ASSA 2022: part two – the heterodox

In this second post on the annual ASSA economics conference, I look at the papers and presentations made by radical and heterodox economists.  These presentations are mostly under the auspices of the Union of Radical Political Economics (URPE) sessions, but the Association of Evolutionary Economics also provided an umbrella for some sessions.

The mainstream was focused on whether the US and world economy were set to recover strongly or not after COVID; whether the hike in inflation would eventually subside or not and what to do about it.  The heterodox sessions were more focused, as you would expect, on the fault-lines in modern capitalist economies and why inequality of wealth and income has risen.

Interestingly, this year most heterodox presentations came from the post-Keynesian framework and not from Marxist political economy.  The most interesting paper came from Al Campbell of Utah University and Erdogan Bakir of Bucknell University.  Bakir looked at the dynamics of US recessions since 1945 through the prism of the Kaleckian profit model. Now I have discussed the difference between the profit models of Kalecki and Marx on many occasions on my blog.  Bakir and Campbell’s paper outlines the macro identities in the Kalecki model.  But put simply, both aggregate models can be reduced to this simple formula: Profit = Investment + Capitalist Consumption 

But this is an identity: total profit must match total spending by capitalists (investing and consuming) by definition.  It is assumed that workers spend and do not save their wages.  As Kalecki put it: ‘workers spend all they earn, while capitalists earn all they spend’. 

This sums up the difference with Marx.  Kalecki argues the direction of causation in the identity is from investment to profit, while Marx argues that the direction of causation is from profit to investment.  Kalecki starts with investment as given and capitalists invest to ‘realise’ profits.  Marx starts with profits as given and capitalists invest or consume those profits.  Kalecki in true Keynesian style reckons capitalist economies are driven by aggregate demand and capitalist investment is part of that demand, so profits are merely the ‘residual’ or result of investment.  In contrast, Marx reckons capitalist economies are driven by profit, which comes from the exploitation of labour power, providing the profits for investment.  Kalecki removes any semblance of Marx’s law of value and exploitation from his model; for Marx it is paramount.

In my view, this makes a fundamental difference because the Marxist theory of crises under capitalism depends on what is happening to profit, in particular, the rate of profit.  For Marx, crises are caused by a lack of surplus value extracted from labour; for Kalecki, they are caused by a lack of demand for investment goods from capitalists and consumer goods from workers.

But it is still the case that the macro identity of both models is the same.  The Bakir-Campbell paper starts from there and “analyzes the components of the Kaleckian profit, as distinct from its determinants.”  Using US national income accounts Bakir and Campbell delineate how much goes to different sectors of the capitalist class ie how much to bankers, shareholders and to capitalists and in interest, dividends and capitalist consumption.

Table 2 from their paper shows that the share of the proprietor’s income in profit was, on average, 47.6% during the Golden Age (I-IV) and dropped to 34.4% under the period of neoliberalism (VII-XI). The share of undistributed profits also dropped rather substantially from 17.4% during the Golden Age to 10.3% in the neoliberal period. The share of rental income also declined from 13.8% to 9% between these two periods. The share of net interest payments and net dividend payments in profit, however, increased substantially in the neoliberal period compared to the Golden Age: from 10% to 28.7% for net interest payments and 11.2% to 17.6% for net dividend payment. “The data confirm that neoliberalism has involved a substantial redistribution of income from enterprises to rentiers and shareholders. To the extent that this redistribution reduces the savings of enterprises, it discourages investment.” 

In other words, there is good evidence that capitalists switched more of their profits out of productive investment to make more profits from financial speculation in the neoliberal period.  This explains the decline in productive investment growth and the expansion of finance.  Unfortunately, using the Kalecki model, Bakir-Campbell hide the Marxist cause for this switch; namely a falling rate of profit in productive sectors.  But as they say, the determinants of profitability was not the purpose of the paper.

