"Breaking the Neoclassical Monopoly in Economics"

Dear reader, even if your taste runs to the practical rather than the theoretical, I strongly suggest you read this post from Thomas Palley.

Like it or not, most news reporting and just about all policy discussions in the finance/economics realm are filtered through a particular frame of reference, namely, neoclassical economics. Palley points out that the illusion that there are two schools, namely the Chicago “free market” cohort (which has become the “Washington consensus”) versus the more interventionist MIT camp, obscures the fact that they are subsets of neoclassical thought and that there are other frameworks that have merit yet have been shunted aside.

Put more simply: it’s important to recognize biases, otherwise you have no hope of correcting for them.

From Palley:
For the past 25 years, the so-called “Washington Consensus” – comprising measures aimed at expanding the role of markets and constraining the role of the state – has dominated economic development policy. As John Williamson, who coined the term, put it in 2002, these measures “are motherhood and apple pie, which is why they commanded a consensus.”

Not anymore. Dani Rodrik, a renowned Harvard University economist, is the latest to challenge the intellectual foundations of the Washington Consensus in a powerful new book titled One Economics, Many Recipes: Globalization, Institutions, and Economic Growth. Rodrik’s thesis is that though there is only one economics, there are many recipes for development success.

Rodrik has rendered a major service by stating so openly the claim of “one economics.” A critic who made the same claim that economics allows only one theoretical approach would be dismissed as paranoid, whereas Rodrik’s standing creates an opportunity for a debate that would not otherwise be possible.

The “many recipes” thesis is that countries develop successfully by following eclectic policies tailored to specific local conditions rather than by following generic best-practice formulas designed by economic theorists. This challenges the Washington Consensus, with its one-size-fits-all formula of privatization, deregulated labor markets, financial liberalization, international economic integration, and macroeconomic stability based on low inflation.

But, while the many recipes thesis has strong appeal and empirical support, and suggests a spirit of theoretical pluralism, the claim of “one economics” is misguided, for it implies that mainstream neoclassical economics is the only true economics.

Part of the difficulty of exposing this narrowness is that there is a family split among neo-classical economists between those who believe that real-world market economies approximate perfect competition and those who don’t. Believers are identified with the “Chicago School,” whose leading exponents include Milton Friedman and George Stigler. Non-believers are identified with the “MIT School” associated with Paul Samuelson. Rodrik is of the MIT School, as are such household names as Paul Krugman, Joseph Stiglitz, and Larry Summers. This split obscures the underlying uniformity of thought.

The Chicago School claims that real-world market economies produce roughly efficient (so-called “Pareto optimal”) outcomes on which public policy cannot improve. Thus, any state intervention in the economy must make someone worse off.

The MIT School, by contrast, argues that real-world economies are afflicted by pervasive market failures, including imperfect competition and monopoly, externalities associated with problems like pollution, and an inability to supply public goods such as street lighting or national defense. Consequently, policy interventions that address market failures – as well as widespread information imperfections and the non-existence of many needed markets – can make everyone better off.

None of this is about fairness, which is a separate issue. Indeed, neither the Chicago School nor the MIT School say that market outcomes are fair, because actual market outcomes depend on the initial distribution of resources. If that distribution was unfair, current and future outcomes will be unfair, too.

However, Chicago economists seem to believe that real-world outcomes are acceptably unfair and, more importantly, that attempts to remedy unfairness are too costly, because tampering with markets causes economic inefficiency. Moreover, they believe that government intervention tends to generate its own costly failures because of bureaucratic incompetence and rent-seeking, whereby private interests try to steer policy to their own advantage.

MIT economists tend to espouse the opposite: fairness is important, the real world is unacceptably unfair, and government failure can be prevented by good institutional design, including democracy.

These differences reflect the intellectual richness of neo-classical economics, but they provide no justification for the claim that there is one economics. On the contrary, heterodox economists like Thorsten Veblen and Joseph Schumpeter long ago raised many of today’s cutting-edge issues in neoclassical economics, including the role of social norms and the relationship between technological innovation and business cycles.

More importantly, heterodox economics includes core theoretical concepts that are fundamentally incompatible with neoclassical economics in either of its two contemporary forms. These concepts result in significantly different explanations of the real world, including income distribution and the determinants of economic activity and growth. Moreover, they often result in different policy prescriptions.

