Micro-macro dynamics and complexity

The whole is greater than the sum of its parts. That, in a nutshell, is the concept of emergence which justifies the existence of macroeconomics as a field of study distinct from microeconomics.

Mainstream economics places great store on ‘microfoundations’, and new classical macroeconomics aims to do away with the macro side of things by assuming that the hyper-rational representative individual or agent is the basic building block of its models.

Complexity and systems theory has a lot to offer those who accept the need for microfoundations in economics, but in a way that macroeconomic objects emerge from them, and cannot be predicted from simply examining a single ‘representative’ micro agent.

If this is the correct way to proceed, then macro objects can be said to emerge from the interactions of micro agents. The latter can be different from one another, in form and behaviour, but still produce an emergent order which can be studied and used to further understanding and inform economic policy.

As micro agents interact and produce coherent macro relations, structures and processes, the latter also act to shape micro-level behaviour. There is thus a two-way interaction between micro and macro, or a micro-macro dynamics.

This video, while not focusing exclusively on economics, covers what is an important part of the nature of the objects studied (ontology) in many strands of heterodox or non-mainstream economics. It touches, simplistically, on the difference between a pure free market and socialist economy, whether such things exist or not, but much of it is useful and is worth a view, keeping economics in mind.

In an economics employing a micro-macro dynamics, the micro agents might be individuals, classes, households or firms, while the macro structures and processes might be the national or international economy.

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Is full employment possible under capitalism?

An interesting interview with Robert Pollin on the Real News Network, in which he discusses the possibility of achieving full employment under capitalism. He considers the ideas on this subject of Marx, Keynes, Kalecki and Friedman.

For me, the historical record seems to support the ideas of Kalecki and Marx, in that achieving full employment may be possible, but sustaining it is much more difficult. This is because it tends to change the balance of power in society in favour of the workers, which the employers don’t like. If high inflation or a squeeze on profits is to be avoided, a new bargain between employers and workers is necessary.

The solution is thus a political one, and leads to a different kind of capitalism. It may be possible for a while but, once again, history suggests that this is hard to sustain, and that a squeeze on profits will result, leading to a slowdown in investment and growth and subsequently to a rise in unemployment once again. This also lends support to the ‘classical’ ideas of Anwar Shaikh on wages and unemployment, which I discuss here.

Top ten posts of 2017

It is always interesting to see what topics attract the most interest here. So from one to ten, here are the most viewed posts on this blog in 2017, from those published during the last twelve months:

  1. Modern Monetary Theory and inflation – Anwar Shaikh’s critique
  2. Michael Hudson on Modern Monetary Theory
  3. Karl Marx on utility
  4. Free-market policies rarely make poor countries rich (Ha-Joon Chang’s Thing 7)
  5. Minsky on stagflation and the limits to state intervention
  6. Anwar Shaikh’s Classical theory of wages and unemployment
  7. Stiglitz on inequality and growth
  8. Ha-Joon Chang on inequality and capabilities
  9. Investment-savings, global imbalances and crisis: the economics of Michael Pettis
  10. Moseley’s macro-monetary Marx – a review and partial critique

All of the above were posted in 2017. However, the four most viewed posts of the year were published in previous years and the top two far outstripped the others. Here are the links:

  1. Some macroeconomic paradoxes: part 1
  2. Marx’s labour theory of value and exploitation under capitalism
  3. Keynes on inequality
  4. Holistic theory and political economy

Thanks to all my readers for your interest last year. Wishing you a happy 2018.

Synthesizing of Marx and Keynes

James Crotty discusses some of Keynes’ key ideas on the uncertain nature of the future and how this affects investment and finance in a capitalist economy. He points out that many of Keynes’ important insights can be found in Marx, but that Keynes put financial instability centre stage.

Modern Monetary Theory and inflation – Anwar Shaikh’s critique

9780199390632Last week I posted several times on Modern Monetary Theory (MMT), a set of ideas which seems to have plenty of support, or at least generates plenty of debate, judging by its presence on the internet.

MMT is an offshoot of post-Keynesianism. The policies which flow from its main theses suggest that a wise and benevolent state can ‘print’ money, within certain limits, to achieve full employment and moderate inflation.

Some MMTers also support an Employer of Last Resort (ELR) function for the state too. In other words, the state should provide a job at a set wage for all those who want one, so that full employment can be sustained even when economic growth slows or the economy goes into recession. The ELR policy was supported by Hyman Minsky whose ideas have also influenced MMT. He saw it as a more productive alternative to forms of welfare which pay people while they are inactive in terms of formal employment. Continue reading

Some remarks on MMT and Marxism – via Radical Political Economy

Continuing this week’s slightly eclectic series of posts on Modern Monetary Theory, here is a repost of a repost(!) of some thoughts on MMT and Marxism by blogger Scott Ferguson, via the Union for Radical Political Economy blog. The link is below.

David M. Fields has kindly asked me to expand my critique of David Harvey’s latest project for the Union for Radical Political Economics blog. The result is a brief essay titled, “Some Remarks on MMT & Marxism in Light of David Harvey’s “Marx, Capital and the Madness of Economic Reason”.

via Some remarks on MMT and Marxism