Are We All Post Keynesians Now?!

Philip Arestis and Malcolm Sawyer

Within two weeks in March, two publications came from the Bank of England which overturned the conventional wisdom of monetary policy and macroeconomic thinking of the past few decades. Yet the key elements of the contents of these two publications have been common knowledge in the post Keynesian community for many years.

The first came with the publication in the Bank of England Quarterly Bulletin of articles on the nature and endogeneity of money (and a video). The second came with the Mais Lecture delivered by the Governor of the Bank of England Mark Carney in which he argued that the narrow view of central banks as guardians of stable inflation as “fatally flawed,” as he unveiled a “transformative” overhaul of the Bank of England.

The endogeneity of money has been long known to post Keynesian economists and has formed the bedrock of their macroeconomic analyses for at least three decades. The practice of Central Banks has in effect similarly recognized endogeneity and the new consensus in macroeconomics did not mention money—money for this framework is a “residual.” The Bank of England was (not surprisingly) well aware of the endogeneity of money when it was instructed by the monetarist Thatcher government to pursue the task of controlling the money supply, which proved impossible since the money supply is endogenous!

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CBO Report Confirms U.S. Deficit Back to Normal Level

Robert Pollin, Guest Blogger

Jessica Desvarieux of The Real News Network interviews Robert Pollin, professor of economics at the University of Massachusetts and co-director of the Political Economy Research Institute (PERI), about a new Congressional Budget Office (CBO) report showing the U.S. fiscal deficit returning to historic norms. Pollin argues that the report confirms that the surge in the deficit after the financial crisis and recession was largely cyclical, that the report debunks the views of economists who claimed that high fiscal deficits would lead to economic disaster, and that it undermines arguments for austerity policies. He concludes that cuts to social spending should be reversed, and spending programs to be funded by progressive taxation like a financial-transactions tax.

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The Era of Financialization, Part 4

Costas Lapavitsas, Guest Blogger

This is the final installment of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part considers the solutions to the problems of financialization, pointing ultimately toward a broad anti-capitalist program and new “avenues toward socialism.” (See the earlier parts of the interview here, here, and here.)

Dollars & Sense: Do you anticipate, out of this crisis, there being a major restructuring of capitalism in high-income capitalist countries? There seem to be little signs of a dramatic change at this point, with the continuity of neoliberal policy and the financial sector still riding high. Should we be thinking of this era in terms of possibilities of a dramatic change in the way capitalism works?

Costas Lapavitsas: The crisis has not led to dramatic change from within. That’s clear now. When it was at its peak in 2008-2009, it was legitimate to expect that it might bring a profound change in outlook leading to a structural transformation of capitalism—effected from within the capitalist class, or from above, as it were.

The financializing layers have controlled policy—they have effected policy capture—and they have taken measures which basically defended the financial system and protected financialization. Financialization is continuing. It hasn’t gone away, it’s here. Many people expected financialization to come to an end because they saw financialization as a matter of policy, you see. Well, we now know that this isn’t the case. Financialization has continued, policy hasn’t changed, because the social interests embedded in finance and connected to financialization will not allow it to change. They have acted to protect themselves and have been successful at it.

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America's Proposed TPP: Buyer Beware

Kevin Gallagher

Despite President Barack Obama’s charm offensive in the region, Pacific nations are well-advised to remain wary of the U.S. government’s position on the Trans-Pacific Partnership agreement (TPP).

If U.S. trade negotiators got their way, the Pacific Rim would reap surprisingly few gains — but take on big risk. Until the United States starts to see Asia as a true trading partner, rather than a region to patronize, it is right to hold out on the TPP.

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America’s Proposed TPP: Buyer Beware

Kevin Gallagher

Despite President Barack Obama’s charm offensive in the region, Pacific nations are well-advised to remain wary of the U.S. government’s position on the Trans-Pacific Partnership agreement (TPP).

If U.S. trade negotiators got their way, the Pacific Rim would reap surprisingly few gains — but take on big risk. Until the United States starts to see Asia as a true trading partner, rather than a region to patronize, it is right to hold out on the TPP.

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The Indian General Elections

Jayati Ghosh

Midway through the largest and most complex electoral process in the world, it is clear that this is a watershed general election for India—though perhaps not quite in the way that is generally perceived.

