Michael Roberts Blog: blogging from a marxist economist — Minsky and socialism

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending.Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!

In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production. By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used). They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.

Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production. Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.

Michael Roberts Blog — blogging from a marxist economist
Minsky and socialism
Michael Roberts

The debt delusion — Michael Roberts [book review]

Michael Roberts reviews and critiques The Debt Delusion by John Weeks.

Michael Roberts Blog — blogging from a marxist economist
The debt delusion
Michael Roberts

So Are We All MMTists Now? — Brian Romanchuk

Larry Summers attracted a great deal of attention with arguments that post-Keynesian theories ought to be taken into account, and the ability of central banks to stimulate the economy are limited. One could argue that the zeitgeist is shifting in the direction of Modern Monetary Theory (MMT): the role of fiscal policy may be increasingly important. However, I am unsure how far actual economics debates will shift.

One may note that Summers dodged discussing MMT in his initial tweets; in fact, he referred to Thomas Palley, whose main contributions in recent years has been his sectarian attacks on MMT. My guess is that this will be a fairly standard approach...,

I have said previous, this is about control of the Democratic Party going forward — the Democratic Establishment (the Clinton-Obama camp) versus the progressives (the Bernie-Squad camp). Stephanie Kelton has put MMT at the center of it owning to her association with Bernie and AOC's endorsement of MMT.

The former is backing way from New Keynesian but is not willing to throw in the towel and support MMT. Now the battle is engaged. So far the victories are going in the right direction if one is an MMT supporter. Monetarism is effectively dead and New Keynesian is becoming untenable as a policy position.

There has been an ongoing battle between one faction of Post Keynesians and others that support MMT. Larry Summers just cast his hat with the former.

Bond Economics
So Are We All MMTists Now?
Brian Romanchuk

Magpie — Getting all Tied Up (2)

Magpie critiques Paul Mason's criticism of MMT from the POV of a Marxist.

Magpie's Asymmetric Warfare
Getting all Tied Up (2)

Magpie

Ramanan — Mainstream Economics Compared To Keynesian Times

Nicholas Kaldor quote.

The Case for Concerted Action
Mainstream Economics Compared To Keynesian Times
V. Ramanan

Brian Romanchuk — Productivity And The Cycle

I am resuming work on pondering the business cycle, and just wanted to give some initial comments about the notion of productivity. This article just describes some basic concepts taken from a generic post-Keynesian perspective (plus some of my own views, which may or may not be eccentric). As work progresses on my book, I should address the neo-classical approach, as well as empirical results.

Bond Economics
Productivity And The Cycle
Brian Romanchuk

Brian Romanchuk — Primer: Post-Keynesian Inflation Theory Basics

This article is an introduction to the post-Keynesian approach to inflation. It is largely based on Section 8.1.1 of Professor Marc Lavoie's Post-Keynesian Economics: New Foundations (link to my review). Similar to the work on stock-flow consistent models, we start out with what is essentially an accounting identity: a statement that is true by definition. We need to understand the implications of the accounting identity before we worry about the behavioural aspects (which are not pinned down with accounting).

(The approach here is quite distinct from conventional approaches; I discussed why post-Keynesians reject conventional inflation theory in an earlier article.)…

The public conversation is moving away from so-called sound finance toward functional finance, the debate is shifting to actual financial and macroeconomic constraints rather than non-existent funding constraints like the "budget constraint." So it is becoming important to understand the details of the actual constraints — real resources and price stability. As a consequence, it is also necessary to understand the issues involving prices stability, like "inflation."

In my view, it would be better to just drop the term "inflation" as too charged with pejorative connotation in ordinary language to serve as a technical term in macroeconomics. "Price level" and "price stability" are more accurate, since policy must be concerned with both continuous increase and also decrease in the price level in a monetary production economy, e.g., owing to prior commitments involving debt, for example. Debt deflation is as poisonous as inflation of the of the price level. Price stability is also needed for planning, since it involves forward legal commitments, e.g., contracts.