In another paper by Bakir and Campbell, the authors consider the role of increased debt in promoting and supporting that increased rate of profit. In this presentation, Al Campbell argued that finance was not a parasite on the productive sector as economists like Michael Hudson argue; it was worse than that!  That’s because it slows productive accumulation.  If it were just parasitic, why did the strategists of capital let debt in all its forms expand during the neo-liberal period?  Neoliberalism cannot be reduced to so-called ‘financialisation’; neoliberalism had many different features, all aimed at raising profitability at which increasing credit/debt play an important role, but at the expense of productive investment.  So it is a reformist illusion that capitalism can return to the Golden Age of fast growth in investment and production by controlling or curbing debt.

Another theme in several papers on the slowing pace of investment and productivity in modern capitalist economies was the Keynes-Kalecki view that it was due to the reduction in labour’s share of national income, so that aggregate demand growth slowed. Thomas Michl of Colgate University reckoned that the wage share regulates labor-saving technical change and employment regulates its capital using bias. So secular stagnation under neoliberal capitalism has been driven by a combination of diminished investment and reduced worker bargaining power more than by slower technical change and population growth. This increases the profit share and so reduces the rates of technical change, capital accumulation, and population growth.  Again, this is a theory that is the opposite of Marx’s.

Similarly, Carlos Aguiar de Medeiros and Nicholas Trebat argue, ‘based on classical political economy and the power resources approach’ that “the key factor behind the increasing wage and income inequality of this period was the decline in workers’ bargaining power., rather than globalization or technical change.  It is surely correct that the demolition of trade union power in the neoliberal period had an important effect on reducing labour’s share in national incomes.  But it does not follow that reduced labour share was the cause of crises in capitalist production post-1980 as post-Keynesians argue when they refer to ‘wage-led economies’.

Another variant of this post-Keynesian analysis of capitalist crises was presented by John Komlos of Munich University.  Starting from accepting Keynes’ view that “I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight.”, Komlos reckoned that the pandemic slump was so severe because the capitalist economy was already fragile. So it took just a ‘black swan’ event like the pandemic to tip it over.  The idea of black swans, or ‘unknown unknowns’ on the extreme of the probability spectrum was offered as an explanation of the Great Recession by some back in 2008-9 following the view of financial analyst Nassim Taleb that chance rules.  At that time I argued that the black swan explanation of slumps (ie chance) could not explain regular and recurring crises (each time were they by chance?).

But what to do about avoiding or ameliorating slumps under capitalism.  A very popular policy alternative has been taken up in heterodox circles, namely more government spending and even permanent budget deficits financed by money creation as per Modern Monetary Theory (MMT).  MMT found some support in the heterodox sessions.  Devin Rafferty of St Peters University reckoned that the heterodox economist Karl Polanyi and MMT would agree on the process by which money is created as well as on the mechanisms that regulate its value. Polanyi would have embraced the MMT policy measures of a ‘job guarantee’ and ‘functional finance’ —the two staples of the MMT approach–which he believed would foster international peace, national liberty, and individual freedom.  I think this tells us something about Polanyi’s form of Marxism and MMT.

Much more critical of MMT was Brian Lin of National Chenghi University.  Lin argued that public investment by state enterprises would be much more effective in avoiding slumps than MMT. State investment “is more a timely creation of advanced institutions for sustaining worldwide economies than a politico-economic phenomenon like the MMT”. It would be far better for a country to adopt a decisive policy of nationalizing private companies with financial difficulties instead of issuing more money for the unemployed.  Lin’s view came in for heavy criticism by some attendees who reckoned state companies were bureaucratic and inefficient compared to the private sector and could not be relied on.  Lin did not respond with the Chinese model as the success story for public investment but, of all countries, state enterprises in Sweden!

However, when it came to investment solutions for so-called Global South, the idea of expanding public development banks was supported.  Gaëlle Despierre Corporon of the University of Grenoble reckoned such institutions “can give a positive impulse to the global relations between the South and the North and become dynamic institutions able to provide new perspectives for long-term development financing and ensure the coherence of the global system.”  So apparently, the public sector can work globally but not nationally.

That brings us to the rising global inequality of wealth and income – an important subject, ignored at this year’s ASSA by the mainstream, but taken up in a paper by Victor Manuel Isidro Luna of the University of the Sea. He pointed out that the majority of the countries of the world are not catching up consistently with the affluent countries. So ‘between country’ inequality has surged.  In particular, between the richer and poorer Latin countries, there remains “an unbridgeable gulf”.   The poorer countries globally were handicapped by a reliance on short-term foreign portfolio investment and longer term by FDI which were controlled by the richer countries.  This left poorer countries in the grip of the richer.  So open markets cannot be the development model for the poorer countries.

