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Showing posts from December, 2013

Dean Baker on the corruption of the economics profession

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By Dean Baker
Most of us are willing to believe the direct opposite of what we can see with our own eyes because we accept the analysis of the solar system developed by astronomers through many centuries of careful observation. The overwhelming majority of people will never go through the measurements and reproduce the calculations. Rather, our belief that the earth revolves around the sun depends on our confidence in the competence and integrity of astronomers. If they all tell us that the earth in fact orbits the sun, we are prepared to accept this view. Unfortunately the economics profession cannot claim to have a similar stature. This is both good and bad. It is good because it doesn’t deserve that stature. Economists too often work as hired guns for those with money and power. It is bad because the public needs expertise in economics, just as it needs expertise in medicine and other areas. Read rest here.

PS: A post on why the current crisis has not undermined the mainstream can…

Jorge Castañeda and the wrong lessons from Liberalization Reforms

Jorge Castañeda, ex-advisor to the left of center candidate Cuauhtémoc Cárdenas, and ex-foreign affairs secretary in the right wing administration of Vicente Fox has written here about the need for further reforms in Mexico. He sings the praises of NAFTA.
"NAFTA brought with it a spectacular increase in Mexican exports, as well as a dramatic shift in their composition. But it proved to be a great disappointment in terms of foreign investment inflows and economic growth, which has averaged 2.6% per year over the last two decades – slower than Peru, Chile, Colombia, Brazil, and Uruguay. As a result, Mexico’s income gap with the US and Canada has barely narrowed." The change in exports was basically associated to an acceleration of the 'maquilization' process, manufacturing exports with low local value added content. No comments on the massive immigration* and the fact that neither growth nor income distribution have improved after NAFTA (both claims often made about w…

'Tips or Starve' or the Wage crisis: The USA's new underclass

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A documentary on the working poor. Not sure if this is right, but it seems that in bars and restaurants the wage is below the federal minimum of US$7.25 (see video at 4:40).

Michael Pettis on Chinese Liberalization Reforms and Economic Growth

Two posts worth reading by Michael Pettis (here and here; might need subscription). He suggests in the first one that reports that consumption in China is much higher than previously thought are exaggerated (Ken Peng suggested here that consumption levels are 10% higher than what is often assumed, i.e. closer to 45% rather than 35% of GDP). He argues that if China is to continue to grow, even at a slightly reduce pace, then it: "must find a way to grow without even faster growth in credit, and the best way to do so... is to boost consumption growth by sharply increasing the household income share of GDP and to shift investment from the state sector to far more efficient smaller businesses." No problem with the first part. Not sure about the second, i.e. the notion that small private businesses are more productive than large public firms. In fact, public investment has been central for Chinese growth all along, and if anything it is the decline in public spending that has hu…

Unemployment Reigns While Benefits Cease

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Involuntary unemployment in the US disdainfully reins supreme. And with inaction on extending long-term unemployment benefits, not only will a critical lifeline be lost, but every state will face the prospect of employment losses in 2014 that will set back positive gains experienced in 2013, see here.

A previous post on the issue can be seen here.

Is Argentina on the verge of an external crisis?

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There is for starters the question of what causes external crises. As I have noted in other places (chapter 7 here or here, for example), external crises are NOT caused, in general, by fiscal deficits (quite the opposite, fiscal crises are the result of balance of payments crises). External crises result from the inability to service foreign debt (and to import intermediate and foreign goods), which are caused by a shortage of foreign currency (i.e. dollars).
As it can be seen in the graph above (data from Orlando Ferreres for those concerned with the sources), the current account surplus as a share of exports has shrunk and is now negative (at around 4% or so of exports). Note, however, that the level is far from desperate, and well below the crises levels when the current account deficit is above 60% of the exports.

