Re: My almost friend is not my enemy

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

     With respect to the JEP, I would note that during the

last five years Joe Stiglitz was not the editor of the JEP.

He was its founding editor and I would submit published

more heterodox stuff then than we have seen in the last

five years, with papers by people like Michael Perelman

appearing there.  I would also note that the still running

column by Bernard Saffran on Recommended Readings

gives good coverage of heterodox stuff including Post

Keynesian work.

      To more specifically respond to Paul's challenge:

James K. Galbraith, "Time to Ditch the NAIRU," JEP,

Winter 1997 (OK, arguably just over five years ago, but

right on).

Leland B. Yeager, "Austrian Economics, Neoclassicism,

and the Market Test," JEP, Fall 1997, a defense of Austrian

econ against Sherwin Rosen's critique that it had not "passed

the market test" (by getting pubbed in leading journals).

Nancy Folbre and Julie A. Nelson, "For Love or Money--or Both?"

JEP, Fall 2000, a distinctly non-mainstream take on feminist econ.

George R. Boyer, "The Historical Background of the Communist

Manifesto," JEP, Fall 1998 (oops, out of order), arguably not all

that non-mainstream in approach, but certainly a heterodox topic.

      There was also a paper in Fall, 1999 by this guy Rosser that

Paul said was well done, but we know that he is just a stalking

dog of third rate classicism, and Dave Colander keeps telling me

that I am just a deep-in-the-rut mainstreamer by now.  Oh well...

Barkley Rosser

----- Original Message -----

From: Paul Davidson

To: Clifford Poirot

Cc: pkt@xxxxxxxxxxxxxxxx

Sent: Wednesday, May 15, 2002 5:38 PM

Subject: Re: My almost friend is not my enemy

At 04:10 PM 5/15/2002 -0400, you wrote:

I will respond in sequence to the points raised by Paul below in response to my original e-mail:
1) I find Paul's recounting of his experiences with Stiglitz as a journal editor to be interesting. I am not sure if they mean anything other than an interesting insight into publication of journal articles. I certainly cannot fault Paul for a little grumbling-after all, I have grumbled under my breath on occasion about revisions I have had to do for journals that were receptive to my overall point of view.

I am sorry if you thought this was a "grumble".  It certainly was not meant to be.  The JEP was started because people like me had objected to Presidents of the AEA that the AER would not accept non-mainstream manuscripts.  [See George Bortz last letter as Editor of the AER in response to people like me so lobbying the AEA Executives.] The JEP title was specifically chosen to assure different  PERSPECTIVES got equal treatment regarding each problem discussed. My anecdote was to show how, unless non-mainstream economists are on the Board of Editors of such journals different perspectives are unlikely to be presented. 

ANYONE WANT TO CITE ISSUE IN THE LAST 5 YEARS WHERE DIFFERENT PERSPECTIVES WERE PRESENTED -- RATHER THAN DISCUSSIONS BETWEEEN TWEEDLEDEE AND TWEEDLE DUM (      OR IS IT TWEEDLE DUMB?)
 

 I am not surprised that Stiglitz has problems with uncertainty because as I have noted, I find Stiglitz' lack of acknowledgement of this issue to be perplexing and inconsistent with other things he has written. Which is to say, that we all have our theoretical blind spots.

It is not b lind spots -- but as Heilbroner and Milberg argued in their recent book -- a lack of any view but the narrowest of the mainstream.

2) Probably the more interesting point is the significance for macroeconomics of microeconomic "imperfections". Let me turn this around-suppose Central Banks always and everywhere insured the liquidity of the system and the international system adopted Paul's IMCU proposal: Does this mean that markets would then experience continuous clearing and generate full employment, that wage contracts would not be subject to power differentials, that economies with substantial degrees of market power would not be vulnerable to oil price shocks?

The question Cliff is if we passed and enforced  laws preventing   exercise of monopoly power to prevent monopoly power in labor markets)(including anti labor union legislation, do you really think we would eliminate unemployment,  etc.?

Would the conflict between workers and factory owners over wages and shares of Income disappear or cease to have relevance for the macroeconomy?
 

