Rand Paul and the surveillance state
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Monthly Archives: February 2014
I wonder what this was about
From Andrew Bolt:
People who airily deny that my free speech (and, by extension, yours) hasn’t been taken away in part by our courts should know that I have again been advised by my lawyers not to comment on a recent publication by the Department of Foreign Affairs and Trade, or even to simply republish the DFAT item without comment.
This is far from the first time. Our laws against free speech are a disgrace. The effect is to allow people – in this case DFAT – to promote a certain point of view on a matter of great moral importance without fear of contradiction.
This post, then, is a bookmark to note where an article should have appeared.
If the SHOE fits
There has been a kind of hammer and tongs discussion at the Societies for the History of Economics (SHOE) website that began when I posted that the President of France had stated in support of a more “austerity”-oriented economic policy that, L’offre crée même la demande. Or in English, that supply really does create demand, a principle known in English as Say’s Law. Every economist is taught from the first day of macro that Say’s Law is wrong and that a Keynesian stimulus is the answer to recession. Sounded better five years ago but today, who would suggest more public spending even though our economies remain as dismally placed as they are. But part of what I found so charming is that the suggestion is made that I am near enough the only economist in the world who thinks “the strong version” of Say’s Law is true. How weird is that! But of course, that doesn’t mean that I think that I’m wrong, specially since all the evidence is so one way.
The SHOE website is filled with interesting discussion over a vast range of economic issues. You definitely do not have to be an economist either to join or to listen in on the discussion. You can register here. Meantime, this is my latest post on how I see the role of the history of economic thought.
I am rather charmed by Barkley Rosser’s last post, to wit:
So, my final comment will be directed very directly at Steve Kates and James Ahiakpor. Can you guys not figure out that you have totally and utterly lost this debate? Nobody here agrees with you, nobody. You have lost, period. Sure, you can get the occasional Per Berglund to sort of attempt to help you out by questioning details of the critiques of your arguments, but even those folks in the end do not come down on agreeing with your defense of a strong version of Say’s Law. Deal with it, please. We have all had more than enough.
I am more than aware that so far as numbers go, we are on the wrong side of the ledger. When I began to argue in public against the stimulus back in 2009, there were attempts made by that solid mainstream to have me sacked from my university appointment. There are risks in taking such positions. What protects me now from such attacks is the unbelievably dismal outcomes from the stimulus. You may not understand what I’m saying. But there is no doubt that, so far as the way our economies have performed, I have little reason to think anything other than that Mill was right, that the “strong version of Say’s Law” is valid, and classical economists knew what they were talking about. The modern Keynesian fashion, on the other hand, has little to show for it. Does evidence count for nothing?
But I come onto this thread firstly to thank our moderator for his willingness to let the previous thread on L’offre crée même la demande continue to its end. But there is more to it than that. I wrote my book on Defending the History of Economic Thought, not just to explain why making the effort to understand the economic theory of the past is an extremely good way to deepen an economist’s understanding of economic theory, but also to argue that HET is the place where economic theory goes to regenerate itself. This is the one and only place that economists from every one of the traditions in economic theory come to look in on what is being said by others.
There are mainstream journals, but also Austrian, Neo-Keynesian, Post-Keynesian, Institutionalist, Marxist and others, and if you are not part of whatever tradition that journal represents, it is unbelievably difficult to get published. HET has broken this tradition down, at least to some extent. It may well be that no one can follow what I or James or Per are trying to say, although we can follow each other with near perfect clarity. But where else are you going to even hear it at all?
The History of Economic Thought is by all accounts dying yet it is the most intellectually alive area in the whole of economic theory. It teems with ideas and there are economists from every tradition who are willing to fight it out before an audience of upwards of a thousand of their peers who can follow these discussions as they like. There is seldom a thread I don’t learn from and I typically read them through.
And there is no doubt that HET is under threat of extinction. There are people at the top of our hierarchies, and I am talking about our hierarchies within HET, who would willingly take this study into the History and Philosophy of Science and leave economics behind. There are also mainstream theorists who would be glad to see the end of us and our constant criticisms of established textbook economics.
