Krugman, Keynes, Kalecki, Konczal

I’m not sure how “recent” this shift is, if it’s a shift at all. He’s been yelling at the idiots for quite a while now. And people who don’t like having it pointed out that they’re wrong on the facts, theory, data and everything else have been whimpering about Krugman being shrill for an age.

I am annoyed by people abusing one part of one Kalecki paper, and ignoring the rest. Can I ignore 90% of a Krugman model?

Would Krugman even commit to paragraph one of Kalecki 1943?

“1. A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.”

I doubt it very much. Krugman 1998 still buys Ricardian equivalence.

“This sounds funny as well as perverse. Bear in mind, however, that the basic premise – that even a zero nominal interest rate is not enough to produce sufficient aggregate demand – is not hypothetical: it is a simple fact about Japan right now. Unless one can make a convincing case that structural reform or fiscal expansion will provide the necessary demand, the only way to expand the economy is to reduce the real interest rate; and the only way to do that is to create expectations of inflation.”

…while Kalecki’s article is getting new attention, it’s not all that obscure.

Well, quite. I’m a bit puzzled by Roger Farmer’s grumpy letter to Krugman:

http://www.rogerfarmer.com/NewWeb/WebPages/letter%20to%20paul.htm

Perhaps the most decisive break is that he no longer believes in sticky wages, a comment Farmer got angry with as he claims priority. Also people have now been saying that privately he now believes in endogenous money. So on the key theoretical debates he has made a decisive break with the ‘New Keynsian’ orthodoxy.

And in case I am not clear, or the Kalecki isn’t clear, the class interest of Capital is not power or freedom from gov’t interference or feudal privilege.

The class interest of Capital is accumulation.

Politics is determined by morality not economics. People will universally endure hardship to punish immorality. The majority may like democratic candidates, but they prefer conservative morality. The conservatives understand this which is why they hold power.

I stopped posting thus mantra on left economic blogs in 2012, trying to persuade them to strike a bargain with conservatives on education reform. Which they would have bought. But the left us just as fanatical in their devotion as the right. So its not one sided.

You might also put Krugman in context: austerity worked. It worked in both Europe and the states. It achieved moral ends. And it taught lessons: the lessons the productive people wanted taught.

Communism failed. Socialism failed. And much of democratic redistibutive socialism is failing.

When socialism failed the left in academia created and promoted Postmodernism: anti-rationalism. Now that their only hope is failing. They will resort to reactionary tactics that are even less rational than Postmodern irrationalities : diversity and equality.

Humans all demonstrate the moral principle of proportionality. But proportionality is dependent upon your moral code, and your moral code on your family structure and social class. (Reproductive desirability.)

Democracy cannot work across heterogeneous family structures. In particular not across single mother, serial marriage and nuclear or extended family structures. Bucause the morality if property rights differs irresolvably between them.

Economic reality, political data, and scientific research dismantling the progressive and postmodern religious beliefs are combining to accomplish what a universe of conservative and libertarian think tanks could not.

I should’ve read the Krugman first. If I had, a lot of the above would have been clearer at the outset. Even after the long, slow windup that arguably telegraphed it, I find the final delivery of K’s mini-manifesto pretty startling, even though I’ve long suspected that reality has a not-so-well-known Marxist bias. And being largely ignorant of the economics, if not the politics involved, I took it for granted that recognition of said bias was forever to be confined to the cranky ideologues of the defeated left, and the dirty hippies who imagined a better world despite being beat up on daily by those (almost everybody) who were more or less happily invested in the status quo.

Even at this late date, I admit to being pleasantly surprised. Perhaps even more surprises, less pleasant, but ultimately better for our collective future, are in the offing?

Brad DeLong was the first to point to the now famous Kalecki essay

Sorry, but this sort of thing sticks in my craw. Among anyone connected with the Marxist tradition at all, this essay is not “now famous,” it has always been famous. I rad it when I was 19 or 20, right at the beginning of my exposure to political economy, and that’s not at all unusual. Brad was not “the first” to point to it in any way shape or form.

Whether or not the point about full employment undermining the need for business confidence was central to Kalecki’s thinking doesn’t really matter -it would be just as important a point even if he had never said it.

Disagree. Economics is not just a collection of aphorisms.

A final point — this is why I don’t agree with John Q. that there’s no reason to read Kalecki, that the fortune-cookie version is enough. Economics is hard!

There is not, somewhere out there, a useful, realistic, coherent, empirically supported macroeconomics. Not in the mainstream and not in heterodoxy. It is not the case that “we” know the answers, if they would just listen — not for any value of “we.” If you want something better economics than what we’ve got, it’s not enough to grab one or two insights from Keynes or Minsky or Marx or Kalecki and just bolt it onto the existing structure. We need to build up an alternative systematically, from the ground up, and that’s really hard. It’s really hard to know what logical relationships fit both the data and the kind of story we want to tell, which assumptions are critical and which we can ignore, and in what contexts. Insight is not cheap.

Quiggin: “it’s precisely the centre ground of convergence that has been rendered most thoroughly untenable by the crisis”.

Krugman’s honest-conservative point of view has been a reference marker for a lot of people, including not-a-few economists outside the right-wing, a way of checking where true north lay, without actually doing any independent calculation or observation, let alone navigation. As Lee A Arnold notes, this could be quite disorienting. I don’t know how far Krugman could travel, before he begins to lose his attraction for people’s compass needles.

That reply to Farmer mentions the fact that Keynes’s General Theory grabs the reader’s attention. I read recently that Keynes didn’t think his views changed all that much in the years while he was writing it. What really drove him on was the sense that people just weren’t getting the message.

I wonder whether Krugman himself feels he hasn’t moved all that much to the left? He’s moved a bit, obviously. Maybe more importantly, he feels he hasn’t been ‘shrill’ enough?

