ISSN 2049-3274

Volume 3, Issue 2

World Economics Association Newsletter

April 2013

To plurality. The Association will encourage the free exploration of economic reality fromany perspective that adds to the sum of our understanding. To this end it advocatesplurality of thought, method and philosophy.

The latest on WEA Conferences

Inside this issue:
WEA Conference: theeconomics curriculum2

Economic Thought—
latest issue

2

The Mexican Tiger

3

Political economy of
economic metrics

4

Yet more dissatisfied
economics students

6

WEA conference: neoliberalism in Turkey

7

The causes of deep, longcrisis: Finance and the
US profit rate

8Interview with Dani
Rodrik9

Volunteers needed—
WEA national chapters

12

Contacts andannouncements

12

Past Newslettersavailable at:
http://www.worldeconomicsass
ociation.org/newsletters/

WEA youngeconomists
Facebook group
Contribute to the

As most WEA members know we had to postpone the conference on ‘The Economics
Curriculum. Towards a Radical Reformation’ due to serious illness by its main leader
Jack Reardon. The deadline for papers has been extended to April 21st and the Discussion
will be from 3rd May to 31st May. We are confident that, following treatment, Jack will beable to resume his role in the conference. Meanwhile a considerable amount of work is
being done by his co-leader Maria Alejandra Madi as well as by David Wheat and Haiyun
Zhao. I am very grateful to all three for their cooperation. I am also grateful to the authors of submitted papers who have accepted the postponement.
We already have a number of very good papers. There may be time for some of you to
submit a paper. I look forward to many members contributing their views on the curriculum with comments on the posted papers beginning May 3d.
This conference is the first one at which we are setting up online Book Stalls. There areseveral already on the site and we look forward to more. You have a chance to advertiseyour textbooks to thousands of colleagues all over the world.
Individual members can advertise their conference-related books for a fee of £10. Conference leaders and authors of accepted papers will have their conference-related books
advertised free of charge. Please send the following to wea.curriculum2013@gmail.com:
High resolution image of the book cover (preferably JPEG format)
A URL of the preferred place where the book can be bought
Please pay at:
http://www.worldeconomicsassociation.org/advertising/This spring will also see another very interesting conference led by Jayati Ghosh: Inequalities in Asia. The deadline for papers is 28st April 2013 and the Discussion Forum is
set for 12 May to 8th June 2013. The increase in inequalities in many aspects of economic and social life is probably the biggest unifying element across most countries of
the world. I am very grateful to Jayati Ghosh and co-leaders Vamsi Vakulabharanam andParthapratim Pal.
I would very much like to explore the theme of Inequalities with regard to other regions
and countries. If any member has ideas on this please contact me.
A third conference which is well underway for 2013 is: Neoliberalism in Turkey: A Balance Sheet of Three Decades led by Erinç Yeldan. The call for this conference is includedin this Newsletter. We are working towards the following dates. Deadline for papers: 1st
October; Discussion Forum: 28th Oct – 24th Nov.
Discussion on other conferences are ongoing. I would love to hear from any of you who
have ideas for themes and leaders.
Grazia Ietto-Gillies
Chair, Conference Organizing Committee
iettogg@lsbu.ac.uk

World Economics
Association

The Economics Curriculum

Call for contributions:

Join us from 3rd May at:

http://www.worldeconomics
association.org/contribute/

http://curriculumconference2013.worldeconomicsassociation.org

http://www.worldeconomicsassociation.org/

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World Economics Association Newsletter 3(2), April 2013

WEA Conferences 2013
The economics curriculum: towards a radical reformation
Discussion forum 3 May—31 May
Leader: Jack Reardon
Co-leaders: Maria Alejandra Madi, David Wheat and Haiyun Zao
This conference was postponed due to serious illness by its leader Jack Reardon. We are pleased to say that Jack
now is back at work.
Activities on the conference have continued thanks to the work of the co-leaders. I greatly appreciated their support and dedication. Maria has been exemplary in her competence, efficiency and hard work. I am very grateful toall of them.
We have managed to get a strong list of papers and here are their authors and title. I now invite all WEA members
to participate to this interesting and controversial conference by commenting on the papers. The Discussion Forum
opens on 3 May. The web site is here.
Grazia Ietto-Gillies, Chair, Conference Organizing Committee
PapersTeaching economic policy in Italy Nicola Acocella
Orthodox Economic Education, Ideology and Commercial Interests: Relationships that Inhibit Poverty Alleviation
James Angresano
The State of Economics and the Education of Economists Diane Coyle
Teaching Open-system Economics Sheila Dow
What I would like economics majors to know David Hemenway
Market, socialism and democracy in an interdisciplinary perspective Arturo Hermann
Teaching Replication in Quantitative Empirical Economics Jan H. Höffler
The multinationals’ age is everywhere but in the economics curriculum Grazia Ietto-Gillies

Vol 2, No.1, 2013 - Special Issue on Ethics and Economics
Ontological Commitments of Ethics and Economics
Karey Harrison

Abstract

Download PDF

Codes of Ethics for Economists: A Pluralist View
Sheila C Dow

Abstract

Download PDF

No Ethical Issues in Economics?
Stuart Birks

Abstract

Download PDF

Professional Economic Ethics: Why Heterodox Economists
Should Care
George DeMartino

Abstract

Download PDF

And the Real Butchers, Brewers and Bakers? Towards theIntegration of Ethics and Economics
Riccardo Baldissone

