management would prevent such crises from occurring once and for all.

He also favours a pluralist approach to economic theory, using the example of Singapore to argue that no single theory can account for its economic success and distinctive economic structure.