The late Robert Heilbronner – one of Schumpeter’s most renowned students – viewed economics as “worldly philosophy.” Just as philosophers are divided on the nature of truth and understanding, economics is divided on the workings of the real world. Paradigms should co-exist in economics, just as in other social sciences. Yet, in practice, the dominance of the belief in “one economics,” particularly in North America and Europe, has led increasingly to a narrow and exclusionary view of the discipline.

This reality is difficult to convey. One reason is that liberal neo-classical economists like Stiglitz and Krugman share values with heterodox economists, and shared values are easily conflated with shared analysis. Another reason is that heterodox and MIT School economists also often agree on policy, even if their reasoning is different. Finally, most people are incredulous that economists could be so audacious as to enforce one view of economics.

The “many recipes” thesis enriches neo-classical economics’ contribution to the development debate, and many of its policy proposals will find support from heterodox economists. However, it fails to engage the deep intellectual divisions regarding economic development, trade, and globalization, because it refuses to admit the legitimacy of such disagreements.

By repeating the claim of “one economics,” Rodrik inadvertently reveals the censorship embedded in contemporary economics. The great challenge is not to admit that there are many recipes, but rather to create space for other perspectives on economic analysis and policy.

Print Friendly, PDF & Email
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

26 comments

  1. steve

    If Palley would spend more time reading the mainstream economic journals such as the Quarterly Journal of Economics, American Economic Review, and Econometrica, he would find that “heterodox” concepts such as “social norms” and “fairness” are now routinely mentioned in many of the published papers. It is now difficult to find at least one article per issue that doesn’t use or study these concepts. So I really can’t agree with Palley’s post. Scientific progress has always been evolutionary and new concepts integrated slowly and systematically. That is how you weed out the flaky ideas from the legitimate ones.

  2. Yves Smith

    Steve,

    That’s a very good point. Palley did not make clear what context he was discussing; he may have been referring to policy formation or who gets funding. You may have seen the debate among the academic economics bloggers some six-nine months ago about heterodox economics. The tone was that they were definitely in the wilderness, while the crowd funded by Cato et al. had sway.

  3. steve

    Yves,
    I missed that debate. I don’t frequent blogs very often, although I enjoy your blog very much. If Palley is talking about policy formation, then I would agree that heterodox economists have a rougher time. But I would also say that the line between heterodox and neoclassical blurring. IMO, it would be no problem getting funding to study fairness and equity issues; indeed, most of experimental economics (now widely accepted even at Chicago) is precisely about these topics. However, if one passes oneself off as a neo-marxist who believes that all injustice is rooted in worker exploitation by the ruling elites….well, good luck.

  4. fuguez

    I agree with Steve. An evolutionary metaphor is more realistic to economic, or any type, of knowledge. The bits that fail are discarded; the rest continue.

  5. Deborah

    Now expand the discussion even further and include Austrian economics, and Kenysian and monetarist interpretation and so on…

    The economic focus and thinking is so narrow it is hard for even a piece of thread to navigate.

  6. Steve

    Look, neoclassical economics is really pretty simple. If you wade through all the math and complex theorems, the framework can be summarized as follows:

    1. supply curves slope upward – higher prices cause firms to supply more.

    2. Demand slopes downward. Higher prices cause consumers to buy less.

    3. People respond to incentives.

    Empirically the above three points hold in 95% of cases. When people can show systematically that supply slopes downward, demand slope upward, or people don’t respond to incentives, then economists at both MIT and Chicago will be ready to ditch the framework.

  7. don

    In reading Palley’s piece Saturday I was struck by the same observation you were. However, one can take it yet a step further than you have.

    In essence, one could question the supremacy given to economics (or, if one prefers, the market). No doubt capitalism in general, not just the Washington Consensus, has full sway especially after the fall of the Soviet Union. What I am alluding to here is that the Washington Consensus has been every bit as much a geopolitical factor as economic. Consequently, one has to take not simply an economic perspective but one the goes deeper, that is a political economy view. The opening of new markets has been a key to this, thus the need to examines all this from a historical perspective is imperative.

    Taking a more political economy and historical perspective, one can step away from the context in which these issues are played out. There is a way of seeing this differently. Namely, by moving away from the dynamics in which states swing from an emphasis on ‘free’ markets to more state intervention (and back again, as is the case with the Washington Consensus, moving away from social welfare policies), one can find plenty of academic study in which civil society is given greater emphasis.

