john maynard keynes

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Joan Robinson On Michal Kalecki’s Claim To Priority

Published by Anonymous (not verified) on Sun, 24/05/2020 - 2:07am in

Keynesian policy is popular again. Many fiscal hawks are now arguing for stimulus, although they want to do it only temporarily. I came across this 1976 article Michal Kalecki: A Neglected Prophet by Joan Robinson where she argued once again for Michal Kalecki’s originality.

Robinson:

He told me that he had taken a year’s leave from the institute where he was working in Warsaw to write his own General Theory. (When his early Polish essays were published in English, it became clear that he had worked out the main points by 1933.) In Stockholm someone gave him Keynes’s book. He began to read it—it was the book that he had intended to write. He thought, perhaps further on there will be something different. No, it was his book all the way. He said: “I confess, I became ill. Three days I lay in bed. Then I thought—Keynes is better known than I am. These ideas will get across much quicker with him and then we can get on to the interesting question, which is of course the application of these theoretical ideas to policy-making. Then I got up.”
Kalecki did not make any public claim to his independent discovery of what became known as Keynes’s General Theory. I made it my business to blow his trumpet for him, but I was often met with skepticism. In the US, only Lawrence Klein recognized (in The Keynesian Revolution, 1947) that Kalecki’s system of analysis was as complete as Keynes’s and in some respects superior to it.

At the end of his life Michal told me that he felt he had done right not to make any claim to priority over Keynes. It would only have led to a tiresome kind of argument. Perhaps people have been skeptical of Kalecki’s contribution to the history of economic theory precisely because he did not demand recognition himself. Such dignified behavior is rare in this degenerate age. The only reference Kalecki ever made to the question is in the preface to a selection of essays, published, alas, posthumously. “The first part includes three papers published in 1933, 1934, and 1935 in Polish before Keynes’ General Theory appeared, and containing, I believe, its essentials.”3

3Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970 (Cambridge University Press, 1971), p. vii.

There are many other by Joan Robinson where she argued this, especially this.


Picture credit: Poland Today

A Post-COVID Vision: The Full and Sustainable Employment Act

By Brian Czech

If COVID-19 has taught us anything, it is that the Great God of GDP is a false god after all, impotent as Baal. The mighty American economy, with unprecedented GDP, has been knocked to its knees by one of the lowest conceivable life forms, a mere virus possessing not a single strand of DNA. Politicians who thought their legacies would be associated with “the greatest economy ever” now look like ridiculous priests of a sham religion.

GDP exceeding $21 trillion in 2019 ($87 trillion globally) has been powerless to cure the sickness, financial trauma, and fear experienced by millions of Americans and billions of souls worldwide. Adapting to the new reality of a COVID-infected world and the uncertain hope for a vaccine is depressing in the best of scenarios and devastating in the worst. Yet adapt we must, and that includes public policy as much as individual behavior.

Coronavirus briefing. We need a Full and Sustainable Employment Act.

Pushing for growth vs. protecting the public: COVID-19 as the latest episode. (Image: CC0, Credit: The White House)

The CDC, NIH, and WHO have provided recommendations for lowering the spread of the virus and helping infected patients survive. Politicians are attempting to balance such recommendations with the concern for a healthy economy. The problem is that virtually every major politician in the USA, as well as a majority of politicians in the world, think of economic health in terms of GDP growth. For that matter, so do the economists advising these politicians and appearing on mainstream media. Their “adaptation” to the COVID-caused recession is nothing more than a hapless attempt to get back to business as usual; that is, growing the GDP through fiscal and monetary “stimulus.” In other words, it’s no adaptation at all!

Common sense and a pair of eyes is enough to recognize that the need for social distancing—effective adaptation to COVID-19 at the individual level—translates into lower levels of economic activity and a lower velocity of money. Unfortunately, politicians are now handling public health as they handled environmental protection for decades, acting as if we can have our cake and eat it too. They seem to think that, with enough Plexiglas panels on factory floors and retail counters, we can stimulate the economy back into $21-trillion territory without suffering a pandemic death toll. We can expect claims of “there is no conflict between growing the economy and protecting public health,” echoing the decades-old mantra that “there is no conflict between growing the economy and protecting the environment.”

Will we be fooled again by the win-win rhetoric? I don’t think so—at least not nearly so many of us—because this time the threat of the growth obsession is a direct, imminent matter of life or death. As employees are prematurely pressured to return to work “for the economy,” knowing fully well that doing so increases their odds of contracting the deadly virus, surely they will rethink what “the economy” is really for and who is behind the push to “stimulate” it.

There will be a significant percentage of individuals who decide more or less happily never to return to the jobs that dominated their life pre-COVID. Many will wrestle with trade-offs, such as extra gardening and more childcare, and certainly less luxury goods and entertainment. Some will have saved enough—and were cautious enough to avoid debt traps—such that they may find the new lifestyle to be empowering and even more joyful than the old 9-to-5 grind. They won’t be contributing much to GDP, but they’ll be healthier and happier, and will hardly be a burden on the nation’s infrastructure and budget.

Unfortunately, many others will be desperate to return to work or find a new job. They may have little means of subsistence—no lawn for a victory garden—and some will be threatened with homelessness when they can’t pay the rent. Even they, however, will see through the lie that “there is no conflict between growing the economy and protecting the public from COVID-19.” They are victims of an unfair capitalist system who must go to work “for the economy” and risk their health in the process.

The experience of individuals far and wide, then, will be conducive to a sea-change in attitudes toward the economy, GDP growth, and the government’s role in defending its own taxpaying citizens.

