You Grow the Pie?

The New York Times recycles boilerplate nonsense:

YOUR MONEY: Disproving Beliefs About the Economy and Aging 

The notion that the job market is a zero sum game — more jobs for one group translates into fewer jobs for another group — is deeply ingrained. Economists call the belief that there are only so many jobs in an economy the "lump of labor fallacy." 

But the truth is that growth in the number of jobs for older people tends to run in parallel with gains for younger workers. "There isn’t a fixed number of jobs," Ms. Carstensen said. "You grow the pie."

When I see a pie growing, I toss it in the compost.

Where to begin? "The notion... is deeply ingrained." Deeply ingrained in WHAT? WHO thinks this notion, aside from Ms. Carstensen, Christopher Farrell and other disciples of unidentified "economists" who call this believerless belief the "lump of labor fallacy"?

The old zero sum game gambit AGAIN? Oh come on. Haven't the boilerplate recyclers heard of prisoner's dilemma yet?

Issues with Econ 101 at Three Levels

The debate about what’s right/wrong with introductory economics, which has raged intermittently since the financial crisis, is back again (here, here and here).  I’m preparing a paper on this topic for a conference this summer, so it’s been on my mind.  Here is a structuring proposal:

There are three aspects to what people like or don’t like (often the latter) with Econ 101.  The first is pedagogy—the way introductory econ is presented in the classroom.  This includes issues like the role of lectures vs workshops and projects, the balance between marching through models and exploring applications and empirical debates, and behind it all, whether the main purpose is to induce students to accept particular economic doctrines or to cultivate critical thinking on open-ended (but not anything-goes) economic questions.

The second is the intellectual content of the principles course, particularly as it is encoded in the leading textbooks.  There is a lot of drag on the textbook front, and the gap between standard 101 content and the current trajectory of the discipline is arguably wider than it has been in generations.

The third is the state of economics itself.  Some of what critics object to in intro econ is an accurate representation of how most economists think and the assumptions on which their research is based.  For instance, for every behavioral economist who tweaks U-max, there are fifty whose work is based on toy models firmly situated in Umaxia.  That includes not only most New Keynesian macro, but the micro models that apply welfare criteria to policy choice.  All of the literature on “optimal” carbon prices, for instance, is based on the assumptions that (a) there is this universal substance called utility and (b) everyone acts at all times to maximize it, so that, in the absence of market failure, prices convey utility information.  If Econ 101 takes a narrow, unrealistic line on utility and human decision-making, it could just mean that the limitations of that view are more obvious at that level than they are higher up.

Of course, these three dimensions overlap and influence one another; it’s somewhat artificial to put them in separate boxes.  But I think debates over 101 can be benefit from being clearer about just what it is that irks us.

Make America Fake Again!

Immaterial labor, unconventional oil, multi-level marketing, fictitious capital, negative interest rates, counterfeit politics...

You've really got to read the Italian Autonomist Marxists -- people like Paolo Virno and Maurizio Lazzarato -- if you want to get a handle on what's up with the Donald Trump shtick. More precisely, cultural theorists have used the Automists' concept of immaterial labor to analyze the appeal of Trump's reality game show, The Apprentice. The show is a metaphor for the man, the campaign and the distinctive "virtuoso" labor of neoliberal capitalism.

What it all boils down to is the blurring of the boundaries between work and entertainment; employment, unemployment and precarious under-employment; advertising, entertainment, news and education (of a sort). In this twilight "workplayce," it is the image of competitive personality -- rather than any substantive competence -- that succeeds. Doing the job -- or any job at all -- is secondary to projecting that image. The pinnacle of success is celebrity.

I have to confess that I have never watched a single episode of The Apprentice. For that matter, I have never watched a single episode of any TV "reality" show. I don't feel like I have missed much. However, there are people who build their dreams and aspirations around "brandom" -- brand fandom. This is nothing new, just more pervasive.

What I'm getting at here is that Trump's nomination is no anomaly. It's the new normal personified.

Did I mention the blurred boundaries between work and entertainment? Writing blog posts is my entertainment. I am writing this "at work" (although not on work time). In isolation, the critique of immaterial labor is unsatisfying because it seems to lead into a hall of mirrors made of signifiers and subjectivities. Where is the substantive anchor? Isn't there some universal unit in which value can be evaluated?