Bond Economics
Primer: Post-Keynesian Inflation Theory Basics
Brian Romanchuk

Brian Romanchuk — Primer: Understanding the Post-Keynesian Rejection of Mainstream Inflation Theory

From the Perspective of Conventional Economic Analysis, the Post-Keynesian Approach to Inflation Is Mystifying. If We Focus on the Modern Monetary Theory (MMT) School of Thought in Particular, It Is Very Easy to Either Find Claims That "MMT Has No Theory of Inflation," or Non-MMTers "Explain" the MMT Inflation Theory Is Some Random Trivial Relationship That They Just Made Up. The Key to Understanding Post-Keynesian Approaches Is That It Takes a Completely Different Approach to Understanding Inflation, and Outcomes Are Seen as Very Difficult to Forecast.

This Article Is Based on Section 8.1.1 ("the Rejection of the Acceleratoinist Thesis") of Professor Marc Lavoie's Excellent Post-Keynesian Economics: New Foundations (Link to My Review). From the Perspective of a Non-Academic, a Significant Portion of the Book Would Likely Be Found as Arcane, and Could Easily Be Confusing to a Non-Specialist. However, Section 8.1.1 Is Extremely Straightforward, and the Most Difficult Part of My Writing Task Here Is Staying Within "Fair Use" Copyright Limitations When Describing It. 

(Since I Raised the Issue of MMT Earlier, I Cannot Say Whether There Are Any Major Disagreements Between MMTers and Lavoie's Description of Post-Keynesian Thinking on Inflation. My Feeling Is That There Is Nothing That a Non-Academic Would Get Too Excited About, Other Than the Importance That MMT Ascribes to the Job Guarantee Wage in Stabilising Inflation. For the Analysis of a Country Without a Job Guarantee -- Currently, All of Them -- This Distinction Has No Practical Import.)… 

Important Now That MMT and PKE Are Gaining Recognition.
Bond Economics
Primer: Understanding the Post-Keynesian Rejection of Mainstream Inflation Theory
Brian Romanchuk

Jason Smith — Recessions and special snowflakes

My issues with Dirk Bezemer's academic credibility seem to have nudged the Post Keynesian hornets' nest such that they seemed to assume I was attacking Post Keynesianism in general, which I gladly took on because one thing that I really do dislike is cult-like adherence to ideology regardless of what that ideology is. But first let me clarify a few things.…

For those following this. Boiling it down in this post, he is saying to Post Keynesians, convince me and remember that I am a working scientist that is interested in showing regularities in data.  Could be that there is no regularity, but that has to be shown, too. Fair points.

Jason is actually a good foil in the debate. He is not an economist but has taken the time and trouble to acquaint himself with economics, both conventional and heterodox, and he has no horse in the race, other than working on an information transfer theory that he admits is a work in progress.

So he is quipped with all the tools to recognize good and bad arguments. Consequently, he represents a good model for what needs to be done to argue an economic position convincingly to a qualified member of the interested public, instead of waving hands.

Look at it as an opportunity and challenge.

Information Transfer Economics
Recessions and special snowflakes
Jason Smith

Lord Keynes — Bibliography on Post Keynesian Economics (Updated)

Update.

Social Democracy For The 21St Century
Bibliography on Post Keynesian Economics (Updated)
Lord Keynes

Barkley Rosser — How I Came To No Longer Be A Kaldorian Economist

Of interest to Kaldorians, Post Keynesians, and modern monetary theorists (MMT).

Econospeak
How I Came To No Longer Be A Kaldorian Economist
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Robert Skidelsky — Stylised Facts

As I came to develop a deeper understanding of economics, I became increasingly convinced that Kaldor’s approach was the only way to prevent economics ossifying into pure formalism. “Stylised facts” was his methodological weapon, and I can do no better than quote from his essay “Capital Accumulation and Economic Growth” (1961), with its strongly implied attack on the neoclassical approach to model construction:

“We all agree that the basic requirement of any model is that it should be capable of explaining the characteristic features of the economic process as we find them in reality. It is no good starting off a model with the kind of abstraction which initially excludes the influence of forces which are mainly responsible for the behaviour of the economic variables under investigation; and on finding that the theory leads to results contrary to what we observe in reality, attributing this contrary movement to the compensating (or more than compensating) influence of residual factors that have been assumed away in the model.