Part of the anxiety is associated to the fall in the central bank's reserves, which stand at around US$33 billions now, down from slightly more than US$50 in 2011. …

New Title: The Handbook of the Political Economy of Financial Crises

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From the abstract:
The Great Financial Crisis that began in 2007-2008 reminds us with devastating force that financial instability and crises are endemic to capitalist economies that lack powerful and dynamically changing financial regulations that can keep the powerful forces of leverage and credit within sustainable bounds. Economists from Marx to Keynes, and Minsky to Kindleberger have well understood this profoundly important fact, yet the dominant mainstream economics of "rational expectations", "efficient markets" and "laissez-faire" that rationalized widespread financial liberalization and still dominates the economics profession has gotten it, literally, "dead wrong". The Handbook of The Political Economy of Financial Crises describes the theoretical, institutional, and historical factors that can help us understand the forces that create financial crises - with an emphasis on the crisis of 2007- 2008 - and the strengths and weaknesses…

Media watch: Unemployment benefits for a million workers being cut

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Unemployment insurance ends today for several distressed unemployed workers (about 10% of the unemployed will loose benefits, as reported by the NYTimes; see graph below). This was part of the bi-partisan fiscal deal that avoided another government shutdown and the debt-ceiling crisis to continue. The cuts are deep and the consequences will be significant, as noted by the EPI.
These news in and of itself are terrible, but not surprising. However, reading the NYTimes piece one cannot but notice that the reference to the EPI is preceded by the qualification that it is "a left-of-center" think tank, while the subsequent quote from the chief economist at JP-Morgan/Chase is hyphen free. Yep, JP-Morgan that has just settled to pay $13 billion for their fraudulent selling of mortgage bonds. No, JP-Morgan, contrary to EPI, is an uninterested observer of markets, or at least that seems to be the implication suggested by the NYTimes.

The same could be said about the quote of what Rand…

Modern slavery in numbers

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There are slightly less than 30 million people in slave labor conditions in the world (the ILO puts the figure at around 21 millions; see here). Most of them are in South Asia and Africa (see map below). By percentage of the population Mauritania and Haiti, followed by Pakistan and India, lead in this dreadful statistic. By absolute numbers the main countries are India and China, for obvious reasons. The numbers are in the table below. The causes are obviously complex, but result ultimately of poverty, labor market informality and the inability to incorporate workers into the formal labor market. In addition, it is more prevalent in areas where national governments have little access, and as a result more likely in failed States.
The Global Slavery Index 2013 Report, where you can find the map and table shown above, is available here.

You are what you eat, or what you plant perhaps

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Maize is another name for corn, by the way. Colors are not the best. But wheat, maize, soybean, rice and sorghum dominate, at least by area harvested.

Solow on Greenspan's new book and the misrepresentation of the mainstream

Solow's review was published in the New Republic here (h/t Robert Vienneau). Solow has lost nothing of his ironic and acerbic style of criticism. As noted by Vienneau there is a great line at the end about Greenspan's mentor Ayn Rand:
"It is sometimes claimed that Alan Greenspan is a closet follower of Ayn Rand; he certainly had an early association with her circle. I got through maybe half of one of those fat paperbacks when I was young, the one about the architect. Since then I have found it impossible to take Ayn Rand seriously as a novelist or a thinker. In the past I have gone on the assumption that Greenspan’s ideas about economic life are his own, just what is contained in his writings, and the Ayn Rand question does not arise. But now there is this book, with its particular misinterpretation of mainstream economics, which might be thought to reopen the question if anyone is interested." So basically he says Greenspan might be a crank after all. Yet, Solow ha…

Academic freedom watch: corporate donors to decide economic hires at Florida State