‘Within country’ inequality was also discussed in some sessions.  Some Norwegian economists reckoned that labour income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets were more important – pretty much as you would expect in a capitalist economy.  Alicia Girón on UNAM Mexico also confirmed that the recent rise in inequality is associated with rising asset valuation as opposed to capital accumulation both globally and within countries and is not driven by potentially spurious factors such as demographic changes and growth. In other words, for the top 1% gain mostly from rising property and financial asset prices. 

One of the major new financial assets for the rich has been the emergence of crypto currencies.  Using the Marxist conceptualization of money, Julio Huato of St Francis College argued that the buyers of crypto currencies were not getting some great decentralised money asset but still dependent on the state “which they imagine to have escaped.” Edemilson Parana of the Federal University of Ceara reckoned that Bitcoin would be unable to establish itself as an alternative to the current monetary system as it does not meet elementary requirements of money. Despite its declared search for a substitution of world money, for monetary stability against the supposedly ‘inflationary’ state money and for ‘depoliticization’, decentralization and deconcentration of monetary power, what is empirically observed is precisely the opposite: low volume and range of circulation, great instability against state money, transactional (economic, ecological etc.) inefficiency and greater relative concentration of political and economic power among its users. In the end, the non-fulfilment of the radical neoliberal aspirations of Bitcoin shows that the attempt by its creators and enthusiasts of emptying money of its social content, i.e., to ‘neutralize’ it, in capitalism, is not feasible.

Finally, there was the elephant in the room – China.  Surprisingly, there was not much on China in the heterodox sessions except on the inequality of income.  To be more exact, in one study it was found that China’s ‘global middle class’ (ie equivalent in income to Europe’s middle class) had grown very rapidly, from 2% of the population in 2007 to 14% in 2013, and further to 25% of the population in 2018.  This middle class was predominately urban, largely resides in China’s eastern region, and mainly depends on wage employment for income. A distinct ‘business’ middle class exists, but is relatively small.

Financialisation in the advanced capitalist economies through the Kalecki paradigm, doubts about MMT and cryptocurrencies, studies on rising inequality – these were themes of heterodox sessions.

14 thoughts on “ASSA 2022: part two – the heterodox

  1. Thank you for the report. From the tone of your report it appears that the radical and heterodox economists have gone backwards. But that is to be expected from those who mix advice for capitalism with criticism of it, rather than being unadulterated critics, and this on the eve of what could be the most turbulent period for global capitalism in a generation.

    The Bakir-Campbell paper is of interest no pun intended. I cannot agree with the table they provide. Their interest calculations according to NIPA Table 1.13 is way off. If anything according to Line 8 in the Table, netted off interest has actually fallen as a share of National Income, which is to be expected given the low interest rates over the past decade or so.

    What they are confusing is an actual restructuring of the US economy since 1980 because of the crisis of profitability and its bastard child, inequality. This restructuring is vividly described by Table 1.13. Domestic Business’ share of National income has fallen from 78.6% in 1980 to 75.7% because inequality has raised the household sector from 8.1% to 12% (take note when you compare the size of the US economy to China’s). Within that, Corporate Business has fallen from 61.6% to 56.1% of National Income because non corporate has risen from 16.9% to 19.7%. Now it can be said that given the rise of Hedge Funds and Private Equity, both lodged in the non-corporate sector because their legal identity is that of partnerships, we could say that the rentier class has grown. But this is not the whole story. True these partnerships often purchase corporations in order to convert their equity into debt and thus an intermittent profit stream into a constant interest stream, but they still manage their assets as capitalist proprietors. What their actions do achieve, as Marx pointed out in Volume 3 is to improve the rate of profit by often removing less profitable capital from the calculations by converting it into debt. For that reason alone, the non-financial corporate pre-tax rate of profit remains the most important profit metric in the economy.

