The second coming of Trumponomics

Donald Trump will be the first president since Grover Cleveland, also a New Yorker, to have two non consecutive terms in the presidency. The reasons for this are beyond my abilities to analyze, but it is clear that he did get the votes of people in the lower levels of income, that had voted for Biden in 2020 (but not for Hillary in 2016) and went decisively for Trump. One may say that the populist vote in favor of tariffs, often associated with working class interests, was part of the explanation. But Bidenomics (on that see this and this) had incorporated that and more.

I do think that economic factors were central for the outcome of the election. However, I think there is a simplification in suggesting it was inflation. Many people have suggested that, including many progressives, like, for example, Doug Henwood, which is correct in emphasizing the mistake of the Harris campaign in veering right (and that perhaps Dems will mistakenly veer even more to the right).

However, I tend to think that when people say that inflation is one of their main concerns, and that should be taken seriously, what they mean is that their wages are low. Nobody would care if inflation was even a bit higher if their wages increased significantly above inflation. And sure enough the minimum wage that has not increased since 2009 has been at historical lows. However, once we look at the earnings from those at the bottom, as shown below, we that while they did fall from May 2020, even before inflation accelerated, until June 2022, they have recovered and are higher than before the acceleration of inflation. However, they are essentially barely above the levels of the early 1970s.

In other words, real wages recovered, and have been growing more or less since the second Clinton administration, but they have been essentially stagnant, and there are many reasons for the working class to be angry. You could use other variables to show the same (without the issue of inflation), like the share of wages and salaries in Gross Domestic Income (below) that fell from about 50 to close to 42%. Bernie's insurgency on the left was no mere accident, and its interdiction within the Democratic Party has made it possible for a Era of Trumponomics, as it is now clear.

What working class people, that flocked to Trump in 2016 and now, and had voted for Biden in 2020 (and Obama in 2008, and also in 2012 when the candidate was Romney), are saying is our incomes are insufficient. Not that inflation is high. The working class is not Monetarist, even if some of their intellectuals are. Why my caution on inflation, you may ask. Because the main lesson from mainstream Dems will be that inflation caused the defeat (echoed by many progressives), rather than economic hardship and inequality, and that this, in turn, was caused by excessive fiscal expansion, and that balanced budgets are needed. Exactly the wrong lesson.

Inflation was not caused by the fiscal packages, it did not cause the defeat, and it actually is back down and, for the most part, excepting supply-side shocks, will remain low, since the bargaining power of the working class is weak (soon to be weaker), and there is NO significant distributive conflict (all stuff I said on my piece in Catalyst at the beginning of the inflationary bout in the summer of 2022).

In fact, the anti-labor stance (so much for his populist credentials) is the defining characteristic of Trumponomics. The tax cuts for the wealthy are recycled supply-side economics. The tariffs, which everyone sees as his hallmark, and something that he introduced in his first presidency, and in some ways has been maintained by Biden, are less relevant in some ways. First, contrary to some hyperventilating the tariffs will not reignite inflation, but would at worst increase the price level. Second, and more importantly, it is unclear that this is not like the infamous wall, that he would have built, and Mexico would have paid for, in his first term, more imaginary than real. His possible Treasury Secretary has already said in the Financial Times that: "Trump’s pledge to impose sweeping tariffs on imports as a 'maximalist' threat that could be altered during talks with trading partners." In his words: "It’s escalate to de-escalate."

Tariffs are just a tactic to deal with China. The anti-labor stance will be seen soon at full display in the National Labor Relations Board, that during Biden has been the most pro-labor since the 1960s, perhaps. Where we should expect a tremendous backlash, other than labor issues, is on health, and immigration, and these again have significant impact on the working class. His government will make things worse for workers, and will open the opportunity for left wing populism. If the Dems learn the lesson. A big if. Hope springs eternal.

MMT and its Discontents: Again (Wonkish and Longish)

Modern Monetary Theory (MMT) has been in the news again, and for good reasons. I actually had a post with the same title back in February of 2012, hence the again in the title. But now, with the irruption of Alexandria Ocasio-Cortez in the political scene ,and with the discussion of a Green New Deal (discussed here 7 years ago) and the feasibility of higher taxes (here, also long ago, among the many on the topic) taking the center of the political debate, MMT has become trendy. The rise of democratic socialist ideas, since Bernie's 2016 campaign, has brought the fiscal feasibility or responsibility, in the more conservative terminology, of such progressive  plans into the center of economic policy debates. Also, the fact that Stephanie Kelton a prominent MMTer is an advisor to Bernie, has brought significantly more attention on their views.

