So, a lot of bad, bogus tradition to get rid of. I’m sure a lot of it forms a huge part of your approach. Get over it.

Start by reading A. Garciadiego’s BERTRAND RUSSELL AND THE ORIGINS OF THE SET-THEORETIC ‘PARADOXES.’

I see you are far FAR behind the times in understanding Sraffa and his intellectual context. Educate yourself.

Cheers,John Ryskamp

Ryskamp, John Henry, “Paradox, Natural Mathematics, Relativity and Twentieth-Century Ideas” (June 17, 2008). Available at SSRN: http://ssrn.com/abstract=897085

As a student of this school (indeed brought to Cambridge BY Keynes), Sraffa’s biases (and consequently economics) must be placed on similarly doubtful footing. Unfortunately, I only find sparse summary information on Sraffa’s model (and have not deeply read neo-ricardian) and see only references to reswitching and the Cambridge Capital Controversy of which I am familiar. What I can say is that there are mathematically consistent models that do not reflect reality as mathematicians and physicists often prove… so I’ll withhold a final verdict, but willingly suggest that the limited references (in easily accessible sources) reflect the limited success of models built on this foundation.

That the post-Keynesian have recovered questions of inefficiency do not fundamentally change that the market is still accepted as a central and dominant force and should remain in this role. Indeed, the emphasis on identifying these failures is exactly where I suggested that the neo-classical scholars logically go (and as you pointed out regularly do go).

The key is that they take these steps strictly on an analysis of cost/benefit and not to achieve some amorphous political or social goal… the opposite often driving other approaches

Indeed, in my expanded attack on Keynes, I’ll go so far as to argue that fiscal stimulus should not work at all, with three exceptions (that come to mind):

1) People are “stupid” and spend money they should save/pay down bills with… undestanding that they will eventually pay it back to the government in taxes or foregone services

2) Financial stimulus is simply complex wealth transfer that forgoes productivity enhancing savings for instant gratification.

or

3) That it represents inter-generational wealth transfer and thus can logically be spent and not saved, assuming non-inter-generational preferences (but really should be outlawed as theft)

… and honestly I’m not sure what studying in England proves (nor honestly a doctorate from Yale)… a shocking number of real breakthroughs have come from flunkouts who were willing to take the mainstream to task

At any rate Palley is obviously not ignorant, as Clayton claims, of the requirements of international trade equilibrium. His complaint is precisely that a combination of East Asian mercantilism and MNC “globalization” has prevented the adjustments that would restore trade to greater balance, resulting in global suppression of adequate demand, which also leads to an overfinancialization of the global economy. Also, I don’t think economists necessarily know exactly about “incentives”. Incentives are often multilateral, complicated and split. Get the incentives badly wrong and you’ll soon enough find out about it. But information transmission accounts of markets are stronger, I think, than claims, abstracted from actual human motives and institutional settings, about the alignments of incentives. Claims about incentives amount to claims that economists can perfectly grasp the “design” of markets, including the regulations that sustain them, but when they have actually attempted to design deregulated markets, as, with e.g. electricity deregulation, they’ve actually failed to effectively do so.

Neoclassical models start with free markets, which are inherenly socially “cheap”. If you make an adjustment, you must cost justify it and this puts the burden of proof on the cost/benefit equation.

Alternative models often start with the desired goal and some arbitrary policy that achieves it… then backs into the economic faulures that *must* be causing the socially undesirable outcome. We don’t measure how bad monopolists are… we just note that they’re bad and use bureaucratic power to make them “right”. In fact, it took almost 50 years for economists, EVEN AT CHICAGO, to realize that many kinds of monopolies do far less damage than initially believed.

Especially after Palley’s last post (which is almost completely ignorant of basic economic forces), it’s clear that Palley has his own biases. I just wish Yves’ comments (in *this* post no less) were applied to his own citations… “it’s important to recognize biases, otherwise you have no hope of correcting for them.”

In case my assault on Palley needs backed:

Yesterday, we seem to miss the basic economic fact that net exports require net lending and net imports require net borrowing. If we did a good-for-good trade, there’d be no need for net debt. Net imports mean that other countries are lending us goods. I don’t understand why Palley doesn’t get this: economic forces will equate interest rates to facilitate this net borrowing. Yes, there are stupid people borrowing too much, but it’s not some philosophy of debt… it’s basic economics.

Okay. I’m willing to admit that the neoclassical framework is not nonsense (maybe I was getting a bit carried away there), if it is understood as one of many ways to organize our understanding of economic phenomena. The problem of course is the lack of models that compete successfully with the neoclassical framework. This generates heavy over-reliance on one model with profound weaknesses (and one major strength: the math is truly elegant).

But let’s not lose sight of the big picture here. Nobody ever said neoclassical economics is perfect or encompasses the literal, absolute biblical truth here. It is simply a modeling framework for helping us organize our thoughts about some empirical regularities about the way people trade. The main criticisms of the framework are from people who take modeling far too seriously and use some mathematical tediums to try to shoot down the entire paradigm as “nonsense” or not useful. The basic point of the framework is this: PEOPLE RESPOND TO MONETARY INCENTIVES. And that can manifest itself in many different ways. It really matters little from the big picture perspective whether those monetary incentives are prices that are taken as given or can be controlled by the firm. And yes, sometimes we run into indefinite solutions or multiple equilibrium problems. So there I said.

If you have a problem with neoclassical economics, why don’t you do a little experiment and do your next few market transactions by assuming that people don’t respond to incentives and that they will just “do the right” thing because, well, you are a good guy. Let us know how it works out for you.

Let’s be serious here. The math doesn’t work in neoclassical models without the assumption that most of the participants in the model take prices as given. Yes, you can have one participant, the monopolist, who sets prices, but as soon as you have two monopolists both setting prices, you have a bargaining problem — and no logically defensible way to pick between the full range of solutions to the problem.

Game theory is the economist’s counterpoint to the neoclassical nonsense, but game theoretic models are little more than economic narrative in mathematical clothing.

2. As for the person that said prices are “surely” the most important assumption in neoclassical economics, read the article again. The MIT school believes that there is market power. By definition, market power is the ability of a firm to influence prices. So your point is more of an indictment against the Chicago school, not neoclassical economics.

Ivan