A New Economic Policy for 21st Century America

A new policy vision for the post-COVID economy entails replacing the current policy. So, what exactly is the current policy? What is it that steers us constantly, relentlessly back onto the GDP growth path? Let’s take a short trip down institutional memory lane…

Harry Truman and the Full and Sustainable Employment Act

President Harry Truman signed the Employment Act in 1946; a first step in the formal pursuit of GDP growth. (Image: CC0, Credit: Abbie Rowe)

As a response to the Great Depression, Franklin Delano Roosevelt gave Americans the New Deal. Most of the work programs were cultural successes and employed significant numbers of young men. Yet the Depression wasn’t “solved” until World War II, with the mobilization of the civilian labor force and technological progress spinning out of war-time laboratories. Most Americans know this basic story of the Great Depression, New Deal, and World War II, but few seem aware of the Employment Act of 1946. We must be fully aware of it to move toward a new economic policy for the 21st century.

The Employment Act was a Keynesian adaptation to the experience of the Great Depression; that is, it was largely a result of John Maynard Keynes’ General Theory of Employment, Interest, and Money. Prior to Keynes, economists clung stubbornly to their ideal of laissez faire (let do; non-interference) as the proper governmental approach to economic affairs. General Theory was the paradigm-shifting book that persuaded Western governments to take active fiscal and monetary measures for ensuring adequate demand for goods and full employment of the labor force.

In crafting the Employment Act, the 78th Congress was especially concerned about the social and cultural ravages of unemployment. It was less concerned with any explicit notion of economic growth. For one thing, national income accounting was in its infancy. Also, Congress was still reluctant to get the federal government very involved in economic affairs, especially with heightened concerns over the sway of communist ideology. That said, the Employment Act did establish the Council of Economic Advisors, which turned out to be a highly influential pro-growth institution for decades to come.

The American economy ran fairly smoothly and grew very rapidly for the next couple of decades, but by the 1970s, American political leadership was beside itself with the problem of stagflation, that is, recession (“stagnation”) concurrent with inflation. Economists thought you could have only one or the other for any significant period of time and that they were, in fact, countervailing forces. Unlike World War II, though, the Vietnam War wasn’t sufficient to kick the real economy into high gear. Efforts to stimulate investment and consumer spending by loosening the money supply only led to inflation. Thus, stagflation.

The bedeviling bouts of stagflation finally led Richard M. Nixon to announce, “We are all Keynesians now,” recognizing that conservative diehards were some of the last to accept any government involvement in macroeconomic policy. Nixon had established the Bureau of Economic Analysis in 1972 for state-of-the-art accounting and GDP calculation. The 95th Congress, led by Hubert Humphrey and Augustus Hawkins, worked to update the Employment Act, which was finally amended as the Full Employment and Balanced Growth Act (FEBGA) and signed by President Carter in 1978. As of then, the US government was fully and formally committed to GDP growth as central economic policy.

It was easy for supporters of FEBGA to argue mathematically that, all else equal, more jobs could be had with greater GDP. It was also easy for Big Money to hide behind pro-growth policy for purposes of accumulating more capital and increasing CEO salaries, without any concern for creating more jobs. Not surprisingly, FEBGA ended up a thick mix of fiscal and monetary policy that serves the capitalist as well as the labor force.

FEBGA is often referred to with the shorthand “Employment Act,” saving a number of syllables and reminding us of its original (1946) focus. I favor the full 1978 title, even if only via acronym, as a reminder that GDP growth is not just some wistful political notion or rhetorical tool but rather a formal, central policy of the USA pursued with fiscal, monetary, and deregulatory means, as well as diplomacy and terms of trade in international affairs.

Now, more than a half century later and in the midst of an economy-crushing pandemic, it’s time to rewrite FEBGA. We need a Full and Sustainable Employment Act, with the very name change communicating that growth is no longer sustainable.[1] The Full and Sustainable Employment Act will mark the transition from economic growth to a steady state economy, politically and every bit as formally as FEGBA called for growth.

Pro-growth politicians (or perhaps Big Money) came up with the brilliant metaphor, “A rising tide lifts all boats.” While at least one source attributes the phrase to President John F. Kennedy, it seems like the stuff of Madison Avenue. And, when limits to growth aren’t acknowledged, the logic illustrated by the metaphor is unassailable. All else equal (“ceteris paribus” in econ-speak), a growing GDP means more jobs. Of course the devil is in the phrase “all else equal,” because little is equal on the tilted chess board of a capitalist economy. Instead of more jobs, a growing GDP too often means more expensive technology and billionaire CEOs, who are just as effective at blasting ships out of the water as making way for more boats.

Either way, the metaphor of the rising tide sinks like a presidential approval rating when limits to growth are recognized, as they increasingly are and should especially be in the context of COVID-19. There is only so much water; the tide can’t rise forever. There is a limit to the number of boats at sea, too, and even a limit to boat-building material on shore. It’s high time for the “rising tide” metaphor to ebb all the way back into the rustic recesses of faded political minds.

It so happens that the acronym of Full and Sustainable Employment Act—FSEA—is useful for nailing the coffin shut on the “rising tide” metaphor. Combining “F” (for Full) and “SEA” invokes the image of a full sea. Why not take advantage of such a linguistic coincidence and make the message a little clearer yet? It is not unprecedented for Congress to wax metaphorical with the short title of a paradigm-shifting statute; they might as well call this one the “Full Seas Act.”

ships and the Full Sustainable Employment Act

“A rising tide lifts all boats” was a fine metaphor for the 20th century, but in the 21st century the seas are full. (Image: CC0, Credit: Good Free Photos)

What might the Full Seas Act actually look like? How will it conduce a steady state economy? What happens to the pro-growth arrangements established by FEBGA? The best way to envision these developments is to consider a proposed Section 2.[2]

Full Seas Act—Findings and Declaration

In a typical act of Congress, Section 1 provides a short title (“Full Seas Act” in this case). Section 2 is in many ways the most important section of a path-breaking statute because it establishes the key findings and declarations of Congress. It comprises a sort of preamble and emanates the spirit of the law. It justifies the details laid out in subsequent sections, and future policy development at the agency level will be informed by its content as well.

