On Some Common Macroeconomic Fallacies Prabhat Patnaik

Fallacy 1: The interest rate in the Economy is High because the Fiscal Deficit is high The interest rate is the return on a particular asset, namely a debt instrument. It must be determined therefore as part of a stock equilibrium. The fiscal deficit is a flow concept. To say that the interest rate is determined by the size of the fiscal deficit is tantamount to saying that the price of a stock is determined by a flow, which is plain illogical. But, it may be argued, while the fiscal deficit may not determine the interest rate, it certainly affects…

Argentina : A cautionary tale from South America Jayati Ghosh

The comprehensive mess in Argentina today almost defies belief. At the turn of the year, the financial and economic collapse was near total, with banks closed, the state of the currency (and even its very existence) in some doubt, rapidly increasing unemployment, decline in almost all public services and shortages of liquidity that threatened access to basic food and necessary goods for survival for much of the population. cautionary_tale (Download the full text in PDF format)

Post-Crisis Korea James Crotty & Kang-Kook Lee

This paper evaluates the neoliberal economic restructuring process implemented in Korea following the 1997 Asian financial crisis. A detailed analysis of the macro economy, labor markets, financial markets, and nonfinancial firms in Korea in the past three and one-half years shows that neoliberal restructuring has created a vicious cycle in which a perpetually weak financial sector fails to provide the capital needed for real sector growth, investment and financial robustness, while real sector financial fragility continuously weakens financial firms. post_crisis_korea (Download the full text in PDF format)

An Alternative Policy Framework for India Jayati Ghosh & C.P. Chandrasekhar

The overarching implication of the spate of financial crises that have ravaged Asia, Russia and Latin America is of course that the threat of deflation, driven by a financial crisis is real. In fact, once integration with globalised finance proceeds beyond a point, the state of a country, as reflected by its GDP growth or inflation rate, or even the size of its foreign exchange reserves, need not be adequate to predict an imminent crisis. East Asian economies had performed very differently in the period immediately preceding the crisis, and Brazil despite "qualifying" for a $42 billion IMF package, could…

How the IMF Messed Up Argentina Mark Weisbrot

Argentina's implosion has the fingerprints of the International Monetary Fund all over it. The first and overwhelmingly most important cause of the country's economic troubles was the government's decision to maintain its fixed rate of exchange: one peso for one U.S. dollar. Adopted in 1991, this policy worked for a while. But during the past few years the dollar has been overvalued, which made the peso overvalued as well. Contrary to popular belief, a "strong" currency is not like a strong body. It is very easy to have too much of a good thing. An overvalued currency makes exports too…

The Riddle of Putin Boris Kagarlitsky

There is evidently some kind of natural law at work: if the business press and the leaders of the financial world name some country or other as a success story, then this is precisely the country where you can expect things to go badly wrong. Not long ago the newspapers were full of rapturous accounts of the Argentinian economic miracle. We were urged to study and reproduce the "Argentinian model". Now Argentina is on the verge of bankruptcy, unemployment has become a national catastrophe, and the population no longer believes anyone. In the recent parliamentary elections, voters crossed out all…