Elsewhere

Paul Krugman's Godley-Tobin Lecture

• Ingrid Harvold Kvangraven on Samir Amin and Beyond Eurocentrism.
• Rebecca Hasdell's What We Know About Universal Basic Income: A Cross-Synthesis of Reviews.
• Jacobo Ferrer-Hernández and Luis Daniel Torres-González have the latest working paper from the Centro Sraffa.

What Paul Krugman Could Learn From The Post Keynesian Roots Of MMT

To the common reader, the distinctions among old Keynesianism, new Keynesian, and Post Keynesianism might seem confusing. You might find these are political doctrines, with broad agreement among their followers. Governments should run deficits in periods of sustained unemployment. Maybe sometimes fiscal policy should be more emphasized over monetary policy. After all central banks cannot stimulate the economy by lowering interest rate when it is zero. In an inflationary period, central banks can fight it by raising interest rates, although this is a blunt, crude tool. What is there to argue about?

Yet economists argue. Kelton (2020) has a popular book emphasizing that, given how money and banks work, governments need not be concerned with balancing their budgets because of a fear that the money to pay for it will not be there. And then Clinton's Secretary of the Treasury and Obama's director of the National Economic Council responds to Kelton getting publicity:

"I am sorry to see the [New York Times] taking MMT serious as an intellectual movement. It is the equivalent of publicizing fad diets, quack cancer cures or creationist theories" -- Larry Summers

Those who follow MMT have seen the claim that it is revolutionary and that mainstream economists do not understand money. Paul Krugman, a leading mainstream economist, reacts:

"...And I will say that I am, to use the technical term, pissed at this kind of thing. I spent years after the 2008 financial crisis arguing against austerity and the obsession with debt, taking a lot of abuse in the process.." -- Paul Krugman

What is going on here? Is this just pettiness about who should have more influence in the public square?

I have said before that what is being argued is not the desirability of certain policies. Keynes stated that his book was about something else:

"This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others. But its main purpose is to deal with difficult questions of theory, and only in the second place with the application of this theory to practice." -- Keynes (1936) [first three sentences]

Keynes' attempt at revolution failed. Mainstream economists, after Keynes and maybe before, argued that sometimes governments should spend more and tax less in a recession to prod the economy toward a long run equilibrium.

The background theory is that of an economy that is always approaching an equilibrium, in the long-run. The current "saltwater" school, also known as new Keynesianism, argues that this approach is too slow to be relied on for policy. Monopolies and limitations to competition, information asymmetries, sticky wages and prices are just too large. Government policy should focus on removing these limitations or somehow getting the economy to simulate a desired equilibrium path. I do not know that Joseph Stiglitz, for example, would argue that some these hindrances to equilibrium could ever be removed.

The "freshwater" school, once known as new classical economics, argues that, empirically, modern economies function close enough to the ideal competitive model that any such government policies should be looked on with great suspicion. Their simple macroeconomic models are the baseline with which both schools operate.

The names come from historical associations. Freshwater economists came out of the University of Chicago, the University of Minnesota, and the University of Rochester, all near one of the Great Lakes. Saltwater economists tend to be nearer ocean coasts, such as at Harvard and the Massachusetts Institute of Technology.

New classical economists, such as Robert Lucas and Thomas Sargeant, overthrew, in the 1970s, the Neokeynesianism or Old Keynesian of Alvin Hansen, Paul Samuelson, and Robert Solow. In the 1960s, Old Keynesian was known as the "New Economics" and the neoclassic synthesis. There is good reason for the common reader to be confused.

MMT builds on Post Keynesianism, and I am going to take it for granted that their proponents accept a Post Keynesian take on the above. (Which is not to say that Post Keynesians do not argue, sometimes vehemently, among themselves.) Joan Robinson called the neoclassical synthesis "bastard Keynesianism". Both freshwater and saltwater economists are pre-Keynesian. Carter (2020) provides an interestingly structured popular presentation of the unjustified rejection of the economics of Keynes

I find it hard to locate the logic in arguments that labor markets, good markets, and money markets tend to clear in any run. Some, such as Davidson (2007) emphasize money and uncertainty. Minsky (2008) and Marglin (2021) note the dynamic setting of Keynes' theory. In a model of the United States economy, it should not matter whether one calculates prices in dimes or dollars. This is a far cry from arguing that money is neutral, that the same real equilibrium would be approached if prices fell to 10 percent of their current nominal values.

I tend to emphasize microeconomics, following Sraffa. The theory of prices of production does not provide a logical foundation for the substitution mechanisms marginalists require for their ideas to make sense. Well-defined supply and demand functions do not exist in the long run.

Mainstream economists are apparently not taught any of this:

"...This article aroused the anger of just about every macroeconomist on Twitter..."

"...The brief description of freshwater and saltwater economics is fine, but to describe MMT as being 'brackish' — i.e., some sort of fusion of freshwater and saltwater, or a middle ground between the two — is absurd..."

-- Noah Smith The NYT article on MMT is really bad

I suspect many economists on twitter were not angered by this article. As far as I know, James Galbraith came up with the metaphor of brackwater economics. As seen above, it is not intended to be a fusion or middle ground. Rather it is a matter of rejecting both freshwater and saltwater economics. The nonexistence of an intertemporal budget constraint is another aspect of macroeconomics that Noah Smith seems to be confused about. Mainstream macroeconomists absurdly postulate that governments must always pay off their debts as time approaches infinity.

But why should Noah Smith be any different? Larry Summers ignorantly cited James Galbraith, who is a proponent of MMT or, at least, theories of endogenous money. I doubt that Summers believes this:

"I am all for intellectual diversity and wish that the NYT would give more attention to Marxist scholars like Steve Marglin, whose book Raising Keynes deserves extensive debate, or other left scholars like Tom Palley, Dean Baker or Jamie Galbraith." -- Larry Summers

You can find a post-2008 YouTube video, where Marglin says something like that his colleages are polite to him at holiday parties, but they have nothing to say about his research. Anyways, his long tome, which I have barely started, is clear that Keynes was arguing about more than government policy. He argues that models like the Keynesian cross and IS/LM are only a first pass description of the General Theory. The dynamic setting has to be taken into account in further passes. According to one review I stumbled upon Marglin's book could be improved in its account of money. Keynes' Treatise on Money contains a theory of endogeneous money. I can see reading the General Theory as assuming the central bank can set the stock of money, as a concession to the view he was arguing against, even though others say otherwise.

