Fed and Bank of Canada hold back on rate rises: Stimulus continues Smart decisions

Recently both the Federal Reserve  and the Bank of Canada made smart decisions not to increase rates despite pressure from some less well informed quarters that they should do so as believers in the NAIRU rate are still convinced that inflation will rear its head now that unemployment is 4 .2% in the US and approaching 6% in Canada. But the most recent inflation rate on all items excluding food and gasoline prices which were affected by hurricane disruptions shows no sign yet of approaching their targeted inflation rate of 2 %. The US rate was a mere 1.3 % and the Canadian rate was also below the 2 % target.

The Canadian Finance Minister Bill Morneau also delivered an upbeat fall economic statement that celebrated the fact that growth continued to be moderately strong, the projected budgetary deficit was expected to be lower than predicted and unemployment could well drop below 6 % in the coming months. All in all a vindication of the policy position I have been suggesting for a long time. The most effective way to respond to an economic shock like the crash and subsequent slump is to run a significant  budget deficit which invests in people, their social and educational needs and physical infrastructure combined with a strongly accommodating monetary policy using quantitative easing where appropriate to ensure low interest rates. This is what has been done and the results are positive.

 

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The JFK docs: Canada Cuba and the U.S.

The recent release of previously secret archival files in the JFK archive has come at a very busy time in American and world news. The release is a massive one which will take some time to absorb and analyze. So far my reading of the first batch of documents confirms that the Kennedy administration in the early 1960s was obsessed with Fidel Castro and Cuba and was prepared to consider assassination,kidnapping and sabotage of crops and agricultural Cuban workers and the training in secret of armed Cuban exiles to invade Cuba to overthrow Castro. Part of their motivation was the American  fury in discovering that the Soviet union had secretly installed missiles in Cuba which were a clear national security risk to the U.S. This was revealed to the American people on October 22 and the crisis was not resolved until October 28 1962 when JFK announced that Mr.Khrushchev had agreed to remove the missiles .Only later did we learn that the US agreed to remove its missiles from Turkey as a quid pro quo.

 

I remember these days very clearly as they dominated my high school experience. Part of it was the American  fear that Cuba would be a successful demonstration to Latin America that a communist society was possible and provide to the naïve the “demonstration “that  problems of poverty and underdevelopment could be solved by resort to communist and radical socialist ideology. At the time Canada also played a role in these events. One of the documents mentions consideration under the general rubric of operation Mongoose which had as its explicit goal removing Castro from power. ‘’  The objective of  operation Mongoose is the overthrow of the Castro regime’’ (p.20 Doc ID 32112987 JFK docs) It also contains the sentence” General Carter said that the CIA would examine the possibilities of sabotaging airplane parts which are scheduled to be shipped from Canada to Cuba. ” This sentence  appears in  the document on operation Mongoose on the 14th of September1962.(doc.ID32112987&doc.id 32112745)

 

Had the Diefenbaker government known this they would have raised a storm of protest. Diefenbaker was already alienated from the JFK government over disputes with  the U,S. over trade and recognition of Cuba and trade with China and other disputes over general trade issues and a certain poor personal relationship between the two leaders-they disliked each other and rubbed one another the wrong way. (See Knowlton Nash   Kennnedy and Diefenbaker the feud that toppled a Government McClelland and Stewart, 1991) As well the Americans wanted Canada to accept nuclear armed Bomarc missiles on its territory but Diefenbaker was reluctant to agree without certain American concessions on joint control.  Diefenbaker  lost his majority in  the election on June 18 1962 and was reduced to a small minority government which later in 1963 fell to the Lester Pearson led Liberals. Had the details of US consideration of sabotaging Canadian exports to Cuba been public knowledge the election might well have turned out differently.

Posted in Canada, Cuba and Latin america, JFK docs, Cuba,Canada, John Diefenbaker and JFK, U.S. | Leave a comment

British national debt 1690 to 1910

(originally published on my blogspot blog in 2010)

 

Over the years that I have researched the question of the national debt and its impact upon an economy I have always been astonished at how boldly politicians, journalists and others ignore the lessons of historical experience.

For example, during the great depression of the 1930s one of the principal barriers to the relaunching of the British and North American economies was the obsession in balancing the budget despite the hardship that this act imposed and despite the negative consequences for the economy and the unemployed.In my writings I have drawn upon historical statistics to show that debt to GDP ratios were much higher than the levels reached in recent years and yet despite this the economies recovered and prosperity was restored and the debt ratio eventually dropped.

This was brought about through rapid economic growth and a sharp decline in the rates of unemployment. The notion that economic growth, wealth creation and prosperity are not incompatible with high debt to GDP ratios is crystal clear from the British case. The economic historian James Macdonald in his excellent work A free nation deep in debt makes exactly this point on pages 354-355.

He displays a chart which runs debt as a percentage of the GDP for Great Britain from 1690 to 1910. The ratio begins at 0% in 1690 runs higher and higher in a lurching manner until it peaks at about 300 % of the GDP in the late 1820s and then consistently declines with several brief upticks until it closes at around 20 % in 1910.As Macdonald states the debt was never lower than 100 % of the GDP for the century between 1760 and 1860 and averaged above 150 % from 1780 to 1845. “simplistic notions that national power and national debt are mutually incompatible are disproved by this single historical fact.” (p.355)

For it was during this period that Britain became the leading industrial power in the West.Similarly in the twentieth century the British debt to GDP ratio rose to above 200 % and despite this Britain remained an important industrial power with a very high standard of living.

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The Great Depression revisited

  ( Originally published February 20 , 2006 on my Harold Chorney political economist blog.I m republishing it here for the convenience of readers and students.   )

The Great Depression which began after the stock market crash in the fall of 1929 and lasted in its extreme form until 1934 and its aftermath form until 1939 was an event that marked the last century. Indeed such major collapses seem to be possible only once or perhaps twice a century in keeping with the long term business cycle theories of Kondratieff and Schumpeter. 


