Tuesday, April 24, 2012

Contributions of the Stockholm School

Role in Public Debate: The Scandinavian Welfare State
In Sweden, the public debate has been shaped by economists and by the economics profession to an unusual degree. In fact, a study launched by Carlson and Jonung claims that in Sweden, economists have more influence and higher standing than any other type of social scientist. Furthermore, they claim that this fact is what underlies the construction of the modern Swedish state. This claim is embodied in the contributions of five of the Stockholm School's most accomplished economists, who have had an influence on academic and policy circles alike. These are Wicksell, Cassel, Heckscher, Ohlin, and Myrdal. The Stockholm school is so-named because its ideological home university is the Stockholm School of Economics.

What Policies Does the Stockholm School Stand For?
In short, the Stockholm School is the practical embodiment of Social-Democratic theory. Historically seeing themselves as the antithesis of the Austrian school (a view that they do not hold alone), Stockholm school economists, they independently reached the same conclusions as JM Keynes on macroeconomic theory during the interwar period. Because the main scientists in the Stockholm school did not die immediately after the war,  Stockholmers went on to publish further policy works.

The Work of Stockholm professors served as a major source of inspiration for the construction of the modern Swedish welfare state, relying heavily on government intervention and social engineering to create a "people's home" (Swedish: "Folkhemmet"). 

This paper discusses the contributions of the five main professors of the Stockholm school.

In Swedish public debate, economists have been more influential than any other category of social scientists. We examine the views of five great Swedish economists on the role of the university economist in the public arena. What did they say about scholarly objectivity and value judgements, about political commitment and educating the people? The five economists are Knut Wicksell, Gustav Cassel, Eli Heckscher, Bertil Ohlin and Gunnar Myrdal. Representing two generations and a broad political spectrum, they were immensely productive. They founded Sweden’s tradition of media-tuned university economists strongly involved in the current social issues. More recently, however, academic economists in Sweden have shifted away from that ideal. The future of the old heritage hangs in doubt.
About the Authors:
-Benny Carlson is professor of economic history at Lund University.
-Lars Jonung is a guest professor at  Lund University School of Economics and Management, a member of the Fiscal Policy Council of Sweden, and economist at DG ECFIN at the European Commission in Brussels.


Thursday, April 19, 2012

Can Economics be Taught Better?

What NY Times and LA Times are Reporting

At the beginning of April 2012, a stirring debate within academia reached the pages of two of the US' premiere newspapers. 

LA Times
On April 11th, the LA times ran a piece highlighting student discontent at Harvard with the economics discipline. Last November, 70 students organized a walkout on Harvard economist Greg Mankiw's economics lecture. The students later posted an open letter saying "Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University [sic], and our greater society." They went on to complain that instead of presenting a broad introduction to economics, Mankiw's teaching was narrowly focused, on orthodox models was ultimately complicit in perpetuating systemic global inequality. Professional economics in the field and in academia went on to sympathize with the students' message.

NY Times
The April 1st op-ed piece looks at things from the point of view of the researchers, professors, and professional academics. Authored by a collection of seven economics a the forefront of the contemporary academic economic debate including Nassim Taleb and Robert Skidelsky, a number of well-thought suggestions on reform of the economics curriculum were made. 
  • We need to move beyond dependence on mathematical models. This goes for both probabilistic models and finance and abstract calculus-based model in the economics discipline at large. A more cross-disciplinary approach is needed.
  • Economic History deserves our serious attention. 
  • The difference between risk and uncertainty needs to be taught and understood. In particular, we should spend time on the meaning and implications of uncertainty.
  • We should not give assurances that we have completely figured out the markets or the economy. Economics is not a hard science. We cannot run experiments. 
  • Focus more on market imperfections. A lot of people believe that the market is infallible. That's not what either history or Adam Smith teaches. 
  • Realize that price signals are not infallible either.

About the Author:
Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

Thursday, April 12, 2012

Recovered Factories Movement in Argentina - The Take

Argentine Unions use Bankruptcy Law to Take Over Bankrupt Factories

This film, directed by Avi Lewis in the aftermath of the 2002 Argentine crisis, documents the struggle of the movement of Empresas Recuperadas (Recovered Firms) in factories and industries of Buenos Aires and its suburbs. A recovered firm run by its ex-employees after they have been taken over by following bankruptcy or abandonment management by management.

The Legal Aspect
Legally, the movement legitimizes their actions by means of default law as well as bankruptcy law. Essentially, bankruptcy is a situation of permanent insolvency. Economically, the bankruptcy is defined by debts which exceed the income and assets. Under the legal concept of bankruptcy is established that the bankrupt is disqualified from managing their property, while under the cessation of payments, the situation could be resolved in the absence of agreement with creditors, after the liquidation of corporate assets.

