On Joan Robinson

Joan Robinson was a brilliant economist at the University of Cambridge and a member of the ‘circus’ of thinkers led by John Maynard Keynes in the 1930s. In the lecture below, John Eatwell, a pupil and co-author of Robinson, and who advised the British Labour Party on economic policy in the 1980s and 90s, gives a very clear and stimulating introduction to her life and work.

Eatwell covers topics in economics addressed by Robinson that remain highly relevant today, such as disguised unemployment and the trade protectionism that tends to result from a deflationary global economic environment.

As the talk makes clear, Robinson published path-breaking work on imperfect competition as distinct from theories of perfect competition and monopoly; she later contributed to the development of Keynes’ magnum opus The General Theory, which put forward an explanation for the persistence of mass unemployment under capitalism and gave birth to the modern discipline of macroeconomics. After the war she attempted to extend Keynes’ theory to deal with problems of economic growth in a number of books and papers, particularly her own magnum opus The Accumulation of Capital.

A strong intellectual personality and something of a zealot, one of Robinson’s most notable quotes regarding economics was: “I never learned mathematics, so I’ve had to think”.

As a liberal socialist, latterly she increasingly favoured central planning to achieve full employment and social justice, as well to promote economic development in the poorest countries. On this, as well as in her enthusiasm for Maoist China, she was perhaps naive and misled and these aspects of her thinking discredited her somewhat in her later years.

Robinson also supervised Amartya Sen who went on to win the Nobel Memorial Prize for his work on welfare economics.

Thanks to the blog The Case For Concerted Action for sharing this video.

A low-inflation world and what to do about it

The Economist magazine recently published a special report on the world economy, looking at the ‘problem’ of low inflation. More than ten years have passed since the beginning of the Global Financial Crisis and Great Recession, and inflation is now strikingly low in many rich economies. This is despite unemployment falling to historically low levels in countries such as the US, UK and Germany, although it remains much higher in a number of European countries that have yet to recover from the worst of the eurozone crisis.

Normally economists expect wages to rise faster as unemployment falls below some critical level and the labour market tightens, and at some point this has tended, at least in the past, to lead to higher inflation.

In the US and UK, wage growth has been picking up, but inflation has remained low, and has even undershot central banks’ inflation targets. Wage increases are relatively good news for workers after a decade of sluggish or stagnant earnings growth, but remain weak compared to those seen prior to the recession. Continue reading

Richard Koo on global stagnation, globalisation and the trade war

In the short video below, Richard Koo, originator of the idea of balance sheet recessions, argues that the current global economic stagnation is largely due to private sector firms as a whole in most of world’s largest economies acting as net savers rather than net borrowers and investors, despite very low interest rates. This is weakening aggregate demand and is compounded by the failure of the other sectors in the major economies, namely households and governments, to compensate by borrowing and spending to counter this weakness.

Of course, the US government is running a budget deficit, which has sustained moderate growth there, but for the largest economies taken together, private sector saving is proving to be a drag on continued recovery.

Koo doesn’t go into the reasons for this behaviour, although he has argued elsewhere that the private sector in many countries is attempting to save in order to pay down high levels of debt, producing a balance sheet recession, or stagnation at best. Fiscal policies that boost demand as well as policies that increase private investment opportunities in general would help to counter this.

He also touches on the US-China trade war as adding to global weakness, and notes that it is unlikely to end anytime soon, due to the job losses in the US which decades of current account deficits have reflected. As Koo puts it, free trade has created enough losers economically to make it a political problem in the US, and one that contributed to the election of Trump.

Aside from the trade war, it is quite likely that rising inequality has contributed to global weakness. With much of the income from economic growth accruing to the already wealthy, who save a larger proportion of it than poorer groups, significant increases in consumption in advance of the financial crisis relied on higher household debt since it is less able to be supported by rising wages for the majority.

In economies such as Germany and Japan, the result has been weaker growth, rising public debt in Japan, and a soaring current account surplus in Germany, while in the US and UK the result has been higher household debt and current account deficits. These trends sustained each other for some time, but the resolution of such imbalances may well be the source of much of the current global turmoil which has followed the crisis of more than a decade ago.

This interpretation suggests a need for policies which reduce inequality and increase wages, boosting consumption in a more sustainable fashion, and therefore increasing private investment opportunities. Greater public investment in infrastructure would also help. In a number of countries this has been constrained by policies focusing on austerity and reducing public debt, which have in many ways proved economically and socially damaging.