Academic freedom is in danger at Florida State. At least is what has been reported here. In short:
"A foundation bankrolled by Libertarian businessman Charles G. Koch has pledged $1.5 million for positions in Florida State University's economics department. In return, his representatives get to screen and sign off on any hires for a new program promoting 'political economy and free enterprise.'" This is bad in any field, but in economics where the incentives to be pro-business and 'free' markets are already huge it's even worse.
This reminds me of what Veblen said, almost a hundred years ago about what at the time where called schools of commerce, and which would fit our business schools now, and most likely this new program in the political economy of the free enterprise. Veblen said in The Higher Learning in America: "A college of commerce is designed to serve an emulative purpose only -- individual gain regardless of, or at the cost of, the c…

Bortis on the Classical-Keynesian Approach and the limits of neoclassical-Walrasian economics

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The paper Prof. Bortis presented at the 1st World Keynes Conference at Izmir University in Turkey is here. From the intro:
The paper starts with considering the domination of the neoclassical exchange paradigm since the Marginalist Revolution 1870-1890, brought about by Alfred Marshall’s Principles of Economics. The inability of neoclassical theory to properly explain the formation of the fundamental prices prevailing in modern monetary production economy, the prices of production to wit, through the mechanism of supply and demand and to cope with the deep depression of the 1930s initiated a classical-Keynesian counterrevolution in the course of Shackle’s Years of High Theory 1926–1939 (Shackle 1967), a counterrevolution which was accomplished in 1960 through Sraffa’s Production of Commodities by Means of Commodities (section 2). However, as is alluded to in section (3), a wide gap existed between Keynes’s General Theory and Sraffa (1960), Keynes emphasising uncertainty about the fut…

Ariel Dvoskin on the limits of Walrasian equilibrium

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Here is Ariel's PhD dissertation, which is well worth reading for those interested in the evolution and limitations of the marginalist (neoclassical) models. From the abstract:
"The marginalist approach is unable to satisfactorily incorporate capital goods within the supply and demand explanation of prices and distribution, and this seems to have condemned modern general equilibrium theory to face an unpleasant dilemma: either this theory is, like Hahn, truly consistent with its own theoretical object, a notion of equilibrium that must be silent on the issue of how actual economies work; or, alternatively, the theory attempts to provide some explanation of the working of actual economies and in so doing, it must inescapably rely on traditional gravitational ways of reasoning that must presume the illegitimate notion of capital in value terms. Either way modern general equilibrium theory runs into a blind alley, with the implication that, to predict with reasonable accuracy pr…

More on why the US should raise the minimum wage

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Note that in percent of the median wage the US is at the bottom of the list (Estonia is the only lower in the graph above). Enough said.

Akyüz on the Global Crisis and Trade Imbalances

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Yilmaz Akyüz, ex head of the macroeconomic and development division at UNCTAD, and chief economist at the South Centre has a new post on global imbalances. He says:
International trade has been the single most important channel of transmission of contractionary impulses from the financial crisis and recession in the US and the EU. After growing at an average rate of some 7 per cent per annum, the volume of imports by Advanced Economies (AEs) first decelerated sharply in 2008 and then fell by 12 per cent in 2009, largely because of the decline in imports by the US. It bounced back in 2010 due to a broad-based recovery, but lost momentum as Europe went into tailspin. Growth of total volume of imports by AEs barely reached 1 per cent in 2012. In order to avoid a sharp deceleration of growth, Developing Countries (DCs) have had to rely on their own markets or South-South trade. In fact, given the widespread economic downturn in AEs, the latter have also sought expansion in developin…

More on Mandela and Inequality in South Africa

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I discusses post-apartheid economic policy in a previous post. The Figure below from The Economist's Graphic Detail shows the evolution of average income by racial group during Mandela's life time.

Note that inequality actually increases during Mandela and post-Mandela ANC governments. From The Economist.
Towards the end of Mandela's incarceration—through to the abolition of Apartheid—fortunes did reverse slightly, but by now the disparity had grown so large that it barely made a dent. Income growth improved substantially for all South Africans after his 1994 election victory, but sufficiently more so for whites, and the balance has been disproportionately weighted in their favour—and increasingly that of Asian South Africans—since he stepped down in 1999.  Under its own majority rule, the lot of the ever-growing black population—today forming over three-quarters of the national total—has been notably poor. Misguided governance, low-quality education, skills shortages and…

Real average family income growth in the last decade

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Yep, it went all to the top. But not just the 1%. More like the 0.01%! If you take a 10% real increase (meaning 1% per year) it would be the 0.5%.