Abstract

Download PDF

Download issue in full (PDF)
http://www.worldeconomicsassociation.org/

World Economics Association Newsletter 3(2), April 2013

Page 3The Mexican Tiger: Burning bright in the middle of the night?
By Juan Carlos Moreno-Brid, Deputy Director. ECLAC consensus among political actors on main elements of a
Mexico (The opinions here expressed are the author’s policy agenda to place Mexico on a path of high and sussole responsibility and may note coincide with those of tained economic expansion. Such ability to build consenthe organization)
sus among key representatives of the main political parToday, in the eyes of economic analysts and world
ties on a number of items of the development agenda iscapital markets, Mexico has become, once again, thewelcome in Mexico. In doing so it contrasts with the legposter child, the most-likely-to-succeed kid amongacy of the previous government, marked by its scant luckemerging economies. Indeed, Mexico’s appearance in
or incapacity for reaching accords with the opposition on
the headlines of the international press has dramatically important economic reforms. Another contrast with thechanged in the last few months. While in the last say six previous administration is the new government’s explicit
years it was increasingly referred to in the context ofrecognition that the State is a key actor with a major redrug cartels violence, today it is mentioned as a once
sponsibility to promote economic development and that,again upcoming economic power. For example Jimin such capacity, it has a fundamental role to play in reO’Neill -Goldman Sachs’ Mr. BRIC- last week stated that moving certain constraints that bind the nation’s ecoMexico will be the seventh largest economy in the word nomic growth potential.
by 2020 and is currently one of the four most important
This announced broad shift in economic policy orientagrowth markets worldwide. Compared to the internation away from a mainly laissez faire, laissez passer pretional perception of other large Latin American counscription is important in Mexico. But, having said this, it
tries, like Argentina, Brazil and Venezuela, seen as facing is not yet clear to what extent the new government’s
major macroeconomic problems or even political chalpolicy agenda will and can depart in actual practice fromlenges, the image of Mexico does shine in world financial mainstream positions on key issues of the agenda. And
circles. Vast sums of short term capital flows into its
as long as the details of the design and application of
economy, attracted by important returns in the midst of major reforms that the administration plans to put fora politically tranquil presidential transition and an econ- ward, including the fiscal one, are unknown it is not yet
omy marked by low inflation and a minimal fiscal deficit. possible to judge their need, impact and applicability.
But, besides this comparison, what has triggered suchThus, on the one hand the Pact does mention policy ischange in the international perception of Mexico’s eco- sues close to the Neo-Structuralist school: industrial polnomic performance and outlook? Is such improved per- icy, development banking, a progressive fiscal reform to
ception sustainable?
strengthen fiscal revenue, reduce its dependence on
If one looks at Mexico’s raw macroeconomic and social taxes on oil exports and increase the State’s capacity todata, not much has changed in the last twelve months to improve infrastructure. On the other hand, the official
back such vastly improved assessment of its potential
discourse explicitly rejects the idea of a dual mandate –performance by the international media. For years infla- growth and stability- for the Central bank, and the Pacttion has been very low and continued to be so in 2012,
has not distanced itself from the current Law of Fiscal
and fiscal deficits are below 2% of GDP. Last year the
Responsibility that imposes the legal obligation on theterms of trade did not improve significantly and both
Ministry of Public Finances to maintain a yearly balanced
fixed capital formation and foreign direct investment did federal budget –i.e. a zero deficit- and by doing so it innot have a stellar performance. Moreover, GDP grew by herently introduces a pro-cyclical orientation on fiscal
3.9% that year –the same as in 2011- and is forecasted
policy. The new administration’s position is still unclear
to grow slightly less in 2013 given the lack of dynamism on the scope, the instruments and the degree and formof foreign demand. But, if the macro data has not moved of State intervention that its new industrial policy willin a more favorable path, the arrival to power of theconsider. In this regard, the administration has identified
elected new government of President Peña Nieto imthe lags in productivity as the main cause of Mexico’s
proved practically overnight the financial world’s percep- slow pace of economic expansion. But it has yet to point
tions of Mexico, its polity and economic potential. Major out what type of industrial policy it will apply to correctjournals including the FT, the New York Times,
this situation. Apparently, it will go beyond the mere
Bloomberg, the Economist and the Wall Street Journal as elimination of red tape and facilitation of administrative
well as main newspapers in Mexico since then have run processes. It is yet to be seen how much it will move
editorials and op-eds recognizing -and some of them ac- over and above strengthening Mexico’s static comparatually welcoming- the ambitious economic reform
tive advantages based on resource allocation. In thisagenda announced by President Peña Nieto in his inau- matter, there is a positive sign given by the high priority
gural address. Most impressive was the fact that such a that the government has assigned to technological innoreform agenda, in which the State is assumed to play avation and science promotion. Mexico has certainly rekey role in promoting development, was unveiled as part gained some market share in the US due to China’s delibof a Pact-for-Mexico newly signed by the key representa- erate increase in real wages as it moves up the global
tives of the three main political parties. With such a Pact, value chain. But clearly Mexico has to move up the techthe new Government evidenced a will and ability to build nological ladder in its manufacturing and production
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World Economics Association Newsletter 3(2), April 2013

processes, as it cannot compete any more based on
1. significantly reduce the dependence on oil exports,
cheap labour and low transport costs. In order to do so,as they currently represent more than 40% of Mexan active industrial policy is indispensable. Finally, theico’s total fiscal revenues,
new administration has already presented a proposal for 2. promote a much more even distribution of income,financial reform with the goal of boosting banking sector
andlending to private business, especially to small and me3. eliminate the legal obligation to maintain an annual
dium sized enterprises. However, the proposal also conbalanced budget (zero fiscal) and thus allow a moresiders applying immediately Basle III standards to all fiflexible approach that may give way to carry out
nancial intermediaries in Mexico; a move that, if apcountercyclical fiscal policies.
proved, will considerably restrict credit lending.
The second is to put in place an active industrial policy
In brief, Mexico’s vastly improved image on the moni- that goes beyond the mere promotion of static comparator of the international financial and economic markets tive advantages based on given resource allocation. Anvery much rests on the high expectations raised by Presi- important instrument of this new industrial policy should
dent Peña Nieto’s economic reform agenda and his sobe the development banks as key actors able to affectfar strong political capacity to build consensus among
the availability of finance for entrepreneurial activities.
key political actors. This capacity has recently been
The third element is to avoid the tendency towards thestrained by denunciation of political use of funds of im- appreciation of the real exchange rate that has marked
portant social programs in a federal state, leading to a
Mexico for a long time. This trend is a major constraint
new cycle of negotiations among political parties that so on investment in tradables, and thus it hinders Mexico’s
far seems to move in a favorable direction. The incident international competitiveness and makes even moredoes stress the need to put special attention on transbinding the balance of payments constraint on its longparency, accountability and result-oriented in policy for- term growth potential. Finally the fourth and most immulation.
portant element that must be in the development
In any case, at the time of writing there is yet no infor- agenda is the recognition that policies to promote equalmation on the details of the design, orientation andity must be explicitly introduced and taken into considscope of the new administration’s planned reforms on
eration in the formulation of the overall economic stratkey areas that have restrained Mexico’s economic andegy. We have yet to see to what extent the reformsocial development and that tend to reproduce vicious
agenda announced by the administration of President
circles of poverty and inequality. But, in any case, it is for Peña Nieto will tackle these issues. We are hopeful thatus evident that for any policy agenda to succeed in inits recognition of inequality as well as of slow growth as
serting Mexico in a path of robust, much more equitable, major obstacles in Mexico’s path to development lead its
economic and social development it will have to tackle
policy proposals in this direction. If they do, the Mexican
four main areas. The first is to carry out a fiscal reformtiger will keep shining bright, otherwise our nation’sthat significantly strengthens tax revenues, as they –quest to development may once again be “… bound in
especially income taxes- currently comprise a very small shallows and in miseries. On such a full sea are we now
proportion of GDP in comparative international stanafloat, and we must take the current when it serves ordards. The reform should also aim to:lose our ventures…” *Shakespeare, Julius Caesar Act IV

