Re: The Pentagon and Poverty

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

Still no indication this is coming through on the list-but I find the
discussion helpful to me anyway-I know I can always count on you to make me
think through my positions Paul. And that's a good thing. You're almost as
stubborn as me :-) (almost).

See my responses below:
-----Original Message-----
From: pdavidso [mailto:pdavidso@xxxxxxx]
Sent: Monday, March 01, 2004 4:33 PM
To: Clifford Poirot
Cc: pkt@xxxxxxxxxxxxxxxx
Subject: RE: The Pentagon and Poverty


>===== Original Message From Clifford Poirot <cpoirot@xxxxxxxxxxx> =====


Cliff:
I stopped beating Louise a long time ago.

good for Louise! Though I doubt you ever did.

If you moved towards more guns and
less butter than at A, then the  marginal propensity to consume of the
additional workers would have to be NEGATIVE.  Do you really think that is
so.
 You could only achieve your position of more guns and less butter, if the
government increased taxes sufficiently so that the total labor force
(including the newly employed)  plus the profit recipients had less
disposable
income than at the less than full employment point A in your example. So
your
example implies lower deficits or surpluses at full employment compared to
the
deficit at your point A.

I don't think this is necessary: Let Tf=Potential Tax Receipts at Full
Employment. This is calculated (or at least estimated) by To + T(Yf), where
Yf=National Income at Full employment.

Let current taxes Ta= To +T(Ya) where Ya = current national income.

Let Ga=current government spending and let Gf=what government could spend if
it balanced the budget **at full employment**-or let Gf equal "potential
spending" by the government. In other words if Tf=Ta=Gf=Ga. This is the
condition for a full employment balanced budget.

Let the current deficit =Ta-Ga=0 (to make it simple I'll assume the
government starts at a balanced budget. Let Ga be split equally between guns
and butter.

If the government expands Ga so that Ga=Gf but does not increase taxes, then
the deficit expands to Gf-Ta. Obviuosly, the government can finance this
deficit by selling bonds. Government can incur the deficit by simultaneously
reducing Gb (government spending on butter) and increasing Gg(government
spending on guns by more than the reduction in government spending on
butter).

There is no need to get into discussions about MPC. Nor does this say that
private production of butter will not increase as guns workers have more
money to spend.

Obviously, there would be an increase in the deficit and an increase in
jobs.


>
>
>>I am arguing that until full employment, there is no REAL budget
>constraint.
>As an economist -- don't you agree?
>
>No.
>
>

>Well if you do not agree -- then what 1s the REAL resource constraint to
>expanding output at less than full employment?

The constraint to expanding output at less than full employment is (and I
think we agree on this) effective demand. The question is how does effective
demand respond to the government deficit and /or increased government
spending?




>>Would you prefer recesion-- In the olden days, before the soviet union
>collapsed, military spending to dig holes in the ground saand fill them up
>with missles that we nerver used-- ids the equivalent of Keynes's filling
>holes with town rubbish, etc from the GT.
>
>At least it created jobs and the multiplier spending created jobs in useful
>inmdustry outputs.
>
>Yes-but it also distorted budget priorities and the economy. Military
>spending multipliers have been calculated as being lower than normal
>multipliers, and as I said, it locks in structural imbalances in the
>economy.


>Nothing is locked into the economy if you start from less than full
>employment.

You misunderstand my use of "lock in" here. I mean "locked into" the future
path of the economy. A path dependent economy is an evolving economy through
time. My ability to use and direct resources today depends on how I used
resources yesterday. If, for example, the actors in the economy "learn by
doing" and acquire capital goods and knowledge in the military sector, they
will not be able to dismantle this knowledge and capital and transfer it to
the civilian sector with complete factor substitutability. If the Cambridge
capital debates taught us nothing else, they hopefully, taught us that. This
is one of the reasons it is so hard to change the Soviet Economy. The Soviet
Military Industrial Complex worked quite well-if your goal was to produce
large numbers of tanks and lots of concrete. But a lot of the accumulated
capital goods of the former Soviet Union cannot be easily transformed into
useable civilian goods. So the Soviet-Military Industrial Complex has
created a path dependent structure. It is locked in and overcoming this
"lock in" is very difficult and very expensive.

>What you are objecting to is a political decision and has nothing to do
with
>economics.

There are three solutions to the problem of structural unemployment here in
Appalachian Ohio that are being followed. 1 is to spend money on health,
hire a lot of inefficient workers, and gouge those of with us insurance when
we pay for health care. I may object to the high price of health care, both
as an economist when I compare us to other industrialized nations and I may
also point out as an economist that health care is at least a good that
increases people's capacities (see Sen and Nussbaum for further discussion
of the concept of capacities). The other solution is to spend on higher
education which as an economist I can also point out as containing
signficant waste (we'll say its Veblenian waste and status seeking to avoid
an argument about Pareto efficiency), but also producing usable (perhaps)
stocks of human capital and having potential spin offs to the private
sector.

