long-run and short-run

["RICHARD P.F. HOLT" <holtri@xxxxxxxxxxxxx>]

Steve Keen writes:

>I have to second Paul Phillips on this. If the short-run and the long-run
>are treated as analytically distinct--so that short-run fluctuations are
>determined by completely different factors to long-run growth, and one
>is super-imposed on the latter--then I think we lose a great deal. This
>leads to the deduction that, for example, the Great Depression didn't
>matter--it was just a cyclical thing and (some time) after it we got
>back to the average again.

Herb Gintis writes,

	This is surely true. But of course I did not say that we
should ignore the short run, or its contribution to the long run. I
said we should not sacrifice the long run for the short, and we should
evaluate stabilization policies in light of the contribution to
sustainable, egalitarian growth in living standards. The fact is that
Keynesian type theories do not have the tools to conceptualize and
solve problems of this sort.

Herb's point that "we should not sacrifice the long run for the short"
was the point I was trying to make. But it does raise an issue that I
have always found unsettling with Keynes's GT. I see no place
in the GT for long-run equilibrium. It isn't that you can't predict
long-run equilibrium values from short-run conditions, but for Keynes this
was a useless exercise because short-run conditions are constantly changing
making predictable values of the long-run meaningless. As we know,
one of Keynes's major criticisms of the classical position was that he felt
it took the easy road of simply looking at the long-run while in reality
economics is highly volatile that keeps changing. And so the framework
of GT has no place for long-run analysis. And I think that we can see this
type of thinking since the 1950s in economic policies where in some sense
the long-run has become something that is meaningless. I want to
argue that the short-run *does* have an effect on the long-run, but this
relationship has actually been ignored by Keyneisans and economic
policy-makers in general. I also believe that Keynes was too optimistic
about the abundance of resources we have. I think that he argued
or I read some place that he believed that the capital goods market could
have a marginal efficiency of capital equal zero. That's pretty optimistic!
-Ric Holt
e-mail holtri@xxxxxxxxxxxxx