Civilized behavior

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

FROM:  Paul Davidson
"      Economics Department
"      523 Stokely Management Center  (615) 974-4221
Dear Herb: My reference to the Canterbury Tales was merely to indicate that
rent seeking behavior literature remined me of one of the classics in FICTION
literature! I am glad to see you think it is cautionary rather than perscriptiv
e. The question is why isn't rent seeking behavior ubiquitous among government
bureaucrats? What does integrity (ethics?) have to do with it?
    My asnswer to this rhetorical question is fully developed in ECONOMICS
FOR A CIVILIZED SOCIETY. But rather than ask people on the net to go to the
library to read it, I have excerpted the main argument in a long document
which I have posted to Ric Holt top hold and put on the network after the
discussion of Jamie's paper has died down.
      Moreover, as one that has often been on the receiving end, I agree with
Herb if we could be careful in the use of colorful adjectives to describe
the other person's serious response. (I must admit that I may have inadvertentl
y violated this stricture occasionally.)
     MY reference to HIcks' repudiation of the ISLM diagram as a device to
explain Keynes's theory was not to indicate either "old-fasioned" or "stupid"
behavior. It was to reinforce Randy Wray's point that if you use ISLM you
are reverting to the orthodox logical classical system and not using anything
that can be logically associated with the names of Keynes's analytical
framework.  But if you find the ISLM a useful framework for explaining the
real world, then it is not surprising that you find orthodox classical
concepts as the sole (primary?) useful explanation of modern problems.
      Which gets me down to the question of whether the problems since
the post-war golden age are demand oriented or supply constrained. Now
if we follow the logic of good classical theory where supply creates its
own demand (either in the short-run in th new classical system or the long-run
in bastardized classical systems such as "New Keynesianism" or "Monetarism
Mach #1 -- and please note I am NOT using bastardized in its pejorative
sense), then the SOLE source of long-run sustainable growth involves
supply-side considerations. Thus it is not surprising that Herb sees
supply-side constraints as "obvious" even though he cannot explain their
"etiology".
      Again I ask Herb, even if you are not willing to give us the
origin of these unnamed suppply-side constraints, will you indicate  (via
a  simple yes or no) whether these supply-side constraints are associated

       (a) with a Malthusian raw material depletion problem --in that
            you speak about the environmental issue and the supply side
            constraint.

OR
        (b) a shortage of savings (and therefore a shortage of capital
            accumulation)  -- in that you speak of egalitarian growth and
              by egalitarian I assume you mean income redistribution and
              the possibility of different marg. propensities to consume
              (to save) of the poor vs. the rich.

OR
         (c) monopoly elements in productive enterprises (firms) -- which you
             would then agree with New Keynesians who see monopoly elements
             (i.e., rigidities in money wages and prices) as a supply problem
              and not as a demand problem.

OR

       (d) none of the above.

     It is very hard to disucuss "obvious" supply-side constraints if you
don't explain where these obvious things are occuring.

       For the sake of discussion until you provide me with further guidance I
will do what you think I am doing and that is deny this "obvious".

      The dating of the breakdown of the post-war GOLDEN Age  you wish to date
to the late 1960's based on a "full statistical analysis" by Banuri and Schor.
I prefer to use Irma Adelman's statistics, but perhaps this is a matter of
tastes-- for the seeds for the end of the Golden age were, as I argue
in my book PKMT, sown long before the collapse of Bretton Woods! But I would
argue that the seeds to start the golden age was sown in the characteristics
of the period of Bretton Woods -- while you seem to see it in post-war recovery
But note the almost world-wide shortage of capital in Europe, Asia, Africa,
and Latin America after the war -- yet this clear supply-side shortage did
not prevent the golden age. Nor did a shortage of raw materials -- despite
a huge growth in global population, we did not find a Malthusian spectre!


      You identify the problem of the end of the golden age with a "profit-
squeeze argument, which could be interpreted as supply side".  But such
a profit squeeze is not compatible with the logic of rent seeking in the face
of a depletion of natural resources, or capital shortage, or increasing
moopoly power with multinational production. So etiologically speaking,
why a profit squeeze? Can it be that profits are squeezed as a result of
global restrictive  high interest rate policies? or a flexible exchange
rate system that forces the onus of adjustment on nations experiencing
a persistent goods and service trade deficit? And this onus requires the
deficit nation to reduce aggregate demand intenally and externally thereby crea
ting slack demand (and lower profit margins) in the export markets of surplus
countries, the internal markets of trade deficit nations, and finally via
feedback the internal markets of the intial trade syrplus nations? And if the
latter is a possible cause of a profit margin squeeze (deliberately set off
partly by Central Bankers attempt to reduce wage inflation through "free"
markets), how can this be logically labelled a "supply-side" constraint?

      Finally, does a limitation on short-term growth provide a better foundati
on for a "sustainable, egalitarian, long-term growth in living standards, and i
nternational competition is an important contributor to a macroeconomic solutio
n to this problem"? I THINK NOT!  My evidence is Irma Adelman's statistics.
Her golden age is associated with the highest realglobal growth in GDP (on both
a total and per capita basis). Moreover, I believe that this period is
associated with less inequalities, both in the OECD nations and the LDCs.
Anyone have statistics on income distribution during this period?

      I think Herb has raised some valuable issues in his extended comments.
That we disagree is obvious -- but I want to thank Herb for his willingness
to put his position forward.

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