tag:blogger.com,1999:blog-8595404115121834255.post522392693508194938..comments2024-03-18T03:53:27.368-04:00Comments on NAKED KEYNESIANISM: Lucas in context, Keynes out of contextMatias Vernengohttp://www.blogger.com/profile/09521604894748538215noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8595404115121834255.post-39015152745089933452012-04-09T15:12:58.082-04:002012-04-09T15:12:58.082-04:00Thanks!
Yes, I thought so (you suggested that in ...Thanks!<br /><br />Yes, I thought so (you suggested that in the text, too).<br /><br />I wanted to be really sure on this, because at least some commentators on Marxist crisis theory appear to be using the mainstream framework. <br /><br />See here for a recent example (although there are many other, much clearer, ones): http://yanisvaroufakis.eu/2012/04/04/on-keynes-marx-and-the-value-of-models-at-a-time-of-crisis-a-reply-to-david-laibman/<br /><br />I suppose the way to settle this dispute is on empirical grounds. What are the main references here?Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-51591857962341513462012-04-09T07:15:43.159-04:002012-04-09T07:15:43.159-04:00HiMagpie:
Yes indeed that would be the conventiona...HiMagpie:<br />Yes indeed that would be the conventional argument, and what Keynes' was suggesting was that the income effect, associated with lower wages, would more than compensate any possible substitution effect. However, more important than that is that the capital debates show that there is no reason for the substitution effect to be operative. If wages fall, the cost of labor falls, but also the costs of say a machine used in production (since labor is also used in its production). It could happen than that with the fall in wages proportinally more of that machine rather than labor is demanded. In that case, both the substitution and income effect imply that as wages fall less labor is demanded. By the way, real wages are pro-cyclical (go down with recessions). Mainstream theory must suggest that a negative technological (real) shock to the demand for labor took place. No such thing is necessary once you dismiss the neolcassical production function and its implicit notion of capital.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-42760694397730166132012-04-09T01:05:10.900-04:002012-04-09T01:05:10.900-04:00Hi NK,
I've been revisiting this post ever si...Hi NK,<br /><br />I've been revisiting this post ever since it was published and I always find new things to think about.<br /><br />This time I would like to play the devil's advocate using the first part of Keynes' quote:<br /><br />"A reduction of money-wages will somewhat reduce prices. It will, therefore, involve some redistribution of real income (a) from wage-earners to other factors entering into marginal prime cost whose remuneration has not been reduced, and (...)."<br /><br />I suppose a mainstream economist would accept the first sentence ("A reduction of money-wages will somewhat reduce prices") as a reasonable assumption. So there is no need to further dwell on it.<br /><br />The second sentence ("It will, therefore, involve some redistribution of real income (a) from wage-earners to other factors entering into marginal prime cost whose remuneration has not been reduced"), however, would likely be countered on the grounds that lower nominal wages make labour more attractive, relative to "other factors entering into marginal prime cost whose remuneration has not been reduced".<br /><br />In that case, there could be some kind of substitution effect, whereby more labour is employed and less of the other factors. If that happened, then depending on the price-elasticity of demand of labour, nominal income could increase. Combined with lower prices, this could bring about higher real wages.<br /><br />Is there a theoretical counter-argument against this objection?Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-52930795295583490032011-11-26T10:22:02.375-05:002011-11-26T10:22:02.375-05:00Although I certainly like the main drift of your a...Although I certainly like the main drift of your argument, I think there is an amount of ambiguity when discussing Krugman's view. In the article referred to, Krugman is referring to Keynesian economics and NOT Keynes' economics.<br />When it comes to the utterly ridiculous NC portraying of Keynes as an economist explaining unemployment as a result of wage rigidites, Chad Jones' Macroeconomics textbook (2nd ed 2011) is the latest example of the perversity<br />(http://larspsyll.wordpress.com/2011/07/14/chad-jones-macroeconomics-textbook-utter-nonsense-on-keynes-and-wage-rigidities/)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-50317537602289813282011-10-20T04:33:26.895-04:002011-10-20T04:33:26.895-04:00Thanks for the reply!Thanks for the reply!Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-63088468511206882412011-10-19T12:19:44.440-04:002011-10-19T12:19:44.440-04:00Nope, you are on the right track. Particularly if ...Nope, you are on the right track. Particularly if you think that Sraffa's Production of Commodities is a revival of the labor theory of value. Sraffa suggests in the appendix, that his standard commodity solution should be seen as akin to Smithian labor commanded, in fact.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-10791176763883560862011-10-19T00:46:34.476-04:002011-10-19T00:46:34.476-04:00I've also found this post fascinating and woul...I've also found this post fascinating and would like to congratulate the author.<br /><br />I wonder if the readers or the author are aware that Keynes' quote above has a remarkable similarity to the underconsumptionist interpretation of Marx's crisis theory?<br /><br />Granted, the causal mechanism that Marx envisaged (over-investment and over-production) are left out of the picture; Keynes introduces some nuances that Marx did not consider (the discussion about the transfer from entrepreneurs to rentiers, for instance).