The perils of China-centric globalization

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By Thomas Palley

The last thirty years have witnessed the creation of an integrated global economy. However, what began as a project for globalization has gradually been transformed into a project of “China-centric globalization.” This phenomenon has grave economic and geo-political implications for the US. China-centric globalization has been allowed to develop with great rapidity and little public discussion of its implications and consequences. There is a conceit that there are no security dangers inherent in it because economic links will turn China into a democracy and democracies do not go to war with each other. History shows that conceit to be very dangerous.

Read more.

Chandrasekhar & Ghosh on the missing global recovery

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"In mid-November the OECD Secretariat issued the second of its annual assessments of the Economic Outlook for the world economy. The previous assessment was in May. In the short span of time between these two reports, the outlook has indeed changed. The optimism that desperately-searched-for-and-found “green shoots” of recovery generated has waned. To quote the OECD’s report: 'The global recovery remains modest and uneven ... Outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook, with global GDP growth revised down by just under 1⁄2 percentage point both this year and in 2014 to 2.7% and 3.6% respectively.'"
Read the rest here.

Ry Cooder: No Banker Left Behind

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Holidays! Time for some music, but no Christmas caroling here (the left is on a war against Christmas, I've been told). Social programs for the rich, because they don't create a class of moochers unwilling to work (like social programs for the poor). Bankers are Job Creators after all.

Ben Franklin, Consumption and the Industrial Revolution

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The idea that demand expansion was central for the Industrial Revolution, in Keynesian fashion, was at some point dominant among economic historians. It was, for example, explicit in both Phyllis Deane and David Landes famous books about it, both published in 1969 (The First Industrial Revolution and The Unbound Prometheus, respectively).

It is also well-known that Adam Smith recognized that productivity growth (the division of labor) was limited by the extent of the market (demand), so that growth and the wealth of nations, which depended on productivity growth, and not on the accumulation of foreign reserves (gold) or trade surpluses as defended by Mercantilists, was in a sense demand-led.

Ben Franklin is not often cited in relation to his economic writings, but he was knowledgeable in the main developments of his time.  He was both a defender of the labor theory of value, and of paper currency in his famous A Modest Enquiry into the Nature and Necessity of a Paper-Currency, and th…

Beyond Gemeinschaft and Gesellschaft: The Foundations for Ethical Political Humanist Social Science

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There it is before you—smiling, frowning, inviting, grand, mean, insipid, or savage, and always mute with an air of whispering, come and find out. -From Joseph Conrad’s "Heart of Darkness"
It is pertinent to recognize that social reality is not an aura of perceived characteristics, in which there lays no unifying substance that could account for coherence. There is an evident danger in oversimplifying things. The attempt of this post is to promote an approach to social science that engages issues concerning social ontology, that is, epistemic positions in regards the means by which to uncover underlying interconnecting structures that constitute the manifestation of certain types of social reality.

In this sense, the very notion society, itself, amounts to an immensely complex entity, the broad functioning of which cannot be captured by obscure models of positivistic simplification.
Pragmatism does not tell us about the existence of anything. By not grasping the essence of hu…

Max Sawicky on why basic income programs are NOT the solution for poverty

Max Sawicky's blog was among the best, by progressive economists, and I still miss his posts. So here is a treat from the Next New Deal Blog.
With the coming referendum in Switzerland has come a flurry of commentary about a “Universal Basic Income” (UBI). There are some strange bedfellows from left and right are saying nice things about it. I suggest that it can be a distraction from more important things.

