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Archive for the ‘Radioso mundo neo-liberal’ Category

Pelo menos num aspecto tiro o chapéu aos talibãs neoliberais: conseguiram construir uma narrativa imune a qualquer evidência histórica.

A austeridade afinal não é expansionista? Não interessa, é para aplicar. A dívida é insustentável? Não interessa, é para pagar. Os gregos são dos povos da europa que mais horas trabalham? Não interessa, são malandros. O endividamento privado é muitíssimo maior do que endividamento público? Não interessa, o endividamento público é que mau. Toda a periferia está em crise? Não interessa, o problema de Portugal resulta do despesismo do Socas. A crise da periferia acentuou-se com a explosão da bolha de crédito de 2007/8 em resultado da especulação financeira do sub-prime com origem nos EUA? Não interessa, em Portugal o Socas tem a culpa, caso contrário por que estaria preso? O Euro não funciona? Não interessa, as suas regras são para cumprir. Os superavites de uns são por definição os deficits de outros? Não interessa, a culpa é dos devedores. Não há devedor irresponsável sem credor imprudente? Não interessa, a culpa é do devedor. A competitividade custo é um conceito relativo? Não interessa, é de todo aceitável que a Alemanha tenha mantido salários praticamente congelados durante 14 anos. E por aí fora. Sempre com a mesma convicção. Sempre com a teoria certa e resguardada da evidência empírica. Digam-me lá se não é de lhes tirar o chapéu.

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Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Op-Ed Columnist – The Third Depression – NYTimes.com.

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The great German physicist Max Planck remarked that “science advances one funeral at a time.” The situation is worse in economics, which is subject to regress, as happened when the valuable but imperfect insights of Keynesianism were supplanted by the ideological blinkers of neo-liberalism.

The effects of this regress have again been on display in the confused discussions and policy responses to Europe’s sovereign debt crisis. The fact is that countries which borrow in their own currency and control their money supply will never default because they can always issue the money needed to repay their debts.

For such countries, central banks should respond to speculative debt crises with “bear squeeze” tactics that have them buy existing debt. In this fashion, countries can buy back debt below par value, in effect repaying it on the cheap. It is what the European Central Bank should have been doing on behalf of its member countries.

Not only does a bear squeeze assist debt reduction, it also punishes speculators and lowers interest rates, enabling countries to refinance on favourable terms. In a sense, this is what the Bank of England and the Federal Reserve have been doing on behalf of their respective governments by buying gilts and treasuries. Though such policy does increase the money supply, this is desirable at a time of big demand shortage and excess capacity when inflation is a distant danger.

The eurozone has cheated itself of these benefits because of the neo-liberal design of the ECB. That design ignores the fact that having central banks act as the government’s banker and to help manage the national debt was one of the original reasons for the establishment of central banks. This is no accident as neo-liberalism intentionally aimed to sever the fiscal – monetary policy link, but in doing so it discarded an essential tool of macroeconomic management.

The most damaging aspect of the crisis is the global boost it has given to the arguments of those advocating fiscal austerity. That is a cure which will almost certainly kill the patient by causing deep recession that lowers tax revenues and aggravates budget difficulties, while also causing bankruptcies that threaten an already weakened banking sector.

Governments cannot limitlessly increase debt and the money supply without cost. If such policies were continued, once the economy was back to normal there would eventually be a price to pay in the form of higher inflation and reduced confidence in money as a store of value. That means there is need to design policies and institutional arrangements that guard against such an outcome. But that is a wholly different proposition from saying governments and central banks should not use their powers to create money to addressing problems of excessive debt, speculation, financial panic and deep recession.

Central banks were slow to adopt quantitative easing (QE) to address the run on the financial sector in 2008 when money markets froze and banks could not refinance. That cost the global economy dearly. Now, the mistake is being repeated in the eurozone with the slow embrace of QE to address the run on public debt.

Europe, and perhaps the global economy, again confronts the possibility of a run for liquidity. In such circumstances there is only one thing for central banks to do: supply it. Keynes wrote of this in his masterful General Theory:

“Unemployment develops, that is to say, because people want the moon; — men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.”

