Re: Conference on Saving and Investment

[ECWFM@xxxxxxxxxxxxxxxxxxx]

Wednesday 27/4/94

Dear Paul: this morning on my email (among others) i read the following:

Paul Davidson writes
"I am not sure, however, who in the list
 he meant by Post Keynesians -- as opposed to others that are heterodox but app
arently not Post Keynesians."

interesting statement. it implies that you have a clear set of demarcation
criteria which allows you to classify all of us. Where do you fit in? my view
is that i am  a post-keynesian. after keynes. but then again i am also after
marx who was before keynes. but the nomenclature is only a convenience. i
suspect your version of the story is that unless we want to become "tome-bound"
in a certain macmillan publication, which was neither well written nor without
problems inasmuch as it aspired to a GT of capitalism but said very little
about capitalism per se, then we cannot be called post keynesian. and then we
become heterodox. does heterodox merely means we have expanded our intellectual
faculties to emrace a broader analytical framework and other scribblers who
have said relevant things (long before Keynes) about the system of economy that
we live in. heterodox just really means non-orthodox. so my version of the
world is that being a post keynesian is tantamount to being heterodox. maybe
you would like to divulge your own demarcations and we can a debate about that.
the perennial debate - what is a post keynesian?

for you it obviously eschews marx. for me it has to include marx. i would not
want to pin my heterodox cap on a hook of a framework which has real wages
having to fall as employment rose. that was a strong message from the GT. i
think it is analytically and empirically wrong. even though it is a matter of
association to keynes, the observational equivalence with the orthodox
causality has constrained our capacity to fully command intellectual space in
the profession and influence policy accordingly. it left us with IS-LM monsters
and the samuelson story.

now this bears on your next point. one which others have commented on already
today.

>  Let me suggest a quick litmus test. Do the nominees believe in a NAIRU? If
>the answer is "yes" be very wary.  IF you believe in a NAIRU, what rate of
>unemployment do you think this NAIRU is? If they say 6-6.5 % they are nothing
>more than Alan Greenspan clones in New Democrat clothing. If they say 5-6%
>they are left-of-center mainstream economists who have not yet understood the
>message of Keynes's GT.


i happen to believe in a concept which is not dissimilar to the NAIRU - see my
AEP article june 1987 on this if you are interested. i agree the terminology is
unfortunate in the sense that it is a term from the orhtodox paradigm. in that
article i mention i coined a phrase - the MRU - the macro equilibrium
unemployment rate - to distinguish a non-orthodox steady state from the
vertical phillips curve long run version. but i fail to see that a belief in
some level of activity (summarised via the labour market) being associated with
a steady inflatioin rate is orthodox. the marxist theories of inflation all
have a defined steady state inflation position which occurs when the
unemployment rate is such that distributional struggle abate - albeit
temporarily. that is a nairu idea but with fundamentally different insights
into the workings of the capitalist distributional mechanism.

i happen to append this notion with a view that the MRU is cyclically sensitive
via the effect on the business cycle on structural imbalances. that is my line
i have been running hear to your dislike about multiple equilibria. that means
that above some irreducible minimum UR (say we call it frictional) there is a
range of MRUs conditioned by the  nature of the class struggle over real
income.

i also happen to think that the MRU is probably higher in economies where the
government does not intervene to regulate the greed of the entrepreneurs (your
term) or capitalists (my term). remember the captains of industry do not desire
full employment. it is against their best interests. kalecki knew this, keynes
did not. kalecki knew it and wrote about it so well because he approached
heterodoxy from a marxist beginnings. so unless the government can intervene in
the class struggle - albeit within tight limits - with concepts like we sort of
have in OZ called the social wage, then the MRU is higher than otherwise.
believing in this makes me a radical not a conservative Neoclassicist.

i should also add that if you agree with this interpretation of the dynamics of
inflation and unemployment, you probably also think non-stationarity is a
stochastic phenomenon (with room for fiscal policy to be effective
permanently), and you also probably recognise that linear combinations of
non-stationary variables can yield stationary outcomes - like a MRU or like
persistent involuntary unemployment. (keynes would have had to see the logic of
this).

the point is that none of us would agree that the NAIRU is not cyclically
sensitive. then we would have to call ourselves orthodox. for a heterodox post
keynesian like me that would not be a possibility.

kind regards

bill
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* William F. Mitchell           Telephone: +61-49-215027                    *
* Department of Economics                  +61-49-705133                    *
* University of Newcastle       Fax:       +61-49-216919                    *
* Callaghan  NSW  2308          Email: ecwfm@xxxxxxxxxxxxxxxxxxx            *
* Australia                                                                 *
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