By Thomas I. Palley, Louis-Phillipe Rochon and Matías Vernengo
It is widely recognized that economic crises can trigger enormous change, with regard to both economic theory and the politics of governance. Today, the global economy is struggling with the fall-out from the financial crash of 2008 and the Great Recession of 2007–2009. The economic crisis that these events have generated, combined with the failure of the mainstream economics profession, has again put the question of change on the table. Reasonable people do not expect economists to predict the daily movements of the stock market, but they do expect them to anticipate and explain major imminent economic developments. On that score, the profession failed catastrophically, revealing fundamental theoretical inadequacies.
This intellectual failure has prompted us to launch the Review of Keynesian Economics (ROKE), the first issue of which is fully available here. At a time of journal proliferation, some may wonder about the need for another journal. We would respond there is a proliferation of journals, but that proliferation is essentially within one intellectual paradigm. As such, it obscures the fact that the range of theoretical inquiry is actually very narrow. A journal devoted to Keynesian economics is therefore needed, both to correct this narrowness and because events have once again confirmed the profound relevance of Keynesian theory. As noted by Robert Solow, a member of the board of ROKE, our project is “counter-cultural, and god knows the current culture needs to be countered.”
Read the rest here.
It is widely recognized that economic crises can trigger enormous change, with regard to both economic theory and the politics of governance. Today, the global economy is struggling with the fall-out from the financial crash of 2008 and the Great Recession of 2007–2009. The economic crisis that these events have generated, combined with the failure of the mainstream economics profession, has again put the question of change on the table. Reasonable people do not expect economists to predict the daily movements of the stock market, but they do expect them to anticipate and explain major imminent economic developments. On that score, the profession failed catastrophically, revealing fundamental theoretical inadequacies.
This intellectual failure has prompted us to launch the Review of Keynesian Economics (ROKE), the first issue of which is fully available here. At a time of journal proliferation, some may wonder about the need for another journal. We would respond there is a proliferation of journals, but that proliferation is essentially within one intellectual paradigm. As such, it obscures the fact that the range of theoretical inquiry is actually very narrow. A journal devoted to Keynesian economics is therefore needed, both to correct this narrowness and because events have once again confirmed the profound relevance of Keynesian theory. As noted by Robert Solow, a member of the board of ROKE, our project is “counter-cultural, and god knows the current culture needs to be countered.”
Read the rest here.
Hi
ReplyDeleteCould you explain what you mean by "distribution is exogenous" ?
As in:
ReplyDelete"proper definition of heterodoxy means accepting that distribution is exogenous, and prices do not reflect relative scarcities"
http://nakedkeynesianism.blogspot.co.uk/2012/11/on-austrian-business-cycle.html
Y,
ReplyDeleteI had asked the same question here some time back. If I understood the answer correctly is it denying the neoclassical, marginalist claim that distribution of income is endogenously determined by marginal productivities of actors. I think Cambridge debates showed that wages, prices and incomes cannot be determined by marginal productivity, marginal cost etc, but are a result of something else outside of the market forces, eg. power distribution. FWIW. I think the blog author will clarify for you.
Hi Y, X, I mean Peter is right. The classical authors (surplus approach), not just Marx, argued that accumulation depended on the ability to obtain a surplus beyond the needs of reproduction of society. They assumed that wages (the necessary conditions for the labor force) were determined by social conditions, which included the physiological needs of workers, but also the bargaining power of workers (class conflict). Hence, real wages were part of the data of the model which determined the rate of profit and accumulation endogenously. The exogenous variable (one of the income distribution variables) is the data necessary to determine the endogenous or explained variable in the model (rate of accumulation in this case). Neoclassical authors suggest that the real wage (as much as employment) is determined endogenously by supply and demand in the labor market, and hence workers receive according to their ability (no conflict).
ReplyDeleteHi, thanks for the response.
DeleteCould you recommend a book or text that fully explains this argument (with regards to the modern/contemporary world), in a way that is reasonably accessible to the non-economist (i.e. me)?
Thanks!
That's not an easy task. There are a few good technical books, but not much in terms of covering the theory at a reasonably accessible level, with a discussion of the empirical aspects of it in recent times. I suggest for a discussion of the theory a good history of economic thought manual should be accessible (e.g. Vaggi and Groenewegen, A Concise History of Economic Thought). For the trends in income distribution, in a similar perspective, Jamie Galbraith's Inequality and Instability. Hope these help.