It helps to recall the sense in which the seemingly new has been there all along. In his notes on James Mill, Marx observed the way that debt transforms the human personality into a commodity:

Credit is the economic judgment on the morality of a man. In credit, the man himself, instead of metal or paper, has become the mediator of exchange, not however as a man, but as the mode of existence of capital and interest. The medium of exchange, therefore, has certainly returned out of its material form and been put back in man, but only because the man himself has been put outside himself and has himself assumed a material form. Within the credit relationship, it is not the case that money is transcended in man, but that man himself is turned into money, or money is incorporated in him. Human individuality, human morality itself, has become both an object of commerce and the material in which money exists.

It is difficult to avoid a moral judgment of the morality implied in the human personality becoming an object of commerce. However, that is just the kind of restraint needed to arrive at an objective evaluation of what is happening. Regardless of whether it is a good thing or a bad thing, it is an historical process and any transcendence of it will also entail an historical process, not a moral judgment.

Criticisms of Donald Trump's policy positions or of his supporters' alleged racism or xenophobia are incidental, if not irrelevant. In crucial respects, Trump is indistinguishable from Hillary Clinton or even Bernie Sanders. He is a celebrity projecting "larger than life" personality traits that have become an object of commerce. Clinton's or Sanders's personalities and what they stand for may be more appealing to particular market segments, but... it all comes down to what was once provocatively referred to as "The Selling of the President."

But it is not just a matter of sovereign citizens acting in their capacity as sovereign consumers expressing their presidential brand preferences. Those brands are counterfeit, as are the debtor/citizen/consumers electing them!

Since, owing to this completely nominal existence of money, counterfeiting cannot be undertaken by man in any other material than his own person, he has to make himself into counterfeit coin, obtain credit by stealth, by lying, etc., and this credit relationship – both on the part of the man who trusts and of the man who needs trust – becomes an object of commerce, an object of mutual deception and misuse. Here it is also glaringly evident that distrust is the basis of economic trust; distrustful calculation whether credit ought to be given or not; spying into the secrets of the private life, etc., of the one seeking credit; the disclosure of temporary straits in order to overthrow a rival by a sudden shattering of his credit, etc. The whole system of bankruptcy, spurious enterprises, etc.... As regards government loans, the state occupies exactly the same place as the man does in the earlier example.... In the game with government securities it is seen how the state has become the plaything of businessmen, etc.

In other words, phoniness is a large part of Trump's appeal to his supporters -- as it is to the supporters of Hillary Clinton and Bernie Sanders. None of it will restore "the American Dream" or "the middle class." Presidential politics is part of the problem, not the solution.

Will Trump Do the Kudlow Deficit Dance?

Noah Smith notes:

Donald Trump is difficult to take seriously on policy matters, because he’s kind of a random idea generator -- he just throws out a lot of different policy plans, many of them contradictory. This is a great defense against criticism from policy wonks -- as soon as we criticize one of his proposals, he just offers up the exact opposite. For example, he’s advocated reducing the federal debt, spending more and cutting taxes (or possibly not).

OK – Trump 2016 flip flops a lot like Romney 2012 flip flopped. And President Reagan told us he would balance the budget with massive tax cuts and increases in defense spending. Art Laffer explained how this all worked on a cocktail napkin. But Paul Krugman informs us that Trump has sought the assistance of two economic experts:

Still boggled by reports that Trump, having realized that the numbers on his tax plan aren’t remotely credible, has decided to fix things by bringing in as experts … Larry Kudlow and Stephen Moore.

Of course the title of Pauls’s blog post was “Send in the Clowns” as he documented some of the real whoppers these two right wing know nothings have written over time. But my favorite goes back to November 2002 when Kudlow wrote:

The federal budget deficit was $158 billion for fiscal year 2002…As a result, actual economic performance has fallen below the long-term 3.5% historical trend line, which reflects the economy’s indisputable potential to grow. If that trend line were extended through 2002, as though no slowdown had occurred, then the potential third-quarter gross domestic product would have been $9.829 trillion. Instead, actual GDP fell $364 billion short of the mark. Cumulatively, over the past two years, the loss of potential GDP comes to $1.95 trillion — a considerable amount. All this would be academic were it not for the fact that total output in the GDP account (as compiled by the Commerce Department) equates with the taxable income base of the nation’s economy. So a smaller output pie means a shrinking tax base. If you apply the 18% economy-wide tax rate of recent years to the nearly $2 trillion loss of potential output, you get a $351 billion shortfall in tax revenues — which we’d be counting now if the economy had been running at full steam.

