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An Ecological Future for SFC Macroeconomics?

Greg Hannsgen | June 14, 2015

subsidence cal

(USGS Graphic from NYT, June 7, 2015)

SFC (stock-flow-consistent) economics is about watertight accounting: each model strictly accounts for all financial stocks and flows, making sure, for example, that when a change in someone’s income is assumed, all corresponding changes to other incomes and balance sheet items and their behavioral effects are taken into account. Along the same lines are the laws of physics, as ecological economists have emphasized—though seemingly with little regard for the all-important world of finance, government deficits, MMT, etc. This subfield has represented another group of dissenters in academic economics and the policy world since the 1970s or so. Some early ecological dissenters rejected academic economics altogether, with anti-economist Hazel Henderson, for example, devoting a chapter of one work to a critique of the Post-Keynesian school, which she found far too narrowly focused on economic growth and the distribution of wealth.

It is fortunate then that among the papers presented at the Post Keynesian Study Group (PKSG) workshop in the U.K. last month were two that attempted to meld Post-Keynesian economics with ecological economics. In particular, the paper by Yannis Dafermos, Giorgos Galanis, and Maria Nikolaidi echoed themes in SFC modeling, bringing back to mind the map in this news article on land subsidence in California (accompanying image above) which had appeared in the New York Times last weekend and seemed to be a good illustration of Dafermos’s theme.

From the article: “Underground water supply isn’t fenced or restricted; it is moisture held in the soil, rocks and clay, and drawn through wells like soda through a straw.
“In a normal year, Mr. Famiglietti says, 33 percent of California’s water comes from underground, but this year it is expected to approach 75 percent. Since 2011, he says, the state has lost eight trillion gallons from its overall water reserves, two-thirds of that from its underground aquifers.
“‘We can’t keep doing this,’ Mr. Famiglietti says.
“The draining of the aquifers creates another hazard above ground. As water is pulled from the spongy layers below, the ground above collapses, creating what is known as subsidence. Where subsidence is the worst, the land can sink as much as a foot each year.”

As the aquifers involved shrink, the earth’s surface seems to fall—a perhaps ineluctable implication of a fall in the total amount of rock, soil, water, etc., below.

The still-tentative study by the three authors attempts to comprehensively account for matter and energy within a Post-Keynesian SFC model, with tables reminiscent of the latter approach. For example, the matter that makes up the materials used by manufacturers winds up going up smokestacks, emerging as output, being recycled, etc., and all such destinations are included in the cells of an all-encompassing table. A similar scheme can be used for the use of energy, and in fact the paper draws upon early work by Nicholas Georgescu-Roegen—a hero of the ecological economists—to unify concerns about energy, the environment, and the economy in a systemic approach based on the laws of thermodynamics. In their paper, the authors cite Levy Institute research on SFC macroeconomics, including a paper on proposals to create green jobs. I recently blogged about some financial themes in a paper by Tai Young-Taft and myself, which also contained a (far less thoroughgoing) use of green accounting.

As I draft this post, I am away from the Institute for the day. I send my best wishes to the attendees and staff of our Minsky Summer Seminar, many of whom have come a long distance to learn more about Hyman Minsky and his economics.

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End of Week Links

Michael Stephens | June 14, 2013

Boston Fed’s Eric Rosengren on the risk of financial runs and the implications for financial stability*  22nd Annual Minsky Conference (video)

*(Link has changed:  see below the fold of this post for Rosengren video)

Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt  New York Fed

‘Financialization’ as a Cause of Economic Malaise  NY Times

The Cash and I  J. W. Mason

A Blogospheric Taxonomy of the Fiscalist vs Monetarist Debate  FT

The Biggest Economic Mystery of 2013: What’s Up With Inflation?  Atlantic

How Schlubs Get Taken By Wall Street Pros  Forbes

Fiscal Implications of the ECB’s Bond-buying Program VoxEU

continue reading…

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“I Happen to Have Mr. McLuhan Right Here,” Wonk Edition

Michael Stephens | March 7, 2012

It won’t be quite as satisfying as having Marshall McLuhan stashed in a corner to back up your argument, but for the next time you find yourself in a real-time wonkfight, FRED (the go-to database of the St. Louis Fed) is now available as a mobile app.

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Keynes vs Hayek at the Asia Society

Michael Stephens | November 7, 2011

If you’re in Manhattan or have access to an internet connection tomorrow (Nov. 8), Reuters is sponsoring a Keynes vs. Hayek debate between two teams of economists and writers, including the Levy Institute’s James Galbraith.

“Four Keynesians – economist James Galbraith, son of the high priest of Keynesianism, John K. Galbraith; New Yorker columnist John Cassidy,  Sylvia Nasar, the historian of economic thought and author of Grand Pursuit; Steve Rattner, the architect of Obama’s auto company bail-out – will slug it out with four Hayekians – Economics Nobel Prize-winner Edmund Phelps; Professor Lawrence H. White of George Mason University; Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute; and Stephen Moore of the Wall Street Journal.”

The debate will be hosted at the Asia Society (5:00-7:30 pm) and can be viewed live online here.

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How Much Food Will a Week’s Earnings Buy? (Fall Edition)

Greg Hannsgen | October 18, 2011

(Click to enlarge.)

Signs of serious inflation in broad price indices such as the consumer price index (CPI) have been rare over the past few years, confounding many critics of the stimulus bill and the Fed’s efforts to reduce interest rates.  However, as I reported in a blog entry last spring, most food-commodity prices were rising at that time and had reached levels rivaling those last seen in 2008, when unusually severe food shortages caused serious problems in many parts of the world.

