Re: Answering Godot

[Doug Henwood <dhenwood@xxxxxxxxx>]

Paul Davidson wrote:

>And if you did not like "Money And The Real World", then please feel free
>to explain why. After all it did sell almost 15,000 copies ... so someone
>thought it was of some value".

Hey, I've sold 17,500, so my book is more valuable than yours!!!!

My main problem with M&TRW is that page after page inspired a "so what?"
reaction. I didn't see what your point was. I never felt that for a second
reading Keynes, and I spent 1993 doing a lot of that.

>Interesting point-- but I think most people who own equity shares in mutual
>funds such as CREF for example (as many people on the pktnet) could not
>even name the 10% of the firms they own stocks in".   Most people do not
>want ownership ---what they want is liquidity, i.e., the ability to meet
>contractual commitments when they come due.  And most CREF members want to
>meet these (usually unknown today) contractual commitments when they retire
>and are no longer members of the working class!!

For most people, their retirement savings are pretty illiquid - they can't
draw on them until age 62 or 65, without substantial penalty. People want
CREF so they can do a little better than eating cat food or working in
McDonald's after they end their life of toil.


>You should remember that Keynes also thought that the entrepreneurial
>system was the best economic system yet devised to resolve economic
>problems. It had only two major faults
>the failure to maintain full employment and its arbitrary and inequitable
>distribution of income and wealth..The GT was written to cure the
>entrepreneurial system of the first fault!

Well, gee, don't you think chronic unemployment and profound polarization
are more than minor organizational details? They're not incidental to the
capitalist system, but an essential part of it: unemployment is essential
to maintain work discipline, and one person's wealth is another's
impoverishment.

Why has Keynes been so thoroughly rejected by the economics profession and
most policymakers?


>This is a bit strange to my mind.  Even though Keynes thought to cure
>unemployment might require the "socialization of investment" he did not
>mean it in the sense of government ownership of the means of production (as
>he specifically notes in the GT)

I know that. Negri didn't say that, nor did I; we're talking about the role
of the state in stabilizing expectations - to make a nonergodic world as
ergodic as it can be made. I quote all the stuff about a national board of
investment, too.

>Of course that is why Keynes spoke approvingly of the euthanasia of the
>rentier, right?

And they're alive and kicking, aren't they?

>What Keynes thought was important was the maintenance of an entrepreneurial
>class. Do you Doug? Or do you think the comrades can do it all by themselves?

In his memoirs, John Kenneth Galbraith tells the story of how the Texas
legislature would routinely call some pink professors from the U of T in
for testimony. One solon asked a prof what he had against private property,
and the prof responded (I'm doing this from memory, sorry if I get this
wrong): "Nothing. In fact I think it's so good that I think everyone should
have some." I feel the way about entrepreneurship. If economic creativity
is such a wonderful thing, why should just a handful of people be allowed
to practice it?

>In fact, after World War II, the US had very small deficits -- I do not
>have the data here at home-- but I think if you look up the data about
>government spending deficits for, say the first five years immediately
>following WWII, you will be surprised not even follow Keynesian deficit
>policies. The US prospered -- as did most of the free world -- not because
>of any deliberate government expenditure policies -- but rather because of
>the Marshall plan (so that the creditor nation took on the onus of getting
>rid of this surplus) plus very low interest rates to keep interest rate
>costs (of a national debt that exceeded the GNP) low.

At the time, the Marshall Plan was regarded as a failure (see Robert Wood,
>From Marshall Plan to Debt Crisis, for evidence). It didn't get the world
trading system going again. That's one of the things that gave rise to
NSC-68 and military Keynesianism. Later in the 1950s, the U.S. government
pressed U.S. firms to invest in Europe, to spread some dollars around.
Imperialism got the world going again in the 1950s, not Keynes.

And the Treasury-Fed accord ended the era of managed low interest rates too.

>PAUL:
>A law of value? A center of gravity? I have no idea what these metaphysical
>concepts means.

Nothing metaphysical about embodied labor time having some substantial
influence over price. Quite the opposite of metaphysical, I'd say, and a
lot more tangible than liquidity preference.

