The North Korean Workers' Party Congress

The seventh Workers' Party of North Korea congress has just ended, the first since 1980 when the nations' first leader, Kim Il Sung, announced that his son, Kim Jong Il, would succeed him, which he did  in 1994.  This congress was convened by his son, the 33-year old Kim Jong Un, who has used it to consolidate his power.  Among the more noticeable  of  things that happened is that he was named to be Chairman of  the party.  It has been widely noted that the congress fits in with a policy of elevating the party in comparison with the military, which was apparently favored by his late party.  So the congress elevates both the party and Kim Jong Un.

What is of perhaps more interest for  readers of this blog is what economic policies came out of the congress.  It is interesting to me at least that prior to the congress outside observers were very much up in the air about what it would do regarding economic policy, aside from reconfirming the "byungjin" policy of simultaneous pursuit of nuclear weapons and economic growth, or as some wags have put, both guns and butter. 

A particular issue of controversy involves agricultural policy, which has involved an unofficial spread of more  or less free markets.  This came about after the famines and extreme food shortages of the 1990s and early 2000s, with the situation much improved, if not  great. Many thought that perhaps the congress would make this policy official, although it was always understood that they might not.  In the end, they did not.  Official ideology of socialism remains in place, even as the reality in agriculture at least is one of more or less free markets now.

Probably the only other notable decision was to resume five year plans.  Many outsiders probably think that they never went away.  We (and I am guilty of this) have long described its economic system as this holdover of Stalinist command socialist central planning, and indeed it is a socialist command economy, with the notable exception of the agricultural sector as noted above.  However, fiver year plans were abandoned in the late 1980s while Kim Il Sung was still in power and prior to the end of Communist Party rule in the Soviet Union and Eastern Europe.  So this is also a return to a more officially formal socialist position.

BTW, it should be noted that the North Korean economy is probably doing better than many think.  We are back to a situation where there are widely competing estimates of how  its economy is doing.  The Bank of (South) Korea estimates that North Korean GDP has been growing at about 1-2% per year, but numerous other observers, such as Andrei Lankov, who is based in Seoul, think it is  growing at more like 7% per year.  There certainly has been a lot of construction going on in Pyongyang recently, although this at least partly reflects a growing inequality between the capital city and the rest of the country in economic conditions, with the northeastern part especially poor.  Much of these disagreements indeed involve trying to figure out some of  these sectors such as agriculture, where it is clear that official data probably do not reflect reality.

Barkley Rosser

How Easy is Income Shifting?

Oxfam got the signatures of 300 economists on a letter than noted in part:

To counter this, the economists are calling for governments to agree new global rules requiring companies to publicly report taxable activities in every country they operate, and to ensure all territories publicly disclose information about the real owners of companies and trusts. Jeff Sachs said: “Tax havens do not just happen. The British Virgin Islands did not become a tax and secrecy haven through its own efforts. These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money. The abuses are not only shocking, but staring us directly in the face. We didn’t need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end. That is what is meant by good governance under the global commitment to sustainable development.”

Even if we know how multinationals are shifting income to tax havens, can national governments do much about it under current law? President Obama is trying to end earnings stripping by using section 385 to recharacterize intercompany debt as equity. As this law firm explains what this is about, the discussion noted how weak this provision has turned out to be:

Two recent cases highlight the IRS’s approach (although, so far not so successfully) to attack these foreign intercompany lending transactions. In NA General Partnership & Subsidiaries v. Commissioner, T.C. Memo 2012-172, the Service attacked loans made to a U.S. entity from a foreign related entity (Scottish Power, via NA General Partnership & Subsidiaries). The IRS solely relied upon a debt versus equity attack to seek to have the U.S. interest expense deductions recharacterized as dividends and non-deductible in the U.S. The court applied traditional tests to determine if a given security is debt or equity and found for the taxpayer. The material terms of the security were more debt-like and the conduct of the parties (accounting entries, public and securities filings, etc., all treated the security as debt) was consistent with the intention to create debt between the parties. In PepsiCo Puerto Rico, Inc. v. Commissioner T.C. Memo. 2012-269, the IRS was again arguing in court whether a given financial transaction created debt or equity in the U.S. The taxpayer intended to create a security that would be treated as equity in the U.S. and debt by the related holder in the Netherlands. The IRS sought to treat the U.S. equity side of the transaction as a loan. The court, recognizing the intent of the parties and the economic realities of the transaction as the primary factors in deciding whether a given transaction should be characterized as debt or equity, reviewed the traditional debt versus equity factors (those mentioned above). Again, the IRS lost the case, as the intent of the parties and economic realities suggested the U.S. side of the transaction was equity and not debt.

The first case involved the acquisition of PacifiCorp by a UK entity, which was a version of hybrid financing. While the interest expense was deductible in the US, the UK chose not to tax the interest income. Tax free income! Now if you never heard of this entity, it is now owned by Berkshire Hathaway Energy (BHE):

A leading western U.S. energy services provider and the largest grid owner/operator in the West, PacifiCorp serves 1.8 million customers in six western states. The company is comprised on three business units: Pacific Power (serving Oregon, Washington, California), Rocky Mountain Power (serving Utah, Idaho, Wyoming) and PacifiCorp Transmission.

