Re: Debunking Economics

["Steve Keen" <stevekeen10@xxxxxxxxxxx>]

Dear Barkley,

Sorry to have gummed up your system! I hope you manage to repair the damage.
Apologies also for a slow reply--I'm travelling in the States at present and
had to borrow a modem after mine was cooked by a lightning strike.

It's quite true that most of Debunking Economics is "largely reformulations
of existing criticisms that have been made by many people". That was
precisely its intent--to reformulate these so that *hopefully* they were
accessible to non-economists.

The whole purpose of the book is to let "the public" know that there is no
reason to respect the advice of economists--that people who were "Sleepless
in Seattle" had intellectual merit on their side, whereas the usual public
debate (in the media at least) asserts that those who oppose the
recommendations of economic theory are intellectually suspect.

It is very light on discussion of alternatives, and deliberately so. All I
want to flag in that book--again, for consumption by an audience which is
mainly composed of non-economists--is that alternatives do exist.

It is a chapter I am still working on though, because I know it has a
potential to annoy my friends--when most of the rest of the book will just
annoy people I don't like anyway!

To briefly answer your question though, in as structured a way as I can
manage on email:

* For both philosophical and pedagogical reasons, I believe a proper
alternative economics requires a non-subjectivist theory of value. My
alternative is a dialectical reading of Marx, which I discuss briefly in "A
minor Post Ricardian?". It's something I've worked on a long time ago (I
actually presented it in Newcastle when you were there Barkley), but haven't
revised after some very good critical remarks on it from Ted Winslow (as a
referee on the paper for the JPKE). I believe it's possible to derive a
foundation for the surplus approach in general from Marx (i.e., something
consistent with Sraffian and Post Keynesian approaches while rejecting the
labor theory of value), which is also extensible to the very valid subset of
Austrian economics.

(On this front Barkley, have you ever seen the work of the Austrian
philosopher Chris Sciabarra? His "Marx, Hayek and Utopia" [SUNY 1995/6] is
well worth a read. He has made me view Hayek in a rather more favourable
light, and I'm revising the chapter a bit as a result.)

* Technically, the alternative has to begin with dynamics as a precursor to
evolutionary analysis--which is why I'm critical of Post Keynesian work
where the analysis is conducted using simultaneous equations. This is why
I'm partial to chaos/complexity theory, but the problem with some work in
that field is that it is sometimes ignorant of the HET issues--for example,
some complex models of the economy have an IS-LM system for the financial
sector. Post Keynesians, who know their HET and have an understanding of the
importance of uncertainty in economic analysis, would I hope not build
dynamic models with an IS-LM sector.

* Practically, I think that worthwhile economic analysis is going to have to
exceed what can be done with even dynamic mathematical models. So I hope
that multi-agent modelling will become a feasible basis on which to build a
more scientific economics.

And on that note I have to stop, because another bloody thunderstorm has
started. I don't want to cook my friend's modem as well!