But there are also people, like myself and others who come to this site, who just find it fascinating to listen in on alternative ways of thinking about economic issues. That is what HET is for. Rather than restrict this area to burrowing into particular issues related to economists who are no longer mentioned in our textbooks, it should also be a place where ancient economists are resurrected and their ideas discussed. And I don’t just mean on this site but across the entire expanse of the history of economic thought.
The journal, History of Economics and Policy, is a paradigm of just what is needed. Perhaps not for all of us, but certainly for some of us. This is not the end of HET but in my view is its salvation. Here is a link to its archive.
It is what every HET journal should become more like. Some traditional material but also some which see the relevance of past theory to our present problems.
And in furtherance of this post, I might just mention this news item, Canada charts comfortable course to 2015 budget surplus. If you are a Keynesian, your reaction would be, how terrible! If, however, you have been following the news for the past five years, you can see what a triumph it is. The strong version of Say’s Law remains an absolute necessity if you are to understand how an economy works and why public spending and deficits are the disasters they have so obviously proven to be.
Who really gets the last laugh?
Interesting, but he’s the President of the United States so really, who gets to laugh at who?
Some thoughts on feminism by Tammy Bruce
Multiculturalism and the new migrant
Canada has not only become jaded with the effect of migration on Canadian society but has begun to take steps to limit numbers. This is a column by George Jonas the National Post with the self-explanatory title, Multiculturalism encourages a new type of immigrant who shares our wealth but not our values.
The new immigrant seemed ready to share the West’s wealth but not its values. In many ways he resembled an invader more than a settler or an asylum-seeker. Instead of making efforts to assimilate, the invader demanded changes in the host country’s culture. He called on society to accommodate his linguistic or religious requirements. . . .
It’s not a matter of where immigrants come from but where they’re going. Refugees from the East are no threat; colonizers are. That’s where non-traditional immigration and multiculturalism become a volatile mix. Extending our values to others is one thing, but modifying our values to suit the values of others is something else.
By now multiculturalism has made it difficult to safeguard our traditions and ideals against a new type of immigrant whose goal is not to fit in, but to carve out a niche for his own tribe, language, customs, or religion in what we’re no longer supposed to view as a country but something between Grand Central Station and an empty space.
It’s no longer impossible to imagine the death of the West since we see the potential before our eyes at every turn. It’s not too late to do something, but time is getting very short. Diversity is a concept of the left – themselves frequent enemies of our existing cultural traditions and economic structures – part of whose aim is to swamp own culture of tolerance and self-reliance with migrants who often do not believe in either.
Say’s Law and the business cycle at SHOE
My likely final posting on this fascinating thread that began with my bring up Francois Hollande’s pointed comment on Say’s Law. The interesting thing for me to have seen in this instance is that others study the business cycle and find Say’s Law invisible. I began from examining Say’s Law and found its concepts an intrinsic part of the theory of the cycle.
Between Daniele Besomi and Barkley Rosser, I am beginning to get some idea why it is so hard for me to get my papers published.
But they are not the only ones who have published books on the classical theory of the cycle. I have my own as well, Free Market Economics: an Introduction for the General Reader (Elgar 2011). It’s an unusual title, perhaps, but I adopted it from Henry Clay’s Economics: an Introduction for the General Reader published in 1916, and after many reprints, with a second edition in 1942. My book is a cross between Clay, John Stuart Mill and a number of more modern features economic theory has picked up over the past century or so. I also teach Keynes, but those sections come with a skull and cross bones just so my students are warned about the dangers this kind of stuff can cause.
In this book I have a chapter on the classical theory of the cycle which is largely adopted from Haberler (1937) and then three more chapters explaining in more detail the nature of economic management using classical theory. But because I think of Say’s Law as the very core in understanding the cycle, what you see is the result of an enormous amount of additional reading on everything I could get my hands on about the pre-Keynesian theory of the cycle. In the days when I was starting my work on Say’s Law, I would tell people that I was working on classical business cycle theory because, as you know and can see from this thread, putting in a good word for Say’s Law is not apt to get you published or promoted. But I can do no other.
