Equilibrium, rest and nonergodic systems.

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

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center  (615) 974-4221
Dear Basil: First we missed you at the Conference on Bretton Woods Revisited at
 Bretton Woods.
     Second, you suggest that a nonergodic system is inherently restless and th
erefore the concept of equilibrium as a state of rest is not applicable.
I disagree. As Keynes pointted out given a "state of expectations" then "the
steady level of employment thus attained may be called the long-period employme
nt corresponding to that sate of expectation" (p. 48 GT).    Thus there can be
an equilibium level of employment (which may involve involuntary unemployment)
as long as the state of expectations does not change! And even in a nonergodic
world it is possible to have periods of time (e.g., during portions of The Grea
t Depression) when the economy actually gets stuck at some relatively unchangin
g level of involuntary unemployment!
   What you are talking about, Basil, is what Keynes noted on p. 50 oftheGT
where he noted "An uninterprupted process of transition...to a new long period
position can be complicated in detail. But the ACTUAL course of events is more
complicated still. For the state of expectation is liable to CONSTANT CHANGE,
a new expectation being superimposed long before the previous change has fully
worked itself out; so that the economic machine is occupied at any given time w
ith a number of overlapping activities, the existence of which is due to variou
s past states of expectation." (Emphasis added).
      But as my earlier posting on equilibrium suggested, the equilibrium
concept is essential to imitate the design of a laboratory "controlled
experiment". Without any logical basis for designing experiemnts to indicate
a test of what exogeneous variable is assoiciated with what endogenous effect
we can explain NOTHING!
   Basil, you indicate that "in a credit money economy we cannot even define ge
neral equilibrium". If true that implies that a credit money economy can
never achieve, even momentarily, a full employment equilibrium position where
all markets clear. Now, as a logical "experimental design" I can always think
of some state of expectations that, given whatever you want to specify as the e
ssential characteristics of a "credit money economy", can be associated with
a "long period employment"  where all who want to work at the going real wage
can find employment. Are you therewfore claiming that this "hypothesize"
state of expectations is LOGICALLY incompatible with a credit money economy?
Or are you claiming that as a "stylized fact" monetary economies NEVER achieve
AND NEVER CAN achieve full employment? I would disagree with both the logical a
nd stylized fact rhetorical questions that I have posed? Wouldn't you?
      The supply of money --even if it is entirely endogenous -- can be made
compatible with a full employment equilibrium. (IF you disagree, then why
bother having any monetary and fiscal policy perscriptions to achieve
a better (closer to full employment) economic performance?)
       Surely you are not implying there is nothing that
can be done to improve economic performance of the US credit money economy if
only policy makers would listen to Post Keynesians (e.g., Basil Moore for
Chair of the Fed, Mr. Clinton, rather than Greenspan, Blinder, and/or Yellin;
and perhaps PD for Secretary of Treasury when Bentsen steps down!)?
     Third, I do not understand why you believe that nonlinearities remove
the necessity of having a logically consistent microeconomics and macro-economi
cs. (When people talk about microfoundations, they are really saying that the
macro functions must be logically consistent with the micro -- although they
need not be identical. To fall back on my biological background, the economy
of the forest must be logically consistent with the biology of the tree --
even though the forest may continue to function perpetually while individual
microtrees might die!) Non linearities may make the relationships
more complex but that doesn't releive those who argue that nonlinearities
are THE cause of all our macroeconomic maladies the onus of demonstrating
lofgical consistency.
    For myself I do not believe that nonlinearities are a necessary condition
for underemployment equilibrium; nor are they a sufficient condition for
underemployment equilibrium!

Have a good day!____Paul Davidson
))))_ fax # (615) 974-1686