Nobel Laureate Esther Duflo once likened the work of economists to that of plumbers – tinkering and adjusting as necessary as they engage with the details of economic policy-making. The implication in this comparison is that economists generally understand economic systems and behaviour – how the pipes come together – and that the main work […]
‘The Glorious Thirty’ was originally coined by the French demographer Jean Fourastié in 1979 to describe his country’s unprecedented economic boom between 1945 and 1975. Lasting from the end of World War Two to the first oil shock of the 1970s, it saw growth in output, productivity, wages and consumption faster than before or since, and significant structural change, as resources moved from the agricultural sector and luxury artisan products towards industry.
France rapidly closed the gap in living standards with the US over the period, more or less matched West Germany’s performance, and overtook the UK. It managed an average growth rate of 5.1% throughout the 1960s.
This was in many ways the heyday of state intervention in the major capitalist economies, and the use of various forms of industrial policy was widespread. Post-war France, as elsewhere in Europe, required a major rebuilding of infrastructure and industrial capacity after the damage wrought by conflict. These included transport, the utilities, capital goods and heavy industry.
Beyond this, the government felt that a high standard of living and strong national defence to preserve relative independence required industrialisation. It was decided that this could not be wholly left to the uncertain outcomes associated with market forces. After the experiences of economic planning in many countries during the war, state intervention was felt to be both necessary and effective for the purposes of accelerating recovery while preserving freedom, democratic institutions and private property as far as possible. Continue reading
In the wake of Donald Trump’s call for lower US interest rates in the midst of solid economic growth and low unemployment, The Economist magazine ran a couple of articles on the threat of populist leaders to central bank independence (CBI) and low inflation.
It is more than 40 years since the publication of the intellectual justification for CBI of Finn Kydland and Edward Prescott, propounding the idea of time inconsistency. Based on the concept of the natural rate of unemployment (NRU), political control of interest rates will give rise to the temptation for politicians to boost aggregate demand and lower unemployment in the short run, below the NRU. This will prove unsustainable over the longer run, merely producing higher inflation, with inevitable costs to economic efficiency and growth.
This was apparently what caused the stagflation of the 1970s, when unemployment and inflation rose together, undermining the putatively Keynesian Phillips curve. The upshot is that politicians and voters are better off with CBI, with the central bank given a fixed mandate of low inflation and autonomy in how it achieves this.
But what is the reality of CBI and monetary policy? Here are some quotes from heterodox economists critiquing the mainstream consensus. Continue reading
Development economist Ha-Joon Chang here discusses a range of issues, including the nature of development, industrial policy, the role of government, political economy, and the teaching of economics.
What does the future hold for the US economy, given its current trajectory and recent changes in government policy?
The Levy Economics Institute of Bard College, of which distinguished former associates include post-Keynesians Hyman Minsky and Wynne Godley, has just published its Strategic Analysis report on the medium-term prospects for the US.
Godley is recognised as having predicted a severe recession in the US some years before it began in 2008, due to the unsustainable build-up in private sector debt, particularly among households.
Minsky is also well known for his ‘financial instability hypothesis’ and its implication that ‘stability is destabilising’ in the financial sector of capitalist economies: periods of stable economic growth can create fragile balance sheets in the private sector, which often lead to stagnation or crisis. Continue reading
Another extract, in this occasional series, from Michael Hudson‘s excellent J is for Junk Economics (p.86), this time on the definition of economics itself:
“Economics: The linguistic roots of the word “economics” stem from Aristotle’s Greek terms oikos (house or household) and nomos (rule). This often is trivialized as self-sufficient “household management”, in contrast to chrematistics, making money by market exchange and money lending. But economic organization and markets have always been wrapped in a political context as mixed economies. The paradigmatic “household” was the Mesopotamian “large house” (Sumerian and Babylonian é.gal), the temples and later the palaces in which accounting, weights and measures (including the origin of money), standardized interest and wage rates are first documented. Most merchants in Mesopotamia’s takeoff occupied official status in the royal bureaucracy, adopting management techniques from the large institutions. Prices were denominated for accounting purposes and for payment of debts to these large institutions, but were free to fluctuate outside of the city gates and outside of the temple and palace sector.
It thus is a travesty to narrow the study of economics to “markets”, defined simplistically as private sector households earning and spending their income on goods and assets. All markets operate in the context of public regulation, taxation and government spending to provide basic services, including those of the military and religious infrastructure.
Economic theory in modern Europe started as Political Arithmetic for royal management. The key concerns were money, taxes, and the trade policy needed to obtain silver and gold. James Steuart (1713-1780) called the latter “money of the world” and related it to population growth and immigration, colonialism and export production. Classical political economy shifted the focus of economics to domestic value, price and rent theory with a view toward political reform to check the power of landlords and other rent extractors.”
I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.
That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.
Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent. Continue reading