One could pursue political economy because one is interested in advancing political means that improve the lives of the vast majority of the population. One might make a compromise here. One might think one's policies are more likely to be enacted if one does the least to challenge hegemonic ideas about how the world works. As I understand it, Krugman has said somewhere that his academic strategy is to think in terms of simple models, like IS/LM, and then recast the argument into a publishable model of a Representative Agent, Rational Expectations (RARE) economy, also known as Dynamic Stochastic General Equilibrium (DSGE) model. In this approach, one puts forth arguments that one correctly believes have nothing to do with how actually existing capitalist economies function. One ignores some conclusions of the model. And it is doubtful that this approach will ever approach an useful description of a capitalist economy. I think Brad DeLong has said somewhere that this approach of boring from within is wasted time. (I welcome explicit links for the above.) It would seem that however politically useful such attempts have been, maybe after a half century of scientific failure by mainstream economists, heterodox approaches should be taken more seriously.

References

• Zachary D. Carter. 2020. The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Random House.
• Paul Davidson. 2007. John Maynard Keynes. Palgrave Macmillan
• John Hicks. 1981. IS-LM: an explanation. Journal of Post Keynesian Economics 3(2): 139-154.
• Stephamie Kelton. 2020. The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economics. Public Affairs.
• John Maynard Keynes. 1936. The General Theory of Employment, Interest, and Money. Harcourt-Brace.
• Stephen A. Marglin. 2021. Raising Keynes: A Twenty-First-Century General Theory., Harvard University Press.
• Hyman Minsky. 2008. John Maynard Keynes. McGraw-Hill.
• Franco Modiglani. 1944. Liquidity preference and the theory of interest. Econometrica 12(1): 45-88.

Paul Krugman Ignorant Of The Cambridge Capital Controversy

Zach Carter has an appreciation of Joan Robinson's work on imperfect competition, with a bit about the role of Cambridge circus in helping Keynes write the General Theory. Paul Krugman, gatekeeper, reacts:

"Nice appreciaton of Joan Robinson, although no mention of her later role. Sad to say, as a student I mainly encountered her through the 'Cambridge capital controversy', a huge intellectual muddle. Somehow Robinson and others managed to convince themselves that the moral legitimancy of capitalism rested on the existence of a well-defined measure of 'capital' that had a well-defined marginal product. What followed was a tortured debate that illuminated nothing much, and eventually just faded away. Oh well. But Zach Carter is right: we value thinkers for their best work, not their detours, and Robinson made a huge contribution." -- Paul Krugman, 25 April 2021

In my work trying to extend the CCC, I usually jump into the middle. I probably have a summary years ago for the beginner, but I cannot find such. Quickly looking, I find these posts:

• Quotations from some experts on the CCC
• A sophisticate neoclassical response to the CCC
• Why do mainstream economists not make more out of the CCC?
• Fields impacted by the CCC
• Catalog of neoclassical responses to the CCC
• Textbook recommendations (I have longer lists in some other posts, I think.)

Somebody coming here from Twitter who does not pay attention to academic economics might not find these too helpful. I write hardly anything at all about the 'moral legitimancy of capitalism'.

Elsewhere

• David Graeber's review of Robert Skidelsky's Money and Government: The past and Future of Government.
• A TED talk, by Nick Hanauer, on how complexity economics is replacing "neoliberal" economics. He is especially interested in reciprocity.
• A 2014 interview by Bill Moyers, of Paul Krugman, on Piketty's book.
• Mariana Mazzucato, with a talk on the value of everything. She also has a 2013 TED talk.
• Heinz Kurz on the Cambridge capital controversy.
• Bertram Schefold on the CCC and his recent research.
• John Eatwell on Joan Robinson, including on the "disgrace" of mainstream economists not taking on board the results of the CCC.

Update (6 Dec. 2019): Added link for John Eatwell.

Economists Insulting Me And Insulting Keynes

I happen to think the minimum wage in the United States should be raised. I'll go along with the consensus of $15 an hour.

I also happen to know that, even under ideal conditions, wages and employment cannot be explained by supply and demand.

Some economists, who I have no (other) reason to disrespect, seem to think my true statement about labor economics can be discredited by attacking my motivations. So they point out how, under (incoherent) neoclassical theory, higher minimum wages can be justified by, for example, the theory of monopsony. But my motivations are almost the opposite. I take the evidence that neoclassical economics is wrong about labor markets as a launching pad into the illogic of mainstream economics. (Is this the most recent meta-analysis on minimum wages?)

The attack, based on motive, is insulting. One might think a point of logic cannot be discarded by presuming that it was made because of a desired political conclusion. But enough about me. I want to talk about how John Maynard Keynes was attacked in a similar way.

Some may portray the Keynesian revolution as about policy. The point is to demonstrate that fiscal or monetary policy can be effective in the short run, while prices and quantities are adjusting to a long run equilibrium in which all markets, including the labor market, clear. But Keynes is clear that his book about is about theory, not policy:

"This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others. But its main purpose is to deal with difficult questions of theory, and only in the second place with the applications of this theory to practice." -- the first three sentences in (the preface to) The General Theory of Employment Interest and Money (Keynes, 1936).

And sticky prices is characteristic of the theory that he is rejecting:

"For the Classical Theory has been accustomed to rest the supposedly self-adjusting character of the economic system on an assumed fluidity of money-wages; and, when there is rigidity, to lay on the rigidity the blame of maladjustment." -- Keynes, 1936: p. 257.

So, insofar as the Keynesian revolution was about, say, fiscal policy it was a counterrevolution against Keynes' ideas.

I realize that economics can have great practical effects, for good or ill. Some, perhaps, want to advocate policies which they deem good. Rather than trying to tilt at windmills, they may think it more worthwhile to show how one can argue for such policies within orthodox theory. I hope some who do this are not merely trying to ensure they retain access to levers of power. If one puts on a mask long enough, one risks becoming what one pretends to be. The understanding of capitalism is not advanced in any way at all. Suppose one thinks about policy with simple models. Then, when one has a conclusion, one bows to the orthodoxy and appends a superfluous shell of constrained maximization. (I haven't read the book in the link.) If this is typical among a population of mainstream economists, outsiders may wonder what is the point of all that mathematics and supposed science?

Variation Of Gains From Trade With International Prices

Figure 1: Intercepts of Production Possibilities Frontiers for England

1.0 Introduction

In this example, gains and losses from trade vary with international prices. Given rates of profits are compatible with an interval of relative international prices for linen and corn, when trade exists only in consumer goods. I explore whether, when trade exists in capital and consumer goods, more than one pattern of specialization among countries is possible, depending on relative international prices. I am beginning to think that specialization, in this model, in corn and linen is infeasible, except in knife-edge cases.