A $2 trillion output gap sounds yuuuge! Given that GDP in 2002 was $10.877 trillion, Kudlow was implying an output gap over 18%. Gerald Friedman take note! The CBO, however, suggests that the output gap at the end of 2002 was less 3%. So where did Kudlow get his insane calculation? First of all the 3.5% historical trend assumption was a bit silly since most estimates of potential output growth were lower. But that is not the big mistake here. After Kudlow took his trend line estimate of potential output, he found 8 quarters worth of estimated output gaps – all expressed in annualized terms. While anyone with a brain would have averaged the series but Kudlow summed the numbers thereby overstating the annual output gap by a factor of 8. With Kudlow – it is hard to tell. Is he really this incredibly stupid? Or does he just assume his audience is so stupid that he can blatantly lie to them?

The North Korean Workers' Party Congress

The seventh Workers' Party of North Korea congress has just ended, the first since 1980 when the nations' first leader, Kim Il Sung, announced that his son, Kim Jong Il, would succeed him, which he did  in 1994.  This congress was convened by his son, the 33-year old Kim Jong Un, who has used it to consolidate his power.  Among the more noticeable  of  things that happened is that he was named to be Chairman of  the party.  It has been widely noted that the congress fits in with a policy of elevating the party in comparison with the military, which was apparently favored by his late party.  So the congress elevates both the party and Kim Jong Un.

What is of perhaps more interest for  readers of this blog is what economic policies came out of the congress.  It is interesting to me at least that prior to the congress outside observers were very much up in the air about what it would do regarding economic policy, aside from reconfirming the "byungjin" policy of simultaneous pursuit of nuclear weapons and economic growth, or as some wags have put, both guns and butter. 

A particular issue of controversy involves agricultural policy, which has involved an unofficial spread of more  or less free markets.  This came about after the famines and extreme food shortages of the 1990s and early 2000s, with the situation much improved, if not  great. Many thought that perhaps the congress would make this policy official, although it was always understood that they might not.  In the end, they did not.  Official ideology of socialism remains in place, even as the reality in agriculture at least is one of more or less free markets now.

Probably the only other notable decision was to resume five year plans.  Many outsiders probably think that they never went away.  We (and I am guilty of this) have long described its economic system as this holdover of Stalinist command socialist central planning, and indeed it is a socialist command economy, with the notable exception of the agricultural sector as noted above.  However, fiver year plans were abandoned in the late 1980s while Kim Il Sung was still in power and prior to the end of Communist Party rule in the Soviet Union and Eastern Europe.  So this is also a return to a more officially formal socialist position.

BTW, it should be noted that the North Korean economy is probably doing better than many think.  We are back to a situation where there are widely competing estimates of how  its economy is doing.  The Bank of (South) Korea estimates that North Korean GDP has been growing at about 1-2% per year, but numerous other observers, such as Andrei Lankov, who is based in Seoul, think it is  growing at more like 7% per year.  There certainly has been a lot of construction going on in Pyongyang recently, although this at least partly reflects a growing inequality between the capital city and the rest of the country in economic conditions, with the northeastern part especially poor.  Much of these disagreements indeed involve trying to figure out some of  these sectors such as agriculture, where it is clear that official data probably do not reflect reality.

Barkley Rosser

How Easy is Income Shifting?

Oxfam got the signatures of 300 economists on a letter than noted in part:

To counter this, the economists are calling for governments to agree new global rules requiring companies to publicly report taxable activities in every country they operate, and to ensure all territories publicly disclose information about the real owners of companies and trusts. Jeff Sachs said: “Tax havens do not just happen. The British Virgin Islands did not become a tax and secrecy haven through its own efforts. These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money. The abuses are not only shocking, but staring us directly in the face. We didn’t need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end. That is what is meant by good governance under the global commitment to sustainable development.”