Any theory must necessarily be based on abstractions; but the type of abstraction chosen cannot be decided in a vacuum. ... Hence the theorist, in choosing a particular theoretical approach, ought to start off with a summary of the facts which he regards as relevant to his problem. Since facts, as recorded by statisticians, are always subject to numerous snags and qualifications, and for that reason are incapable of being accurately summarised, the theorist, in my view, should be free to start with a ‘stylized’ view of the facts – i.e. concentrate on broad tendencies, ignoring individual detail, and proceed on the ‘as if’ method, i.e. construct a hypothesis that could account for these ‘stylized’ facts, without necessarily committing himself on the historical accuracy, or sufficiency, of the facts or tendencies thus summarized” (177–178).

In my opinion, the stylised facts approach stands up pretty well to the criticisms that have been made against it.

Skidelsky goes on to explain Kaldor's use of stylized facts as being derived from a combination of historical data and intuition in reasoning to the best explanation. This is called "abduction" although Skidelsky doesn't use the term.

This post is  a should-read for those interested in Keynesian and Post Keynesian economics. There are many more good points Skidelsky brings out.

Robert Skidelsky's blog
Stylised Facts
Robert Skidelsky | Emeritus Professor of Political Economy at the University of Warwick
Acta Oeconomica, Vol. 67 (S), pp. 31–35 (2017)

Nick Johnson — Production and realization of surplus value – Marxists, Keynesians and others

Many Marxists follow the man himself by emphasising that capitalism is a profit-driven system. By contrast, Keynesians, particularly the more radical post-Keynesians, see the system as demand-driven and therefore responsive to a policy of demand-expansion during a slowdown or recession.…

In sum then, I find the above quote from Marx on the contradiction between the production and realization of surplus value and profit very helpful. It offers tremendous insight into the dynamics of capitalism, which has given rise to periods of growth and crisis throughout its history. 

If Marx is right, different kinds of crisis may require different solutions: if the production of surplus value and profitability is insufficient, then some kind of restructuring is required; if its realization is weak due to inadequate demand, then policies which boost investment or consumption may be appropriate.

The Political Economy of Development

Production and realization of surplus value – Marxists, Keynesians and others

Nick Johnson

Nick Johnson — Trumponomics Part 3: Alternatives

Here is Part 3 of my series on the book Trumponomics – Causes and Consequences. As it is an early assessment of the economics of the Trump presidency, concrete left policy alternatives do not take up much of the content, but there are some ideas to draw on.

Central to the aim of making the left ‘great again’, to quote one of the authors, is a political programme which pivots away from the dominant liberal, politically correct agenda, and which serves the interests of the masses.

This would be a social democratic platform, offering a radical alternative to the neoliberal ideology which has captured both major parties in the US....

The Political Economy of Development
Trumponomics Part 3: Alternatives
Nick Johnson Post K

Michael Roberts — Europe’s crisis: the Cluj debate with Mark Blyth

Michael Roberts reports on the debate between Mark Blyth representing the Post Keynesian view and himself representing the Marxist view of the main cause of the Global Financial Crisis that led to the imposition of austerity.

I think this is probably an undecidable argument since such issues have a constellation of causes and identifying all of them and prioritizing them is hampered by lack of agreed upon criteria. So they are probably both correct in claiming that they have identified a significant causal factor among others.

Michael Roberts Blog
Europe’s crisis: the Cluj debate with Mark Blyth
Michael Roberts

Andrew Lainton — General Equilibrium – Why Post-Keynsians Can’t Live Without it

From an MMT perspective, I would put it somewhat differently than Lainton's analysis.

General equilibrium means that all markets clear "in the long run," that gluts and shortages are corrected by "market forces," and that market failures are temporary and limited to the micro level. Firms may flounder, but the overall market absorbs these failures by repurposing the resources involved, as occurs in the case of disruptive technology, for instance.

As Linton observes the pesky issue is time. 

Keynes pointed out that the issue in economics is dynamic equilibrium over time and explained why an economy might find an equilibrium at less than optimal economic use of resources.

That is, an economy can settle into sub-optimal states that may persist for some indeterminate time, and "in the long run we are all dead."

Therefore, the neoclassical view of letting market forces work to solve market failures on the assumption of a tendency toward general equilibrium in the long run is foolhardy if there is a way to avoid longterm stagnation or sub-optimal performance.

Dynamic equilibrium is ensured in a monetary production economy by double-entry accounting. It is reflected in stock-flow consistent macro modeling. 

This results in the possibility of equilibrium states at less, greater or less than optimal use of available resources — real, financial and human — depending on choices, some of which are policy choices. 