Economic Effects
Once rehabilitated, the company generally is organized as a cooperative. Under this type of firm, members are both employee who contributes labor, and entrepreneur who contributes to the commercial decision-making process. Instead of layoffs and economic downturn in the region generated by business closures, generate sustainable employment and production and eventually perhaps, economic stability.

Full Movie, without subtitles
Sindicatos Argentinos se Apoderan de los Medios de Producción en Fabricas Bancarrotas Usando Ley de Quiebra

Este obra, dirigido por Avi Lewis poco después de la crisis Argentina del 2002 documenta la lucha del movimiento de empresas recuperadas en las fabricas e industrias de Buenos Aires y sus suburbios. Una emperesa recuperada es una empresa gerenciada por sus ex-empleados después de haber sido tomada por ellos en situación de quiebra o abandono gerencial.  

Aspectos Legales
Legalmente, el movimiento legitimiza sus acciones por medios de ley de cesación de pagos tanto como ley bancarrota. Esencialmente, la bancarrota es una situación de insolvencia permanente. Economicamente, la quiebra se defina por deudas cuales exceden los ingresos y los activos. Bajo el concepto legal de bancarrota se establece que el fallido queda inhabilitado de administrar sus bienes, mientras que bajo de la cesación de pagos, la situación se podría resolver, en ausencia de acuerdo con los acreedores, tras la liquidación de activos de la sociedad. 

Efectos Económicos
Una vez rehabilitada, la empresa generalmente se organiza como empresa cooperativa. Bajo de este tipo de empresa, el miembro es a la vez empleado  que contribuye con su mano de obra, y empresarial, que contribuye al proceso de decisión comercial. En lugar de despidos masivos y caída económica en las región generado por cierres empresariales, se genera producción y empleo sostenible y eventualmente quizás, estabilidad económica. 

(Español, subtitulado en inglés)

Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

Wednesday, April 4, 2012

European Left Proposes Way out of Crisis

Social-Dems Unveil Pro-Growth "2020 Strategy"

Because sovereign indebtedness is about a country's Debt-to-GDP ratio, there are two ways a country can reduce indebtedness. One way in to reduce the its debt. This is the way favored by the European right with respect to the current debt crisis, who have even called for "severe and unflinching cuts" as expressed by ECB director  Draghi, and undertaken by David Cameron.

Nevertheless, this way is seen by Social Democrats as a strategy to be avoided because of implication for living standards, growth and employment.While tight fiscal policy may have a short-term effect, true long-term recovery requires structural change. Tight fiscal policy does not address unemployment and if the fiscal tightening creates lack of confidence in the economy for consumers and investors, it will endanger the recovery.

The other way is to overcome indebtedness by simply outgrowing it. This of course calls for an agressive, multifaceted economic strategy.

The 2020 Strategy
FEPS, a Brussels-based think-tank with affiliation to both the PES and the S&D group has unrolled a long-term growth strategy designed around four key points. These are:

  1. Improve European Education and Productivity: The underlying idea is the improved education is the basis of increased productivity. In fact this is a point which is borne out by microeconomic theory.
  2. Green Growth: This is the type of infrastructural growth which will increase the GDP int he short-term. Also, its better to get green infrastructure built sooner rather than later. 
  3. Reduction of Social Inequality: This point focuses primarily on reducing the male-female earnings gap in Europe. This issue will be via active labor market policy and via active social policy. 
  4. The Financial Transactions Tax: This will help to stabilize the financial markets while also serving as a source of revenue, thus stabilizing the sovereign debt issue. 

2020 Strategy EU-27 GDP Growth Projection

Implementation of the 2020 strategy is projected to have positive implications for growth and unemployment figures in the EU-27. This should come as no surprise -the strategy calls for the creation of infrastructure, increases of ALMPs, and making sure that women get better pay- The question of whether it can be sustained will hinge on how well the strategy is implemented and whether it will yield growth dividends.

 2020 Strategy EU-27 Unemployment Projection 

The EU recommends that 24 out of the 27 EU countries tighten fiscal policy. Some countries have tightened fiscal policies already in 2010 and some countries have decided on more ambitious consolidation plans than recommended by the Commission. Macroeconomic model calculations show that it will have large consequences for both GDP growth and the development on the labour market if all 24 countries tighten fiscal policy at the same time. If only the 5-8 countries with the largest budget deficit tighten fiscal policy the negative effects on the European economy will not be as harsh.

A second path is to introduce reforms. Tightening fiscal policy might improve the budgets in the short run, but in the medium and long run, an economic upturn in Europe requires structural changes in the form of reforms that change the underlining structures. Model calculations show that a strategy based on investments in green growth, increasing productivity and the education level, fighting social inequality and introducing a FTT-tax can create almost 6.5 mil-lion jobs over the next 20 years.