>I suggest you might want to look at Townsend's excellent
>article in the EJ (either 1937 or 1939-- again I do not have information
>here at home but it is in the office) that generalizes the concept of
>liquidity preference as a theory of pricing of all commodities.  Keynes
>thought this article to be an excellent one as his correspondence with
>Townsend indicates.
>
>DOUG:
> Prices of
>financial assets are constrained only by traders' expectations and their
>available cash. Surely you could advocate different sets of rules for the
>two markets.
>
>PAUL:
>See what I said about Townsend.  What you do not understand Doug is that in
>the absence of organized equity markets, the existing of other markets such
>as Land or even Old Masters (as Keynes argued and Hahn demonstrated) would
>play the same role of providing a possible alternative to money as a store
>of liquid value.
>Tell me Doug is an OLD MASTER painting a good or a financial asset? And is
>there some law of value and center of gravity that sets an Old Mastert
>apart from the price of equities on Wall Street?  What is the difference
>between Sothby's and the NYSE?
>How about antique furniture?

Anything can be commodified, for sure. But bonds and stocks are claims on
streams of cash; what cash does a Rembrandt throw off? Historically, stocks
have oscillated around their "fundamental" value, the discounted present
value of future profits or dividends. What do you make of Shiller's famous
chart?



>DOUG:
>Paul Davidson wrote:
>>You see how confusing it is if you try to set us irrational expectations
>>as the code word for the opposite of "rational expectations".  It results
>>in semantic obfuscation.
>If I had the energy I'd think about deconstructing the rational/irrational
>binary, and figuring out what the abject outside was. But I don't. The
>point of the excess volatility literature isn't so much that expectations
>governing behavior are irrational in your dictionary's sense - it's that
>expectations systematically overreact to short-term stimuli, producing the
>patterns of Shiller's famous chart of actual vs. warranted stock prices
>(based on underlying dividends). America's caught high up on one of the
>upwaves right now, and it's a pretty funny thing, don't you think?
>
>PAUL:
>So why am I not laughing?  Are you laughing?

I'm always laughing. Keeps me from crying. Or, to quote Mencken, from
rolling up my sleeves, hoisting the black flag, and slitting throats.

>DOUG
>Knowing that is one of the things that made Keynes such a brilliant
>speculator, no?
>
>PAUL:
>Who says he was such a wonderful speculator.  He speculated against the
>French franc much to early in the 1920s and was forced to borrow --(even
>the small sums of 35 pounds from one aunt I am told) to prevent  his short
>bear position from being sold out when the franc went the wrong way.
>Luckily, he had enough wealthy friends, relatives, etc to hold the position
>that in general paid of -- but there is plenty of evidence that he also
>lost a lot in speculation.  I suspect that Warren Buffet or even George
>Soros's record would be better even after correcting for inflation -- and
>even these sparkling speculators have had some very bad days..

Well sure they did, but both of those you name claim to take the other side
of popular enthusiasms - i.e., they profit from systematic overreaction
(though Buffett has become something of a shakedown artist now).


>Doug, is your position that organized financial markets increase or
>decrease controls by those who are buying and selling securities for
>liquidity purposes?

Shareholders were very quiet from the early 1930s through the late 1970s.
They've since become very assertive. When times are good, they sit back and
collect dividends; when times get tough, they kick up a fuss.


>PAUL:
>Of course that means you believe in NAIRU and the natural rate argument of
>those "heterodox?" economists Milton Friedman and E. S. Phelps. I
>don'tbelieve in any natural rate hypothesis and you should read my May
>1998EJ article to see why. So if you believe in the Friedman-Phelpss
>natural rate and I do not,  then who is more heterodox you or me?

There's nothing natural about a "natural" rate. (The current issue of the
Philly Fed's Economic Review - one of the crappier products to come out of
a regional Fed - suggests that firms willingness to fire workers in the
1990s has led to a lowering of the "natural" rate!) There's no fixed
number, but as a general principle, if the unemployment rate stays too low,
wages will rise and profits will fall. If you don't believe that, maybe
you've had tenure for too long.

> Certainly the great depression created more unemployment than was
>necessary to keep worker in their place--- and in so doing destroyed an
>awful lot of capitalists, comrade.

That sort of chronic unemployment, the product of a real crisis, has
nothing to do with ordinary "reserve army" unemployment.

>PAUL:
>And who is aginst class consciousness?

Not the ruling class, for sure.

Doug