Thursday, September 24, 2020

"When Economists Are Wrong"

In a blog associated with the Frankfurter Allegmeine, Gerald Braunberger criticizes the effects of Sraffian political economy on Italian policy in the 1970s. I rely on google translate and subject matter expertise to make some sense out of this. By the way, Bertram Schefold shows up in the comments. I would like to know more about the motivations behind this. Does Braunberger think the public is increasingly aware that mainstream economics is broken?

Before I disagree, I note Braunberger seems well-informed on some points. I know of grumbles about Garegnani's treatment of Sraffa's archives. And I have heard that the Trieste summer schools were torn between those who emphasized long period logic and Post Keynesians who emphasized uncertainty, money, and historical time. On another point, I do not see why Sraffians giving policy advice should care about whether their advice is consistent with the advice Ricardo had for Britain during and after the Napoleonic war. I would think Sraffians in Italy during the 1970s would be more interested in Marx's views, anyways.

I do not understand what non-Sraffian theory Braunberger thinks exists. All economists should (but do not) recognize no reason exists to think that a lower real wage, in a time of depression, will encourage firms to adopt more labor-intensive techniques and thereby increase employment. In parallel, higher real wages need not decrease employment through the adoption of less labor-intensive techniques. Supply and demand just is not a logically-consistent model, in which conclusions follow from assumptions, of wages and employment.

This does not mean that real wages can be increased willy-nilly, without any consequences. Income effects could be important. And one might want to worry about the possibility of a capital strike. I agree that the political slogan, "The wage as the independent variable" draws directly on Sraffa.

More than economics was involved in the going-ons in Italy in the 1970s. When activists are kidnapping and executing the prime minister and the government is imprisioning leftists without discrimination, firms, government, and unions are unlikely to come to a peaceful agreement about distribution.

Furthermore, Italy was not isolated from the wider world. Were the lira and the mark pegged to the dollar before Nixon ended Bretton Woods? The world-wide rise in oil prices was not the result of Sraffian policy advice. Wage-push inflation arose in many countries; it was not just an Italian problem. Sraffa's colleagues had worked out an explanation of stagflation long before the event. I would think this is an example of when (heterodox) economists are right. (A Tax-based Income Policy (TIP) is a policy idea I associate with American Post Keynesians, like Sidney Weintraub, that might have been worth trying in some countries in the 1970s.)

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