On the other hand, readers should keep in mind that Section 2 is never designed to address all the details of the challenge at hand, much less all the problems of the world. The crux of the Full Seas Act is a formal transition from economic growth to the steady state economy (most likely via degrowth). Therefore, Section 2 will not include references to specific policy tools such as minimum wages, energy caps, banking reforms, etc. Sections 3 and beyond just as surely will, however.

Without further ado, then, the initial public offering of the Full Seas Act, Section 2, more or less consistent with the canons of statutory construction:

 

SEC. 2.

(a) FINDINGS. The Congress finds that—

(1) Economic growth, as measured with gross domestic product (GDP), requires a growing human population, increasing per capita consumption, or both.

(2) Consistent with the natural sciences, including basic principles of physics and biology, there are limits to economic growth within and among nations.

(3) There is a fundamental conflict between economic growth and environmental protection, including the maintenance of: clean air and water; productive soils; biological diversity; stocks of natural resources including water, timber, fisheries, minerals, and fossil fuels, and; funds of ecosystem services including nutrient cycling, pollination, waste absorption, and carbon sequestration.

(4) A well-maintained, non-degraded environment is the foundation of a productive economy. Therefore, and because of the fundamental conflict between economic growth and environmental protection, there is also a fundamental conflict between economic growth and the long-term maintenance of the economy including jobs, income, and wellbeing.

(5) A well-maintained economy is vital to national defense. Therefore, and because of the fundamental conflict between economic growth and the long-term maintenance of the economy, there is a fundamental conflict between economic growth and national security.

(6) There is abundant environmental and economic evidence that long-term limits to growth have been and are being reached and exceeded in the Nation, other nations, and globally.

(7) There is abundant evidence that perennial fiscal and monetary efforts to stimulate GDP growth are increasingly causing environmental, economic, and social harm while resulting in fewer benefits, with the harm gradually exceeding the benefits.

(b) DECLARATION. The Congress declares that—

(1) It is heretofore the policy of the Nation to undertake a gradual but certain transition from the goal and pursuit of economic growth to the goal and pursuit of a sustainable steady state economy, with stabilized or mildly fluctuating population and per capita consumption as generally indicated, all else being equal, by a mildly fluctuating GDP.

(2) The transition to a steady state economy must be undertaken with every intent and effort to achieve and maintain the full employment of the labor force consistent with environmental protection and other aspects of economic sustainability including a balanced federal budget and the effective control of inflation.

(3) The President, President’s Cabinet, Council of Economic Advisors, Federal Reserve, and federal agency directors will immediately cease and desist from developing strategies and initiatives to grow or stimulate the economy. Existing policies, programs, and projects designed explicitly to grow or stimulate the economy shall not be extended beyond fiscal year 2021 or beyond the designated sunset date, whichever comes later.

(4) The Congressional Research Service, collaborating with the Office of Management and Budget and Council of Economic Advisers, will review and summarize the federal agency mission statements, goals, objectives, policies, programs, and practices designed for GDP growth, producing a Report on Federal Growth Incentives no later than 30 April 2022.

(5) A Commission on Economic Sustainability (“the Commission”) is hereby established to include the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture, Energy, and Commerce, chaired by the Secretary of the Interior, to estimate and monitor environmentally sustainable levels of population and socially optimal levels of GDP. The Commission will produce a Report on Sustainable Population and Optimal GDP no later than 31 August 2022.

(6) The Commission Chair, with counsel of the Chairman of the Council of Economic Advisors, Secretary of Commerce, Federal Reserve Chair, and Secretary of the Treasury, drawing on the Report on Federal Growth Incentives and the Report on Sustainable Population and Optimal GDP, and pursuant to the framework provided in subsequent sections herein, will develop and deliver to the President, no later than 31 August 2023, a 25-year Steady-State Transition Plan detailing and scheduling the adjustments, modifications, additions, and deletions necessary to establish a system of government operations most conducive to a steady state economy at an estimated optimal level of GDP.

(7) The President, Cabinet secretaries, and federal agency directors shall not overlook the existence, neglect the enforcement, or underfund the performance of the Clean Air Act, Clean Water Act, Endangered Species Act, National Environmental Policy Act, or any other of the Nation’s environmental laws or regulations on grounds that said laws or regulations may interfere with the workings of the economy or slow the rate of GDP growth.

 

Stay Tuned for the Rest of the Full Seas Act

For policy wonks and steady-state advocates, exciting times lie ahead as Sections 3 and beyond of the Full Seas Act will feature long-awaited steady-state policy instruments. The starting point should be the top ten policies favored by Herman Daly. Chapter 11 of Supply Shock is largely for purposes of informing the Full Seas Act. And, at the risk of unintentionally omitting dozens of helpful individuals, now is the time to revisit specific proposals of scholars such as Peter Victor, Tim Jackson, Dan O’Neill, and Phil Lawn as well as the rich mix of overlapping ideas emanating from the European degrowth movement.


“Steady statesmanship” an essential aspect of the Full Seas Act. (Image: CC0, Credit: U.S. Department of State)

Speaking of the latter, the Full Seas Act could hardly be effective in a world pursuing GDP growth with only rare exceptions such as Bhutan and New Zealand. Ramped up levels of international trade will be difficult to reconcile with the steady state economy of a huge nation-state. Therefore, the Full Seas Act must address the need for steady statesmanship in international diplomacy.

We should take a page from the playbook of the 93rd Congress, which passed the Endangered Species Act of 1973. Congress used Section 8 largely to implement American obligations pursuant to the Convention on International Trade in Endangered Species of Wild Fauna and Flora, or “CITES,” one of the most sweeping international conservation agreements to date.

Our approach in the Full Seas Act needs to be more proactive, because in this case there is no convention ready and waiting to be implemented. We should devote one section, then, to fleshing out and pursuing the development of a Convention on Economic Sustainability, most likely with a United Nations secretariat. This convention will be assembled for purposes of addressing global limits to growth and the need for “contraction and convergence,” or the acceptance of degrowth in wealthy countries while nations with ubiquitous poverty are assisted to the extent that they have diplomatically established their own sustainable steady-state goals.