WEA Conference report: The political economy of economic metrics
Between the end of January and the middle of March this year the World Economics
Association’s web-conference on ‘The political economy of economic metrics’ took
place. It was a necessary conference, but
only a modest success. Why?

to the detriment of ‘university economics’. I
even dare to state that a lot of ‘new-classicaleconomics’ – if it’s their definition of money,
the idea of ‘Ricardian equivalence’, or theconcept of the hyper rational‘representative consumer’ - involves highly
evolved rationalizations to evade the conse1. The conference had three main
quences of the measurement of the actual
goals:
economy. And it is not just the measureGoal A: Somewhat idealistically (and in aments, but also the concepts behind thesevery modest way) it aimed at mending themeasurements that are problematic. For
rift between ‘academic economics’ andexample, the concept of ‘endogenous‘economic statistics’ a little. In most scimoney’ is absolutely crucial to monetary staBy Merijn Knibb
ences, the art of estimating and measuretistics, but it is negated by much academic
ment is an important element of a university
economic scribbling. Making students of economics
education. In economics it isn’t. The whole process ofmore aware of these concepts might mitigate the infludefining, measuring and publishing data takes place instatistical institutes, deeply imbedded in the policy proc- ence of rather fundamentalist, extreme ideas in economic modelling.
ess. To a certain extent, there is ignorance in academia
Goal B: It tried to promote discussion about economic
about what happens in these statistical institutes. This is
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World Economics Association Newsletter 3(2), April 2013

statistics, the concepts behind these statistics, and theextent to which these concepts are deeply tainted bypolitics, including for instance the fact that many statistics show developments within a particular country. Hey,
somebody pays for these statistics! The rise of house
prices during recent decades was so detrimental for economic development while at the same time so beneficial
for banks which lent the ‘Ponzi’-money needed to finance these increases. How significant is it that it is notincluded in our estimates of inflation, while these neutered estimates are used as a target by the central
banks? These kinds of questions should be asked more
often.
Goal C: It tried to bring a number of quality papers together which, taken together, might give the ardent
reader a reasonable overview of the state of the art ofgathering (macro-)economic statistics. Statistical offices
gather loads and loads of data, often using very complicated measuring grids. It’s quite difficult to get an oversight, and so the conference aimed at providing something akin to this.

Page 5spend). The ILO Paper points out the problems with(estimating) wage labor in our monetized society andcalls for paying more attention to non-monetary labor(as well as, of course, people not-working for money, i.e.
the under- and unemployed). Zacharias et al try, in linewith this, to estimate prosperity in a situation in whichpeople have to accept low paying jobs with as a consequence a decline of ‘home production’, while Bartolini
and Saracinno argue that social capital (crucially dependent on ‘home production) is a better predictor for longterm happiness than GDP, while Cañal-Fernández andHernández-Muñiz argue that GDP is a metric not of prosperity, but of the flow of money. This point is underscored by Bos, who explains the concept and measurement of the national accounts. He points out that – whilean (important) detail of the national accounts and GDP –fundamentally it is the flow of money between sectorsof the economy, estimated with this most basic of all
economic models, accounting sheets. The estimation of
the amount of money which is flowing is the subject ofMahé, Knibbe and Schrijvers, who emphasize that according to monetary and business statistics, the flow
2. Did the conference reach its goals?
Goal A: No. To be able to reach this goal it has to gen- itself often generates its own money, not just in the
shape of legal tender but also in the shape of for inerate wider recognition of a fundamental point. Constance receivables and payables: money is born fromcepts used in economic models might have the same
name as concepts used in economic statistics but are, in debt. Baker states that the government can and should
fact, not the same thing. It is important that there devel- create money, too, to prevent overblown private credit
creation (which squares with the ideas of Grignon, who
ops a heightened awareness about the complicatedwarns about private credit and compound interest).
process of defining and measuring economic variables.
To achieve this, it will have to be seen as an integral part Schilgen wants to get rid of money altogether, when estimating production, and proposes an energy-unit of acof the science of economics. A conference like this one
can of course only hope to make a very limited contribu- count – an approach which is of course related to inputoutput thinking. All in all, one common theme seems totion to such a change. At this moment it can only be
be the distrust of modern bank-based money as a tool to
doubted if even that has been accomplished.
estimate or engender well-being – modern money being
Goal B: A little bit of progress has been made on thislargely absent from many present day economic models.
front, especially when we look at a number of the paWhere to go from here?
pers.
Goal C: This has by and large been accomplished. If we‘Mending the rift’ and heightening awareness of theconsider a ‘production function’ approach, which exinherent political and national character of economic
plains production and distribution as a function of thestatistics’ is not going to happen when a conference
way in which capital, land, labour and money are used
does not reach either academic economists or economic
and organized, it does cover a lot of these areas. There is statisticians. However, a case – an overwhelming case information on production (the Bos paper and the Leican be made that students of economics need to know
ashvily paper), Labour (the ILO paper), Money (themore about the concepts and definitions of economic
Knibbe/Mahe/Schrijvers paper, the Baker paper and the variables, about the SNA (System of National Accounts)
Grignon paper) and the connection between (monetary- as the complicated macro-economic equivalent of the)production and well-being (the Cañal-Fernández andperiodic table of the chemistry, the taxonomy of biology
Hernández-Muñiz paper, the Zacharias, Antonopoulos
or the rules of law. It might be worthwhile to consider
and Masterson paper and the Bartolini-Saracinno paper). whether the curriculum of economics should pay more
A paper on the measurement of land and capital is how- attention to this. And the good news is of course thatever lacking.
the econoblogosphere has led to an increased use ofstatistics (the FRED database!), while it also acts as a pur3. A short summary of the papers
It’s challenging the give a short summary of the papers. gatory for famous economists who are less than carefulwith data and concepts, Reinhart and Rogoff being the
If anything, they show that money is not neutral. Paul
Grignon points out that the amount of money is limited latest example. But even then, the statistical systems are– but the amount of money due isn’t, due to compound complex, opaque, boring and often counter intuitive andinterest, a problem which is aggravated when money is criticisms should be founded upon a broad understanding. It is necessary for people to acquire this. But how?
used to pay down debts to MFI’s, which diminishes thestock of money available to pay down other debts (or to Economics won’t be more fun. It will be more scientific.