I’m here to bat for the economics discipline. Although John Q is clearly a card-carrying member, I doubt he’d dispute that he is far in the tail of the distribution of economists’ opinions. I don’t attribute this to anything underhanded on his part, but rather to reasonable disagreement. (I hope he’ll extend the same courtesy to me.)

Endorsement of Kalecki’s argument (which he got via Konczal) that “hatred for Keynesian economics has less to do with the notion that unemployment isn’t a proper subject of policy than about the notion of shifting power over the economy’s destiny away from big business and toward elected officials.”

The “hatred” with Keynesianism among economists I know isn’t anything to do with political bias. Consider the simple multiplier idea, that people spend some fraction (the marginal propensity to consume, MPC, e.g. 0.8) of their income each year. Taken literally, this implies that lottery winners will spend 80% of their winnings within the next 12 months. On a more general (and relevant) note, the Keynesian approach does match the empirical evidence on consumption patterns at all. Friedman’s Permanent Income Hypothesis is far more in line with the data, albeit that the perfectly rational expectations idea is clearly much too strong. So you try and mix the two, and you get something like New Keynesian or behavioral macro. That’s where 90% of macro has gone for the past twenty years. There is no hatred of Keynes, and no politics in that.

Abandonment of the idea that the economics profession is engaged in honest intellectual debate, in favor of the conclusion that the rightwing of the profession, including leading economists, is characterized by denialism and bad faith.

Krugman’s portrayal of the economics profession as malevolent political hacks (be it claiming that the move from Keynesianism was politically motivated, or the outrageous suggestion that Reinhart and Rogoff actively behaved dishonestly with their data) is the clearest example of bad faith that I can see.

On a more general (and relevant) note, the Keynesian approach does match the empirical evidence on consumption patterns at all. Friedman’s Permanent Income Hypothesis is far more in line with the data, albeit that the perfectly rational expectations idea is clearly much too strong. So you try and mix the two, and you get something like New Keynesian or behavioral macro.

This is simply false. New Keynesian macro involves much stronger claims of rational expectations than Friedman ever made.

In The Sky: Consider the simple multiplier idea, that people spend some fraction (the marginal propensity to consume, MPC, e.g. 0.8) of their income each year. Taken literally, this implies that lottery winners will spend 80% of their winnings within the next 12 months.

You might like to take another look at Chapter 8, Section II of the GT, with particular regard to the discussion of windfalls. Keynes wasn’t a fool, you know; or do you?

Re: “Krugman’s … outrageous suggestion that Reinhart and Rogoff actively behaved dishonestly with their data is the clearest example of bad faith that I can see.”

I thought I followed the R&R issue closely at several blogs, and have no recollection of this. What I heard Krugman and others say was that a) R&R were generally great economists; b) in one specific paper they did a bad job (not limited to the spreadsheet error; the whole “90% tipping point” was an artifact of bad analysis); c) the 90% result was widely seized upon and trumpeted by austerians; d) R&R in congressonal testimony did nothing to restrain the austerians but rather urged them on.

Further to d), as I recall, in the paper R&R noted that they did not establish a direction of causality (debt–>low-growth or low-growth–>debt), however their congressional testimony seemed to imply the former direction.

I did not take away from my reading the notion that R&R had deliberately fudged their data, or lied to Congress, but rather they had made a bad mistake and were humanly at first reluctant to acknowledge how bad it was.

JW, on his blog Krugman routinely invokes the expectations hypothesis for long-term bonds, which while being about domestic bonds only is karmically pretty similar to UIP. On the other hand, his Nobel prize winning work doesn’t use rational expectations. So he’s all over the map on the question.

In the sky, the idea that R&R deliberately cooked their data has probably literally occurred to every economist in the world. Krugman only said what everyone was wondering.

This is simply false. New Keynesian macro involves much stronger claims of rational expectations than Friedman ever made.

I don’t want to get into semantics here, but I didn’t claim that. I said “something like New Keynesianism”. NK is neo-classical with “problems” with money and price-setting that give you scope for government intervention. If consumers have “problems” with the complex decision-making, you get scope for government intervention.

It was not a false statement.

If most economists are not hacks, why did they not speak out broadly, generally, and continuously against austerity in this economic crisis, which has put tens of millions of people onto lifelong expectations of lower incomes?

To be quite literal: the reason why most economists did not speak out is because it is not most economists’ area of expertise. Accounting for econometricians, a little less than half of economists do micro and a little less than half do macro. Of those that do macro, you have people looking at everything from inflation to explaining long-term growth, the effect of trade with China on US employment to variation in inventories, etc. Why the fraction left over didn’t speak out about austerity? Well, I dunno. My best guess is because they under-estimated the importance of the zero-lower bound, partly because of a lack of appreciation for economic history. No doubt some did so because austerity sat better their political persuasions.

As intellectual history, this is way off. The arguments about the consumption function took place in the 1950s, and there were plenty of behavioral ideas on the Keynesian side (for example, Duesenberry). The kind of compromise you want was generally accepted by 1958.

I don’t dispute your claim but, to be fair, I wasn’t trying to chronicle the full history. I was giving an accessible example of why economists will state they “prefer” Friedman to Keynes, entirely separate to any kind of social democrat vs libertarian debate. I’m happy to accept that certain elements in macro are engaged in subconscious confirmation of prior political beliefs, but I dislike what appears to be the commonly held view that the entire profession is engaged in a political play. I think posts like yours unfairly continue to spread that view, John.

I thought I followed the R&R issue closely at several blogs, and have no recollection of this.