Yet, policy continues to respond with too little, too late, and then goes on to compound the damage with inappropriately timed austerity and doubling-down on policies of wage suppression that have already wrought such havoc.

The root problem is the dominance of flawed neo-liberal economic thinking. This problem is particularly acute in the ECB and European finance ministries which are dominated by economists trained in Chicago School neo-liberal macroeconomics. Ironically, social democratic Europe has been much more virulently infected by this strain of thinking than the US where politicians’ pragmatism has moderated economists’ extremism.

The Great Recession may have lowered economists’ public standing but it has not yet changed their thinking or swept away the top policy appointees who have failed so disastrously. When it comes to economics, Max Planck was too optimistic about scientific progress.

By Thomas Palley who is Schwartz Economic Growth Fellow at the New America Foundation

FT, May 23, 2010

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In truth, Greece does have an alternative. Instead of submitting to the ferocious and pro-cyclical conditionality imposed by Germany and the IMF – cutting its budget deficit by 11% over three years in return for a €120bn (£104bn) loan – it could follow Argentina’s example in 2001-02, and default on the bulk of its sovereign debt. This would mean abandoning the euro, introducing a “new drachma” and probably devaluing by 50% or more.

Some weeks ago, I had a private exchange about this scenario with Mark Weisbrot of the Centre for Economic Policy Research in Washington. He favoured Argentinian-style default; I did not. But given Angela Merkel’s politically motivated foot-dragging, the failure of the European Central Bank to deal with the problem at an earlier stage and the strongly pro-cyclical nature of the cuts required, I am having second thoughts.

Eight years ago, Argentina defaulted on the major part of its sovereign debt and survived quite well. Many economists predicted that Argentina’s debt default would result in currency collapse, hyperinflation and even greater economic contraction than it had endured during its 1999-2002 recession. Instead, after the 2001-02 debt default and subsequent devaluation against the dollar (from 1:1 to 3:1), GDP grew at over 8% per annum over the period 2003-2007 and annual inflation fell from over 10% per month in early 2002 to less than 10% per annum. By 2005, Argentina had sufficient reserves to allow President Néstor Kirchner to pay off its remaining $9.8bn (£6.4bn) loan from the IMF in full and discontinue its programme with them.European leaders would do well to read up on the Asian, Russian and Latin American financial crises of 1997-2002. The Nobel laureate Joseph Stiglitz famously published an open letter citing his reasons for resigning from his post of chief economist at the World Bank. Among his criticisms of the bank and the IMF was the imposition of drastic deflationary measures on Thailand and Korea in 1997, and on Russia in 1998, mainly to protect the balance sheets of private western banks. The conditionality imposed was paid for dearly by cuts in economic and social expenditure thrust on ordinary citizens.

A central lesson of all this is that unless protective action is taken early, a country can rapidly be overpowered by the financial markets. Once traders start betting against a country’s bonds or its currency, the herd instinct takes over. Greece’s budget deficit is not particularly high by world standards – 13.6% versus 11% in the UK, and 12.3% in the US. But traders perceived its sovereign debt structure as too risky and prophecies of doom became self-fulfilling. There is a further problem. The spending cuts needed to meet the government’s deficit target will undermine Greek government revenues. As an economist at London-based Capital Economics put it: “The key risk to its target is that deeper recession will lead to lower tax revenues, offsetting some of the savings that the government expects to make as a result of its fiscal tightening.” In short, even though the bailout package has been agreed, the cuts may prove counterproductive and Greek recovery is far from assured.

The ECB could have nipped this crisis in the bud several months ago, both by continuing to accept Greek government bonds as collateral and by quantitative easing. Although the ECB had used quantitative easing to bailout the EU banking system, it refused to do so for Greece. There are clear signs that contagion is spreading to Portugal, and possibly to Spain and Italy. Can the ECB really be counted on in future to prevent the gradual unravelling of the euro?

