Bank for International Settlements (BIS) - Receptive to Heterodoxy?

I never even heard of the Bank for International Settlements (BIS) before a couple years ago. I am vaguely aware of the Basel accords, which I guess they have something to do with.

I have come across two papers - a ridiculously small number of data points - which make me wonder if they are receptive to heterodox economics. William White, the former chief economist of the BIS, criticized last December the direction of research in modern macroeconomics. He thinks macroeconomists should pay more attention to Hyman Minsky and also Austrian Business Cycle Theory. In a current BIS working paper (H/T to D-Squared), Piti Disyatat rejects the loanable funds theory and argues for the theory of an endogenous money supply, if I understand correctly. This paper references, among others, Basil Moore, Thomas Palley, and Randy Wray.

Colin Rogers and Ian Steedman Down Under

Colin Rogers has a review essay of Geoff Tily's Keynes's General Theory, the Rate of Interest and 'Keynesian' Economics: Keynes Betrayed:

"Tily (chapter 4) carefully documents how this Robertson version of 'Keynesian' economics succeeded in squeezing out Keynes' vision. The model behind Robertson’s vision is instantly recognisable by all students of economics today and consists of the idea that there exists a unique long-run equilibrium around which the economy fluctuates during booms and recessions... Apart from the fact that Keynes ... described rigidities as the classical explanation for unemployment, Tily makes it clear that this 'Keynesian' interpretation overlooks entirely that Keynes was concerned with the existence of multiple long-period equilibria in the General Theory. -- Colin Rogers, "Keynes vs the Keynesians: Keynes Rediscovered", History of Economics Review, Winter 2008.

I have never quite understood the idea that Keynesian policy is about helping the economy reach equilibrium quicker. I thought The Arrow-Debreu model of intertemporal equilibria was the canonical neoclassical explanation of prices. That model doesn't allow for out-of-equilibrium behavior in real time. By now, it should be trivial to create models of multiple long-run equilibria. Keynes' explanation for multiple long-run equilibria, I think, had to do with long-run expectations - each state of expectations creates a different (set of?) long run equilibrium.

Ian Steedman reviews another volume in Hayek's collected works:

"Laurence White has been zealous in providing editorial footnotes to Hayek’s text and many of his notes are indeed helpful... Some footnotes seem to be quite unnecessary explications... The simple observation by Hayek, that the choice of production method may change in response to a relative input price change, is made the occasion of a long and irrelevant note on the 'economics of socialism' debate..., while an editorial reference to the 'reswitching controversy' cites a single discussion thereof – one by Leland Yeager! ... It might be felt here that Hayek’s text is being used for the promotion of ‘Austrian’ economics more generally." -- Ian Steedman on "F. A. Hayek. The Pure Theory of Capital. Volume 12 of the Collected Works of F. A. Hayek, History of Economics Review, Summer 2009.

Fred Lee's New History of Heterodox Economics

Frederick Lee has written a book: A History of Heterodox Economics: Challenging the Mainstream in the Twentieth Century. I don't know if I'm going to purchase this Routledge book. I've read papers many of the chapters grew from.

Alex Haley and John Maynard Keynes: Self-Confident Authors

Alex Haley used to hang out at the Savoy, a local restraurant in Rome, NY. While writing Roots, he told the owner, "I am writing a book that is going to change how white people look at black people in America."

While writing The General Theory of Employment, Interest, and Money, Keynes had an argument with George Bernard Shaw about Marx. Keynes wrote to Shaw on 1 January 1935:

"...To understand my state of mind, however, you have to know that I believe myself to be writing a book on economic theory, which will largely revolutionise - not, I suppose, at once but in the course of the next ten years - the way the world thinks about economic problems. When my new theory has been duly assimilated and mixed with politics and feelings and passions, I can't predict what the upshot will be in its effects on actions and affairs. But there will be a great change, and, in particular, the Ricardian foundations of Marxism will be knocked away.

I can't expect you, or anyone else, to believe this at the present stage. But for myself I don't merely hope what I say, - in my own mind I'm quite sure."

I don't accept that Marx built on Say's Law, which is what Keynes refuted.

Notre Dame Faculty Senate Defends Academic Freedom

Maybe Phil Mirowski and his more interesting colleagues will be able to pursue their vocation.

Garrison Orally On Reswitching

The following is from the Question and Answer session for Roger Garrison's recent lecture, "Macroeconomics: The Boom and Bust Cycle" (starting at about 59:29):

Audience member: "Can you reconcile using Hayekian triangles with reswitching and [unclear]?"

Garrison: "Yeah. The question is, 'How do you reconcile the Hayekian triangle with the Cambridge Capital Controversy, which involves capital-reswitching and technique reversing. I got that backwards - isn't it technique reswitching and capital reversing. Let me just take a poll here. How many have heard of the Cambridge Capital Controversy and know about technique reswitching and capital-reversing? Good, OK, good. One guy.

Let me just give you a standing-on-one-foot explanation. Capital theorists in Cambridge - this is Cambridge, England - argued that Böhm-Bawerk didn't have it quite right. His math was too simple, and if you allow for inputs and outputs to be expressed by polynomials, instead of rectangles or linear inputs, you find that the production process could lengthen or shorten with the change in the interest rate. If the interest rate falls, maybe it will shorten, or maybe it will lengthen. And you don't know. You have to look at the math and see how it turns out.

And the way the math turns out, there are only trivial exceptions - very small exceptions to the proposition that a low interest rate encourages long-term investment. You can come up with counterexamples, but even Cambridge capital-theorists, like Joan Robinson - she wrote an article, "The Unimportance of Reswitching" - just the magnitude doesn't amount to anything. If you read Hayek's Pure Theory of Capital, he acknowledges that, yes, yes, you can have funny profiles that seem to run counter to the general proposition that a low interest rate encourages long-term production. But those are very trivial. I've published articles on this. I can give you a link to one. But one thing I observed is that to get numbers where the reswitching is visible to the naked eye, you have to have the interest rate changing from 100% to 50%, or something like that, which itself suggests how minor that distinction is.

There are actually more fundamental criticisms that are based on how the Cambridge capital theorists measure roundaboutness. And the Austrians don't really measure it. They don't need to measure it. It's enough to show you the pictures. You saw the picture of the Research and Development chemist. You saw the picture of the retail clerk. That's what we are talking about, however you describe that mathematically. So I think, economically, that just doesn't work.

There are economists - Post Keynesians are the main ones - who throw up that Cambridge Capital Controversy as a killer of Austrian Business Cycle theory. They see that as the basis for just dismissing Austrian Business Cycle theory, but I think with very little justification."

References:

• Roger M. Garrison (1979) "Comment: Waiting in Vienna", in Time, Uncertainty and Disequilibrium: Exploration of Austrian Themes (ed. by M. J. Rizzo), D. C. Heath and Company
• Roger M. Garrison (2006) "Reflections on Reswitching and Roundaboutness", in Money and the Markets: Essays in Honor of Leland Yeager (ed. by R. Kopl), New York:Routledge.