Cheers,
Steve


> From: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> To: "Steve Keen" <keen@xxxxxxxx>
> Subject: Re: Debunking Economics
> Date: Thu, 18 May 2000 12:41:47 -0400
>
> Steve,
>      Somehow the files I opened from your system have now
> gummed up my system and I cannot open any new files.
>      In response to the several chapters I read, scattered
> through the book, not including the Conclusions (that was
> the one that did me in), I note the following.  I think that most
> of the criticism of conventional theory is largely reformulations
> of existing criticisms that have been made by many people.
> You attack demand theory on grounds both of its stupidly
> static nature as well as the aggregation issue, eventually
> drawing on Kirman's stuff (really Mike Jerison's stuff) on
> the failure of representative agent models, as well as SMD stuff.
>       On the supply side you emphasize problems associated
> with economies of scale and more general valuation issues.
> You critique the Marxian labor theory of value on Sraffian
> grounds.  Am I getting this right, more or less?  And overall
> there is the problem of dynamics on both the supply and
> demand sides.
>        What I am interested in is your views of the alternatives.
> Austrianism is considered but dismissed as too close to
> conventional neoclassicism.  PK econ is viewed fairly favorably,
> but criticized for lacking a theory of value, although it is not
> clear that you have a clear alternative yourself for a theory of
> value, although maybe that was in one of the chapters I did not
> get to read.  You are sympathetic to chaos and complexity
> approaches, although it is not clear what the positive bottom
> line is rather than merely using these for further beating up on
> of the conventional poop (to be semi-scatalogical).
>        Any responses to this?  Want to fill us in more on your
> views of the alternatives to the conventional mess, which most
> of us would agree is a mess?
> Barkley Rosser
> James Madison University
> rosserjb@xxxxxxx
> http://cob.jmu.edu/rosserjb
>
> -----Original Message-----
> From: Steve Keen <keen@xxxxxxxx>
> To: pkt@xxxxxxxxxxxxxxxx <pkt@xxxxxxxxxxxxxxxx>
> Date: Thursday, May 18, 2000 10:30 AM
> Subject: Re: Debunking Economics
>
>
> >Some good points here Robert; I'll reply in situ.
> >
> >Robert Vienneau wrote:
> >
> >> I have read through "Madness in Their Method" and skimmed some of the
> >> remaining chapters. I am looking forward to being able to direct people
> to
> >> Steve's book. I couldn't get through the chapter on original work on
> "Size
> >> Matters" because the graphs took up too much of my memory. I have some
> >> questions, though.
> >>
> >
> >Sorry 'bout that! But with the number of illustrations in the text, there
> was
> >no way to avoid large files. Maybe the best trick would be to download
> the
> PDFs
> >and work within Adobe, rather than a (memory hugging) browser.
> >
> >>
> >> I don't know that I've ever fully worked through the SMD theory. But I
> >> wondered if an assumption of homothetic and identical utility functions
> was
> >> SUFFICIENT, but not NECESSARY, for well-behaved aggregate demand
> functions.
> >> Might it not be the case that some other configuration of utility
> functions
> >> might, by weird happenstance, yield well-behaved downward sloping
> aggregate
> >> demand functions? Then saying that theory shows demand curves cannot be
> >> well-behaved would be too strong. It would only be that theory gives no
> >> reason to expect downward-sloping demand curves and suggests that they
> >> would rarely appear, at least on utility-maximizing grounds.
> >>
> >
> >Good point. Bill Barnett has recently pointed out to me that there are
> some
> >other conditions which allow the Slutsky conditions to hold at the
> aggregate
> >level, but not the mainstays of neoclassical welfare SARP, WARP, and
> GARP.
> I
> >will probably footnote this though, because I believe that--as I argue in
> the
> >brief chapter on mathematics--the failure to prove aggregation under
> general
> >conditions is akin to a "proof by contradiction" that society can't be
> reduced
> >to the sum of its parts. That it is still passably possible to do so,
> under
> >some conditions, to some limited degree, to me doesn't really detract
> from
> that
> >fundamental failure.
> >
> >>
> >> I think a lot of economists believe that marginal productivity says
> >> something about market outcomes being just or rewarding people for what
> >> they contribute. I find that belief silly. Did you find a written text
> >> saying that? I think a much more reasonable justification of capitalism
> >> would be based on Hayek and a discussion of the rules of the game. This
> is
> >> sort of Blaug's line in his pamphlet on the CCC. Might you want to
> mention
> >> something like this? Of course, such a defense of capitalism does not
> say
> >> anything about distribution being just, does not support a hard-right
> >> neoliberal attack on a mixed economy and policies to mitigate an
> unequal
> >> distribution, and permits experimentation with laws defining property
> >> rights differently.
> >>
> >
> >I actually discuss Austrian economics in moderate detail (somewhat more
> than I
> >devote to Post Keynesianism!) in the "Alternatives" chapter. While I
> still
> >regard the Rothbard-style Austrianism with disdain, reading a book by the
> >Austrian philosopher Chris Sciabarra ("Marx, Hayek and Utopia", SUNY
> Press,
> >1996) has made me less dismissive of Hayek than I once was. It's also
> true
> that
> >the Austrians have a defence of capitalism which is not entirely
> dependent
> upon
> >the welfare concepts of neoclassical economics. But I feel that it is
> still
> >heavily dependent on capitalism straying not too far from a neoclassical