With a proper strategy, industrial change can deliver better jobs for all

Tim Page of the Trades Union Congress, in this short post summarising a recent TUC report, examines how a comprehensive industrial strategy led and coordinated by the state can help the regions of the UK successfully manage economic change. The report draws on case studies from Spain, Iceland and the Netherlands to illustrate how policies which bring together government, businesses, and unions can significantly improve outcomes in a changing economy.

A successful capitalist economy with growing output and productivity will generate a changing composition of that output and the associated employment over time, as new more productive industries expand and old less productive ones decline. This tends to create an uneven distribution of costs and benefits across the economy, so that in the absence of the right policies, particular regions can be left behind.

Emigration from declining regional economies to expanding ones tends to worsen outcomes in the former, as the more skilled and ambitious seek new opportunities. The declining region will lose their spending power, weakening local demand, as well as their potential skills. Those left behind are therefore likely to doubly suffer, as their local economy becomes locked into a spiral of decline, with reduced job opportunities and growing relative poverty.

While policy cannot totally prevent workers moving to find new work, it can encourage new industries to locate or emerge in declining areas with support for business, infrastructure and retraining, as well as reducing insecurity with a strong social safety net. In this way, regional and industrial policies which involve genuine social partnership can combine to increase new employment opportunities in poorer areas and prevent ever-widening regional inequality, which has proven to be a major problem for the UK in recent decades, compared with much of the rest of Northern Europe.

The state doing nothing, and leaving it all up to the individual, has failed the poorest regions of the UK. Similarly, the state doing everything, and replacing private employment with public sector employment, as happened under the last Labour administration, has proved all too vulnerable to a change of government. A more inclusive approach is now called for.

Keynes against capitalism

Crotty Keynes Against CapitalismJohn Maynard Keynes did not wish to merely save capitalism ‘from itself’ but to replace it with ‘Liberal Socialism’. That is the controversial claim made in a new book by the distinguished radical economist James Crotty, whose work ‘attempts to integrate the complementary analytical strengths of the Marxian and Keynesian traditions’.

The book, Keynes Against Capitalism, subtitled His Economic Case for Liberal Socialism, draws heavily on textual evidence found in the collected works of Keynes himself, from the 1920s through to the end of his life in 1946. This is both its strength and its weakness.

Without wishing to get into debate over semantics, one could find oneself agreeing with much of the argument ie that Keynes did in fact wish to replace capitalism with a radically different system called Liberal Socialism, but to say, in some ways, so what? The book is a fine scholarly read, but I found myself questioning whether Keynes’ (Crotty’s?) Liberal Socialism, for all its admirable socially transformative aims, would be both feasible and sustainable. Continue reading

Keynes and the conceptual cul-de-sac of General Equilibrium

Economist John Maynard Keynes

“The reasons for which Keynes’s arguments fail to translate into the orthodox paradigm are not because they are vague, confused or poorly formulated. They fail to translate, instead, because they identify and address crucial flaws in the structure and logic of the dominant paradigm. As Keynes himself put it, what he hoped to do is ‘convince [us] that Walras’ theory, and all others along those lines are little better than nonsense’. He was able to see, like Kornai, that the Walrasian ideal is ultimately ‘a special branch of mathematics’, which employs ‘logical reasoning [but] from arbitrary assumptions’, making it more an ‘intellectual experiment’ than a theory in the mould of the sciences.

The real problem which far too many economists have had with understanding Keynes’s arguments exactly as he expressed them is an intransigent desire to believe that, as once said by Debreu in an interview, ‘the superiority of the liberal economy is incontestable and can be mathematically demonstrated’. The problem with this conviction is that the economy that Debreu had in mind has little connection with reality. It is time, if we want in the future to avoid the terrible waste, not just of the past ten years, but of the many other times that liberal economies have so clearly failed to provide for full employment, that we turn our attention to understanding more accurately not the economic society in which we might wish to live but the one in which we actually live. It is in this regard that Keynes, read without the desire to adhere to the conventional wisdom of the Walrasian General Equilibrium paradigm, provides a truly valuable starting point.”

Mark Pernecky and Paul Wojick

The UK’s pay squeeze – no end in sight?

workersSince the Great Recession, and among the world’s richest economies, pay growth in the UK has been historically weak. The Economist magazine reported on 20th April that the pay squeeze in the UK has eased during the last year or two, but is by no means over.

Nominal wages are now growing at around 3.5% year, while real wages (adjusted for inflation) are growing at 1.5%. In a way, this slight improvement is to be expected, with employment at a high level and unemployment relatively low, creating a tightening labour market, and shifting bargaining power from employers towards workers.

Another piece of good news is that more of the jobs now being created have higher pay. To put it another way, the composition of the workforce is changing. As The Economist put it, “strawberry-pickers have made way for stock-pickers”. Continue reading