BHE owns several other US energy providers and has approximately $80 billion in tangible assets generating about $6 billion in profits. Let’s imagine for a moment that Warren Buffett gets into one of his corporate inversion moods and decides to relocate corporate headquarters to Edinburgh, Scotland. Let’s also imagine that the Scottish parent had extended a $60 billion 20-year loan on October 1, 2015 with an interest rate equal to 5%. What authority would the IRS have to challenge this aggressive planning? I’m sure Warren’s lawyers could successfully structure its agreements so that section 385 is no problem. I guess some hot shot IRS lawyer might pull out section 163(j):

the term “excess interest expense” means the excess (if any) of the corporation’s net interest expense, over the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii).

Don’t you love the horrific writing of lawyers? What does this mean in our case? Since interest expense is less than 50% of operating profits before depreciation, section 163(j) does nothing for the IRS. So what’s left is to question whether the 5% interest rate is above the arm’s length standard. Alas, on October 1, 2015, the yield on 20-year corporate bonds with credit rating = BBB was over 5.3%. Unless the IRS can argue that the credit rating was something akin to AA, it will get nowhere under current law. I’m not saying Warren Buffett even considered this move but if he had – how would the IRS stop it?

Trump Back Peddles on His Debt Default Proposal

Apparently Donald Trump was on CNN trying to clarify his insane suggestion that the Federal government should be run like his Atlantic City disasters:

I said if we can buy back government debt at a discount, in other words, if interest rates go up, and we can buy bonds back at a discount, if we are liquid enough as a country, we should do that. In other words, we can buy back debt at a discount. People said I want to go and buy debt and default on debt, these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK? So there is never a default. But the point is, it was reported in the New York Times incorrectly.

The interview babbled on but let’s take him at his word here. Suppose you had purchased $100 million of 30-year government bonds at the beginning of the year. The Federal government has promised to pay the holder $3 million per year until 2045 and at the end of the year, the holder gets $100 million in principal. For the Federal government, their loan is not callable but you could sell this if suddenly interest rates went up from 3% to 4%. The only problem is that the present value of your future payments is now only $82.7 million. Trump’s brilliant idea would be to have the Federal government immediately retire this loan for the $82.7 million and then refinance it in the current market. But let’s see, the interest rate is now 4% not 3%. For the next 30 years, the Federal government will pay over $3.3 million in interest expenses as opposed to the original $3 million. Trump says he learned finance at Wharton. Something tells me that the finance department is denying he ever took classes from them.

The Capital Noncontroversy, or How the World Actually Works

EconoSpeak has been revisiting the capital controversy of the 1960s, fueled by Barkley Rosser’s posts (here and here) and stimulating comment threads.  The discussion has been thoughtful and well-informed.  Meanwhile over at Marginal Revolution you can find this pop introduction to aggregate production functions.

According EconDirectory.com, during the month of April MR averaged 43,285 page views per day, EconoSpeak 396.

Does the U.S. Have the Highest Corporate Tax Rate in the World?

Paul Krugman reports on his Twitter war with Donald Trump:

Yesterday I tweeted a response to Donald Trump’s claim that America is the highest-taxed nation in the world. Actually, he’s been busted on that claim repeatedly, which makes it even more shameful that TV interviewers just let it slide. But I’m also interested in the responses I’ve been getting, which I think tell you something about the broader situation – maybe call it the politics of epistemology. As you might guess, I’m getting a lot of denial, with quite a few people “explaining” that the international comparisons don’t include state and local government. Um, guys, maybe you shouldn’t make confident pronouncements about stuff you’ve never looked at.

Paul is noting that total taxes as a share of GDP is not really that high by international standards. I’m sure some conservative might scream “that’s average” and then go on some rant about marginal rates. My focus will be on corporate tax rates. KPMG has a handy comparison even if it is very incomplete. It claims that the corporate tax rate in the U.S. is the sum of a 35% Federal rate and an average state tax rate equal to 5%. Of course even domestic firms can get all sorts of tax breaks and likely pay less in state taxes. Multinationals are particularly adept at reducing their effective tax rates. Oil multinationals realize that several foreign tax authorities impose high surcharges on oil profits. I want to focus, however, on the battle between Wal-Mart and Puerto Rico. Puerto Rico imposes a 20% corporate tax but also includes a surcharge that can be up to 19% of profits if the firm’s revenues are high enough. The effective tax rate for the Puerto Rican affiliate of Wal-Mart is 39%. The 10-K filing for Wal-Mart notes that its U.S. tax rate is 37% even when one includes state taxes. And yet we see this claim:

The Secretary has not even proven that the use of transfer pricing to shift profits to other parts of the United States is a problem. As witnesses for both parties testified, the continental United States is not a tax haven like the Cayman Islands are... If Wal-Mart PR has managed to shift $79 million to, say, the State of Arkansas, those are profits on which Wal-Mart Stores will have to pay income tax at a rate of 38% or 39% – namely, a 35% federal corporate income tax, plus a 3% to 4% state corporate income tax.

Why does this matter? Consider this claim by one of Wal-Mart's expert witnesses - Professor Richard Pomp:

You’re not going to transfer profits from Puerto Rico to the United States, where it’s going to be taxed at a higher rate.