To quote Reinhart directly,
“You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts. Now you have doubled down in the New York Review of Books, adding the accusation we didn’t share our data… The accusation … is a sloppy neglect on your part to check the facts before charging us with a serious academic ethical infraction… Our interaction with scholars and practitioners working on real world questions in our field is ongoing, and our doors remain open. So to accuse us of not sharing our data is an unfounded attack on our academic and personal integrity. “

In the sky #35: “To be quite literal: the reason why most economists did not speak out is because it is not most economists’ area of expertise. Accounting for econometricians, a little less than half of economists do micro and a little less than half do macro. Of those that do macro, you have people looking at everything from inflation to explaining long-term growth, the effect of trade with China on US employment to variation in inventories, etc. Why the fraction left over didn’t speak out about austerity? Well, I dunno. My best guess is because they under-estimated the importance of the zero-lower bound, partly because of a lack of appreciation for economic history. No doubt some did so because austerity sat better their political persuasions.”

–I see, the answer is division of labor within the field. Of those that do macro, the people “looking at inflation” and “explaining long-term growth” presumed that these are unrelated to a short-term problem in which the two main austerian claims against action is that spending will lead to inflation and that the problem is really a structural problem in long-term growth. The “fraction left over” (that is not swayed by political persuasion) no longer underestimates the importance of the zero-lower bound, but is still missing from the debate because — why? — it isn’t their place to be in a debate?

How very unfortunate that they have not taken to heart Adam Smith’s observations:

“the division of labor is infinite, and every one’s thoughts are employed about one particular thing…. The minds of men are contracted, and rendered incapable of elevation. Education is despised, or at least neglected, and heroic spirit is utterly extinguished…

“The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging…”

The claim the R&R behaved dishonestly with their data is not limited to the question of sharing it.

http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/

@40: … the political or market power to secure economic rents may be a pre-requisite to the making of the sunk-cost investments required for innovation, because the rents enable a return on the investment.

For innovation what is required is research, and research requires investment, in time and facilities. The return-on-investment is only motivation, and cheap-soap snake-oil motivation it is. What actually motivates engineers (I am/was one) is the chance to do engineering. It would seem really what motivates mangers is the chance to do managing, and so it goes. The time and the money for facilities are floating around generally, they are going to be used on something, fulfilling somebody’s desires. What the rents are required for is so that the forsaken Capitalists can do their sociopathic Accumulating.

mud man @ 43 . . . research requires investment, in time and facilities. The return-on-investment is only motivation

I was thinking financing, but hey!

The time and the money for facilities are floating around generally . . .

Problem solved! I’ve heard of people floating a loan before, but I never made the connection. Thanks for that insight.

Financial capital only has one function: insurance. So, yes, increased financial volatility can enhance returns, even or especially when those returns derive from essentially extractive activity, which reduce the general welfare: casinos / loan sharks / health insurers / education reformers / pay day lenders / the people who want to rent you your entire life and put you in for-profit prison, when you cannot pay enough.

In a hierarchical society, elites have power, and people with power are not to be trusted. This is an, at best, imperfectly solvable problem. Even in a society not so corrupt and incompetent as to consider Larry Summers a viable candidate for Fed Chair.

You think Glenn Hubbard or Tyler Cowen or Greg Mankiw are working for free? That they are inspired by pure-hearted public spiritedness? No. Top-hatted capitalists have hired them to keep the workers down.

As for R & R, they’re still trying to argue causation in increase of debt/GDP ratio as running largely from increase of debt on what seems to me a dubious basis: the longevity of increases in debt/GDP ratios once established. This is the “trivial” side of their terrific triviality two-step, but does even it stand up?

Hold the increase of debt standard over an entire period. Assume that initially debt/GDP ratio is constant so that the debt grows at the same rate the economy does. Then there is a recession. GDP goes down, debt accumulation remains the same, so the debt/GDP ratio increases. Three years later, growth returns to its previous rate. The debt/GDP ratio is again stable, but it has stabilized at a higher level due to the three lost years of growth. In this simple model, there is no reason to suppose the previous ratio would *ever* be regained, yet the driver has been entirely changes in GDP, not debt. Of course, recoveries do tend to have higher-than-average growth for a few years, but sufficient to erase the effects of the recession without any increase in debt during the downturn or recovery? I think that would need to be demonstrated. Just pointing to the longevity of the increased ratio doesn’t support that.

John Quiggin @ 49

My take on your approach: the people who think that Marx was onto something aren’t all pessimists, nor are they all academics. Moreover, Marx went to war with the underclass he had, not the one he wanted, nor the one we have now, after another 150 years of capitalist evolution. That’s all he’s guilty of, really, which means that we probably let the Very Serious People put him back in the box too soon.

Perhaps something very similar is true of our retirement of Malthus. Brad DeLong’s recent summary of how — and why — that quintessential pessimist got directed onto a siding is a pretty good one, even if it only nibbles around the edges of Bruce Wilder’s insight that escaping Malthus’ dismal arithmetic isn’t in the end as simple as relentlessly reducing the cost of commodity production until hell \ agrees to give up the struggle and obediently freeze over.

We do need a novus ordo seclorum, one which necessarily recycles a lot of what we know now and what we used to know but have forgotten, and re-contextualizes it. What is production? What is justice? What is the Good Life? What have the division of labor and the relations of production actually done to the practice of family, community and civil society? How do we fit our aspirations on the planet without immiserating or killing 2/3 of its present human population?

Both in theory and in practice, we need a lot fewer Koch brothers and sisters, and a lot more Erik Olin Wrights. I’m tempted to say to economists, Now, see to it! but I know full well that it isn’t their job. I guess we’ll just have to see who and how many and what kind step forward to help.

I don’t think Malthus was the quintessential pessimist. Actually, I do not think he was a pessimist at all. In what I read, he thought getting people better access to education was going to help them make better decisions whilst just giving them the charity rich people were willing to spare was going to create more misery. Education trumps charity. Maybe he was pessimistic about there being a real chance of people getting properly educated & getting beyond the view – which is becoming more and more popular again on the right – that the only thing poor people are entitled is charity. I guess so, but then he was at least not always right to be so pessimistic.