The exact nature of the depression and its causes are still much debated. In exploring this debate one can learn a great deal about business cycles, central banking policies, exchange rate management, international flows of capital and trade and stock market speculation.  


A number of influential authors have weighed in on the depression from both a Keynesian and monetarist perspective. These include Charles Kindleberger, Milton Friedman and Ana Schwartz, Gotfried Haberler,Peter Temin, Abe Safarian, Clarence Barber, Donald Moggridge, John Maynard Keynes, Friedrich von Hayek, Robert Lucas and many others. The reason for so much interest is not surprising. 


First of all this was a very major event that presaged and in many ways contributed to the rise of fascism and the Second World War. In economic theory terms if one can explain the causes of the depression one can learn from this and develop policies to prevent another such occurence. Here of course the medical model is influential. One studies epidemics to discover how to prevent them in the future. Charles Kindleberger has written a very comprehensive and fascinating guide to the great depression.The World in Depression 1929 -1939 enlarged edition 1986 University of California Press, Berkely, Los Angeles& London.


Kindleberger starts off by explaining that as a young man in the late 1920s he worked in the stock exchange in New York as a runner for a New York brokerage house.Despite the collapse in share prices he and his family were not severely affected and he was able to continue his studies including European travels and graduate work at Columbia University beginning in the winter of 1933.


He became fascinated with international exchange depreciation and later worked on his dissertation and got a job in 1936 in the International Research Division under Harry White who later played a key role in establishing the World Bank and the IMF along with John Maynard Keynes at Bretton Woods.Kindleberger later went to work at the Federal Reserve Bank of New York and the International Bank of Settlements.


So in many ways Kindleberger was ideally placed to write a history of the Great Depression. His perspective is that of an insider to the events that he describes in such effective detail. Kindleberger eschews econometric techniques and instead relies upon narrative history and a profound understanding of economic theory and the events themselves. He is convinced that the international monetary mechanism played a very important role in the depression. In addition Kindleberger shows how countries like Japan anticipated much of the thrust of Keynesian deficit financing policy as early as 1932. 


Keynes first broached the subject of public works in a letter to the Times on Aug 7, 1929 as well as in earlier writings in 1928. Similar proposals were made by the German progressive economist W.S. Woytinsky in the International Labour Review in January, 1932.(p.171-172)Woytinsky drafted along with two other labour economists a plan for domestic public works for the German Federation of trade unions in December 1931. Arthur Gayer wrote about the strategy of using public works to stabilize the cycle for a study published in New York in 1935 by the National Bureau of Economic Research , Public works in Prosperity and Depression. 


The Swedish economists associated with the Stockholm School developed similar notions in 1932. See the work of Eric Lindhal,Offentligaarbeten i Depressionstider with commentaries by Bertil Ohlin, Gunnar Myrdal, G.Bagge and J. Akerman;( Nationelonomisaka Foreningen, Forhandlingar, 1932 Stockholm, 1933). As far back as 1857 public works such as street cleaning and stone quarrying had been urged by the Mayor of New York as a program to assist the unemployed during the then depression. In 1855 workers were sent to work on the Erie Canal when they applied for assistance.


What this analysis of Kindleberger shows is that along with our knowledge of Kalecki`s work in the early 1930s and the pathbreaking work of R.F. Kahn and several other lesser well know theorists Keynes was not alone in breaking with orthodoxy and developing the intellectual apparatus necessary to justify this new path. But on the whole the fiscal conservatives , the advocates of balanced budgets and deflation were more numerous and overall in charge of policy until well into the 1930s.The automatic deflationist bias of the gold standard and the stubborn insistance of so many countries in trying to cling to it was also to blame. 


In addition from a game theoretic point of view Kindleberger points out the necessity of one major power acting as the responsible underwriter of the international economic system. It was the inability of the British to continue in that role from the late 1920s on and the “reluctance of the United States to take it on until 1936 “ that caused so much damage. (p.11) (more to come)

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Condolences to all those affected by the tragic events in Las Vegas and the terrible hurricanes, the earthquake in Mexico and a suggestion to help repair the damages.

Many millions of people in the US. have been tragically affected by the terrible hurricanes that swept through Florida, Texas, Louisiana,Puerto Rico, the Caribbean islands and now the horror of a mass shooting in Nevada.Mexico also suffered a tragic loss of life in the recent earthquake.

Some Canadians were also victims in the hurricanes in the Caribbean and also in Nevada four Canadians were among the 58 killed and several wounded at the concert shooting . We send our condolences to all those affected.We also send our best wishes for a full recovery to those who were hurt.We wonder whether these events like the Lisbon earthquake in the eighteenth century will cause a major rethink of the prevailing view and ideology about climate change and regulation of fire arms. The Lisbon earthquake of 1755 certainly had a major impact as Voltaire’s Candide made clear.

Let us begin with the large outstanding public debt of Puerto Rico. President Trump has floated the idea of forgiving some of that debt. That is a smart idea. The U.S. GDP was          $ 18.56 trillion (2016) The broadly defined money stock M2 is as of Aug. 2017,  $13.649 trillion. It would very easy to refinance Puerto Rico’s debt- it is about $70 billion over a fifty year period- by having the Fed acquire the debt by retiring the outstanding Puerto Rican  Bonds and gradually reissuing them a low rates of interest as the economy there is rebuilt and recovers and amortizing it over fifty years . In addition to help with the necessary rebuilding of Texas, Florida, Louisiana and other areas hit by natural disasters it would be a good idea to create a special infrastructure fund under the auspices of the Federal reserve whereby bonds which financed the essential repair of damaged infrastructure could be issued guaranteed by the Fed and where necessary purchased by the Fed. the bonds could also be long term bonds and managed to keep interest rates low. A one trillion dollar fund would be possible without having an inflationary impact. M2 has increased from 2008 by about 50 % or five trillion  without any real appearance of inflation. These measures would increase M2 by about 8 %  and help solve some problems that the US faces in the short to medium run in the  aftermath of these terrible events.

