#Heterdox Economist

[the-funtime-autocrat]

America’s 2008 bank crash offered a great opportunity to write down the often-fraudulent junk mortgages that burdened many lower-income families, especially minorities. But this was not done, and millions of American families were evicted. The way to restore normalcy today is a debt writedown. The debts in deepest arrears, and most likely to default, are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent. In fact, it could create what the Germans called an “Economic Miracle” — their own modern debt jubilee in 1948, the currency reform administered by the Allied Powers. When the Deutsch Mark was introduced, replacing the Reichsmark, 90 percent of government and private debt was wiped out. Germany emerged as an almost debt-free economy, with low costs of production that jump-started its modern economy. In the past, the politically powerful financial sector has blocked a writedown. Until now, the basic ethic of most people has been that debts must be repaid. But it is time to recognize that most debts now cannot be paid — through no real fault of the debtors in the face of today’s economic disaster.

Michael Hudson, “A Debt Jubilee Is the Only Way to Avoid a Depression” (March 22nd 2020).

[cicaklah]

Like not to be an economist on main but realising that the Tory party handed control of the economy to a bunch of Austrian school weirdos is so shocking I can't even understand how it happened???

Basically in mainstream economics we apply the scientific method, so you have a theory, you test it, gather data and learn from it. but Austrians are like vibes only. They have a theory but because all the evidence says that the theory is wrong...they throw out the scientific method. They're like...creationists. but for really nerdy, almost entirely government level money things.

I get very annoyed about how pop culture and especially Tumblr talks about economics because it's almost entirely wrong or misunderstands what economics is, or sort of assumes that economics flows from economists to the economy, rather than us being more like any other scientist who observe something broadly natural and tries to understand it, but like, the people who have done the mini budget and tanked the pound are not economists? They're politicians who believe that the economy is a plaything they can project their wills onto and they don't believe in evidence. They're idiots.

I feel like I'm going mad. Genuinely I read in the times that truss and kwarteg are Austrian school adherents and my blood ran cold.

[antoine-roquentin]

The German economics mainstream is “self-satisfied with its situation and living in its own intellectual universe.” This is how Paul Krugman, America’s best-known living economist, put it in 2016. Others, especially English speakers and southern Europeans, agree. Mario Draghi, the Italian president of the European Central Bank (ECB), has called German economics “a branch of moral philosophy”. Christopher Smart, an American who worked in the Obama administration, recalls being puzzled by German officials assuming “that debts and imbalances are prima facie evidence of political virtue and vice”.

These impressions rhyme with a stereotype: that Germans resemble dour schoolmasters, obsessed with rules and given to lecturing. In this caricature, Germans are forever insisting that debt is bad and saving is good, a prescription known as “austerity”. But among economists, critics blame more than just culture. They believe instead that German economics has diverged from the Western mainstream, and that this aberration emerged out of an intellectual tradition called Ordoliberalism.

Ordoliberalism developed in the 1930s and had its heyday in the 1950s during Germany’s postwar “economic miracle”. Centered on a group of economists around Walter Eucken at the University of Freiburg in southwestern Germany, it is also called the Freiburg School. Obscure outside of Germany, it has left a lasting mark on German thought. On Walter Eucken’s 125th birthday in 2016, Chancellor Angela Merkel in an address at the Walter Eucken Institute, averred that “the Ordoliberal principles of the Freiburg School have lost nothing in currency and importance.”

And yet, Germany’s leading economists are increasingly wary of their reputation. They are a cosmopolitan bunch, fluent in English and completely plugged into international conference circuits and research pipelines. So they bristle at perceptions abroad, such as Mr. Krugman’s, that German economics is weird. They are annoyed when foreigners blame Ordoliberalism for Germany’s trade surplus (the world’s largest), its hawkish stance in the Euro crisis or other controversies. Their frustration has even inspired a new e-book — “Ordoliberalism: A German Oddity?” — in which economists go to the mat.

The Ordoliberals themselves initially called themselves “Neoliberals”. Gathering during the 1930s, they had two failures in mind: first, that of the Weimar Republic and its cartel-dominated economy; and second, that of 19th-century laissez-faire economics with its brutal booms and busts. Hence their aspiration to provide a new-and-improved liberalism as an alternative to the Nazi and Socialist ideologies that surrounded them.