As the French economist Jean-Paul Fitoussi argued in a recent interview in Libération, even if the Greek crisis is successfully contained for a time by an EU-IMF package, the financial markets will hope to profit by squeezing other European countries. Meanwhile, ordinary Greeks are taking to the streets to protest against further draconian austerity measures, while the EU’s political class continues to focus entirely on its narrow domestic interests. Here in Britain, a bemused electorate apparently has not yet woken up to the nature and magnitude of the cuts we will almost certainly suffer as a result of the 2008 bank bailout. Most important, we have not begun to question seriously whether placating the financial markets by means of such cuts is unavoidable. Perhaps it’s time to start thinking the unthinkable: namely, that financial markets should be our servants, not our masters.

George Irvin, guardian.co.uk, Sunday 2 May 2010

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more about “The Fear Factory

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The opinion polls seem clear enough. In six months Britain will have a Conservative government armed with a mandate to scale back the state with immediate effect and all Labour can do between now and next spring is prevent heavy defeat becoming a wipeout.

While this may prove to be true, it is curious nonetheless. David Cameron has been amazingly successful at shifting the political battle onto his own ground; he has disguised a strategically weak position with tactical elan. Labour has done the opposite; it has allowed a strong strategic position to be nullified by the darts and feints of the opposition.

Let me explain. Cameron’s main argument – that the economic mess we are in is the result of the failing of big government – is the precise opposite of the truth. The reason for the crisis was not that the state was too active, but that it was too passive. For three decades, from the mid-1970s onwards, regulations on finance were relaxed, markets were unshackled, taxes were cut.

Paul Davidson, in his new book The Keynes Solution, puts it this way: “During almost all of the last four decades the public debate over economic policy has been dominated by the belief that if self-interested individuals are permitted to operate in a free market without government interference and regulation, and without worrying about other members of the community, the resulting free market will bring the economy to nirvana.”

Keynesian schadenfreude

Market fundamentalism has been found wanting these past two years. The economics profession has stood aghast as, one by one, its sacred cows – self-correcting markets, rational expectations, efficient markets hypothesis – have been slaughtered. Keynesians (and Marxists, to be fair) haven’t had so much fun in years; far from waiting for the invisible hand to work its magic, governments stepped in to prevent banks from failing, the financial system from imploding and the global economy from collapsing.

Only once in the entire crisis has a government opted for a “nature’s cure”, and when Hank Paulson let Lehman Brothers go to the wall in September last year, he unleashed four weeks of mayhem in the financial markets that only started to abate when governments took stakes in tottering banks in return for capital injections.

Even so, the near-death experience for the banks had an immediate and profound impact on the real economy. Credit lines dried up and confidence collapsed. Output and trade contracted at rates last seen in the 1930s. Policy makers responded by cutting interest rates to historically low levels, loosening fiscal policy and pumping new electronic money into the banking system through quantitative easing. This was not activist macro-economic policy, it was hyper-activist. Credit creation by the state compensated for credit rationing by the banks; spending by the state filled the breach left by the squeeze on private spending.

By the spring there were signs of the policy beginning to work. Output stabilised and financial markets rallied. While there are legitimate doubts – voiced by the IMF among others – as to whether the recovery is for real, the immediate threat of a 1930s-style slump has passed.

Only by the most convoluted reasoning can the crisis of the past two years, and the events that led up it, be described as a failure of big government. On the contrary, it was the deregulation of financial markets championed initially by governments of the right that allowed finance to strip away the prudential controls on its activities.

That’s why Cameron’s position is strategically vulnerable. Making the case for interventionist social democracy has never been easier: the mess was caused by a weak state allowing a free rein to a cadre of irresponsible financiers; only a newly emboldened state could clear the mess up.

It is a mistake to underestimate the opposition leader. There are those on the left who think that because he went to Eton he is, by definition, an upper-class twit. But Eton churns out lots of smart people (Keynes included). The current economic debate is not about the right’s responsibility for the crisis. Nor is it about the opposition’s own uncertain response to it. Instead, it is about which party has the most blood-curdling plans for spending cuts. That’s some achievement.