I have discussed Modern Monetary Theory in this blog for years (going back to April 2011, when I first found use of the term, to the most recent earlier this year after Olivier Blanchard American Economic Association presidential address last January), and have known the main MMTers going back to at least the mid-1990s, when I was at the New School and working as research assistant to Wynne Godley at the Levy Institute. I guess, I can be seen, to use the term employed by Doug Henwood in his recent Jacobin piece, as a fellow traveller (like Jamie Galbraith), even though I've been critical of some aspects, in particular when applied to developing countries (more on both Henwood and MMT issues in developing countries below).

There are many critiques, which deal with both theoretical issues, mostly concerned with the Functional Finance aspects of MMT, and with the policy and political effects of MMT advising to the left of center Democratic presidential candidates. Note that I will not try to define MMT precisely, since it is a hybrid of economic theories and policy proposals. I would assume that at core it is composed by the ideas of Chartalist and Endogenous Monetary views, Functional Finance, and an Employer of Last Resort (ELR) program as suggested by Greg Hannsgen in his recent presentation at the Eastern Economic Association (EEA), in sessions we co-organized (with the presence of Randy Wray presenting Stephanie Kelton's slides and Josh Mason; Stephanie was with Bernie at the rally in Brooklyn).

My comments will be, for the most part, directed at issues that fall within the Functional Finance part of MMT, and mostly about developed economies like the US (although, I'll have something to say about developing countries like Argentina or Brazil). I might add that Randy suggested that Functional Finance was a late addition to MMT, since this ideas were not known by MMTers in the mid-1990s or so. I think that the original source for the Functional Finance story was Ed Nell, who organized a conference at the New School back in 1997, I think, with Bob Eisner, and many other Old Keynesians. I had read Abba Lerner and Evsey Domar foundational papers in Ed's classes, and I think his influence on MMTers in this area is reasonable to assume.

Let me start with Paul Krugman's critiques of MMT, which have been clear and perhaps the most widely read (but there are many, including critiques by Tom Palley and Sergio Cesaratto here in the blog). So Krugman, in one of his most recent posts, starts by showing that there are many levels of the fiscal deficits that are compatible with full employment (not sure who thinks that this is wrong; I would add the same is true about the rate of interest, and that there is no natural or neutral rate of interest, a point that Keynes made back in the 1930s, and that is coherent with the capital debates, and, hopefully, it will be clear why this is relevant below). Then he argues more problematically, in my view, that crowding out is a serious concern, in his words: "The question then becomes one of tradeoffs: would the things the government could buy with a higher deficit be worth the lost private investment due to a higher interest rate?" But he knows well that the crowding out effect is empirically (if not theoretically) irrelevant, since investment is not particularly responsive to interest rates (he knows it's all about the accelerator); then he moves to the issue of the natural rate itself.

He seems to think two things (he can certainly correct me if I'm wrong). One, that MMT requires that you use monetary policy in order to achieve full employment. Two, that if you are in a situation of like the zero-lower bound, then the central bank cannot bring you back to full employment. That is, her assume that, using his own graph, the economy would be in position A.

Note that by his own argument you can go back to a point like B, with full employment by pursuing expansionary fiscal policy (be that an ELR or something else like traditional fiscal policy to expand infrastructure spending, for example; on this I should say that Randy suggested that he thinks traditional fiscal policy might be inflationary, and that's something perhaps would be compatible with Krugman; he noted how Minsky suggested that an ELR can be used as a buffer to control inflation). That is the IS would move up.

So it's unclear what the fuss is all about. If it is because the Fed could, in the MMT story (not sure Functional Finance authors would say that), print money to finance the deficits and bring the economy back to full employment, then the concern might be that it would be inflationary, in a Monetarist sense that printing money might be the cause of inflation. But that does not seem to be his preoccupation (I dealt with the issue of monetization of debt back in May 2011 in a reply to Krugman, who was back then, not surprisingly, criticizing MMT). His concern seems to be that the rate of interest would not go up. But of course, there could be a flat interest rate close to zero, a horizontal monetary policy (MP) line, and the expansion of the IS could be achieved bringing the economy to full employment (right below the C and B points with a zero interest rate).