Steady statesmanship may be even more difficult than the domestic policy reforms required for an American steady state economy. Yet the harsh realities of COVID make such statesmanship feasible as well. In any event, does it matter how difficult it is, in deciding whether to pursue it? After all, what is the alternative? As we like to say at CASSE, peace is a steady state economy.

And so is health.

[1] See Chapter 11, “A Call for Steady Statesmen,” in Czech, B., Supply Shock: Economic Growth at the Crossroads and the Steady State Solution (2013, New Society Publishers) for the initial proposal of the Full and Sustainable Employment Act along with numerous policy tools and institutions to be considered in drafting the legislation.
[2]The Section 2 proposed herein does not include amending specifications. The bill presented to Congress will specify which clauses of FEBGA are to be amended, and how. Basically, however, the intent is to replace Section 2 of FEBGA with the proposed Section 2 herein.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

The post A Post-COVID Vision: The Full and Sustainable Employment Act appeared first on Center for the Advancement of the Steady State Economy.


CUNY, Corona, and Communism

Published by Anonymous (not verified) on Sun, 10/05/2020 - 12:41am in

The coronavirus has hit CUNY, where I teach, hard: more than 20 deaths of students, faculty, and staff, and counting. Yet the impact of the virus on CUNY has received almost no press coverage at all.

At the same time, the media continues to focus its higher education coverage, during the coronavirus, where it always has: on elite schools.

The combination of these elements—the unremarked devastation at CUNY, the outsized attention to wealthy colleges and universities—led me to write this piece for The New Yorker online:

It seems likely that no other college or university in the United States has suffered as many deaths as CUNY. Yet, aside from an op-ed by Yarbrough in the Daily News, there has been little coverage of this story. Once known proudly as “the poor man’s Harvard,” CUNY has become a cemetery of uncertain dimensions, its deaths as unremarked as the graves in a potter’s field.

The coronavirus has revealed to many the geography of class in America, showing that where we live and work shapes whether we live or die. Might it offer a similar lesson about where we learn?…

During the Depression, the New York municipal-college system opened two flagship campuses: Brooklyn College and Queens College. These schools built the middle class, took in refugees from Nazi Germany, remade higher education, and transformed American arts and letters. In 1942, Brooklyn College gave Hannah Arendt her first teaching job in the United States; an adjunct, she lectured on the Dreyfus affair, which would figure prominently in “The Origins of Totalitarianism.” In the decades that followed, CUNY built more campuses. Until 1976, it was free to all students; the government footed the bill.

What prompted this public investment in higher education was neither sentimentality about the poor nor a noblesse oblige of good works. It was a vision of culture and social wealth, derived from the activism of the working classes and defended by a member of Britain’s House of Lords. “Why should we not set aside,” John Maynard Keynes wondered in 1942, “fifty million pounds a year for the next twenty years to add in every substantial city of the realm the dignity of an ancient university.” Against those who disavowed such ambitions on the grounds of expense, Keynes said, “Anything we can actually do we can afford.” And “once done, it is there.”

Public spending, for public universities, is a bequest of permanence from one generation to the next. It is a promise to the future that it will enjoy the learning of the present and the literature of the past. It is what we need, more than ever, today. Sending students, professors, and workers back to campus, amid a pandemic, simply because colleges and universities need the cash, is a statement of bankruptcy more profound than any balance sheet could ever tally.

You can read the whole piece here.

Since it came out on Thursday, I’ve learned of three additional deaths at CUNY, all students in their last year at Lehman College: Daniel DeHoyos, Zavier Richburg, and Lenin Portillo. The Lehman College Senate has voted that they all be awarded posthumous degrees. That brings the total number of deaths at CUNY that I know of to 26.

Speaking of the activism of the working classes, I also wrote for The Nation an essay on the communist, which doubles as a review of Vivian Gornick’s classic The Romance of American Communism, which has recently been reissued, and Jodi Dean’s excellent work of political theory, Comrade.

The communist stands at the crossroads of two ideas: one ancient, one modern. The ancient idea is that human beings are political animals. Our disposition is so public, our orientation so outward, we cannot be thought of apart from the polity. Even when we try to hide our vices, as a character in Plato’s Republic notes, we still require the assistance of “secret societies and political clubs.” That’s how present we are to other people and they to us.

The modern idea—that of work—posits a different value. Here Weber may be a better guide than Marx. For the communist, work means fidelity to a task, a stick-to-itiveness that requires clarity of purpose, persistence in the face of opposition or challenge, and a refusal of all distraction. It is more than an instrumental application of bodily power upon the material world or the rational alignment of means and ends (activities so ignoble, Aristotle thought, as to nearly disqualify the laborer from politics). It is a vocation, a revelation of self.

The communist brings to the public life of the ancients the methodism of modern work. In all things be political, says the communist, and in all political things be productive. Anything less is vanity. Like the ancients, the communist looks outward, but her insistence on doing only those actions that yield results is an emanation from within. Effectiveness is a statement of her integrity. The great sin of intellectuals, Lenin observed, is that they “undertake everything under the sun without finishing anything.” That failing is symptomatic of their character—their “slovenliness” and “carelessness,” their inability to remain true to whatever cause or concern they have professed. The communist does better. She gets the job done.

You can read the rest here.

Okay, back to reading Smith and Keynes, and on Smith and Keynes, for an essay I’m working on now. (And still waiting for another essay I’ve done on Weber to come out.) And reading and preparing for my last class (on Nietzsche and Virginia Woolf) this coming week.

Hope everyone is healthy and safe.

The meaning, the measurement, and the use of GDP

Published by Anonymous (not verified) on Wed, 22/04/2020 - 10:48am in

In this eighth lecture of Economics for Everyone, we begin our discussion of macroeconomics, the study of the overall level of economic activity.