<br /><br />I also couldn't help but notice these two passages:<br /><br />"By pointing out the existence of a natural rate of unemployment analogous to Wicksell's natural rate of interest (which Keynes' criticizes in the GT) Friedman was just emphasizing that if one believes in the NEOCLASSICAL THEORY OF VALUE and there are no restrictions the system moves to full employment." [Emphasis added]<br /><br />And just below it, the following one:<br /><br />[Assuming unemployment and falling real wages] "However, since labor (which is cheaper) is used in the machine sector too their price should fall too, and is not generally true that there is a tendency for the full utilization of "factors of production" according to their relative scarcities"<br /><br />The first passage establishes two conditions: (1) that "the neoclassical theory of value" holds and (2) "there are no restrictions [so that] the system moves to full employment".<br /><br />But we find, according to the above interpretation that even if both assumptions hold true, "is not generally true that there is a tendency for the full utilization of 'factors of production' according to their relative scarcities", because "labor (which is cheaper) is used in the machine sector too their price should fall too".<br /><br />I find that this last passage clearly evocative of the labour theory of value: we are speaking of labour costs largely determining the price of commodities used "in the machine sector".<br /><br />Am I misreading the passages? I'd appreciate it comments or an outright correction.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-64893664580192499672011-09-30T12:48:57.996-04:002011-09-30T12:48:57.996-04:00agreed with Robert. Most economist talk about equi...agreed with Robert. Most economist talk about equilibrium as a centre of gravitation of "actual variables"; For example in the higly praised Dornbusch´s model of overshooting the actual real exchange rate seems to "gravitate" towards it´s equilibrium vale. <br /> As far as i know, most economist use the old notion of equilibrium, since Arrow-Debreu sheds no light on the issue<br /><br />gualraEmilianohttps://www.blogger.com/profile/02184687935121352413noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-38757028384806561462011-09-30T10:35:13.554-04:002011-09-30T10:35:13.554-04:00Thanks for the compliments and complements. Agreed...Thanks for the compliments and complements. Agreed on both counts. As far as I can tell the only consistent models that emphasize endogenous cycles are based on a version of multiplier-accelerator dynamics. In particular, the non-linear version of Kaldor-Goodwin (the 51 not 67 Goodwin) do not need shocks. With the income effect of the accelerator you have cycles, and with the capacity effect you have the super-multiplier. Also, very important to emphasize the change in the notion of equilibrium as a consequence of the capital debates. Also, in the AD model the natural rate of interest would be difficult to find, since it is unclear in what market it would be defined. Hints of Sraffa 1932.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-51945168383527273422011-09-29T22:30:26.755-04:002011-09-29T22:30:26.755-04:00Another point: during the time period covered by t...Another point: during the time period covered by the post, the canonical General Equilibrium model was becoming the Arrow-Debreu model of intertemporal equilibrium. An increasing emphasis on this very short run model was also a response to the 1960s capital debates.<br /><br />I've pointed out <a href="http://robertvienneau.blogspot.com/2010/05/natural-rate-of-unemployment.html" rel="nofollow">before</a> that the employment rate is not well-defined in this model, since an equilibrium is a time path in which employment varies along that path. A spot market exists for immediate supplies of labor services. And forward markets exist for the supplies of labor services a week hence, two weeks hence, etc. On which market is "the natural rate of unemployment" to be found?<br /><br />In the Arrow-Debreu model, the initial quantities of capital goods are among the data. Any time to reach equilibrium is too long since those data defining the equilibria would change during any approach to equilibrium. So I don't see how a story about rigidities being slowly overcome can be microfounded.<br /><br />And furthermore stories about firms substituting cheaper labor for more expensive capital are not founded in this model either.<br /><br />I agree with the post: what logic?Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-22997790992645544032011-09-29T14:47:41.141-04:002011-09-29T14:47:41.141-04:00http://delong.typepad.com/sdj/2011/09/teaching-key...http://delong.typepad.com/sdj/2011/09/teaching-keynesian-economics-to-your-bulldog.html<br /><br />talk about the blind leading the blind...Nathan Tankushttps://www.blogger.com/profile/16298104991209885385noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-16361986575870216342011-09-29T09:51:49.216-04:002011-09-29T09:51:49.216-04:00I obvioulsy agree. I would just add the fact that ...I obvioulsy agree. I would just add the fact that NK and NC/RBC in the end are models of exogenous stochastic shocks, and of the rational impulse responses to them. It is hard to think about any crisis as a mere exogenous shock. The current crisis arose endogenously from the incentives that were built in the financial system (yes, this sentence is very mainstream:) ). That is very different from an oil shock, or the "preference shocks" that most NKs like to put in their utility functions.<br /><br />In other words, these models are by construction useless when it comes to serious crashes.danielehttps://www.blogger.com/profile/00407112241195783470noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-91262941983726839322011-09-29T01:52:10.456-04:002011-09-29T01:52:10.456-04:00this is a great post.this is a great post.Nathan Tankushttps://www.blogger.com/profile/16298104991209885385noreply@blogger.com