But that doesn't seem to be the issue either. My guess is that he thinks that the problems is more like the one below, from an older post by him, in which the natural rate of interest is negative (my discussion of that here), and the Fed cannot lead the economy to full employment.

So his point is that the Fed cannot make it because it cannot bring the economy to the natural rate of interest, the one that is compatible with full employment and stable prices. He then goes on to criticize Stephanie on her critique of the natural rate, and tells us that: "So what purpose does claiming that the natural rate is a meaningless concept serve? It looks to me like sophistry – word games intended to confuse what should be a simple issue."

I'm not sure what Stephanie said about the natural rate, but I think it is well-established that the natural rate concept is problematic (note that on this some MMTers have said things I would disagree;  e.g. Forstater and Mosler suggest here that the natural rate of interest is zero; my discussion of that here). So I think the position that Krugman attributes to her is correct. Paul Samuelson would agree, as he did when he admitted that the capital debates had shown that neoclassical parables cannot hold (on the capital debates read this old post). So let me explain it briefly. There is no sophistry, just pure logic.

The capital debates show that with factor price reversals, when one good can be said to be capital-intensive at one level of the wage-profit ratio, and labor intensive at another level of the same ratio, there is no monotonic inverse relation between investment and the rate of interest. The investment schedule could look like the one below (my graph), with portions that have a negative slope and some in reverse, and if savings (determined by the level of income as in Keynes' principle of effective demand, rather than a Ramsey inter-temporal model) is given as in the graph below, then there might be no natural rate of interest. Keynes was explicit about that in the General Theory. That means that the monetary authority can set the rate of interest, what Keynes referred to as the normal rate, that was conventional, and that fiscal policy can be used to bring the economy to full employment. Btw, I think that overall Krugman and Kelton agree on that. Krugman says he's defending the theory, not the policy proposals, since he thinks they agree on that.

The point is NOT that the state can do whatever it wants, even though it has a lot of space, but that at the end of the day monetary policy is central for the ability to pursue fiscal policy, and the monetary authority can keep (unless it's forced by law not to do it; and that would bring up the discussion about the rise of the neoliberal idea of independent central banks) interest rates low enough to allow for fiscal expansion without debt growing at a very fast pace. Think of Marriner Eccles during the New Deal (chairman of the Fed at that time; search the blog for more on that). This is the argument that Josh Mason did, in a different way in our session with Randy at the Easterns. Note, also, that even though politically it was acceptable for the Fed to keep interest rates low, at 2.5 percent during the Depression and World War II, by the 1950s political pressures by financial markets and rentiers forced the Fed-Treasury Accord, and things changed (even though rates remained relatively low).

I'll comment briefly on two additional critiques of MMT, the one by Larry Summers, the ex-Treasury Secretary and advisor to the Clintons and Obama, and the one by Doug Henwood, an influential Marxist (see my discussion of his comments, and others, on Marx for the New York Times here), and writer of a very good book on Wall Street. I am sorry to say that both have too many arguments of authority and ad hominem attacks on some MMT authors, which I'm not interested in discussing. But there are a few substantive issues. One is the danger of inflation (that I'm glad Krugman seemed less keen on) and the others are on MMT and developing countries, and the political relevance and practicality of MMT proposals (here most critics have in mind the Bernie/Ocasio agenda of Medicare for all, cheap or free college tuition in public institutions, a jobs guarantee, and a Green New Deal).

I'll start with Henwood. His major issue is inflation, I would say. He says: "That brings us to the next problem: inflation. When the printing presses run freely, it’s not only reactionaries who think that runs the risk of spiraling prices. As I was researching this piece, many people to whom I described MMT, from Democrats to Marxists, brought it up as a worry. MMTers are coy about the topic — they never say how much is too much, and they profess great confidence in their ability to control it." Let me start by saying that inflation has not been a problem in 40 years, while wage stagnation is a central one. But if one is concerned about it, at least one should get the correct analytical tools to discuss it.