The lecture offers some background and motivation by examining the sharp increase and sluggish fall of the unemployment rate during the 1930s, the Great Depression. This led to a crisis in economic thinking, and to the publication of John Maynard Keynes’s “General Theory”. Thus macro-economics was born.

Our first challenge involves a host of measurement issues, and in this lecture we examine the meaning, the measurement and the use of Gross Domestic Product. This statistic is nicely presented, reviewed, and evaluated in Diane Coyle’s book, GDP: A Brief but Affectionate History, and it is the major reading on your list for this lecture.

 

Download the presentation for Lecture 8, “The Meaning and Measurement of Macroeconomic Activity” as a pdf, and if you like listen to narrated version.

 

Reply to Troy Vettese’s “Against Steady-State Economics” 1

Published by Anonymous (not verified) on Thu, 19/03/2020 - 3:00am in

By Herman Daly

Steady staters are used to being attacked by right-wing neoliberals. Attacks from left-wing neo-Marxists are new and require a reply. To put the matter simply, Marxists hate capitalism, and they mistakenly assume that steady-state economics is inherently capitalist. Vettese is a Marxist; ergo, Vettese hates steady-state economics.

To spell this out, let’s begin by giving Marx due credit for emphasizing the reality of class exploitation under all heretofore existing economic systems, including especially capitalism, although excluding future idealized communism. Communism arrives after the Revolution in which the dictatorship of the proletariat seizes control of the enormous powers of capitalist production. With overwhelming abundance, bourgeois man is freed from scarcity-induced greed and acquisitiveness, giving birth to the “new socialist man” and the Marxist eschatology of heaven on earth.

Karl Marx

Marx noted injustices of capitalism and predicted political crises, yet failed to foresee limits to growth. (Image Source, Credit: John Jabez Edwin Mayal)

History has not been kind to this Marxist fairy tale, except for the part about inequality under capitalist growthism (the part which doesn’t take a Marxist to recognize). Socialist growthism also had serious problems but let’s leave that aside. There is, however, a new problem with growthist economies that Marxists did not foresee in their eagerness to appropriate the abundance that capitalism historically created. Growth in a finite and entropic world now produces “illth” (depletion and pollution) faster than wealth, thus becoming uneconomic growth and threatening the overwhelming abundance required for the advent of the new socialist man.

This unexpected emergence of uneconomic growth, plus the economic failures and enormous political repressions of 20th-century communist states (not to mention the intellectual discrediting of dialectical materialism and historical determinism) has left the poor orphaned Marxists without an ideological home. As their red house collapsed, the green house down the street began to look attractive. After all, the greens do recognize major problems with capitalism, the big enemy, even if they are problems that Marxists have failed to recognize. So, these Marxists paint themselves green and hyphenate their name, calling themselves not eco-Marxists but, less specifically, “eco-socialists,” hoping to appeal to reasonable leftists in addition to fellow neo-Marxists. They aim to revive moribund Marxism by usurping the place of ecological economics.

Many greens, eager for allies, welcome the eco-Marxists and accept the red cuckoo eggs deposited in the green nest in the hope that the hatchlings will be more green than red. Steady-state economists certainly need friends and allies, but reading Vettese has reminded me of an aphorism my mother taught me: “Better alone than in bad company.”

Specifically, Vettese has deposited three Marxist cuckoo eggs in the steady-state nest: (1) Markets are bad; (2) Central planning is good;2 and (3) “Malthusianism” is wrong as demonstrated by Julian Simon. This is an odd collection of eggs that demonstrate the confusion of Vettese. If one accepts Simon’s view that there is no need to stop the drive for endless economic growth, then whence the necessity to abolish markets and establish central planning? The confusion hardly stops there. Let’s consider each egg in turn.

(1) Markets are All Bad

The Market with a capital “M” is indeed a poor master and should be demoted to “markets” with a small “m” which can be good servants. Marxists tried to completely abolish all markets, along with money, in the early days following the Russian Revolution, and they attempted instead the direct physical requisitioning of resources and goods by central planners. This was the period of War Communism. It was a failure and was soon replaced by Lenin’s New Economic Policy, which restored significant reliance on markets, although not The Market. Today all countries, including the remaining communist ones, rely on markets to a significant degree, usually constrained by elements of collective action. Indeed, socialist-economic theorists, such as Oskar Lange in his On the Economic Theory of Socialism, have long shown how markets can serve collective goals as well as individualistic ones.

So much for the 20th-century economic history ignored by Vettese. What about 21st-century economic policy? Ecological economists recognize that we live in a capitalist market economy, like it or not. It is our historically given starting point. Trying to wipe the slate clean with the bloody shirt of Revolution is a very bad idea. Instead, it’s better to restrict the individualistic-capitalist market by two collective limits. First, given that the market does not count the cost of economic growth displacing the very ecosphere on which the economy (and life itself) depends, we must impose macro constraints on the size of the economy. Second, because a capitalist market economy generates extreme inequality in the distribution of income and wealth, a direct solution is to constrain the inequalities between minimum and maximum incomes, supplemented by wealth and inheritance taxes. Do eco-Marxists advocate limiting the range of income inequality by a maximum as well as a minimum income?

Graph of distribution of wealth within the market

How do we change these statistics? Through a bloody revolution? Or with policies conducive to a steady state economy? (Image: CC BY-SA 3.0, Credit: Guest2625)

A specific policy for achieving both limits (before they are self-limited, that is) is the cap-auction-trade approach to conserving and allocating basic resources. Vettese totally opposes cap-and-trade auctions because they make use of markets. He can almost be heard complaining, “How unfair of the auctioneer to sell to the highest bidder instead of my more deserving nephew! Putting a price on the free gifts of nature is crude and immoral too!”