 

 

 

 

 

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Poli 463 – updated outline Fall 2017

 

 

Poli 463/2
Government and Business, course outline, Concordia University,
Keynes versus monetarists before and after the crash of 2008

Prof.Harold Chorney

Fall 2017

Course overview:

This course explores the tools that are necessary to deal with the contemporary global economy and the public policy that is appropriate after the events in the financial markets these past six years, including the re-election of President Obama; the Economic nationalist victory of Donald Trump; the appointment of Mark Carney as the Governor of the Bank of England; the resort to sequestration of public spending in the U.S.; and  the on going neo-conservative irrational obsession with fiscal austerity and anti Keynesian doctrine. The crash of September 2008 in the financial markets, the financial bubble that preceded it, the global dimension to the recession which followed it and the presence of widespread significant fraud and excessive reckless risk taking obliges us to reinvigorate standards of regulation in the public interest and to understand the full dimension of financial instability. Governments all over the world have reacted by engaging in some degree of re-regulation, Keynesian deficit finance and a dramatic overhaul of policy to roll back some of the laissez-faire ideology that had come to dominate public policy over the past two decades has reappeared after a thirty year absence.

In recent months during and after the Presidential election of 2012 there has been, however, backtracking as the defenders of laissez-faire and the Republican critics of President Barack Obama like new president Donald Trump have reasserted the ”wisdom” of laissez faire against what they claim are the failures of liberal socialism and Keynesian intervention and social engineering. Jean Claude Trichet the former head of the European central bank has also been outspoken in his defense of sound finance and budget balance. The new head of the European central bank, Mario Draghi has been slightly more flexible but on the whole still follows the monetarist path. Mark Carney after a successful but also lucky term at the Bank of Canada has moved on to head the Bank of England promising more flexible transparent policy than his predecessor Mervyn King. Despite the monetary policy promise of greater flexibility at the ECB, austerity rather than stimulation has been adopted by Europe and consequently there has been a major rise in the rate of unemployment and the slump in Europe has deepened. In Britain there is now after a period of negative growth a slight uptick in the growth rate but not strong enough to significantly lower the unemployment rate which is still 7.8 %. Hence the debate between the two schools continues. The previous British coalition Liberal Conservative Government under the leadership of David Cameron and Nicholas Clegg had unfortunately also embraced sound finance and budget slashing despite the severity of the recession in the U.K. and the evidence that Labour’s return to Keynesian stimulation was working

In the past this course examined intensively the clash between the Keynesians and the monetarists and the impact of this paradigmatic debate upon public policy. It also examined the neo-conservative and neo-liberal ideology and the break these ideologies have made with post-war liberalism, progressive toryism and social democracy. It argued the case for a return to Keynesian public policy. This has happened to an extent in the leading capitalist economies like the US, Canada and Japan, post crash. In many respects the American Presidential administration of Barack Obama has led the way, although critics like Nobel prize winners Joseph Stiglitz and Paul Krugman and others have argued that the American stimulus was too small and improperly focused. It had also been undertaken minimally in Europe with Great Britain and to a lesser extent France initially leading the way, with Germany a very reluctant follower. Despite considerable resistance moderate stimulus had, in a much less dramatic fashion, been undertaken in Canada by the Harper conservative government, (although, here also the Government and its central bank governor were too quick to re-embrace fiscal orthodoxy despite the elevated unemployment). We shall still do some exploration of the history of the previous monetarist classical macroeconomics paradigm but I intend to spend much more time this year on deepening our understanding of how the Keynesian technique of demand stimulation is intended to work, the implications for public policy, and how I believe it should work given all of the economic and ideological changes that have occurred over the past thirty years. We will also explore the current return to austerity in Europe and the sovereign debt crisis in Europe. The politics of Keynes’s political economy as opposed to those of the pro-austerity Hayekians will also be explored.

We will also look briefly at   the environmental movement and assesses how environmentalism and green public policy can be integrated with Keynesian approaches to globalization. We explore the transition from the original Keynesian welfare state to the neo-con/neo-liberal doctrine of balanced budgets, free trade and unregulated globalization and to its consequences and now to the partial return of a refurbished Keynesian approach to public policy. The role of the media and popular culture in transmitting these changes is also explored. The impact of the successful Obama campaign for the Presidency as well as the Republican neo-conservative counter-attack will also be explored in terms of its impact upon public policy.

 

Texts and basic readings:

The first four works are basic texts and will be available from the textbook store, where possible the library on reserve, or in the case of Keynes on the net.  In addition there is a collection of papers The Deficit Papers available from from me.

My blog also contains a number of key readings

 

John Maynard Keynes, The General Theory of Employment, Interest and Money.

Joseph Stiglitz, Free Fall: America, Free Markets and the Sinking of the World Economy , 2010

Peter Clarke, Keynes: The  Rise, Fall, And Return of the 20th Century’s Most Influential Economist, New York :Bloomsbury Press, 2009.

Harold Chorney, The Deficit Papers available from me in electronic format.

Paul Krugman, End This Depression Now! N.Y. W.W.Norton,

 

Recommended:

The Rotman School of Management, The Financial Crisis and Rescue: What went wrong? Why? What lessons can be Learned ? Toronto: U of Toronto Press, 2008.

 

Other core readings:

Hyman Minsky, Stabilizing an Unstable economy

Can ”It” Happen again?: Essays on instability and finance

John Maynard Keynes

Kevin Phillips, Bad Money: Reckless finance, Failed Politics and the Global Crisis of American Capitalism

David Mendell, Obama from Promise to Power

Harold Chorney, “On Manias, panics and bail-outs: further thoughts on the financial crisis” see my blog

Haroldchorneypoliticaleconomist.piczo.com.

