Re: New vs. Post Keynesians

[Paul Davidson <PB108928%UTKVM1.BITNET@xxxxxxxxxxxxxxxxx>]

FROM:  Paul Davidson
*** Resending note of 01/27/94 13:57
To: PKT     --CMSNAMES

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center     974-4221
Dear Jim:
      I was not trying to be patronizing. I really am trying to see if I can
make you understand my position. If you want to defend "quantity constraint" mo
dels, then you must explain what is the cause of quantity constraint. Most
explain quantity constraint systems (e.g., Tobin, Clower, New Keynesians) as
due to dQ/dT>dP/dT. All quantity constraint people that I know admit that if
the price speed of response was instantaneous, full employment would always
occur -- there would be not quantity restraint. (Incidentally, this is
not true in Keynes's system -- but it is true in the classical system where
additional restrictive axioms are introduced to assure this outcome.) Do you
have some logical mechanism to explain quantity demand restraint that does not
involve this faster price speed of reaction?
     In my quoting of Leijonhufvud and Hahn I was not appealing to authority.
I was trying to show that the originator of this speed of response --quantity
restraint analysis, as well as a logically thoughtful GE theorist, recognized
that you can not hang the quantity constained apporach on Keynes. This is
simply a question of the History of Economic Thought.
      I appreciate your desire on empirical references "the Facts" as the basis
of the argument. Unfortunately, in macroeconomics, the facts are not independen
t of the thoery. The "facts" reported in the NIPA, for example, depends on the
theory of aggregate output you use, not the other way around. For example, when
 is a money payment a consumption expenditure and when it is an investment
expenditure depends in large part on your theory of consumption vs. your
theory of investment. (I detail this at some length in my forthcoming PKMT book
) Thus the theory of life-cycle (and permanent income) consumption remains
in the mainstream literature despite the "empirical facts" that a study
produced at the Poverty Institute of the University of Wisconsin that followed
panel cohorts of consumers demonstrated that the older people were (even
after 65 yrs) the greater their propensity to save. Those "facts" were reported
 in the JPKE in 1883 and although Franco admits the study is correct neither
he nor any mainstream economist would think of throwing-off these consumption
theories. --(The reason is that these are logically necessary to tie down
other bits of there macroeconomic theory.)
       In sum, then Jim, if you speak to people who have developed NIPA
analysis, e.g., Charlie Leven, they will indicate that the empirical
measurements of aggregates can not be made independent of an accepted
macroeconomic theory. (For example, Jim, why is interest on the National Debt
not counted as part of National Income -- and interest on the State and Local
Government Debt counted?  If the US government was to use government bounds to
finance the development of more infrastructure including the "information
higheay" should the interest on this National Debt by counted as National Incom
e? What if the State and Local governments debt-finance the identical infra-
structure projects?  As Sgt Friday said, "Just give me the facts!".
      I find your desire to create a "larger tapistry" by weaving bits and piec
es ofMarxian, New Keynesians, Post Keynesian, etc. strands "to fill the gaps"
an artistic endeavor--that may provide you with a feeling of great beauty -- bu
t, in my view, one which cannot hang together because these strands are spun
on logically incompatible looms.  When you speak of "for limited purposes"
you can make use of the assumption that the MPP of labor curve is the demand
for labor curve, while "you agree...that the marginal physical product of
labor curve is not a demand curve" don't you have the slightest twing of
consciences that you are not being logically consistent with your students.
If the MPPL curve is sometimes used "as simplification of empirical reality",
then other times it is not useful as a simplification of empirical reality.
Have you got any general principle that we can all use to decide when it
is an applicable simplification of a REAL WORLD MONETARY ECONOMY? If not,
thenyou must have a whole tool kit of specific case explanations of specific
episodes in history. (I am not trying to be patronizing in raising this questio
n, I am trying to understand your position in terms of some sort of logical
consistency.)
  You indicate you that Patinkin's analysis helps clarify.... But Patinkin
draws a MPPL curve and a supply curve of labor in real terms and then discusses

situations where either the buyers of labor or the sellers of labor (or both)
are not on their respective demand and supply curves. In fact, in Patinkin's bo
ok it possible for labor market participants to be at any possible set of coord
inates in the positive quadrant. But if they can be anywhere --- especially
anywhere off the real demand and supply curves, what do we mean by the forces o
f demand and supply in the labor market?
     Finally you want to talk about class conflict in terms of workers vs.
capitalists rather than workers vs. workers, or capitalists vs, rentiers.You fi
nd Keynesians who wqorry about intraclass conflicts (rather than interclass)
"dreadfully unaware that we live in a dynamic economy". Yet, intraclass
conflict provides a better explanation of the popularity of Thatcher and
Reagan among workers -- and perhaps the Perot phenomenon as well--than workers
vs. capitalists. How come workers did not unite against Reagan when he bashed
the PATCO union as one of the first acts of his Administration. And how come
Mrs Thatcher's destruction of the Scargill's mineworkers union was so popular
among the working class in England. Which theorists are "unaware that we live
in a dynamic economy?"
    Again, let me indicate, I am not being patronizing. I am trying to
understand your logic. Paul Davidson

Have a good day!