Macroeconomics

James K. Galbraith responds on the U.S. dollar system

I thank Philos Lysandrou and Anastasia Nesvetailova for their response to my essay on the dollar in a multi-polar world. Our conclusions are broadly similar, though a reader of the Lysandrou/Nesvetailova essay alone might be forgiven for thinking that sharp differences exist.

For instance, L/N characterize my view in these words: “He sees the confidence in the dollar as something highly fragile because it apparently lacks any material substance to back it.” I searched my text for the words “fragile” and “fragility.” They were not to be found. On the contrary, L/N quote the following passage but omit both a crucial intermediate sentence and also the conclusion, which are included in bold below:

The depth of the U.S. securities market helps ensure dollar hegemony

1. The Ukraine Crisis and Dollar Supremacy

Since the collapse of communism in the early 1990s and the subsequent rise of the world economy as a single market-based operational totality, its monetary counterpart has been a unipolar currency system centered on the US dollar as the premier vehicle currency in the private sector, as well as the premier reserve currency in the official sector. The hegemony of the dollar has survived several global economic shocks, including that of the financial crisis of 2007-9. Whether the system can survive the seismic shocks stemming from Russia’s invasion of Ukraine in February 2022 is now under active debate.

Ratner and Sim’s “Who Killed the Phillips Curve – A Murder Mystery”

Stagnating real wages may have contributed to the slowdown of US productivity

In much of the advanced world, we have witnessed at least three decades of stagnating real wages and massive reductions in the labor share in income. Many analyses have documented these trends, reflecting on their causes and effects from very different standpoints. In the US economy, where the trend toward wage stagnation seems to be particularly strong, it goes together, according to Temin (2015), Storm (2017), and Taylor and Ömer (2020), with a ‘dualistic’ tendency of the economy, with growing polarization between a limited number of high-wage and high-productivity sectors and a growing mass of workers employed in low-productivity and low-wage sectors. Wage stagnation, Taylor and Ömer (2020) note, is also the basis of the growing inequality in personal and family incomes recorded in the USA as well as in many other societies.

A persistent regime of low wages may determine very negative long-term consequences on the economy.

Everyone at INET is saddened by the news that our colleague Lance Taylor passed away on Monday, August 15th, 2022. His loss leaves a giant hole in our hearts as well as in the field of economics. His talents and achievements were prodigious and we will miss his cheerful and inspiring presence. Words help little on such occasions, but we would like to extend our condolences to his wife Yvonne, and his children Signe and Ian.

To commemorate his contributions, here are a few noteworthy articles, events, videos, and interviews by, with, or about Lance Taylor.

In memory of Lance Taylor

In the papers of economist Charles Kindleberger, Perry Mehrling found notes on the paper that won Ben Bernanke his Nobel Prize.

In the 1983 paper cited as the basis for Bernanke’s Nobel award, the first footnote states: “I have received useful comments from too many people to list here by name, but I am grateful to each of them.” One of those unnamed commenters was Charles P. Kindleberger, who taught at MIT full-time until mandatory retirement in 1976 and then half-time for another five years. Bernanke himself earned his MIT Ph.D. in 1979, whereupon he shifted to Stanford as Assistant Professor. Thus it was natural for him to send his paper to Kindleberger for comment, and perhaps also natural for Kindleberger to respond.

Diamond-Dybvig-Bernanke is a flawed model of banking that has no room for a lender of last resort

The Royal Swedish Academy of Sciences has awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022 to Ben S. Bernanke, Douglas W. Diamond, and Philip H. Dybvig for having “significantly improved our understanding of the role of banks in the economy, particularly during financial crises” (Royal Swedish Academy of Sciences 2022a).

The main justification for Diamond and Dybvig's (DD) award is given by a paper published in 1983: “In an article from 1983, Diamond and Dybvig develop a theoretical model that explains how banks create liquidity for savers, while borrowers can access long-term financing” (Royal Swedish Academy of Sciences 2022b, p.4).

A short exposition of the model

Federal Trade Commission chair Lina M. Khan is interviewed by Mark Glick

INET co-sponsored "The New Roaring Twenties: The Progressive Agenda for Antitrust and Consumer Protection Law," a conference at the University of Utah, October 25-26, 2022 where it also supports the Utah Project on Antitrust and Consumer Protection.