Harold Chorney, Revisiting deficit hysteria, labour/Le travail, #54, 2004 available on the net

Harold Chorney, The Global Financial Crisis, the Re-emergence of Keynes and the Role of Quantitative Easing. Paper Presented to the World Congress of Social Economics, Concordia university, Montréal, June 2010 (excerpt on blog.)

Harold Chorney Restoring full employment: the natural rate of inflation versus the natural rate of unemployment. Paper presented to the Conference on Social Policy as if People Matter, Adelphi university, Garden City New York, November 12, 2004 (available on net)

Alvin Hansen, A Guide to Keynes (on reserve)

Sidney Blumenthal, The rise of the Counter-establishment: From Conservative Ideology to Political Power

Desmond King, The New Right: Politics, Markets and Citizenship

Brian Snowdon and Howard Vane, eds. A macroeconomics reader, 1997. Snowdon and Vane, Modern Macroeconomics: its origins, development and current state.Edward elgar, 2006

 

Supplementary readings

The following are some selected basic supplementary readings. You are not expected to read them all but rather portions of some of them. Some of them will be placed on reserve. Others are available through the library. They are intended to help with your research papers and illustrate the breadth and richness of the literature in the area.

 

John McMurtry, Unequal freedoms: the global market as an ethical system.

Adam Harmes, The Return of the state: protestors, power brokers and the new global compromise, Douglas and McIntyre, 2004.

Henry M.Paulson,Jr. On The Brink, Inside the Race to Stop the Collapse of the Global Financial System, N.Y. :Business plus, 2010;

Scott Patterson, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, N.Y.: Crown Business, 2010;

William Cohan; House of Cards: A Tale of Wretched Excess on Wall Street,N.Y.:Random House Doubleday, 2009;

Benoit Mandelbrot & Richard Hudson, The Misbehaviour of Markets: A Fractal View of Financial turbulence, N.Y.:Basic Books, 2004;

Haroldchorneypoliticaleconomist.blogspot;

Nouriel Roubini & Stephen Mihm, Crisis Economics: A crash course in the future of finance, N.Y.&London: the Penguin Press, 2010;

Paul Jorion, La Crise: Des subprimes au seisime financier planétaire, Paris, France: Fayard, 2008;

Richard Posner, A failure of Capitalism: The crisis of 08 and the descent into depression, Cambridge, Mass. and London U.K., 2009;

Bill Bamber & Andrew Spencer, Bear Trap: The Fall of Bear Stearns and the Panic of 2008, New York: Brick Tower Press, 2008;

Richard Bookstaber, A Demon of Our Own Design: Markets, Hedge funds and the Perils of Financial Innovation, Hoboken N.J., John Wiley & sons, 2007 )

John Kenneth Galbraith, The Great Crash,1929

Alvin Hansen, Monetary theory and Fiscal Policy.

Fausto Vicarelli, Keynes: The Instability of Capitalism

George Soros, The New Paradigm for financial markets.

Charles Kindleberger, Manias, Panics and Crashes.
The World in Depression:1929-1939
.

David Colander and Dewey Daane, The Art of Monetary Policy.

J.A. Trevithick , Involuntary Unemployment: Macroeconomics from a Keynesian Perspective.

Robert Kuttner, Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.

Tim Lewis, In the Long Run We`re all Dead: The Canadian Turn to Fiscal restraint.(on reserve)

Robert Ascah, Politics and Public debt: the Dominion, the Banks and Alberta’s Social Credit.

Doug Henwood, Wall Street.

Richard Parker, John Kenneth Galbraith: His Life, His Politics, His Economics.

Peter Clarke, The Keynesian Revolution in the Making.

Will Hutton, The Revolution that Never Was: an Assessment of Keynesian Economics.

Lawrence Klein, The Keynesian Revolution.

J.C.Gilbert, Keynes’ Impact on Monetary Economics.

Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes.

Gary Teeple, Globalization and the Decline of Social Reform(reserve)

Jonathon Michie and John Grieve Smith eds., Managing the Global Economy.

David Held & Mathias Koenig-Archibugi, Taming globalization: frontiers of Governance.

Bao Gao, Japan’s Economic Dilemma: the institutional origins of prosperity and stagnation.

Sidney Blumenthal, The Rise of the Counter Establishment, From Conservative Ideology to Political Power.

Armand Van Dormael, Bretton Woods: Birth of a Monetary System.

Robert Lucas, Studies in Business Cycle Theory.

Milton Friedman,” The role of monetary policy” The American Economic Review, 1968, vol.58, March, pp.1-17 reproduced in Brian Snowdon and Howard Vane, A Macroeconomics Reader.

Alan Blinder, The fall and rise of Keynesian economics, Economic Record, 1988, December reproduced in Snowdon and Vane., A Macroeconomics Reader

James Tobin, “Price Flexibility and output stability: an old Keynesian view. Journal of Economic Perspectives, 1993 vol7, Winter. reproduced in Snowdon and Vane. a Macroeconomics reader

David Laidler, Monetarism:an Interpretation and an assessment. Economic Journal,1981, vol.91 March reproduced in Snowdon and Vane.

F.A.Hayek, The Fatal Conceit: The Errors of Socialism.

Allan Meltzer, A History of the Federal Reserve, Vol. 1:1913-1951.

James Rock ed. ,Debt and the Twin Deficits Debate.

Robert Heilbroner and Peter Bernstein, The debt and the Deficit: false Alarms/Real Possibilities.

Harold Chorney & Phil Hansen, Toward a Humanist Political Economy

Joseph Stiglitz, The Roaring Nineties;
Making Globalization Work

Thomas Kuhn, The Structure of Scientific revolutions;

Adam Harmes, The Return of the State: Protesters, power brokers and the new global compromise;

Georges Campeau, From UI to EI: Waging War on the Welfare State;

Stephen Clarkson, Uncle Sam and Us.

Michael Woodin & Caroline Lucas, Green alternatives to Globalisation.

Al Gore, An Inconvenient Truth, the planetary emergency of global warming and what we can do about it.