    Civil society (and along with it forms of social solidarity) offers a fresh perspective that re-introduces the significance of social norms and public spheres of influence. From this springs an entire field of study that examines deeper and more expanded forms of democracy. This is found in the study of what is termed deliberative democracy (as opposed to simply procedural).

    The bottom line here is what does it mean for us to understand democracy not only in a political sense but also in the sense of democratizing economics.

  8. Anonymous

    Steve left out a very important theoretical element of neo-classical economics that balances those supply and demand curves- equilibrium. Static equilibrium (however temporary) is a necessary condition to make neo-classical economics function the way it’s supposed to. Yet, it turns out equilibrium is a mythical economic construct, what Eric Beinhocker calls a “misused metaphor”. In his excellent book on this subject, “The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics” he calculated that an economy as complex as ours, while assuming every decision is made at the speed of supercomputers, would require 4.5 quintillion years (4.5 x 10^18 years) to reach equilibrium after EACH exogenous shock!

  9. Michael

    The only real economics in my book is that of the Austrian school. Never, in any society, have we truly given free markets a chance. Capitalism will unfairly get blamed for the messes we are in. In truth, the real culprit is easy money and the ability to create money out of thin air, both non free market frauds.

  10. Anonymous

    Re: “even if your taste runs to the practical rather than the theoretical”

    >> My mind is biased by theoretical fusion and thus I find the clip below very telling in regard to this subprime collusion cluster-mess which links together strings of computer models that are based on the flaws of human greed, ego and abuse of power. Our society has decayed because we are more efficient at harnessing chaos!

    Dennett on chess and artificial intelligence:

    http://www.mindhacks.com/blog/2007/08/dennett_on_chess_and.html

    ….As soon as computers became good at chess, it was dismissed as a valid example because, ironically, computers could do it. A classic example of moving the goalposts.
    Similarly, I’ve recently heard a few people say “If computers could beat us at poker, that would be a genuine example of artificial intelligence”. Recently, a poker playing computer narrowly lost to two pros.

    We need more vodka!!!

  11. doc vodka

    One of the challenges of economics has been a struggle to reconcile macroeconomic and microeconomic models.

    Theorists such as Robert Lucas Jr suggested (in the 1970s) that at least some traditional Keynesian (after John Maynard Keynes) macroeconomic models were questionable as they were not derived from assumptions about individual behavior, but instead based on observed past correlations between macroeconomic variables. However, New Keynesian macroeconomics has generally presented microeconomic models to shore up their macroeconomic theorizing, and some Keynesians have contested the idea that microeconomic foundations are essential, if the model is analytically useful. An analogy might be, that the fact that quantum physics is not fully consistent with relativity theory does not mean that relativity is false.

    New Keynesian economics, which developed partly in response to new classical economics, strives to provide microeconomic foundations to Keynesian economics by showing how imperfect markets can justify demand management.

    See: Net Domestic Product
    An annual measure of the economic output of a nation that is adjusted to account for depreciation, calculated by subtracting depreciation from the gross domestic product (GDP).

    Ministry of Statistics & Programme Implementation
    http://pib.nic.in/release/release.asp?relid=35195
    18. Estimates of gross/net national product, gross/net domestic product and per capita income, alongwith GDP at factor cost by kind of economic activity and the Expenditures on GDP for the years 2004-05, 2006-07 and 2007-08, at constant (1999-2000) and current prices are given in Statements 1 to 4.

    Re: Roland Spant, a Swedish trade union economist, argues that Net Domestic Product (NDP) should replace GDP as a measure of economic growth for a number of purposes. The key difference between GDP and NDP is depreciation. With the shift in investment toward information technology assets with relatively short service lives, the share of depreciation in GDP has increased in most OECD countries and GDP growth now exceeds NDP growth. Spant points out that this means that the use of GDP leads to the overestimation of real output growth as well as the potential for noninflationary real wage gains.

  12. Anonymous

    Yah,

    Computers have contributed to efficiency and utility on one hand, but have failed to help improve wages or decrease inflation; however, computers are helpful in designing synthetic derivatives which can help hide economic activity, thus if the goal of society is to hide wealth, then we are becoming more efficient.