In #54 I should have written, “hewing to the status quo USUALLY gets the least people hurt,” because it is “always” only to the conservatives, and it is becoming demonstrably false in regard to growing inequality and to climate change.

@35, quoting one side of a disagreement does not establish bad faith on the other side, especially when, as shown by subsequent commenters, the claims quoted are eminently disputable. I had read Dr. Reinhard’s Open Letter (and several responses to it) so it was included in my original assessment and does not change my opinion (which is that your claim of bad faith stands unproven).

@ Bob McManus

How is Marx unpalatable?

Or I should ask, is any part of Marx palatable?

As a philistine, I thought that the events of 1989-1991 (collapse of Soviet Union) would have buried Marx for good. But the man just won’t seem to die.

So, if we are still talking about him, and in recent years he’s seemed to gain some traction, I figure he must have got some things right.

But what?

Then I saw this 10 minute piece by (Marx scholar) David Harvey (animated excerpts from a larger lecture): http://www.youtube.com/watch?v=qOP2V_np2c0

In it Harvey confesses, “I don’t know the solution but I think I know something about the problem” (paraphrased).

Then it hit me.

Marx seems to be good at problem definition but proportionately bad at solution definition. (That, in my view, goes to Keynesianesque views, i.e. mixed economic system). The Russians have a joke: “Everything Marx said about Communism was a lie, unfortunately, everything Marx said about Capitalism was the truth.”

His failure at Solution Definition (kill capitalism and all the capitalist) shouldn’t keep us from acknowledging his success at Solution Definition (pure capitalism and “the inherent contradictions of capital/wealth accumulation”, [aka ‘the rich get richer and the poor get poorer] – i.e. extreme concentrated wealth in a society, not really new as it is considered the main contributing factor to the fall of the Roman Empire [See North, ‘Structure and Change in Economic History’ p 100-115]).

If I understand it correctly (and, again, I am philistine) Kalecki is an important contribution: the link or the perhaps better expressed, the wedge between problem definition (Marx) and solution definition (Keynes) and the difficulty of going from point A to point B.

But if Marx is not palatable because he was wrong on solution definition, doesn’t that get in the way of arriving at proper problem definition? And if we find Kalecki unpalatable because of his proximaty to Marx, doesn’t that get us in the way at arriving at solution definition? And then, doesn’t that leaves us with a great big mess?

A general comment on R&R.

Researchers in other fields who have behaved similarly have been subjected to disciplinary proceedings and investigations. In some (psychology, engineering) tenured professors have been sacked for similar offences. It says something about the low standards in the economics profession that the knee-jerk response of so many academic economists is to defend R&R rather than look after the integrity of the profession.

“The public choice school has routinely represented economic arguments for government intervention as the product of rent-seeking by interest groups, and the economists who make such arguments as pawns or hirelings of these groups.”

Maybe they could be thought of as the product of rent-seeking on behalf of scientifically-minded, democratic, Rawlsian interest group(s), that is, everyone but the one percent, the public choice school’s constituency.

Sometimes I bore myself but I must object to John Quiggin

“The big problems arose out of the Phillips curve, as I’ve discussed before. First it was oversold as a stable trade-off by Keynesians [citation needed].”

Which Keynesians when ? We agree that those Keynesians do not at all include Phillips or Samuelson and Solow in 1960. Such a claim should be supported by citations. I think it just will not do to say that everyone knows it is true. There are many things which are generally agreed to be true and demonstrably false. I refer you to James Forder at Oxford.

http://www.economics.ox.ac.uk/index.php/academic/james-forder

He claims to have looked and looked or Keynesians selling the Phillips curve as a stable tradeoff. I think he found a report to the Canadian commission on price stability or something.

I will just google.

Also. by the way, I ask what does the PIH fit which aren’t fit by a model of habit formation and myopia ? Is there any evidence that expectable changes in aggregate income affect aggregate consumption ? I am quite serious and ask for information.

61: I meant Marx was somewhat unpalatable to Kalecki’s western audience.

Basically I think the 1943 paper is political. Although it does not contradict Kalecki’s economic system, it doesn’t reveal much of the details of it. As I remember, there was a dispute at the time between Keynes and Kalecki (although by no means only them) on how to finance the British War effort, with Keynes tending toward more taxes and Kalecki more toward deficits and borrowing. The “Kalecki side” won.

More generally, I see the 1943 paper and Kalecki’s project before he moved back to Poland as a) of course prosperity and growth and business cycle etc, but b) sneaking mixed capitalist economies toward socialism and communism. Kalecki was a Marxist and full employment and managing effective demand and the rest were tools toward political democracy and socialization of investment as much as stabilization and growth policies. So, for instance, maintaining full employment via continuously increasing national debt with interest paid by taxes on capital would lead to the “euthanasia of the rentier class” in a few generations. If you can manage the politics.

I have been spending some time this week reading papers, especially Marxist papers, on Kalecki. Michael J Roberts and Dumenil & Levy have some available work. Consider me halfway between Marx and Kalecki right now.

This A Phillips Curve Retrospective, 2009, ed Luhrer, et al. Includes an intro by Samuelson, a roundtable between Mankiw, Solow, and Taylor on the history. Nobody seems to admit to the “stable trade-off.” “Some folk somewhere” kinda stuff. The Lawrence Ball on hysteresis and the article on Israel CB were good.

I’d rather like Prof Krugman to discover Sraffa next. The core insight that I took from Production of Commodities by Means of Commodities is that the division of surplus between labour and capital is determined by factors exogenous to production/distribution/consumption, not the “marginal productivity” of the various factors. Sraffa thus provided a rigorous way to incorporate non-economic power into economic analysis. Krugman still seems to struggle with this issue when he needs a rebuttal for those like Mankiw who say “if the 1% have grabbed the lot, it must be because their marginal productivity is huge” (not a direct quote, obviously, but not far off). The only explanations he has put forward for the declining labour share of GDP are
“capital biased technological change” and an increase in monopoly power. From his column “Robots and Robber Barons”: http://www.nytimes.com/2012/12/10/opinion/krugman-robots-and-robber-barons.html

“Why is this [declining labour share] happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.”

