Avoiding a recession: the Fed conundrum

LevyInstituteThe Levy Economics Institute has published their annual Strategic Analysis paper on the current state of, and prospects for, the US economy, which is always an interesting read. The Institute is non-partisan, but much of its research and output takes its inspiration from two great post-Keynesian economists of the past: Hyman Minsky and Wynne Godley, who both emphasised the importance of aggregate demand to the state of the economy, in the short run and the long run, and the interaction of real and financial factors.

A summary of this short paper can be found here, and the pdf can be downloaded here.

As the paper notes, the US recovery from the pandemic-triggered recession has been swift, with GDP now above its pre-pandemic level, and the employment rate almost there, thanks in large part to the extraordinary scale of the fiscal stimulus enacted by the government. However, it has also been associated with a deteriorating current account deficit and a rise in inflation. Continue reading

The scissors of slump — Michael Roberts Blog

Last week, US Treasury Secretary Janet Yellen told the US Congress that “We now are entering a period of transition from one of historic recovery to one that can be marked by stable and steady growth. Making this shift is a central piece of the President’s plan to get inflation under control without sacrificing the […]

The scissors of slump — Michael Roberts Blog

The political economy of the current inflation

Contando_Dinheiro_(8228640)Today’s inflation is leading to calls for mitigating policy responses. The distributional outcomes of higher inflation are necessarily uneven, creating winners and losers across society and the economy. I outline some of the likely impacts on households, businesses, government, and the wider economy, as well as the effects of changes in economic policy.

In recent months rising inflation, termed ‘the cost of living crisis’ by the media, has become a major issue for households, businesses and, increasingly, governments and central banks, who are tasked with policy responses. Caused by a combination of bottlenecks in global supply chains and recovering demand as many economies emerge from severe pandemic-induced downturns, it has hit rates not seen for decades in countries such as the US and UK. What are the likely impacts on the various elements of the economy? It is important for decision makers across the economy, from ordinary workers to policymakers, to understand how higher inflation can affect livelihoods and behaviour. Continue reading

The decade the rich won: was there an alternative?

800px-A1_Houston_Office_Oil_Traders_on_MondayA new tv documentary explores the decade following the crash of 2008 and the uneven outcomes of economic policy which benefited many wealthier households while living standards for the majority stagnated. The theory of balance sheet recessions suggest that the policy response could have been very different.

The BBC still makes plenty of quality documentaries. One of the most recent, The Decade the Rich Won (hereafter TDTRW), chronicles the story of the lopsided results of the economic policy response to the Global Financial Crisis (GFC) of 2008. It focuses on the UK, though the lessons are universal, and features interviews with many of the key players, from government ministers and the former governor of the Bank of England to those working in finance, as well as those who truly suffered at the hands of austerity. It is implicitly critical and begs the question: was there an alternative? Continue reading

Steve Keen’s manifesto for a new economics


A brief review of prominent heterodox economist Steve Keen’s latest book, in which he lays out his vision for the future of economics, arguing that the neoclassical approach has been highly damaging to humanity, and needs to be replaced.

Steve Keen has a new book out, entitled The New Economics – A Manifesto. It is the latest chapter in the author’s tireless efforts to replace neoclassical economics and its damaging dominance of mainstream thinking with what he argues is a more scientific and explanatorily powerful body of thought drawing on post-Keynesian and, more recently, Biophysical economics.

Keen, who has been a heterodox or non-mainstream economist since his student days, has been critiquing neoclassical economics for many years. Post-Keynesianism takes its main inspiration from arguably the twentieth century’s greatest and most influential economist, John Maynard Keynes. It draws on the work of Keynes’ followers at Cambridge University, and those who studied under or have been influenced by them, though post-Keynesians remain a radical minority in the grand scheme of things.

Keen was one of the few economists to correctly predict a major financial and economic crisis in the years leading up to 2008. Not one of these iconoclastic souls was a neoclassical. In the 2011 edition of his book Debunking Economics, he painstakingly deconstructed much of neoclassical theory, and began the task of laying out the monetary economics he felt should replace it. Continue reading

Michael Pettis on Evergrande and China’s debt problem

Another video of an interesting discussion with Peking University Finance Professor Michael Pettis where he explores the issue of China’s property sector and its current dynamics, but also the bigger picture of the Chinese economy’s debt problem. He outlines five possible options for the future evolution of the economy and foresees a significant slowdown in growth akin to Japan in the 1990s, which ushered in many years of stagnation amid its economic rebalancing. This rebalancing is essential for China but also the rest of the world, and will ultimately be good for the latter, albeit with the costs and benefits unevenly distributed between different countries and sectors.

Thomas Palley and the ‘vampire squid’ economy

800px-A1_Houston_Office_Oil_Traders_on_MondayPost-Keynesian economist Thomas Palley has written a new paper on financialization which can be downloaded for free here. Palley has long argued that rising inequality across the capitalist world has produced sluggish growth in aggregate demand, undermining GDP growth. Growth has been maintained to some extent through rising public and private debt. These trends have been building for the last forty years, since the shift towards a neoliberal policy regime and ideology. Mainstream economics has recently tried to account for sluggish growth with an appeal to ‘secular stagnation’, and arguing that with interest rates now at historically low levels, there is room for public borrowing to stimulate growth, at least until interest rates begin to rise once more. Continue reading

J.K. Galbraith and the cult of economic growth

JKGalbraithJohn Kenneth Galbraith’s The Affluent Society was one of the first non-textbooks on economics I ever read, when it was recommended to me as a schoolboy just starting out on an economics course prior to applying to university. It made a lasting impression on me. Galbraith was a brilliant and compelling writer of books for the layman, managing to entertain without trivialising, and to inform without overwhelming the intellect. He was very much a progressive Keynesian, with a deep concern for the poor and disadvantaged in society.

I am increasingly of the view that economists, politicians and the rest of society need to question rising GDP as a shibboleth of policymaking. I also remain aware that at the moment economic growth is needed to generate valuable employment providing the goods and services which many of us desire. Some of these are surely more necessary than others, and poorer countries need the rising income that comes with successful development more than the richest countries. Technological progress and structural change are also bound up with rising output. These factors are difficult to disentangle from one another, but we have not always had GDP as a central measure of economic progress, and perhaps it is time to incorporate alternative measures into our assessment of the latter, in ways which sustain it without wreaking unsustainable impacts on society and nature in which the economy is embedded. Here is the Open University’s Marcus Davison in a short extract from his chapter on financialisation in a wide-ranging book which is sharply critical of the nature of modern finance: Continue reading

Questioning Modern Monetary Theory: Part 1

Following yesterday’s introduction, this is the first part of a new series which aims to explore, through some questions and answers, particular aspects of Modern Monetary Theory (MMT) which interest me. As I have already outlined some of MMT’s implications already, I will jump straight in.

What is the essence of money according to MMT? What are some alternatives?

According to Professor Michael Hudson in his J is for Junk Economics, “money’s main function is to denominate debts” and its “defining characteristic” is the willingness by governments to accept it as payment for taxes or fees. Money can be created by the government by running budget deficits which are spent into the economy, or it can be created by private banks which have been “granted…the money-creating privilege.” Furthermore, Hudson argues that “money is a legal creation, not a commodity like gold or silver” which is given “value by accepting it in payment of taxes and fees”. Continue reading