Contributions of the Stockholm School

Role in Public Debate: The Scandinavian Welfare State

http://econjwatch.org/file_download/119/2006-9-carlsonjonung-char-issue.pdf 

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.

Abstract  

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.
http://econjwatch.org/file_download/119/2006-9-carlsonjonung-char-issue.pdf 
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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.

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Can Economics be Taught Better?

http://www.nytimes.com/roomfordebate/2012/04/01/how-to-teach-economics-after-the-financial-crisis (NYT)

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.

http://www.latimes.com/news/opinion/commentary/la-oe-weiner-youth-revolt-economics-20120411,0,6994951.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MostEmailed+%28L.A.+Times+-+Most+E-mailed+Stories%29 (LA Times)

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http://www.nytimes.com/roomfordebate/2012/04/01/how-to-teach-economics-after-the-financial-crisis (NY Times)

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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.

Recovered Factories Movement in Argentina - The Take

Argentine Unions use Bankruptcy Law to Take Over Bankrupt Factories

http://www.youtube.com/watch?v=LEzXln5kbuw&feature=relmfu (with English subs)

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. 

http://www.youtube.com/watch?v=LEzXln5kbuw&feature=relmfu
(Español, subtitulado en inglés)

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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.

European Left Proposes Way out of Crisis

Social-Dems Unveil Pro-Growth "2020 Strategy"

http://www.feps-europe.eu/uploads/documents/1103_ECLM_WaysOutOfCrisis.pdf

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 

Abstract

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.
http://www.feps-europe.eu/uploads/documents/1103_ECLM_WaysOutOfCrisis.pdf


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What Argentina Means for Us: 10 Years After the Fact

http://www.iwar.org.uk/news-archive/crs/8040.pdf 

http://www.webasa.org/Pubblicazioni/Lucchin_2002_3.pdf 

Austerity Failed to Stabilize Economy & Debt 10 Years Ago

One decade ago, the country which had once been the most wealthy country in South America, with high economic growth rate, universal health care and a historic living standard equal to that of Canada, suffered economic crisis, defaulted on its debt, and collapsed. Although Argentina has since seen some recovery, living standards never recovered to historical levels. Between 1998-2002, GDP shrank by 20%.

How Austerity and Neoliberal Reforms Ruined a Nation

In 1989, Menem began neoliberal reforms amid massive inflation. The reforms reduced public-sector employment while eliminating employment protection and insulation for local businesses. A spike in unemployment followed of course. By 1995, unemployment was at 19% and there were strikes all over Argentina. In 1991, the Convertibility Law pegging Argentina's peso to the Dollar was enacted. While this did reduce inflation dramatically, it also eliminated Argentina's monetary tools, which should have been used to combat crises. Moreover, both public and private sectors accumulated large US-dollar-denominated debt and liabilities. Argentina's debt also mushroomed as a result of the enormous costs associated with privatizing its social security system. 

By Mid-1999, the Argentina was full recession. This was largely due to Argentina's unprotected exposure to the Brazilian and Mexican markets, a construct of Menem's 1989 reforms. In September of that year, Argentina passed the Fiscal responsibility Law, under which it committed to large spending cuts at both the local and federal level in response to the recession. 

In 2000, the De La Rua administration tried to solve the country's austerity and neoliberalism-based economic problems with more austerity and neoliberal reforms. $1 Billion in budget cuts followed, as did labor market reforms. That same year, the IMF came to Buenos Aires offering Argentina a three-year $7.2 Billion package under conditions of strict austerity and assumptions of 3.5% economic growth. In fact Argentina grew only 0.5%. Because austerity had failed to solve the recession, reduce debts, or produce economic growth, 2001 began with Argentina  announcing voluntary debt restructuring, and a fourth round of austerity. Three months later, a nationwide strike against the austerity plans. By year's end, there had been a run on the banks, rioting, looting, and the resignation of three presidents. In December, Argentina could not guarantee foreign debt.  

What Does it Mean Today?

http://www.frbsf.org/publications/economics/letter/2010/el2010-33.pdf

In Argentina a decade ago, as in Greece, Spain and Italy today, the relinquishing of monetary authority initially served to improve investor confidence and reduced inflation worries. In both cases, the side-effect was the loss of monetary tools needed to fight an economic downturn. This put more strain on fiscal policy makers to deal with recession on their own. Under the strain of recession, fiscal policy also lost its ability to confront economic circumstances.

