The Passing of Abe Rotstein a Polanyi pioneer and leading member of the U of Toronto nationalist political economy school: Britain enters deflation

Abe Rotstein one of Canada’s outstanding political economists and a leading founder of the Canadian nationalist school of political economy centred in Toronto  passed away last month at the age of 86. The Globe and Mail had a full page obituary and a large photograph of Abe in his prime as one of the co-authors of the Watkins Report on foreign ownership in Canada.He was a central figure along with Walter Gordon , Mel Watkins and others in the renaissance of Canadian political economy during the Trudeau era. Abe was an outstanding humanist economist who won the respect of many generations of students and analysts and activists.  He was one of the examiners at my Ph.D defense and we had a spirited discussion about issues of interpretation. His questions were thoughtful and probing and I never forgot the encounter. He made a major contribution to economic thought and public political economy in Canada which will live on.My condolences to his family and friends. He was also a Polanyi scholar and strongly influenced by Karl Polanyi’s work.The Globe obituary explores this connection in great detail.

Kari Levitt Polanyi , Polanyi ‘s daughter has had a long and distinguished career at McGill university in Montréal and played a significant role in the revival of Canadian political economy and economic nationalism .

The passing of Rotstein comes at a time when there is a renewed interest in nationalism as a reaction to hyper globalization which has had very negative consequences for workers’s salaries and non wage benefits, inequality and employment security.This was clearly a major factor in the recent British election which will continue to be a hot issue in the years to come. It may well play a role in the upcoming Canadian election also.In Britain the latest inflation data reveals that year to year inflation in Britain April 2014 to April 2015 was actually negative by 0.1 % .

So deflation has happened for the first time in more than fifty years. This deflation is the direct consequence of the severe recession that followed the crash, the anti-Keynesian austerity policies which the British Tories have foolishly adopted and the excessively ready acceptance of hyper globalization which the British economic leadership have embraced.The event has been greeted by key spokespeople and some commentators as posing no serious threat. Time will tell us whether that is actually true. It may turn out to be more than a short term event with more serious consequences for the income earners and the economy than the establishment believes.

It is also once more proof of the proposition which I have been arguing for years namely that quantitative easing which involves temporary greater monetization of the debt through the central bank purchasing more of it does not necessarily lead to inflation. Rather it depends upon the circumstances that prevail in the economy. If a slump is deeply rooted and deflation a tendency QE does not threaten inflation. Friedman and the quantity theory of money is wrong in certain circumstances.

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The British economic recovery and Osborne’s austerity: Ferguson wrongly blames Keynes for Labour’s Loss

The Ft has published a piece by Harvard historian Niall Ferguson in which he makes the false claim that George Osborne, the British chancellor followed the correct policy in his austerity program because the British economy recovered. Labour should blame Keynes for their loss since Keynes didn’t work but anti-Keynesian policy did.I commented on this last night in the FT but they have since been inundated with comments mostly critical of Ferguson so allow me to reproduce my comment here so you can see what I have argued. (The Labour Party should blame Keynes for their election defeat FT May 11, 2015)

The comment ran more or less as follows. Niall Ferguson as usual is long on neo-con rhetoric and bombast but short on facts and grasp of economic history and theory. There has been plenty of analysis that which demonstrates that the UK recovery has been much slower than it would have been had the Government avoided austerity and resorted to Keynesian stimulus instead. See the work of both Gavin Davies in the FT and and Oxford university economist Simon Wren-Lewis writing in the February London review of Books, (vol.37 #4).

Wren-Lewis in his very insightful piece demonstrates beyond a shadow of a doubt that the initial Osborne austerity program did a lot of damage and slowed the British recovery. It was only after QE rescued Osborne that moderate growth was restored. But QE(quantitative easing) as I have explained before (see my paper Rediscovering Keynes and the Origins of Quantitative Easing posted on the site) is traceable back to Keynes and the Japanese Keynesian finance minister Takahashi Korekiyo in the early 1930s. As Keynes argued, in a slump one must push interest rates as low as possible à l’outrance and prevent them from rising. This is accomplished by having the central bank purchase government debt so that fiscal stimulus can be effective in restoring confidence, aggregate demand and growth.

What the British Tories got away with according to Wren-Lewis and economists like Stiglitz, Krugman and me, as well as others, is to falsely shift the blame for the crash and recession on to Labour when it is well known that the cause was excessive speculation in the financial sector and too much neo-con inspired deregulation. Osborne also escaped having to admit that it was moderating his policies in a more Keynesian direction that facilitated an improvement in conditions.

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Electoral Roof falls in on Ed Miliband, Cameron wins 331 seats a clear majority:Polls Mislead.

Despite a hard fought campaign by Ed Miliband and polls which had suggested a neck and neck race in the British election the British Tories led by David Cameron have won a majority government in yesterday’s British election. The election was also a disaster for the Liberal democrats who lost 49 of their 57 seats. But it was unfortunately for British unionism and the Scottish Labour party a triumph for the Scottish nationalists who won 56 of the 59 seats in Scotland. They will be a serious trouble maker for the cause of unity in Great Britain  and a major lobby for promoting further devolution of powers and a second referendum sooner rather than later. Miliband  who is an intelligent intellectual and a competent political campaigner who fought a good campaign has nothing to be ashamed of, despite the grotesque caricature of him presented to the British public by the rabid Tory tabloid press in Britain. He has resigned the leadership and time will tell what role if any he will play in the future of the Labour party.