Now I would have thought just about anyone could come up with a third plausible explanation, which is the US’s relentless smashing of organised labour since the Reagan era (including/combined with increased use of illegal migrant labour, offshoring, etc) has dramatically weakened worker bargaining power and led to a macro shift in the distribution of surplus. Furthermore, the evidence for the war on the US working class and their organisations can be seen everywhere and in every newspaper, unlike automation-gone-mad or the reincarnation of massive monopoly trusts. But that means letting Sraffian extra-economic class power dynamics be a macroeconomic determinant. And Prof Krugman doesn’t seem capable of doing that yet. Maybe if he reads some more Kalecki. Still, Samuelson was at least partially convinced by Sraffa, so there’s hope.

Re Samuelson and Solow, I don’t know how 170s-era textbooks presented it (that would be a great research project!), but I do know that in the original essay, they gave equal weight to supply-side adjustments as to shifting expectations, as reasons for the tradeoff to be unstable. In other words, it’s just as possible for the Phillips Curve to be more or less horizontal in the long run, as it is for it to be vertical. This is supported by more recent work on hysteresis.

So if the idea of a stable Phillips Curve tradeoff was wrong, it may have been in the exact opposite direction as claimed by Friedman and Lucas. It may been, in a sense, undersold rather than oversold.

75: From what little I have read, I am not a big fan of Dumenil and Levy. I do read stuff I disagree with, and I did realize that people I listed, including Roberts, were critical of Kalecki. Why don’t you try the Michael J Roberts threads on the inevitability of the falling rate of profit? Carchedi and Kliman showed up. I was impressed.

On Samuelson, Solow and the Phillips Curve, the non-existent controversy over whether the Phillips Curve was ever thought to represent a stable trade-off is a bit of a distraction. The main event, taking place behind the curtain, was the import of the Solow Growth Model into macro, where it remains a very poorly examined feature of all mainstream macro reasoning about aggregation, investment, “equilibrium” and the scope for government policy.

Quiggin has the date right for when it all went wrong, but misidentified the poison pill: the poison pill was the Solow Growth Model.

Everything that one might reasonably expect to have mattered in the experience of the last 70 years is obscured: the continuing struggle over income distribution, the role of energy (aka petroleum), the importance of taxing economic rents to the fiscal regime, the importance of rentiers to the politics, the role of money and financial institutions. All one has is a completely faulty, fairy tale relation of capital to technology to “growth” undifferentiated as to income distribution. And, then the Phillips Curve is presented as the appearance of a tradeoff between the interests of capital and labor, in a managed political tradeoff between wages and inflation, and declared to be a mirage!

@Quiggin vs Waldmann

Oddly enough, I can point to claims of a stable PC after 1968, but not before. It is almost as if Friedman’s strawman argument made his critics harden their position thus breathing life into the strawman — a sort of self-fulfilling prophecy.

1. James Tobin (1972):
Inflation and Unemployment
Cowles Foundation Paper 361
American Economic Review, 62, 1972

2. Gardner Ackley, who was a member and head of the CEA in the 1960s:

“However, the notion that there was a *stable* Phillips curve tradeoff did not capture the support of the economists most closely associated with formulating monetary and fiscal policies, at least in the United States. The writer believes that a careful study of the Annual Reports of the Council of Economic Advisers for the years 1961-1968 will discover no reference to any such stable trade-off.”

However, he continues …
“However, it did creep into the 1969 Annual Report — see Chart 8, page 95”

Macroeconomics: Theory and Policy
Gardner Ackley (1978)
Pg. 440, fn. 15

It would be interesting to explore the question whether Friedman 1968 was actually the genesis of the belief in a stable PC — by making his opponents harden their position.

@JW Mason, this reminds me of what you were writing about a while back about Harrod’s knife edge and the dynamics of long-term growth:

I think the vision of cycles and crises as endogenous to the growth process, indeed constitutive of it, is a better, more productive way to think about the evolution of output than a stable equilibrium growth path occasionally disturbed by exogenous shocks. The idea of accelerating demand growth that sooner or later hits supply constraints in a more or less violent crisis, is just how the macroeconomy looks.

This seems to me to be a productive direction for mainstream economics to move towards, to the extent that they’re not just hacks in service to the ruling class. Especially because it seems that the troughs of the business cycle are highly dependent on government policy.

Since we’re discussing Kalecki, and I happen to have come across this while looking to make a point about the pessimism of his work (I’ll get to the below), this discussion of his differences with the Harrod-Domar model is interesting:

The idea of steady growth was well known in classical economics: savings are accumulated and transformed into investments which in turn generate growth. Innovation, which is prominent not only in Domar but also in Harrod, takes for its starting-point not accumulation changed into investment, but investment decisions, and then it is argued that investments below the requirements of balanced growth cause a breakdown, disturbing the equilibrium and giving rise to a cumulative downward movement.… Domar’s theory can be interpreted as a pure demand model, but then it ceases to be a growth theory. If balanced growth appears in fact unstable, then it really is non-existent.… According to Harrod, this shows with cyclical fluctuations around the trend line, but I have tried to show that it ends in cyclical fluctuations around a quasi-static position and exogenous factors are required to ensure a lasting long-run development.

I’m not sure I’d go as far as Kalecki does in calling all factors that cause growth exogenous to the dynamics of capitalism. But I’d rather err on that side, rather than the mainstream side that Krugman seems to be abandoning.