  13. Anonymous

    Re: “As soon as computers became good at chess”

    Deep Blue was a chess-playing computer developed by IBM. On 11 May 1997, the machine won a six-game match by two wins to one with three draws against world champion Garry Kasparov. [1] Kasparov accused IBM of cheating and demanded a rematch, but IBM declined and retired Deep Blue.
    Kasparov had won an earlier match against a previous version of Deep Blue in 1996.

  14. Anonymous

    I find this all very entertaining and hope it does not offend anyone; it just a little color for Sunday OT:

    From the second quarter of 2000 through the fourth quarter of 2003, the government estimated that real tech spending rose from $446 billion to $557 billion, when nominal spending only increased to $488 billion. Some analysts feel that this overstates the “true” spending on computers by $72 billion. However, it is also true that this extra $72 billion captures the increase in value and utility of the computers that were purchased in 2003 as compared to 2000, due to the former’s superior quality and capability for the same nominal price as the latter.
    http://en.wikipedia.org/wiki/GDP_deflator

    tHe roLe oF HedonIC metHods In measurIng reaL gdp
    In tHe unIted states
    dave WASSHAUSEn and
    Brent R. MOULTOn1
    Bureau of Economic Analysis
    U.S. Department of Commerce

    http://www.bea.gov/papers/pdf/hedonicGDP.pdf

    NOTE: These files have been revised to be consistent with the 2007 annual revision of the NIPAs.

    Clearly, traditional matched model price indexes encounter problems when measuring price change
    for goods with rapidly changing quality and/or characteristics. One such problem is that the price
    changes observed for the matched models may not accurately reflect price changes for all models.
    That is, any new models that reflect the newest technology and therefore have different specifications
    will not be reflected in the matched model simply because they cannot be ‘matched’ to a model
    in the period prior to their introduction.

    It is interesting to note that the problem BEA addressed in its collaborative effort with IBM was more
    than just obtaining an improved method of quality adjustment. Prior to 1985, BEA simply had no
    acceptable price index for computers, so computers had been deflated by an index that was equal to
    1 for all periods.

    In 2005, BEA hired a contractor to develop an improved price index for custom software. (The
    current price index is primarily a cost-based index that assumes roughly zero growth in multifactor
    productivity.)

    Hedonic price indexes are used to deflate a number of GDP final demand components, accounting
    for about 20 percent of nominal GDP in recent years.

    Hedonic regressions are only as good as the data and modeling efforts that go into them.

    While we are not able to precisely quantify the affect of incorporating improved prices that use
    hedonic methods, we did approximate the impact that quality-adjusting computer prices (arguably the
    most prominent hedonic price indexes with the greatest rates of decline) has on measuring real GDP.
    The results were minimal – on average less than 0.1 percentage point for years 2001-05.

    See Also: When Kasparov requested that he be allowed to study other games that Deep Blue had played so as to better understand his opponent, IBM refused. However, Kasparov did study many popular PC computer games to become familiar with computer game play in general.
    After the loss, Kasparov said that he sometimes saw deep intelligence and creativity in the machine’s moves, suggesting that during the second game, human chess players, in violation of the rules, intervened. IBM denied that it cheated, saying the only human intervention occurred between games. The rules provided for the developers to modify the program between games, an opportunity they said they used to shore up weaknesses in the computer’s play revealed during the course of the match. This allowed the computer to avoid a trap in the final game that it had fallen for twice before. Kasparov requested printouts of the machine’s log files but IBM refused, although the company later published the logs on the Internet at http://www.research.ibm.com/deepblue/watch/html/c.shtml. Kasparov demanded a rematch, but IBM declined and retired Deep Blue.
    In 2003 a documentary film was made that explored these claims. Titled Game Over: Kasparov and the Machine, the film implied that Deep Blue’s heavily promoted victory was a plot by IBM to boost its stock value.

    Q: As far as I understand, the hardware for both engines is located in other countries. Why it could not be brought to Elista as well?

    S.B.: Deep Junior uses completely new equipment that is not available to the public. The Intel will present it officially only in a few months. So, brining it here was not easy at all.

    A.K.: We are in the same situation. Deep Fritz plays on special hardware that is not available in stores, and it is not convenient to transport. As we all live in the Internet epoch, these computers can be accessed regardless of the location, so there is no point in brining the hardware.

