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| Michal Kalecki 1899 - 1970 |
The paper starts by taking as given what Kalecki calls the doctrine of full employment. The basic idea is that the private sector, left to its own devices, is prone to Keynesian aggregate demand failures (see here for game-theoretic interpretation). The remedy for these spontaneously-occurring "coordination failures," is a government spending program that acts, or stands ready to act, as private demand begins to falter.
Kalecki starts his paper off by asserting that by 1943, the doctrine was widely accepted by most economists. It seems clear that Kalecki views the doctrine to be self-evidently true.
But if this is the case, then this poses a problem. If the doctrine is so obviously true, why then are there still economists who oppose it? And if the idea is so self-evident, why are so many "captains of industry" reluctant to accept it? As Kalecki admits (pg. 324), this attitude is not easy to explain. After all, depressions are bad for business and businesses collectively should welcome any intervention that restores the economy to full employment.
The problem, as he sees it, is a political one. While the "economic experts" that disavow the doctrine may believe in their own theories, however poor they may be, he notes that "obstinate ignorance is usually a manifestation of underlying political motives." He doesn't say exactly what these political motives are, but he notes that these "economic experts" are, or have been, closely connected with banking and industry. But if this is the case, then the question turns to what motivates industry leaders to block interventions that they know will be good for industry?
He lists the following three reasons.
[1] Absent full employment policy the "state of confidence" will produce business cycles. Under laisser-faire then, industry leaders can credibly use this fact to exert a powerful indirect control over government policy.
[2] Supporting obviously beneficial public sector investments leads to a slippery slope. The government may wish to encroach in other areas in competition with private enterprise.
[3] In a perpetually full employment economy, the threat of unemployment vanishes as a discipline device for employers (see also here). As well, the social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow, leading to political instability.
What to make of this? Well, I'm not sure. The first reason asserts that "business leaders" are willing to plumb the depths of economic depression every once in a while in exchange for political power. He doesn't actually say what this political power buys them. But whatever it buys them, I wonder whether it might not be purchased more cheaply through more conventional means?
The second reason doesn't seem plausible to me. Why wouldn't the private sector be willing to support infrastructure projects that benefit their interests directly? Was there any serious industry opposition, say, to the Federal Highway Act of 1956? And if there was, was it because of a fear that the project might succeed too well, an outcome that would encourage the government to become more adventurous in other arenas?
The third reason also seems weak to me. It is true, Kalecki writes, that profits would be higher under full employment, "but 'discipline in the factories' and 'political stability' are more appreciated by the business leaders than profits." First, the idea of unemployment as a discipline device only needs a constant low level of unemployment to work (Shapiro and Stiglitz, AER 1984 "Equilibrium Unemployment as a Worker Discipline Device;" see their reply here to a critique.) A decade-long Great Depression seems like an awfully high price to pay for "worker discipline." And as for promoting political stability, I think it is understood that events like the Great Depression, or even the Great Recession for that matter, promote political instability (which even Kalecki mentions in the article).
To sum up, Kalecki asks a great question. Collectively, we are all better off materially in the absence of economic depressions. We know--in principle, at least--how to prevent major economic depressions (I'm not talking about regular "small time" business cycles here.) But if so, why are interventions like the Obama stimulus program met with such bitter opposition in some quarters? For that matter, the TARP intervention--a "bailout" program aimed at stabilizing the financial sector--was also met with vocal opposition, especially from Main Street. Is this really all just a concern over "moral hazard?"
Maybe there's just a suspicion that these interventions, however good they may sound on paper, work out in practice simply as ways to redistribute income to undeserving, but squeaky wheels. I overheard a political commentator on NPR the other day remark that in economic and political negotiations, "if you're not at the table, then you're likely on the menu." I suppose it's easy to say what we need in this case is better representation at the table. How to do this? I'm all ears.
I enjoyed this post.
ReplyDeleteIn a related vein, why are money-financed fiscal programs held in such disrepute? Indeed, in the United States the experience of Japan in sidestepping the Great Depression through money-financed fiscal programs is not even taught.
Is relying upon expansions in the endogenous money supply, that is more bank lending, really a more reliable way to obtain economic stability than money-financed fiscal programs?
Why are money-finand fiscal programs dubbed inflationary, but not expansions in the endogenous money supply?
And there seems limited discussion of what it means to run government deficits that are merely purchased back by a central bank. So far, across three continents, the Boogeyman has not shown up, despite governments printing money to buy back government debt.
People who practice voodoo really believe in it. The Federal Reserve, the related commercial banking system, strikes me as a type of voodoo.
Thanks for the post David! You are certainly always willing to engage with new ideas, and that is extremely refreshing!