He tells us that: "The standard view of the Weimer inflation is that the German economy, severely damaged by World War I and forced to make huge reparations payments to the victors, wasn’t up to the task — it just didn’t have the productive capacity, and its citizens were both unwilling and unable to pay the necessary taxes. So instead the government just printed money and spent it, not only to pay its own bills, but to support bank lending to the private sector." First, that's NOT the standard view of the hyperinflation in Germany. You can read here the standard story, and I cite even a conservative historian like Niall Ferguson admitting that the monetarist story embraced by Henwood is NOT the dominant view among historians. The notion that the economy was at full capacity (didn't have productive capacity) and that printing money caused inflation is what Cagan thought about it. A more refined and somewhat structural story is the dominant view actually. In my view, it is clear that debt in foreign currency (not domestic), and, hence, the external problems of the current account, that forced depreciation, together with wage resistance are at the core of the hyper., German and many others.

In addition, it's worth emphasizing that the US is not Weimar Germany, in the sense that even with much larger fiscal deficits, debt would still be in domestic currency, and no significant pressure for depreciation would arise. The role of the dollar as reserve currency is not really under significant jeopardy. Certainly, there might be questions of inflation if we reach full employment, and that's a different issue (I'll come back to the topic below when I discuss Summers and the political feasibility of MMT sponsored plans). But the kind of alarmism of even suggesting that the US would be on the verge of hyperinflation is not serious. I won't comment on other primary mistakes like the notion that the rise of Nazism is associated to the hyper, when it is clearly connected to the Depression and deflation a decade later.

Henwood is on firmer ground, actually, when he discusses the external limits. Yes, indeed, for most developing countries like Argentina or Brazil, the ability to pursue expansionary fiscal policy is severely limited by the balance of payments constraint. Considerably before full employment, the patterns of consumption and investment may require too many imports, particularly of intermediary and capital goods, and even with capital controls, interest rates might be hiked to avoid capital flight and depreciation. Depreciation does solve the external problem, often by throwing the economy in a recession, and not because it stimulates exports. There is extensive discussion of that in the blog about it. Sometimes MMTers sounded like New Developmentalists in Latin American suggesting that depreciation would solve the external constraint and that capital controls were not even necessary. I don't think Randy believes that (or Stephanie), but it was certainly something that Warren Mosler believed in the past (whether he changed his mind I can't tell). But again the debate seems to be about the feasibility of MMT in the US (that's why I didn't emphasize in my comments on the roundtable the differences of debt in domestic and foreign currency, something I always do, as noted by Josh).

So that leads me to the last critique, the one by Larry Summers in his recent piece in WAPO. Summers says that: "Modern monetary theory... is the supply-side economics of our time" and that "these new ideas [about the importance of fiscal deficits] are being oversimplified and exaggerated by fringe economists who hold them out as offering the proverbial free lunch: the ability of the government to spend more without imposing any burden on anyone." He also says in Monetarist fashion that printing money would lead to hyperinflation. In his words: "As the experience of any number of emerging markets demonstrates, past a certain point, this approach leads to hyperinflation. Indeed, in emerging markets that have practiced modern monetary theory, situations could arise where people could buy two drinks at bars at once to avoid the hourly price increases. As with any tax, there is a limit to the amount of revenue that can be raised via such an inflation tax. If this limit is exceeded, hyperinflation will result." Again, emerging markets, like Germany, borrowed in foreign currency, that they cannot print. It was often the depreciation of the currency, the increase in the prices of imported goods, and the wage resistance of workers that led to hypers, and the central bank printed money afterwards, with money being endogenous. A foreign debt or external problem, not a fiscal one.

But there might be a danger of inflation (not hyper) if Bernie wins the election and manages to pass Medicare for all, free college, a Job Guarantee and actually spend some money on infrastructure, and to do something about global warming, without significant reshuffling of spending. Here is where I think the question of the supposed naïveté  of MMTers comes to play, with Henwood suggesting that they shirk the question of fiscal choices, and with Summers saying they resemble voodoo economics, the supply-side of the left (mind you supply-siders are many things, but certainly not naïve). I think, first of all, that the dangers of inflation are exaggerated, for several reasons. First, the labor market is not as tight as normally suggested. The number of people discouraged and out of the labor force is relatively large. Second, there are positive effects of growth on productivity (the Kaldor-Verdoorn effect, search on the blog too), so the supply constraint is not fixed, rigid at one given level (people said the natural rate of unemployment was 5 percent or higher just a few years back; again check past blog posts). Third, the bargaining power of unions, and workers in general, is not particularly strong, and it would take sometime to pick up.