@Bob McManus, @Tim Kane, on the subject of Kalecki’s pessimism, I’d recommend the book Kalecki’s Economics Today, and specifically the chapter by Tadeusz Kowalik “Kaleckian Crucial Reform of Capitalism and After.” Kowalik collaborated with Kalecki on the latter’s final paper in 1971. At that time, Kalecki had apparently become uncharacteristically optimistic about capitalism as it then existed, coinciding with probably the high-point of working-class power within the system:

Let us imagine that the strong pressure of the masses leads to such a radical reform of the system, in spite of the opposition of the ruling class, that, without abolishing existing relations of production, a new valve is opened for the development of forces of production. There will then be a paradoxical situation: a ‘crucial reform’ imposed on the ruling class may stabilize the system, temporarily at least. As we argue below, we have to do with just such a system in contemporary capitalism.

Kowalik’s article gives a good overview of how history actually panned out in terms of Kalecki’s ideas of “the regime of the political business cycle,” “capitalism of full employment,” and “crucially reformed capitalism.” That first two are discussed in “The Political Aspects of Full Employment,” and the last one was what he was developing at the end of his life. Seems to have been something of a pipe dream, alas.

Bruce Wilder @ 82
Good point, although I normally think of the rentier FIRE sector as taking their pound of flesh out of gross profits/surplus rather than out of wages most of the time – that is, it’s all within the income-to-capital side. Perhaps this isn’t as true as it once was given the 1980s-2010s boom in consumer credit.

The broader point is that Krugman recognises the evidence for these alternate stories (the private debt boom and bust, assaults on unions by Republican governers, etc) as bad at a social and micro-sort of level, but doesn’t seem to be able to connect these to macro distributional shifts – to explain those, he still wants a politics-free New Keynesian story about technological change and/or market monopoly power.

Now Krugman seems to be groping around for a way to incorporate political power into his framework so as to explain the blocking of fiscal policy, but falls back on another “technical” solution of “macroprudential” policy – which is presumably supposed to be administered by the same institutions (the Treasury, the Federal Reserve, the SEC, etc) which have all been captured by the interests they were supposed to regulate this time around. I don’t see why he thinks a new era of macroprudential regulation wouldn’t be repealed or neutered, just as the old one was, as soon as the lessons of the crisis can be swept under the carpet. He’s just setting up the dominos for another Minsky-type growth-boom-bust cycle with this approach.

@56: no, I don’t think it would be good to be governed by somebody like Malthus, not at all. I don’t get your analogy to do-gooders though. I really believe Malthus was sincere in thinking that first and foremost people should get education and – once they got it – that they would make better personal & public decisions. That’s in itself not harsh and it’s also in an admittedly warped way very optimistic. What is harsh is the thought that things will need to get worse before they get better.

Jeremy @83,
I don’t particularly like this formulation (admittedly from JW Mason – but you quote approvingly):

“I think the vision of cycles and crises as endogenous to the growth process, indeed constitutive of it, is a better, more productive way to think about the evolution of output than a stable equilibrium growth path occasionally disturbed by exogenous shocks. The idea of accelerating demand growth that sooner or later hits supply constraints in a more or less violent crisis, is just how the macroeconomy looks. “

It sounds too like “Austrian” business cycle theory, and in fact I think the wall that gets hit is often financial not supply (not that I deny that energy constraints didn’t contribute to the current problems – but I don’t think this extends to past crises). I also don’t believe that sustained “balanced” growth is possible (I think that every industry goes through a hysteresis curve so that there are bound to be periods of heavy investment and periods of heavy disinvestment in each industry). This doesn’t necessarily cause swings (as different industries don’t have to be in phase with one another) but I also believe as you are hinting that the structure of the economy is not independent of its macro history (i.e I don’t like the global equilibrium paradigm). We need a more dynamic, more disaggregated macro. But we shouldn’t forget my first point – financial stocks and flows drive most of the fluctuations in the economy.

james haughton @85

“The broader point is that Krugman recognises the evidence for these alternate stories (the private debt boom and bust, assaults on unions by Republican governers, etc) as bad at a social and micro-sort of level, but doesn’t seem to be able to connect these to macro distributional shifts – to explain those, he still wants a politics-free New Keynesian story about technological change and/or market monopoly power. “

I understand your point, but I also understand Krugman’s view. Ultimately, money flows in a cycle. If it is accumulating at one point, it is missing somewhere else. Banks and governments can (subject to political constraints) inject new money into the cycle to maintain full employment. The question is always (without market monopoly power), if wages are falling (i.e. purchasing power is falling), why aren’t price falls offsetting it. Just talking about labour politics is not quite enough to fully explain what has happened.

I’m impressed by the work of secular cycle theorists in sociology – people like Peter Turchin, Jack Goldstone and Michael Mann, who tie together the ways resource availability, innovation and social structures interact. I’m less sure what one would do with this knowledge – as with population, where it’s easy to make remarks about too many people, less easy to see what to do about it.

reason at 89 – “money flows in a cycle”. Maybe, but there is good reason to think it’s not a closed cycle, so what is missing in one place need not show up in another.

@Rakesh Bandhari
Your hypothesis implies that workers are idle in a crisis because their wages are too high, but I think that in Kalecki’s theory crises happen because wages are too low, and in fact when the government pumps demand in the system it tends to empower workers (who are less dependent on private capital) .
I think that, both in Kalecki and in Marx, an high profit share on total income leads to a low profit rate on total capital (since capitalists are supposed to reinvest profit in new capital goods).