While Vettese appears to be advocating for a more ethical use of basic resources, he fails to recognize that free gifts can also be scarce and require rationing. These preciously purist sensitivities lead Vettese to oppose any use of markets. No markets mean no exchange, no prices, no need for money, no specialization, and no division of labor. Well, who is going to abolish markets and centrally plan the production, allocation, and distribution of everything? Not Troy Vettese and his fellow pretenders who don’t have a clue, but “the new socialist man” who is still being materialized in the Marxist dialectical womb of history!

Markets are necessary for allocating goods but not sufficient. In addition to offering macro policies to correct the market’s scale and distribution failures, steady-state economics also emphasizes that many goods can be physically non-rival and legally non-excludable. Yet market allocation works only for rival and excludable goods. In other words, non-rival and non-excludable goods cannot be efficiently or fairly allocated by markets and require planning and collective action at a more micro than macro level.

(2) Central Planning is Good

Macro limits on scale and distribution require considerable planning. Micro intervention in the allocation of non-market goods takes even more planning. Given all the economic planning needs, why bother to defend any role at all for markets? Why not centrally plan production and distribution of everything “for the good of society” as advocated by Vettese? First, remember the failed Soviet experiment with War Communism and collectivization of agriculture. Second, consider the following thought experiment.

Imagine the consequences of rival market goods (food, clothing, and shelter, plus a whole lot more) being freely distributed, according to the will of the citizens, as eco-Marxists envision. The democratic will of the citizens is to be expressed by voting. One decision concerns the amount of steel to produce. Citizens place their votes, but their collective decision leads to another question: How much of that steel will go to the production of, say, wood screws as opposed to a million other uses? The citizens vote again, and more subsequent questions arise: Of the wood screws, how many will be round-head, flat-head, slot-head, or Phillips-head? How many cadmium-plated; how many chrome-plated? Also, some screws are made of brass or aluminum, not steel. And for each type of screw, how many of each length and diameter? And who shall receive how many of each type? The citizens robustly and democratically vote again and again as conditions change, although most are unaware of the myriad special uses of different types of screws and may not even know which end of a screwdriver to hold.

Meanwhile those people who actually use screws and know their uses are unable to “vote” with their money in markets, and are thereby prohibited from conveying reliable information to producers about the mix of the infinitely many types of screw that would be most needed and most profitable to produce. Instead we have citizens spending absurd amounts of time “democratically” voting, mostly about things they don’t understand, while those with the most information about actual use-values of screws are “disenfranchised” by the absence of markets.

Ironically, eco-Marxists claim that in a planned economy, use-value, not exchange value, would be the only criterion for the production of goods and services. Use-value as judged mostly by non-users—what could possibly go wrong?

With so much effort wasted on attempting to plan the allocation of market goods, there will be little capacity left to plan the use of true public goods or to avoid the tragedy of the commons resulting from open-access exploitation of rival but non-excludable goods (such as oceanic fisheries). The larcenous market enclosure of non-rival goods, such as knowledge and information, will be difficult to avoid as well. Eco-Marxists expect that as the transition moves forward, more goods and services critical for meeting fundamental human needs would be freely distributed according to the democratic will of the citizens effected by the central planners.

Carbon emissions

Vettese may oppose cap-and-trade auctions, but what is his solution for addressing resource scarcity? (Image: CC BY-SA 2.0, Credit: Bernard Bradley)

Without markets (that is to say without supply and demand, prices, and yes, profit), there could be no self-employment. No one could identify a needed good or service and make a living by taking the initiative to provide it. Everyone would be a salaried employee of the state, giving the state monopsony power in the labor market and stifling initiative.

Most objections to market allocation would disappear if the underlying inequality of wealth and income distribution were limited by cap-and-trade auctions or ecological tax reform. Opposition would also dwindle if the throughput of energy and materials was restricted to an ecologically sustainable level. Instead of correcting excessive throughput and distributional inequality—which of course get reflected in distorted market prices and allocation—eco-Marxists attack market allocation itself, as if underlying sustainability and equality problems could be solved by breaking the mirror that reflects them.

What are the eco-Marxist policies for directly limiting throughput and distributional inequality? If they don’t like cap-and-trade auctions, distribution limits, or ecological tax reform, then let them suggest something better. However, preferably not the Revolution, the Singularity, the Rapture, or the advent of the New Socialist Man.

(3) Malthusianism is an Evil Fiction

Thomas Robert Malthus and markets

Thomas Robert Malthus: His thesis was “false” according to Vettese. (Image Source, Credit: Popular Science Monthly Volume 74)

Marx’s hatred for Malthus is well known and prevalent among Marx’s disciples as well. For all his faults, it is hard to find a historically more influential figure than Thomas Robert Malthus. In addition to his enormous impact on Marx, Malthus was a key influence on Alfred Russell Wallace and Charles Darwin as they independently developed their theories of natural selection. Malthus’ theory of under-consumption also greatly influenced John Maynard Keynes’ theory of unemployment. Not to mention the whole neo-Malthusian birth control and planned parenthood movement. For Vettese, however, Malthusianism is merely the “false” idea that resource scarcity and overpopulation are real. For Marx poverty was caused only by class exploitation, and he rejected any cause stemming from nature as undermining the call for Revolution. Marx’s anti-Malthusian denial of natural resource limits and demographic pressure continue in Vettese and the faithful band of eco-neo-Marxists.

Curiously Vettese’s modern anti-Malthusian champion is the late Julian Simon, a staunch neoclassical economist of the most cornucopian variety, who vigorously opposed environmentalism. This third cuckoo egg (which is contradictory to the first two, as noted earlier) seems to have hatched prematurely and will likely get kicked out of the green nest, exposing Vettese as more red than green. Vettese accuses steady-state economists, specifically me, of having ignored Julian Simon’s critique: “Moreover, the neo-liberal Julian Simon developed a powerful critique of environmentalism in the 1980s, which Daly has not responded to” (p. 35). Actually, I published critical reviews of two of Simon’s books, and I do not have space here to repeat my response, so refer Vettese back to what he overlooked.3

An Issue of Representation

I’ll conclude with one last point, quite distinctive from the preceding. Vettese has taken me as representative of the entire field of steady-state economics. That is not fair to the many scholars whose steady-state findings have been quite independent of mine. Indeed, some of these scholars may sometimes call themselves “eco-socialists.”