The theory of comparative advantage provides no valid justification for the abolition or the lowering of tariffs. Unregulated international trade is not about efficient use of an international allocation of resources. Many existing textbooks, including Krugman and Obstfeld's, should be ripped up, and the authors should start again.

2.0 Technology, Endowments, And The Rate Of Profits

I assume each of two countries (Tables 1 and 2) have a fixed-coefficients technology for producing three commodities. The technology varies between countries, although it has the same structure in both. Steel is the only capital good. Each commodity can be produced, in a year, from inputs of labor and steel. A coefficient of production shows the quantity of an input needed per unit output. For example, in England, one person-year and 1/30 tons of steel must be purchased per square meter of produced linen. Steel is totally used up in production, and constant returns to scale obtains.

Table 1: Coefficients of Production in England

Inputs	Industry
	Steel	Corn	Linen
Labor	a0, 1(E) = 1	a0, 2(E) = 8	a0, 3(E) = 12
Steel	a1, 1(E) = 1/5	a1, 2(E) = 1	a1, 3(E) = 1

Table 2: Coefficients of Production in Portugal

Inputs	Industry
	Steel	Corn	Linen
Labor	a0, 1(P) = 6/5	a0, 2(P) = 12	a0, 3(P) = 20
Steel	a1, 1(P) = 1/4	a1, 2(P) = 2	a1, 3(P) = 3/2

I take endowments of labor as given, as in the Ricardian model of foreign trade. Let England and Portugal both have available a labor force consisting of one person-year. So Production Possibilities Frontiers (PPFs) are found per person-year. By assumption, workers neither immigrate nor emigrate. In this model, full employment is assumed.

I also take the rate of profits as given, at 100 per cent in England and at 20 percent in Portugal. I assume that financial capital cannot flow between countries. So the rate of profits need not be the same across countries.

3.0 Summary

I apply my usual analysis to determine patterns of specialization, given technology, endowments, and rates of profits in each country. When foreign trade is possible in corn and linen, but not steel, the domestic price of steel and the wage in each country must be such that the going rate of profit is earned in producing steel. Likewise, firms in, say, England make neither extra profits nor incur extra costs in producing the consumer good in which England specializes. The firms would incur extra costs if they were to produce the other consumer good. The same principles extend to the case in which foreign trade is possible in all produced commodities.

In this analysis, which is an example of a small country model, prices for goods bought or sold in foreign trade are taken as given by firms in all countries. I find prices and specializations which are consistent with the given parameters. One can draw Production Possibility Frontiers (PPFs) for each country, given prices in foreign markets and specializations. A PPF shows possible baskets of consumer goods when labor is fully employed. In this model, each PPF is a decreasing function in the first sector of the two-dimensional space formed by quantities of corn and linen. Such a PPF is fully specified by the intercepts. The intercept with the corn axis is maximum amount of corn that can be consumer, per employed worker, given that no linen is consumed. Similarly, the intercept with the linen axis is the maximum amount of linen that can be consumed. Figure 1, above, and Figure 2, show the intercepts for the PPFs for England and Portugal, respectively.

Figure 2: Intercepts of PPFs for Portugal

In the example:

• When foreign markets exist only for corn and linen:
• England specializes in the production of linen (and steel), while Portugal specializes in corn (and steel).
• England suffers a loss from trade, except when the international relative price of linen is at its highest feasible level.
• Portugal obtains a gain from trade.
• England’s loss and Portugal’s gain is smaller for larger relative prices of linen on international markets.
• When foreign markets exist for steel, corn, and linen:
• For a relatively small ratio of the international price of linen to the international price of corn, England specializes in corn and linen, and Portugal specializes in steel.
• In this range, prices compatible with England specializing in linen and Portugal specializing in steel and corn provide England with extra profits in producing corn.
• This case is infeasible. England only obtains steel by trading corn for it. England is unwilling to trade linen for steel, and Portugal is unable to acquire linen by selling steel.
• For a relatively large ratio of the international price of linen to the international price of corn, England specializes in linen, and Portugal specializes in steel and corn.
• In this range, prices compatible with England specializing in corn and linen and Portugal specializing in steel provide Portugal with extra profits in producing corn.
• England obtains a gain from trade, as compared to when foreign trade is only possible in consumer goods
• For a low price of linen in this range and a consumer basket heavily weighted to corn, England suffers a loss from trade, as compared to autarky.
• Otherwise, England obtains a gain from trade, as compared to autarky.
• Portugal’s PPF is identical to what it would be if foreign trade were possible only in consumer goods.
• Accordingly, Portugal obtains a gain from trade, as compared to autarky.

Economists In Popular Fiction

Apparently, a character in a current movie, Crazy Rich Asians is an economist. Dan Kopf considers whether she is a good economist. In a couple of recent tweets, Paul Krugman reacts:

"Actually, I can fill this gap.

"There was a movie titled The Internecine Project ... with James Coburn as a chairman of the Council of Economic Advisers who gets a bunch of people to kill each other to hide his evil past. Sounds good to me, but the movie was terrible." -- Paul Krugman, 9 August 2018

I do not know about the movie versions, but I can name a couple of book series with characters who are economists:

• Meyer is the sidekick in John D. MacDonald's Travis McGee mystery series. Meyer's houseboat is the John Maynard Keynes, until it is blown up. He replaces it with the Thorstein Veblen.
• The love interest in the Bourne Identity series is an economist. If I recall correctly, Jason Bourne first meets her by carjacking and kidnapping her, and then forcing her to drive with him to Paris.

I don't think you can count the Marshall Jevons' mystery series, since that is a pen name for two economists.

The Gain And Loss From Trade: More On A Numeric Example

Figure 1: The Production Possibility Frontier, With And Without Trade, In "Germany"

1.0 Introduction

I continue to blunder around in parameter space in exploring my numeric example in the previous post. In this post, I continue to adopt the same assumptions for a model of three countries engaged in international trade with three produced commodities. In particular, workers are assumed to be unable to immigrate, capitalists only invest in their own country, and produced means of production are not traded. Thus, wage rates and rates of profits may vary among countries, with no tendency to change or approach equality.

2.0 Outline of the Model

For this intellectual exercise, I make the same assumptions about technology, available in each country, but differing among them. Corn, wine, and linen can each be produced from a dated series of labor inputs. Under the restrictive assumptions illustrated by the numeric example, one can rank commodities by how labor-intensive they are. Corn is most labor-intensive, and linen is least. Wine is of an intermediate labor-intensive. The endowment of labor is also taken as given.