Well the problem is that Paul Krugman (as a representative of standard economics) wants to retain access to mathematical modeling for disprovable hypotheses, i.e. “science”. But we are not going to be able to “math up” Kalecki, or Herman Daly or Dierdre McCloskey or John Kenneth (or indeed James) Galbraith or… name anyone else whom YOU think has import into this discussion. Indeed, the mathing-up would already have been done, by now. Kalecki’s “rejection of utilitarianism, marginalism, equilibrium and methodological individualism” [Dan Gay #94] doesn’t leave us with much that is possible to model: those very things are the necessary prerequisites to making the “equals” and additive and multiplicative properties, in mathematical EQUATIONS. Purely logical relations (e.g., to model “social power” conditions) won’t give you quantitative predictions; at best you end up with lattice theory or topology, and they are not conducive to realworld policy, to say the very least. They don’t even get theoretically very far, without veering off into sterile intellectual exercises (look at the slowdown in the recent new growth theory). I think Krugman understands this, and much of the criticism of Krugman for not going all the way into Saving-the-World is fatuous, because that criticism ignores the huge critical philosophical discussion of the method that Krugman is hoping (against hope) to save. It is a philosophical discussion that Krugman himself appears to have barely read up on, though he seems (to me) to be heading in that direction. And he is heading that way because we are ALL quickly approaching the vast and damning reality that we must idealize a complex system that contains, not only money running in defined channels, but also power relations, changeable human preferences, innovations, the emergence of new ideas, and last but certainly not least, outer environmental problems (which has its OWN different complex system). All of these things, every one of them, is stuff that mathematics can hardly model: certainly not to any useful, predictive result. Even before you throw them all together. It doesn’t even matter if you put it into a computer. We are getting to the point where we have to find a way to change everybody’s preferences quickly. We are not merely approaching it, we are being forced into it, because it has gotten so large that it threatens global social and ecological stability.

Lee A. Arnold @ 95

Yes, the economy is something people do, and not something that does itself.

Random Lurker @ 93: an high profit share on total income leads to a low profit rate on total capital

I cannot speak to Marx’s thoughts on this, but there’s definitely a paradox at work. Certainly, we should expect that a high wage share would be associated with a high rate of investment — one would beget the other; the causal relationship is reflexive. And, a low wage share in total income might beget a high profit share financed by net disinvestment, which is where I think the U.S. is, at the moment.

Speaking of a profit rate on capital, as a parameter, may be a bit misleading, since profit rates and such are financial artifacts. It would be better to think of the normal situation of capital accumulation as a bowl of money filled to overflowing. The lip of the bowl represents the sometimes indifferent efforts of the financial sector to contain the flow of funds, and not so much find productive applications in assembling resources in real investments, as to avoid pouring the funds into toxic investments with negative net present value. The argument for something like a Minsky cycle is that the financial sector profits from gradually lowering its power of resistance to bad investments. With the help of Greenspan and Bernanke, the present cycle may have gone even further than usual into the territory of parasitic financial investment, as I pointed to @ 82 above, creating vast quantities of financial investments, like student loans, which are toxic (aka have a negative social rate of return and net present value — their nominal financial returns to investors represent costly transfers of income, not net additions to income).

and much of the criticism of Krugman for not going all the way into Saving-the-World is fatuous

Thank you, Lee. I think Krugman is keenly aware of the difference between facts and desires. He grounds his thinking in facts and that means using models to make tractable arguments. He understands that his personal opinion about what is fair is just that. It only carries the weight his audience gives it. But my idea of what is fair, like anyones, is merely an opinion and ultimately a desire.

And I think a hazard of human nature is that when people of similar minds congregate, like on Crooked Timber, there is an inevitable tendency towards one-up-manship. People gotta out-lefty each other, and that really makes insularity a problem.

Peter T @91

I think we do know what to do about excess population. It is just that people are in denial, because the powers that be don’t like it. Population falls with a combination of aged pensions, compulsory education (especially of girls) and modern medicine (in particular enabling contraception and decreasing child mortality). In the right wing dialog this is changed to increasing wealth reduces population growth (whereas the story seems to be more the other way around). Saudi Arabia and Kerala are good counter examples to the right wing story.

“Thanks, Herman, I didn’t know this.”

But you still felt the urge to attack Krugman over a situation you had not researched? Well that is interesting…..

Interesting discussion. For what its worth I teach Kalecki’s 1943 piece every year right after my class reads the General Theory. David (at 88) gets the three points right, but if you pay attention to the first two, what they add up to is full employment leads to costless (near) job switching, which in the context of a unionized labor market, not only reduces the fear of the sack, it hits firms profits hard, especially if the line can be held on cost push inflation. This dynamic came home to roost in the 1970s and the result was precisely the remobilization of business and the clear out of demand side economics as a part of that revanche. If anyone is interested I did a book on this once but swapped out the Kalecki for Knight. Given today’s developments, that may have been a mistake!

http://www.amazon.com/Great-Transformations-Economic-Institutional-Twentieth/dp/0521811767

“Mulligan is a liar, pure and simple. At that point, his published work doesn’t matter, unless it’s been independently verified.”

BTW, Noah Smith on Noahpinion had a nice piece, showing that Mulligan’s claims about unemployment and the Great Vacation Depression are pretty much in violation of the laws of economics, pure and simple.

The Economics Profession in the US has historic ties to business as it’s main supporter, so it’s not surprising that there has been a bias to analysis. It’s somewhat akin to how hard it was for philosophy in Europe to wean itself from religion.

Krugman does great work in weighing in on forums not particulary friendly to an Economist with progressive leanings. I don’t always agree with him, but he’s a refreshing break from the usual pundit class.