If we  reduced the power of labor unions  and inreasing competition among workers --would you have a "better" distribution of income? Again as someone who did his Ph. D. dissertation on Income Distribution -- and a student of Sidney Weintraub who developed Keynes's aggregate supply and demand analysis in his masterpiece AN APPROACH TO THE THEORY OF INCOME DISTRIBUTION,

I BELIEVE THAT BY GETTING KEYNES'S LIQUIDITY MESSAGE AND EFFECTIVE DEMAND MESSAGE AS THE BASIC MODEL WE CAN SOLVE WHAT KEYNES SAW AS THE TWO MAJOR FAULTS OF THE SYSTEM WE LIVE IN NAMELY ITS INABILITY TO PROMOTE FULL EMPLOYMENT AND ITS ARBITRARY AND INEQUITABLE DISTRIBUTION OF INCOME AND WEALTH

Would banks never suddenly get cold feet about lending prospects to different categories of borrowers? Would we eliminate moral hazards and adverse selection?

Moral hazard is really a very classical ad hoc invention.  If the monetary authority knew its business then as Keynes noted-- bank credit is the pavement on which enterprise travels and if bankers knew their business they would provide all the paving needed to keep industry going at full employment. 

Adverse selection? That just asymmetric information hocus pocus!  If people lie on their loan application, that is known as fraud and is punishable under the criminal code  -as maybe we will see happens to Enron and Anderson.  But I don't think that even Joe Stiglitz would say that the Enron situation was an excellent case of adverse selection.

One thing I will say for Paul is that my periodic exchanges on this list have helped to sharpen my own thinking about why I think market imperfections really matter for macroeconomic outcomes.

What policy change would you advocate to end a market imperfection that would assure persistent full employment in any nation?  Globally?

 First and foremost,  market imperfections reflect a fundamental reality about complex industrialized societies that is as important as uncertainty, and that is the difference in power.

Of course but so what?  In the medieval feudal system there were differences in power -- but the serfs never had to worry about being involuntarily unemployed.... Nor do slaves in a slave economy!  Power differences can be altered -- but I urge you to read the last chapter of Keynes' GT regarding whether the two major faults of the entrepreneurial system is due to differences in economic power-- As Keynes pointed out it is better for society for a man to tyranize his bank balance, then his neighbor.

Oligopolies, adverse selection, principal agent conflicts, asymmetric information are all real properties of a system in which people have differential access to power over economic resources. Since market economies function through the mediation of institutions, understanding how institutions function is vital to understanding how real world economies function.

Lets get to full employment and then maintain such a state and then if -- in this full employment state -- you and society does not like the resulting distribution of income and wealth, then lets change it.  But just changing the distribution of income and wealth will NOT per se create the full employment entrepreneurial society that I think is desireable.

There is a simple lesson though, that is illustrated in any "Keynesian"  principles text (specifically in Stiglitz principles text in Chapter 8): Rigid wages and prices mean that the economy is particularly vulnerable to both supply and demand side shocks.

Nonsense . in an uncertain world,  "shocks" i.e., unknown and unexpected future events will occur whether wages and prices are perfectly flexible or fixed.  In fact, as even Frank Hahn and Bob Solow suggested in a rfecent book, the Fixity of money wages and prices are a stabilizing factor in a monetary economy.!

 It does not follow however, that flexible wages and prices would improve the system, as income adjustments are equally likely. In effect, rigigities are a permanent, built-in component of the system, which means that it is more "efficient" to respond with government macroeconomic policies than by trying to force workers to accept draconian cuts in wages.

Government response will be necessary whether prices are flexible or fixed -- that is not the macroproblem!!!

3) Paul disagrees that Stiglitz has made contributions that could be of interest to Post-Keynesians. Paul and I disagree, I think, more than anything, on the definition and meaning of Post-Keynesianism. Paul is a fundamentalist who wants to reduce Post-Keynesianism to an axiomatic approach. I am a "Dowist" who things that Post-Keynesianism should follow a "babylonian" strategy. Complex systems call for complex approaches.
 

No! I think Post Keynesianism means the adoption of Keynes's General Theory model of aggregate supply and aggregate demand.  And as Keynes pointed out in his response to Dunlop  and Tarshis in the EJ in 1939 -- monopoly elements had nothing to do with it.

Classical economists long before Keynes -- argued that monopoly problems created unemployment and the business cycle.  If that is the essence of your model --then you are just being an up-to date 19th century classical economists -- and not a Post Keynesian.

There are interesting micro problems  involved in monopoly power -- but full employment problems are not one -- since as you may remember we were able to achieve full employment during  WWII  and even the Kennedy-Johnson years -- without inflation and without  changing the industrial (and labor market) power structure.

Paul