Nicholas Stern, Review Report on the economics of climate change to the British government (available on the internet)

Gwyne Dyer, Climate Wars.

Rubin Simkin, Comments on Consumption, Income distribution and Growth (on reserve)

E.F.Schumacher, Small is Beautiful.(on reserve)

E.J.Mishan, the Costs of Economic Growth (on reserve)

J.Kenneth Galbraith, The New Industrial State (on reserve)
The Affluent Society (on reserve)
A Short history of financial euphoria.

Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (on reserve)
Joseph Schumpeter, History of Economic Analysis.

Paul Davidson, Post Keynesian Macroeconomic Theory.

H.Binhammer, Money and Banking and the Canadian Financial System

Alan Booth, British Economic Policy 1931-1949.Was There a Keynesian Revolution?

Anna Carabelli, On Keynes’ Method.

Leo Pliatzky, The Treasury under Mrs. Thatcher.

L.Randall Wray, Understanding Modern Money. the Key to Full Employment and Price Stability

William Greer, Ethics and Uncertainty, The Economics of John M. Keynes and Frank H. Knight.

 

Students are also expected to read extensively the financial and quality press each week. These include The Financial TimesThe New York Times, The Wall Street Journal, The Guardian, The Globe and Mail, and focus on stories on the economy, the financial crisis and the recovery.

 

Evaluation:

Essay due mid-term, the first week of November, 40%

Seminar presentation, 20%.

Final exam, 40%.

 

 

Seminar Topics (also see ‘additional readings’ on the last page of the course outline)

1.Introduction and overview. The interface between economics and politics. The art and science of political economy. The recent financial crisis, sub -prime mortgages, bank bailouts and the crash of 2008. The need for stimulus and the revival of Keynes. The eclipse of monetarism.? The challenge of climate change and the protection of the environment. The impact of the crash and challenges before Barack Obama. The rise and fall of the new right. The Canadian response. the origins of macroeconomics.

readings: Chorney, On manias , panics and crashes; Chorney; the introduction to the Deficit papers, Chorney the global financial Crisis, re-emergence of Keynes and origins of Quantitative easing. the essay on Keynes in the Deficit papers;chapter one in Kuttner. Obama’s challenge. chapter one in Phillips. Kindleberger; Galbraith, on the crash and Minsky, introduction to Can it Happen again and editors’ introduction to stabilizing an unstable economy.
chapter one Seccareccia and Bougrinepp.1-33.Snowdon and Vane, introduction. modern macroeconomics.

 

2.Globalization and the ethical dilemma. Myths and truths about globalization. The environmental challenge. Economic growth and entropy.
Readings: Nicholas Stern, Al Gore; K.Phillips; Stiglitz, introduction and chapter one. John McMurtry pp.1-52. The macroeconomic problem. The role of markets. The return of laissez-faire. the economics of full employment and the monetarist counterrevolution.

 

  1. The myth of no alternative. The role of regulation and public enterprise. Laissez-faire versus planning.Hayek versus Keynes. The eclipse of Marx. The rejection of Keynes. Daniel Bell and the End of Ideology. The rise of post-modernism and the new classical macroeconomics.
    Readings :Chorney global financial crisis…; Chorney deficit papers :The future of crown corporations:government ownership, Regulation or market control,A Keynesian approach, 1998; Blumenthal; King, Hayek, Mcmurtry, Harmes, Lucas, Friedman,Laidler.

 

4.The role of the media; political pressure groups;democracy propaganda and the policy process. The rise of the neo-cons.
Media and popular culture in the post modern age.The post war consensus and how it unravelled. Stagflation
and misinterpreting Keynes’s General theory.
Readings :Chorney, the Deficit Papers: The economic and political consequences of Canadian monetarism; Keynes and the problem of inflation. Keynes, the General Theory The two postulates of classical economics; the possibility that labour markets do not clear; the notion of involuntary unemployment.
Blumenthal, King, Block, Chorney, the natural rate of inflation…, Keynes GT ch.1-3; Peter Clarke Keynes, introduction.

 

  1. The consumption function. The multiplier. Savings and investment. The theory of interest rate determination. Readings: Keynes GT; Hansen a guide to Keynes.

 

  1. The controversy over debt and public finance.readings:Cavenaugh, Rock; Eisner; Heilbroner and Chorney: Rediscovering deficit hysteria, The deficit: hysteria and the current crisis and Chorney commentary on the FT’s austerity debate plus U tube video on deficits and debt.

 

  1. The strategy of stimulus. investment in infrastructure. Investment versus tax cuts. The impact of capital flows.
    Readings :Chorney blog entries on stimulus and the strategy behind it plus others tba.

 

  1. The roots of neo-conservatism. The cold war. The Vietnam war and the sixties. The OPEC crisis of the 1970s. Stagflation. Thatcher Reagan and Mulroney in the 1980s. The Clinton, Blair and Chretien third way.The Bush and Blair war in Iraq. The challenge of Afghanistan.The resurgence of liberalism in America. Obama’s challenge. The challenge of preserving civil liberties in the age of information and technology.
    Readings: blog; Stiglitz Free Fall; Stiglitz The roaring nineties; globalization and its discontents. Chorney and P.Hansen Toward a Humanist Political economy, The falling rate of legitimation; introduction and Neo-conservatism, social democracy and provinve building; King and Blumenthal.

 

  1. The roots of monetarism. Hayek versus Keynes in the thirties. Friedman versus neo-classical Keynesianism in the sixties and seventies. The post-Keynesians and John Kenneth Galbraith. Towards a new Keynesian paridigm. The return of regulation and the state. The bail-out of the banks , Freddie Mac and Fannie Mae and AIG insurance ; cleaning up the bubble, Readings :Stiglitz, Paulson, Phillips, Tobin; Blinder; Davidson;Harmon; Chorney

 

  1. Post and neo-Keynesian policy in the age of OPEC. readings:Davidson,Harmon , others TBA.

 

  1. Development issues. The IMF and the World Bank. The turn to the left in Latin America. The return of full employment ? Capitalism in Asia.
    Readings: Stiglitz, Chorney.

