Tag Archives: economic growth

could Marxism make a comeback?

Maybe, according to this Marxist professor writing on Truthout.org.

Within the broad Marxian tradition, some strands offer both analyses and policies that differ sharply from anything offered by either neoclassical or Keynesian economics. To take perhaps the clearest example, many Marxists focus on the undemocratic position of capitalists within enterprises (individual owners and corporate boards of directors). Their decisions on whether and how to invest net revenues determine the shape of the macroeconomy for all. A minority focused on enterprise profits as “the bottom line” makes decisions impacting the jobs, incomes, debts, etc. of a majority to which it is not democratically accountable. This minority’s expectations, desires and “animal spirits” (as Keynes put it) causes instability, in the Marxian view. The policy suggestion emerging from that view focuses on a program to “democratize the enterprise” as a solution to instability. Replacing hierarchical undemocratic capitalist enterprises with democratically organized worker cooperatives – where each enterprise member has one vote in deciding key matters, such as investment decisions – is a way forward that neither neoclassical nor Keynesian economists have yet allowed to be debated in public and academic forums. We will all be better off when the current narrowness of economics is opened up to include more basic proposals for change adequate to the depth and scope of capitalism’s current problems.

I’m not sure where I “stand”, except I’d like to see more empirical testing of economic theories and less ideology. Even if we figured out which of the major economics religions is actually “the right one”, we still couldn’t expect it to pick solutions for us. It could identify a range of reasonably economically efficient solutions to a problem (and reject a lot of clearly dumb ones), but we would still have to pick one to try moving ahead with that best represented our values. But maybe with all those dumb solutions tossed out and better information at our fingertips about the range of good solutions, our messy political system would have a better chance of making good choices.

October 2018 in Review

Most frightening stories:

  • The Trump administration has slashed funding to help the U.S. prepare for the next pandemic.
  • I read more gloomy expert opinions on the stability and resilience of the global financial system.
  • A new depressing IPCC report came out. Basically, implementing the Paris agreement is too little, too late, and we are not even implementing it. There is at least some movement towards a carbon tax in the U.S. – a hopeful development, except that oil companies are in favor of it which makes it suspicious. There is a carbon tax initiative on the ballot in Washington State this November that the oil companies appear to be terrified of, so comparing the two could be instructive, and the industry strategy may be to get a weaker law at the federal level as protection against a patchwork of tough laws at the state and local levels.

Most hopeful stories:

  • There is no evidence that kids in U.S. private schools do any better than kids in U.S. public schools, once you control for family income. (Okay – I admit I put this in the hopeful column because I have kids in public school.)
  • Regenerative agriculture is an idea to sequester carbon by restoring soil and  protecting biodiversity on a global scale.
  • Applying nitrogen fixing bacteria to plants that do not naturally have them may be a viable way to reduce nitrogen fertilizer use and water pollution.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • New tech roundup: Artificial spider silk is an alternative to carbon fiber. Certain types of science, like drug and DNA experiments, can be largely automated. A “quantum internet” could mean essentially unbreakable encryption.
  • Modern monetary theory suggests governments might be able to print (okay, “create”) and spend a lot more money without serious repercussions. What I find odd about these discussions is they focus almost entirely on inflation and currency exchange values, while barely acknowledging that money has some relationship actual physical constraints. To me, it has always seemed that one function of the financial system is to start flashing warning lights and make us face the realities of how much we can do before we are all actually starving and freezing in the dark. It could be that we are in the midst of a long, slow slide in our ability to improve our physical quality of life, but instead of that manifesting itself as a long slow slide, it comes as a series of random shocks where one gets a little harder to recover from.
  • I read some interesting ideas on fair and unfair inequality. Conservative politicians encourage people not to make a distinction between alleviating poverty and the idea of making everybody equal. These are not the same thing at all because living just above the poverty line is no picnic and is not the same thing as being average. There is a strong moral case to be made that nobody “deserves” to live in poverty even if they have made some mistakes. And simply “creating jobs” in high-poverty areas sounds like a nice conservative alternative to handouts, except that there isn’t much evidence that it works.

the next recession

The next U.S. recession could be a rough one, according to Harvard economist Martin Feldstein. The argument is that the Federal Reserve will continue to raise short term interest but very gradually, not leaving itself a lot of room to lower them when a recession hits. At the same time, due to the pro-cyclical tax cuts, the government will not be able to increase deficit spending by a lot because it will not be able to afford the increased interest payments. And third, low unemployment seems to be causing inflation.

It would not be surprising if the rate on ten-year Treasury bonds rises to 5% or more over the next few years. With an inflation rate of 3%, the real yield will be back to a normal historic level of over 2%.

This normalization of the ten-year interest rate could cause the P/E ratio to return to its historical benchmark. A decline of that magnitude, from its current level of 40% above the historic average, would cause household wealth to shrink by about $8 trillion. The historic relationship between household wealth and consumer spending implies that the annual level of household consumption would decline by about 1.5% of GDP. That fall in household demand, and the induced decline in business investment, would push the US economy into recession.

If you have an enormous nest egg, a 2% real return on bonds doesn’t sound all that terrible. For the rest of us relying on stocks to help us build that nest egg (those of us lucky enough to have a little extra income to save, that is), this doesn’t seem like good news.

more jobs doesn’t lessen poverty?

This article digs into a study on correlations between poverty, job creation and social mobility (along with several other factors). Unfortunately, just creating new jobs in low-income areas didn’t seem to increase the chances of children moving up the economic ladder compared to their parents. However, living or moving to a neighborhood where most people are employed does increase the chances of a child moving up the economic ladder compared to their parents.

