Matias Vernengo — The “Natural” Interest Rate and Secular Stagnation

Link to a paper by Lance Taylor. Free download.

Naked Keynesianism
The “Natural” Interest Rate and Secular Stagnation
Matias Vernengo | Associate Professor of Economics, Bucknell University

Lars P. Syll — Loanable funds theory is inconsistent with data

Lance Tayor quote

Lars P. Syll’s Blog
Loanable funds theory is inconsistent with data
Lars P. Syll | Professor, Malmo University

Are Economists in Denial About What's Driving the Inequality Trainwreck? – Lynn Parramore interviews Lance Taylor

A new paper by economist Lance Taylor for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution takes on the way economists have looked at wealth and income inequality. Taylor’s research challenges some conclusions about what’s driving inequality made by Thomas Piketty and Joseph Stiglitz. What’s really causing the growing gap between haves and have-nots? Is it mechanical market forces? Outsourcing? Real estate? As Taylor sees it, economists have gotten the answer wrong. Worker exploitation and outsized business profits are factors, but even more key are the unjustified payments to the wealthy generated by our outsized financial sector. This hasn’t just “happened.” Flawed economic theory and politicians beholden to the rich lead to policies that make it happen. We can fix the problem, but it will take bold steps.…

INET
Are Economists in Denial About What's Driving the Inequality Trainwreck?

Lynn Parramore interviews Lance Taylor

Jonathan Schlefer — Not even Paul Krugman is a real Keynesian

Wicksell argued that if interest rates rise above some “natural rate,” they weaken investment demand and growth, while if they fall below it, they spur excessive demand and inflation. But markets inherently correct imbalances, restoring optimal equilibrium. 

Keynes disagreed. “The economic system . . . seems capable of remaining in a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse,” he wrote. “The evidence indicates that full, or even approximately full, employment is of rare and short-lived occurrence.”....

But isn’t Keynes now mainstream? No, say Foley and Taylor. The mainstream still sees economies as inherently moving to an optimal equilibrium, as Wicksell did. It still says demand causes short-run fluctuations, but only supply factors, such as the capital stock and technology, can affect long-run growth. ....

The Boston Globe
Not even Paul Krugman is a real Keynesian

Jonathan Schlefer, researcher at the Harvard Business School
ht Matias Vernengo at Naked Keynesianism

Lynn Parramore — What Thomas Piketty and Larry Summers Don’t Tell You About Income Inequality

In a new paper for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution,economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we’ve had before. Their simulation models show how so-called “reasonable” modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich. Taylor’s research challenges the approaches of American policy makers, the assumptions of traditional economists, and some of the conclusions drawn by Thomas Piketty and Larry Summers. Bottom line: We’re not yet talking about the kinds of major changes needed to keep us from becoming a Downton Abbey society.

INET
What Thomas Piketty and Larry Summers Don’t Tell You About Income Inequality

Lynn Parramore

Matias Vernengo — Duncan Foley and Lance Taylor win Leontief Prize

GDAE will award its 2015 Leontief Prize for Advancing the Frontiers of Economic Thought to Duncan Foley and Lance Taylor. This year's award, titled "Macroeconomics in the Age of Climate Change," recognizes the contributions that these researchers have made to our understanding of the relationships between environmental quality and the macroeconomy.

Congratulations to the winners.

Naked Keynesianism
Duncan Foley and Lance Taylor win Leontief Prize
Matias Vernengo | Associate Professor of Economics, University of Utah

Yves Smith — Financial Times Finds “Many” Errors in Piketty Analysis, Argues They Undermine His Thesis

My bet is that the Lance Taylor critique will in the end do much more to undercut Piketty’s findings than the Financial Times corrections and recalibrations, as useful as those are. Taylor challenged the widely-touted Piketty’s assertion that r > g (the rate of return on capital exceeds the growth rate of the economy). NC reader Ben Johannson provided a helpful summary of Taylor’s paper:
Naked Capitalism
Financial Times Finds “Many” Errors in Piketty Analysis, Argues They Undermine His Thesis
Yves Smith

Jeff Madrick — Is the Piketty Enthusiasm Bubble Subsiding?

The Piketty bubble may be coming to an end. Economists are starting to criticize the heart of his argument. That is not to diminish important aspects of his book. But the most profound of his claims simply may not hold....

I have compiled links to all these reviews on the Bernard L. Schwartz Rediscovering Government web site of the Century Foundation.

I hope this doesn’t sound too harsh. Piketty has done a more than admirable job to trace high capital ratios. He lays the groundwork for more analysis and a true attack on general equilibrium theory and its relevance in the real world. But in interviews I’ve read, he defends himself by saying he’s talked about market imperfections and political institutions in the book. But making many broad general comments is not analysis. His central assertion depends on faith in a general equilibrium model. As he has done in some interviews, arguing that people haven’t read a book as large as his fully is not a defense. It could be equally fairly charged that writing such a large book led him to too many inconsistencies.

In the long run, I think Piketty’s work will indeed prove seminal. It will force economists to deal with the remarkably wide range of issues he raises. But he hasn’t replaced Marx with a more well-founded model of capitalism’s unfairness. For me it is not capital that is power alone. Piketty’s persistently high r, a wonderful discovery, is likely a reflection of the power of wealth not of natural economic forces. With his empirical work we can begin to find solutions about how to constrain the power. But let’s follow his example in regard to income inequality and understand more fully the market failures in capital markets. A global tax would be a wonderful addition to the list of potential tools to bring down r. So let the arguments begin.

TripleCrisis
Is the Piketty Enthusiasm Bubble Subsiding?
Jeff Madrick

Daniel Little — Poverty and economics

How important should the subject of poverty be within the discipline of economics? Some economists appear to think it is a very small issue compared to the magnificent mathematics of general equilibrium theory. Others believe that economics should fundamentally be about the sources of human well-being and misery, and that understanding poverty is absolutely fundamental for economics. How should we try to sort this out?

Understanding Society — Innovative thinking about social agency and structure in a global world
Poverty and economics
Daniel Little | Chancellor, University of Michigan at Dearborn