 

  1. Prospects for democracy, balanced ecologically sound growth and the compassionate society in the new world order.

 

 

Weekly notes: I will use this space to refer students to readings, updates sources etc.

Please note that the reading Harold Chorney, “On manias, panics and bailouts:further thoughts on the financial crisis” is available by referring to my blog. Jan.14, 2009 On manias, panic and bailouts: further thoughts. Keynes GT is on order but also widely available in libraries. There are numerous copies in the libraries around town including Concordia and it is also accessible on line. Begin reading the first 50 pages and we will discuss it in class.

 

Please go to the PBS.org site and watch their excellent documentary Inside the financial Meltdown which was broadcast on Frontline. It provides an insightful and personal look at the financial crisis as it unfolded in New York and Washington in 2008. Also, have a look at  the film The Big Short and several of the other documentary style films made about the crash. A good guide to them is available on Moyers and Company:Six films on the financial crisis Jan.27, 2012

 

 

ESSAY ASSIGNMENT — due in class in the first week of November.

Please research and write a 12 to 15-page essay on one of the following topics or if you prefer propose an alternative topic to me. Be sure to use a manual of style, include a full bibliography and proper notes identifying your sources. Sources should include books, periodical literature, quality financial papers like the Wall Street Journal, the Globe and Mail, The Financial Times or the New York Times well as internet sources.

Possible topics include:

  1. Discuss the root causes of the financial crisis. Explore the factors that influenced its unfolding as it has. What are the principal flaws in the economic theory that business leaders and policy makers relied upon that led to this crisis? How must economic theory be reconstructed to avoid these policy failures in the future?

 

  1. Compare and contrast the monetarist approach to public policy and management of the business cycle with the Keynesian schools’ approach. Why and how did monetarism displace the Keynes style approach in the 1970s? Does the current crisis suggest another paradigm shift?

 

  1. Discuss the controversy over government use of deficits to stimulate the economy in an economic downturn. Explore the role of deficits in the current policy environment. How does the Canadian Harper stimulus compare with that of the Obama administration? What about Trudeau versus Trump ?What is the appropriate monetary policy in conjunction with stimulative deficits ? What impact did the Osborne budget in the U.K. likely have ?

 

  1. Explore the roots and current operations of the IMF and the World Bank.
    What reforms appear necessary at these institutions. Give concrete country based examples.

 

  1. Explore panics, manias and crashes in financial history. How does this panic compare with previous ones?

 

  1. Explore the theory of the multiplier and Keynes’ theory of investment. How ought we to modify Keynes’ theory of investment to adjust to the current circumstances of globalization?

 

  1. Explore the roots of neo-conservatism. Does it have a future?

 

  1. Explore the environmental aspects of economic stimulus. Is there an inherent contradiction between stimulus leading to full employment and sound environmental policy?

 

  1. What would constitute a viable and contemporary theory of economic liberalism that would respect the social and economic needs of people but at the same time be open to global values?

 

 

Other useful readings:

Robert Skidelsky, Keynes, The Return of the Master: New York:Public Affairs, Perseus group,+ in U.K.  Allen Lane,  Penguin, 2009,2010.

 

The following are some selected basic supplementary readings. You are not expected to read them all but rather portions of some of them. Some of them will be placed on reserve. Others are available through the library. They are intended to help with your research papers and illustrate the breadth and richness of the literature in the area.

 

John McMurtry, Unequal freedoms: the global market as an ethical system.

Adam Harmes, The Return of the state: protestors, power brokers and the new global compromise, douglas and mcIntyre, 2004.

Henry M.Paulson,Jr. On The Brink, Inside the Race to Stop the Collapse of the Global Financial System, N.Y. : Business plus, 2010;

Scott Patterson, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, N.Y.: Crown Business, 2010;

William Cohan; House of Cards: A Tale of Wretched Excess on Wall Street,N.Y.:Random House Doubleday, 2009;

Benoit Mandelbrot & Richard Hudson, The Misbehaviour of Markets: A Fractal View of Financial turbulence, N.Y.:Basic Books, 2004;

Kevin Phillips, Bad Money:Reckless Finance, failed politics, and the Global Crisis of American Capitalism, N.Y.:Viking, 2008;

Haroldchorneypoliticaleconomist.piczo.com; Haroldchorneyeconomist.com

Nouriel Roubini & Stephen Mihm, Crisis Economics: A crash course in the future of finance, N.Y.&London: the Penguin Press, 2010;

Paul Jorion, La Crise:Des subprimes au seisime financier planétaire, Paris, France: Fayard, 2008;

Richard Posner, A failure of Capitalism:The crisis of 08 and the descent into depression, Cambridge, Mass. and London U.K., 2009;

Bill Bamber & Andrew Spencer, Bear Trap: The Fall of Bear Stearns and the Panic of 2008, New York: Brick Tower Press, 2008;

Richard Bookstaber, A Demon of Our Own Design: Markets, Hedge funds and the Perils of Financial Innovation,Hoboken N.J., John Wiley & sons, 2007 )

John Kenneth Galbraith, The Great Crash,1929

Alvin Hansen, Monetary theory and Fiscal Policy.

Fausto Vicarelli, Keynes: The Instability of Capitalism

George Soros, The New Paradigm for financial markets..

Charles Kindleberger, Manias, Panics and Crashes.
The World in Depression:1929-1939.

David Colander and Dewey Daane, The Art of Monetary Policy.

J.A. Trevithick , Involuntary Unemployment:Macroeconomics from a Keynesian Perspective.

Robert Kuttner, Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.

Tim Lewis, In the Long Run We`re all Dead: The Canadian Turn to Fiscal restraint.(on reserve)

Robert Ascah, Politics and Public debt: the Dominion, the Banks and Alberta’s Social Credit.

Doug Henwood, Wall Street.

