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Two caveats on Henry's
latest:
1) FDR made the crucial decision on Vietnam at
the
end of March, 1945, about two weeks before he
died.
He responded favorably to a request from Charles
de
Gaulle that the US support France's colonial
claim
there. It would appear that this was partly a payoff
by
FDR to de Gaulle to compensate him for his
complaints
about US and UK alliances and conniving,
especially
regarding signals intelligence and cryptanalysis,
an
alliance that still exists among US-UK-Canada-
Australia-New Zealand through the NSA in the US
and the GCHQ in Britain.
Of course on the ground in Indochina
the OSS
continued to support Ho Chi Minh for another six
months after FDR's decision, it taking a long
time
for this to filter down, and it remaining
convenient
to support Ho as long as the Japanese were still
fighting.
2) De Long and Summers were right about one
thing.
They, with Shleifer and Waldmann, did show that
"noise traders" can survive. This fundamentally
undercuts the idea that the market always works
in the long run to weed out speculators and
destabilizers.
Of course it appears that there came to be a
difference
between De Long and Summers later, although Brad
has defended IMF policies to an embarrassing
degree.
Barkley Rosser
----- Original Message -----
Sent: Sunday, January 26, 2003 2:09
PM
Subject: Re: DeLong On Deficits, Interest
Rate
DeLong is a diehard neo-liberal whom Tyson took to the White
House as her lap dog. He has constantly argued that neoliberal market
fundamentalism has eradicated poverty worldwide and has taken neo-anti-statist
position. He excells in denying the obvious and ignoring overwhelming
field data and evidence, just to appear "creative" in his interpretation of
facts through esoteric intellectual arguments. Allan Meltzer, a
monetarist with whom I do not agree, crticized Summers and Delong on their
claim that "investment in machinery produce returns to society far beyond the
return to investors" as based on misleading data. Typically DeLong's
angry response was:
"I think that the preponderance of the evidence
is that machinery investment does have very high social returns, but I agree
that the case is not conclusive.
"But I think much more strongly that
comments like Allan Meltzer's--which he could not have been written if he had
done his homework and actually read our article--poison the well of economic
debate."
DeLong was more ired by "intellectual foul" that by Meltzer's
point that the Summers-Delong case is "not conclusive."
DeLong will go
down with Neo-liberal market fundamentalism. There is nothing Keynesain
about him. His critique on Skidelsky latest volume on Keynes was an
excercise in yankee chanuvinism.
I have posted my rebuttal to DeLong's
criticism of Skidelsky on PKT:
DeLong attributed Skidelsky's alleged
anti-American interpretation to the latter's not being an economist (some kind
of insider joke?):
"And because Skidelsky is not an economist,
he overstates the gap between John Maynard Keynes and U.S. Treasury official
Harry Dexter White in their joint design of the post-World War II
international monetary system at Bretton Woods and elsewhere. Skidelsky (p.
239) writes of the relationship between Keynes and White as a 'battle between
the two... one of the grand political duels of the Second World War, though it
was largely buried in financial minutiae...' But that is a gross
misrepresentation. When an economist like me (DeLong) looks at the competing
Keynes and White plans for post-WWII monetary reconstruction, I am struck not
by their differences but by their extraordinary similarities. The White plan
called for a Bank for Reconstruction (now the World Bank) to finance an
enormous amount of investment in the post-World War II decades. The White plan
called for an International Stabilization Fund to repair the flaws in the
interwar golds standard: to make explicit and to enforce the rules of behavior
expected of countries, to manage exchange rate changes, to assist in resolving
balance of payments problems, to encourage tariff reduction and free trade,
and to control destabilizing movements of "hot money" like we saw in Mexico in
1995 and in East Asia in 1997. The Keynes plan called for the same. Oh there
were differences, and the differences were important. Keynes envisioned a much
better-funded institution than White did, capable of taking action on a much
larger scale. (I should point out that the IMF today has only a fraction of
the resources that White thought necessary, and only a tiny fraction of
resources that Keynes thought desirable.) Keynes saw a balance of
payments imbalance as a problem for both surplus and deficit countries, both
of which needed to be encouraged to change their policies. White saw a balance
of payments deficit as the problem of the country running the deficit
which needed to change its policies to correct the problem. (I think White was
mistaken: Keynes was more farsighted.) Skidelsky widens the gap between the
two to an immense gulf (p. 245): "The White and Keynes plans were based on
different concepts... loans out of subscribed capital... [or] overdrafts
[created] out of nothing.... For the
British, the White Plan spelled
financial orthodoxy, the gold standard, and deflation; the the Americans, the
Keynes plan spelled reckless experiment and inflation..." He sees the
differences as the result of American malevolence (p. xx): "Harry Dexter White
of the US Treasury wanted to cripple Britain in order to clear the ground for
a post-war American-Soviet alliance..." But Skidelsky is wrong. He quotes (p.
