In his diatribe against David Harvey, Brad DeLong invoked the authority of John R. Hicks more than once. "He (Harvey) doesn't understand Keynes, probably never read Hicks..."
And most tellingly,
And it is at this point that we draw on neoclassical economics to save us--specifically, John Hicks (1937), "Mr. Keynes and the Classics," the fons et origo of the neoclassical synthesis. Hicks's IS curve gives us a menu of combinations of levels of production and interest rates at which private investment spending and public deficit spending are financed out of the flow of savings.Presenting the J.R. Hicks of "Mr. Keynes and the Classics" and his IS curve as the ultimate authority on Keynes is disingenuous. In the 1970s, Hicks himself repudiated his earlier formulation. But meanwhile its adoption by the US proponents of the "Keynesian neo-classical synthesis" could best be understood as an effort to inoculate economics against the more radical implications of Keynes's theory. A footnote from an essay by Luigi Pasinetti elaborates:
A simplified didactical tool, a mere device of exposition, had become so widespread as to become misleading -- too restrictive a tool for the purpose of accurately conveying Keynes's complex original message. Hicks kept on re-thinking his theory and slowly moving away from his original IS/LM formulation. In the late 1960s, early 1970s, he courageously took a break-away step. He strongly criticised, and actually, explicitly repudiated his successful little analytical toy. To stress his break-away, he went as far as declaring openly that he had ceased to be a neoclassical economist (in his words: "J.R. Hicks, [is] a 'neoclassical' economist now deceased..."). And in order to underline his change of mind, he even ceased to sign his articles by the name of J.R. Hicks and began to sign them by the name of John Hicks (in his words: "Clearly I need to change my name... John Hicks [is] a non-neoclassic who is quite disrespectful towards his 'uncle' [J.R.].
Of course, the story is more complex than that, even, and for Pasinetti's full take on Hick's Conversion there is no substitute for reading the article, even if for no other reason than to relish Joan Robinson's acerbic remark that:
John Hicks noticed the difference between the future and the past and became dissatisfied with the IS/LM but (presumably to save face for his predecessor, J.R.) he argued that Keynes's analysis was only half in time and half in equilibrium.
So much for "knowing more about Keynesian economics than Joan Robinson". DeLong thus cited as definitive a "little analytical toy" that the toy-maker himself repudiated and cherry picked quotes from a Joan Robinson who elsewhere disparaged the very toy that DeLong upheld as definitive. Sheesh.
I don't want to belabor 'uncle' J.R.'s culpability for "little analytical toys" and "simplifying assumptions" that made the neo-classical economist's work more excitingly elegant, remunerative and less relevant to the real world. But I do want to mention Hicks's assumption about the hours of work that has displaced an important argument from neo-classical economics that, if widely known, would decisively demonstrate the futility of the tautologies contemporary neo-classicals amuse themselves with -- Sydney Chapman's theory of the hours of labor. Think of it as the labor version of the Cambridge Capital Controversy.
As Chris Nyland wrote some twenty years ago, Chapman's theory essentially confirmed Marx's regarding the extensive and intensive dimensions of the hours of work. Sadly, with few exceptions, Marxists appear no more eager than neo-classicals to examine this theoretical convergence.
Well, what is weird about this is that while Harvey has substantial grounds to criticize neoclassical synthesis economists, including the early Hicks, he somehow comes to the idea that the fiscal stimulus will "not work." Well, it may not work because it is not large enough, but Harvey's argument is just seriously baked. I always find Marxists who sound like conservative Republicans to be a bit odd.
ReplyDeleteBTW, we should be clear about what we mean by "work." I hope that it might halt the decline, but that is about the best I am hoping for out of it. If Harvey says that "not work" is "not cause a boom in the economy," then he will probably be right, but then I have not noticed anybody, including anybody around Obama or Obama himself, who is making such claims (and not Brad DeLong either).
ReplyDeleteI think Harvey is thinking longer term than the next year. Why do you find it baked? I don't fully agree with it, but I thought it was a valid argument. And I find the argument that a stimulus will necessarily work unconvincing - surely it depends upon the circumstances, and how its targeted. Japan's stimulus was not terribly effective.
ReplyDeleteHarvey's argument seems to be:
1) Due to political realities, the stimulus is going to be both too small, and of the wrong kind (mainly tax cuts).
2) The US is going to have to borrow from abroad to fund, and so is dependant upon increasingly reluctant lenders (for example, see the public battle going on between different factions inside China over US treasuries), who in the case of China will have other things to spend the money on (domestic stimulus), or the Gulf states sustaining oil boom spending.
3) That the infrastucture spending will not contribute to economic growth because (again) of political/philosophical orthodoxies within the US that are hostile towards the kind of state planning that would be required to exploit them. ie. Keynesian solution will not work within the political and philosophical realities of the modern US state.
Now there are definitely arguments to be made against all these points, but its a far more subtle argument than you seem to be giving him credit for and its definitely not the argument that Brad de Long seems to think it is (not that I'd expect anything else of the arrogant and childish de Long). Its an argument premised on a) geopolitics (to which neoclassical models bring absolutely nothing), and b) geographic investment (on which Harvey is something of an expert).
Actually I'm baffled by Brad's response, which just seems seriously weird. I mean he seems to seriously believe that any bond can be sold if the interest rate is high enough - is the man stupid? Is this what economics does to your brain? Don't let him manage your portfolio...
My own response to Harvey's argument would be:
1) Almost certainly, and this doesn't seem terribly controversial.
2) At some point yes, but I suspect its still some distance away as there's nowhere else for the money to go (the Chinese are seriously pissed off with the US, as are the Gulf states. There will be some realignment at some point, but not now). However, friends who know far more about China than I, reckon that China doesn't have the flexibility to pull off the kind of Keynesian stimulus, and so is more likely to have severe internal strife. We'll see soon enough I guess. I suspect China is in greater trouble than the US.
3) Well it certainly looks that way at the moment. Is there a plan? I think Steve Keen makes a better argument. He makes the point that what's happen is that consumer spending has been based upon credit - now credit is withdrawn, and people are paying it back, that debt overhang is the collapse in demand. Any stimulus which doesn't address that (and which may not be addressable) is likely to fail to be terribly successful. Long term, the problem seems like a structural one. Workers salaries are flat, and yet the US economy (and much of the world's export economy) is predicated on them spending ever increasing amounts. Any solution that fails to address that seems doomed to failure.
elan,
ReplyDeleteI am basically in agreement with your position. What is curious is that I think DeLong probably is mostly as well. He has made noises about the stim being too small, and everybody knows that much of it will have to be financed by borrowing from abroad, particularly from China, and that while they have been willing to finance US budget deficits in the past, they are going to be financing their own big stim, which will make them less keen on financing the US one.
Maybe the most contentious issue is the last one, although it is also probably the hardest one to resolve. Would infrastructure investment be carried out better under a different system with better planning? Quite likely. OTOH, even if there are too many bridges to nowhere and not enough emphasis on green tech and other more productive items in the long run, even under the current system infrastructure investment will have some stimulative effect.