Matías Vernengo

Technology, Finance, and Dependency: Latin American Radical Political Economy in Retrospect:

The surge in academic work on globalization has made several of the topics dear to authors of the dependency school relevant once again. Therefore, a reconsideration of dependency theory seems to be appropriate. There are at least two approaches to dependency. This article analyzes critically their similarities, differences, and limitations, in particular regarding the role of technology and international finance in the explanation of center and periphery interactions. The evolution of the ideas on dependency in Latin America is evaluated. The reduced relevance of strict definitions of the technological division of labor, the theoretical problems caused by the effective industrialization of several countries in the periphery, the debt crisis, and the failure of the neoliberal agenda are also discussed. In the era of globalization and great transformations in the international economy, the “new” dependency seems to be financial in nature.

State money and the real world: or chartalism and its discontents

Recent emphasis on chartalism is an important extension of the monetary theory within Post Keynesian analysis. However, chartalism as the main interpretation for the existence of money has some limitations. Sovereignty, understood as the power to tax and to collect in the token of choice, is not the main explanation for the existence of money, even if modern money is ultimately chartal money. The view according to which institutions that provide bridges between the present and the future create the conditions for economic agents to be willing to hold money is far more instructive. The state is certainly one of those institutions, but so are banks, and other financial institutions, which, during certain historical periods, might have had more importance.

Hegemonic Currencies during the Crisis: The Dollar versus the Euro in a Cartalist Perspective

This paper suggests that the dollar is not threatened as the hegemonic international currency, and that most analysts are incapable of understanding the resilience of the dollar, not only because they ignore the theories of monetary hegemonic stability or what, more recently, has been termed the geography of money; but also as a result of an incomplete understanding of what a monetary hegemon does. The hegemon is not required to maintain credible macroeconomic policies (i.e., fiscally contractionary policies to maintain the value of the currency), but rather to provide an asset free of the risk of default. It is argued that the current crisis in Europe illustrates why the euro is not a real contender for hegemony in the near future.

Demystifying the Principles of Comparative Advantage : Implications for Developing Countries

The current Doha Round of trade talks was supposed to help the world’s poor. However, a range of disagreements has stymied the negotiations, and the latest round of multilateral trade talks has made almost no progress. The objective of these talks, as of those in the past, is trade liberalization, based on the assumption that the best way to raise global living standards is to maximize free trade. The origin of this policy prescription is the “principle (sometimes referred to as a law) of comparative advantage,” which is “one of the crown jewels of the economics profession . . . the principle has shaped the way economists view the world, and it serves as the basis for our profession’s overwhelming support of free trade” (Rodrik 1998, 3). Indeed, “this is one of the most important and still unchallenged laws in economics” (Salvatore 1987, 17). And Krugman in his article “What do undergrads need to know about

Kaldor and Robinson on money and growth

Post-Keynesian theory was developed as an alternative to mainstream neoclassical economics. However, post-Keynesians have not succeeded in getting their message through, partly because of the difficult and controversial economic issues upon which they embarked, partly because they emphasized, both in their monetary and growth analysis, theories that do not radically depart from the mainstream of economics. This paper therefore argues that post-Keynesian economics got off on the wrong foot. Rather than having emphasized the works of Minsky and (the early) Kaldor in money, post-Keynesians should have considered the contributions of Robinson and Kahn. Also, rather than having emphasized the work of Robinson and Harrod on growth, they ought to have given greater emphasis to Kaldors demand-oriented growth theory. Hence, as a simplification, post-Keynesians should have considered Robinson on money, not Kaldor; and Kaldor on growth, not Robinson.

Fiscal Squeeze and Social Policy during the Cardoso Administration (1995—2002)

Conventional wisdom associates the two lost decades of economic stagnation in Brazil to macroeconomic imbalances and excessive budgetary deficits. Contrary to conventional wisdom, the fiscal crisis of the state in Brazil was the result of the liberalization strategy that started in 1989 and was accelerated and complemented during the Cardoso administration (1995—2002). The fiscal crisis of the state resulted from the financial liberalization of the 1990s and the increasing burden of interest payments on public debt. The interest burden, in turn, meant that fiscal spending on social policy was squeezed, a result that is common in liberalization experiences in the periphery. The amount of social spending was insufficient during the Cardoso administration, and problems were not restricted to inefficient spending.

The Political Economy of Monetary Institutions in Brazil: The Limits of the Inflation-targeting Strategy, 1999-2005

Abstract This paper suggests that the time-inconsistency approach is inadequate to analyze the political economy of monetary policy in Brazil. The paper develops an alternative theory that emphasizes distributive conflict, and argues that building credibility with a fixed exchange rate and through inflation-targeting was not central for stabilization. A contested-terrain analysis of the Brazilian case suggests that the current monetary regime benefits financial or rentier interests while the manufacturing sector and workers bear the costs of this policy.

Globalization, a Dangerous Obsession : Latin America in the Post-Washington Consensus Era

In the late 1980s, John Williamson summarized the views of the mainstream of the profession and the policy makers in Washington, DC (the U.S. Treasury, the International Monetary Fund [IMF], and the World Bank) regarding proper policies for Latin American countries. Williamsons decalogue became famous, or shall we say infamous, as the Washington Consensus. Fifteen years have passed, and hardly anyone, including Williamson himself, would disagree that the Washington Consensus was a failure. The Consensus was broadly for liberalization, deregulation, and privatization, that is, for a reduced role of the state and, in the words of the World Bank (1991), a market-friendly approach to development. l These reforms would integrate Latin America into the World economy and allow for high rates of growth. In fact, the

The Decline of the Exchange Rate Pass-Through in Brazil: Explaining the "Fear of Floating"

This paper argues that the pass-through in Brazil has fallen compared with estimates in other studies done for earlier time periods, and remains low. Whereas pass-through effects where high and close to 1 in the high-inflation period, they seem to have fallen to around 0.2 after the Real Plan stabilization, a number that is similar to the Import Substitution Industrialization (ISI) period of the 1950s and 1960s. Conventional results suggest that low and stable inflation environments lead to low levels of exchange rate pass-through and thus contribute to weakening the ‘fear of floating’ phenomenon experienced by some developing countries. In spite of lower pass-through effects, the Brazilian Central Bank has maintained high interest rates in order to control the exchange rate. This paper suggests that ‘fear of inflation’ provides justification for the central banks persistent ‘fear of floating.’

Wage and Profit-Led Growth: The Limits to Neo-Kaleckian Models and a Kaldorian Proposal

We argue that a fundamental difference between Post-Keynesian approaches to economic growth lies in their treatment of investment. Kaleckian-Robinsonian models postulate an investment function dependent on the accelerator and profitability. Some of these models rely on the importance of profitability, captured by the profit share, to make the case for profit-led growth. For their part, Kaldorian models place the emphasis on the accelerator. More important, investment is a derived demand; that is, it is ruled by the adjustment of capacity to exogenous demand, which, in turn, determines the normal level of capacity utilization. In our view, the Kaldorian approach is better equipped to deal with some of the issues relating income distribution to accumulation with effective demand in the long run. We develop a Kaldorian open-economy model to examine the conditions under which an increase in real wages can produce profit or wage-led growth, showing that the limit to a wage-led expansion is a binding external constraint. The role and limitations of wages as a determinant of growth are further examined through spectral techniques and cycle analysis for a subset of developed economies. The evidence indicates that real wages are positively related to growth, investment, and capacity utilization. It also highlights the role of finance in sustaining expansions, suggesting that debt-led growth should not be identified with profit-led growth.