The rate of profits is taken as given in each country. One then wants to find a set of international prices for corn, wine, and linen such that a pattern of specialization can arise for the given data. Under a model of small, open economies, the firms in each country take prices as given. In such specialization, each country will specialize in producing at least one commodity, and each commodity will be produced in one or another country. The wage in each country will be such that no pure economic profits (also known as supernormal profits) will be earned in the production of any commodities. And costs, including charges for the prevailing rate of profits, will exceed the price of all commodities that firms in each country are unwilling to produce.

3.0 Countries Specializing in Producing One Commodity

Table 1 exhibits a set of prices, for the given rates of profits, that meets these conditions. Each country specializes in the production of one commodity. England produces linen, Portugal produces corn, and Germany produces wine. The wages in each country are as shown.

Table 1: Prices with Trade

Commodity	England	Portugal	Germany
Corn	p1 = 3240/11
Wine	p2 = 324
Linen	p3 = 4050/11
Rate of Profits	r1 = 2/5	r2 = 3/2	r3 = 7/10
Wage	w1 = 4050/1199	w2 = 162/121	w3 = 1

For this particular set of prices, each country specializes differently than they would if the rates of profits were zero in each country. And they specialize differently than they would at the prices and positive rates of profits in my previous exploration of this example.

4.0 Production Possibility Frontiers (PPFs)

In the textbook theory of comparative advantage, an unambiguous gain from trade is shown by comparing the Production Possibilities Frontier (PPF) with trade and under autarky. The claim is that the with-trade PPF is moved outward from what it would be under autarky. If the consumption basket contains any commodities that must be bought on international markets, the with-trade equilibrium is supposedly unambiguously better for the country. No commodity must be consumed in a smaller amount than under autarky, and some commodities can be produced in larger quantities. Some may be hurt by trade, perhaps because they receive profits from industries whose domestic production has been replaced by imports. But they could be compensated out of the increased consumption basket, while still leaving everybody else better off in the country under consideration.

To check the textbook argument, one would look at the PPFs in each of England, Portugal, and Germany. And the textbook story is validated for England in this numeric example, with these prices and pattern of specialization. The PPF for England is rotated outwards, as compared with autarky. They coincide at the intersection with the linen axis. For every other consumption basket with non-negative quantities, the English with-trade PPF lies outside the autarkic PPF. England gains from trade.

The with-trade and autarkic PPFs for Portugal (Figure 2) replicate my previous finding that specialization can result in a loss from trade. The argument from comparative advantage is logically invalid, given positive rates of profits among countries engaged in international trade. The with-trade PPF in Portugal is rotated inwards. Portugal is unambiguously worse off with trade.

Figure 2: The Production Possibility Frontier, With And Without Trade, In "Portugal"

The story from Germany illustrates a possibility that cannot arise in the two-country, two-commodity model. The with-trade PPF (Figure 1) is neither rotated outwards nor inwards, as compared with the autarkic PPF. Along one dimension (linen), the with-trade PPF lies outside the autarkic PPF. Along another dimension (corn), it lies inside the autarkic PPF. Whether Germany is worse or better off with-trade depends on the composition of the commodity basket.

5.0 Remarks on Krugman and Obstfeld

I am unsure what I think of Krugman and Obstfeld, so far. Chapter 2 presents the argument from comparative advantage. They hammer home that, in the Ricardian model, countries are better off with-trade, no question about it. In this chapter, inputs consist only of labor, and no profits are earned. I do not know that they are clear that labor inputs are only direct. (In my example, I have labor inputs distributed over time, thereby providing a role for a rate of profits.)

In Chapter 3, they have manufacturing goods produced from labor and capital, as specified by a production function. I am not sure they ever take the marginal product of capital. They show output as a function of labor, with a diminishing marginal product. Although they do have some remarks on the supply of labor, they seem to be considering a medium term model where manufacturing output is produced with given technical conditions and a given set of production facilities. The point is to show that trade has impacts on the distribution of income in a country and can hurt some, if they are not compensated out of the supposed gains.

Chapter 4 sets out the Heckscher-Ohlin-Samuelson model in the two-factor, two-country, two-commodity case. The factors are labeled labor and land. This is as far as I've gotten in my reading.

One reading of the above is that Krugman and Obstfeld are carefully working around the Cambridge Capital Controversy. I do not know that they entirely succeed in Chapter 3. Their chapters have points, and I, of course, question their Chapter 2 claim that the gains of trade are unambiguously positive. Presumably, they would point to later chapters that put forth qualifications about imperfect competition and increasing returns to scale - a textbook presentation of the work that won Krugman a Nobel prize. Or they might point to a need in pedagogy to drum home simple points. Furthermore, their textbook, they could argues, teaches what (mainstream) economists have settled on as a consensus of what international economics is.

But what happens when the consensus has been shown to be simply wrong almost half a century ago? I know I have previously thought Krugman's offhand remarks on his blog about the CCC did not seem particularly informed. Has he ever referenced, say, Ian Steedman, in his academic work?

References

• Paul R. Krugman and Maurice Obstfeld (2003). International Economics: Theory and Policy, sixth edition.

Krugman Confused On Trade, Capital Theory

Over on EconSpeak, Bruce Wilder provides some comments on a post. He notes that economists wanting to criticize glib free-market ideology in the public discourse often seem unwilling to discard neoclassical economic theory.

Paul Krugman illustrates how theoretically conservative and neoclassical a liberal economist can be. (I use "liberal" in the sense of contemporary politics in the USA.) I refer to Krugman's post from earlier this week, in which he adapts an analysis from the theory of international trade to consider technological innovation (e.g., robots). Krugman presents a diagram, in which endowments of capital and labor are measured along the two axes. Krugman does not seem to be aware that one cannot, in general, coherently talk about a quantity of capital, prior to and independently of prices. He goes on to talk about "capital-intensive" and "labor-intensive" techniques of production.

I point to my draft paper, "On the loss from trade", to illustrate my point that one cannot meaningfully talk about the endowment of capital.

(I did submit this paper to a journal. A reviewer said it was not original enough. I emphasized that I was illustrating my points in a flow-input, point output model, with a one-way flow from factors of production to consumption goods, not a model of production of commodities by means of commodities. Steedman & Metcalfe (1979) also has a one-way model, albeit with a point-input, point-output model. So the reviewer's comments were fair. Embarrassingly, I cite other papers from that book. Apparently, I had forgotten that paper, if I ever read it. I suppose that, given the chance, I could have distinguished some of my points from those made in Steedman & Metcalfe (1979). Also, I close my model with utility-maximization; if I recall correctly, Steedman leaves such an exercise to the reader in papers in that book.)