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Page 6World Economics Association Newsletter 3(2), April 2013

Yet more dissatisfied economics students
The latest initiative to broaden the content of economics courses has come from a campaign for diversification by
students at Michigan State. The following bill was recently passed by the student government:
ASSOCIATED STUDENTS OF MICHIGAN STATE UNIVERSITY
GENERAL ASSEMBLY FORTY-NINTH SESSION
G.A. 49-72
INTRODUCED BY: Nikolovksi SECONDED BY: Goheen
A BILL TO:
ADVOCATE FOR THE DIVERSIFICATION OF THE CURRICULUM WITHIN THE DEPARTMENT OF ECONOMICS
THE ASSOCIATED STUDENTS OF MICHIGAN STATE UNIVERSITY ENACT:
WHEREAS, Since the recent global financial crisis, there has been a heightened debate within academic circles
about the varying methods of analyzing economic phenomena. The department of Economics at MSU teaches froma single theoretical framework, widely known as the neoclassical school. This framework is only one perspective
among several others which are not taught, and only gives one way of trying to understand our economy; and,
WHEREAS, Economists espousing other theoretical frameworks have given insights into important economic phenomena which have drastic implications for economic policy. Some important analyses include alternative empirical
work that consistently explains the process of economic growth and—what is connected—warnings of the global
financial crisis prior to its precipitation. These frameworks of thought use completely different methods and assumptions then those that are taught here at MSU; and,
WHEREAS, Students taking Economics within MSU are unlikely to be aware of the debates that go on, because thevast majority of what they do as “economics” is in the form of math problems which takes the assumptions andmethod of the neoclassical framework as given. Also, because students are often not explicitly made aware of themethod and assumptions that underlie the mathematical formalism that they use, there is an appearance of diversity in the topics within the curriculum (e.g. international economics, microeconomics, and macroeconomics). Students should be made aware that there is a basic unity in the methods of neoclassical economics in analyzing thesedifferent topics; therefore be it,
RESOLVED, That MSU’s Economics department diversify its curriculum to allow students to engage not only withneoclassical work, but also competing frameworks so that they may be aware of the debates that are going on.
A first recommendation includes giving more explicit recognition of thev underlying method and assumptions of theframeworks that are taught, as well as engaging with the original works of the foundations of thedifferent schools of economics (e.g. Adam Smith, David Ricardo, Alfred Marshall, Karl Marx, John Maynard Keynes,
and Milton Friedman.)
To put this in context, another initiative, Pour un Enseignement Pluraliste de l'Economie dans le Superieur, PEPS,
was reported on page 8 of Issue 3(1) of this Newsletter. You can read their manifesto in English. They have a Global
Directory for Student Initiatives aiming at changing economics and its teaching worldwide: http://minu.me/87k4
Note also the protest by Harvard students in November 2011 reported on page 12 of Issue 1(1) of this Newsletter.
There is also the Memorandum issued by 103 German speaking professors, released in June 2012 and reported on
page 6 of Issue 2(3) of this Newsletter. And recall the French students’ protest in June 2000 which was the catalyst
for much of the current activity. Their “Open letter from economic students to professors and others responsible
for the teaching of this discipline” is available here in English translation.
The November-December 2003 issue of Challenge included a telling interview with Gilles Raveaud, Revolutionizing
French Economics. It relates to the 2000 initiative. Here is an extract:“Some [economic s students] actually know more about culture than their professors. They are familiar with Marx,
Keynes, and Schumpeter, and they’re familiar with broad explanations of economic life. They have some clues insociology, some basic historical facts, etc., which obviously you do not need in university economics.”
And let’s not forget Political Economy Now! The struggle for alternative economics at the University of Sydney.
For additional resources, see the list of links to documents, petitions, commentary, etc., at:History of and documents from the PAE Movement: http://www.paecon.net/PAEmovementindex1.htm
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World Economics Association Newsletter 3(2), April 2013