Richard Parker, John Kenneth Galbraith: His Life, His Politics, His Economics.

Peter Clarke, The Keynesian Revolution in the Making.

Will Hutton, The Revolution that Never Was: an Assessment of Keynesian Economics.

Lawrence Klein, The Keynesian Revolution.

J.C.Gilbert, Keynes’ Impact on Monetary Economics.

Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes.

Gary Teeple, Globalization and the Decline of Social Reform(reserve)

Jonathon Michie and John Grieve Smith eds., Managing the Global Economy.

David Held & Mathias Koenig-Archibugi, Taming globalization: frontiers of Governance.

Bao Gao, Japan’s Economic Dilemma: the institutional origins of prosperity and stagnation.

Sidney Blumenthal, The Rise of the Counter Establishment, From Conservative Ideology to Political Power.

Armand Van Dormael, Bretton Woods: Birth of a Monetary System.

Robert Lucas, Studies in Business Cycle Theory.

Milton Friedman,” The role of monetary policy” The American Economic Review, 1968, vol.58, March, pp.1-17 reproduced in Brian Snowdon and Howard Vane, A Macroeconomics Reader.

Alan Blinder, The fall and rise of Keynesian economics, Economic Record, 1988, December reproduced in Snowdon and Vane., A Macroeconomics Reader

James Tobin, “Price Flexibility and output stability: an old Keynesian view. Journal of Economic Perspectives, 1993 vol7, Winter. reproduced in Snowdon and Vane. a Macroeconomics reader

David Laidler, Monetarism:an Interpretation and an assessment. Economic Journal,1981, vol.91 March reproduced in Snowdon and Vane.

F.A.Hayek, The Fatal Conceit: The Errors of Socialism.

Allan Meltzer, A History of the Federal Reserve, Vol. 1:1913-1951.

James Rock ed. ,Debt and the Twin Deficits Debate.

Robert Heilbroner and Peter Bernstein, The debt and the Deficit: false Alarms/Real Possibilities.

Harold Chorney & Phil Hansen, Toward a Humanist Political Economy

Joseph Stiglitz, The Roaring Nineties;

Making Globalization Work

Thomas Kuhn, The Structure of Scientific revolutions;

Adam Harmes, The Return of the State: Protesters, power brokers and the new global compromise;

Georges Campeau, From UI to EI:Waging War on the Welfare State;

Stephen Clarkson, Uncle Sam and Us.

Michael Woodin & Caroline Lucas, Green alternatives to Globalisation.

Al Gore, An Inconvenient Truth, the planetary emergency of global warming and what we can do about it.

Nicholas Stern, Review Report on the economics of climate change to the British government (available on the internet)

Gwyne Dyer, Climate Wars.

Rubin Simkin, Comments on Consumption, Income distribution and Growth (on reserve)

E.F.Schumacher, Small is Beautiful.(on reserve)

E.J.Mishan, the Costs of Economic Growth (on reserve)

J.Kenneth Galbraith, The New Industrial State (on reserve)
The Affluent Society (on reserve)
A Short history of financial euphoria.

Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (on reserve)

Joseph Schumpeter, History of Economic Analysis.

Paul Davidson, Post Keynesian Macroeconomic Theory.

H.Binhammer, Money and Banking and the Canadian Financial System

Alan Booth, British Economic Policy 1931-1949.Was There a Keynesian Revolution?

Anna Carabelli, On Keynes’ Method.

Leo Pliatzky, The Treasury under Mrs. Thatcher.

L.Randall Wray, Understanding Modern Money. the Key to Full Employment and Price Stability

William Greer, Ethics and Uncertainty, The Economics of John M. Keynes and Frank H. Knight.

 

 

Students are also expected to read extensively the financial and quality press each week.

These include The Financial Times, The New York Times, The Wall Street Journal, The Guardian, The Globe and Mail, and focus on stories on the economy, the financial crisis and the recovery.
David Laidler, Monetarism:an Interpretation and an assessment. Economic Journal,1981, vol.91 March reproduced in Snowdon and Vane.

F.A.Hayek, The Fatal Conceit: The Errors of Socialism.

Allan Meltzer, A History of the Federal Reserve, Vol. 1:1913-1951.

James Rock ed., Debt and the Twin Deficits Debate.

Robert Heilbroner and Peter Bernstein, The debt and the Deficit: false Alarms/Real Possibilities.

Harold Chorney & Phil Hansen, Toward a Humanist Political Economy

Joseph Stiglitz, The Roaring Nineties; Making Globalization Work

Thomas Kuhn, The Structure of Scientific revolutions;

Adam Harmes, The Return of the State: Protesters, power brokers and the new global compromise;

Georges Campeau, From UI to EI: Waging War on the Welfare State;

Stephen Clarkson, Uncle Sam and Us.

Michael Woodin & Caroline Lucas, Green alternatives to Globalisation.

Al Gore, An Inconvenient Truth, the planetary emergency of global warming and what we can do about it.

Nicholas Stern, Review Report on the economics of climate change to the British government (available on the internet)

Gwyne Dyer, Climate Wars.

Rubin Simkin, Comments on Consumption, Income distribution and Growth (on reserve)

E.F.Schumacher, Small is Beautiful.(on reserve)

E.J.Mishan, the Costs of Economic Growth (on reserve)

J.Kenneth Galbraith, The New Industrial State (on reserve)
The Affluent Society (on reserve)
A Short history of financial euphoria.

Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (on reserve)
Joseph Schumpeter, History of Economic Analysis.

Paul Davidson, Post Keynesian Macroeconomic Theory.

H.Binhammer, Money and Banking and the Canadian Financial System

Alan Booth, British Economic Policy 1931-1949.Was There a Keynesian Revolution?

Anna Carabelli, On Keynes’ Method.

Leo Pliatzky, The Treasury under Mrs. Thatcher.

L.Randall Wray, Understanding Modern Money. the Key to Full Employment and Price Stability

William Greer, Ethics and Uncertainty, The Economics of John M. Keynes and Frank H. Knight.