253) a critic of both plans who had a much clearer view of what was at stake.
This critic at the time saw both plans as near-identical twins: "both plans
set up a super-national Brains Trust which is to think for the world and plan
for the world, and to tell the governments of the world what to do.' They were
both British plans... both reflected trends in Keynesian thinking and British
monetary policy..." Keynes
agreed that the differences were less important
than the similarities. He focused not on what was left undone but on
what was accomplished, and what was
accomplished was "... a revolutionary
change for the better compared with the position in the interwar period..."
(p. 328). What about American malevolence seeking to cripple Britain? It is
only fair to counterbalance Skidelsky's view of Harry Dexter White--a complex
man, Russian agent of influence, New Dealer, ruthless bureaucratic infighter,
accomplished technocrat, and co-architect of the post-World War II
international monetary system that played a key role in giving the world
economy its fastest generation of growth ever--with John Maynard Keynes's view
(p. 323): "With Harry White, as you may suppose, we have been spending a vast
amount of time... over-bearing, a bad colleague, always trying to bounce you,
aesthetically oppressive... not the faintest conception of how to behave....
At the same time, I have a very great respect and even liking for him. A very
able and devoted public servant, carrying an immense burden of responsibility
and initiative, of high
integrity and of clear-sighted idealistic
international purpose, genuinely intending to do his best for the world.
Moreover, his over-powering will
combined with the fact that he has
constructive ideas mean that he does get things done, which few here do. They
way to reach him is to respect his purpose, arouse his intellectual interest
(it is a great softener to intercourse that it is easy to arouse his genuine
interest in the merits of any issue), and to tell him very
frankly and
firmly without finesse when he has gone off the rails..." Keynes's true
adversary wasn't Harry Dexter White. His true adversaries were
those who
feared any form of international financial management, or those who wanted
tight controls over all international economic transactions. But Skidelsky
does not see this." End of DeLong quote.
DeLong's view can only be
argued from a purely economics perspectives. But the struggle between Keynes
and White was political. The subtle economics
difference between the two
plan represented a huge gulf politically. The Keynes plan fitted the
need of a financially drained British Empire while the White plan fitted the
needs of a financially well heeled US. Neo-liberal economists, of whom DeLong
is a card carrying member and an active participant in the Clinton White
House,
never understood the political implication of their economic logic,
as eveidenced by Larry Summers' infamous World Bank memo. Which leads to
DeLong's next criticism of Skidelsky:
"I've (DeLong) talked about the
good and the bad. Now I have to talk about the ugly--even though the ugly
takes up a very small number of pages in the book, and appears to be an
afterthought largely confined to the introduction. Skidelsky appears to
have fallen under the influence of a strange and sinister sect of British
imperial conservatives who believe that somehow the U.S. during World War II
provided aid to Britain on niggardly terms, terms guaranteed to destroy
Britain as a great power. Skidelsky writes (p. xx) of the "...intensity and
often bitterness of the struggle between Britain and America for post-war
position which went on under the facade of the Grand Alliance. When the
European war started, Britain, not Germany, was seen by most American
leaders as America's chief rival..." The chief accusation seems to be that
America squeezed Britain's financial resources dry before it would open the
spigots of Lend-Lease aid, and so destroyed Britain as a great power. Any
economist would know that this is total nonsense. But even though it is
nonsense, Skidelsky seems to believe it.