To Curt and BW’s moral judgements in economics, this came up recently in a forum here

http://ser.oxfordjournals.org/content/11/3/601.full.pdf+html

The exchange noted in 107 looks very interesting indeed; I will find the time to read it! One should not underestimate the depths of the moral crisis. In Boltanski’s language the little people don’t see how the great people are of use to them: the great people do not make any contribution to the common good, and it is difficult to see what investments that they have made or difficulties overcome to occupy one of the few great positions. The great people are understood to be investment bankers, shadow bankers, hedge fund operators, currency manipulators, inside traders, hostile take-over artists all of whom are highly leveraged and bearing little risk of their own while they play to their advantage zero-sum games. The populist moral opposition is, in my opinion, more likely at this point to become fascist: it will scapegoat immigrants as hostile and parasitic others and financiers as the sole putatively Semitic, intellectualist embodiment of capitalism. The “moral” opposition is thus likely to be anti-intellectualist and unthinkingly nationalist as well as ineffective and dangerous.

Some good stuff at what I presume is the tail end of this thread.

Rakesh Bhandari @ 113 — I have some tiny quibbles and trivial extensions to offer to your excellent comment.

I think hierarchy — the vertical contract between the great and the small — can be mutually beneficial: a positive-sum game. It doesn’t have to be. And, with regard to the banksters and the globalizing elite, it would be more accurate to call it a negative-sum game, not a zero-sum game. Their characteristic intervention is to break a contract, ending a mutually beneficial, productive relationship. They are disemploying people, and stealing pension funds and the like, in order to reap a transfer payment. Vulture capitalism. Vampire Squid. Parasites careless about the health of their host.

As for the fascist option, I think this might be a time to remember that history doesn’t repeat, though it may rhyme. In the early and mid-20th century, there was tremendous scope for a positive-sum game between great and small, elite and masses, as millions could man the novel industrial machinery of mass production. Even the pathological fascist and communist gambits contained at their core attempts to realize those positive-sum possibilities from hierarchical organization and cooperation.

What’s different now is that we have over-reached the carrying capacity of the earth. The elite — the “Deep State” is the internet buzzword this week — are cashiering democracy, by which elite governance was legitimated by liberal Enlightenment standards from the beginning of the industrial revolution in the 18th century, for a total surveillance state, hoping that the computer and communication revolutions make possible cheap control and that control can be managed from on-high (without enlisting all that many into the new Stasi — automation of those functions through Google and Facebook, iPhones and credit cards is what Snowden revealed) with the purpose of repressing the resource demands (if not the carbon emissions) of the masses, as productivity begins to plummet with a collapsing ecology, peak oil, etc.

The moral problem is the pathological irresponsibility and lack of empathy among the Masters of the Universe, who are driving all of this forward. As political legitimacy declines with the realization that democracy is no longer responsive or operative, the Masters of the Universe, despite their mastery of teh Google and associated apparatus, may well underestimate the emergent appeal among the formerly Middle Class of the bob mcmanus option.

“the Masters of the Universe, despite their mastery of teh Google and associated apparatus, may well underestimate the emergent appeal among the formerly Middle Class of the bob mcmanus option.”

I don’t think it’s likely to be the mcmanus option, but rather a popular hero a-la gaius julius caesar.

Re : incoming fascist overlords

In my opinion, any social system has some fundamental moral rule, without which the system would crumble.
For capitalism it is “work ethics”, the idea that people should be valued by how hard they work.
However, because of the way a capitalist system works, only workers (and maybe really small entrepreneurs) are really subject to work ethics, and then in a uneven way.
When the system goes into crisis mode, the people tend to search a scapegoat, and search for someone who doesn’t follow the ethical rule.
Those people are:
– unemployed people, unless a clear message that they are involuntary unemployed is heard (although when unemployment is really high everyone has a relative or a friend who is unwillingly unemployed);
– people we presume don’t follow our moral codes, such as immigrants or minorities (so immigrant unemployed are always lazy criminals);
– powerful people whose power isn’t linked clearly to hard work, such as politicians and bankers (but not capitalists of the “real” economy, who hide behind the hard working small entrepreneur character).

Those are in facts the “bad guys” historically identified by fascism.

But, since most people don’t really want to change the system radically (in fact most people don’t think that people like hideous bankers are a normal result of the system, but a corruption of it) the result is that some popular hero (to use Mao’s wording) who embodyes the symbols of morality shows up and beats the “culprits” in the name of the volk and of that part of the elite who is not identified as the problem .

So I think that it is very likely that we’ll get some nice fascist overlord before the bolsheviks, unless most people realise that all those figures are just scapegoats and the problem is simply that wages, in a capitalistic system, don’t keep pace with productivity.

“considers themselves left-of-center holds property rights sacred”

should be “does not hold”

I hate wasting space when my intention should be obvious, but should have gotten it right the first time.

122: Post-Politics does not at all mean “giving up”

The bob mcmanus option. I like it. One way to slip around the NSA’s hoover nozzle might be to declare ourselves members of the Bob McManus Society. What’s that? they’ll say. A social service organization, we’ll say, like the Lion’s Club, or the Odd Fellows. See…no little red book here.

Seriously, I gather from their collected CT comments that I’m in the same boat with bob and Bruce, where, in all modesty, I should probably confine myself to the rower’s bench, and leave the steering and navigating to those who’ve actually trained for it. I’m also sympathetic to JW Mason’s attempted resurrection of the optimism of the will, but I find it hard to see where that will can find any purchase these days, especially if we’re talking about the collective will.

But maybe that’s the whole point. Given our very late re-emergence in the U.S., and in the West generally, from the illusions of the Cold War and the Great Moderation, I’m still in shock, and I’d prefer to wait a bit before adopting a new set of illusions. The truth is, it’s a lot easier to comprehend what didn’t work in the past than what might work in the future. Age and experience are, after all, one of the strongest depressants known to medical science. I tell myself I’ve been there and done that, and I’ve got the scars to prove it. Therefore I know that this new thing isn’t really all that new, despite the hoopla, so what’s the point in going through it all again? Etc., etc….

I think I’d be better off keeping quiet and letting the young folks have a bash. Sometimes I think I know what they’re up to, but it’s a good bet I don’t know everything. I just don’t move fast enough these days to keep up.