There’s enough sense in what Cameron says to make it politically potent; hence his cleverness. But it is still a flawed analysis. He is right, certainly, to argue that governments cannot run budget deficits of £175bn a year permanently. He is also right when he says that Britain was running a structural deficit of 2-3% of GDP going into the downturn.

But the deficit is the symptom of an economic problem, not its cause. The bulk of the deficit is accounted for by the contraction in the economy since the start of 2008, which has sharply eroded tax revenues and pushed up the cost of welfare spending. Only a small part of the deficit increase has been caused by discretionary tax and spending decisions by the chancellor, Alistair Darling. If the public finances had been in better shape in 2007, Labour would have been in a position to provide a bigger fiscal boost, but the upshot would have been broadly the same – a deficit this year in excess of 10% of GDP.

Scary proposals

If the lion’s share of the deficit was caused by the recession then, logically, the priority now should be to get the economy back on its feet as quickly as possible. Conjuring up the ghost of Stafford Cripps is more likely to hinder this process – by scaring the pants off consumers and small businesses – than it is to help.

Cutting back too soon could drive the economy into a depression, warned David Blanchflower, respected economist and a former member of the Bank of England’s monetary policy committee, in Saturday’s Guardian. “The Tory economic proposals have the potential to push the British economy into a death spiral of decline that would be almost impossible to reverse for a generation,” he wrote.

So what is Labour’s problem? Faced with the most propitious economic circumstances for a party of the centre-left for decades why is it so comprehensively failing to seize the moment? There are plenty of suggestions flying about. Some say it is all about Gordon Brown; the prime minister, it is said, simply does not cut it with the public and has been a liability since the election that never was in the autumn of 2007.

Some say it is a combination of a deep recession and being in power for too long; the electorate is bored with Labour and rising unemployment provides a convenient pretext for changing allegiance. Some put it down to the foreign wars, or the private finance initiative or the fact that the gap between rich and poor is wider than it was in 1997.

While all part of the story, none of these theories is entirely convincing. Labour has handled the crisis well; in the most trying of circumstances, it has got the big decisions right.

The government’s failure has been its inability to use the crisis to articulate a broader critique of market fundamentalism. And the reason for that is that from 1997 to 2007 Labour was complicit in the excesses of the market. It was too weak or too bedazzled to control the City, but not so reticent when it came to plans for DNA testing and ID cards. The supine approach to finance coupled with creeping social authoritarianism explains why Cameron’s attack on the big state resonates.

With anger at the banks still running high, it is still possible to seize the social democratic moment. What’s lacking is an intellectual argument that challenges the orthodoxy of the past three decades. That, though, requires an admission that much of what the government has believed these past 12 years was wrong. As things stand, that looks unlikely.

Larry Elliott, The Guardian, Monday 12 October 2009

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Excelente análise the Paul De Grauwe. Aposto, para o melhor, que os Ladrões de Bicicletas não deixarão de comentar.

Economics is in crisis: it is time for a profound revamp

There can be little doubt. The science of macroeconomics is in deep trouble. The best and the brightest in the field fight over the most basic problems. Take government budget deficits, which now exceed 10 per cent of gross domestic product in countries such as the US and the UK. One camp of macroeconomists claims that, if not quickly reversed, such deficits will lead to rising interest rates and a crowding out of private investment. Instead of stimulating the economy, the deficits will lead to a new recession coupled with a surge in inflation. Wrong, says the other camp. There is no danger of inflation. These large deficits are necessary to avoid deflation. A clampdown on deficits would intensify the deflationary forces in the economy and would lead to a new and more intense recession.

Or take monetary policy. One camp warns that the build-up of massive amounts of liquidity is the surest road to hyperinflation and advises central banks to prepare an “exit strategy”. Nonsense, the other camp retorts. The build-up of liquidity just reflects the fact that banks are hoarding funds to improve their balance sheets. They sit on this pile of cash but do not use it to increase credit. Once the economy picks up, central banks can withdraw the liquidity as fast as they injected it. The risk of inflation is zero.