He writes of how (p. xv)
"Churchill fought to preserve Britain and its Empire against Nazi Germany.
Keynes fought to preserve Britain as a Great Power against
the United
States. The war against Germany was won; but, in helping to win it, Britain
lost both Empire and greatness..." He writes of how (p. xxi) it was
a
tragedy that Hitler's being "in charge of a great nation... threw Britain
into the arms of America as a suppliant, and therefore subordinate: a
subordination
masked by the illusion of a 'special relationship'...". He
even seems (I can barely believe it) to feel some regret that the British
government's "...underlying
belief that the New World had to be yoked... to
the Old" led to "...the deference Britain paid to America's wishes...
and its failure to exploit crucial elements
in its bargaining
position--like fighting a more limited war, or even making a separate peace
with Germany..." (p. 180)." End.
HCKL: Anyone who reads declassified
documents on war time Allied summits will find a lot of evidence to
support Skidelsky's observations. Until his untimely
death, FDR was on a
collision course with Churchill on the war's objective vis-a-vis British
colonialism. It was not until Truman replaced FDR that US policy
accepted
British insistance on the preservation of the British Empire as a war aim.
This policy change greatly limited US option in developing a viable post war
policy toward new emerging nations of the Third World. that eventually led to
the Vietnam War, by equating Third War nationalism with
communism.
DeLong: "But everyone knows that a Britain that made peace
with Hitler in 1941 because American Lend-Lease aid was insufficiently
generous would not be great.
Britain fought to defeat a tyranny, not to
preserve an empire."
HCKL: This is embarrassing self deception. Even
the US only declared war on Germany after Pearl Harbor. German tyranny had by
then been going on for a
number of years. Prominent Americans were
actively against US involvement and many were actively pro Germany until after
Pearl Harbor. WWII was a conflict of geo-political interests among great
powers. The struggle against tyranny image was an afterthought icing on the
cake. DeLong is obviously suffering from the Quiet American
syndrome.
As for the Bush tax plan, here is my take (which I am told
has been quite well received in the Third World):
http://www.atimes.com/atimes/Global_Economy/EA10Dj01.html
Henry
C.K. Liu
Henry C.K. Liu
Allan Meltzer
has attracted my
ire for going beyond the bounds and committing a 15-yard intellectual foul...
Consider the following from Allan Meltzer, a critique of a line of work on
"Equipment Investment and Economic Growth" that I have been pursuing with
Larry Summers:
...Professor Lawrence Summers and Bradford DeLong claim to have evidence
that investments in machinery produce returns to society far beyond the
returns to investors.... The state, however, can supplement private
investments, or subsidize them, and capture the returns for society....
Alas, it isn't so. Subsequent research showed that Summers and
DeLong were misled by the presence of Botswana in their data set. During the
sample period they used, Botswana invested heavily in mining machinery to
exploit its diamond mines.
Botswana had the highest growth rate and
the largest share of spending on equipment investment, so machinery
investment and growth appeared to be strongly related. Excluding Botswana,
one of sixty countries, showed the results to be spurious.
Now take a look at a selection from the very first thing we wrote
about equipment investment and economic growth, taken from the section,
"Sample Selection Issues", where we discussed which observations should and
should not be in our data set:
Results using the entire 61-nation sample are somewhat sensitive to
outliers. The exclusion of Zambia, for example, raises the adjusted
R2 in the regression underlying Figure VI from 0.29 to 0.44;
the exclusion of Botswana would reduce the adjusted R2 from
0.29 to 0.21. Inclusion or exclusion of these two countries can move the
equipment share coefficient between 0.21 and 0.31, although the coefficient
remains significant at conventional levels.