The goal of the Ordoliberals was to create a constitutional order (ordo, in Latin) that would guarantee economic freedom (hence “liberal”). This led Eucken and his group to several axioms. Prices had to be free (not obvious, in an era of price controls). Contracts had to be freely entered into and then observed (hardly controversial today). Cartels had to be busted ruthlessly. The value of money had to be kept stable.

The Ordoliberals also made much of a German concept called Haftung, which can mean both liability in the legal sense and accountability in the wider economic context. The idea is that liability and control must always be aligned: if you might profit from a transaction you should also bear the risk of losing. “Any measure limiting accountability or responsibility and promising some sort of contingent rescue would create destructive incentives producing […] unfulfillable expectations on behalf of the economic actors, and unfulfillable liabilities on the part of the government as the ultimate insurer,” according to Harold James, an expert on German economics at Princeton University. Ordoliberals even frowned on limited-liability companies; they deemed un-limited liability the proper way to hold managers accountable.

Intellectually and personally, the Germans of the Freiburg School were close to the “Austrian School”. Better known in the US, this tradition sprang from the Austrian-American economist Ludwig von Mises and his student Friedrich Hayek. Hayek also spent time in Freiburg but is associated more with the University of Chicago, where he helped spawn several generations of arch-conservative economists (called the “Chicago School” or “freshwater economics”).

The main difference between the German Ordoliberals and the “Austrians” was their view of the state. The Austrians saw government as the greatest potential threat to freedom, and therefore wanted to keep it out of the economy. Power formations in the private sector, such as cartels, would eventually break down “spontaneously”, they thought. In that sense, they have been called “market fundamentalists”. The Germans, by contrast, wanted a “strong” state (though not a large one) that would step in as referee and break up cartels.

But beyond these disagreements, the two strands of thought had much more in common. Above all, they both favored clear and strict rules over policy discretion. Keynesianism, by contrast, implies a discretionary macroeconomic policy (in the form of fiscal “pump-priming”, for example). This is one reason why the “Austrians” and “freshwater” schools opposed it. Eucken, who died in 1950, never explicitly discussed Keynes, but is also considered anti-Keynesian.

The influence of Ordoliberalism on actual German policy was greatest in the 1950s under economics minister Ludwig Erhard and his adviser, Alfred Müller-Armack, an Ordoliberal. (Disclosure: Erhard was my great-uncle.) It was then that postwar Germany adopted its notoriously tough antitrust policies. Ordoliberalism then waned in the 1960s and 70s with the rise of Keynesianism. And yet an Ordoliberal flame always remained lit inside the Bundesbank, Germany’s central bank, which became famous for its hawkish monetary policy. Jens Weidmann, the current president of the Bundesbank, habitually quotes Eucken in his speeches even today.

Germany has also bequeathed some of its Ordoliberal tradition to EU institutions. It shows up in the design of the ECB, not coincidentally located in Frankfurt, with its single focus on price stability (defined as inflation below two percent), to the exclusion of employment. It also shapes EU competition policy, which is tougher than America’s. It has also seeped into European treaties such as the Stability and Growth Pact, which limits the budget deficits and debts that member states can run up (and thus constrains their fiscal “discretion” with “rules”).

Ordoliberalism also provided intellectual firepower during the euro crisis to those Germans who rejected “southern” demands for “solidarity” in the form of debt mutualization. The idea behind such “euro bonds” was that Germany and other countries would guarantee the debts of Greece. This structure would clash with the “no-bailout” rule in the European treaties, many Germans pointed out. It would also have severed the link between control and liability that Eucken considered so important. (Greeks would have retained fiscal control, but Germans would have shared liability.)

Invoking the same principle of Haftung, Germans also oppose ideas about a common European deposit insurance for banks. It could mean that Germans pay for a failed bank in Italy, rather as Texans in theory might have to vouch for Californian depositors.

But there are also many examples of German policy straying from the Ordoliberal tradition. Germany is happy to break rules when convenient. It did so in 2003, when Germany ran a budget deficit larger than the European limit. During the Great Recession of 2008-09, Germany bailed out its banks (violating the Haftung principle) and spent money in a big fiscal stimulus package (a case of Keynesian discretion).