Furthermore, given the central role of the steady state economy in ecological economics, Vettese’s attack on steady-state economics (were it successful) would also stain the broader field of ecological economics.

However, I am afraid that I have also treated Vettese as representative of eco-Marxists in general. That is not really fair to other Marxists or eco-socialists of various stripes, some of whom (John Bellamy Foster and Paul Burkett, for example) I have benefitted from reading, regardless of differences.

1 Vettese, T. 2020. Against steady-state economics. The Ecological Citizen 3:35–46.

2 On these two points Vettese is clear and emphatic: “…the only way to stop the drive for endless economic growth is to undo the necessity to participate in markets. That is, the conscious political control over production and distribution through central planning is the only way to stop and reverse capitalism’s ceaseless incorporation of the natural world” (pp. 37-8).

3 Daly, H. 1982. Review of The Ultimate Resource. Bulletin of the Atomic Scientists 38(1):39-42.
Daly, H. 1984. The resourceful earth. Environment 26:25, 27-28.

Herman DalyHerman Daly is an author, professor emeritus, and Nobel Peace Prize nominee. He currently serves as the chief economic advisor for CASSE publications and projects and is on the CASSE Board of Directors.

The post Reply to Troy Vettese’s “Against Steady-State Economics” <sup>1</sup> appeared first on Center for the Advancement of the Steady State Economy.


Which Keynesianism?

Published by Matthew Davidson on Mon, 27/11/2017 - 11:41am in

I posted this enormous torrent of blather on Blackboard the other day. It's mostly a restatement of stuff I've said before, but I'll repost it here for the purposes of copying and pasting in the likely case I have to restate it yet again elsewhere.


Because I've been studying economics for the last few years, rather than sticking to the curriculum and dutifully cultivating my employability, I feel obliged to chip in with a cautionary note: Almost all of the academic economists, and their policy prescriptions, which are characterised as Keynesian have nothing to do with the work of Keynes.

The post-war economic order established at Bretton Woods is conventionally understood as being Keynesian, but in fact Keynes was railroaded by the US representative Harry Dexter White, who insisted upon the system of fixed exchange rates pegged to the US dollar, with global dependency on holding US dollar reserves being greatly to America's benefit; the US gained the benefit of cheap foreign imports sold to acquire those reserves. Neither was Keynes responsible for the "Bretton Woods institutions", the World Bank and the IMF. His plan for regulating and settling international financial flows was considerably more humane than the usurious loans and standover tactics these institutions became notorious for.

Even "progressive" and "liberal" economists like Paul Krugman and Joe Stiglitz are members of the school of "New Keynesianism", a product of what Paul Samuelson called the "Neoclassical Synthesis"; taking some of the superficial trappings of Keynes' work and melding it with the earlier "neoclassical" school of economics, which Keynes actually intended to entirely overturn. Neoclassical models of the economy ignore the role of money and banking, believing that all economic transactions are ultimately barter transactions, and that money is therefore said to be "neutral", and banking is just redistribution of loanable funds, ultimately of no macroeconomic effect. Keynes wrote of this "Real-Exchange economics" (in an article unfortunately unavailable via SCU):

Now the conditions required for the "neutrality" of money, in the sense in which it is assumed in […] Marshall's Principles of Economics, are, I suspect, precisely the same as those which will insure that crises do not occur. If this is true, the Real-Exchange Economics, on which most of us have been brought up and with the conclusions of which our minds are deeply impregnated, […] is a singularly blunt weapon for dealing with the problem of Booms and Depressions. For it has assumed away the very matter under investigation.

This is the answer to Queen Elizabeth's question on how economists failed to see the Global Financial Crisis (GFC) coming; if the financial sector is macroeconomically neutral, as the neoclassicals claim, there cannot be any financial crises. However, outside the neoclassical tradition, the normal functioning of the economy, and the pathologies leading to crises, are well understood:

  • The Chartalists determined that all money is credit, ultimately issued by the state. Michael Hudson recently did some exhaustive historical work on this, which David Graeber popularised in his book Debt: the First 500 Years.
  • Wynne Godley showed how currency-issuing states must spend more than they tax if the private sector is to have the money necessary to spend and save.
  • Irving Fisher identified the role of debt deflation in turning a rush to liquidate debt into an ongoing crisis where outstanding debts become impossible to repay.
  • Hyman Minsky's financial instability hypothesis extended Fisher's work to describe how financial crises arise from the normal workings of a capitalist economy.
  • Keynes implicitly regarded the money economy as a tool for allocating real resources in pursuit of public policy objectives, a principle explicitly formulated by Abba Lerner as "functional finance". This is in opposition to the neoclassical intuition that a household is like an individual, a firm is like a household, and a government is like a firm; therefore a government must follow the principles of "sound finance" and "live within its means".
  • All of the above are incorporated in the teachings of "Post-Keynesian" economics, which Keynes' biographer Robert Skidelsky considers closest to Keynes' own thinking. The sub-field of Modern Monetary Theory (MMT) synthesises all of these into a single coherent framework for analysing the economies of countries which issue their own currency.

By the end of World War II, functional finance was so well established as to be almost universally understood to be common sense. The 1945 White Paper on Full Employment in Australia, prepared for John Curtin by H. C. "Nugget" Coombs, and based on the principles in Keynes' General Theory of Employment, Interest, and Money, declared:

It is true that war-time full employment has been accompanied by efforts and sacrifices and a curtailment of individual liberties which only the supreme emergency of war could justify; but it has shown up the wastes of unemployment in pre-war years, and it has taught us valuable lessons which we can apply to the problems of peace-time, when full employment must be achieved in ways consistent with a free society.

In peace-time the responsibility of Commonwealth and State Governments is to provide the general framework of a full employment economy, within which the operations of individuals and businesses can be carried on.