    Finally, it is worth adding that the share of non-financial corporate income as a share of National Income has fallen from 56.9% to only 48.3% but that is largely due to the distortions found in the financial sphere such as the income of FED banks and owner occupier rents (the biggest class of Rentiers at nearly 10% of National Income, sorry can’t resist being sarcastic about all this infatuation with Rentiers.) Thus the contraction of the non-financial corporate sector is more a function of the inflation of National Income due to duplicated (imputed) sales.

  2. Michael
    Congratulations on the blog. I made my registration in December last year, and I am following your comments because I wanted more information about the WAPE2021 Forum. I participated in the Forum in the opening panel and coordinated another on Brazilian development.
    I wanted a comment from you on the unorthodox work post of the annual meeting of the American Economics Association (ASSA). I’m referring to the comparison you made about Kalecki and Marx’s dynamic approaches when commenting on the work of Al Campbell and Bakir. In particular, I would like you to resume the comment on the differences in the models because It seems to me that there is an element missing. I understand that Marx focuses on the process of capital rotation, showing the contradictions that are present in this movement and its reproduction. To this end, it formulates an abstraction placed on the level of capital in general. That’s where it shows the origin of the profit, as we know. In Kalecki, the formulation follows a totally different path. The starting point is the principle of effective demand in which the primacy of spending over income is established. The autonomous decisions are these spending decisions, both for workers and capitalists. However, neither workers nor capitalists decide when they will receive monetary income, so we are talking about the plan of the plurality of capital, where there is competition. In the case of workers, the real income depends on the movement of prices of products that enter your consumption basket; in the case of capitalists, it depends on an aggregate process of functioning of the economy, which will indicate what fraction of the monetary profits each capitalist will receive in return to their investment expenditures. And from this return, there is the decision of how much to spend for own consumption and how much to spend to accumulate. I understand that these models are not comparable, although they are compatible. They have distinct levels of abstraction and different temporalities. Marx’s temporality is the time of capital rotation. Kaleckian temporality is given by the effectiveness of the consequences of spending decisions. These themes are somewhat pacified in Brazil and do not produce essential debates. In the Brazilian Society of Political Economy, there have been no relevant debates between Marxists and Kaleckians for a long time. If you can, make a comment. Niemeyer

  3. Thanks, Michael. At the very end you mention a study about China’s “global middle class.” Could you provide a link or at least the authors and title?

    1. Inequality, the Structure of China’s Economy on the Consumer Side and Implications for Domestic Demand Terry Sicular
      University of Western Ontario No paper Im afraid, but it may be on his website.

  4. Hi Michael Directly after the Kalecki formula you say: But this an identity: Should this read: But this is an identity: Or something else? Dave

    On Fri, 14 Jan 2022 at 11:09, Michael Roberts Blog wrote:

    > michael roberts posted: ” In this second post on the annual ASSA economics > conference, I look at the papers and presentations made by radical and > heterodox economists. These presentations are mostly under the auspices of > the Union of Radical Political Economics (URPE) sessions, ” >

  5. “Finally, there was the elephant in the room – China.”

    Apparently, there’s a conspiracy theory going on among the Western Marxists that state the Chinese saved capitalism from collapse during the Asian Tigers’ Crisis of 1997-2001 and the financial crisis of 2008. To square that circle, they use the Trotskyist theory of “Stalinism”, which states that a bureaucratic elite can betray and usurp power from the proletariat after a communist revolution.

    The problem is that not only Stalinism is not a theory (Trotsky was not worried about laying new theoretical foundations to Marxism; to him and the others there was only one theoretician: Marx), but it was proven to be false: Trotsky affirmed Stalin was a capitalist agent and that he would surrender and then even ally with Hitler right before WWII happened in Europe. It turned out not to be the case: Stalin proved to be a genuine Bolshevik, loyal and committed to save the Revolution to the end. WWII ended with the complete destruction of the Third Reich (the name Hitler used to denominate the Weimar Republic during his dictatorship) and the rise of the USSR as a world superpower.

    To save face, the Trotskyists then came out with the theory of “degeneration”, which stated that, yes, the USSR was a proletarian State, albeit a degenerated one.