In the euro crisis, despite its rejection of euro bonds, Germany did participate in three consecutive bailouts of Greece. “It is neither true that ‘ordoliberal’ thought prevails in German macroeconomic policy today nor that it is responsible for Germany’s policy stance during the crisis in the euro zone,” according to Lars Feld, one of Germany’s leading economists and the director of the Walter Eucken Institute.

There might indeed be a simpler explanation for actual Germany policy. Instead of following “some obscure economic religion or sect,” argues Michael Burda, an American economics professor who has spent decades in Germany, “German economics is nothing more than a reflection of German national interests, for better or worse.” Thus Germans who have probably never even heard of Walter Eucken nonetheless worry about bailing out southern countries. They do so because, within Germany, rich Bavarians are already fed up with bailing out indebted Berliners, and Germans don’t want to replicate this “transfer union” in the EU.

Mr. Burda concludes that “there is nothing special about German economics.” From a pragmatic Anglo-American point of view, that would be reassuring. After all, what’s more universal than making policy for your own interests?

the guy who actually coined the term “neoliberalism” was an early ordoliberal named alexander von rustow, speaking at the colloque walter lipmann in 1938, which brought together the austrian school, the freiburg school, and various heterdox american, english, and french economists who shared a common upper class upbringing, devotion to capitalism, and fear of socialism and nazism. they mostly worked at universities and ended up training the first wave of what we would call neoliberals today. 

[charlesmreail]

The Progressive Economy Forum general election guide

The Progressive Economy Forum, which is made up of a range of people generally thought of as heterdox economists, has published its guide to the general election manifestos, including one by me on tax: You can download it here.  source https://thebtrader.com/2019/12/04/the-progressive-economy-forum-general-election-guide/?utm_source=rss&utm_medium=rss&utm_campaign=the-progressive-economy-forum-general-election-guide from The B-Trader https://thebtrader.blogspot.com/2019/12/the-progressive-economy-forum-general.html

[thebtrader]

The Progressive Economy Forum general election guide

The Progressive Economy Forum, which is made up of a range of people generally thought of as heterdox economists, has published its guide to the general election manifestos, including one by me on tax: You can download it here.  from The B-Trader https://thebtrader.com/2019/12/04/the-progressive-economy-forum-general-election-guide/?utm_source=rss&utm_medium=rss&utm_campaign=the-progressive-economy-forum-general-election-guide

[the-funtime-autocrat]

The first priority is to mobilize. That means building temporary field hospitals, drive-through clinics, and emergency health centers. It means cranking up production of essential equipment and medication, staffing health facilities adequately, and establishing support services for the hungry, homeless, and most vulnerable. And it means deploying an army to disinfect airports, schools, and critical public places. Second, we need to make it easier for people to stay home, such as by implementing short-term debt deferments (including on small business and mortgage loans) and suspending utility bills, as some European countries are already doing. Governments also should be providing income support in the form of extended unemployment insurance, food stamps, and housing benefits. In the US, all work requirements for public benefits should be abolished, and the federal government should extend immediate financial assistance to state governments constrained by balanced-budget laws.....Without direct, guaranteed employment, we are looking at decades of elevated unemployment. Alternatively, a person with a living-wage job can pay a mortgage, buy a plane ticket, and go to restaurants. An ample supply of good jobs for all who want them is the surest way to bring every sector of the economy back to full health.  But how will the government pay for it all? The same way it pays for everything else. It should not take a pandemic or a world war to remind citizens that the US government is self-financing. US public financial institutions – the Treasury and the US Federal Reserve – ensure that all government bills get paid, no questions asked. All that is needed, then, is for Congress to appropriate the budget and design an effective policy for managing this crisis and those that will come after it. No one is calling for wealthy taxpayers or foreign lenders to “pay for” the response. That is not how a government that controls its own currency finances itself. So, let us stop asking the trivial question of how to pay for it. Finding the money is never the problem. The focus should be on creating good jobs for the unemployed.

Pavlina R. Tcherneva, “What Would Roosevelt Do?”  (March 20th 2020).