While I may have some sympathy with Wal-Mart’s claim that this particular alternative minimum tax discriminates against Wal-Mart, since when is 39% less than 37%?

Ben Rhodes Has Been Stupid And Irresponsible Regarding Iran

So today's New York Times has the story by David Samuels on Ben Rhodes, where they play bros loving Don DeLillo and Rhodes bragged about his mind melding with Obama over the last 7 years and how he set up echo chambers to fool ignorant and stupid reporters, not to mention out of it foreign policy establishment types.  Whoopee!  Of course, all kinds of people are all ticked off at him, calling him many names, although not the one I have called him, with others picking up some of what he has dropped and running with it to discredit the Iran nuclear deal.

This is the matter that I am concerned with, and the matter where Rhodes has seriously messed up.  Rhodes notoriously brags about putting forth a misleading story regarding the Iran nuclear deal in order to sell it to the US public.  The lie was that the negotiations started in 2013 rather than in 2011 as they did.  This was after "moderate" Rouhani became president, and this was what was sold to the ignorant media fools through the elaborate echo chamber Rhodes and his pals set up, of which he is clearly very proud. 

But for anybody who actually knows anything about Iran,  Rouhani was never ultimately in charge of the deal or foreign policy.  That person is the Vilayat-el-faqih, the Supreme Jurisprudent, the unelected (well, elected by a small group of senior clerics) Ali Khameini, the leader of the "hardliners.".  While Rhodes disses Hillary Clinton for  having voted for the war in Iraq in 2003, she was the one who sent someone to meet with a rep from Khameini in Oman that initiated   But she remains an annoying foreign policy establishment figure in Rhodes's view, while Kerry is barely mentioned, dismissed as someone who negotiated "details" while Rhodes and others had already negotiated the "framework.  But to get to get a deal, the US had to have the hardlining Khameini on board as he was and is in charge, the Supreme Jurisprudent.

The problem is that this revelation of this unnecessary and stupid echo chamber is that the enemies of the Iran nuclear deal are already using this to argue that the whole deal is no good because it was sold on this lie, that the negotiations were only initiated with the moderate Rouhani rather than the necessary negotiations with Khameini.  They should have sold it upfront with the reality of whom they were negotiating with, and frankly, people who play attention like me knew what was going on when it was going on. so it is true that most of the reporters are horrendously ignorant.  But that does not excuse that the revelation of this stupid lying will be used by the enemies of this very important and wise agreement to undercut it.

Ben Rhodes should be ashamed of himself.  I think he did this to sell himself for the post-Obama era, but I hope he has to go sit in a cottage somewhere and write his short stories, all by himself and reviled by the world.

Barkley Rosser

The Revenge Of Joan Robinson: Capital Theory Controversies Revive

It is easy to argue about what is the most important or influential thing that the late Joan Robinson did in economics.  More conventional types would probably point to her widely accepted and even textbookified Economics of Imperfect Competition.  Some would point to her later more philosophical and methodological writings about historical time versus analytical time.  Many Post (or post-) Keynesians revere her closenss to Keynes and Kalecki and see her as the godmother-founder of their movement  who could see the unity among their various bickering factions.  But others would look to her work on capital theory in the 1950s, her 1954 paper in the RES, "The production function and the theory of capital," along with the appendices to her 1956 The Accumulation of Capital, as well as her influence on Piero Sraffa to publish his famous book in 1960.  This was the trigger for the famous Cambridge controversies in the theory of capital that reached a culmination a half century ago when Paul Samuelson agreed that the "parable" he and some of his students had set forth was not true in general, given such paradoxes as reswitching (called the "Ruth Cohen curiosum" by Joan Robinson), with him declaring in 1966 in the QJE that, "the foundations of economic theory are built on sand."

As discussed elsewhere, we know that although the Cambridge, England side won an intellectual victory at that point, it turned out to be pyrhhic as those following the Cambridge, MA side simply ignored these results and proceeded to act as if nothing had happened, merrily estimating aggregate neoclassical production functions with well-behaved capital in them, with never a note or caveat about any potential problems, as well as building growth theory models, as well as general equilibrium macro models on such assumptions.  Joan Robinson may have drawn figures showing non-monotonic relations between "real capital" and "output," in the appendices of her 1956 book, as well as non-monotonic relations between interest rates and employment rates elsewhere.  But none of that mattered.  It was all to be ignored as oddities or whatever, things not to tell the children lest they become upset and lose sleep and cry when fed their porridge.

So it is a curious matter that the question of  capital theory has re-arisen recently.  It was just two years ago that Thomas Piketty's book, Capital, made the best seller lists.  Right now considerable attention is being paid to  Anwar Shaikh's voluminous magnum opus, Capitalism.  Both of these books take as their central issue that of the underlying forces driving secular trends in income distribution, particularly the division between wage incomes and profit or interest-based incomes.