Two Key Lessons of Argentina:

1: Monetary autonomy is indispensible if an economy is to stay afloat in the long-run. The meaning of this for Europe is that monetary policy has to be formulated in the benefit of the countries who actually use the Euro, not just some of the Eurozone's member states. Otherwise, growth will be almost non-existent and crisis response will be nearly impossible.

2: Austerity does not get you out of a recession. Neither do neoliberal reforms. This is especially true when the recession is actually caused by austerity and neoliberal reforms in the first place. 

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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.

Obama and Steve Jobs debate US Tech Jobs

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=3&hp 

(NY Times Article)

A January 12th New York Times article, the key I.T. jobs behind the creation of Apple's line of smart phones  has turned into an indictment of how far things have come, and of what globalization has become.

"Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.Why can’t that work come home?" Mr. Obama asked. Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said. Ostensibly, the reason is flexibility. To put an anecdote to the claim, one day in 2007, just before the iPhones were to hit the shelves for the first time, Jobs decided to replace the plastic screens with glass ones. In China, "A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day."

Apple has 43,000 domestic employees. Meanwhile, the iPhone is assembled in China's infamous Foxconn City, in a facility that has 230,000 employees, many working six days a week, often up to 12 hours a day. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. Foxconn has also recently become infamous for a string of employee suicides.

There you have it. The meaning of "competitiveness", and "flexibility", come down to thousands of employees working 12 hour shifts for less than $17 per day and living in factory dorms on site where suicides are commonplace. A scathing indictment of how far things have come. A scathing indictment of what "flexibility", "competitiveness", and "job losses to China" really mean. We should not be so surprised. Corporations are legally obligated to maximize shareholder value. They will have no problem doing layoffs, or creating huge negative externalities.

What Needs to be Done?

Since its pretty clear that Americans aren't about to start living in dorms underneath the factory and working 12 hour shifts while on suicide watch...as laborers do in China. So, its pretty clear that something needs to be done so that Steve Jobs' attitude about American tech employment is buried along with him. 

As unambiguously as possible, tech jobs need to be brought to US shores, be it through direct subsidy, or requirement that Apple and other potentially strategic firms locate a minimum percentage of their tech jobs domestically (including work generated via subcontractors). Some Asian countries (including China) as use domestic input requirements to keep production chains in-country.

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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.

Smith Leaves "Toxic" Goldman Sachs

http://www.bbc.co.uk/news/business-17366552 (BBC Article)

Greg Smith, Goldman Sachs' London-based equity derivatives boss for Europe, the Middle East, and Africa resigned today, citing severe and unsustainable moral decline at the bank. His resignation letter, published today in the New York Times accuses Goldman of severe ethical problems in its corporate culture. Reflecting on the "decline in the firm’s moral fiber", Smith asserted that in the past, "leadership used to be about ideas, setting an example and doing the right thing," while today he is outraged concerning "how callously people talk about ripping their clients off". 

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&pagewanted=all&smid=fb-share (NY Times)

Ethical Concerns

While Goldman's reckless behavior in the Housing bubble in the US and its involvement in the Greek Sovereign Debt crisis (by helping Greece hide part of its sovereign debts, then betting against Greece) are well-known and well-documented, Smith cites a general culture of unethical business, which involves pitching lucrative and complicated products to clients, which are not the most aligned with the client’s goals.

Furthermore, the BBC reminds us that in 2010, Goldman Sachs was fined $550m for civil fraud charges of misleading investors  - the biggest fine for a bank in the SEC's history. Less well known perhaps, is the alleged role of the Goldman Sachs Commodity Index in the 2007 world food price crisis.

What Needs to be Done?

Goldman Sachs is the Standard Oil of our day. Then, as now, something has to be done. While Goldman is clearly an investment bank that is too big to fail, the concern is, that it might also be too big to bail. On top of that, Goldman is also the bank which is at the center of the world's financial system. This is why it way bailed out by US taxpayers.

Since dismantling the beast might create some quite severe global economic fallout, a better option would be to keep  it on a tight leash. Not only do rules such as Basel III and Dodd-Frank need to be put in place and strictly enforced, but acquiring a stake in the bank large enough to sit on the board and improve Goldman's corporate governance from the inside might also be a good idea. After all, the taxpayer has already paid a sizable chunk of money into Goldman's and deserves to be compensated for his investment. A seat on the board would go a long way towards properly compensating that.

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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.