Even if we know how multinationals are shifting income to tax havens, can national governments do much about it under current law? President Obama is trying to end earnings stripping by using section 385 to recharacterize intercompany debt as equity. As this law firm explains what this is about, the discussion noted how weak this provision has turned out to be:

Two recent cases highlight the IRS’s approach (although, so far not so successfully) to attack these foreign intercompany lending transactions. In NA General Partnership & Subsidiaries v. Commissioner, T.C. Memo 2012-172, the Service attacked loans made to a U.S. entity from a foreign related entity (Scottish Power, via NA General Partnership & Subsidiaries). The IRS solely relied upon a debt versus equity attack to seek to have the U.S. interest expense deductions recharacterized as dividends and non-deductible in the U.S. The court applied traditional tests to determine if a given security is debt or equity and found for the taxpayer. The material terms of the security were more debt-like and the conduct of the parties (accounting entries, public and securities filings, etc., all treated the security as debt) was consistent with the intention to create debt between the parties. In PepsiCo Puerto Rico, Inc. v. Commissioner T.C. Memo. 2012-269, the IRS was again arguing in court whether a given financial transaction created debt or equity in the U.S. The taxpayer intended to create a security that would be treated as equity in the U.S. and debt by the related holder in the Netherlands. The IRS sought to treat the U.S. equity side of the transaction as a loan. The court, recognizing the intent of the parties and the economic realities of the transaction as the primary factors in deciding whether a given transaction should be characterized as debt or equity, reviewed the traditional debt versus equity factors (those mentioned above). Again, the IRS lost the case, as the intent of the parties and economic realities suggested the U.S. side of the transaction was equity and not debt.

The first case involved the acquisition of PacifiCorp by a UK entity, which was a version of hybrid financing. While the interest expense was deductible in the US, the UK chose not to tax the interest income. Tax free income! Now if you never heard of this entity, it is now owned by Berkshire Hathaway Energy (BHE):

A leading western U.S. energy services provider and the largest grid owner/operator in the West, PacifiCorp serves 1.8 million customers in six western states. The company is comprised on three business units: Pacific Power (serving Oregon, Washington, California), Rocky Mountain Power (serving Utah, Idaho, Wyoming) and PacifiCorp Transmission.

BHE owns several other US energy providers and has approximately $80 billion in tangible assets generating about $6 billion in profits. Let’s imagine for a moment that Warren Buffett gets into one of his corporate inversion moods and decides to relocate corporate headquarters to Edinburgh, Scotland. Let’s also imagine that the Scottish parent had extended a $60 billion 20-year loan on October 1, 2015 with an interest rate equal to 5%. What authority would the IRS have to challenge this aggressive planning? I’m sure Warren’s lawyers could successfully structure its agreements so that section 385 is no problem. I guess some hot shot IRS lawyer might pull out section 163(j):

the term “excess interest expense” means the excess (if any) of the corporation’s net interest expense, over the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii).

Don’t you love the horrific writing of lawyers? What does this mean in our case? Since interest expense is less than 50% of operating profits before depreciation, section 163(j) does nothing for the IRS. So what’s left is to question whether the 5% interest rate is above the arm’s length standard. Alas, on October 1, 2015, the yield on 20-year corporate bonds with credit rating = BBB was over 5.3%. Unless the IRS can argue that the credit rating was something akin to AA, it will get nowhere under current law. I’m not saying Warren Buffett even considered this move but if he had – how would the IRS stop it?

Trump Back Peddles on His Debt Default Proposal

Apparently Donald Trump was on CNN trying to clarify his insane suggestion that the Federal government should be run like his Atlantic City disasters:

I said if we can buy back government debt at a discount, in other words, if interest rates go up, and we can buy bonds back at a discount, if we are liquid enough as a country, we should do that. In other words, we can buy back debt at a discount. People said I want to go and buy debt and default on debt, these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK? So there is never a default. But the point is, it was reported in the New York Times incorrectly.

The interview babbled on but let’s take him at his word here. Suppose you had purchased $100 million of 30-year government bonds at the beginning of the year. The Federal government has promised to pay the holder $3 million per year until 2045 and at the end of the year, the holder gets $100 million in principal. For the Federal government, their loan is not callable but you could sell this if suddenly interest rates went up from 3% to 4%. The only problem is that the present value of your future payments is now only $82.7 million. Trump’s brilliant idea would be to have the Federal government immediately retire this loan for the $82.7 million and then refinance it in the current market. But let’s see, the interest rate is now 4% not 3%. For the next 30 years, the Federal government will pay over $3.3 million in interest expenses as opposed to the original $3 million. Trump says he learned finance at Wharton. Something tells me that the finance department is denying he ever took classes from them.

