Good reasons to become a Keynesian — LARS P. SYLL

Below is a revealing quote by Richard Posner from today’s post on the blog of Lars P. Syll. It sums up some of the economics mainstream’s attitudes towards Keynes’ original work, how neglected it is by those arguing against its importance, and its continuing relevance.

I first read Keynes’ General Theory when in my final year of school, before I went on to university. While finding it difficult, it was also inspiring to me and full of insight. In particular, the notion that unacceptable levels of unemployment are a periodic characteristic of capitalist economies and require government action to remedy, truly hit home. It cemented my Keynesian position for some years.

I have since rowed back from being a confident and dedicated Keynesian, although I remain influenced by leftist and other radical economists. Where appropriate, I find that the interdisciplinarity of political economy can also be helpful, not least in the study of development as a process of economic and social change.

Many of those now known as post-Keynesians, who profess to carry the true mantle of Keynes’ original thinking, also wrote on economic development. This is true in the case of key figures Michal Kalecki, Nicholas Kaldor and Joan Robinson, all of whom strongly influenced the so-called Cambridge School and its radical or heterodox offshoots.

Posner’s full quote can be found at the link below.

Until [2008], when the banking industry came crashing down and depression loomed for the first time in my lifetime, I had never thought to read The General Theory of Employment, Interest, and Money, despite my interest in economics … I had heard that it was a very difficult book and that the book had been […]

via Good reasons to become a Keynesian — LARS P. SYLL

Beyond the modernist-postmodernist dualism – an application to development economics

Context matters in economics, both in theory and policy. The quote below from development economist Daniel Gay summarises his attempt to bridge and transcend the divide between the modernism which characterises mainstream economics and the subjectivism of postmodernism. He points the way to the importance of reflexivity in social science, and how the ‘background, beliefs and possible biases’ of policy-makers and their advisers should be made explicit in arguments used to justify particular decisions.

This is especially important in development economics, but also economics in general, because of the distinctive economic, social and political differences between specific countries, in and through time. This is so whether one is comparing rich and rich, rich and poor, or poor and poor. There is little room for universal theories here. Continue reading

Holistic visions in economics – philosophical lessons from the Cambridge tradition

MartinsCambridgeRevivalThe Cambridge tradition referred to here has been the inspiration for much non-mainstream, heterodox economics across the world. It tends to be left-wing politically and in policy terms, biased towards state intervention to improve economic performance and achieve greater social justice in society.

In many ways, as heterodox institutionalist economist Geoffrey Hodgson has put it, this Cambridge tradition, whether post-Keynesian or heterodox more generally, has not had the influence on mainstream thinking that the originators of its critiques and contributions have surely craved. This has been due, according to Hodgson, to a sometimes uncritical attitude towards statism and an often implicit adherence to the desirability and workability of democratic socialism. There has also been a neglect of microeconomic issues, such as alternative psychological theories of the individual which critique utility maximisation, and the institutions which shape incentives, as well as the role of information in production and markets.

Despite all this, the quote below is from a fascinating, wide-ranging book which explores the author’s conception of the Cambridge tradition in terms of its economic, social and ethical theory. It makes a case for the philosophical notions of internal relations and organicism, and from there for a macroeconomics which cannot be reduced to microeconomics.

From subatomic particles all the way to human societies, this philosophical vision of reality argues for the primacy of entities as constituted by their relationships with other entities. I find this holistic notion appealing; these kinds of ideas reinforce my own attraction to thinking about the systemic in economics and political economy, which tends to be neglected by the mainstream. Continue reading

Fighting corruption in developing countries – an interview with Mushtaq Khan

Professor Mushtaq Khan, who I was lucky enough to be taught by at SOAS, here discusses the fight against corruption in developing countries on Nigerian TV, and why in many cases it simply is not working.

In the video, Khan ranges over the differences between ‘rule-following’ in advanced and poor countries, and the incentives facing individuals in economies which are largely informal.

He makes a point of distinguishing between forms of corruption which are damaging for growth and development and those which are associated with the promotion of these processes. He cites examples from the past such as South Korea, Taiwan and China where the latter has occurred.

Khan also mentions the problem of reform fatigue in cases where plenty of money and effort has been spent fighting corruption with little in the way of positive results. The answer, he says, is not to give up, but to intervene in ways which actually work. This may involve policies which operate at a relatively small scale to begin with, rather than blanket top-down interventions, so that successes are sustainable and gradually build support for further changes across the economy and society.

As well as being a Professor of Economics at SOAS, Khan is Executive Director of the Anti-Corruption Evidence research consortium.

