Private debt. Richard Vague, who used to be in the business of consumer credit, now researches such things. Here he talks to INET, which supports a network of mainly progressive economists, from leading thinkers to students.
When Vague started his research into trends in private debt across a number of major economies, he found that it was difficult to find a lot of the necessary data, from the nineteenth century through the roaring twenties to 1980s Japan.
He also touches on the need for debt restructuring after a major crisis such as the Great Recession, perhaps in the form of a ‘debt jubilee’. As he puts it, we saved the banks, but we did much less for ordinary households.
A useful short paper by post-Keynesian economist Jan Kregel of the Levy Institute, focusing on the nature and causes of global financial and trade imbalances, and how they might be resolved in a way that supports global growth and employment.
Kregel argues that in today’s global economy, financial flows dominate trade flows, and are the cause of significant capital account imbalances, which drive concomitant current account imbalances.
Trade policy, such as the imposition of tariffs, and escalating trade wars, are unlikely to resolve these imbalances. On the contrary, controls on capital flows would be much more effective. An alternative to this is Keynes’s original proposal for an international clearing union, able to create liquidity not based on a national currency such as the dollar, and promote international cooperation. This seems a long way off in today’s world.
All this is along the lines of arguments made by Michael Pettis, whose ideas I refer to often on this blog. However, Pettis also links global imbalances to national savings behaviour, so that a ‘savings glut’ not invested domestically in one country can be exported abroad, and can create financial bubbles and rising debt, potentially leading to stagnation or crisis in the longer term.
The Levy Institute is officially non-partisan, but tends to publish in the spirit of post-Keynesian thinking. The late Hyman Minksy and Wynne Godley spent the latter part of their lives working there and Godley helped build their macroeconomic model of the US economy.
This year, the 14-page report is titled Can Redistribution Help Build a More Stable Economy? In short, the authors examine what they see as the four key constraints on the US economy and which account for the historically lengthy but weak recovery: (1) weak net export demand; (2) fiscal conservatism; (3) increasing income inequality; and (4) financial fragility. These four constraints help to explain the weak performance, as well as some of the political developments of recent years. Continue reading →
Post-Keynesian economist Steve Keen, of Debunking Economics fame, discusses in the video below his criticisms of mainstream economic thinking and his work constructing a model based on the work of Hyman Minsky, which necessarily incorporates money and finance.
The model can produce periods of economic stability with rising inequality, followed by instability and recession as possible outcomes. These patterns fit very well the experience of many rich countries during the last few decades.
He also touches on the dialectical thinking of Hegel and Marx, which he studied during his early career.
Keen was one of the heterodox or non-mainstream economists to use a mathematical model to predict a major economic crisis a number of years before the Great Recession of 2008 occurred, by modeling Minsky’s ‘financial instability hypothesis’.
Plenty of economists are critical of the apparent irrationality of financial bubbles, which have occurred throughout the history of capitalism. That they recur despite the efforts of governments to regulate the markets and prevent their worst excesses suggests that, at least to some degree, they are inevitable.
Alan Greenspan, former chair of the Federal Reserve, famously termed the dot-com bubble in the 1990s a bout of “irrational exuberance”.
In an interesting and iconoclastic piece written back in 2004, John Eatwell of Cambridge University considered the possibility of what he termed “useful bubbles”. In his own words, he was attempting to “row against [a] powerful tide of condemnation”, but was defining “useful in a very limited way – that is, as producing some positive consequences”, despite the potential for panics and crashes. Continue reading →
A nice interview with post-Keynesian Professor Steve Keen, in which he discusses what are (or should be) some of the most important issues in modern economics.
He covers the role of finance and private debt in generating inequality and what can be done to reduce it; the idea and feasibility of a universal basic income; economics and planetary ecology; and the incorporation of energy into economic models.
In this video Cambridge University’s Ha-Joon Chang argues that financial markets need to become less efficient in order to serve the real economy and fund productive investment, rather than fueling financial asset-price bubbles and speculation.
He also makes the case that society needs more ‘active economic citizens’, who can press politicians and other elites to fashion better economic policies, and more effectively hold them to account.