The Capital Noncontroversy, or How the World Actually Works

EconoSpeak has been revisiting the capital controversy of the 1960s, fueled by Barkley Rosser’s posts (here and here) and stimulating comment threads.  The discussion has been thoughtful and well-informed.  Meanwhile over at Marginal Revolution you can find this pop introduction to aggregate production functions.

According EconDirectory.com, during the month of April MR averaged 43,285 page views per day, EconoSpeak 396.

Does the U.S. Have the Highest Corporate Tax Rate in the World?

Paul Krugman reports on his Twitter war with Donald Trump:

Yesterday I tweeted a response to Donald Trump’s claim that America is the highest-taxed nation in the world. Actually, he’s been busted on that claim repeatedly, which makes it even more shameful that TV interviewers just let it slide. But I’m also interested in the responses I’ve been getting, which I think tell you something about the broader situation – maybe call it the politics of epistemology. As you might guess, I’m getting a lot of denial, with quite a few people “explaining” that the international comparisons don’t include state and local government. Um, guys, maybe you shouldn’t make confident pronouncements about stuff you’ve never looked at.

Paul is noting that total taxes as a share of GDP is not really that high by international standards. I’m sure some conservative might scream “that’s average” and then go on some rant about marginal rates. My focus will be on corporate tax rates. KPMG has a handy comparison even if it is very incomplete. It claims that the corporate tax rate in the U.S. is the sum of a 35% Federal rate and an average state tax rate equal to 5%. Of course even domestic firms can get all sorts of tax breaks and likely pay less in state taxes. Multinationals are particularly adept at reducing their effective tax rates. Oil multinationals realize that several foreign tax authorities impose high surcharges on oil profits. I want to focus, however, on the battle between Wal-Mart and Puerto Rico. Puerto Rico imposes a 20% corporate tax but also includes a surcharge that can be up to 19% of profits if the firm’s revenues are high enough. The effective tax rate for the Puerto Rican affiliate of Wal-Mart is 39%. The 10-K filing for Wal-Mart notes that its U.S. tax rate is 37% even when one includes state taxes. And yet we see this claim:

The Secretary has not even proven that the use of transfer pricing to shift profits to other parts of the United States is a problem. As witnesses for both parties testified, the continental United States is not a tax haven like the Cayman Islands are... If Wal-Mart PR has managed to shift $79 million to, say, the State of Arkansas, those are profits on which Wal-Mart Stores will have to pay income tax at a rate of 38% or 39% – namely, a 35% federal corporate income tax, plus a 3% to 4% state corporate income tax.

Why does this matter? Consider this claim by one of Wal-Mart's expert witnesses - Professor Richard Pomp:

You’re not going to transfer profits from Puerto Rico to the United States, where it’s going to be taxed at a higher rate.

While I may have some sympathy with Wal-Mart’s claim that this particular alternative minimum tax discriminates against Wal-Mart, since when is 39% less than 37%?

Ben Rhodes Has Been Stupid And Irresponsible Regarding Iran

So today's New York Times has the story by David Samuels on Ben Rhodes, where they play bros loving Don DeLillo and Rhodes bragged about his mind melding with Obama over the last 7 years and how he set up echo chambers to fool ignorant and stupid reporters, not to mention out of it foreign policy establishment types.  Whoopee!  Of course, all kinds of people are all ticked off at him, calling him many names, although not the one I have called him, with others picking up some of what he has dropped and running with it to discredit the Iran nuclear deal.

This is the matter that I am concerned with, and the matter where Rhodes has seriously messed up.  Rhodes notoriously brags about putting forth a misleading story regarding the Iran nuclear deal in order to sell it to the US public.  The lie was that the negotiations started in 2013 rather than in 2011 as they did.  This was after "moderate" Rouhani became president, and this was what was sold to the ignorant media fools through the elaborate echo chamber Rhodes and his pals set up, of which he is clearly very proud. 