Page 7WEA Conference: Neoliberalism in Turkey: A balance sheet of three decades
Introductionof import- substituting/ planned industrialization (ISI).
The Turkish economy and society have been the subject
Overall, average annual rate of growth was 4.3% duringof neoliberal agenda since 1980, in the crucial first three
1980-2011. This was well below the rates achieved during
years under conditions of military dictatorship. Executed
the earlier ISI period (1962-79) with 6.5%; or indeed theunder the direct supervision of the IMF and the World
4.9% average rate of the entire history of the Republic
Bank, the last three decades have witnessed an extensive(1923-2011). Following the capital account liberalization ofshift in the Turkish pattern of development with the rise to 1989, sudden stops and reversals of capital inflows led tohegemony of the neo-liberal orthodoxy dictating “market
two deep crises in 1994 and 2001 and a deep recession inrationality” over any other form of collective decision2009. Turkey is currently trapped in a foreign debt-ridden
making. In the words of Bourdieu (1998), this infernal ma- structural current account deficit (currently standing at 7%chine, termed neoliberal globalization, has sought to deof GDP and rising), and a speculative, volatile growth envistroy all collective structures that are held as a hindrance to ronment subjected to the whims of international financethe profitability of private capital. Thus, trumpeted with the capital.
rhetoric of TINA (There is No Alternative) the neo-liberal
Conference Callorthodoxy introduced new rounds of conditionality as part
With this conference we hope to stimulate debate on theof its hegemonic agenda: financial de-regulation, trade and systemic assault of capital on the peoples at the center andcapital account liberalization, flexible exchange rates, priva- the periphery of the global capitalist system with Turkey
tization, flexible labor markets, marketization of agriculserving as an example of the impact of “neoliberal greatture, central bank independence, fiscal austerity, and “good moderation”.
governance”.
The focus of the conference is Turkey. However papers on
In contrast to the traditional stabilization packages that
other countries that draw comparisons with – and implicaaimed at devaluation to restrain domestic demand, the new tions for - Turkey are welcome. So are papers that put fororthodoxy aimed at maintaining high interest rates for the wards alternative perspectives and explanations. We invite
purpose of attracting speculative foreign capital from thecontributions in the following areas. The list is indicativeinternational financial markets. The end results in the Turk- rather than prescriptive. Relevant papers in related fields
ish context were the shrinkage and commercialization ofwill be considered.
the public sector in a speculation-led growth environment, Macroeconomic policies in the era of globalization andand the transfer of decision-making relating the public
neoliberalism.
sphere from constitutional institutions to “independent”
 Independent central banking and inflation targeting:supreme bodies of regulation, working under “global rules”
political and economic effects.
of “governance”.
 Balance of payments issues under the neo-liberal
Over this discourse, not only the macro economy, but allagenda.
aspects of social/institutional infrastructure were subjected  Are financialization and de- industrialization of theto “structural adjustment”. Starting with a direct interveneconomy linked? The case of Turkey
tion to the legal system with a new constitution and a thor Fiscal austerity: winners and losers; short and long
oughly revised Labour Law that radically limited the rights
term effects.
of the working classes and trade unions in the immediate Labour markets under the neo-liberal agenda. Producaftermath of the military intervention, a series of administivity, labour and new technologies; the new internatrative regulatory bodies were established, each with a spetional division of labour; the casualization of labour
cific task of specialization and with almost no democratic
and its implications for the economy, society and poliaccountability. Often accompanied by a set of appealing
tics in Turkey.
concepts including “governance”, “transparency”,
 Income and wealth distribution: changes; impact on“regionalization/localization/de-centralization”, the state
the economy and society.
apparatus has also been subjected to transformation in line  Wider inequalities including inequalities by gender andwith the strategic interests of national and international
regions.
capital, in particular the so-called international finance in The role of foreign multinationals and international
stitutions (IFIs).
financial institutions in the Turkish economy.
At the current juncture, the neoliberal project is imple The restructuring of the state and its impact on stakemented under the Justice and Development Party (AKP)
holders from labour to finance capital to manufacturwith strong Islamist orientation and with the objectives of:ing capital, to small businesses.
transformation of the state apparatus; dissolution of the Localization and de-centralization. The role of civil socipublic sector under the pretext of “localization” andety institutions and conceptualization of “governance”“democratization based on civil society organizations”;
and the “new democracy”.
commercialization and commodification of basic services
 Emergence of Islamic conservatism and its relationshipsuch as health and education; and opening most of the bawith neoliberal policies.
sic needs of society to exploitative initiatives by both na The dismantling of the welfare state: short and longtional and international capital.
term impact on education, health care and social infraOver the three decades of neoliberalism, growth was
structure. Poverty and social exclusion.
both erratic and meager in comparison to the previous era

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Page 8World Economics Association Newsletter 3(2), April 2013

Leading team
Main leader: Erinç Yeldan, Professor of Economics andDean of the Faculty of Economics and Administrative Sciences at the Yaşar University. (erinc.yeldan@yasar.edu.tr).
He is one of the founding executive committee members of
the International Development Associates (IDEAs) New
Delhi, and also a member of the Independent Social Scientists’ Alliance of Turkey. Yeldan teaches macroeconomics;
international economics and theories of growth.
Co-leaders:
Korkut Boratav, Professor of Economics, Retired, Ankara
University, Faculty of Political Science.
(korkut@boratav.com). Currently a member of the Independent Social Scientists’ Alliance of Turkey. Boratav has
contributed extensively on Turkish macroeconomy, especially external balances and the rise of the rentier class inTurkey.
Fikret Şenses, Professor of Economics, Middle East Technical University; member of the Independent Social Scien-tists’ Alliance of Turkey. (fsenses@metu.edu.tr). Şenses
has taught and contributed extensively on issues of international economics, poverty and development economics.
Özden Birkan, Assistant Professor of Economics at Yaşar
University. (ozden.birkan@yasar.edu.tr). She holds a PhD
from University of Utah and teaches macroeconomics,
econometrics and international economics.
Ilker Aslan, PhD student in Political Economy at the University of Fribourg, Switzerland. (ilker.aslan@unifr.ch).
Aslan holds a MSc in European Law and Business from Aarhus University, Denmark and BSc in Business Administration from University of Texas at Dallas. His areas of research are macroeconomics, monetary economics with afocus on the effects of financialization.
Timetable
Deadline for papers: 1 October, 2013
Discussion forum: 28 October – 24 November, 2013

The causes of deep, long crisis : finance and the US profit rate
Recent months have seen a growing debate among Marxists around the US profit rate and its relation to the present
crisis. This is a paradox, since in the main, Marxists rejectMarx’s own account of the relation between accumulationand the profit rate; indeed Michael Heinrich has recently
argued that Marx had no theory of crisis and that there isno basis to suppose capitalist accumulation leads to a falling profit rate. Yet there is wide agreement with Duméniland Lévy that after a prolonged post-war fall, the US profit
rate started rising in the 1980s, recovering by the end of
the 1990s and ushering in a new phase of US expansion.
Andrew Kliman, in A Crisis of Capitalist Production, has provoked considerable controversy with the contrary claim,based on cogent reasoning and extensive evidence, that
the US profit rate has continued on its downward trend.
If the rate of profit is of no consequence, why is it so important to show that it is rising? In The Profit Rate in the
Presence of Financial Markets I suggest these disputes havebecome part of a surrogate debate. The real problem is
how to explain the crisis in the US economy; in particular, isthis an extension of a more profound malaise, first expressed in the deep crisis of 1974, or some entirely new‘crisis of neoliberalism’ with no roots in those times?
US profit rate before and after
correction

UK profit rate before and after
correction

35%

14%

120%

30%

12%

100%

25%

10%

25%
20%

80%

15%

20%

8%

15%

6%

10%

4%

40%

5%

2%

20%

0%

0%

Unadjusted Profit Rate (left scale)