More importantly, there is no chance that a Bernie presidency (and that's in and of itself a big if) would have both houses and could implement even a little bit of the program presented. Mind you if it happened we would probably get to full employment in a couple of years, and get increases in wages, and perhaps some inflation. But some inflation might be good, in particular if it allows for higher real wages, something sorely needed. How much inflation? Difficult to say, but the structure of the Fed is not going to vanish, and higher rates would be used to discipline the labor class, with the support of many neoliberal Dems. The limit will come probably before full employment and the capacity limit of the economy is reached (yes inflation happens before the capacity limit, because it's often cost push, and the sort of demand pull stuff Summers and Henwood are afraid about is not that common). In other words, the limits to fiscal expansion would be political, not economic, and there is no reason for the left to be up in arms against an imaginary enemy. Hyperinflation is like the the windmills for the Quijote. The giants to attack are actually the ones pointed out in the progressive agenda, like lack of spending on health, education and the environment, and MMTers have been instrumental in getting these ideas in the political discourse, and moving the Dems to the left.

But taxes matter too. Here is where the MMTers refusal to acknowledge that taxes on the wealthy are necessary is a political mistake (not all I've been told, but some for sure, as I've heard that criticism). Note that from the logical point of view they are not incorrect in suggesting that causality goes from spending to taxes, like it goes from investment to savings. It's implicit in the Keynesian/Kaleckian model in which autonomous spending (government spending is in there) determines income through a multiplier process. And taxes, like savings, grow with income. But it is important to note that politically (again this is not analytically, but politically) countries that went for a more ample Welfare State opted to tax their citizens, particularly their more wealthy citizens, at a higher rate. Tax increases on the wealthy should be (and are) part of the progressive agenda. It has an important distributive effect, and it makes the spending politically acceptable. At this juncture, however, even Blanchard says that we should just borrow, since interest rates are low, and will remain low.

The crucial point is that overall MMTers have been helpful in moving the Dems in the right direction (the right direction is to the left), and that is a good thing. The problem with Dems is not the existence of a few social democrats or socialists in their midst. In fact, even being generous there will probably be just three democratic socialists in the presidential primaries (Bernie, and, perhaps, Warren and Tulsi). The problem is the vast majority of neoliberals that still dominate the party. The same could be said about MMT. The problem is not the exaggerated propositions of MMTers, but the excessive fear of inflation when there are too many relevant problems to be concerned with.

Jamie Galbraith's response to the critics of Gerald Friedman's paper on the impact of Bernie Sanders policies

There has been a debate following the NYTimes piece on left of center economists against Bernie Sanders. Doug Henwood replied here and Dean Baker here. Henwood does not discuss the Gerald Friedman paper that led to the whole discussion. Now Jamie Galbraith provided a nice reply to the left of center economists that suggested that Bernie's plans are not realistic. He says:

"What the Friedman paper shows, is that under conventional assumptions, the projected impact of Senator Sanders' proposals stems from their scale and ambition. When you dare to do big things, big results should be expected. The Sanders program is big, and when you run it through a standard model, you get a big result.

That, by the way, is the lesson of the Reagan era – like it or not. It is a lesson that, among today's political leaders, only Senator Sanders has learned."

Read full letter here.

Was Marx right? Nice of you to ask, but...

The New York Times asked five economists whether Marx's economics was right, even if his politics was all wrong. By the way, the latter would be unquestionably true as a result of the collapse of the Soviet bloc. I am no Marx scholar, but I'll try to give my two cents on this debate. At any rate, it seems I read more of Marx's works than most of the commentators in the Times.

It is a bit disingenuous to suggest that Marxist economics, or classical political economy for that matter, since Marx was building on the work of the surplus approach authors, stands or falls with the Soviet Union [for a discussion of the causes of the Soviet collapse go here]. In fact, Marx has very little to say about communism, and many of the 10 policy proposals in the Communist Manifesto are now well-established consensual views in civilized societies, like the idea of a "heavy progressive or graduated income tax" ... or the provision of "free education for all children in public schools" and the "abolition of children’s factory labor."

