Friday, August 23, 2019

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?

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