10%

5%
0%

Unadjusted Profit Rate (left scale)

2005

2000

1995

1990

1985

1980

1975

0%

1970

1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006

60%

Adjusted Profit Rate (right scale)Profit rate, adjusted to include financial assets in capital stock (right scale)Contemporary Marxists veer towards the latter account,stressing the great strength of US capital and its excessive
profits. From this standpoint, US capitalism was not only in

By Alan Freeman

good shape until now, but is still doing rather well. With
every month that passes, this idea squares worse with thefacts. The crisis is in its seventh year. All other major indicators of performance – GDP growth, long-term unemployment, investment, capacity utilization, the long-term dollar
exchange rate, or the balance of payments – suggest that
the US economy is in its worst state since 1929 and, moreover, has been heading this way for at least forty years,
each successive ‘recovery’ being more febrile and shorterlasting than the previous. The unexpected attention thatthe profit rate has received now appears in a different light.
The only indicator of ‘good health’ in the US economy is therate of profit – except of course as calculated by Kliman.
This explains the interest that this indicator has attracted.
My paper casts further doubt on the claim that it is rising.
I make a simple correction to existing calculations of the
profit rate by amending the stock of capital to include marketable financial assets. I find that the US rate of profit falls
uniformly from its peak of 1944 at a rate of 1.4% per yearwith an R2 of 96%.
This also solves a puzzle, noticed by few commentators,
about the UK rate of profit. This has risen, according to any
previous calculation, from 1973 onwards, despite the abysmal performance of the UK economy in all other respects.
The corrected rate has fallen at least since 1980 (when figures are first available) and probably since the postwar
boom began.
The differences arise because in both countries, capitalfrom 1974 onwards began to accumulate financial assets,
which do not figure in traditional measures of the profit
rate, in preference to fixed, productive assets, which do.
This is not a sign of health; an economy that ceases acquiring productive assets is in effect committing slow suicide, afact now surfacing in the intractable nature of the current
crisis.
Many writers bypass this point by focussing on the numerator in the rate of profit. Recent articles argue that the
profit share is increasing, challenging the traditional ‘profitsqueeze’ theory of previous crises. Even if true, however,this would not address the central problem: the incentive

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World Economics Association Newsletter 3(2), April 2013

Page 9to invest. This is determined not by the mass of profits, but cost, not their historic cost which records the actual moneby the return on capital – the ratio of profits to capitaltary outlay of the capitalist. I now offer a new, additional
stock.
ground: capital consists not just of fixed assets – machinWriters from the TSSI (Temporal Single System Interpreta- ery, buildings, and so on – but also monetary assets.
tion) school, such as myself and Andrew Kliman, along with
Marx and Keynes both noticed that in crisis, the normal
non-TSSI writers such as Moseley and Shaikh, stress the‘circuit of capital’ is interrupted when sellers stop returning
centrality of the denominator in the rate of profit – themoney to the economy to make new purchases, and begin
stock of capital. This was Marx’s own major concern: sechoarding it instead. It is well-known that money holdings oftion 2 of the General Law of Capitalist Accumulation adall types rise in every crisis. Since the 1970s, this hoarded
vances the central claim that the constant1 portion of capi- money-capital has been accumulating in the form of finantal rises, relative to the variable (labour), with the progress cial assets. Unlike previous forms of money-holding, theseof accumulation. Other things being equal, this must leadcompete with productive assets in the market for capital.
to a falling profit rate.
Financial mythology treats these holdings as productive,
If Marx’s analysis is applied rigorously, it becomes clear
even calling them ‘investments’; for Marx they are howeverthat an increase in the profit share cannot permanently
simply forms of money, held as capitalised streams of paraoffset this rise. Unlike profits, which are limited by the size sitical claims on income produced elsewhere – fictitiousof the workforce, capital stock grows with no limit. It becapital. But since such instruments compete, in the market
comes so great that no reduction in wages, no matter how for capital, with genuine productive investments, and sincelarge, may offset its effect the profit rate. Thus, even thethey constitute the form in which capitalists are actually
traditionally calculated US rate of profit had sunk to 15% by holding their assets, they should be included in capital
1980. Even a 50% wage cut – unprecedented since fascism stock. When this correction is made, all the facts make– would only put it back up to 20%.
complete sense –and strikingly confirm Marx’s original
A stable restoration of the rate of profit can occur only
analysis. The result is a very reasonable, theoretically cothrough a violent reversal in accumulation. But even aherent, and empirically convincing explanation of the crisis.
slowdown brings about a reduction in an indispensable
component of GDP – investment. And in fact between 2008 1Marx distinguishes ‘variable’ capital, which is advanced to pay
wages, from ‘constant’ capital - all other capital. This, he believed,
and 2012, investment is the only major component of US
GDP that has declined, accounting thereby entirely for the improved on Ricardo’s distinction between ‘fixed’ and ‘circulating’decline in GDP itself. This is one reason for what really hap- capital. Constant capital includes both fixed and circulating capital, but not labour costs. Marx’s usage is intended to express,
pened in US history, when the US state displaced the pririgorously, the fact that only labour adds value, whereas the value
vate investor for an extended period, laying the basis forof constant capital is merely transmitted to the product.
the postwar boom.
These facts, and the state of the US economy, contradict*Editor’s note: You can read further on this topic and parpast findings that the profit rate is rising. What has gone
ticipate in a blog discussion on the JAPE site at:wrong? TSSI scholars firstly maintain that in such calculahttp://australianpe.wix.com/japehome#!blog/cto7]
tions, fixed assets have been wrongly valued at current

Interview with Dani Rodrik
Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy
School of Government, Harvard University. Among his latest publications is the book, The Globalization
Paradox: Democracy and the Future of the World Economy. He has a weblog here, and syndicated columns here. He recently answered the following questions for the WEA Newsletter:
1. How would you briefly state yourperspective on economics?
I would say I am pretty conventional andmainstream on methods, but generally
much more heterodox on policy conclusions. I have never thought of neoclassicaleconomics as a hindrance to an understanding of social and economic problems.
To the contrary, I think there are certain
habits of mind that come with thinking
about the world in mainstream economic
terms that are quite useful: you need tostate your ideas clearly, you need to ensure they are internally consistent, withclear assumptions and causal links, andyou need to be rigorous in your use of empirical evi-

dence. Now, this does not mean that neoclassical economics has all the answers orthat it is all we need. Too often, people
who work with mainstream economic
tools lack the ambition to ask broad questions and the imagination to go outside
the box they are used to working in. Butthat is true of all “normal science.” Truly
great economists use neoclassical methods for leverage, to reach new heights ofunderstanding, not to dumb down our understanding. Economists such as George
Akerlof, Paul Krugman, and Joe Stiglitz aresome of the names that come to mind
who exemplify this tradition. Each of themhas questioned conventional wisdom, but from within