[the-funtime-autocrat]

Pierre-Joseph Proudhon was also the founding father of Mutualism, a school of libertarian socialism that preaches that ownership should be based primarily on occupation or possession, over management. The idea is that if you occupy a space and work that land, then the fruits of that labor belong to you and you alone. If this space is occupied by many inhabitants, say like an apartment or a social media site, then the only democratic way to operate it is cooperatively. There can be a negotiated association fee paid for basic upkeep, which the add revenue we drive on social media platforms more than covers, but any other capitulation amounts to little more than a surrender to slumlordism and shouldn't be tolerated by any self-respecting anarchist. In an age when more and more of our lives have become digital, the new commons exists largely online and this once promising utopia has become a dystopian company town.

Comrade Hermit, “Proudhon v. Facebook: A Mutualist Solution to Cyber Tyranny” (May 24th 2020).

[the-funtime-autocrat]

(Friedrich) List was a noted economic adviser and his ‘National System’ had an impact on the economic policies of the USA and the German states. He was regarded as the antagonist of Adam Smith, List stating that a nation must secure its manufacturing self-sufficiency to a maximum extent by protection before opening up to outside competition. He did not reject Free Trade per se, as part of a process following the securement of national self-sufficiency, but he did base his system on the nation and ‘nationality’, and saw even then that the Free Traders ignored the national factor in economic affairs. He criticized the primacy of economics over high politics and its use as a factor in foreign policy. He condemned the cosmopolitanism of the Free Traders, and it is notable that even from the early 19th century the Free Traders were the globalists of their day, advocating Free Trade as the harbinger of ‘international peace’ – a notion that List rejected but which, as alluded to previously, Marx accepted. List stated, contra the Free Traders, that the interests of the individual do not necessarily coincide with the interests of the national community, and that it is the duty of the State to ensure that they did so coincide in creating and maintaining ‘national unity’. Again, there is the concept of the organic community, where economics is subordinated to the common interest. The Right could surely learn by brushing the dust from List’s National System of Political Economy rather than considering the presumed offerings of Adam Smith, Hayek, von Mises or Ayn Rand. The issues List was addressing are today very relevant. They suggest the ‘Prussian Socialism’ of Spengler, and the rejection of the Right in that era of capitalism and the English School, but here we are again today, in an ironic situation where the Right forgets its own traditions, with elements within the Right talking about the Free Market as the epitome of Western inventiveness (to cite Stephen Molyneux).

Kerry Bolton, “Marx on Globalization, Whigs & Free Trade – Part 2″ (May 23rd 2019).

[the-funtime-autocrat]

Other than to say that this would be an ideal time to announce some directional changes in government policy – for example: 1. Introduce a Job Guarantee – to give an income security option to all those (particularly low-income, precarious workers) who will face massive income losses as a result of being made redundant. There are no end of productive activities that can be done which will not be constrained by supply-chain disruption arising from the factory closures brought about by the coronavirus. And specifically, this would be a salvation to the arts/music scene which is now being devastated by the cancellations as a result of the virus. Instead of performing live (while the restrictions continue), these workers could write and record new material, paint or sculp things etc. But they would be able to maintain (mostly) their rents, mortgages, and other nominal commitments that are not ‘cancelled’ as a result of the virus spread. 2. Restructure the gig economy – introduce far-reaching reforms to force employers to pay sick and holiday pay and to treat all workers as employees rather than independent contractors. Initially, a publicly-funded phase-in period could be offered (the stimulus part) so that workers sick or in quarantine would continue to stay solvent and which would not penalise the employers who are already likely to be enduring a massive collapse in revenue. But once the crisis passes then the phase-in support vanishes and the employers have a choice – restructure their operations or exit. 3. Create a public bank – the private banks are going to need substantial public support. As in the GFC, many will become insolvent unless they are guaranteed by the government. The government should guarantee all deposits for a time and offer to integrate them into a new public bank. Depositors would then have a choice. After some period, the guarantee would lapse and only apply to the public bank and consumers would understand the risks of their choices. 4. Restore national ownership of the airlines. The tourist industry is facing ruin. The airlines are going to need massive public injections to stay solvent anyway. Many were privatised in the early days of the neoliberal hey-day. The government should offer full support but take over ownership.

William Mitchell, “The Coronavirus Will Redefine What Currency-Issuing Governments Can Do – Finally” (March 16th 2020).