Reference

• Ian Steedman and J. S. Metcalfe (1979). 'On foreign trade'. In Fundamental Issues in Trade Theory (ed. by Ian Steedman).

Romer And Romer Stumble

A debate has recently arisen about Gerald Friedman's analysis of Bernie Sanders' proposed economic program. In a welcome turn of events, two defenders of the establishment, Christina and David Romer, finally offer some substance, instance of just relying on their authority as Very Serious People.

In this post, I ignore most of the substance of the argument. I want to focus on three errors I find in this passage:

"Potentially more worrisome are the extensive interventions in the labor market. The experiences of many European countries from the 1970s to today show that an overly regulated labor market can have severe consequences for normal unemployment. There are strong arguments for raising the minimum wage; and over the range observed historically in the United States, the short-run employment effects of moderate increases appear negligible. But doubling the minimum wage nationwide, adding new requirements for employer-funded paid vacations and sick leave, and increasing payroll taxes substantially would take us into uncharted waters. Obviously, these changes would not bring the United States all the way to levels of labor market regulation of many European countries in the 1970s. But they are large enough that one can reasonably fear that they could have a noticeable impact on capacity growth." -- Christina D. Romer and David H. Romer, Senator Sander's Proposed Policies and Economic Growth (5 February 2016) p. 10-11.

First, the reference to "interventions in the labor market" and an "overly regulated labor market" imposes a false dichotomy. An unregulated labor market cannot exist. Certainly this is so in an advanced capitalist economy. Possible choices are among sets of regulations and norms, not among intervention or not. Calling one set of regulations an example of government non-intervention is to disguise taking a side under obfuscatory verbiage.

Second, Romer and Romer presuppose a consensus about the empirical effects of different regulations on the labor market in Europe and the United States that I do not think exists. If I wanted to find empirically based arguments countering Romer and Romer's claim, I would look through back issues of the Cambridge Journal of Economics. Perhaps at least one of these articles might be helpful.

Third, Romer and Romer suggest that, given the set of regulations they like to think of as government non-intervention, markets for labor and goods would have a tendency to clear. Otherwise, economic growth would be jeopardized. No theoretical foundation exists for thinking so.

Even the best mainstream economists seem incapable of writing ten pages without spouting ideological claptrap and propagating silly errors exposed more than half a century ago. Something seems terribly wrong with economics profession.

Krugman On Robert Reich's New Book

1.0 Introduction

Robert B. Reich has a new book,Saving Capitalism: For the Many, Not the Few out last year. Paul Krugman reviewed it, on 17 December 2015, in The New York Review of Books. In this post, I record a negative reaction I have to this review. I do not think I am formulating a strong argument, rather merely making a claim that needs more justification.

2.0 Review of Reich's Book

Reich notes that many people portray the major political economic choice in the United States of America as between free markets and government intervention. Reich rightfully rejects this false dichotomy and argues that government creates the markets. Consider such matters as the definition of property rights; what practices are permitted in the market by, say, antitrust law; what contracts will be enforced in courts of law; what legal options, such as bankruptcy, agents can resort to when unforeseen circumstances arise; and the distribution of the allotment of resources to enforcement of various laws. Decisions along these lines create markets, and government can choose various sides. These choices are not necessarily interventions, but constitutive of the definition of markets.

Many examples can be cited. Think of intellectual property, such as copyrights and patents. Consider how markets arise, from cap and trade polices, for pollution permits. Or think of the labor market. Some states will not permit corporations and unions to agree to contracts in which every worker at some specified rank must be a union member; rather, corporations are permitted to hire workers that get the benefit of union wages without making contributions. One could simplify voting for unions by instituting card check. And, if workers choose to join a union, why shouldn't that union be able to freely choose the portion of their budget to spend on political lobbying?

Various myths follow from an acceptance of the false dichotomy. For example, the theory of marginal productivity has been read by many since its creation to say workers are paid in the market what they are worth. Reich also looks at the reality of how corporate executives have increased their pay.

Market processes and their outcomes refract social and legal norms, not natural laws. These norms and their outcomes differ a lot between the post-(World) war (II) golden age and the neoliberal world established after the end of Bretton Woods. Capitalism is a dynamic system, and the current rules are always changing. I do not see why, with lots of struggle, vicious circles currently enriching the few cannot be overthrown and shared prosperity be re-established to some extent.

I have some suggestions for how Reich could strengthen his arguments. I think Reich slips into polemics sometimes when I would prefer more analysis¹. I wish Reich would reference more scholars and traditions developing similar points². I think John Kenneth Galbraith shows an awareness of traditions I like, and Reich does have Galbraith's notion of countervailing power as a major theme in his book. Maybe explorations of these traditions would lead Reich to more radical conclusions³. I think Reich still has a hankering for the theory of perfect competition. Even if markets were perfect and corporate boards did not consist of overlapping sets of cronies, neither wages nor executive pay would be determined by marginal productivity.

4.0 Krugman's Review

Paul Krugman's review is generally positive⁴. This contrasts with how Krugman used to write about Reich back in the 1980s and 1990s. For Krugman then, Reich was a policy entrepreneur who did not measure up to the supposedly rigorous standards of mainstream economists.

A major theme of Reich's book is power. Krugman, by casting this theme in terms of market power, asserts (mainstream) economists have long addressed this issue. I agree that mainstream economists have models addressing this idea:

"Market power has a precise definition: it’s what happens whenever individual economic actors are able to affect the prices they receive or pay, as opposed to facing prices determined anonymously by the invisible hand." -- Paul Krugman

Given this orientation, Krugman can argue against Stigler's claim that Chicago school models of perfectly competitive markets are empirically adequate. Krugman also takes the opportunity of Reich's book to argue that the theory of Skill-Biased Technical Change (SBTC) is mistaken. I think Krugman is reading Reich's book in a more mainstream economist's world of discourse⁵ than, in fact, is and should be the case.

Footnotes

1. Maybe this is a matter of contrasting tastes. I'm less likely to draw policy conclusions. Reich certainly knows more about Washington than I do.
2. For example, institutional economics; Karl Polanyi's The Great Transformation; Hacker and Pierson's Winner Take All Politics; theories of adminstrative, full-cost, or markup pricing.
3. What substantive disagreement is involved in saying your goal is saving capitalism, as opposed to instituting social democracy?
4. The back cover of Reich's book features blurbs from Laura D'Andrea Tyson, Joseph Stiglitz, and Lawrence Summers, economists all.
5. Reich does, in fact, address the (incoherent and incorrect) theory of SBTC.