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Page 10World Economics Association Newsletter 3(2), April 2013

rather than from outside.
liar deformation of mainstream economics is the tenA typical complaint against mainstream economics isdency to pooh-pooh the real-world relevance of all thethat it is too limiting in the conclusions it leads to. Main- theoretical reasons market fail and government interstream economists are often seen as ideologues of thevention is desirable. This sometimes reaches comicalmarket economy. I would concede that most of myproportions. You get trade theorists who have built theireconomist colleagues tend to view markets as inherently entire careers on “anomalous” results who are at thedesirable and government intervention as inherently
same time the greatest defenders of free trade. You get
unwelcome. But in reality what we teach our students in growth and development economists whose stock inthe classroom – the advanced students if not the under- trade are models with externalities of all kinds who are
graduates –and what we talk about in the seminar room stern advocates of the Washington Consensus. When
are typically much more about the myriad ways in which you question these policy conclusions, you typically get amarkets fail. I love an old quote from Carlos Diazlot of hand-waving. Well, the government is corrupt andAlejandro who once said something along the lines ofin the pockets of rent-seekers. It does not have enough“by now any graduate student can come up with any
information to undertake the right kinds of interventions
policy conclusion he desires by building appropriate as- anyhow. Somehow, the minds of these analytically sosumptions into his model.” And that was some thirty
phisticated thinkers turn into mush when they are forced
years ago! We have plenty more models that generate
to take seriously the policy implications of their own
unorthodox conclusions now.
models.
One reaction I get when I say this is the following:
So ironically, I think my heterodox approach has“how can economics be useful if you have a model forstronger foundations in mainstream economic methods
every possible outcome?” Well, the world is complithan the views of many of the mainstream economists
cated, and we understand it by simplifying it. A market
themselves.
behaves differently when there are many sellers than
3. Do you think that a more pluralist approach mightwhen there are a few. Even when there are a few sellers, gain traction? What factors constrain and support suchthe outcomes differ depending on the nature of strategic a development?
interactions among them. When we add imperfect infor- It depends on what you mean by pluralism. Pluralism
mation, we get even more possibilities. The best we can on methods is much harder, and I will come back to it.
do is to understand the structure of behaviour in each
Pluralism on policy is already a reality, even within theone of these cases, and then have an empirical method boundaries of the existing methods, as I indicated. There
that helps us apply the right model to the particular con- are healthy debates in the profession today on the minitext we are interested in. So we have “one economics,
mum wage, fiscal policy, financial regulation, and many
many recipes,” as the sub-title of one of my books puts other areas too. I think many critics of the economics
it. Unlike the natural sciences, I think economics adprofession overlook these differences, or view them asvances not by newer models superseding old ones, but
the exception rather than the rule. And there are certhrough a richer set of models that shed ever-brighter
tainly some areas, for example international trade,light at the variety of social experience.
where economists’ views are much less diverse than
However, contemporary economics in North America public opinion in general. But economics today is not a
has one great weakness, and that is the excessive focus discipline that is characterized by a whole lot of unanimon methods at the expense of breadth in terms of social ity.
and historical perspective. PhD programs now train apNow that doesn’t mean that Economics is a pluralist
plied mathematicians and statisticians rather than realparadise. There are powerful forces having to do witheconomists. To become a true economist, you need tothe sociology of the profession and the socialization
do all sorts of reading – from history, sociology, and po- process that tend to push economists to think alike.
litical science among other disciplines – that you are
Most economists start graduate school not having spentnever required to do as a graduate student. The best
much time thinking about social problems or having
economists today find a way of filling this gap in theirstudied much else besides math and economics. The
education. I consider myself very lucky that I was a politi- incentive and hierarchy systems tend to reward those
cal science major and did a master’s in public affairs (as with the technical skills rather than interesting questions
it is called at Princeton) before I turned to economics. I
or research agendas. An in-group versus out-group mensay lucky, because some of my best work – by my judge- tality develops rather early on that pits economists
ment, at least – was stimulated by questions or arguagainst other social scientists. All economists tend toments I encountered outside of neoclassical economics. imbue a set of values that tends to glorify the market
2. How does this compare to the mainstream?
and demonize public action. What probably stands out
As I said, where I tend to part company with many ofwith mainstream economists is their awe of the power
my colleagues is with the policy conclusions I reach.
of markets and their belief that the market logic will
Many of my colleagues think of me as excessively dirig- eventually vanquish whatever obstacle is placed on its
iste, or perhaps anti-market. A colleague at Harvard’s
path.
Economics Department would greet me by saying “howAs a result, economists tend to look down on otheris the revolution going?” every time he saw me. A pecu- social scientists, as those distant, less competent cousins
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World Economics Association Newsletter 3(2), April 2013