It would be a mistake to perceive this election along the lines of a U.S. Presidential election, despite the best efforts of the media and the opposition Bharatiya Janata Party (BJP) to convert it into that. It is a vote for a Parliament based on a first-past-the-post system in which several regional parties have key roles in their own states. The major “national” candidates—such as Narendra Modi of the BJP, Rahul Gandhi of the Congress Party, and Arvind Kejriwal of the Aam Aadmi Party (the new kid on the block, born out of the anti-corruption campaign) are not voted for nationally; rather, they are significant to the extent they can inspire voters to vote for their party across the country.

No party will get a clear majority, i.e., 272 seats out of 542. And many other factors intervene in each state and region. Several regional parties are likely to get around 20-30 seats each, which means that post-election alliances (however fragile) are inevitable if a government is to be formed. The main question right now is whether the BJP and its allies in the National Democratic Alliance (NDA) will get enough seats to make some other parties support them. Three women leaders will be important in the post-poll calculus: J. Jayalalitha (Chief Minister of Tamil Nadu), Mamata Banerjee (Chief Minister of West Bengal) and Mayawati (former Chief Minister of Uttar Pradesh).

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Obama's Visit and the TPPA

Martin Khor

Uniteed States President Barack Obama will be in Malaysia soon. Among the issues on his agenda will be the current status of the Trans Pacific Partnership Agreement (TPPA).

It is an opportunity to clarify with the President himself what the chances are that the TPPA will be approved by Congress, once a deal is reached.

Of concern is that the Congress will only pass the TPPA if it has a clause disciplining countries that are “currency manipulators.”

This concern is especially serious since a recent influential report cited Malaysia as one of the two TPPA countries that qualified as “currency manipulators.”

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Obama’s Visit and the TPPA

Martin Khor

Uniteed States President Barack Obama will be in Malaysia soon. Among the issues on his agenda will be the current status of the Trans Pacific Partnership Agreement (TPPA).

It is an opportunity to clarify with the President himself what the chances are that the TPPA will be approved by Congress, once a deal is reached.

Of concern is that the Congress will only pass the TPPA if it has a clause disciplining countries that are “currency manipulators.”

This concern is especially serious since a recent influential report cited Malaysia as one of the two TPPA countries that qualified as “currency manipulators.”

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The Era of Financialization, Part 3

This is the third part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part considers financialization in relation, first, with industrial and commercial enterprise and, second, with the household. It then turns to the main consequences of financialization, in terms of economic stability, development, and inequality. (See the earlier parts of the interview here and here.)

Costas Lapavitsas, Guest Blogger

Part 3

Dollars & Sense: A striking aspect of your analysis of industrial and commercial enterprises is that, rather than simply becoming more reliant on bank finance, they have taken their own retained profits and begun to behave like financial companies. Rather than plow profits back into investment in their core businesses, they are instead placing bets on lots of different kinds of businesses. What accounts for that change in corporate behavior?

CL: In some ways, again, this is the deepest and most difficult issue with regard to financialization. Let me make one point clear: to capture financialization and to define it, we don’t really have to go into what determines the behavior of firms in this way. Financialization is middle-range theory. If I recognize the changed behavior of the corporation, that’s enough for understanding financialization. It’s good enough for middle-range theory. Now obviously you’re justifiedto ask this question: why are corporations changing their behavior in this way? And, there, I would go back at some point to technologies, labor, and so on—the forces and relations of production.

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Volcker Rule: Swiss-Cheesed or Beefed Up?

Gerald Epstein

When President Obama’s fortunes were tanking in the winter of 2010, he needed a way to come out punching at the bankers again in order to gain some more momentum on financial reform—and with the voters. So he turned to an unlikely “populist” symbol—Paul Volcker, former head of the Federal Reserve System from the 1980s, who had been widely reviled, especially on the left, for his anti-inflationary crusade and high interest rate policy at that time. Volcker’s policy raised unemployment to dizzying heights, resulted in thousands of bankruptcies, and ushered in the Third World debt crisis that left much of South America in economic ruin for a decade or more. But as a sign of how crazy U.S. politics had become and how far economic discourse had shifted to the right in the ensuing 30 years, Paul Volcker had become a voice of relative sanity in the fight over financial reform in the wake of the Great Financial Crisis of 2007-2008. Obama called a press conference with Volcker at the front and Timothy Geithner, Obama’s Treasury Secretary who had been very unenthusiastic about significant financial reform, slightly behind and with a scowl on his face. The conference announced Obama’s support for “the Volcker Rule,” which was to be included in the Dodd-Frank Financial Reform bill that was under development and the subject of furious debate in Washington—and that ultimately became law in the summer of 2010.

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