The third solution is to build prisons to house people with long prison
sentences, many of whom are sentenced for non-violent drug offenses.

Are you telling me as  an economist I cannot ask people to distinguish
bewteen the impact of health and spending education, vs. spending on
prisons? Building prisons creates jobs and soaks up the unemployed one way
or the other.

>You want to impose your own value judgments on the political side of the
cin.
>I have no objection to you trying to affect the politics of the situation
--
>but do not try to wrap this in a smoke screen of economic jargon.

How is it mere economic jargon to talk about the impact of spending on human
functioning, or to discuss the social value of government projects.

Perhaps we have a disagreement about what economics is and what economists
should do. That is why I am as much a "social economist" or an
"institutionalist economist" as I am a "Post-Keynesian". Economists like
Ayres, Myrdal and others have always insisted on taking into account the
creation  of "social value" and the distinction between instrumental vs.
ceremonial enterprises. Military spending (which is to some degree a
necessary evil) is about as ceremonial as it gets. It is past binding and it
is heirarchical binding. It binds the value of military prowess to the
present. Despite my Quaker background, I cannot bring myself to be a total
pacifist. I can accept a need for a military. I can, at the same time, as an
economist, point out how military spending creates some social "disvalues"
at the same time.


>mindsets and overmilitarized economies before full employment is a
political
>opinion of yours -- not sound economics.

It is a judgement and a distinction between "instrumental" vs. "ceremonial".
I think economist must, can, and in fact do, make these distinctions.


>And what does large scale unemployment employment do for people to "fully
>realize capacities"??  You do not think that some of the most important
technological advances -- e.g., the development of computers,  the Internet,

etc. was not a spin off of defense and space (remember Reagan's Star Wars)
budget spending?  How about micro viewing of small spaces via computers --
which is now routine in surgeries?  These technological;logical advances did

not permit people from "fully realizing capacities"?

Yes they do permit this-but a dollar spent in military spending could better
be used in direct R and D. We would have gotten a lot further building
infrastructure and high speed railroads.

>Remeber before Sputnik, engineers had only slide rulers to do calculations!

You don't really believe the computer industry would have been developed as
rapidly without government military and Cold War space spending, do you?

Given the political-economy of the U.S., no-it was necessary to stimulate
this through fear of th Soviets. But what of the waste of brilliant minds
channeled into finding out ways to make the Russian rubble bounce again, and
again, and again, and again...long after we could destroy any Soviet city
100 times over.


>It is professionally irresponsible to cloak your political views in an
economic coat --

See above.

>even though I may agree whole heatedly with your political
views , I do not suggest my economic background assures that military
spending
is ALWAYS BAD -- at best I can say, I might prefer the government to spend
on
other projects -- but if Congress will not deficit spend for these projects,

military spending that increases the deficit (at less than full employment)
is
better than letting people who want to work at the going wage remain idle.

Why don't we just pass more silly drug laws and build more prisons. That
puts people to work too.


>Hey do you remember Hoovervilles and people being pushed off their farms
(Steinbeck's "GRapes of Wraith") and the destruction of people's lives that
comes with mass unemployment? Is that so desireable?


>I tried once when I was in charge of "Economists For McGovern" campaign for

the State of New Jersey in 1972.

Don't feel bad-I used to think 99 lufteballoone was a profound, insightful
song.

>I learned a lot in that campaign about what
economists could and could not "teach" the average person about government
spending, taxing, etc.

The problem with learning the lessons of history is knowing what the lesson
is.


>You are ignoring history and what happened to the government's revenue
sharing
plans in the late 1970s under a democratic president.


Again, same point.


>In other words, you  believe that if the government orders more goods and
services (financed by deficits and not taxes)ZERO (or negative)
 jobs will be created.

Now that's an interesting economic theory ---).

I think that some unemployment will not respond to increases in deficits.
All the AD in the world is never going to make iron and shoe and auto
manufacturing factories return to Portsmouth. I guess we can put people to
work refining Uranium and cleaning up after it...I'd prefer to leave it in
the ground.


>That's not what we are talking about.  The question is is it better to
employ
otherwise idle resources to produce something rather than to let them remain

idle!

We had full employment in WWII. Should we start another world war?

>And you seem to prefer idleness!  -- as long as it is not professors of
economics who are going to be idled!

Having been idled during a period of high aggregate demand, I am against
being idled again-unless of course I am being paid for it :-)