April 20th, 2017
A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy.
As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests.
Trump also expresses neocon unilateralist tendencies that play well with much of the US electorate. His neocon unilateralism is not a one-off temporary political aberration. Instead, it reflects intrinsic and enduring features of the current US polity. That has profound implications for the international relations order, and is something many Western European governments may not yet have digested.
April 5th, 2017
The euro zone (EZ) was created in January 1999. Its weak economic performance is significantly due to the euro’s neoliberal monetary architecture and the design of monetary policy. Those features undermine national political sovereignty and consign the EZ to severe economic under-performance, which in turn fosters political demands for exit from the euro. Escaping this dynamic requires restoring fiscal space to EZ countries, and also changing the design of EZ monetary policy. The paper shows how this can be done. It decomposes the challenge of reform into generic problems related to the neoliberal construction of monetary policy, and specific problems concerning the euro as a currency union. The currency union problems are further decomposed into “money – fiscal policy” architecture problems and specific monetary policy conduct problems. [READ MORE]
January 18th, 2017
A debate on negative interest rates.
YES, Thomas Palley: “One can have too much of a good thing”.
NO, Adam Posen: “Negative interest rates have proved useful”.
READ IT HERE
December 16th, 2016
Wednesday’s decision by the Federal Reserve to raise interest rates is unwelcome and unnecessary. As admitted in its statement, investment remains soft, growth is only moderate, and inflation expectations are little changed. Moreover, the economy confronts financial headwinds from the recent jump in long term interest rates and an even stronger dollar.
The Federal Reserve seems to be relying on old economic thinking that should have been discarded after the financial crisis. That poses a danger the economy will be slowed before full employment is reached, putting a stop to workers reclaiming their fair share.
If the Federal Reserve is worried about financial market exuberance, it should use its regulatory tools and not the blunderbuss of higher interest rates. Financial markets must not be allowed to stampede the Fed into raising rates.
November 15th, 2016
Dear Secretary Clinton and President Obama:
On April 20, 1653, Oliver Cromwell spoke these words to the Long Parliament:
“You have sat here too long for any good you have been doing… Depart, I say, and let us have done with you. In the name of god, go.”
Secretary Clinton, you are rightly being blamed for the electoral tragedy that has befallen our country. The country wanted change and you offered continuity. You prided yourself on the neoliberal economic policies of your husband, President Bill Clinton, which have driven our country into stagnation and despair. Your rejection in Wisconsin, Ohio, Michigan, and Pennsylvania speaks to a greater rejection of the economic policies you, your husband, and your Third Way associates imposed on the party of Franklin Roosevelt.
President Obama, you too deserve enormous blame. You wasted the historic opportunity at the beginning of your presidency to break with neoliberal economics. Instead, you pushed Obamacare with its expensive sub-standard insurance that is punitively imposed on the self-employed. Donald Trump benefitted enormously from the premium increase notices that were received up and down the country in the week before the election. And at the end, you pushed the Trans-Pacific Partnership, another neoliberal globalization agreement, which ceded the economic argument to Mr. Trump. Your charm and intelligence are no substitute for the economic change we need, you promised, and then reneged on.
Cromwell’s words apply to both of you. Heed them and be gone.
October 30th, 2016
James Tobin was a leading - perhaps the leading - American neo-Keynesian macroeconomist in the era of Keynesian dominance after World War II that extended through to the early 1970s. Along with growth theorist Robert Solow and micro and trade theorist Paul Samuelson, the three substantially shaped what became known as the neoclassical synthesis which fused neoclassical microeconomic theory, Keynesian macro theory, and neoclassical growth theory. The macroeconomic component of the neoclassical synthesis is termed neo-Keynesianism. All three received the Royal Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel, with Tobin winning his prize in 1981. Tobin died in 2002, aged 84. Read the rest of this entry »
October 22nd, 2016
This paper explores lock-in and lock-out via economic policy. It argues policy decisions may near-irrevocably change the economy’s structure, thereby changing its performance. That causes changed economic outcomes concerning distribution of wealth, income and power, which in turn induces locked-in changes in political outcomes. That is a different way of thinking about policy compared to conventional macroeconomic stabilization theory. The latter treats policy as a dial which is dialed up or down, depending on the economy’s state. Lock-in policy is illustrated by the euro, globalization, and the neoliberal policy experiment. [READ MORE]
October 5th, 2016
I received an e-mail from an undergraduate economics student who was curious about economic policy in Washington, DC. His question says a lot about the current state of affairs. Here it is with my reply.
From: Xxxxxxx Xxxxxxx [mailto:email@example.com]
Sent: Saturday, October 1, 2016 10:56 AM
Subject: Question from an undergraduate
Dear Dr. Palley,
I am a first-year undergraduate in economics and political theory, and a longtime admirer of your work.
What are your thoughts on how Keynesian/Post-Keynesian ideas are treated in current political discourse?
I was in Washington D.C. recently and I had conversation with a Brookings fellow who told me that he thought Joseph Stiglitz was an “extremist who isn’t taken seriously by anyone who knows their way around the Beltway.”
Does it worry you that ideas which used to be considered “mainstream” (like social democracy) are now increasingly considered “extreme”?
Deeply grateful for your time and attention
Xxxxxxx Xxxxxxx Read the rest of this entry »
September 12th, 2016
After more than 7 years of economic recovery, the Federal Reserve is positioning itself to tighten monetary policy by raising interest rates. In light of the wobbly reaction in financial markets, an important question that must be asked is whether raising interest rates is the right tool.
It could well be that the world’s leading central bank is going about the process of tightening in the wrong way. Owing to the dollar’s preeminent standing, that could have severe global repercussions.
Just as the Fed has had to rethink how it combats recessions, so too it must rethink how it transitions from an easy monetary policy stance to a tighter stance. Read the rest of this entry »
July 19th, 2016
NIRP is quickly becoming a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian economic logic that asserts interest rate adjustment can ensure full employment. That pre-Keynesian logic has been augmented by ZLB economics which claims times of severe demand shortage may require negative interest rates, which policy must deliver since the market cannot. Regarding policy assessment, NIRP turns a blind eye to the possibility that negative interest rates may reduce AD, cause financial fragility, create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow, promote currency wars that undermine the international economy, and foster a political economy that spawns toxic politics. Worst of all, NIRP maintains and encourages the flawed model of growth, based on debt and asset price inflation, which has already done such harm. [READ PAPER]