The great divide in economic thought

“The differentiation made between economics and political economy…has its counterpart in the harder sciences. The former group attempts to build logically precise models at a high level of abstraction, the latter to understand the world in its multifaceted complexity of historical time. They abstract differently from secondary details, and call attention to relationships that investigators see as relevant to the particular questions being raised…

Whilst any dichotomy oversimplifies…it is useful to…arrange economists into A social science economists and B social science economists. The A group takes physics as its model. Not modern physics, with its interest in chaos and complexity, but seventeenth-, eighteenth- and nineteenth-century physics, bolstered by a theorem-driven mathematical fundamentalism. B science (which ironically is more like modern physics than is A type economic science) is historical, institutional, and comparative. Contingency and agency are important for B type economists. The hard-core A practitioners can be condescending to B economists, hoping they someday will learn to use deterministic mathematical models and test their theories by making predictions that they can verify statistically and so come to understand economic laws. B mode thinkers can think the As narrow and simple minded…

The A economists see established relationships as applicable in all times and all places, once the noise of the messy real world is removed. The purer B mode economists see each conjuncture, a specific social structure at a point in history, as differentiated and its economy needing to be studied in terms of its unique reality, as a moment in an evolutionary continuum of non-reversible history. Dividing the complex history of economic thought in this way allows for a branching based on universal laws of economic behaviour good for all times and situations, and an evolutionary view of economics in which the historical specificity of institutions matters a great deal and power is a principle consideration.”

William K. Tabb (1999), Reconstructing Political Economy, Routledge, p.18-19, 21

Modern Monetary Theory, a Green New Deal and inflation

Voices on the left have been calling for a Green New Deal as a radical way of transforming the economy in order to tackle a confluence of crises: environmental, social and economic. It takes its name from FDR’s efforts to overcome the Great Depression in the US during the 1930s.

Yeva Nersisyan and L. Randall Wray, both proponents of Modern Money (or Monetary) Theory (MMT) have produced a short paper published by the Levy Institute in which they attempt to answer the question posed in its title: Can We Afford the Green New Deal?

The GND itself could include a “carbon-neutral energy policy and reversing climate change; universal single-payer healthcare; student debt relief and free public college; prison reform; ending “forever wars”; increasing care for the young, sick, and old; and the job guarantee.”

Employing their MMT framework, they argue that “there are no meaningful financial barriers to taking action”, rather “the question is whether sufficient real resources – workers, plant and equipment, raw materials – can be marshaled to implement” it. They draw inspiration from John Maynard Keynes’ 1940 work How to Pay for the War, making the case that the main barrier to such an ambitious government programme of public spending is inflation fueled by excessive aggregate demand, which can if necessary be curtailed by raising taxes or, should this prove insufficient, by other measures used in wartime such as price controls and rationing.

Nersisyan and Wray state that “excessive spending…creates problems not in terms of higher government deficits and debt, but in terms of true inflation” and that “taxes are used not to finance government spending, but to withdraw demand from the economy, creating space for government spending to move resources to the public sector without causing inflation.” Continue reading

Ha-Joon Chang: the economy is much bigger than the market

Chang EconomicsUsersGuideI have posted a number of excerpts from work by Cambridge economist Ha-Joon Chang on this blog, particularly from his 23 Things They Don’t Tell You About Capitalism, an iconoclastic work aimed at the general reader. His more recent popular book is Economics: The User’s Guide, which aims to promote a wider understanding of economics by examining a variety of schools of thought alongside some analysis of real world economies and economic history, which Chang deems to be neglected in much modern economic thinking. I thought it would be useful to once more post the odd excerpt that both reflects and inspires my own thinking. The quote below comes from the final chapter (p.455-6):

“Much of economics these days is about the market. Most economists today subscribe to the Neoclassical school, which conceptualizes the economy as a network of exchange relationships – individuals buy various things from many companies and sell their labour services to one of them, while companies buy and sell from many individuals and other companies. But the economy should not be equated with the market. The market is only one of many different ways of organizing the economy. Many economic activities are organized through internal directives within firms, while the government has influence over – and even commands – large sections of the economy. Governments – and increasingly international economic organizations like the WTO – also draw the boundaries of markets while setting rules of conduct in them. Herbert Simon, the founder of the Behaviouralist school, once estimated that only about 20 per cent of economic activities in the US are organized through the market.

The focus on the market has made most economists neglect vast areas of our economic life, with significant negative consequences for our well-being. The neglect of production at the expense of exchange has made policy-makers in some countries overly complacent about the decline of their manufacturing industries. The view of individuals as consumers, rather than producers, has led to the neglect of issues such as the quality of work (eg., how interesting it is, how safe it is, how stressful it is and even how oppressive it is) and work-life balance. The disregard of these aspects of economic life partly explains why most people in the rich countries don’t feel more fulfilled despite consuming the greatest ever quantities of material goods and services.

The economy is much bigger than the market. We will not be able to build a good economy – or a good society – unless we look at the vast expanse beyond the market.”