Monday, February 16, 2009

David Harvey vs. Brad DeLong Dustup!

In a post that Andrew Jackson, social and economic policy director of the Canadian Labour Congress, calls "absolutely brilliant and compelling," David Harvey argues that the stimulus package is bound to fail. On the one hand, the current package is not big enough and on the other hand, the US can't finance a big enough stimulus package because of its recent debt history. Brad DeLong calls Harvey's argument "intellectual masturbation." To which Harvey responds, lamenting the arrogance of neoclassical economists.

And now, the Sandwichman jumps into the fray with his two cents worth...

A distinction needs to be made between “Keynesianism” (even Harvey’s “strong”, “true” or “full-fledged” Keynesianism) and what Keynes actually thought about economic stimulus and full employment.

Keynes viewed government investment in infrastructure as “only one particular application of an intellectual theorem”. The other two were consumption and reduction of the hours of work. We hear about the first two applications, consumption and investment, incessantly but it was the third strategy, working less, that Keynes pronounced the “ultimate solution” to full employment. See his 1943 Treasury Department memorandum on “The Long Term Problem of Full Employment” and his 1945 letter to the poet, T.S. Eliot.

Keynes was concerned with full employment, not with economic growth. It was his successors who shifted the emphasis from the one to the other. They did so, I would argue, to suit their mathematical models more than anything. Be that as it may, in the 1970s Fred Hirsch showed how economic growth drained resources from both non-market activities and even from final consumption goods. Increased competition for scarce positional goods diverted resources into intermediate goods.

There remains a taboo against talking about work-time reduction as a possible response to the crisis. Dean Baker (he who ‘called’ the housing bubble in 2002) wrote a pair of op-ed pieces a few weeks ago in the Guardian and the New York Daily News calling for tax breaks for work time reduction. I have seen no uptake of Dean’s suggestion from the stable of liberal Keynesian economists — Krugman, et. al.


Anonymous said...

The Andrew Jackson we need to study was president in 1832.

He used tariffs to get things industrail on track.

Maybe some US industry needs protection.

Despite letting the congress steal from the future, McCain is wrong about protection too.

Anonymous said...

Can you provide links to Dean Baker's pieces?

Sandwichman said...

Here's one from today at TPM:

There's also this nifty little gadget called "Google" that can find you links to just about anything with just a few key words, like "dean baker" and "workweek". Or would you prefer it if I googled it for you?

reason said...

I read it and I don't think it will work. Employers will game it - the employees may not like being gamed but they have little bargaining power (unless reported gaming comes with large fines AND whistleblowers are amply rewarded).

I happen to think the main problem is neo-mercantilism and misalligned currencies - there is plenty of money about, but most of it is owned by foreigners.

I'm not against a fall in working hours but this is a gradual long term policy not really ideal for emergency treatment.

teo_ said...

Harvey is attempting to understand if the historical circumstances are likely to support or rather oppose to that kind of bill, and why. This doesn't mean He neglects any attempts of deficit-spending a priori, something that Robinson attached to Baran as She successfully understood that AT THAT TIME deficit-financed growth was possible and fully sustainable, and so desirable. Harvey re-opened the debate because -instead of the narrow minded dogmatic attitude of Mr. DeLong- Harvey knows that historical context DOES matter in order to fully understand the potential of models.

Models are built on assumptions, and assumptions are no less and no more than historically-defined normative statemens. Reasoning upon a model like the Hicks IS curve without putting into context its assumptions, something that surely has to do with the sustainability of debt in comparative terms, is profoundly erroneous.

In building his model, Hicks forgot to take care of uncertainty, he admitted this fact. No risks are accounted in IS curve. Its clear that today the uncertainty hovering around the question of how long the foreign contribution to the US debt will sustain the american economic policy at the moment in which the government annouce and pass a huge public program is quite an important, if not the main factor to be accounted. Its incredible that DeLong fails to understand that. Really.

About Harvey advocating for more intervention, it could be "more" without actually meaning more spending. "More" could mean a new monetary system or a new round of international regulation focused on relocalization and instituzionalization of progressive regional politically integrated unities like EU, MERCOSUR and ASEAN, turning them from mere free trade areas into political blocks so able to govern properly the crisis. It could mean, also, emproving changes in the productive process rather than mere state interventionism on the market.