....[I]t is worth
pointing out that [the large 61-nation sample] omits two outlier nations
with large identifying variances that would significantly strengthen our
findings. Both Singapore and Taiwan have had high equpment quantities, low
equipment prices, and rapid productivity growth in the post-World War II
period. Neither Singapore nor Taiwan is in our sample.... The inclusion of
these two observations would strengthen our conclusions.
Let's run, backwards, through what Meltzer said:
Claim: "Excluding Botswana... showed the results to be
spurious"
Truth: Whether Botswana was left in or taken out of the sample,
the results still held: "remain[ed] significant at conventional
levels"
Claim: "Summers and DeLong were misled by the presence of
Botswana in their data set."
Truth: As we wrote in our very first paper on "Equipment
Investment and Economic Growth", the surprisingly strong association
between equipment investment and economic growth is there--whether
Botswana and other low-income outliers are included in or excluded from
the data set.
Claim: "Subsequent research showed..."
Truth: We were the ones who flagged the effect on our
statistical study of the inclusion in our sample of Botswana (and of
Zambia, and of Tanzania, and the omission of Singapore, and of Taiwan) as
important issues. The implication that we did not understand what was
going on in our dataset until "subsequent research" pointed it out to us
is wholly false.
In the long run it will become clear whether countries with high rates of
machinery investment grow rapidly because the social returns to investment in
machinery and equipment are astronomically high, or because of some one of the
other factors Larry Summers and I discussed in our articles: perhaps machinery
investment is high in fast-growing countries because investors forecast fast
growth and high profits, and channel investment into such countries; perhaps
machinery investment is high in fast-growing countries because savings are
high whenever income is growing rapidly, and savings have to be used for
something; perhaps machinery investment is high in fast-growing countries
because governments that make investment profitable are taking many other
steps--educating the population, controlling corruption, reforming the tax
system--that promote growth.
I think that the preponderance of the
evidence is that machinery investment does have very high social returns, but
I agree that the case is not conclusive.
But I think much more strongly
that comments like Allan Meltzer's--which he could not have been written if he
had done his homework and actually read our article--poison the well of
economic debate.
Robert Vienneau wrote:
Has anybody been following Brad DeLong's weblog lately? In many, many posts he
has objected to the recent Bush tax-cut-on-some-divends policy. DeLong's
objections
have been overwhelmingly on the following grounds:
(1) Higher deficits will ultimately raise interest rates. And economic
growth will be
slower as a result. It's all a matter of supply and demand, as taught in
the first weeks
of a freshman economics class. The laws of supply and demand have theoretical
exceptions, but there's no particular reason to expect the bond market to
be special.
One cannot really argue otherwise.
(2) Glenn Hubbard, the head of the Council of Economic Advisors, believes
this, as
shown by his textbook. So he is being hypocritical in his public
statements, where
he says otherwise.
Paul Krugman has raised these points in his NYT column, too.
So much for New Keynesian and Stiglitz's macroeconomics, which I don't know
much about. I seem to remember some debate here about how open leading-edge
mainstream macroeconomists are to something approaching Paul Davidson's
views on uncertainty. Here's a data point.
And so much for Samuelson's acceptance of the Sraffian argument. It was not
about
the general logic of long run theory. But only about special cases not shown to
be of any empirical importance. No particular focus was given to markets for
capital.
I have brought up these debates, particularly the Cambridge Capital
Controversy,
in DeLong's comment sections. (I labeled DeLong's opinion as the Treasury View
in one comment.) Every time I have said I was not defending Bush or Hubbard. I
have made sarcastic comments about Bush's unstimulus package. Yet I keep on
getting responses about how absurd it is to say Bush or Hubbard is a Sraffian.
I guess it is good that Krugman criticizes the Bush administration's lies.
But I
cannot say I am comfortable with leading "respectable" spokesmen for my side
putting forward such trash about economics.
Robert Vienneau
rvien@xxxxxxxxxxxxxx
Rome, NY
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