Curiously, Piketty's theory remains firmly in the neoclassical camp regarding the questions raised by the old Cambridge, England school.  He briefly notes those controversies, but more  or less dismisses them, perhaps reflecting the influence of being at MIT for a long period of  time, even as he mocks excessive mathematical abstraction of much of modern growth theory.  Jamie Galbraith and others, including Shaikh, have taken Piketty to task for his dismissal of the issues raised by those old controversies, and many have criticized him for his super-aggregated view of capital that includes not  only land but also such things as collectibles, while others have taken him to task for  his arguments regarding r >g.  Where he has been most praised has been in his presentation of data supporting his broader arguments, as well as his ability to bring in broader historical and cultural support.  In any case, he is bringing the issue of capital and the foundations of income distribution front and center, even if he is not  doing so along British Cantabridgian lines.

Shaikh is an old fan of Sraffa's and a participant in the original  debates.  While he also does not present most of his theory as drawing on these old arguments, his approach is much closer to that approach in flavor and discusses it at some length sympathetically, even if he eventually draws more heavily on modern econophysics methods.  These fit nicely into his more Marxist approach,  even as he downplays Marx. But, of course, it was Marx who more sharply posed these questions regarding the nature of capital and how it affects income distribution, as well as power distribution, within societies.

I  note, of course, that the ever increasing emphasis  on financial theory in economics is itself an offshoot ultimately of capital theory, even if  it has gone off into its own niche with more emphasis on problems related to risk and uncertainty, while ignoring the broader issues of growth and income distribution.

I do  not know what Joan Robinson would think about this recent revival, but given what has been going on with income distribution trends in the higher income nations, I suspect she would not  be surprised.  And unlike many others, she always thought deeply about the problems of capital theory, taking account of historical and philosophical issues well beyond her peculiar graphs showing supposedly paradoxical relationships.

I close this by quoting myself from my 1991 book (p. 125):

"What really is capital and what does it mean for value, growth, and distribution?  Is it a pile of produced means of production?  Is it dated labor?  Is it waiting?  Is it roundaboutness?  Is it an accumulated pile of finance?  Is it a social relation?  Is it an independent source of value? The answers to these questions are probably matters of belief."

Barkley Rosser. 

Game theory and rationality -- the road less traveled

In "Game Theory and Cold War Rationality: A Review Essay," Roy Weintraub reviews two recent books, The World the Game Theorists Made (2015) by Paul Erickson and How Reason Almost Lost Its Mind by Paul Erickson, Judy Klein, Lorraine Daston, Rebecca Lemov, Thomas Sturm, and Michael Gordin (2013),both of which are published by University of Chicago Press.

Two of the "minor characters" in both of those books, Kenneth Boulding and Anatol Rapoport, merit particular attention for their role in mapping a "road less traveled" -- a road with ethical rather than strategic directions. Boulding is credited as a founder of ecological economics, along with Nicholas Georgescu-Roegen and Karl William Kapp. Boulding and Rapoport were plotting behavioral economics at Stanford two decades before Kahneman and Tversky arrived there. Boulding and Rapoport, again, cultivated the early work of Thomas Schelling that led to his Strategy of Conflict. Rapoport's Strategy and Conscience was an explicit reply to Schelling's book. Rapoport's experimental work with prisoner's dilemma anticipated Elinor Ostrom's.

The road taken by the mainstream was more constrained by Cold War ideology than was the approach pursued by Boulding and Rapoport. It was also elevated to orthodoxy by its ideological perspective. This is not to say that it was wholly unscientific. It was scientific to the extent that it could produce results useful to the prevailing purposes. This provisional scientificity is the essence of the qualifier "almost" in  the phase "almost lost its mind." But what may have been almost madness in 1960 or 1970 is today stark raving lunacy.

What Donald Trump Is Telling Us about Popular Understanding of Debt and Assets

I see Trump’s suggestion that the US haircut holders of treasury debt through a different lens than most observers.  Almost every year, I walk into an introductory economics class in the fall and try to disabuse students of the notion that debt and credit assets like bonds are two unrelated things.  They are shocked to discover that the savings bonds many have stashed away are pieces of the “national debt”, and that eliminating this debt would mean draining the world of all such bonds—that America’s collective public debt is (apart from foreign holdings, which is another story) America’s collective private wealth.  Yes, the unequal ownership of that wealth is scandalous, but that’s about how much inequality we have, not how much wealth.

So I see the same with the Donald.  It doesn’t sound like Trump realizes that his own bond portfolio would take a hit.  My guess is that he is as clueless as his supporters, none of whom have the slightest idea that the Great One has just proposed taking a slice out of their savings.  Interestingly, this observation hasn’t appeared in the popular media yet, at least from what I’ve seen.  Journos and pundits talk about how unorthodox the idea is and how it could trigger a financial crisis, but not that it’s a monetary form of self-cutting.

Incredible.

Growth analogies, microfoundations and Mathematical Biology of Social Behavior

You want MICROfoundations? In Mathematical Biology of Social Behavior, Nicolas Rashevsky attempted "the next step" of examining the social interactions of individuals in terms of the mathematical biophysics of the central nervous system. He paid special attention to economic questions of wealth, distribution, motivation, learning, rationality, habit, imitation, individualism and collectivism.