But for anybody who actually knows anything about Iran,  Rouhani was never ultimately in charge of the deal or foreign policy.  That person is the Vilayat-el-faqih, the Supreme Jurisprudent, the unelected (well, elected by a small group of senior clerics) Ali Khameini, the leader of the "hardliners.".  While Rhodes disses Hillary Clinton for  having voted for the war in Iraq in 2003, she was the one who sent someone to meet with a rep from Khameini in Oman that initiated   But she remains an annoying foreign policy establishment figure in Rhodes's view, while Kerry is barely mentioned, dismissed as someone who negotiated "details" while Rhodes and others had already negotiated the "framework.  But to get to get a deal, the US had to have the hardlining Khameini on board as he was and is in charge, the Supreme Jurisprudent.

The problem is that this revelation of this unnecessary and stupid echo chamber is that the enemies of the Iran nuclear deal are already using this to argue that the whole deal is no good because it was sold on this lie, that the negotiations were only initiated with the moderate Rouhani rather than the necessary negotiations with Khameini.  They should have sold it upfront with the reality of whom they were negotiating with, and frankly, people who play attention like me knew what was going on when it was going on. so it is true that most of the reporters are horrendously ignorant.  But that does not excuse that the revelation of this stupid lying will be used by the enemies of this very important and wise agreement to undercut it.

Ben Rhodes should be ashamed of himself.  I think he did this to sell himself for the post-Obama era, but I hope he has to go sit in a cottage somewhere and write his short stories, all by himself and reviled by the world.

Barkley Rosser

The Revenge Of Joan Robinson: Capital Theory Controversies Revive

It is easy to argue about what is the most important or influential thing that the late Joan Robinson did in economics.  More conventional types would probably point to her widely accepted and even textbookified Economics of Imperfect Competition.  Some would point to her later more philosophical and methodological writings about historical time versus analytical time.  Many Post (or post-) Keynesians revere her closenss to Keynes and Kalecki and see her as the godmother-founder of their movement  who could see the unity among their various bickering factions.  But others would look to her work on capital theory in the 1950s, her 1954 paper in the RES, "The production function and the theory of capital," along with the appendices to her 1956 The Accumulation of Capital, as well as her influence on Piero Sraffa to publish his famous book in 1960.  This was the trigger for the famous Cambridge controversies in the theory of capital that reached a culmination a half century ago when Paul Samuelson agreed that the "parable" he and some of his students had set forth was not true in general, given such paradoxes as reswitching (called the "Ruth Cohen curiosum" by Joan Robinson), with him declaring in 1966 in the QJE that, "the foundations of economic theory are built on sand."

As discussed elsewhere, we know that although the Cambridge, England side won an intellectual victory at that point, it turned out to be pyrhhic as those following the Cambridge, MA side simply ignored these results and proceeded to act as if nothing had happened, merrily estimating aggregate neoclassical production functions with well-behaved capital in them, with never a note or caveat about any potential problems, as well as building growth theory models, as well as general equilibrium macro models on such assumptions.  Joan Robinson may have drawn figures showing non-monotonic relations between "real capital" and "output," in the appendices of her 1956 book, as well as non-monotonic relations between interest rates and employment rates elsewhere.  But none of that mattered.  It was all to be ignored as oddities or whatever, things not to tell the children lest they become upset and lose sleep and cry when fed their porridge.

So it is a curious matter that the question of  capital theory has re-arisen recently.  It was just two years ago that Thomas Piketty's book, Capital, made the best seller lists.  Right now considerable attention is being paid to  Anwar Shaikh's voluminous magnum opus, Capitalism.  Both of these books take as their central issue that of the underlying forces driving secular trends in income distribution, particularly the division between wage incomes and profit or interest-based incomes.

Curiously, Piketty's theory remains firmly in the neoclassical camp regarding the questions raised by the old Cambridge, England school.  He briefly notes those controversies, but more  or less dismisses them, perhaps reflecting the influence of being at MIT for a long period of  time, even as he mocks excessive mathematical abstraction of much of modern growth theory.  Jamie Galbraith and others, including Shaikh, have taken Piketty to task for his dismissal of the issues raised by those old controversies, and many have criticized him for his super-aggregated view of capital that includes not  only land but also such things as collectibles, while others have taken him to task for  his arguments regarding r >g.  Where he has been most praised has been in his presentation of data supporting his broader arguments, as well as his ability to bring in broader historical and cultural support.  In any case, he is bringing the issue of capital and the foundations of income distribution front and center, even if he is not  doing so along British Cantabridgian lines.