Even if some of Marx's propositions are less well viewed in today's political climate, like the "abolition of private property," or the expansion of the "factories and instruments of production owned by the State," or the "centralization of credit in the hands of the state, by means of a national bank," these were instruments used to some degree by almost all successful experiences of industrialization in the world. One might as well suggest that the accomplishments of the Welfare State, in Western Europe and in the US (yes, even here), and some of the successful experiences in the developing world, are associated to Marx ideas. In fact, without the unity that he recommended to the working men of all countries, none of the advantages of the Welfare State would have taken place. The success of Sweden, so to speak, is as much a measure of the success of Marx's political ideas as the failures of the Soviet Union would be of his intellectual failure.

But, be that as it may, it is the actual economic thinking of Marx, about the functioning of capitalism, a mode of production, that he was the first to define and to try to explain its origins from a previous mode of production (feudalism), that matters in order to understand whether his contributions are relevant or not. The comments by the two academic economists in the New York Times, Brad DeLong and Tyler Cowen, are poor at best. Their views reveal, no surprise here, that their contact with Marx's works is minimal, if any, and that what they do know is some form of pop Marxism, filled with naïve simplifications of what Marx actually said.

Brad suggests that Marx was a second rate theorist. Why? In his words: "Marx's fixation on the labor theory of value made his technical economic analyses of little worth." I've already dealt significantly with the question of the labor theory of value (LTV) here, but it's worth remembering that while Sraffa provided a coherent solution for the labor theory of value's problems, in which long term normal prices can be determined as proportional to the labor commanded by the standard commodity (for the latter go here), the neoclassical problems to show that prices in the long term are determined by supply and demand, forced them to abandon the traditional method of economics, and embrace the intertemporal General Equilibrium model, in which all prices are short run ones, and there is no tendency to a uniform rate of profit. In other words, the LTV (or at least a version of it) theoretically stands on firmer ground than the neoclassical supply and demand theory. That is one of the results of the capital debates.

Also, note just for the sake of the argument, that while Brad dismisses Marx as a second rate theorist, he embraces Adam Smith (e.g. he says: "Adam Smith is the founder of economics because he has a great and extraordinary insight: that the competitive market system is a remarkably powerful social calculating and organizing mechanism"). And yet Adam Smith did use the labor theory of value, which should make his analysis of little worth, one would imagine. Mind you, for Smith, as much as for Marx, the competitive market system led prices to their long run equilibrium determined by the labor theory of value (labor commanded in Smith, incorporated in Marx). One is forced to assume that the reasons for dismissing Marx are not related to the LTV, and are political, or are based in a misunderstanding of the LTV, which would include the work of Smith (my history of thought students in Utah had a t-shirt that read: "I've read Smith and understood it.")

Brad then moves on to discuss Marx's predictions, which he suggest are somehow connected to Marx's confusion between real and nominal values. It is clear that Marx's immiseration hypothesis, the notion that the conditions of workers worsen as capital accumulation proceeds, is not based on some simplistic confusion between real measures of well being and nominal remuneration. For Marx the determination of the real wage, as it was for all the classical authors (Smith and Ricardo included) was exogenous, and at the subsistence level, but that did not mean that wages were determined physiologically, but by historical and institutional standards instead. In other words, the subsistence level would change in time and space. Why did Marx believe that the labor class would be worse off with the development of capitalism? Basically because he thought that the reserve army of unemployed would increase reducing the bargaining power of workers.

In his words:

"The greater the social wealth, the functioning capital, the extent and energy of its growth, and, therefore, also the absolute mass of the proletariat and the productiveness of its labour, the greater is the industrial reserve army. The same causes which develop the expansive power of capital, develop also the labour power at its disposal. The relative mass of the industrial reserve army increases therefore with the potential energy of wealth. But the greater this reserve army in proportion to the active labour army, the greater is the mass of a consolidated surplus population, whose misery is in inverse ratio to its torment of labour. The more extensive, finally, the lazarus layers of the working class, and the industrial reserve army, the greater is official pauperism. This is the absolute general law of capitalist accumulation. Like all other laws it is modified in its working by many circumstances, the analysis of which does not concern us here."