It’s puzzling. The explanation that is easy to jump to is that cultural factors are very important and can’t be changed overnight. I’m sure there is some truth to that. I can think of other potential factors though – maybe parents in low income areas are taking those jobs, but whatever extra income they are pulling in is not enough to offset spending less time with their children. Maybe they are more likely to be single parents, lack extended family support, struggle with substance abuse and mental illness, not be able to afford high quality health care and child care, and live in low-performing school districts. Under these circumstances, it wouldn’t be too surprising that their children are not getting ahead. Those middle class professional parents in the neighborhoods where everyone is employed are probably scraping together enough to pay for decent health care and child care, and are probably demanding more from their school systems.

more reasons to worry about the global financial system

William White, formerly with the Bank of Canada among other jobs, has another cheery list of reasons to worry about a new financial crisis.

  • large increases in dollar-denominated debt in the private sectors of emerging market economies,
  • high property prices in many countries,
  • asset-management and private equity firms acting as lenders in place in traditional banks, with less regulation and fewer limits on risk taking,
  • disparities in interest rates between countries leading to capital movement
  • flash crashes,
  • algorithmic trading,
  • passive investing, and
  • the possibility of slower growth, higher inflation, and political meddling in monetary policy in the U.S. caused in part by Trump’s misguided policies.

Modern Monetary Theory

The Intercept has a long article on Modern Monetary Theory.

In a nutshell: MMT proponents believe that the government can safely spend far more money than it currently does, and increasing the federal deficit is not a bad thing in and of itself — a public deficit is also a private-sector surplus, after all.

While typically we hear rhetoric that our political leaders must first “find” money through new taxes or budget cuts in order to pay for new programs, MMT proponents say that’s a fundamental misunderstanding of how money works. In so-called fiat currency systems (meaning societies in which money isn’t backed by physically valuable commodities like gold or silver) governments literally create the money and tax it later to control for inflation and keep it in demand.

Inflation is still a risk, MMT advocates say, but it’s a much more remote risk than mainstream economists let on, and it’s one that can be addressed down the line if it arises, without so much pre-emptive austerity.

They also talk about the idea of a federal jobs guarantee.

I just had a few college economics courses, but the idea seems risky. By expanding the money supply so drastically, I thought you risked hyper-inflation and a devaluing of your currency relative to others. Of course the U.S. can push it further than other countries, but there still must be a breaking point. But the idea of some kind of counter-cyclical automatic investment in infrastructure, education, training, and research is appealing to me. This could kick in if unemployment hits a certain level, growth falls below a certain level, or some combination of the two. Then during stronger economic times, the government steps back and lets the private sector take the lead. I think it would have to be some kind of formula or else the politicians will ruin it.

September 2018 in Review

Most frightening stories:

Most hopeful stories:

  • The Suzuki and Kodaly methods are two ways of teaching music to young children that may actually help them think later in life. Training in jazz improvisation may also be good for young brains in a slightly different way.
  • There are some bright ideas for trying to improve construction productivity, which has languished for decades. Most involve some form of offsite fabrication.
  • In energy news, there’s a big idea to produce half the world’s electricity from sunlight in the Sahara desert. Another idea for collecting solar energy in otherwise (ecologically) wasted space is solar roadways, and there are a few prototypes around the world but this doesn’t seem to be a magic bullet so far. Another big idea is long-term storage of energy to smooth out fluctuations in supply and demand over months or even years.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

the mini-recession of 2015-16

The New York Times has a nice piece of economics reporting on a downturn that affected the U.S. manufacturing, farming and energy industries in 2015 and 2016. I’ll see if I can summarize it, but really we have to admit to ourselves that spinning these narratives after the fact doesn’t mean we have the ability to predict the future.

  • China tried to slow down lending because it was worried about a bubble. The article doesn’t say how, but maybe they raised interest rates or put other requirements on banks.
  • This affected developing countries that export to China.
  • The U.S. Federal Reserve was also starting to raise interest rates because it thought growth and inflation were both starting to pick up.
  • Europe and Japan were decreasing interest rates due to low growth at time.
  • The disparity in interest rates caused a rise in the dollar, because investors pulled money out of other countries/currencies to invest in the U.S.
  • China’s currency is (partially?) pegged to the dollar, so this caused its currency to rise and hurt its exports.
  • China reduced its peg to the dollar in response to allow its currency to depreciate and help its exports. However, this caused more investors to shift money out of China and reduced growth even more.
  • Governments and companies in emerging markets had a lot of dollar-denominated debt, which was now more expensive to repay in their local currencies.
  • The slowdown in emerging markets reduced demand for oil, minerals and agricultural goods, which caused prices to drop and hurt those sectors in the U.S., along with manufacturing that serves those sectors. Some emerging countries are also active in energy, mining, and agriculture so they were also hurt.
  • This may have had political consequences both in terms of disgruntled voters in key states during the 2016 election, and the perception of increased growth following the election.

It’s pretty interesting how it is all connected, and even though it seems complex the reality is probably much more complex than the way I have tried to puzzle it out above. The lesson going forward seems to be that a slow down in China, coupled with a disparity in growth between the U.S., China, and other developed countries in Europe and Asia, can lead to recession conditions in the U.S., even if the U.S. economy is healthy at the beginning of the process. Put another way, global growth is clearly not a zero sum game as some politicians would like to try to convince us. The U.S. Federal Reserve is trying to gradually raise rates to give it some ability to respond to an event like this in the future, but it is clearly a balancing act.

The Economist on the next financial crisis

The Economist joins the chorus warning that another financial crisis could be in the cards. They offer three reasons:

  1. There is too much lending against real estate and not enough to businesses that generate real value.
  2. The U.S. dollar is still the world’s reserve currency, but political pressure may prevent the Federal Reserve from flooding the world with dollars in a future crisis like it has in the past.
  3. The Euro is still dangerously unstable.