Friday, March 08, 2013

G. C. Harcourt On The Intellectual Dishonesty Of Mainstream Economists

1.0 A Harcourt Quotation

I think of Geoff Harcourt as being known for, at least:

  • Surveys of the Cambridge Capital Controversies (CCC)
  • Maintaining good relationships with neoclassical economists, while advocating Post Keynesianism.

Given the second, the charge of intellectual dishonesty in the following surprised me:

"With the deaths in the 1980s of Joan Robinson, Piero Sraffa, Nicholas Kaldor and Richard Kahn, the bulk of the profession has started to behave as if they and their work never existed. Aggregate production function models and accompanying marginal productivity results, together with the long-period method, are being applied in the work which reflects the new interest in growth theory of the late 1980s and early 1990s associated, for example, with the contributions of Lucas and Romer. The intellectual dishonesty - or, at best, ignorance - which characterizes these developments is breathtaking in its audacity and arrogance, reflecting the ruthless use of power by mainstream economists in dominant positions in the profession...

...So the simple theory did not provide coherent results and the logically immune theory was not applicable. Here the matter rested: Cambridge (UK) won, but who cares, let us assume that they never existed - a good economist's ploy...

...Thus the current position is an uneasy state of rest, under the foundations of which a time bomb is ticking away, planted by a small, powerless group of economists who are either ageing or dead." -- G. C. Harcourt. Capital Theory Controversies, in The Elgar Companion to Radical Political Economy (ed. by Philip Arestis and Malcolm Sawyer), Edward Elgar (1994).

2.0 Nonsense About Minimum Wages

Since mid February, many economists in the USA have been discussing Obama's proposal that the Federal minimum wage be raised to $9 an hour. I find most of this discussion nonsensical. It would only make sense if an internally consistent theory existed in which higher wages, imposed from outside the labor market, led to less employment. The failure of empirical data to conform to this theory would then be explained by relaxing certain assumptions of the theory, such as perfect competition, or introducing other imperfections, such as information asymmetries and principal agent problems.

But, as should be well known among economists by now, no such theory exists. Peter Cooper has more on this point, in the context of current discussions on minimum wages.

3.0 A Krugman Quotation

If we accept Colin Rogers' take on the CCC, the Wicksellian concept of the natural rate of interest cannot be sustained. Neither can the claim that interest rates are to be explained by the supply and demand for loanable funds. So I do not know what Krugman is writing about towards the end of this paragraph:

"The interest-rate story is fairly simple. As some of us have been trying to explain for four years and more, the financial crisis and the bursting of the housing bubble created a situation in which almost all of the economy's major players are simultaneously trying to pay down debt by spending less than their income. Since my spending is your income and your spending is my income, this means a deeply depressed economy. It also means low interest rates, because another way to look at our situation is, to put it loosely, that right now everyone wants to save and nobody wants to invest. Se we're awash in desired savings with no place to go, and those excess savings are driving down borrowing costs." -- Paul Krugman (8 March 2013). "The Market Speaks", The New York Times: p. A25.

In other contexts, Krugman is willing, I think, to point out that his former boss, Ben Bernanke, sets the interest rate undergirding the whole structure of interest rates.

(I find much of Krugman's columns uninteresting these days. Since I regularly read his blog, I often know his points beforehand. This is not to say that his column is not worthwhile, abstracting from the mistakes in mainstream economics that he seems to feel it necessary to repeat.)


Matias Vernengo said...

What I find frustrating about Krugman's need for repeating the mainstream mistakes is that I have a sense that he knows better, but repeats them for the social pressures associated with being part of the 'team.' In that sense, I think New Keynesians have been part of the problem, in trying to be nice with New Classicals and allowing for what he terms the Dark Age of Macroeconomics.

TheIllusionist said...

What Krugman is talking about is the same thing that Baker was talking about when I debated him about the ISLM. They're talking not just about the short-term rate, but about a whole host of other rates.

I went into the details here (and refuted the objection to endogenous money):

Robert Vienneau said...

I cannot comment on whether Krugman knows better. But I find myself often in agreement with Krugman on practical politics during the current conjuncture. For example, his column this morning is about how there is not and never was a fiscal crisis in the USA. It is basically close to the argument of a blog post of his from last week. I have nothing to criticize here.