It is worth noticing that Marx's Laws, for all the criticism about their determinism, allow for countervailing forces, and suggest tendencies, rather than mechanical relations. Marx suggested in the same chapter (linked above) that:

"within the capitalist system all methods for raising the social productiveness of labour are brought about at the cost of the individual labourer; all means for the development of production transform themselves into means of domination over, and exploitation of, the producers; they mutilate the labourer into a fragment of a man, degrade him to the level of an appendage of a machine, destroy every remnant of charm in his work and turn it into a hated toil; they estrange from him the intellectual potentialities of the labour process in the same proportion as science is incorporated in it as an independent power; they distort the conditions under which he works, subject him during the labour process to a despotism the more hateful for its meanness; they transform his life-time into working-time, and drag his wife and child beneath the wheels of the Juggernaut of capital. But all methods for the production of surplus value are at the same time methods of accumulation; and every extension of accumulation becomes again a means for the development of those methods. It follows therefore that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse."

It is not just the payment, which could be high or low, but the alienation, and exploitation that made the labor force worse off. It is also far from clear that Marx is suggesting absolute immiseration rather than relative in his writings. Brad, it seems, thinks that Marx somehow thought that workers would be in absolute terms worse off with the development of capitalism. He suggests that that extreme pessimism might not be guaranteed. Another reading would be that Marx thought that workers would be relatively worse off, and that the recurrent crisis of the system (realization crisis, financial crisis, of which Marx is among the first to discuss in a systematic way), would undermine the social basis of the system.

Tyler Cowen, the other academic economist in the NYTimes bunch, has no understanding of Marx and of the current problems of capitalism. For him the quesion is whether: "does Marx provide a very good guide to understanding all of those problems?" And his answer: "mostly not. Neoclassical microeconomics explains why some of our services are low quality and high cost, namely too much third party payment through insurance companies, too much regulation of the wrong kinds, and the difficulties consumers face in judging quality." In other words, for him our problems are caused by a collapse of supply, with high prices (and low quality) associated to too much regulation, or as he suggests, imperfect institutions. The notion that the instability of capitalism, or for that matter, the normal functioning of market economies is well explained by the neoclassical supply and demand story is hard to defend. There are too many problems with this kind of view. The lack of understanding of the limitations of the neoclassical paradigm by mainstream authors is probably one the worst problems of the profession at this point. And just to show the degree of confusion, he claims that Marx understood Public Choice theory (what passes for political economy at George Mason University)!

Michael Strain, who has been mostly an economist in government bureaucracies, including the Fed, suggests that: "Marx believed that the free enterprise system required the exploitation of workers," and for him "it is hard to see why anyone would believe that today." Sure poverty in the world has declined, depending on the measure you use (he uses the World Bank's one dollar a day). But the lack of understanding about the extension of capitalist exploitation associated with globalization, and the increase in inequality in many of the countries in which economic growth has accelerated in the last three decades seems misguided at best.

The last two commentators are more favorable to the Old Moor. Yves Smith, of the great blog Naked Capitalism, suggests an old theme among Marxists scholars. Even though Marx was aware of the destructive elements of financial crisis, he did not think that finance would be the main cause of the collapse of the system. Echoes of Rudolf Hilferding can be distinguished in her piece. Doug Henwood, a journalist with his Left Business Observer, is the only openly Marxist one to appear in the Times. He basically argues in favor of the old profit squeeze view of the demise of the Golden Age, and the beginning of the Conservative Era. And he does say, correctly, that we cannot understand our current problems without "some sort of Marx-inspired analysis."

Beyond the simplistic notions of whether Marx was a right about the Soviet Union [e.g. Strain tells us that Marx was: "devastatingly wrong ... about the most important questions he tried to tackle (see also: Union, Soviet)"; yep, Marx did not foresee the rise and fall of the Soviet Union, what a moron!], or about the collapse of capitalism, what is missed in this discussion is that Marx's method, which harks back to the old surplus approach, in which distribution is exogenous, and determined by social and institutional factors, and is open to Keynes effective demand to complement the theory of output and accumulation, and which can include all sorts of financial instability notions, provides a far more fertile ground to rebuild the edifice of economics than the illogical neoclassical paradigm. But even if some of the contributions were not great, we should still thank the New York Times for asking.