The figure at the top of this post is an update of the graph in the earlier post, based on data released this morning by the Bureau of Labor Statistics (BLS). The brown line shows the government’s estimate of the average real weekly wage for U.S. private sector employees. The series is of course adjusted for overall inflation, so that it represents actual purchasing power, not a number of dollars. (I have used a slightly different wage series than I used last time.)

The other lines show the same weekly earnings data series in terms of various categories of wholesale agricultural commodities, rather than a varied “shopping cart” of retail goods and services. Each line represents the value of average weekly earnings in terms of one major “food group,” to slightly misuse terminology from the federal government’s old dietary guidelines. For example, the data shown by the red line indicate that a worker measuring his or her weekly pay in an equivalent amount of fruits, melons, vegetables, and nuts would find that his or her weekly pay fell by 14.3 percent between March 2006 and last month. continue reading…

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More on the Nobel Prize award and its possible meanings

Greg Hannsgen | October 11, 2011

Without wading into the debate too much, we report on some commentary from the web on yesterday’s announcement that Thomas Sargent and Christopher Sims had won the Nobel Memorial Prize in Economics:

“Free-market” supporters differed greatly in their assessments. One “New Monetarist” argues that the choice of Sargent and Sims represents a nod to the anti-Keynesian “New Classical” school of macroeconomic theory, which introduced rational expectations into macro in the 1970s.

On the other hand, while Edward Glaeser also seems to view the award as partly an anti-Keynesian decision, his comments on Sims and the New Classical School of macroeconomics emphasize Sims’s efforts to minimize the use of macroeconomic theory of any kind in his econometric work:

“Sims — like Sargent, Lucas and Edward Prescott (another great theorist of the post-Keynesian world) — saw that the Keynesian macroeconometric models were a thing of the past, but he understood the ongoing need for economic prediction. Perhaps one day, economic theory will make complete sense of the business cycle, but until that time, policy makers and ordinary investors will still want to have some idea of what lies ahead. Sims’s work addressed that need, free from the confining assumptions of Keynesianism.”

Similarly, at this link, Keynesian-leaning Mark Thoma endorses the argument that Sims’s vector autoregression (VAR) techniques help economists avoid making an inordinately large number of dubious assumptions.

Getting to deeper issues, an economist quoted in a Businessweek.com article notes wryly that the prize is partly about an issue as abstract and unworldly as cause and effect: continue reading…

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How to Improve Your Abstract

Michael Stephens | October 7, 2011

Since it’s Friday…

This one is for every graduate student who’s been on the receiving end of a glazed/skeptical/bemused expression after trying to respond to a “so what’s your dissertation about?” query.  Your elevator pitch would go over much better if it were more kinetic.  Via GonzoLabs, Science magazine and TEDxBrussels are sponsoring a competition for PhD students in science-related fields for the best dissertation interpreted through dance.  There don’t seem to be many entries from economists (dismal, dismal), but these physics students look like contenders (incidentally, there’s still time for some last-minute, ill-considered choreographing.  The deadline is Oct. 10.):

“For years I have been trying to explain to my mother what it is I do. This video was aimed at her. She now finally understands what the point of my research is. If I had known that all it would take was a little dancing, I would have done this a long time ago.”

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Forbes: The Smart Money Is Insane

Michael Stephens | September 28, 2011

Money quote from a recent Forbes article:  “with the right parenting [psychopaths] can become successful stockbrokers instead of serial killers.”

Also, a reminder that when we talk about how “the markets” are reacting to this or that, we’re talking about this guy:

(hat tip to Thorvald Grung Moe, our visiting Norwegian central banker)

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History of the Think Tank (or, Your Fish)

Michael Stephens | September 23, 2011

“A rollicking saga that involves all sorts of things not normally associated with think tanks – chickens, pirate radio, retired colonels, Jean Paul Sartre, Screaming Lord Sutch, and at its heart is a dramatic and brutal killing committed by one of the very men who helped bring about the resurgence of the free market in Britain.”  Over at the BBC, Adam Curtis provides an entertaining mini-history of think tanks in the UK — the “dealer in second-hand ideas,” as Hayek allegedly described them.

Featuring this fantastic image of an early pamphlet (easily the best title ever for a political pamphlet, or anything else for that matter):

(hat tip INET)

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A Comment on the Fight against Corruption and Indian Democracy

Rachel! | August 24, 2011

The author is a Professor at the National Institute of Public Finance and Policy, New Delhi. His views are his own.

An anti-corruption movement in India, run by a set of elites primarily from Delhi, has put poor Anna Hazare out in front and called itself a national movement. Their key demand is an anti-corruption citizen ombudsman bill, the Jan Lokpal Bill (JLPB), which would create an independent body investigating corruption cases, completing the investigation, and holding a trial within a specific time frame.

Is the Jan Lokpal Bill (JLPB) the path toward a corruption-free India? Presumably, if the answer were a straight forward “yes,” we would probably have had a JLPB by now. The founding fathers of this nation have gifted us a Constitution which laid the foundation for a vibrant democracy, a secular republic, and a federal structure. This strong foundation has not only kept this country together despite its adversities, but it has also been able to accommodate the needs and aspirations of people of diverse cultures, ethos, and religion with a fair degree of success. If the JLPB or a law of such nature were so important, certainly our founding fathers would not have deprived us of that perceived magic wand to keep India corruption-free.  In the existing system itself there are sufficient institutional safeguards against corruption. Unfortunately, corruption continues to grow despite these safeguards. Public anger against corruption is justified, but Anna’s methods are not. continue reading…

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