ReplyDeletePer the 3 reasons:
Reason 1 is what we would today call a capital strike and there's substantial literature on the possibility. https://en.wikipedia.org/wiki/Capital_strike
I think 2 is more plausible than you give credit for. It's not a matter of profit calculations - it's a matter of ideology and fear. 2 is essentially the logic behind "The Road To Serfdom" argument as I understand it, and that kind of thinking holds a lot of sway in politics and business.
On reason 3, presumably the rate of unemployment needed to bring workers to heel depends on how organized workers are (this probably explains why the Volker recession was so severe), and, the extent to which business interests want to make workers suffer depends on more than just profit considerations but on ideology as well.
To my mind, the reasons above are helpful for explaining why unemployment persists in general, as in, why there is resistance to a permanent full employment policy. It might make sense to look at severe depressions as moments when ideology, decadence and short-term thinking get carried away, trumping profit calculations that might suggest that a return to the status quo (of the usual medium-ish unemployment rate) would be better. Just a thought.
Much if not most of the opposition to stimulus comes from economic illiterates who realize that deficits mean a rise in government debt (though deficits can be funded just via new base money, as Keynes explained in the early 1930s), and who have an emotional abhorrence of “debt” because of the negative overtones of the word.
ReplyDeleteAs MMTers and others have been explaining in recent years till they are blue in the face, government debt and money (base money to be accurate) are exactly the same thing, except that government debt consists of dollars that pay interest, in contrast to base money in the form of bank reserves, which normally does not pay interest.
We all know who the leading proponents of the “debt is worse than the plague” idea are: they include Kenneth Rogoff and Carmen Reinhart. Indeed, Rogoff uses the emotive phrase “debt overhang” to try to bolster his case. The fact that he has to resort to emotive tricks is strong evidence he is one of the above mentioned economic illiterates.
Mindfuck or the Eternal Return of dead economic theories
ReplyDeleteComment on David Andolfatto on ‘Kalecki on the Political Aspects of Full Employment’
The state of economics is this: theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong. What we have is the pluralism of provably false theories.
Obviously, economists violate the core principle of science, i.e. to bury refuted theories for good: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)
The characteristic of science is ‘Conjecture and Refutation’, i.e. to ensure the material and formal consistency of a theory, to bury a theory at the Flat-Earth-Cemetery if refuted, and to replace it by something better. The characteristic of non-science, i.e. religion, politics, and common sense, is to endlessly repeat the same silly stories and the same false claims and only to defend/adapt them by ever more intricate reinterpretations.
Non-science means to keep everything in the swamp between true and false where “nothing is clear and everything is possible” (Keynes), science means to get out of the swamp.
Economics is NOT science. Economists are NOT scientists but political agenda pushers.#1 The very characteristic of agenda-pushing is meta-communication or what the Ancients called sophistry or what the Moderns call mindfuck.
Science tries to figure out whether a given statement that relates to a real-world subject matter is true or false. Scientific truth is well-defined by material/formal consistency. Mindfuck is not about reality but about what others say or think about reality and the motivation behind it.
Kalecki is case in point. He argues
“[1] Absent full employment policy the ‘state of confidence’ will produce business cycles. Under laisser-faire then, industry leaders can credibly use this fact to exert a powerful indirect control over government policy.
[2] Supporting obviously beneficial public sector investments leads to a slippery slope. The government may wish to encroach in other areas in competition with private enterprise.
[3] In a perpetually full employment economy, the threat of unemployment vanishes as a discipline device for employers. As well, the social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow, leading to political instability.”
Obviously, Kalecki speculates about what goes on in the heads of politicians, workers, and the captains of industry. Obviously, Kalecki is NOT concerned about how the economic system works. He is NOT doing science but brain-dead folk-psychology.#2
Thinking hard about how the actual economy works will eventually lead to the true employment theory. Mindfuck, on the other hand, will never get out of the self-referential cycle of second-guessing and motive-imputation.#3
Kalecki, to be sure, is but one incompetent scientist in the history of economics mindfuck which is euphemistically called the history of economic thought. No thought there, merely political blather.
Kalecki, to be sure, is refuted on all counts.#3, #4, #5 High time for Mr. Andolfatto to bury him and to end his mindfuck exercises.
Egmont Kakarot-Handtke
References
https://axecorg.blogspot.com/2020/02/mindfuck-or-eternal-return-of-dead.html
"I suppose it's easy to say what we need in this case is better representation at the table. How to do this?"
ReplyDeleteSurely this isn't a problem? All that is needed is two willing parties.
I would suspect business is not interested in genuine dialogue.
Why would they bother when the labour market is amply supplied by cheap labour from plentiful legal and illegal immigration.
Henry Rech