> >equilibrium, and the conditions of disequilibrium being not too different
> to
> >those of equilibrium. Since I dispute both hopes, I dispute some of the
> >normative conclusions the Austrians reach about capitalism.
> >
> >But generally, I agree that Hayek et al give a much better foundation for
> >supporting capitalism than do the neoclassicals.
> >
> >>
> >> I do not see that Bhaduri's argument that the marginal product of
> capital
> >> is generally unequal to the interest rate (because of price Wicksell
> >> effects) has an analogy for the marginal product of labor and wages. I
> >> think Hahn's Cambridge Journal of Economics paper on the Neo-Ricardians
> >> makes the claim for an analogous argument questionable. On the other
> hand,
> >> I hadn't thought about the connection of this argument to Sraffa's
> 1920s
> >> papers before. Given the stuff on markup pricing and the theory of the
> >> firm, I don't think you have need of some analogous argument here,
> anyways.
> >>
> >
> >I thought the analogy--that what applied at the "micro" level did not
> apply
> at
> >the aggregate--was reasonable. Is that what you are objecting to? (in
> which
> >case I'd better read Hahn's paper).
> >
> >>
> >> One aspect of reswitching I like is as follows. If a technique is
> optimal
> >> at two or more values of, say, the interest rate, then some wildly
> >> different distributions will be compatible with the same quantity
> flows,
> at
> >> least when looking at physical marginal products. Very different VALUE
> >> marginal products can be compatible with the same  relevant (left and
> right
> >> hand) derivatives in physical terms. So much for the vulgar belief in
> >> marginal productivity as rewarding factors according to their
> contribution.
> >> That's probably not very clear, but do you make some point like that?
> >>
> >
> >I actually took a different tack to explaining Sraffa in this book than
> I've
> >taken before--more on the measurement issue, from which you can show that
> >rather than the rate of profit depending on the amount of capital, the
> measured
> >"amount" of capital depends on the interest rate. I then tangentially
> refer
> to
> >the possibility of reswitching, in one aside and a couple of examples.
> That's
> >one concept which I thought just too difficult for this book--and if any
> reader
> >wants to pursue it from there, they have references to follow now. I hope
> that
> >my measurement explanation will assist in coping with re-switching.
> >
> >>
> >> I found the transition from the CCC to methodology too abrupt. I know
> this
> >> is not your fault. I have never been able to understand how one can
> respond
> >> to the logical difficulties highlighted by the CCC by citing the
> F-twist.
> >>
> >
> >Oh well; methodology had to appear at some point! I thought that, by the
> time
> >I'd dumped on the preceding issues, it was time to raise the question of
> "how
> >can they defend such sloppy theorising?"
> >
> >>
> >> Might you want to include something about Steedman and Metcalfe's
> critique
> >> of comparative advantage and the HOS theory of international trade?
> >>
> >
> >Yes! But I ran out of both space and time. In the end, I decided to leave
> that
> >for the hoped-for second edition!
> >
> >>
> >> Should there be something about general equilibrium theory here? I
> >> understand the claim that Sraffa showed distribution is prior to
> pricing.
> >> But, given Hahn, I thought that too strong. I think Sraffa showed that
> >> could be the case, and reconstructions of Classical wage theory and the
> >> Kaldor-Kahn-Robinson-Pasinetti PK distribution theory show how
> distribution
> >> theory and pricing theory can be combined.
> >>
> >
> >I actually discuss GE in the section on dynamics, because I think that
> side
> of
> >its weaknesses hasn't been properly critiqued. In other words, Sraffa et
> al.
> >give a good reason for doubting its logical consistency, but there is a
> >question as to just how "general" is a generalisation of Walras which
> omits
> the
> >time issues of which he was so conscious?
> >
> >>
> >> Maybe this raises a question of approach. If some ideas were debatable,
> do
> >> you want to take a position that a competent mainstream economist could
> not
> >> argue with? Or do you want to adopt a harder position consistent with,
> say,
> >> Neo-Ricardianism that might go a little beyond what the theory shows.
> After
> >> all, why should neoclassical theory be the default?
> >>
> >
> >I'm trying to land somewhere between those two stools. I'm not trying to
> >convert neoclassicals, but I don't want to be easy pickings for them
> either.
> >But if my position is less impregnable than it should, but can only be
> defended
> >by requiring neoclassicals to "defend the indefensible", as the English
> >opponents of fox-hunting say, then I'd be delighted!
> >
> >>
> >> I assume you're aware that some editing has to be done to make figure
> >> numbering and footnotes totally consistent with the text. Occasionally
> you
> >> use the phrase "saw off" in a way that I assume is Australian slang. I
> >> don't think that that works in American English.
> >>
> >
> >Yes; I tried to rely on the program (Ventura Publisher's) auto numbering,
> but
> >it was buggy (despite its otherwise superior performance to Word). I'm
> probably
> >going the way of TeX after two less than perfect run-ins with Word "wanna
> be"
> >DTP programs (Lotus Word Pro and Ventura). The learning curve may be a
> real
> >pain, but from what I've seen, TeX works. I can't honestly say that for
> Word
> >Pro or Ventura--let alone Word.
> >
> >And I replaced "saw off" with "transcended".
> >
> >>
> >> I hope you find these comments helpful.
> >
> >They were indeed--and my list of acknowledgements continues to grow. Many
> >thanks Robert,
> >
> >Steve
> >
> >

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