Paul Krugman Stumbles

In his editorial in the New York Times this morning (14 September 2015), Paul Krugman writes about Jeremy Corbyn and the British Labour Party. The establishment politicians in Labour are none too happy about Corbyn's victory. Krugman criticizes these establishment politicians for accepting Tory canards on recent economic history in the United Kingdom, with the former Labour government supposedly being at fault. Krugman's concluding paragraph is:

"Beyond that, however, Labour's political establishment seems to lack all conviction, for reasons I don't fully understand. And this means that the Corbyn upset isn't about a sudden left turn on the part of Labour supporters. It's mainly about the strange, sad moral and intellectual collapse of Labour moderates." -- Paul Krugman

I have no comment on the substance of Krugman's editorial. However, when I read "lack all conviction", I hear an echo of W. B. Yeat's poem, "The Second Coming". I have in mind the following lines:

"The best lack all conviction, while the worst
Are full of passionate intensity." -- W. B. Yeats

This allusion, if intended, is backwards from the article. That is, it would suggest that Labour establishment is composed of the best, contradicting the rest of the article.

I do like Krugman's previous allusions to Talking Heads lyrics.

A Plague On Both Your Houses

In a Bloomberg News piece, Noah Smith makes some false claims. I think his mistakes - what Eatwell and Milgate call an imperfectionist view - are widely shared among many macroeconomists. My belief that these mistakes are widely shared is not overthrown, I think, by the confusions put forth in these later posts by Stephen Williamson and Noah Smith, respectively.

First, we have the mistaken belief that in a perfect world, capitalist economies would move quickly towards equilibrium. Smith starts his column with an anecdote:

"One time, at a dinner, I asked a famous macroeconomist: 'So, what really causes recessions?'

His reply came immediately: 'Unexplained shocks to investment.'"

I take this to be an expression of the freshwater view, as embodied in models of Real Business Cycles. Cycles are to be understood as equilibrium paths responding to exogeneous stochastic shocks. Risk exists, but uncertainty does not. Recessions and depressions occur when workers voluntarily decide to take long vacations.

Second, we have mistaken understandings of price theory and how equilibrium is established:

"The market adjusts by the price mechanism. If the cost of something goes up, the price goes up to match. If demand falls, the price drops until the market clears."

I take this to be a claim that equilibrium prices are indices of relative scarcity, a belief shown to be without logical foundation about half a century ago. Ever since Robert Lucas put forth his critique in the 1970s, mainstream macroeconomists have claimed to be developing models with rigorous microfoundations. And those foundations are supposed to be provided by General Equilibrium Theory, in which agents optimize under constraints.

But many macroeconomists seem to be just ignorant of price theory, as experts in GET, such as Frank Hahn explained long ago. In the most rigorous neoclassical theory, with many commodities and many agents, the assumptions do not lead to the conclusion that prices behave that way. Nor do the theorists have a good story about how equilibrium is established. The mathematics used in mainstream macroeconomists does not allow one to find clear statements of assumptions. At least, I am unable to understand what assumptions mainstream economists think they are making on tastes, technology, and endowments in multicommodity models to justify their macroeconomic modeling. I would rather that economists turn to non-equilibrium modeling, a position that I think Robert Lucas still finds incoherent.

Third, suppose you hold that observed fluctuations in employment and output in capitalist economies can hardly be an equilibrium response. If you held the mistaken ideas about price theory that Noah Smith does, you would think that the empirical behavior of economies could only be explained by introducing some imperfection, some failure of competition, some information asymmetry, or some stickiness or slow adjustment into your theory. And given your empirical beliefs, you would think the development of theory in such a direction is a triumph of science:

"But despite these scattered denunciations and grumbles, sticky prices are enjoying a hard-fought place in the sun. The moral of the story is that if you just keep pounding away with theory and evidence, even the toughest orthodoxy in a mean, confrontational field like macroeconomics will eventually have to give you some respect."

But it is not the case that markets, including the labor market, would rapidly clear if only imperfections did not exist in a market economy. For economists to have reached this as a consensus position is a failure of their profession, not an achievement. Business cycles neither need to be explained as an equilibrium phenomenon, nor need sticky prices be invoked to explain the failure of markets to clear.

Is the topic of the above post orthogonal to a debate Paul Krugman overviews? I am of two minds on Krugman's post. I cannot be too hostile to a blog post illustrated with a homoclinic bifurcation. Maybe a solid appreciation of nonlinearity in macroeconomics is associated these days with heterodox, but not necessarily non-mainstream economics.

References

• John Eatwell and Murray Milgate (2011). The Fall and Rise of Keynesian Economics, Oxford University Press.
• Richard M. Goodwin (1990). Chaotic Economic Dynamics, Oxford University Press.
• Murray Milgate (1982). Capital and Employment: A Study of Keynes's Economics, Academic Press.

Because Something Is Happening Here/But You Don’t Know What It Is/Do You, Mister Jones?

Strangely, some prominent, somewhat liberal, economics bloggers have decided simultaneously to complain about (unnamed) left-leaning heterodox economists:

• Noah Smith, at Bloomberg View and at his blog.
• Simon Wren-Lewis, at his blog.
• Paul Krugman, at his New York Times blog.

All three, incorrectly in my view, think the heterodox economists who they object to are only arguing politics. As far as I know, many, including me, do not take issue with Krugman's short-term policy views. Smith, in his trollish approach, raises a side comment about Austrian economists and the Mont Pelerin society. (I will state the proper label for Friedrich Hayek and Ludwig Von Mises is "economist", not "quasi-economist", as Smith would have it. But I've seen for some time that I am more well-informed on Austrian economics than Smith is.)

I think more pertinent issues center around modeling approaches, the image the profession projects in the public sphere, and the sociology of the profession. How is it than so many rightists have been able to push the view that their politics is good economics, while simultaneously insisting that economics is a positive science? The involvement of economists with neoliberal politics is not confined to some fringe. Consider, for example, the Chicago school, the lack of a strong ethics policy in the American Economic Association, the Washington consensus, and even Paul Samuelson's 1960s research that led to to Efficient Market Hypothesis.

There is probably also a personnel element here. Non-mainstream, heterodox economists would like more acknowledgement by mainstream economists. If your knowledge of heterodox economics is confined to what you can get off the Internet, aside from what professional literature is now available there, you might not know what you are talking about when you talk about heterodox economics. (And this includes the Austrian school.) Furthermore, when you develop parallel ideas, or draw on heterodox economics, you should acknowledge it. In the linked post above, Krugman makes the point that "a country that borrows in its own currency" cannot easily become like Greece, under attack from "bond vigilantes", without saying anything about endogenous money or the economists at the University of Missouri Kansas City. (I could also say something about the research for which Krugman won the "Nobel Prize".) If you know where to look, you can find Joseph Stiglitz acknowledging that he learned a lot from such Cambridge economists as Nicky Kaldor and Joan Robinson.