Rashevsky's mathematics must be seen as exploratory and often is qualified by the admission that assumptions are unrealistic but that more realistic assumptions make the math intractable. The results thus offer insights, not "conclusions." The contrast with alleged microfoundations as practiced by contemporary mainstream economists couldn't be starker. The latter embrace unrealistic assumptions as a feature, not a bug, because it enables them to crank out conclusions based on biases they are seeking to confirm.

Simon Kuznets on growth:

Growth is a concept whose proper domicile is the study of organic units, and the use of the concept in economics is an example of that prevalent employment of analogy the dangers of which have been so eloquently stressed recently by Sidney Hook. 

Sidney Hook on analogy:

As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion. ...

At best an analogy can only suggest a plausible conclusion whose validity must then be established on other grounds. The uncritical use of analogies is the bane of much historical writing, particularly when the resemblances lack clear definition or when they are blurred and presented as identities. ...  The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like "birth," "reproduction," and "death." 

Gregory Bateson on schizophrenia:

...the ‘word salad' of schizophrenia can be described in terms of the patient’s failure to recognize the metaphoric nature of his fantasies. In what should be triadic constellations of messages, the frame-setting message (e.g., the phrase 'as if') is omitted, and the metaphor or fantasy is narrated and acted upon in a manner which would be appropriate if the fantasy were a message of the more direct kind.

The Microfoundations of the Weeds in the Garden Model

Last fall John Cochrane argued:

Sclerotic growth is the overriding economic issue of our time. From 1950 to 2000 the US economy grew at an average rate of 3.5% per year. Since 2000, it has grown at half that rate, 1.7%. From the bottom of the great recession in 2009, usually a time of super-fast catch-up growth, it has only grown at two percent per year. Two percent, or less, is starting to look like the new normal…Our economy is like a garden, but the garden is choked with weeds. Rather than look for some great new fertilizer to throw on it, why don’t we get down on our knees and pull up the weeds? At least we know weeding works! …Cleaning out the weeds also needs a large effort of simple governance. The President has to revisit and rewrite the mass of executive orders and memos. The Congress has to get serious and pass laws that are actually laws, not thousand page instructions for agencies to figure things out. It has to get around to repealing laws everyone understands are bad — the Jones act restricting shipping, the ban on oil exports, and so on — and reforming laws that everyone understands need to be reformed. It needs to actually follow its own budget law. The heads of agencies will have to renew the staff and reorient them to growth-oriented policy, and undertake a sweeping house-cleaning of regulations and procedures. They will have to implement managerial techniques such as pervasive cost-benefit analysis, regular retrospective review, and sunsets.

I was so tempted to go snarky and ask what are the microfoundations of the weeds in the garden model of economic growth? Noah Smith did the heavy lifting for us:

Most of the so-called growth policies Cochrane and other conservatives propose don't really target growth at all, just short-term efficiency. By pretending that one-shot efficiency boosts will increase long-term sustainable growth, Cochrane effectively executes a bait-and-switch.

Brad DeLong notes Cochrane is up to his old tricks:

Sclerotic growth is America’s overriding economic problem. From 1950 to 2000, the U.S. economy grew at an average rate of 3.5% annually. Since 2000, it has grown at half that rate—1.76%. Even in the years since the bottom of the great recession in 2009, which should have been a time of fast catch-up growth, the economy has only grown at 2%. Last week’s 0.5% GDP report is merely the latest Groundhog Day repetition of dashed hopes…The third camp (mine) holds that the U.S. economy is simply overrun by an out-of-control and increasingly politicized regulatory state. If it takes years to get the permits to start projects and mountains of paper to hire people, if every step risks a new criminal investigation, people don’t invest, hire or innovate. The U.S. needs simple, common-sense, Adam Smith policies. America is middle-aged and overweight. The first camp says, well, that’s nature, stop complaining. The second camp looks for the latest miracle diet—try the 10-day detox cleanse! The third camp says get back to the tried, true and sometimes painful: eat right and exercise.

I guess we will eat healthy foods from that garden once we remove the weeds. Brad complains that a Cochrane chart of per capita income and some “ease of doing business” index is “Extraordinarily Unprofessional!” I was about to comment – where are the microfoundations but someone beat me to this again.

Prayer - Science = 0

Yes, it’s okay to talk about climate change right now. The devastating natural disaster in Fort McMurray is "consistent" with climate change.

The Fort Mac wildfire is horrific. Miraculously, no people have been killed. Saying that the unseasonably hot conditions in Alberta are "consistent with" climate change is not to say that they are "caused by" anthropogenic global warming. But there is no jurisprudential rationale here for requiring that guilt be established beyond a reasonable doubt. On the contrary, the precautionary principle is the appropriate standard for evaluating the possible connection. 

A lot of people go on social media to offer their prayers for the people affected by the disaster. There's nothing wrong with that. But what gets the Sandwichman's goat are the sanctimonious edicts against "politicizing" the disaster by mentioning the connection to climate change. "Now is not the time." And if not now, when?

Does Kevin Williamson Understand Keynesian Economics?