So let us suppose you were interested in the classical theory of the cycle, who do you think would get you closer? Someone who accepts Say’s Law, agrees with Mill on his fourth proposition on capital, thinks Keynes was right when he stated that he had introduced aggregate demand into mainstream economics where it had never been before, and uses classical reasoning to argue, at the very moment the stimulus packages were introduced, that they would lead to exactly the kind of economic stagnation we find today.
Would you trust that person, or would you trust someone who thinks you can boil most of what the classical economists had said down to deficient aggregate demand, even when Ricardo has explicitly stated that demand deficiency is not a valid explanation for recession, while Keynes had argued that what he was doing was overturning Ricardian economics and bringing demand deficiency into economic theory.
You can disagree with the classical theory of the cycle and why not, millions already do even though they have no idea what it is. But to argue that you have understood classical theory when you don’t agree with a word of it makes me have to ask why you are so sure you have it right? Some of the smartest people who ever lived were classical economists. Are you really going to set John Stuart Mill straight, or W.S. Jevons, or David Ricardo or Alfred Marshall? What will you add to their sum total of insight? That following a downturn business people become more tentative and hang onto their funds for a longer time before committing them to some project? That demand deficiency actually does cause recession? That wasteful public spending will increase employment and generate faster growth?
Does it really make any sense to believe that the Global Financial Crisis was caused by an almost overnight decision of people around the world to stop spending and start saving. What possible insight do you get by saying there was a shift to the left of an aggregate demand curve? Or that what we must now do is shift the AD curve to the right?
The GFC was a classical recession which is described almost down to its last gory details by Walter Bagehot in Lombard Street who had seen many just like it. Money and resources had been poured into the housing construction industry in the US and houses bought by people who could not make their payments. Events flowed on from there, including a financial crisis. Since demand is constituted by value adding supply, the fact that people could not afford what had been supplied, meant that resources had been misdirected. The recession was just a necessary correction with the prior lending practices the eventual disaster in waiting.
I will merely state that if you cannot incorporate the classical understanding of Say’s Law into what you write, you will have a problem understanding how classical economists analysed recessions. If you are going to reproduce the classical theory of recession, then you must begin with these words: “Recessions are, of course, never ever caused by too little demand and excessive levels of saving, but in spite of that recessions are a frequent occurrence because . . . .”
Let’s go to the policy level as well. Your explanation of recession must also help you to complete a sentence that begins with these words: “Even though the most evident signs of recession are warehouses filled with unsold goods and extremely high levels of unemployment, we cannot get out of recession by increasing public spending because . . . .”
Although we are mostly academics on this thread, this is not some academic exercise. There is an awful lot riding on this. The Japanese had their lost decade (times two) following their stimulus in the early 1990s. We are ourselves already half way into our own lost decade and there is nothing to suggest it might not go another half decade, or even stop then.
If you want to understand how I think about recessions and what needs to be done, you can read my text, or you can read Henry Clay. The one advantage you get from reading mine is that I have actually experienced Keynesian economic theory and have been taught this classical fallacy as the best economic theory we have today. I have seen the enemy, and it is us.
Say’s Law on the HES website continues
This is a continuation of my posting on the Societies for the History of Economics (SHOE) website. It follows from this and this. And note very carefully that Keynes might have read Ricardo’s letter to Malthus.
I certainly appreciate the replies to my previous postings by Daniele Besomi and Barkley Rosser.
Let me begin with a news item reporting on my testimony to the Australian Senate Economic References Committee. They were reviewing the effects of the stimulus and had invited me because of my views on Keynesian theory and policy. This is from the Sydney Morning Herald of 21 September 2009.
“Labor senator Doug Cameron said Prof Kates’ comments had certainly embedded in his mind that you should never let an ‘academic economist run the economy’.
“‘Why have the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, why have they got it so wrong and yet you in your ivory tower at RMIT have got it so right?’”