Maybe economics would be a better place if the center of gravity in economics in the United States were arguments between mainstream economists and, say, economists at the New School and the University of Massachusetts at Amherst. If the profession were to move in this direction, young doctorates would need to be socialized to not dismiss viewpoints because of the rankings of the universities and the journals in which they were advanced. Methodology would continue to need to be broadened to include more than mathematical models of optimizing agents.

Update: Reactions from Chris Dillow, Peter Dorman, and Alex Marsh.

Jean Tirole, A Practitioner Of New Industrial Organization

I have occasionally summarized certain aspects of microeconomics, concentrating on markets that are not perfectly competitive. Further developments along these lines can be found in the theory of Industrial Organization.

One can distinguish in the literature two approaches to IO know as old IO and new IO. Old IO extends back to the late 1950s. Joe Bain and Paolo Sylos Labini laid the foundations to this approach, and they were heralded by Franco Modigliani. I have not read any of Bain and only a bit of Sylos Labini. Sylos was a Sraffian and quite critical of neoclassical economics. He also had interesting things to say about economic development.

As I understand it, new IO consists of applying game theory to imperfectly competitive and oligopolistic markets. I gather new IO took off in the 1980s. Jean Tirole, the winner of this year's "Nobel" prize in economics, is a prominent exponent of new IO.

One can tell interesting stories about corporations with both old IO and new IO. For example, Tirole has had something to say about vertical integration which, based on what I've read in the popular press, might be of interest to me. (Typically, when I explore the theory of vertical integration, following Luigi Pasinetti, the integration is only notional, not at the more concrete level of concern in IO.)

I wonder, though, whether economists can point to empirical demonstrations of the superiority of new IO over old IO. Or have economists studying IO come to embrace new IO more because of the supposed theoretical rigor of game theory? Are specialists in IO willing to embrace the indeterminism that arises in game theory, what with the variety of solution concepts and the existence of multiple equilibria in many games? Or do they insist on closed models with unique equilibria?

References

• Franco Modigliani (1958). New developments on the Oligopoly Front, Journal of Political Economy, V. 66, No. 3: pp. 215-232.

Update (same day): Corrected a glitch in the title. Does this Paul Krugman post read as a direct response to my post?

Size of Government in USA

I thought that Krugman had a post about Paul Ryan stating, incorrectly, that Obama had increased the size of the government. And he wondered why conservatives make factual statements that can be easily shown to be wrong. But I cannot find such a post. I can find this one on Rand Paul making a different incorrect factual claim. I am fairly sure I am thinking of something more recent than this post about Rand Paul being confused in 2012.

(By the way, Paul Krugman is wrong about what heterodox economists believe about marginal productivity theory. If he reads this, though, I would rather read his comments about the empirical correlation between increased government size and increased equality.)

Economists For The General Reader

What economists would you expect somebody with a general university education to have heard of? My list is quite short:

• Adam Smith
• Karl Marx
• John Maynard Keynes

I expect these authors to function mostly as symbols in the popular consciousness. I might expect Americans above a certain age to have heard of John Kenneth Galbraith and Milton Friedman. Would they have heard of Paul Samuelson? He did have a column in Newsweek for a while. I first became aware of the existence of Joan Robinson by seeing a reference to her as the "British Galbraith". From what I've read, Nicholas Kaldor also had a certain public presence in Britain for a certain generation.

Given the highly technical nature of academic economists these days, it is hard for economists to invite the public into their discussions. I guess a theme of this blog is that most academic economists are not to be trusted. Others, such as Steve Keen, Fred Lee, and Bill Mitchell say fairly much the same. But I am not opposed to thinking of economics as a technical subject. I do not think I have resolved a tension here in my own mind.

Knowledge/Power

Figure 1: Paul Krugman And Bill O'Reilly Talk To Tim Russert

"My problem was ... to pose the question, 'How is it that at certain moments and in certain orders of knowledge, there are these sudden take-offs, these hastenings of evolution, these transformations which fail to correspond to the calm, continuist image that is normally accredited?' But the important thing here is not that such changes can be rapid and extensive or, rather, it is that this extent and rapidity are only the sign of something else - a modification in the rules of formation of statements which are accepted as scientifically true. Thus, it is not a change of content (refutation of old errors, recovery of old truths), nor is it a change of theoretical form (renewal of a paradigm, modification of systematic ensembles). It is a question of what governs statements, and the way in which they govern each other so as to constitute a set of propositions that are scientifically acceptable and, hence, capable of being verified or falsified by scientific procedures. In short, there is a problem of the regime, the politics of the scientific statement. At this level, it's not so much a matter of knowing what external power imposes itself on science as of what effects of power circulate among scientific statements, what constitutes, as it were, their internal regime of power, and how and why at certain moments that regime undergoes a global modification.

It was these different regimes that I tried to identify in The Order of Things, all the while making it clear that I wasn't trying for the moment to explain them, and that it would be necessary to try to do this in a subsequent work. But what was lacking here was the problem of the 'discursive regime', of the effects of power peculiar to the play of statements. I confused this too much with systematicity, theoretical form, or something like a paradigm. This same central problem of power, which at that time I had not yet properly isolated, emerges in two very different aspects at the point of junction of Madness and Civilization and The Order of Things." -- Michel Foucault, "Truth and Power", reprinted in The Chomsky-Foucault Debate: On Human Nature, The New Press (2006), pp. 144-145.

I do not know that I understand Michel Foucault, and I have not read much that he wrote towards the end of his life. I had thought Foucault's discursive formations were to be grouped with Thomas Kuhn's paradigms and Imre Lakatos's scientific research program. To me, economics is like medicine, psychiatry, and penology. It fits in well with the disciplines that Foucault analyses. Superficially, the epistemic status of these disciplines is more questionable than a hard science. And they have been used to help nation states categorize, partition, and rule their subjects since, say, the eighteenth century. But I want to drop talk of science for now. I look at a concrete example to help me understand what Foucault might mean when he talks about government, power, the political economy of the sign, a discursive regime, and politics. Doubtless, I will miss many, many nuances here.