On July 12, 2003, Kevin Williamson wrote:

Draconian cuts. Indeed. This is all very good, and it deserves to become law. But it also offers a dramatic illustration of how difficult it is to cut spending without cutting the areas where the spending actually happens. This may be a minuscule cut in terms of overall federal spending.. That is why spending reductions on those kinds of programs are never really enough: You have to eliminate the program entirely. Conservative populists sometimes get mocked for promising to cut entire cabinet agencies, but, in the long term, that is the most promising model for achieving a healthy fiscal balance. Obligatory reminder: None of this matters very much without entitlement reform and controls on defense spending. Non-defense discretionary spending, i.e. the stuff everybody promises to cut or cap, is a small part of federal spending.

In other words, Williamson was pushing fiscal austerity hard. On May 1, 2016, he wrote:

President Obama’s term in office was preceded by a housing crisis and a subsequent recession for which he was as much to blame as anyone then in government — which is to say, not very much….President Obama insists — straight-facedly — that in the context of a wrenching financial crisis, the United States under his leadership performed better than any major economy in modern history. That isn’t even close to being true, of course. Obama’s presidency will coincide with a remarkably weak recovery, with GDP essentially treading water. His presidency will be the first in modern times to fail to coincide with at least one year of 3 percent economic growth.

I will turn the microphone over to Jonathan Chait and then return:

Williamson does not acknowledge the source of Obama’s claim. To be sure, the Reinhart-Rogoff finding is not gospel, but Williamson does not provide any argument against it or even provide any indication he has heard of it. Nor does Williamson provide any evidence to contradict Obama’s conclusion. Refuting the claim that the U.S. has outperformed other economies that have emerged from a financial crisis would mean naming one or more economies that have undergone a financial crisis and then enjoyed faster growth than the U.S. has since 2008. Williamson does not do so. Instead, he compares Obama’s recovery to previous recoveries from nonfinancial recessions. (And the metric he picks — whether or not the economic exceeded 3 percent growth in a single year — is ludicrously cherry-picked, as if a recovery is measured by the growth rate in its best single year, to count George W. Bush’s historically anemic economy as a success.) This follows Williamson’s assertion that Obama’s claim is false “of course” — apparently it is so obvious he needn’t bother providing even a single piece of relevant evidence against it. Update: I didn't even notice this on my first pass, but Williamson uses the term "fiscal crisis" when he means "financial crisis." A fiscal crisis is related to a country's government budget. A financial crisis is related to a country's financial system. These are completely different things.

Part of Williamson’s argument was that fiscal policy choices have little to do with the growth rate of the economy. And yet most economists blame the weakness in the U.S. economic recovery on the state and local fiscal austerity that led to an overall fall in real government purchases after 2010. Had Williamson had his way – we would have also had massive Federal austerity. In other words, Williamson had his way, our economy would likely be as bad as Europe’s.

Joan Robinson and Beggar Thy Neighbor Policies

Many thanks to Barkley for his tribute to Joan Robinson, which included this interesting line:

In 1937 she wrote her influential essay on "Beggar thy neighbour policies," which made the concept associated with competitive devaluations widely known, although the term had appeared before previously, used once by Adam Smith and also by a British economist named Gower in 1932.

Her critique is part of Part III of her Essays in the Theory of Employment. She goes beyond calling competitive devaluations a zero sum game by suggesting that they might raise interest rates, which would worsen a global depression. I’m not sure I entirely agree. Ben Bernanke recently noted:

Competitive depreciation became a contentious issue during the Great Depression. During the 1930s, the international gold standard collapsed, but it did so in a staggered way, with countries abandoning the gold standard at different times. The currencies of countries that left gold relatively early (like Great Britain, in 1931) depreciated relative to the currencies of countries that stuck with gold longer (like France, which left gold in 1936). The economies of countries that left gold earlier were also seen to recover more quickly from the ravages of the Depression. Some economists of the period, such as Joan Robinson of the University of Cambridge, argued that the recovering countries were doing so primarily through “beggar-thy-neighbor” policies of undercutting other nations in export markets.[1] In modern lingo, they were saying that depreciation was a zero sum game; gains for one country came only at the expense of other countries. However, over time, the recovery from the Depression became global, even as nations’ export shares and currency values stabilized. What was not adequately appreciated by Robinson and her contemporaries was that a country’s abandonment of the gold standard did more than affect the value of its currency: It also freed the country to use more expansionary monetary policies, which increased demand and incomes at home. The increases in total demand, for both domestic and foreign goods, served to promote recovery in output and trade in all countries, ultimately proving far more important than the temporary trade diversions created by changes in exchange rates. In other words, the monetary easings that followed the collapse of the gold standard amounted to a positive sum game.

Of course we are no longer on a gold standard even if Ted Cruz wants us to return to one. Bernanke had much more to say about these issues. Given that the 2016 campaign has revived populist notions of using trade protection in an attempt to shift the burden of weak aggregate demand from one nation upon another, we have another reason to consider the considerable contributions of Joan Robinson.

