The deepening of economic globalization appears to have ground to a halt and the process may even unravel a little. The sudden stop has surprised economists, whose belief in globalization has strong parallels with Fukuyama’s (1989) flawed end of history hypothesis. The paper presents a simple analytic model that shows how economic globalization has triggered political and geopolitical contradictions. For the system to work, politics within countries and geopolitics across blocs must be supportive of the system. That is missing. The model is applied to a global economic core consisting of the US, China, and the European Union. It is revealing of multiple tensions, fracture lines, and contradictions. Within the US, globalization has delivered economic outcomes that have estranged the electoral bases of both major political parties. It has also delivered outcomes that are inconsistent with the US neocon geopolitical inclination. President Trump is a product of those forces, and he will likely prove to be a historically significant figure. That is because he has surfaced geopolitical contradictions that cannot be swept back under the rug. Ironically, his biggest impact may be on the European Union, particularly Germany, which is being compelled to recognize the neocon nature of the US and the vulnerabilities of dependence on US exports and technology. China was already aware of its vulnerabilities in those regards.
Archive for the ‘Economics’ Category
Globalization Checkmated? Political and Geopolitical Contradictions Coming Home to Roost
Tuesday, July 24th, 2018Negative interest rate policy (NIRP) and the fallacy of the natural rate of interest: Why NIRP may worsen Keynesian unemployment
Wednesday, May 16th, 2018NIRP has quickly become a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian classical economic logic that asserts there is a natural rate of interest which can ensure full employment. That pre-Keynesian logic has been augmented by ZLB economics which claims the natural rate may be negative in times of severe demand shortage, so that policy must deliver it since the market cannot. In contrast, Keynes argued investment could become saturated so lower interest rates cannot increase aggregate demand (AD) and no natural interest rate exists. Regarding policy assessment, NIRP turns a blind eye to the possibility that negative interest rates may reduce AD, cause financial fragility, create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow, promote currency wars that undermine the international economy, and foster a political economy that spawns toxic politics. Worst of all, NIRP maintains and encourages the flawed model of growth, based on debt and asset price inflation, which has already done such harm.
Modern Money Theory (MMT) vs. Structural Keynesianism
Friday, April 6th, 2018A journalist sent me some questions about MMT. My answers are below.
1. What are the major flaws you see within Modern Monetary Theory?
(A) I like to say that MMT is a mix of “old” and “new” ideas. The old ideas are well known among Keynesian economists and are correct, but the new ideas are either misleading or wrong.
The essential old idea, which everybody knows, is government has the power to issue money. We used to talk of “printing” money. In today’s electronic world we talk about “keystroke” money created by electronic credit entries.
Everyone knows that because government has the capacity to create money, it can always pay its bills and debts by printing money. But having the capacity is not the same thing as saying it should, which is the beginning of where MMT goes astray. (more…)
Re-theorizing the Welfare State and the Political Economy of Neoliberalism’s War Against It
Monday, February 26th, 2018This paper seeks to frame neoliberalism’s relation to the welfare state. At issue are competing views regarding the size and organization of the welfare state. The paper presents a new theoretical framework that distinguishes between modes of production and financing of the welfare estate. The framework helps understand both comparative country welfare states and the goals of the neoliberal attempt to refashion the welfare state. The paper then explores the political economy strategy behind the neoliberal campaign. It argues neoliberalism seeks to politically discredit the traditional welfare state and change the economic structure so that the latter becomes unviable. READ MORE
The General Theory at 80: Reflections on the History and Enduring Relevance of Keynes’ Economics
Thursday, October 26th, 2017This paper reflects on the history and enduring relevance of Keynes’ economics. Keynes unleashed a devastating critique of classical macroeconomics and introduced a new replacement schema that defines macroeconomics. The success of the Keynesian revolution triggered a counter-revolution that restored the classical tradition and now enforces a renewed classical monopoly. That monopoly has provided the intellectual foundations for neoliberalism which has produced economic and political conditions echoing the 1930s. Openness to Keynesian ideas seems to fluctuate with conditions, and current conditions are conducive to revival of the Keynesian revolution. However, a revival will have to overcome the renewed classical monopoly. READ MORE
A Theory of Economic Policy Lock-in and Lock-out via Hysteresis: Rethinking Economists’ Approach to Economic Policy
Tuesday, July 4th, 2017This paper uses hysteresis to develop the concept of policy lock-in and lock-out. Policy changes may near-irrevocably change the economy’s structure, thereby changing the distribution of wealth, income and power. That may lock-in policy by changing the political equilibrium. Exit costs that block policy reversals also cause lock-in. Conventional thinking treats policy as a dial which is adjusted according to the economy’s state. Policy lock-in questions the dial formulation and raises new issues for optimal policy design. It also offers insights into economic and political crisis theory. Policy lock-in is illustrated with examples that include tax policy, government spending, the euro, globalization, and the neoliberal policy experiment. READ MORE
Trump and the Neocons: Doing the Unilateralist Waltz
Monday, May 29th, 2017The neocon factor dramatically changes the interpretation of the Trump administration’s unilateralist international economic policy chatter.
Donald Trump’s first one hundred days have revealed his inclination for unilateralism in international relations. That inclination reflects his opportunistic and bullying disposition, and it also fits well with his anti-globalization pose.
Trump’s unilateralism has also spawned a dangerous waltz with Washington’s neocon establishment. The opportunistic Trump looks to gain establishment support, while the neocon establishment looks to the opportunist-in-chief to implement its own unilateralist view of the world.
The waltz is clearly visible in recent military actions, but it also extends to international economic policy which is an area of budding neocon concern. A further twist is that neocon unilateralism can be exercised against both rivals and allies. Power is at the core of the neocon project, and power can be used to block rivals or bend allies. READ MORE.
The Real Reasons for Trump’s Anti-Globalization Circus
Wednesday, May 24th, 2017Trumponomics: How Trump skillfully used anti-globalization as bait to cover up his extremely neoliberal switch.
A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as being anti-globalization.
However, his true economic interests are the exact opposite. That creates conflict between Trump’s political and economic interests.
For political leaders around the world, understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy. [READ MORE]
Monetary Policy and the Punch Bowl: The Case for Quantitative Policy and Wage Growth Targeting
Friday, May 5th, 2017Federal Reserve Chairman William McChesney Martin famously declared that the Federal Reserve “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” This paper uses the punch bowl metaphor to analyze how the Federal Reserve can improve monetary policy so as to deliver shared prosperity with greater financial stability. The problem is the party starts earlier on Wall Street than Main Street, so the Fed may remove the punchbowl before the party reaches Main Street. Ensuring Main Street attends the party requires a new recipe for the punch, new serving rules, and a new punch master. Additionally, there is a deeper problem that the current neoliberal growth model has the economy addicted to monetary punch. Resolving that requires a cure that goes beyond the punch bowl.
READ MORE: Simple version here.
READ MORE: Technical version here.
Trumponomics:NeoconNeoliberalism Camouflaged with Anti-Globalization Circus
Thursday, April 20th, 2017A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy.
As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests.
Trump also expresses neocon unilateralist tendencies that play well with much of the US electorate. His neocon unilateralism is not a one-off temporary political aberration. Instead, it reflects intrinsic and enduring features of the current US polity. That has profound implications for the international relations order, and is something many Western European governments may not yet have digested.