Shaikh is an old fan of Sraffa's and a participant in the original  debates.  While he also does not present most of his theory as drawing on these old arguments, his approach is much closer to that approach in flavor and discusses it at some length sympathetically, even if he eventually draws more heavily on modern econophysics methods.  These fit nicely into his more Marxist approach,  even as he downplays Marx. But, of course, it was Marx who more sharply posed these questions regarding the nature of capital and how it affects income distribution, as well as power distribution, within societies.

I  note, of course, that the ever increasing emphasis  on financial theory in economics is itself an offshoot ultimately of capital theory, even if  it has gone off into its own niche with more emphasis on problems related to risk and uncertainty, while ignoring the broader issues of growth and income distribution.

I do  not know what Joan Robinson would think about this recent revival, but given what has been going on with income distribution trends in the higher income nations, I suspect she would not  be surprised.  And unlike many others, she always thought deeply about the problems of capital theory, taking account of historical and philosophical issues well beyond her peculiar graphs showing supposedly paradoxical relationships.

I close this by quoting myself from my 1991 book (p. 125):

"What really is capital and what does it mean for value, growth, and distribution?  Is it a pile of produced means of production?  Is it dated labor?  Is it waiting?  Is it roundaboutness?  Is it an accumulated pile of finance?  Is it a social relation?  Is it an independent source of value? The answers to these questions are probably matters of belief."

Barkley Rosser. 

Game theory and rationality -- the road less traveled

In "Game Theory and Cold War Rationality: A Review Essay," Roy Weintraub reviews two recent books, The World the Game Theorists Made (2015) by Paul Erickson and How Reason Almost Lost Its Mind by Paul Erickson, Judy Klein, Lorraine Daston, Rebecca Lemov, Thomas Sturm, and Michael Gordin (2013),both of which are published by University of Chicago Press.

Two of the "minor characters" in both of those books, Kenneth Boulding and Anatol Rapoport, merit particular attention for their role in mapping a "road less traveled" -- a road with ethical rather than strategic directions. Boulding is credited as a founder of ecological economics, along with Nicholas Georgescu-Roegen and Karl William Kapp. Boulding and Rapoport were plotting behavioral economics at Stanford two decades before Kahneman and Tversky arrived there. Boulding and Rapoport, again, cultivated the early work of Thomas Schelling that led to his Strategy of Conflict. Rapoport's Strategy and Conscience was an explicit reply to Schelling's book. Rapoport's experimental work with prisoner's dilemma anticipated Elinor Ostrom's.

The road taken by the mainstream was more constrained by Cold War ideology than was the approach pursued by Boulding and Rapoport. It was also elevated to orthodoxy by its ideological perspective. This is not to say that it was wholly unscientific. It was scientific to the extent that it could produce results useful to the prevailing purposes. This provisional scientificity is the essence of the qualifier "almost" in  the phase "almost lost its mind." But what may have been almost madness in 1960 or 1970 is today stark raving lunacy.

What Donald Trump Is Telling Us about Popular Understanding of Debt and Assets

I see Trump’s suggestion that the US haircut holders of treasury debt through a different lens than most observers.  Almost every year, I walk into an introductory economics class in the fall and try to disabuse students of the notion that debt and credit assets like bonds are two unrelated things.  They are shocked to discover that the savings bonds many have stashed away are pieces of the “national debt”, and that eliminating this debt would mean draining the world of all such bonds—that America’s collective public debt is (apart from foreign holdings, which is another story) America’s collective private wealth.  Yes, the unequal ownership of that wealth is scandalous, but that’s about how much inequality we have, not how much wealth.

So I see the same with the Donald.  It doesn’t sound like Trump realizes that his own bond portfolio would take a hit.  My guess is that he is as clueless as his supporters, none of whom have the slightest idea that the Great One has just proposed taking a slice out of their savings.  Interestingly, this observation hasn’t appeared in the popular media yet, at least from what I’ve seen.  Journos and pundits talk about how unorthodox the idea is and how it could trigger a financial crisis, but not that it’s a monetary form of self-cutting.

Incredible.

Growth analogies, microfoundations and Mathematical Biology of Social Behavior

You want MICROfoundations? In Mathematical Biology of Social Behavior, Nicolas Rashevsky attempted "the next step" of examining the social interactions of individuals in terms of the mathematical biophysics of the central nervous system. He paid special attention to economic questions of wealth, distribution, motivation, learning, rationality, habit, imitation, individualism and collectivism.