I can now more clearly see Senator Cameron’s point about academic economists, but I draw you attention to the second of his statements.
Since J.-B. Say had put together what is in English called the law of markets, it does not surprise me that the phrase “Say’s Law” may have turned up on various stray occasions. But as someone who had been curious about the origins of this term, which is used by none of the major classical economists, it did finally dawn on me that it had come from Fred Taylor, not least because he specifically states that he is inventing the term. He used the phrase in his 1909 article on teaching economics; it is in his 1911 and six subsequent student editions of his for-students-only principles text distributed at the University of Michigan and buried in a chapter he titles, “Certain Fundamental Principles of Trade”. But by the time his text is released commercially in 1921, Say’s Law is a chapter on its own, titled “Say’s Law” in big letters, and in that chapter Taylor specifically says he is giving a name to what he describes as a yet unnamed principle. That someone used the term in 1920 is not a surprise but the phrase Say’s Law does not enter into economic discourse in a big way until after that. If it pleases you to think that Keynes took the name because of one of these stray mentions picked up by Daniele, be my guest as long as you accept that he took it from somewhere else. It just seems reasonable to me that Keynes used the term because it expressed exactly the point he was trying to make. Whether he was reading Taylor directly, or someone else who had read Taylor who had used the term, we cannot know. But that he was reading the mostly American literature on Say’s Law is as near certain as any such thing can be. And the only reason anyone resists this common sense, indeed obvious point, is that it is damaging to Keynes’s reputation since it suggests that his letter to Harrod, about how he had on his own by himself thought up one idea and then another, is not what actually happened at all.
And perhaps it is Daniel who has not understood my point. His point, he writes, is that “Say’s law was not ACCEPTED throughout the 19th century by writers trying to explain crises” (his emphasis). I don’t think that’s right. If you go the Haberler’s 1937 Prosperity and Depression, which is a compendium of all of the theories of recession that were then in existence, virtually all of the theories presented are about structural dislocations. In what was probably the most common theory of recession of the time, people had used their savings all right – hoarding was not the problem – but had produced non-saleable output leading to recession, with the reason for such dislocation often but by no means always related to financial mayhem of one sort or another. To the extent that classical economists had a view about saving as a cause of recession, it was that recessions might occur because the level of saving had been insufficient to complete all of the projects that had been commenced following the previous trough. There wasn’t too much saving, there was too little. Read Haberler discussing Hobson and under-consumption if you are looking for a dismissive view of oversaving as a theory of recession.
What Say’s Law said to economists was this: when trying to explain the causes of recession, “there is no deficiency of demand” (and that is a quote from Ricardo), so you should therefore look somewhere else. I will, for a change, let Keynes be my authority.
“Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. . . . The great puzzle of Effective Demand with which Malthus had wrestled vanished from economic literature.” (GT: 32)
It may seem a negative conclusion but it is a crucial one. There is no such thing as a general glut. Overproduction never occurs. Demand deficiency does not cause recessions. And so far as policy is concerned, increases in non-value-adding public spending cannot lead to a recovery but will, instead, make them worse. That is what I was trying to say to our Senate. Five years later, who has the runs on the board? Is it the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, or is it our classical predecessors? Is it Keynes or Mill?
So to come back to my original post. There may well be something to what classical economists had been saying, which is the point Francois Hollande has very bravely made. And it is brave since he will be opposed by his political enemies, by his political friends and by economists who refuse to think that just maybe perhaps Keynes was wrong.
Let me finish with a quote from another politician, the former Labour Prime Minister of the UK, James Callahagn, speaking to the Labour Party Conference in 1976 during the Great Inflation, which was also a period of persistently high unemployment:
“We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”
It’s not as if our economies, as a result of these high levels of public spending in the period after the GFC, returned to rapid rates of economic growth and low rates of unemployment. We have seen the effects of the stimulus and they are dismal. Hollande, who is a first rate economist, went into government as a Keynesian but a Keynesian he no longer is. Why anyone else still is remains the central question in economic theory today.