 

Students are also expected to read extensively the financial and quality press each week. These include The Financial Times, The New York Times, the Wall Street Journal, The Guardian, the Globe and Mail, and focus on stories on the economy, the financial crisis and the recovery.

 

 

Seminar Topics addition details of readings

 

1.Introduction and overview.

readings: Chorney, Revisiting deficit hysteria .Labour/ Le Travail Fall/Automne  vol 54, 2004

Harold Chorney, After the Crash:Rediscovering Keynes and the Origins of Quantitative Easing paper presented to the Eastern Economics Association, New York,Feb. 27, 2011. (posted on this site June 3, 2011) *

Harold Chorney, John Maynard Keynes and the General Theory after 75 Years: Preface to a Presentation to the Canadian Economics Association Special Panel on” Reconsidering Keynes in a Time of Crisis” * (posted on this site June 3, 2011)

The essay on Keynes in the Deficit papers;chapter one in Kuttner.Obama’s challenge.chapter one in Phillips. Kindleberger; Galbraith, on the crash and Minsky, introduction to Can it Happen again and editors’ introduction to stabilizing an unstable economy.
chapter one Seccareccia and Bougrine pp.1-33.Snowdon and Vane, introduction.modern macroeconomics.

 

2.Globalization and the ethical dilemma. Myths and truths about globalization. The environmental challenge.Economic growth and entropy.
Readings: Nicholas Stern, Al Gore;K.Phillips; Stiglitz, introduction and chapter one. John McMurtry pp.1-52.

 

  1. The myth of no alternative. The role of regulation and public enterprise. Laissez-faire versus planning.Hayek versus Keynes. The eclipse of Marx. The rejection of Keynes. Daniel Bell and the End of Ideology. The rise of post-modernism and the new classical macroeconomics.
    Readings :Chorney global financial crisis…; Chorney deficit papers :The future of crown corporations:government ownership, Regulation or market control,A Keynesian approach, 1998; Blumenthal; King, Hayek, Mcmurtry, Harmes, Lucas, Friedman,Laidler.

 

4.The role of the media; political pressure groups;democracy propaganda and the policy process. The rise of the neo-cons.
Media and popular culture in the post modern age.The post war consensus and how it unravelled. Stagflation
and misinterpreting the General theory.
Readings :Chorney the deficit papers: The economic and political consequences of Canadian monetarism; Keynes and the problem of inflation.Keynes, the General Theory The two postulates of classical economics; the possibility that labour markets do not clear; the notion of involuntary unemployment.
Blumenthal, King, Block, Chorney, the natural rate of inflation…, Keynes GT ch.1-3; Peter Clarke Keynes, introduction.

 

  1. The consumption function. The multiplier. Savings and investment.The theory of interest rate determination.Readings: Keynes GT; Hansen a guide to Keynes.

 

  1. The controversy over debt and public finance.readings:Cavenaugh, Rock; Eisner; Heilbroner and Chorney: Rediscovering deficit hysteria, The deficit: hysteria and the current crisis and Chorney commentary on the FT’s austerity debate plus U tube video on deficits and debt.

 

  1. The strategy of stimulus. investment in infrastructure. Investment versus tax cuts. The impact of capital flows.
    Readings :Chorney blog entries on stimulus and the strategy behind it plus others tba.

 

  1. The roots of neo-conservatism.The cold war. The Vietnam war and the sixties. The OPEC crisis of the 1970s. Stagflation. Thatcher Reagan and Mulroney in the 1980s. The Clinton, Blair and Chretien third way.The Bush and Blair war in Iraq. The challenge of Afghanistan.The resurgence of liberalism in America. Obama’s challenge.
    Readings: blog; Stiglitz Free Fall; Stiglitz The roaring nineties;globalization and its discontents.Chorney and P.Hansen Toward a Humanist Political economy, The falling rate of legitimation ; introduction and Neo-conservatism, social democracy and provinve building;King and Blumenthal.

 

  1. The roots of monetarism.Hayek versus Keynes in the thirties. Friedman versus neo-classical Keynesianism in the sixties and seventies. The post-Keynesians and John Kenneth Galbraith. Towards a new Keynesian paridigm.The return of regulation and the state. The bail-out of the banks , Freddie Mac and Fannie Mae and AIG insurance ; cleaning up the bubble,Readings :Stiglitz,Paulson,Phillips, Tobin; Blinder; Davidson;Harmon; Chorney

 

  1. Post and neo-Keynesian policy in the age of OPEC. readings:Davidson,Harmon ,Piketty and Stiglitz and Reich. others TBA.

 

  1. Development issues. The IMF and the World Bank. The turn to the left in Latin America. The return of full employment ? Capitalism in Asia.
    Readings: Stiglitz, Chorney.The Greek crisis.

 

  1. Prospects for democracy, balanced ecologically sound growth and the compassionate society in the new world order.

 

END

 

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Bank of Canada prematurely hikes interest rates underestimating potential damage to employment

The Bank of Canada announced a further 25 basis point increase in the bank rate despite the fact that unemployment is still above 6 % and there is absolutely no evidence of inflationary pressure in the economy. Whatever rise in petroleum prices is due to supply interruptions due to the Texas hurricane damage which higher interest rates can do nothing about. The Bank and the Minister are taking a significant risk in prematurely hiking the rate thereby sending a signal to consumers, borrowers and investors that a slowdown is coming. Its a signal we can do without. The hike is based upon a false theory that believes that inflation is inevitable in both the global and Canadian economy. It ignores the real possibility that we are living in  a different world era characterized by increased global competition, just in time production and widespread infrastructure deficits and  insufficiency of aggregate demand. In such an environment low inflation -the current rate is just  1.2 % in Canada-may persist a very long time.

Posted in Canada, free trade and globalization, monetary policy, Uncategorized, unemployment | Tagged , , | Leave a comment