    Berik Balgabaev: On behalf of the organizers I shall add that brining the hardware to Elista creates a lot of problems with customs et cetera, and increases our expenses. We decided upon the most convenient and commercially efficient option.

    Q: What is the correlation between the speed of the hardware used by Deep Blue in the match against Kasparov with the speed of Junior’s and Fritz’s hardware?

    Amir Ban: The second version of Deep Blue, which was called Deeper Blue, calculated 200 million positions per second. Deep Junior calculated about 3 million during the match against Kasparov in New York, 2003. Here our engine uses 16-core processors, which count 20-30 million positions per second.

  15. Anonymous

    Re: Steve 11:53 AM

    Surely the most important assumption in neo-classical economics is that individuals and firms take prices as given and ignore any ability they may have to influence them.

    This is why some of us view the whole paradigm as a bad joke.

  16. Anonymous

    Kasparov wasn’t beaten by Big Blue. Rather he was up against two computer scientists, the resources of a major company and to top it off the grandmasters who were in the business of advising the scientists. All told he had at least five top notch professionals against him. Without them Big Blue is just a lot of scrap metal. Kasparov didn’t do himself any favours either by psyching the whole thing as a decisive battle between man and machine. A more level headed guy like Vijay Anand could have given a better account.

    Ivan

  17. steve

    1) Whether static equilibrium is a “misused metaphor” or not is open to debate. The point is, something puts downward pressure on prices when there is oversupply and something puts upward pressure on prices when there is too much demand. Call it whatever you want, equilibrium, mean reversion, etc. etc. The point is, supply and demand don’t just randomly explode off into different directions.

    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.

  18. Anonymous

    Steve,

    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.

  19. steve

    Anonymous,
    You are correct with your example. And I’m sure you are clever enough to come up with a few more counter-examples so I’ll grant you that upfront.

    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.

  20. Anonymous

    “It is simply a modeling framework for helping us organize our thoughts about some empirical regularities about the way people trade.”

    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).

  21. Steve

    Yes I agree. Even though I may sound like a neoclassical caveman, the truth is I do get tired of some economists (particular from the Chicago school) who take the framework literally. And I do think that it is a sign of progress that there is an emerging behavorial economics framework that is starting to highlight some of the deviations from pure rationality. I think this is ultimately good for the evolution of the field and will lead to a better framework (hopefully).

  22. Clayton

    I think the more useful thought process is: If our goal is to minimize the cost of any socially desired outcome, where do we start?

    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.

  23. john c, halasz

    Palley is not some sort of ignoramus. he studied in England, (though his doctoriate is from Yale IIRC), and affiliates with the Post-Keynesian school, originating with economists like Sraffa, Joan Robinson, and Nicolas Kaldor, who were actually closely associated with Keynes and challenged neo-classical marginal analysis as a self-sufficient basis for systematic economics. In particular, Sraffa developed a neo-Ricardan model that demonstrated conclusively that the marginal products to factors of production was logically incoherent, that costs of production were more fundamental than preferences in determining supply and demand ratios, and that market dynamics, as the sphere of exchange and distribution, could not be understood independently from their intrication and cross-dependency with the reproductive requirements of the sphere of production. Futher, oligoploistic competition is not an exception to general market competition, but becomes the prevailing form of competition and market dynamics in industrial capitalism. Of course, neo-classical models have changed considerably since the ’70’s, and models involving increasing returns and information assymmetries have been developed that accommodate such “literary” criticisms of mathematical economics, though there is still a general academic reluctance to deploy those models, which implicate widespread, endemic market failures, in ways that radically criticize prevaiing “market” capitalism. And the neo-classical equation of economic “value” with nominal prices, I think, does steer it in the direction of being finance dominated economics.

    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.

  24. Clayton

    The original strains of Keynesian economics were politically influential, but economically have proven to be fundamentally wrong (hello 1970s). This is what happens when social or political goals drive economic theories and this is precisely the complaint I had/point I made.

    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

  25. John Ryskamp

    You should try to understand better the mathematics out of which Sraffa developed. Specifically, you need to understand more of the history of set theory. Sraffa adopted constructivism as his mathematics, and that was a very bad response to very bad understanding of Cantor’s very bad set theory notions.

    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

Comments are closed.