Page 11

who may ask interesting questions sometimes but neverIf you want to be successful as a scholar, you have one
get the answers right. Or, if their answers are right, they of two paths. Either you come up with a new technique
are so not for the methodologically correct reasons.
or piece of evidence to shore up conventional wisdom.
Even economists who come from different intellectual
Or you challenge the conventional wisdom. The latter istraditions are typically treated as “not real economists” a high risk, high return strategy. It is high risk for all theor “not serious economists.”
reasons I have mentioned previously. But it is high return
So the hurdles for the economists that want to depart because anything that has turned into conventional wisfrom the conventional path are pretty high. Above all,dom is almost by definition wrong, or at least, overthey must play by the methodological rules of the prostated. So done right, challenging conventional wisdom
fession. That means using the language of mathematics, is a successful research strategy that is bound to pay off.
the standard optimizing, general-equilibrium frameIn my own case, every piece of conventional wisdom I
works, and the established econometric tools. They must challenged had already become a caricature of what
pay their dues and demonstrate they remain cardsounds economics teaches us. I wasn’t doing anything
carrying members in good standing.
more than reminding my colleagues about standard ecoFor those who, like myself, find considerable value innomic theory and empirics. It was like pushing on anthese methodological predilections, these dues areopen door. I wasn’t challenging the economics, but theworth paying. I find that these methods keep me intelsociology of the profession.
lectually honest; they are a way of convincing myself
For example, when I first began to criticize the Washthat I know what I am talking about. My attachment to ington Consensus, I thought I was doing the obvious. The
these methods has not been for instrumental reasons – simple rules-of-thumb around which the Consensus rethat is, for acceptance within the mainstream (although volved had no counterpart in serious welfare economics.
it has presumably helped – my intellectual opponents
Neither were they empirically well supported, in view ofcannot so easily dismiss me by saying “he is not a real
East Asia’s experience with heterodox economic models.
economist...”). But I also understand those who find
When you questioned supporters closely, you first got
mainstream methods too constraining or unhelpful. I
some very partial economic arguments as response, andthink they offer something of value too, in providing athen as a last resort some political hand-waving (e.g.,
critique from outside. I often find myself in agreement“we need to get the government to stop doing suchwith those critics on substantive grounds, but find a lot things, otherwise rent-seeking will be rife…”). My arguto criticize in their work on methodological grounds.
ment was that we should take economics (and political
The criticism of methodological uniformity in Econom- economy) more seriously than simply as rules of thumb.
ics can also be taken too far. Surely, the use of matheEconomics teaches us to think in conditional terms: difmatical and statistical techniques is not a problem per
ferent remedies are required by different constraints.
se. Such techniques simply ensure our arguments areThat way of thinking naturally leads us to a contextual
conceptually and empirically coherent. Yes, excessive
type of policy-making, a diagnostic approach rather thanfocus on these techniques, or the use of math just for its a blueprint, kitchen-sink approach.
own sake, are a problem – but a problem against which
Similarly, when I questioned some of the excessive
there is already a counter-movement from within. In the claims on the benefits of globalization I was simply retop journals of the profession, I would say most mathminding the profession what economics teaches. Take
heavy papers are driven by substantive questions rather for example the relationship between the gains fromthan methods-driven concerns.
trade and the distributive implications of trade. To thisAnd things change. The two most exciting developday, there is a tendency in the profession to overstatements in Economics in the last two decades are the be- the first while minimizing the second. This makes globalhavioural and experimental revolutions. The first ofization look a lot better: it’s all net gains and very little
these has made a significant dent in the rationality pos- distributional costs. Yet look at the basic models of
tulate of neoclassical economics, while the latter has
trade theory and comparative advantage we teach in thetaken the profession in a profoundly empirical and policy classroom and you can see that the net gains and the-oriented direction. These are significant changes in how magnitudes of redistribution are directly linked in mostone does mainstream economics, and the fact that they of these models. The larger the net gains, the larger thehave happened suggests there is room for methodologi- redistribution. After all, the gains in productive efficiency
cal changes. Not plurality, perhaps, but some degree of derive from structural change, which is a process thatevolution in methods. I am not necessarily a great fan of inherently creates gainers (expanding sectors and theeither of these methodological innovations, but theyfactors employed therein) and losers (contracting secshow the profession is able to adapt and change. Note
tors and the factors employed therein). It is nonsensicalalso that both sets of new methods came from outside
to argue that the gains are large while the amount of
Economics -- psychology and medicine, respectively.
redistribution is small – at least in the context of theYoung economists made these methods their own, and standard models. Moreover, as trade becomes freer,changed the discipline from within.
the ratio of redistribution to net gains rises. Ultimately,
4, What lessons, if any, have been learned from your trying to reap the last few dollars of efficiency gain
experiences challenging the conventional wisdom?
comes at the “cost” of significant redistribution of inhttp://www.worldeconomicsassociation.org/

Page 12World Economics Association Newsletter 3(2), April 2013come. Again, standard economics.
lest my arguments were used by protectionists! The imSaying all this doesn’t necessarily make you very popu- mediate qestion I had was why this economist thought
lar right away. I remember well the reception I got when barbarians were only on one side of the debate. Was he
I presented my paper (with Francisco Rodriguez) on the unaware of how, for example, multinational firms hiempirics of trade policy and growth. The literature hadjacked pro-free trade arguments to lobby for agreefilled up with extravagant claims about the effect ofments – such as intellectual property – that had nothing
trade liberalization on economic growth. What weto do with free trade? Why was it that the “barbarians”
showed in our paper is that the research to date could
on one side of the issue were inherently more dangerous
not support those claims. Neither the theoretical nor
than the “barbarians” on the other side?
empirical literature indicated there is a robust, predictBut ultimately, the reward of challenging conventionalable, and quantitatively large effect of trade liberalizawisdom that has gone too far is that you are eventuallytion on growth. We were simply stating what any well- proved right. The Washington Consensus is essentiallytrained economist should have known. Nevertheless, the dead, replaced by a much more humble approach that
paper was highly controversial. One of my Harvard col- recognizes the importance of locally binding constraints.
leagues asked me in the Q&A session: “why are you do- And many of the arguments I made about the contingent
ing this?” It was a stunning question. It was as if knowl- nature of the benefits from trade and financial globalizaedge of a certain kind was dangerous.
tion are much closer to the intellectual mainstream toYears earlier, when I wrote my monograph Has Global- day than they were at the time. I do not think of this as aization Gone Too Far? I had been surprised at some ofgreat achievement. These changes were bound to hapthe reaction along similar lines. I expected of course that pen, and I essentially rode the wave.
many policy advocates would be hostile. But my arguI suppose there is a lesson here for younger researchments were, or so I thought, based solidly on economic ers: Identify an intellectual consensus that has gone betheory and reasoning. A distinguished economist wrote yond what the theory and empirics can support and chipback saying “you are giving ammunition to the barbariaway at it. But do so without departing too much fromans.” In other words, I had to exercise self-censorshipthe discipline’s accepted methods!

Volunteers needed to run web-based WEA national chapters
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Our IT wizard, Jake McMurchie, has designed a flexible template, based on easy to use WordPress software,
which can then be filled in to fit the particular country. Here is an example:

http://worldeconomicsassociation.net/romania
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please send a few details about yourself to:nationalchapters@worldeconomicsassociation.org
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