If you don’t have time to read this, just consider that a payment of $10,000 to every U.S. adult, a pretty basic basic income, would cost $2.5 trillion. Game over. Read the whole post here.

No government shutdown or default next year, but austerity will continue

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In other news, the Senate approved by a vote of 67 to 33 the budget deal, avoiding another government shutdown and debt ceiling showdown early next year. The house had voted before. There has been some commentary in the web when the House voted on how this agreement is good, since it avoids even worse austerity, but in all fairness the changes are minor and the unnecessarily restrictive fiscal policy will continue in place. Graph below shows real government consumption and investment spending.
Expect the negative trend to continue. By the way, the Obama administration has continued the tradition started with Carter and then Reagan in which the party of Big Government is the GOP. every single democrat has reduced the deficit, and spending in office (Carter, Clinton and now Obama). Austerity for all is the Dems policy, while the GOP provides Big Government for the few and corporations.

On moderate conservatives and the benefits of dictatorships: More on Friedman

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A lot of the discussion about the modern Republican Party is about how it changed and how the moderates willing to compromise, rather than close the government and default for example, have disappeared. But the whole notion of ‘house-trained’ conservatives is a bit mythical in all fairness. If one reads the criticism of conservatives and business groups against Roosevelt there was a lot that would fit the modern Tea Party. And Conservatives like William Buckley Jr. were also pretty radical. There is this notion that conservatives used to be more rational and moderate in the past. But it is hard to agree once one looks at the record.

Think of Milton Friedman, which is seen by many as a moderate pro-market economist with libertarian tendencies, but when you actually look he had some praise for Franco, which is difficult to conciliate with any civilized notion of moderation. I thought it was well worth to provide the transcript of Friedman’s words on Franco and other right wing dictator…

Milton Friedman on economic development and the 'Brazilian Miracle'

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The Hoover Institution has made available (h/t Robert Leeson) online the Economics Cassette Series, which "was a 215-tape, subscription-based series produced by Instructional Dynamics Incorporated (IDI) between 1969 and 1978. The biweekly series was composed of interviews with Milton Friedman during which he commented on current economic events, and thus was a sort of companion to Friedman's Newsweek columns."

There are many interesting nuggets for those interested in the history of ideas, and in particular about the current economic problems of that period. In one of the talks he suggests that a precondition for economic growth is low inflation. Not much evidence to support that actually. The famous paper by Bruno and Easterly argued that inflation below 40% a year has no evident effect on economic growth. At any rate, you can check here his discussion of the Brazilian Miracle. For him the Military dictatorship instituted political stability (and he said that ther…

David Cay Johnston on Budget Deal That Helps Billionaires, Not the Poor

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From the intro:
"A bipartisan budget deal to avert another government shutdown comes before the Senate this week. The vast majority of House members from both parties approved the two-year budget agreement last week in a 332-to-94 vote. It is being hailed as a breakthrough compromise for Democrats and Republicans. The bill eases across-the-board spending cuts, replacing them with new airline fees and cuts to federal pensions. In a concession by Democrats, it does not extend unemployment benefits for 1.3 million people, which are set to expire this month. To discuss the deal, we are joined by David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times. He is currently a columnist for Tax Analysts and Al Jazeera, as well as a contributing editor at Newsweek."

Cut Unemployment Benefits? A Bonehead Idea

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By Heidi Shierholtz
New data released this morning by the Bureau of Labor Statistics show that 13.9 percent of the workforce was unemployed at some point in 2012, much higher than the official 2012 unemployment rate of 8.1 percent. How can this be? Each month, the official unemployment rate provides the share of the labor force unemployed in that month. But this understates the number of people who are unemployed at some point over a longer period, since someone who is employed in one month may become unemployed the next, and vice versa. So the official annual unemployment rate—which is actually the average monthly unemployment rate for the year—is much lower than the share of the workforce that experienced unemployment at some point during the year. Read the rest here.