Cameron with 331 seats out of 650 has a very workable small majority which will enable him and the Tories to implement their neo-con program of further austerity,a referendum on staying or leaving the European union ;further cuts to the welfare state, further erosion  of the NHS and in economic policy more Thatcherite  anti -Keynesian policies unless some of the red tories on the back benches  balk at such a decisive rightward drift. We shall see what develops but I believe that tough times lie ahead for Britain’s poor and young people.

The election as the results displayed below show also will reawaken the demands for a reconsideration of the British anti democratic first past the post electoral system which we are also burdened with in Canada. The absurdities it produces are plainly there for all to see. For example the UKIP received 3.881 million votes but only elected 1 member.the Irish SDLP 99,809 votes but garnered 3 members. The Democratic unionists with 184,260 votes won 8 seats as compared to UKIP with only 1 despite receiving 21 times as many votes. the Greens got 1.157 million votes and 1 seat. The SNP got 1.454 million votes  but won 56 seats. The system is  awful in terms of its anti-democratic unfairness. As a percentage of the vote the Tories won 36.9 % of the vote but won 51 %of the seats. The Lib Dems got 2.416 million votes  and won 8 seats the same number the Democratic unionists won with 184,260 votes.  But with a Tory majority government nothing will be done about this for another five years.

Party                          Seats          Votes         percentage share

Conservatives         331               11,334,920          36.9 %

Labour                     232                9,344,920            30.4 %

SNP                            56                 1,454,436              4.7 %

LibDems                   8                    2,415888              7.9%

UKIP                         1                      3,881,129             12.6%

Green                        1                     1,157,613                3.8 %

Plaid Cymru             3                       181,694                0.6 %

Democ Unionist       8                      184,260                o.6 %

SDLP                         3                         99,809                0.3 %

Ulster Unionist        2                          114,935               0.4 %

Sinn Fein                   4                         176,232                0.6 %

Total  eligible voters  46,425      Voter turnout 66.1 %

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NDP wins big in Alberta, Conservatives trounced, Wild Rose Official Opposition: Foreshadowing of things to come ?

Well the polls were largely correct within the margin of error. A forty plus year Progressive Conservative dynasty in Alberta crumbled into the historical dust as the dream of the late Grant Notley leader of the NDP in Alberta from 1971 to 1984 was realized through the efforts of his accomplished daughter Rachel. Notley had been the appealing effective NDP leader who had tragically died in a small plane crash while on political business in the province.  Three decades later his bright, personable and accomplished daughter fulfilled the dreams of her father and captured political power in Canada’s oil and resource rich Rocky Mountain province on the western edge of the great prairies of the Canadian west. This election signals a potential major shift in Canadian politics in the elections to come including the eagerly awaited federal election. The results were clear and a decisive rejection of the old political establishment and its inability to speak to the needs of the majority of young and moderate income people who are an increasingly important demographic force throughout Canada. It is a force to be reckoned with particularly after the deep damage done to the Canadian economy by the crash of 2007-8 and the long recession which followed it. The NDP captured 53 seats,603,461 votes for 40 % of the vote. Wild Rose 21 seats, 360,101 votes and 24 % of the vote. The Progressive Conservatives only 10 seats, 412,955 votes and 28 % of the vote. The Liberals 1 seat, 62,171 votes and 4 % of the vote and the Alberta party 1 seat, 33,867 votes and 2 % of the vote. One seat resulted in a tie vote and a judicial recount will be held.

The voter turnout was 57 % . This amazingly is the highest turnout since  1993. Perhaps now with election of the NDP more voters will turn out in future elections

.One has to go back to the 1990s when the NDP captured 16 seats and further back to the great depression of the 1930s when the CCF, the parent party of the NDP was a force in Alberta politics to find substantial social democratic influence in Alberta politics. In some ways prairie populism was invented in Alberta and its return to dominance in the form of the modern centrist leaning left social democrats led by Rachel Notley who knows how to connect with this emerging electoral majority will have significant consequences in the months to come. Stephen Harper and his Conservatives may turn out to be outflanked in their home turf.

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Labour and UK conservatives tied at 33 % each. Alberta NDP poised to win election according to polls

The latest polls in Alberta show the NDP on the road to electoral victory. According to T.C.Norris the party should win between the low 40s to mid 50s in seats in the Alberta legislature giving them at the very least a minority government. In Britain the latest poll of polls shows Labour and the Conservatives tied at 33 % each. If this result occurs on election day the difference in seats between the two major parties will be minimal, probably fewer than ten.

