Re: Nilsson vs. Gintis debate

[Herbert Gintis <gintis@xxxxxxxxxxxxxxx>]

>FROM:  Paul Davidson

...
>    Recently, however, Eric suggested that government cannot have adequate
>information to perform optimal policy and rent-seeking proclivities of policy
>makers are the "new" mainstream arguments against government interference.

	Arguments against to be balanced against arguments for, of course.

>   Herb indicates they are "good arguments". I think they are very poor ones--
>and this is not because I claim the government can perform an "optimal policy
>intervention" -- whatever that is. What government can do is act as a balance
>wheel to assure that whenever there is a persistent lack of effective demand
>or too much aggregate demand (a less often accomplishment in market-oriented
>economies).

	You see, Paul, the rent-seeking et al. arguments should be
seen as 'cautionary tales' not absolute prescriptions against
intervention! They are pitfalls to be avoided, not territory to be
avoided completely. For instance, we argue that because of the costs
of discretionary intervention (time, effort, probability of mistiming
and misdirection), automatic stabilizers are preferable to piecemeal
executive or legislative intervention, or even administrative
discretion. This this is an argument FOR stabilization, but informed
by the theory of 'government failure.'

> That is why employing workers to dig holes and fill them up again is
>better than letting them remain idle (even if this violates NAIRU) if
>the private sector can find no "good" (much less optimal) use of
unemployed resources.

	Not if there is a better way to use labor. BTW, I would argue
that countries that are consistently close to full employment achieve
this not by demand management alone, but by fostering structural
relations between labor and capital that foster long term employment
relations and forms of labor discipline in which the threat of
dismissal has a minimal role.

...

> Herb still uses the IS-LM as a useful tool for understanding the
>real world when even the creator of that tool has foresworn it, then
>it may be easier to understand some of Herb's responses to his
>inquistors.

	Are you saying that my responses are stupid or old fashioned?
If so, I wish you would say it directly, since I have difficulty in
understanding such sentences as the above.

...  >The period between 1950 and 1973 was, according to Irma, "an era
of unprecedent >ed sustained economic growth in both developed and
developing countries."

	Please excuse the '>' in the quotation--if you use long lines,
my mail reader reformats the text after putting '>' in the first
column. Could you use shorter lines???

	Content: I said the Golden Age broke down in the late 60's and
early '70's. For full statistical analysis, see the book edited by
Tariq Banuri and Juliet Schor on the Golden Age (Financial Openness
and National Autonomy, Oxford UP, about 1992), and especially the
article by Glynn, Lipietz, Singh and ? in the book, or Gordon, Bowles
and Weisskopf, _After the Wasteland_, or many others.

> What were these supply side constraints?

	I am not sure of their etiology, but they exist. If you deny
this, I think you are denying the obvious. Short term demand
management isn't where it's at, and that is quite clear. Of course we
should try to find the source of the problem, but we should not deny
its existence.

 >Herb dismisses the international dimension ("globalization of
economies") as >the cause of the end of the Golden Age. Instead he
suggests supply-side constra >ints.  > I have argued it was the
breakdown of Bretton Woods (see my book PKMT) and >the golden age can
be restored via my IMCU proposal. Herb dismisses this >possibility.  >

	I did not dismiss this at all! I said that globalization is
not the reason for the lack of relevance of Keynesian policy in the
current period. I did not make an assertion concerning the breakdown
of the Golden Age (Bowles and I did so in a Politics and Society some
years back, and the gist of this is repeated in _After the Wasteland_,
and we did use a profit-squeeze argument, which could be interpreted
as supply side). Epstein and I have written several piece suggesting
that international capital markets are not Walrasian, and open
economies behave somewhat similarly to closed ones wrt the financing
of domestic investment.

	But yes, in sum, I don't think globalization is the cause of
any serious macroeconomic problem in the U.S. Quite the opposite. Our
problem is sustainable, egalitarian, long-term growth in living
standards, and international competition is an important contributor
to a macroeconomic solution to this problem.

Herb gintis@xxxxxxxxxxxxxxx