    The theory of degeneration, which then postulates an intermediate post-capitalist ruling class – the so-called “Stalinist bureaucracy” – stuck in the West and is used even by the Marxian (although, to be fair, the Marxian at least correctly identify China as a step closer to socialism).

    There’s is a problem with this “theory”: not only it can be easily debunked empirically, but there’s also a much simpler explanation for the contradiction that arises from the coexistence of capitalism and socialism. The explanation is simple and elegant: the Western proletariat is not the vanguard anymore.

    By inverting the roles, it becomes much easier to explain the actual state of things. The Western working classes rejected Marxism, and adopted a position of the “Aristocracy of the Working Class”, which made then degenerate into a reactionary, fascist global force. As the West continue to deindustrialize, it continued to de-proletarianize, instead becoming a land of white collar, other non-productive functions and the lumpenproletariat (which, as Marx well stated, is a very reactionary class). Meanwhile, the world’s proletariat accumulated in East Asia – particularly, China. Since China now has the greatest proletariat, and the proletariat is the only revolutionary force possible in capitalism, that means it is China, not the West, which is now the vanguard of the socialist revolution.

    That’s why, for example, the Western Trotskyists supported the liberal counter-revolutionaries in Hong Kong some years ago, only backing out when it became clear the counter-revolution was about to be defeated. That’s also why some Western Marxists are calling for a “revolution” in China against the “Stalinist bureaucracy”. Behind all this, is the failure to admit the West has suffered not only economic, but also intellectual degeneration (which is a normal historical process that happens to all great civilizations/empires when they start to decline; this is not a jab at the Western peoples as human beings) – human beings are not naturally intellectual, they must be raised and socially sustained as intellectuals; with economic declines comes intellectual decline (even though I consider the rise of the Marxian a recovery, albeit minuscule and shy, of Western Marxism).

    1. If there’s ever anything to make one wear the label of “western Marxist” with pride, it’s the fact-free ramblings of VK.

      1. “Conspiracy theory” of Western Marxists? VK has yet to even identify a single western Marxist, much less provide any evidence that there is faction, group, school with any consistent analysis that makes his characterization anything more than a convenient, ideological distraction.

      2. Please identify what actions China took to save capitalism as a whole from the Asian financial crisis, and please tell us how such actions, if taken, advanced the cause of socialism? China’s actions during this period were basically to reduce the international profile of its currency; to prevent expanding trade in the currency markets of yuan/renminbi. This did have a salutary benefit in that it prevented devaluation of the yuan, and the flooding of oversaturated markets with China’s exports, thereby worsening the situation of the “Asian Tigers,” but that’s a long way from being a pillar of salvation. VK wants it both ways– China as the embodiment of socialism and at the same time the savior of capitalism. Doesn’t work that way, but it certainly is a testament to VK’s ability to reconcile contradictions in his/her own mind, and/or the importance of gymnastics to his/her version of non-western Marxism.

      3.”To square that circle, they use the Trotskyist theory of “Stalinism”, which states that a bureaucratic elite can betray and usurp power from the proletariat after a communist revolution.” Wasn’t exactly a “theory.” Trotsky saw the rise of Stalin and the bureaucracy as the result of defeat of the revolution across Europe (and Asia), coupled with the extreme backwardness of the society the Bolsheviks conquered. Of course, to recognize those specific characteristics of Trotsky’s analysis, one first has to recognize that the Russian Revolution was not a “communist revolution,” but a proletarian revolution propelled by the very uneven and combined development of global capitalism reflected in the Russian economy. This is more than a mere technicality. It meant a) the RR would not survive without a expanding revolution in the advanced areas– proven to be correct; b) the revolution triumphant would face all the problems of social development supposedly resolved by the bourgeoisie, and would have to act analogously to that class in the interim.

      4. I’ve searched, not google, but the Marxist Internet Archive, and haven’t been able to turn up any documentation for the claim that Trotsky identified Stalin as a capitalist agent. If VK has such documentation, let’s see it.