Rashevsky's mathematics must be seen as exploratory and often is qualified by the admission that assumptions are unrealistic but that more realistic assumptions make the math intractable. The results thus offer insights, not "conclusions." The contrast with alleged microfoundations as practiced by contemporary mainstream economists couldn't be starker. The latter embrace unrealistic assumptions as a feature, not a bug, because it enables them to crank out conclusions based on biases they are seeking to confirm.

Simon Kuznets on growth:

Growth is a concept whose proper domicile is the study of organic units, and the use of the concept in economics is an example of that prevalent employment of analogy the dangers of which have been so eloquently stressed recently by Sidney Hook. 

Sidney Hook on analogy:

As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion. ...

At best an analogy can only suggest a plausible conclusion whose validity must then be established on other grounds. The uncritical use of analogies is the bane of much historical writing, particularly when the resemblances lack clear definition or when they are blurred and presented as identities. ...  The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like "birth," "reproduction," and "death." 

Gregory Bateson on schizophrenia:

...the ‘word salad' of schizophrenia can be described in terms of the patient’s failure to recognize the metaphoric nature of his fantasies. In what should be triadic constellations of messages, the frame-setting message (e.g., the phrase 'as if') is omitted, and the metaphor or fantasy is narrated and acted upon in a manner which would be appropriate if the fantasy were a message of the more direct kind.

The Microfoundations of the Weeds in the Garden Model

Last fall John Cochrane argued:

Sclerotic growth is the overriding economic issue of our time. From 1950 to 2000 the US economy grew at an average rate of 3.5% per year. Since 2000, it has grown at half that rate, 1.7%. From the bottom of the great recession in 2009, usually a time of super-fast catch-up growth, it has only grown at two percent per year. Two percent, or less, is starting to look like the new normal…Our economy is like a garden, but the garden is choked with weeds. Rather than look for some great new fertilizer to throw on it, why don’t we get down on our knees and pull up the weeds? At least we know weeding works! …Cleaning out the weeds also needs a large effort of simple governance. The President has to revisit and rewrite the mass of executive orders and memos. The Congress has to get serious and pass laws that are actually laws, not thousand page instructions for agencies to figure things out. It has to get around to repealing laws everyone understands are bad — the Jones act restricting shipping, the ban on oil exports, and so on — and reforming laws that everyone understands need to be reformed. It needs to actually follow its own budget law. The heads of agencies will have to renew the staff and reorient them to growth-oriented policy, and undertake a sweeping house-cleaning of regulations and procedures. They will have to implement managerial techniques such as pervasive cost-benefit analysis, regular retrospective review, and sunsets.

I was so tempted to go snarky and ask what are the microfoundations of the weeds in the garden model of economic growth? Noah Smith did the heavy lifting for us:

Most of the so-called growth policies Cochrane and other conservatives propose don't really target growth at all, just short-term efficiency. By pretending that one-shot efficiency boosts will increase long-term sustainable growth, Cochrane effectively executes a bait-and-switch.

Brad DeLong notes Cochrane is up to his old tricks:

Sclerotic growth is America’s overriding economic problem. From 1950 to 2000, the U.S. economy grew at an average rate of 3.5% annually. Since 2000, it has grown at half that rate—1.76%. Even in the years since the bottom of the great recession in 2009, which should have been a time of fast catch-up growth, the economy has only grown at 2%. Last week’s 0.5% GDP report is merely the latest Groundhog Day repetition of dashed hopes…The third camp (mine) holds that the U.S. economy is simply overrun by an out-of-control and increasingly politicized regulatory state. If it takes years to get the permits to start projects and mountains of paper to hire people, if every step risks a new criminal investigation, people don’t invest, hire or innovate. The U.S. needs simple, common-sense, Adam Smith policies. America is middle-aged and overweight. The first camp says, well, that’s nature, stop complaining. The second camp looks for the latest miracle diet—try the 10-day detox cleanse! The third camp says get back to the tried, true and sometimes painful: eat right and exercise.

I guess we will eat healthy foods from that garden once we remove the weeds. Brad complains that a Cochrane chart of per capita income and some “ease of doing business” index is “Extraordinarily Unprofessional!” I was about to comment – where are the microfoundations but someone beat me to this again.