Both camps line up an impressive list of Nobel prize-winners to buttress their arguments. Economists have often disagreed in the past, but this time the tone is different. The protagonists do not hesitate to accuse the other camp of ignorance or bad faith. I have never seen anything like this.

So what? Does it matter that economists disagree so much? It does. Take the issue of government deficits. If you want to forecast the long-term interest rate, it matters a great deal which of the two camps you believe. If you believe the first one, you will fear future inflation and you will sell long-term government bonds. As a result, bond prices will drop and rates will rise. You will have made a reality of the fears of the first camp. But if you believe the story told by the second camp, you will happily buy long-term government bonds, allowing the government to spend without a surge in rates, thereby contributing to a recovery that the second camp predicts will follow from high budget deficits.

Most people are not sure which camp is right. They hesitate. One day, when green shoots are popping up here and there, they believe the story warning about inflation; the next day, when the shoots turn brownish, they believe the other story. Disagreements among economists take away the intellectual anchors around which market participants interpret events and forecast the future. Ultimately, all our forecasts use a particular economic model to interpret data and to forecast their future course. The existence of wildly different models takes away this intellectual anchor and this translates into more market volatility.

This conflict matters not only for market participants, but also for policymakers. The two camps of economists have wildly different estimates of the effect of a 1 per cent permanent increase in government spending on real US GDP over the next four years. According to the first camp, the Ricardians, the multiplier is closer to zero than to one, ie 1 per cent extra spending generates much less than 1 per cent of extra GDP, producing little extra tax revenue. Thus budget deficits surge and become unsustainable.

By contrast, the second camp, the Keynesians, predict that the same 1 per cent of extra government spending multiplies into significantly more than 1 per cent of extra GDP each year until the end of 2012. This is the stuff of dreams for governments, because such multiplier effects are likely to generate additional tax income so that budget deficits decline.

With so much disagreement it is no surprise that policymakers are unsure and vacillate. Some countries, such as the US and France, go all out for the Keynesian story; others, such as Germany, put more faith in the Ricardians. Personally I think the Keynesians are right, but my opinion is irrelevant. The point is that the cacophony of analysis helps to explain why policymakers react in different ways to the same crisis and why it is so difficult for them to come up with co-ordinated action.

How to resolve this crisis in maco-economics? The field must be revamped fundamentally. Some of its shortcomings are obvious. Before the financial crisis, most macroeconomists were blinded by the idea that efficient markets would take care of themselves. They did not bother to put financial markets and the banking sector into their models. This is a major flaw.

There is a deeper problem, though, that will be more difficult to resolve. This is the underlying paradigm of macroeconomic models. Mainstream models take the view that economic agents are superbly informed and understand the deep complexities of the world. In the jargon, they have “rational expectations”. Not only that. Since they all understand the same “truth”, they all act in the same way. Thus modelling the behaviour of just one agent (the “representative” consumer and the “representative” producer) is all one has to do to fully describe the intricacies of the world. Rarely has such a ludicrous idea been taken so seriously by so many academics. (Other fields of economics have not been deluded by this implausible idea and therefore do not face the same criticism.)

We need a new science of macroeconomics. A science that starts from the assumption that individuals have severe cognitive limitations; that they do not understand much about the complexities of the world in which they live. This lack of understanding creates biased beliefs and collective movements of euphoria when agents underestimate risk, followed by collective depression in which perceptions of risk are dramatically increased. These collective movements turn uncorrelated risks into highly correlated ones. What Keynes called “animal spirits” are fundamental forces driving macroeconomic fluctuations.

The basic error of modern macro-economics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.

It will remain difficult to model these collective movements. There is much resistance. Too many macro-economists are attached to their models because they want to live in the comfort of what they understand – the behaviour of rational and superbly informed individuals.

To paraphrase Isaac Newton, macroeconomists can calculate the motions of a lonely rational agent but not the madness of the crowds. Yet if macroeconomics wants to become relevant again, its practitioners will have to start calculating this madness. It is going to be difficult, but that is no excuse not to try.

Paul De Grauwe / FT.com / Comment / Opinion – Economics is in crisis: it is time for a profound revamp – Published: July 21 2009

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