DeleteMatias,
ReplyDelete"The exogenous variable (one of the income distribution variables) is the data necessary to determine the endogenous or explained variable in the model (rate of accumulation in this case)".
What is the exogenous variable exactly?
I understand that political power, military power, political influence, nationality, class, inherited wealth, etc, all have an effect on outcomes, including the distribution of income. However, it seems that skills, capabilities, productivity, supply and demand, etc, also have a very important effect. If your only skill is washing dishes, people simply aren't going to want to pay you as much for your work as they would a highly-skilled computer programmer, or doctor, for example.
There seems to me to be a combination of 'exogenous' and 'endogenous' factors involved. But you appear to be arguing that distribution is *only* exogenous, i.e. only determined by 'power'.
This may be a silly example, but J.K. Rowling, for example, became a billionaire by writing a series of children's books. She became rich because lots of people decided to give her their money. How is her wealth exogenously determined?
Thanks again.
Hi Y. For the classical authors the real wage was given in advance (see this entry here http://nakedkeynesianism.blogspot.com/2012/01/scope-and-flexibility-of-alternative.html). Sure skills have an effect, but they do affect the bargaining position of workers. Managers and liberal professionals get paid more since they are part of the class structure necessary in complex societies to control and exploit labor. Skills are the result of being part of that class, and not the cause.
DeleteMy immingrant granpa without skills made it in the world, before he could send his daughter to school. There is a famous play in Argentina/Uruguay called My Son the Doctor (M'Hijo el Dotor, Florencio Sánchez). So education is, for the most part, the result of other variables, increasing income in this case and a better social position, rather than it's cause.
And yes JK Rowling is skilled, but several other skilled authors don't get to be billionaires, without the media and PR and so on. So corporations, editor houses and film studios, decided to invest heavily so that people would 'decide' to give her money.
By the way, as I tell my students, I have a PhD, which is prove that 'skills' do not lead to higher remuneration.
DeleteA right-winger would argue that capitalists' wealth comes from voluntary exchanges. Bill Gates is wealthy not because he forced people to give him money, but because people chose to - by investing in Microsoft and buying Microsoft products. How would you respond to that?
DeleteHe got rich because he got a great deal with IBM and was ruthless forcing his (substandard) operational system on everybody's computer. He got quasi-monopolist rents from Windows. He is not a genius being paid for his abilities.
DeleteMatias-
DeleteI'm wondering how the concept of "quasi-monopolist rents" can have any meaning when, as we agree, prices and wages reflect bargaining power, administration, and -- I would add -- social norms as to whether one haggles or pays the price demanded. The phrasing is reminiscent of Marshall ("quasi-rents"). I don't see how the concept of "economic rent" can be maintained if we don't have a marginalist, supply-and-demand baseline of what market prices *should* be. It seems like the surplus approach renders the concept of "rent" redundant; the way that one group manages to appropriate surplus might be land, another, monopoly power, and still another, conspicuous display of social status. By your usage, would all these be "rents"?
Hi Will. Real wages represent conflict (could be profits in a different closing of the model). Once those are settled, for a given output, prices reflect technical conditions of production. The idea actually comes from Marx critique of Ricardian theory of rent, in which he argues that absolute rent is like a tax that the owners of certain resources levy on capitalits' profits.
DeleteDoes public spending ever increase private sector growth? If Keynes was right then there must be a record somewhere in the UK and US data of a public spending binge that stimulated industry.
ReplyDeleteIf you look at the actual data, it is surprising, see: Sydenhams Law of public expenditure and GDP growth
Whether the public spending is for wars, economic intervention or welfare the answer is NO, furthermore the New Deal seems to have been a myth, there was a strong private sector recovery in the USA before the New Deal.
"He is not a genius being paid for his abilities."
ReplyDeleteI agree.
Let me rephrase my question.
Let's say you were to start a company tomorrow, and over time your company grew to such an extent that you, as the main shareholder, became extremely wealthy. This process involved no illegal activities, and all of the transactions involved were voluntary - i.e. people voluntarily bought your products, invested in your company, and agreed to work for you - let's say for an "average wage".
Would you say that the wealth you accumulated in this way rightfully and justly belongs to you, or not?