Just as occurred in Canada when the Conservatives came to power the British Conservatives are claiming falsely that it would be illegitimate for which ever party came second to seek to form a government with the support of smaller parties even if  it were second by only a few seats in the case where the leading party had a plurality of the seats but not the majority. There should be no misunderstanding. Constitutionally a government can be formed by which ever party commands the support of a majority of  voting members of the parliament. It might be an emerging convention although I ‘m not sure it is, that the party with the largest bloc of seats but still not a majority, particularly if they are the incumbent government, should be given the first opportunity to negotiate an alliance or coalition that can meet the test of a vote in Parliament. But if it fails it is absolutely in order for the Queen to ask the second largest party to seek to form a government. The delay in doing so should be minimal and in no circumstances does the previous government have the right to call for another election without the alternative government in waiting testing the will of Parliament.

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Electoral winds are blowing in Alberta and the United Kingdom: Nick Clegg repeats absurd Greek comparison nonsense

Electoral winds are blowing strongly in both Alberta and in Great Britain. The Alberta provincial election occurs on May 5th (also my daughter’s birthday and co-incidentally that of Karl Marx ). Despite protestations to the contrary by some Alberta conservatives, the NDP which leads in the polls is a moderate centrist social democratic party that owes a lot more to the Fabians ,social gospel and trade union democracy as well as to Keynes than to Marx. Currently the NDP holds a substantial lead in the polls . Among decided voters it scores 38 % to the Conservative government’s 24 % and Wild Rose’s 21 %. Liberals are at 10 %and the Greens at 4 %.The undecided vote is running at 26 %.

If these polls are accurate the NDP will win the election, a shocking outcome for the media and the oil industry. But if it happens as Réné Levesque in Aislin’s famous cartoon in 1976 advised when the PQ won for the first time ” Everybody take a valium”. If the NDP wins, every province from Ontario west to B.C will have elected an NDP government at some point in the last twenty- five years. May 5 th promises plenty of Canadian excitement.

Over in Britain the electoral horse race ends with the May 7th election which is a very close race according to the poll of polls with the Tories at 34 %, the Labour party at 33 %, UKIP at 14 %, the Lib Dems at 8 %, the Greens at 5 % and the Scottish Nationalists poised to sweep almost all of the 59 seats in Scotland. During the News Night special interviews with the party leaders, Nick Clegg leader of the Lib Dems, the Tories’ coalition partner in Government, made the preposterous claim that if it were not for the     coalition ‘s budget cuts and austerity, Britain would have gone the way of Greece.

An absurd statement since the critical problem which Greece faces is the absence of its own central bank which in a crisis  can buy government debt and use quantitative easing to keep the banking system out of trouble. The Bank of England exists. It used QE successfully and despite some bad private banking excess risk taking there is simply no comparison between the Greek situation where Greece lacks its own independent central bank instead being subject to the austerity obsessed ECB and that of Britain. Clegg should be called to account for such a misleading hysterical claim.

So it promises to be an exciting few days. May the electoral winds blow clearly and well !

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Labour will bring Keynes not just Piketty to Downing St. If they win

There is an interesting article in the current New Yorker on line  by John Cassidy in which he claims that if Labour wins the British election it will be a victory not of Keynesian doctrine over Conservative austerity but of fiscally conservative redistributive doctrine inspired by Thomas Piketty.

The article though typically clever in the New Yorker style misses the profound connection of Keynes to the Beveridge welfare state that Miliband and Labour are seeking to defend against the onslaught of Thatcherist austerity. Redistributive justice was always part of Keynes’s doctrine. Its just that he always knew it,like the doctrine of deficit spending, would be difficult to implement because of the deep rooted ignorance and prejudice about public finance and the claimed superiority of the market in all circumstances despite the widespread and appalling evidence to the contrary. After all, it is Keynes who called for the gentle euthanasia of the rentier class through low interest rates designed to eliminate the rents obtained through the scarcity of capital. A prolonged bout of low to full employment is a great equalizer provided it is accompanied by progressive taxation.

Piketty who is French, of course, has a somewhat different take on economic growth and redistribution and a weaker grasp of Keynes. . He remains skeptical about reducing inequality through growth alone since in his theory the rate of return on capital will exceed the rate of return on income. Hence his advocacy of the taxation of wealth which Labour under Milband and Balls have embraced.Indeed Piketty’s preferred solution to public debt is to increase taxes on private capital.

Cassidy correctly points out that economists, as opposed to the general public, largely understand the virtues of deficit finance in overcoming a crisis. He stresses that many economists correctly advocate major public investments financed at the prevailing very low rates of interest as appropriate policy for these times. It is a pity that Cassidy does not appear to understand however that Keynes’s and Abba Lerner’s dictum was to separate out the infrastructure investment account from the current expenditure account and seek to balance the latter, but not the former except over a much longer haul. In the long haul once growth is resumed the debt to GDP ratio declines so long as the growth rate exceeds the rate of interest. Education , social services and most health care expenditures are essentially investments in human capital and the expenditures associated with them are best treated as long term investments. If one understands this, despite Ed Balls and Ed Miliband’s reluctance to discuss it if they win they will still be promoting a good chunk of Keynes’s humanistic vision from Downing street.

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