You can see many commentators and supposed experts in the media, although, for many, I am none too clear in what area they are expert. (I have in mind such people as Rush Limbaugh, Bill O'Reilly, and even Wolf Blitzer and Thomas Friedman.) Many write best-selling books. A book store will classify them, when they come out, in a section labeled "current events". I suppose libraries will put them somewhere in social sciences. People with the sort of media presence I have in mind can be said to benefit from a sort of power for their statements. From an analytical point of view, you might know a drunk at the end of your local bar who is more worth listening to. Yet these commentators react to one another, take each other seriously, and end up having effects on laws that are passed. At least one kind of power circulates among their statements, a power that is not easily available to those taking their own way at your local.

Foucault also writes about power being productive, not solely a matter of prohibitions. How does the above clip illustrate this theme? Those who have power circulating their statements can sometimes dismiss others as living in a "fantasy world". But I think the power we see in right wing commentators in America extends to individuals in communities across the country. You can find many who think they keep informed by watching TV news. And they will have conversations with one another, maybe conversations that you could not participate in without being seen as rude, dismissive, and condescending. Some of these people might even participate in governing your community by participating in, say, the school board, the city council, or state government. Within such groups, you might find an intellectual who has read, for example, Hayek's Road to Serfdom on Glenn Beck's recommendation. So this power I am vaguely pointing at helps form local communities, as well as national discourse.

I consider Krugman to be at a different level of seriousness than the other two people in the above clip. Still these questions arise for him. What power gets his statements listened to and to circulate widely? It would be a mistake to classify his statements solely as part of the academic discipline of economics. For example, his newspaper columns about the Iraq war do not have much to do with economics. And a regime in which he occupies the acceptable left wing of the public face of economics seems quite limiting to me. When Krugman debates Keen through their blogs, it seems clear who is doing the other more of a favor to acknowledge the existence of the other's work, whatever you make think of the outcome of that debate.

I trust that one can see that in merely acknowledging the existence of political power that allows Krugman's statements to circulate, I am not thereby criticizing their content or what Krugman does with this non-personal power. In fact, I think Krugman has quite often acknowledged the power of his platforms and talked about how that influences his topics. As far as I know, he does not read Foucault. (Has not Brad DeLong written a bit on Foucault?) I am not sure what Krugman has said about his willingness to participate in the sort of hurlyburly babble seen in the above clip, other than that he sometimes has a book to promote. I suppose the bit where he leans back and rolls his eyes at the ceiling is comment enough on his particular antagonist there. I think Krugman would even be receptive to claims about the lack of agency of the author. He is rarely as forthright as in the above clip about calling a lie, "a lie". And he knows that his conventions do not allow him to comment on nonsense spouted by his fellow columnists, except very elliptically.

By the way, the video clip above is not directly from a major network. Apparently, it was put on YouTube with annotations added by Jim Gilliam. And, of course, I do not claim the power of those you might see babbling on your television.

Our Rulers Do Not Know Why They Dislike Government Debt

Table 3: The Perceived Importance of Problems Facing U.S.A.

Problem	% Wealthy Saying "Very Important"
Budget deficits	87
Unemployment	84
Education	79
International terrorism	74
Energy supply	70
Health care	57
Child poverty	56
Loss of traditional values	52
Trade deficits	36
Inflation	26
Climate change	16

A few weeks ago, Paul Krugman mentioned a recent paper by Page, Bartels, and Seawright. I believe it is this one:

• Benjamin I. Page, Larry M. Bartels, and Jason Seawright (March 2013). Democracy and the Policy Preferences of Wealthy Americans, Perspectives on Politics, V. 11, No. 1: pp. 51-73.

This paper reports a pilot study on the political views of the wealthiest Americans. The authors gathered data in interviews with residents drawn from a sample of the very wealthy in Chicago. Page et al. motivate their interest in the policy preferences of wealthy Americans by noting recent research demonstrating that the vast majority of the country has little to no influence on policy decisions made in the Federal government. They hope to expand their research to a national sample in the future.

They report views on many areas of public policy. Generally, our rulers are reactionary and the opposite of benevolent. Business backgrounds in finance or industry, inherited wealth or "earned" wealth, were not correlated with differences in views. The sample size might be too small to provide enough power to distinguish, among the wealthy, effects of where they sit on where they stand. Professionals, mainly lawyers and doctors, tended to be slightly less reactionary.

Above, I reproduce Table 3 from this paper. Those surveyed "think" government budget deficits are the biggest problem facing the United States. One might suggest that lowering such deficits could be only an intermediate, instrumental goal. But towards what end? Page et al. note that they do not seem worried about deficits leading to high rates of inflation; notice how low inflation is as a worry. Page et al. suggest that the wealthy have bought into the "crowding out" argument. Of course, theoretically, supply and demand for savings does not determine interest rates. Empirically, the crowding out argument makes no sense in the current conjuncture either.

I have an old explanation of this puzzle. Paul Krugman recently cited Michal Kalecki's explanation of why capitalists dislike increased government spending in depressions, even though such fiscal policy successfully dampens downswings in business activity. Krugman is not just depending on the capability of Kalecki's explanation to make sense of history long post-dating Kalecki's contribution. Krugman is also aware of the quantitative survey data I cite above.

Suggestions For Adding To The Stack

I probably will not order the first two. But I think their existence is of interest. And I do not currently have access to the third.

• Norbert Häring and Niall Douglas (2012) Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards, Anthem Press.
• Kalle Lasn (2013) Meme Wars: The Creative Destruction of Neoclassical Economics, Seven Stories Press.
• Tobias Galla and J. Doyne Farmer (22 January 2013). Complex Dynamics in Learning Complicated Games, Proceedings of the National Academy of Sciences of the United States of America, V. 110, No. 4: pp. 1232-1236
• Sergio Parrinello (2000). The "Institutional Factor" in the Theory of International Trade: New vs. Old Trade Theories.

I suppose I might try to find the paper, by Benjamin Page, Larry Bartels, and Jason Seawright, that Paul Krugman references in his New York Times column last Friday. By the way, Krugman is basically worrying that economics is "vulgar political economy", a technical term introduced by Karl Marx. But Krugman cannot reference Marx or acknowledge Marx was maybe correct about something.

In my draft paper on the failure of the theory of comparative advantage to justify free trade, I am currently ignoring Krugman and new trade theory. The fourth reference above might be usefully footnoted in my article. I believe Parrinello also has an article in a recent festschrift volume for Ian Steedman.

I recently stumbled across Rob Beamish's 1992 book, Marx, Method, and the Division of Labor. This book traces the development of a concept, the division of labor, in Marx's manuscripts and published work, including the manuscripts I mentioned in a previous post. Furthermore, Beamish argues that if historical materialism is true, it must apply to the development of Marx's ideas.