Michael Hudson interview part 2

Following Tuesday’s video, here is more from this interview with Michael Hudson on Trump’s economic policies, from tax cuts and trade wars to infrastructure, privatisation, industrial policy, Wall Street versus Main Street and Artificial Intelligence and its effects on unemployment.

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“America First”, Fiscal Policy and Financial Stability: a report on the US economy

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

Michael Pettis on China, the US, debt and trade tensions

Michael Pettis is a Professor of Finance at Peking University’s Guanghua School of Management, and an economist whose work I have found to be original, interesting and inspiring. His book The Great Rebalancing explores the role of current account imbalances in the Great Recession and its aftermath of slow growth. I explore some of his ideas in more detail here.

Particularly relevant to today’s events is his prediction that, just as in the 1930s, in a world of limited demand, tensions over international trade are inevitable.

In the short video below, he explores some of the issues facing China’s economy over the next decade, its misallocated investment and unsustainable rise in debt, relations with the US including trade tensions, GDP and its measurement, and liberalization under different economic and financial circumstances.

The American School of Political Economy – two bios

I have posted before here and here on the neglected American School of Political Economy, which has been well-documented in the work of Michael Hudson. Below are brief bios of two of its members, taken from Hudson’s highly informative and thoroughly heterodox J is for Junk Economics (p.210 and p.176).

Their policy proposals were designed to encourage a dynamic and sustainable economic development path with benefits accruing to the broad population, and emphasized abundance rather than scarcity. The success of such policies in driving industrial and agricultural expansion in the US does not mean that they are necessarily applicable to today’s advanced economies.

The ASPE illustrated the importance of economic and social context, which would change depending on whether an economy is catching up with or occupying the technological frontier.

To take one example which remains highly relevant: in today’s America, and elsewhere among the richest countries, infrastructure spending has been squeezed thanks to the austerity drive, rather than used as a means to enhance prosperity following the economic crisis. This has surely been a serious mistake. Continue reading

Useful bubbles

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