These states can persist until different choices are made. For example, imposition of fiscal austerity can result in economic contraction lasting much longer than otherwise.

Optimal use in the present must also anticipate future conditions based foreseeable changes in conditions in terms of present deployment of resources. Policy must take this into consideration.

This further reveals that policy is a determinative factor in achieving stable equilibrium at an optimal level of resource use along with deployment of resources for future use, e.g., based on projections of changes in population and demographics.

Decisions, Decisions, Decisions
General Equilibrium – Why Post-Keynsians Can’t Live Without it
Andrew Lainton

Lars P. Syll — What is Post Keynesian Economics?

Paul Davidson's view.

Lars P. Syll’s Blog
What is Post Keynesian Economics?
Lars P. Syll | Professor, Malmo University

Brian Romanchuk — SFC Models And Introductory MMT-Style Fiscal Analysis

The usefulness of Stock-Flow Consistent (SFC) models is that they allow us to illustrate concepts in economics without relying solely on verbal descriptions.

In this article, I will discuss my interpretation of some of the ideas floating around in Modern Monetary Theory (MMT). I will note that these are my interpretations of statements made by others, illustrated by an extremely simple model. The key is that even simple models can be used to clarify our thinking.

This article is only a partial response to an article by Gerard MacDonell. He is unhappy about some of the writings of Professor Bill Mitchell, one of the leading MMT economists.

I am not going to argue on Mitchell's behalf, rather I just want to offer some analysis that touches on some of the technical issues Gerard made. He noted that Federal taxation and spending are roughly similar, so how does that square with MMT pronouncements about the independence of taxation and spending? This outcome is not surprising, as it is exactly the sort of thing that is predicted by SFC models -- and MMT mathematical analysis of the economy uses SFC models.

For those if you who are not fully up-to-date on post-Keynesian factionalism, please note that SFC models were meant to be a mathematical lingua franca for post-Keynesian economics. In other words, MMT economists use SFC models, but they are not exclusive to MMT.

Since I want to work with my Python modelling framework here, and it currently cannot support full business cycle analysis (extensions will be added later), I cannot do complete justice to Functional Finance. Therefore, I have to just focus on a couple of more basic ideas about fiscal polict

1. there is little relationship between taxes and spending; and
2. governments cannot control the budget deficit.

I will address these here in turn....

Bond Economics
SFC Models And Introductory MMT-Style Fiscal Analysis
Brian Romanchuk

Michael Roberts — Keynes, civilisation and the long run

Criticism of Keynes, Keynesianism and some Post Keynesians from a Marxian perspective.

Michael Roberts
Keynes, civilisation and the long run

Michael Roberts

Ramanan — Robots, Globalization, Unemployment, Etc

Economists have played down the notion of technological unemployment. If production is constant and productivity rises, there’s a fall in employment because less labour is required to produce the same output. So output has to rise to keep employment from falling because of “automation”. In Post-Keynesian economics, the principle of effective demand matters both in the short run and the long run. So technological unemployment is a real possibility. New Consensus economists concede that John Maynard Keynes rules in the short run but assume that Jean-Baptiste Say rules in the long run. The irony hence is that New Consensus economists seem to show worry about automation these days.

In my opinion, this is because the sacred tenet of free trade must be defended by economists at all costs. So they make a concession about loss of employment to robots. Unfortunately that’s not right either. Globalization—both because of competition by international producers and offshoring of jobs via global supply chains—has led to the loss of livelihood for many in the Western world....

Tradeoffs.

Automation and robotization increase productivity, reducing the need for labor, which reduces worker incomes in developed countries. Globalization increases the available work force in open economies, increasing competition among workers in the global labor pool and reducing worker incomes in developed countries. Reduction in worker incomes undeveloped countries reduces effective demand, leading to excess capacity and potential oversupply, unless lagging demand is addressed by government fiscal policy.

Both globalization, which benefits emerging world workers, and automation and robotics, which increases productivity across the board, should be welcomed as an emergent opportunity and addressed simultaneously as an emergent challenge. Government that are currency sovereigns have tool for this, and global economy policy aimed at win-win can be achieved through concerted action rather than harmful competition and a beggar-thy-neighbor approach.

The developing world can be lifted up without necessarily dragging down the developed world.

The Case for Concerted Action
Robots, Globalization, Unemployment, Etc
V. Ramanan