Improved nutrition, rural amenities and social services, more houses, factories and other capital equipment and higher standards of living generally are objectives on which we can all agree. Governments can promote the achievement of these objectives to the limit set by available resources.

(Emphasis mine.) As expressed by MMT, currency-issuing governments are not fiscally constrained. The only limits on public policy are real resource limits. During the last UK election campaign, Theresa May was vehemently insisting "there is no magic money tree". But in fact there is: it's called the Bank of England (we have the Reserve Bank of Australia), and Her Majesty's Treasury has an unlimited line of credit there. Whenever the government wants to spend, the Bank of England just credits the accounts of commercial banks. I was delighted when while campaigning May was confronted by a furious protester wanting to know "Where's the magic doctor tree? Where's the magic teacher tree?" The policy limits we should be worried about are real resources (including people), not money.

Nevertheless, mainstream economists and politicians believe, in some vague way, that (as Stephanie Kelton puts it) "money grows on rich people". So it's not surprising to read already on the discussion boards here that Keynesianism is all very desirable, but how will the federal government pay for it? This is a meaningless question. The government will pay for it like it pays for anything: by spending the money into existence. That's where all money comes from, net of private sector credit creation. Logically, it can't come from anywhere else. If the government were to try to achieve fiscal (or, conflating governments and firms again, "budget") surpluses over the long term by taxing more than they spend, as neoclassicals, including New Keynesians, recommend, they would merely be draining savings from the private sector for no good reason. State-issued money is an IOU, a tax credit. When the credit is redeemed it ceases to exist. The government doesn't have to tax in order to spend. It has to spend in order to tax. Think about it: where else would the first dollar ever taxed come from?

Now you might be thinking, hang on: what about the most fiscally responsible government we've ever had (Howard/Costello) and their record run of "budget" surpluses? The economy was going gangbusters! Okay, here's the fiscal balance for that period:

As with every currency-issuing sovereign state in history, deficits are the rule, not the exception. Here's what happened to private sector debt over the same period:

(Data from the Bank of International Settlements and OECD.) As soon as the government started taxing more than it spent, private sector debt took off, and subsequent fiscal deficits were insufficient to reverse the damage. Notably, at the same time household debt overtook corporate debt, as credit was used to sustain consumer demand, not to mention standards of living, rather than for investment in productive capacity. Australia "Nimbled it, and moved on", and to hell with the consequences.

Australia recently passed two milestones of note: total private sector debt (the blue line above) exceeded 200% of GDP — at roughly the level that Japan's private debt was at in the early 90s when its real estate bubble burst — and bank equity in residential real estate passed 50%. That's 50% of the total residential real estate stock, not just houses built in the last x years. Minsky describes the path to financial collapse as progressing through the stages of "hedge finance", then "speculative finance", and finally "Ponzi finance". When you see phenomena like interest-only mortgages — where the principal is never repaid, on the assumption that housing prices only ever go up, and the debt will be settled whenever you sell the property, presumably pocketing a tidy and lightly-taxed capital gain at the same time — you know which stage you're in.

So why does nobody in mainstream politics or economics know anything about this? To put it succinctly, because neoliberalism. On the left, the "balancing the books" rhetoric serves a useful purpose: it gives you a disingenuous pretext to do what you want to do anyway that is compatible with the dominant paradigm. As Randy Wray said at a recent MMT conference:

"[Progressives] link the good policies they want to 'we'll tax the rich to pay for it'. So when you point out we don't need to tax the rich to pay for it, they're just crestfallen because they want to tax the rich. So I say 'Of course we should tax the rich. Why? They're too rich.' You don't need any other argument than that."

Taxes drive demand for the currency. If you know you have to pay taxes, you will work to get the money to pay for it. It's a coercive way for the government to mobilise labour to achieve its policy objectives, but assuming policy is arrived at democratically, it's relatively fair and vastly preferable to the autocratic alternative of having a gun put to your head. Taxes are also a fiscal instrument that can be used to discourage certain kinds of behaviour, and harmful social phenomena (like income inequality).

In the neoliberal era, that's why Australia has a retrospective tax on education called HECS-HELP, which in turn is why SCU has no school of history, or philosophy, or in fact any of the traditional academic disciplines. Students know that their education will be retrospectively taxed, so they can't afford to choose disciplines unlikely to offset that tax with increased earnings. There are twice as many universities as there were in 1988, but the new ones are glorified vocational colleges with next to no permanent academic staff. Australian post-Keynesian economist Steve Keen, who correctly predicted — and more importantly, explained — the GFC, subsequently lost his job at the University of Western Sydney when they closed down their economics department. Who needs academic economics when you have business studies courses, after all? He ended up at Kingston University in London, another young neoliberal institution, where last year he was given an ultimatum to spend more hours teaching or take a significant pay cut. He's ended up having to put his hat out for donations from the public in order to continue his work as a public intellectual.

Why would public policy function like this? Why would policy makers want a population uneducated about how the world actually works, and instead merely trained in how to work in it? Why is the conventional wisdom so full of assertions that are demonstrably untrue, and profoundly damaging to society? Paul Samuelson, author of the macroeconomics textbook that gave generations of undergraduates a completely misleading interpretation of Keynes' work explained this in an interview:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say "uh, oh what you have done" and James Buchanan argues in those terms. I have to say that I see merit in that view.

So basically, belief in myths must be maintained among the general population wherever doing so provides support for the elite political preference for small government, i.e. for control over the economy to be exercised by private finance rather than public fiscal policy. This is what neoliberalism fundamentally is, an Orwellian fiction imposed on a deliberately dumbed-down populous, with access to the truth as much the reserve of a select educated elite as ever. "Long-run civilised life" has been restored, thanks to neoliberalism's making of the 21st century by its un-making of the 20th.

I could go on forever (evidently) but others explain all this better than I:

If you have read this far, I admire your tenacity.