“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Friday, March 09, 2007

some more errant scribbles

I have noticed that no matter how many cups of coffee I drink in the morning, I am still sleepy. Hmm, I wonder if this has something to do with my overuse of sleeping pills? I guess eventually they get you if you don’t watch out – look what happened to Evelyn Waugh.

But to return to … the preface. Yesterday I figured out how to tightly describe Silja’s argument. Today I have to assess her argument, first about the continuity of mainstream economics – is it true that equilibrium models are at the center of economic theory, and is it plausible that the elevation of equilibrium models is an expression of the underlying ontological bias towards substantivism in economics? I’m going to point out that the exceptions prove the rule. The great exception is Keynes, of course. Keynesian economics begins with a grand gesture – the kicking over of Say’s law. In a sense, that is what you have to know about Keynes. Say’s law is the notion that production equals demand, or as the neoclassicals like to put it, demand grows out of production. Keynes discovered, or claimed he discovered, that even the classical economists had doubts about this – notably, Malthus. It is because economists adhere to Say’s law – Robert Lucas, who is a much more important economist to economists, by the way, than Milton Friedman, even made the claim that Say’s Law is an intelligibility requirement for economics – that economists make various bizarre claims. For instance, the claim that the unemployed chose unemployment. With Say’s law in hand, the classical economists and the neo-classicals that follow them had a principle that disallowed, or at least obscured, the business cycle. The way this is put in the gobbledygook of theory is: aggregate demand intersects the aggregate supply curve at full employment and aggregate demand will, a priori, not fluctuate save for disturbance by some endogenous factor.

Now, in truth, nobody actually believes Say’s law anymore. That is, no government will operate on the principle that the market is self-regulating. Instead, the state has operated, since the great depression, on the assumption that it is the state’s business how much the citizens of the state save. Reaganism, while founded in appearance on neo-classical economics, operates as a robust Keynesian engine for destroying savings, and creating ever higher levels of demand. This is an easy proposition to prove, actually. Whenever the IMF and investors go into a country that has a strong public sector – like the Latin American countries of the 1970s – the first thing that happens is that the spending of the public sector goes down, but savings also go down – in other words, there is a rush to consume and borrow. Reaganism is simply a sort of half and half Keynesianism – it seeks to restrict government economic policy to the purely fiscal, while at the same time encouraging massive borrowing. That borrowing, even by the private sector, is considered by lenders to be guaranteed by the state. The avatar of Reaganism in Latin America, Chile under Pinochet, experienced this in the early eighties, when foreign lenders forced the state to take on the debts of private corporations. I guess you could call Reaganism a form of moral hazard Keynesianism.

But I am digressing, damn it.


Amie said...

LI, come now, digressions are what makes life - and writing - worth...well you know!
I for one would like to hear more re this book and your intro.
In particular this idea of an ontological substantivism of equilibrium models of economics.
Also about Say's Law - can there be a better name for a law!? - that no one really believes anymore, believes what Say's Law says, but only acts as if it is a law, says what it says.

Speaking of acting, re an earlier LI post about film acting, and its difference from acting in the theater, I am reminded of a quote by Abbas Kiarostami, whose films address this in amazing ways.

I don't remember the quote exactly, but in speaking of the actor in 'motion pictures', AK quotes Rumi:
'You are a polo ball that I have set in motion, that I now have to follow.'

roger said...

Say's law is the best named of all laws, it is true. It should certainly be the title of a band - a band that perhaps could sing my preface! the first econo-hop band!

In actuality, Keynes is a weak point in Silja's book. She doesn't really deal with him. On the other hand, Keynes holds the strange position of being outside the paradigm of economics as a science, and still at the center of economics as a policy. I can't really think of a parallel situation in any other field. Anyway, I'm going to concede that Keynes is an exception, but that the reason he is excluded from the paradigm is that he violates the principles that make economics so weirdly continuous with its own history. And that - I'm sorry, I'm a maniac, I just want to finish this, I'm scribbling notes on packages of sugar, my brain cells hurt! - that continuity is the more important story, the story that does need to be explained. Why are there no incommensurability moments, no deep ruptures, no crises, just progress as far as the dulled seacreature eye can see? The answer, I'd say, is in that deep structure that conditioned economics as a science of more and more abstract models that were fed by less and less empirical data.

This has to be done tomorrow. I can't afford to work on this anymore.

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