Robert Reich: the four biggest right-wing lies about inequality

I like Robert Reich’s short, entertaining and informative videos. While some of the ideas he presents are simplified, perhaps this is necessary to communicate them to a wider audience.

This one makes a good case that we don’t have to accept today’s levels of inequality as a price to pay for future prosperity. In fact, for ordinary workers in the US, real wages are barely higher than they were forty years ago, while since 1980 incomes and wealth at the top have soared. At the same time, investment and growth rates have fallen, apart from a brief revival in the late 1990s. It has been prosperity for some, but not for most.

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Wholes and parts: economics in the spirit of Keynes

A nice little post at the link below from Lars P. Syll quoting John Maynard Keynes on what he calls ‘organic unity’. Another way of putting it is that the whole can be more than the sum of its parts. This is the basis for the discipline of macroeconomics as distinct from microeconomics. Modern mainstream macroeconomics insists on ‘microfoundations’ and neglects the concept of organic wholes, which runs against the spirit of Keynes and his wish to establish a distinct macroeconomics.

Organic wholes can be seen as emergent from, but irreducible to their constituent and interacting parts. Thus while one can still pay attention to microfoundations (the parts), the behaviour of a larger whole can be very different from that deduced from simply adding the behaviour of the parts together.

In economics, the parts might be individuals, firms or households, while the larger wholes might be an economy at the national or global level. Of course, one could think of these concepts in ways which reach beyond the discipline of economics, which conflate wholes and parts and provide useful insights: an individual can be thought of as a ‘whole’ rather than a ‘part’, with the parts defined biologically, such as organs, cells etc, with the whole human being and its functioning as emergent from but irreducible to its constituent parts.

Returning to economics, a national economy can be analysed as a part of the global economy, leading to the possibility of certain macroeconomic paradoxes. So an economy can be seen as both a whole and a part, depending on how we look at it.

The unpopularity of the principle of organic unities shows very clearly how great is the danger of the assumption of unproved additive formulas. The fallacy, of which ignorance of organic unity is a particular instance, may perhaps be mathematically represented thus: suppose f(x) is the goodness of x and f(y) is the goodness of y. […]

via Additivity — a dangerous assumption — LARS P. SYLL

David Harvey on the persistence of neoliberalism

David Harvey is a distinguished professor of Anthropology and Geography at the City University of New York Graduate School. He has written extensively on aspects of Marxist political economy, including a number of popular books and guides to Marx’s Capital.

In the first part of this interview with the Real News Network he discusses the persistence of neoliberalism despite its manifold failures.

Inequality, saving and growth: Germany’s role in global rebalancing

Coat_of_arms_of_Germany.svgThe IMF recently published its Economic Outlook for Germany. The report itself is quite long but a brief description of the key points can be found here. I have written before on the problems caused by Germany’s supposedly ‘prudent’ saving behaviour and export prowess, and the IMF covers this issue quite well, although as a report focused on one country, it does not consider the global implications. Here I want to focus on one aspect of the report: the financial imbalances of Germany’s economy and their relationship to both inequality and future growth prospects, both domestically and in the rest of the world.

In macroeconomics, one can consider the financial balances (net borrowing or net lending) of the three main sectors in the economy as a whole: the private sector (firms and households together), the public sector (government) and the foreign sector (the rest of the world). Together these balances can be used to analyse the total flows of expenditure and income between the three sectors, both within that economy and between that economy and the rest of the world.

If a sector runs a financial surplus over a particular period, its income for that period will exceed its expenditure and it will either be accumulating financial assets from another sector or paying down debt owed to another sector. For example, if the government runs a surplus, then revenue from taxation will exceed public spending and it will be able to pay down government debt held by the private sector, either domestically or abroad. Continue reading

‘The left must fight for a real Brexit’ – an interview with Costas Lapavitsas

lapavitsasCostas Lapavitsas is a Professor of Economics at SOAS in London and a long-standing critic of the EU. His recent book, The Left Case Against the EU, is an interesting and provocative read, whatever your political orientation.

In this short interview, he argues for a No Deal Brexit from a left perspective, as well as political and economic transformation in countries across Europe that benefits ordinary working people via public ownership of the banks and utilities, industrial policy and redistribution, alongside increased popular and national sovereignty and democratic accountability. Continue reading

Michael Hudson: debts that can’t be paid, won’t be

JisforJunkEconAnother excerpt in this occasional series from Michael Hudson’s heterodox ‘dictionary’ J is for Junk Economics (2017, p.72):

“Debts that can’t be paid, won’t be”: Over time, debts mount up in excess of the ability of wide swathes of the economy to pay, except by transferring personal and public property to creditors.

The volume of debt owed by businesses, families and governments typically is as large as gross domestic product (GDP) – that is 100%. If the average interest rate to carry this debt is 5%, the economy must grow by 5% each year just to pay the interest charges. But economies are not growing at this rate. Hence, debt service paid to the financial sector is eating into economies, leaving less for labor and industry, that is, for production and consumption.

Greece’s debt has soared to about 180% of GDP. To pay 5% interest means that its economy must pay 9% of GDP each year to bondholders and bankers. To calculate the amount that an economy must pay in interest (not including the FIRE* sector as a whole), multiply the rate of interest (5%) by the ratio of debt to GDP (180%). The answer is 9% of GDP absorbed by interest charges. If an economy grows at 1% or 2% – today’s norm for the United States and eurozone – then any higher interest rate will eat into the economy.

Paying so much leaves less income to be spent in domestic markets. This shrinks employment and hence new investment, blocking the economy from growing. Debts cannot be paid except by making the economy poorer, until ultimately it is able to pay only by selling off public assets to rent extractors. But privatization raises the economy’s cost of living and doing business, impairing its competitiveness. This process is not sustainable.

The political issue erupts when debts cannot be paid. The debt crisis requires nations to decide whether to save the creditors’ claims for payment (by foreclosure) or save the economy. After 2008 the Obama administration saved the banks and bondholders, leaving the economy to limp along in a state of debt deflation. Economic shrinkage must continue until the debts are written down.

*Finance, Insurance and Real Estate