[the-funtime-autocrat]

In the health and economic crisis in which we find ourselves, the government is going to need all the public trust it can get. Bailouts of those who caused their problems and ours won’t meet the fairness test. As I previously wrote, nationalization is a four-letter word for many, but it actually offers a chance to correct for the decades of deregulation and concentration and thereby restore competition to the economy. Nationalized banks too-big-to-fail, for example, can later be broken up and the pieces sold back into private hands. Commercial banks can again be separated from investment banks, and concentrated financial power can be broken. Now that we know that markets are not self-regulating, we can restore sensible financial regulation and require banks to lend for productive purposes, not for financializing and leveraging existing assets. The US financial system has not served the productive side of the US economy for a long time....And what is to be done for the 40% of Americans who, according to a Federal Reserve study, cannot raise $400 in cash without selling personal property?  How are the large number of uninsured going to be cared for during this health crisis? Where will hospitals and medical practices get the money? The only solution is to nationalize health care so that the bills can be paid.  We cannot survive large numbers of infected and jobless people roaming the streets raiding for food and whatever they can take.

Paul Craig Roberts, “Debt Forgivness and Nationalization Are the Answers to the Economic Crisis” (March 23rd 2020).

[the-funtime-autocrat]

No one is advocating just spending to infinity. The issue is about what the full productive capacity of the nation is. We have allowed our national infrastructure and healthcare system deteriorate to criminal proportions... allowed kids to strap 6-figure debt to their backs via student loans before their first job and destroy the planet with fossil fuels. We are telling you this can all change if the cool kids from the camp fire stop telling stories and start paying attention and learning. 45,000 commit suicide every single year from involuntary unemployment, we can solve that too.

Steve Grumbine, "The Truth About 'Printing Money.'" (December 26th 2017).

[the-funtime-autocrat]

It would have quite been helpful if all the self-proclaimed evangelical Republicans in the US as well as the Christian Conservatives in Western Europe had read the biblical story of the seven years of plenty and the hard years in Egypt, instead of increasing the debt through unnecessary tax cuts for high-income households. Republican criticism of the deficit under Obama rang rather false, as the Republicans never seem to waste a thought on spending when it comes to special interests or the military – even when the military leadership itself is highly critical of these decisions and points to a larger variety of challenges for US security, such as the educational deficits of new recruits or their obesity.

Klaus Leimann, "Economics for the Right – The Present-day State of Economic Politics" (July 16th 2019).

[the-funtime-autocrat]

Much as we did throughout most of our nation’s history, it is time for a sophisticated and capable national industrial strategy. That means first and foremost to stop flying blind. Today the government lacks the basic knowledge of what the U.S. can and cannot produce. To remedy this Congress should establish a unit within the National Institute of Standards and Technology (NIST) within the U.S. Department of Commerce, charged with understanding U.S. capabilities and gaps in advanced technology production sectors in the U.S. Second, it means recognizing and welcoming the role that the state plays in helping to drive intelligent industrial policy. The state’s role must extend beyond passively protecting property rights and establishing a framework for the operation of efficient, rent-free markets. Congress needs to step up to the plate with policies and programs to incentivize companies to reshore critical industry production to the United States. For example, at one time many drug companies produced critical drugs and active pharmaceutical ingredients (APIs) in Puerto Rico because Section 936 of the tax code provided them with generous incentives to do so. But when that provision ended in 2006 not only did it devastate the Puerto Rico economy, it led to a rush of factories moving to China, many induced by generous government incentives over there.

Robert D. Atkinson and Marshall Auerback, “America’s COVID-19 Response Must Be Industrial, Too” (April 6th 2020).

[the-funtime-autocrat]

Furthermore, the nostalgia for the post-WWII period up to the 1970s (‘Make America Great Again’) can never be fulfilled by deregulation of the financial markets, which make it far more profitable to invest in the capital market rather than really investing in any intellectual and physical means of production. It must be recalled that from WWII up until the oil crisis of the 1970s, there was no economic crisis in the Western hemisphere.This was not because this was the golden age of unregulated capitalism, but because the financial institutions were more or less limited to their core function of redirecting unused capital to private people (usually so that they could become property owners) or to businesses to reinvest this capital into new means of production.

Klaus Leimann, "Economics for the Right – The Present-day State of Economic Politics" (July 16th 2019).

[the-funtime-autocrat]

A prosperous economy relies on a high level of investment and research both tourism and high-tech industry, preserve the local heritage, transmit the country's traditions and cultural identity, foster innovation, etc.

Guillaume Faye, “Prelude To War.”