New Paper From CEPR: Job Protection Isn’t Enough: Why America Needs Paid Parental Leave

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New Paper From CEPR
Twenty years ago, the Family and Medical Leave Act, or FMLA, was signed into law. The FMLA granted certain workers new and important rights, including the ability to take up to 12 weeks of job-protected leave after a birth or adoption, but it fell short in at least two important respects. Without downplaying the historical significance of the FMLA’s guarantee of job-protected leave for a majority of U.S. workers, this review of Census Bureau data from the first two decades of the FMLA suggests that the law had a limited impact on the frequency of parental leave and no impact on the likelihood that
parental leave is paid. Read the rest here.

John and Richard Toye on the Prebisch-Singer hypothesis: or did Prebisch wholly rely on Singer's work?

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Prebisch (center) presiding over an early meeting at ECLA (Furtado second from the right)
John and Richard Toye paper (subscription required) on Prebisch's contribution to the Prebisch-Singer Hypothesis has had a significant impact on the accepted view about the development their theory. They argue that in their view:
“of the events surrounding the United Nations Economic Commission for Latin America (ECLA) conference in Havana in May 1949 reveals that Prebisch did not discover independently that the terms of trade of primary products were secularly declining, but relied wholly on the previous work of Singer” [italics added]. In other words, they argue that while Prebisch is more well-known in many respects it was the work of Singer that was essential and original in determining the eponym hypothesis. Toye and Toye (2003, p. 443) do NOT argue that Prebisch was unaware of falling commodity prices, but they do suggest that he thought of this as being merely short run phenomena. In …

NYU Grad Students Secure Right To Unionize

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After a battle spanning nearly a decade between students, the National Labor Relations Board and the administration of NYU, graduate students who also work as employees — most of them as teaching assistants — will be the first private university students allowed to join a national union and collectively bargain with their employer. But unlike most unionized workers, NYU’s students won’t be covered under NLRB labor law. That's because, in a last-minute decision, the students decided to ditch their petition to be recognized by the board, and instead worked out an agreement with the school itself to allow unionization without governmental recognition. Read the rest here.

A Band-Aid Solution to Economic Development: The False Promise of 'Fair Trade'

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The process of economic development elicits many thoughts, analyses, speculations, suggestions, descriptions, prescriptions, and conclusions. Nevertheless, it invokes an imagined reality that is fundamentally progressive. It entails a commitment to the idea that we as human beings, in order to maximize our human potential, can, and should, try to change the world for the better. That is, it should be an attempt to reduce vast inequalities, social injustices, and hegemonic forces that intrinsically develop extensive imbalances of rights, privileges, and responsibilities across the world's population, and moreover deny many a condition of life regarded as materially, culturally, spiritually, and symbolically superior.

This paper is an exploration of the role of fair trade as an effective developmental initiative in promoting economic self-sufficiency for marginalized producers of the periphery. From Sen and Nussbaum's 'capabilities approach' for evaluating human well-bei…

On The Rise and Fall of Radical Political Economy In US

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The professional eyes of the [social scientist] are on the down people, and the professional palm of the [social scientist] is stretched toward the up people … he is an Uncle Tom not only for this government and ruling class but for any government or ruling class.  -Martin Nicolaus, “Remarks at ASA Convention,” The American Sociologist 4, 2 (May 1969): 155 The rise and fall of radical political economy in the US is rooted in the rise and ultimate decline of social radicalization there of the 1960s and 1970s. This radicalization was dominated by fuzzy New Left (NL) ideological critiques of American capitalism, notwithstanding that many radicals of the time rejected such critiques as inadequate.

By Al Campbell
Since the term NL was created to refer to everyone with a radical critique of the system other than the ‘Old Left’ (OL), it included many different strands of political thought and ideologies. In addition, in the early years of the NL in the mid-sixties, many prominent members an…