      5. Trotsky identified the intrinsic and irreconcilable conflict between the USSR and Nazi Germany well before WW2 and was steadfast in his assertion that capitalism with Germany at the tip of the spear was a mortal threat to the Soviet Union, even with Stalin and his supporters in charge. After the Molotov-von Ribbentrop pact, Trotsky maintained his position of defense of the USSR and advised many, frequently, that such a pact was a) a tactical maneuver (of dubious worth) b) in no way changed the inevitable coming conflict.

      6. Stalin, loyal and committed Bolshevik? Sure thing. After all, he remained the only one of the original party who wasn’t a fascist, right? The rest? Just fascists in disguise. Sure he was a loyal Bolshevik, doing what Bolsheviks did in 1917, right? Subordinating the outbreaks of revolution to the limits of “bourgeois democracy,” which led to a series of triumphs in Spain, Vietnam, France etc. and thereby pre-empted WW2. Right? Oh, that didn’t happen. Never mind.

      7. “To save face, the Trotskyists then came out with the theory of “degeneration”, which stated that, yes, the USSR was a proletarian State, albeit a degenerated one.” Contrary to VK’s disorganization of history, the analysis of the degeneration of the revolution into a transitional moment currently dominated by bureaucratic deformity precedes WW2, and even the popular front. Trotsky first refers to the dominance of the bureaucracy as symptomatic of the degeneration of the party and revolution in 1929. He then returns to this theme in his 1933 essay on the nature of the Soviet bureaucracy and the obligation to maintain defense of the USSR.

      8. “here’s also a much simpler explanation for the contradiction that arises from the coexistence of capitalism and socialism. The explanation is simple and elegant: the Western proletariat is not the vanguard anymore.” That sure is simpler. So the Western proletariat was the vanguard of the revolution before WW2, according to VK’s retelling of history, which would require one to then critically analyze the tactics of the 3rd Intl in China, Spain, France, Germany, the UK, right, since somehow this vanguard, led by the true Bolshevik Stalin produced nothing but defeat after defeat in the midst of revolutionary circumstances.

      9. But enough of history, let’s move on: .

      “The Western working classes rejected Marxism, and adopted a position of the “Aristocracy of the Working Class”, which made then degenerate into a reactionary, fascist global force. As the West continue to deindustrialize, it continued to de-proletarianize, instead becoming a land of white collar, other non-productive functions and the lumpenproletariat (which, as Marx well stated, is a very reactionary class). Meanwhile, the world’s proletariat accumulated in East Asia – particularly, China. Since China now has the greatest proletariat, and the proletariat is the only revolutionary force possible in capitalism, that means it is China, not the West, which is now the vanguard of the socialist revolution.”

      Wow. Now at least we know why western Marxists are so non-revolutionary– it’s because the western proletariat is fascist. No kidding? Strip my gears and call me shiftless. Workers in France taking over the petrochemical plants in 2009– fascists; workers in Italy taking over the plants in Turin in the hot autumn? Fascist. Amazon workers struggling to organize? Fascists. Oh, and you western African-American workers who organized DRUM and LRBW? Sorry, you live better than most in the world; you’re fascist too. And BTW, why did you even bother organizing DRUM, when that period was the “golden age” for US capitalism’s domination? When that period was the period when incomes of black workers were experiencing rapid gains?

      So meanwhile what makes VK think that since the course of development propelled the “western” working class (including that of non-western Japan, I presume) to being an “aristocracy”– that same fate DOES NOT await the workers of China, Thailand, Vietnam? Because there’s nobody left to super-exploit? Please, if there’s enough super-exploitation to support capitalist development in the world and maintain capitalism as the dominant mode among about 80% of the world’s population, there’s enough super-exploitation to “bribe” the Chinese working class, which BTW, has been shrinking for the last decade or so.

      10. Full disclosure: I am not now, nor have I ever been a Trotskyist. I am however a Marxist.

    2. “…….(even though I consider the rise of the Marxian a recovery, albeit miniscule and shy, of Western Marxism).

      What you say before your parentheis is no secret among (anti-imperialist-actual marxist) Western marxists. But what you leave in parenthesis is critical for socialism–and humanity–everywhere. Neverthelesss the massive degradation of labor (here in the US) has produced some class consciousness, and with that a grounded revival of the long co-opted peace and civil rights movements, It’s miniscule, but so are sparks.

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