The Legacy of Joan Robinson

Over a week ago Joan Robinson came up in connection with the ongoing controversy over Gerald Friedman's analysis of Bernie Sanders's economic plan.  When criticized for apparent problems with it he declared that those who understand what he is doing are "Joan Robinson economists."  In going after him, Justin Wolfers ridiculed him for this, referring to such people as a "sub-tribe of Keynesians," which is not inaccurate, but somehow comes across as very sneery.  Noah Smith took this up, declaring that this was the coup de grace by Wolfers, and a commenter on his thread, "Britonomist," dismissed Robinson as someone who admired the North Korean economy, "maybe the worst economy ever in the world," with Noah thanking him for this piece of information.  I made some comments on this there, with pgl picking up on this for some further discussion.  Other than to note the reasonableness of  Peter Dorman's request for  Friedman to provide his model publicly for people to figure out what he is doing (which is becoming less and less important as Bernie's chances of getting the nomination seem to be approaching epsilon), I have no comments on all of that contretemps.  Rather, on thinking about it I shall  return to Joan Robinson and talk about her and her legacy for modern economics, given that various people have been using her name in vain.

Joan Violet Maurice Robinson (1903-1983) was without doubt the most important woman economist born before 1930 and maybe still the most important woman economist ever.  While she would end her days as a radical leftist, she came out of an elite background, her father a baronet and a major general in the British army in WW I, with her maternal grandfather a famous surgeon who taught at Cambridge University and one of maternal uncles a polymath who advised Winston Churchill.  She was close to her father, who was forced to resign from the British army near the end of WW I for publicly reporting on misconduct by the government in managing the war.  In his final years until his death in 1951 he lived with his daughter in her half of the house she shared with her husband, E.A.G. (Austin) Robinson, whom she married in 1925, who himself was an important Keynesian economist, adviser of the British government, and founder of the International Economic Association, with them producing two daughters.  A story I have from a primary witness is that she had a graduate seminar in her half of the house, and one time there was an unpleasant odor there.  The participants realized that her father was sitting in a chair in the room dead.

While she nearly got a Nobel Prize, and certainly deserved one, she suffered professionally from being a woman.  She was only appointed a Lecturer at Cambridge in 1937, well after she had already published several highly innovative and influential  works.  She was only made a Full Professor at Girton College at Cambridge University (which she had attended) in 1965, the year her husband retired from his professorship.  Rumor has it that she came closest to receiving the Nobel  Prize in 1975, the year Kantorovich and Koopmans got it for linear programming (which created a major stink among mathematicians who said that at a minimum George Dantzig should have shared it).  I do not know if she was thought of as a possible third for them or a replacement for them, perhaps with Piero Sraffa sharing, who also never got one while arguably deserving it, who could have shared it credibly with Leontief in 1973 for input-ouput analysis.  The Encyclopedia Britannica reports that her leftwing political views may have played a role in her not getting it.  I also heard it from a primary source that Assar Lindbeck, the committee's dominant figure then, once said that if either Joan Robinson or James Buchanan got it, it would be over his dead body, although  Buchanan did get it in 1986, with Lindbeck still on the committee and not dead, although Joan Robinson had  been dead for three years by then.

As evidence that she was clearly in contention in the mid-70s, I shall report something I observed on an elevator in the New York Hilton during the 1973 AEA meetings (the first I ever attended).  Lionel McKenzie, another who never got the prize but should have, was talking to somebody else.  McKenzie told this other person that "they are going to give it to Joan Robinson next for her Economics of Imperfect Competition, but she will refuse it."  As it was, she never got the chance to do so.

 Speaking of that 1933 book, that was her first major publication and remains one of her most important, indeed worthy of a trip to  Stockholm in and of itself.  Among other things in it, she invented the word "monopsony."  While she later wrote less about monopolistic competition, one can see that it remained very much on her mind if one reads her excellent 1977 article in the JEL, "What are the Questions?" a good overview of how she viewed economics near the end of her life.  She spends quite a bit of it going on about the issue of monopoly power and its importance.  I note that this is one area where her concerns are very relevant to current economics, with many now posing that increased monopoly power in the US economy may be playing a role in secular stagnation.

She was indeed a core Keynesian, one of the three people thanked by Keynes himself in the Preface to his 1936 General Theory.  She also supported Kalecki, whom Keynes had in to  Cambridge, but by all accounts did not like.  In 1937 she wrote her influential essay on "Beggar thy neighbour policies," which made the concept associated with competitive devaluations widely known, although the term had appeared before previously, used once by Adam Smith and also by a British economist named Gower in 1932.

In 1941 she published her famous Essay on Marxian Economics, in which she rejected the labor theory of value and basically supported redoing Marx along Keynesian and Sraffian lines.  She would indeed later praise both Maoist China and North Korea, but saw China in particular  as possibly offering another way of modifying Marx along useful lines.  However, Robinson was always known for her pithy remarks, and one from that era was "There is only one thing worse than being exploited, and that is not being exploited" (that is, unemployed).

The 1950s may have seen the high water mark of her work.  She set off the Cambridge  capital theory debates with her 1954 paper in the Review of Economic Studies, "The production function and the theory of capital," in which she took apart the idea of aggregate capital, with Paul Samuelson in 1966 agreeing that she was right.  The first time I ever met Samuelson (in the early 70s) I gave him a hard time about this issue, and he just completely agreed with her and said that capital must be modeled as being heterogeneous.  One of the more hidden but very important roles she played in the 1950s was to work on Piero Sraffa to finally complete his short, but important, 1960 book, Production of Commodities by Commodities: A Prelude to a Critique of Economic Theory.  He had been working on it for 35 years, but it was still only a prelude to a critique, not a critique itselfn.  Samuelson claimed that if he had published it in 1930, he would indeed have shared the Nobel Prize with Leontief.

