ISI Strategy for Development-Prebisch Argument.

Economists trying to devise a development strategy at the end of second world war took an account of dependence of almost all developing countries on exports of primary products. Prebisch among others argued that exports of primary goods would not lead to development. Due to low-income and price elasticities of demand expansion in exports of primary goods would not lead corresponding increase in export revenue as prices will decline. Import payments, on the other hand, would continue to rise as the demand for capital goods would be high in order to raise growth, because developing countries don’t produce capital goods would lead to deterioration in terms of trade and worsening BOP deficit when they try to increase the growth. The increase in BOP deficit would force the developing countries to cut back the investment and hamper the growth. Since developing countries could not be based their growth on exports of primary goods it was necessary to base development on industrialization. A further argument as given by Rosenstein-Rodan in favor of industrialization in over-populated countries. He said since these countries suffer from low labor productivity due to land pressure and future prospects in agriculture are very limited and risky, industrialization is the only way to absorb the surplus labor force.

Advertisements

Keynes, Marx and the effect of QE

Michael Roberts Blog

One of the interesting sessions at last weekend’s Historical Materialism conference (apart from my session, of course) was one on the work of Suzanne de Brunhoff.  Brunhoff was a Marxist economist from the 1970s onwards who specialised in Marx’s theory of money and applying it to the conditions of modern capitalism.  She died this year.  There is no space to deal with her contributions here.  What I want to take up from the session was a presentation by Maria Ivanova of Goldsmiths University, London.  Ivanova made some key observations about Marx’s theory of money, but also of Keynes.  She pointed out that, in his Treatise on Money written in 1930 at the start of the Great Depression, Keynes argued that central banks would have to intervene with what we now call ‘unconventional monetary policies’ designed to lower the cost of borrowing and raise sufficient liquidity for investment. Just trying…

View original post 1,914 more words

The next recession

Michael Roberts Blog

Back last summer, there was growing concern that the world economy, already making the weakest recovery from the deepest slump in production and investment since 1945, was slowing down.

Indeed, it now seemed that the ugly thought of another recession, as economists call a contraction in production, incomes and spending, was a serious possibility within a few years or less.  The IMF raised the probability of recession in the so-called ‘emerging economies’ of Latin America, ex-China Asia and the rest of the world to near 50%.

recession probability

The slowdown in emerging economies has been led by the significant slowdown in China’s powerhouse economy, from double-digit real GDP growth just a few years ago to less than 7% now on the official figures (many ‘experts’ reckon real GDP growth is much lower than that). As China slowed, its inexorable demand for energy and other raw materials and other export goods from elsewhere…

View original post 1,639 more words

The U.S. Dollar: The Modern Day Bancor

EMerging Equity

By Eugen von Böhm-Bawerk

Dollar2 - Flickr - Tilley441According to Belgian-American economist, Robert Triffin the country whose currency have become the global reserve currency must be willing to supply enough liquidity to satisfy global needs. This obviously raises an interesting question for the Federal Reserve with regard to their monetary policy execution. On one hand, they need to consider the best course of action for the domestic economy, while on the other also take into account effects on global financial markets and corresponding capital flows.

The Federal Reserve Act of 1913 and its many amendments have obviously been interpreted by Congress to apply only to the domestic US economy. Specifically, the Federal Reserve’s statutory objective, as outlined in the Humphrey-Hawkins Full Employment Act of 1978, is to maintain long-run growth- and price stability, which will foster full employment. Note that there is absolutely nothing in the act about creating stable funding conditions for the estimated…

View original post 1,190 more words

Macroeconomic Theory and Operational Reality

Origin of Specious

If I taught macroeconomics, I’d get students to read a lot of operational documents before doing anything else. Let’s be clear on the institutional, operational facts before we start modelling anything.

In the UK, I’d have the class read things like the Bank of England Redbook, HM Treasury’s Debt and Reserves Management Report, the Whole of Governments Accounts, and some of those helpful BoE Quarterly Reports explaining Quantitative Easing and money creation.

It wouldn’t be scintillating reading (then neither is textbook macro), but it would get us off a lot of red herring trails before we started looking at models. Models that ignore important institutional facts could just be discarded.

Here’s an example of the sort of thing you could throw away (from Mankiw’s textbook):

View original post 1,972 more words

8 Financial Experts That Are Warning That A Great Financial Crisis Is Imminent

Nothing has changed since 2008

EMerging Equity

Will there be a financial collapse in the United States before the end of 2015?

Economic Crisis

By Michael Snyder

An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis.  Of course that doesn’t mean that it will happen.  Experts have been wrong before.  But without a doubt, red flags are popping up all over the place and things are lining up in textbook fashion for a new financial crisis.  As I write this article, U.S. stocks have declined four days in a row, the Dow is down more than 750 points from the peak of the market in May, and one out of every five U.S. stocks is already in a bear market.  I fully expect the next several months to be extremely chaotic, and I am far from alone.  The following are 8 financial experts that are…

View original post 1,257 more words

8 Financial Experts That Are Warning That A Great Financial Crisis Is Imminent

Nothing has changed since 2008

EMerging Equity

Will there be a financial collapse in the United States before the end of 2015?

Economic Crisis

By Michael Snyder

An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis.  Of course that doesn’t mean that it will happen.  Experts have been wrong before.  But without a doubt, red flags are popping up all over the place and things are lining up in textbook fashion for a new financial crisis.  As I write this article, U.S. stocks have declined four days in a row, the Dow is down more than 750 points from the peak of the market in May, and one out of every five U.S. stocks is already in a bear market.  I fully expect the next several months to be extremely chaotic, and I am far from alone.  The following are 8 financial experts that are…

View original post 1,257 more words