In 1956 she published what is probably her magnum opus, although now widely ignored, The Accumulation of Capital, which in contrast to her later critiques of analytical equilibrium analysis in favor of looking at "historical time," was in fact a study of various equilibrium growth models, many of  which she provided amusing names  for such as "bastard golden age" and "creeping platinum age."  She did not generally use formal equations but rather favored figures and graphs backed up by clear verbal descriptions and discussions.  Apparently in 1949 Koopmans asked her to be on the board of the Econometric Society, but she refused on the grounds that she did not want to be part of something that produced things she could not read.  After 1960 her work increasingly moved towards more methodological issues, such as her 1962 Economic Philosophy, as well as work looking at development issues, especially in India, but also her highly controversial work on China and North Korea.

I commented on the China and North Korea matters in the linked-to threads from Noah and pgl, but I shall repeat some major points here.  Regarding North Korea, she visited there in 1964.  She accurately reported that its economy was performing much better than that of South Korea, which many now may not believe, but was true,with a real per capita income probably twice that in the South.  What happened was that the South did not grow after the Korean War in the 1950s under the corrupt Syngman Rhee.  It took off after he was overthrown by the military dictator Park Chung Hee (whose daughter is currently the president in the South), who instituted a strong indicative planning drive run through state-owned banks until  he was assassinated in 1979.  During the 1950s the North Koreans had  successfully followed a Stalin-style command centrally planned forced industrialization, which had resulted in impressive results by 1964.  While it continued to grow for some time after that, the South began to catch up, surpassed it in the early 1970s, and, of course, today is far ahead of the now seriously impoverished North, although it has been able to produce nuclear  weapons.  In 1977, in a single paragraph, she predicted the North would absorb the South. She may not yet have become aware that the South was ahead of the North in per capita income, but she may have been more influenced by the absorption of South Vietnam by North Vietnam only two years earlier in 1975.  She was not completely out of it on her observations of the Koreas.

She can be more sharply criticized regarding her views of China, regarding which she wrote a book defending the cultural revolution.  Apparently before  she died she pulled back on some of her admiration for Mao, but this is clearly an area that one can criticize her political and economic views more than on her observations on the Koreas, where indeed North Korea really was ahead of South Korea when she made her most detailed study of them. But she wrote much more about China than about the Koreas, visiting there on several occasions, although she visited India many more times.

The final, and maybe most important, influence of Joan Robinson today is on Post Keynesian economics, or post-Keynesian economics, with her preferring this latter spelling, the British version.  Indeed, although I cannot  prove it, I have heard it that she was the one who  coined this term, as she did so many others.  That there are two spellings is due to Paul Samuelson also using this term with her spelling to describe what we now call his "neoclassical synthesis," with him referring to "post-Keynesian eclecticism," which supposedly represented his position.  When American Post Keynesians got seriously going in the 1970s, led by Paul Davidson who founded the Journal of Post Keynesian Economics,they favored that spelling to distinguish themselves from Samuelson's formulation, which the British and other non-Americans were never bothered by. In any case, Joan Robinson is widely viewed as perhaps the founder of the movement, varied and eclectic as it is today, or at least the godmother and main inspiration of the movement.  But I  note that it has many sub-varieties, with the Wikipedia entry on it having a curious "family tree" that has 8 different boxes: Keynes's inner circle (which included  Robinson and her husband), Cambridge Keynesians (which also  included Robinson), early North American Post Keynesians, Kaleckians, Sraffians, Fundamentalists, Kaldorians (I show up on that list), and Modern Monetary, with some other lists adding Institutionalists, and with some people loosely on the tree but not in any box or founding one such as Keynes himself, Richard Goodwin, G.L.S. Shackle, and Hyman Minsky (who always claimed he was not a a "Post Keynesian"), along with some others.

So when Gerald Friedman wrote of "Joan Robinson economists," I think that he had in mind the general current set of Post (or post-) Keynesian schools, even if he may or may not have been thinking about any particular one.  I note that Bernie Sanders's top economic adviser on his Senate committee is Stephanie Kelton, on leave from UMKC, who is allied with the modern monetary (not to be confused with the "new monetarist") school, one of those listed in the Wikipedia family tree (and she is in that box there).  But I know that many others like  Bernie Sanders, and most think well of Joan Robinosn, even if they may not all necessarily agree with Gerald Friedman's analysis.  But then again, as Peter Dorman has noted, we have not yet actually seen his model, so one can think what one wants, I guess.  But clearly various aspects of Joan Robinson's thought and career are both relevant and currently influencing many economists today, including many who have never heard of  her through some of her ideas simply entering into basic textbooks, such as "monopsony."

Barkley Rosser

Note on 5/3/16:  Upon further checking while Joan Robinson did discuss golden ages in her The Accumulation of Capital, it was only in the later Essays in the Theory of Economic Growth, 1965, that she expounded most fully on the theories of bastard golden ages and creeping platinum ages, although apparently she initially wrote about them prior to that book.  Also, just for the record, she did use equations from time to time, if only sparingly.