Say’s Law – some basic distinctions
A few days ago I put a post onto the SHOE website on Say’s Law for which there was one reply from Daniel Besomi. My reply should make clear what he had written:
I appreciate Daniel Besomi’s comments, which I hope will help us clarify these issues. I might also mention that most of what I summarise here, as in the previous post, was discussed in my Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Elgar 1998).
The first point I am trying to make begins here. There are two fundamental economic questions:
1) what is the basis for demand?
2) what causes recessions, or perhaps more accurately in this case, what does not cause recessions?
What Say, and Robinet, were explaining was the origins of demand, which they argue is based on previous sales. Demand is constituted by supply. What they wrote is an answer to the first question, but it is not an answer to the second.
The second question may be rephrased in this way: can there be such a thing as a general glut? This is a completely different question from the first, and the answer, as a consequence of the general glut debate, was that no, there is no such thing as a general glut, demand deficiency does not cause recessions. James Mill’s answer to this question was, in part, premised on Say’s answer to the first but were not an answer to the first. They are separate but related issues. Mill used Say’s discussion on the basis for demand to explain why a general glut was impossible.
It is because James Mill was the first, so far as I know, to answer the second question that I see him to have been the first to frame the classical statement on what is now called Say’s Law. The General Theory is about whether demand deficiency, a general glut, is possible. And when one finally accepts the classical answer to question 2, as FH may have done, then, but only then, the economic issues revolve around 1, which is what kind of supply will actually create demand.
And then, in answering that question, we can ask ourselves whether the Keynesian notion that spending on anything at all will do the trick is a correct answer. To a classical economist, it need hardly be said, the idea that anyone would think non-value-adding production could create growth and employment is too ridiculous even to contemplate. Only a modern economist might think so, but to anyone from the classical tradition, the idea is still ridiculous.
Daniel also points out that Fred Taylor had used the phrase “Say’s Law” earlier than 1921. This is true, but 1921 nevertheless remains the significant date, which is why I chose my words very carefully. What I wrote was this:
The first thing that might be noted is that the term ‘Say’s Law’ is not classical in origin but was consciously invented by Fred Manville Taylor and introduced into general economic discourse with the publication of his Principles of Economics text in 1921.
If you go to my Say’s Law text (pp 148-149 and especially the footnote), you will find that I discuss Taylor’s invention of the term, including his first use in 1909 in an obscure article on how to teach economics. He then brings Say’s Law into his introductory text, but the first seven editions were student editions distributed only within the University of Michigan. It is only following the publication of the eighth edition as a general text with commercial distribution that the term enters general economic discourse. It is the publication of the book for sale outside the U of M campus that brings the term to a wider public, and it is only after 1921 that it enters into more general discourse.
But it is really neither here nor there whether Taylor invented the term in 1909 or 1921. What is important to understand is that the term was invented in the twentieth century and it was invented by Taylor. What is not in any way affected by the dating is the need recognise that Keynes must, as an absolute certainty, have been reading other things about the various issues that end up in The General Theory that he never mentioned to anyone else. The locked-himself-in-a-room-and-came-up-with-these-ideas-one-by-one version, as he tells the tale himself and is now repeated as gospel, is obviously untrue since Keynes had to have picked up the phrase from somewhere else. If not from Taylor than from someone who had read Taylor.
Then, on the third point raised, if it can be said, as Daniel says, that my stating that everyone accepted Say’s Law through until 1936 was only “approximately true in the English, French and Italian literature”, that’s more than good enough for me. I perfectly well understand that there were some very few and generally obscure dissenters, particularly in English. I even discuss this very weak opposition in my book, with the two (three, I guess) most important dissenters in English having been John Hobson on the one hand and Foster and Catchings on the other. Keynes can himself name only five in his “Brave Army of Heretics” (GT 371), and if you look at the list and choose only his contemporaries, aside from Hobson who is iffy, you are looking at a very dubious list of authorities, namely, Silvio Geselle and Major Douglas. During the period up until 1936, there may hardly have been a theory more universally accepted than Say’s Law.
The Superbowl and Richard Sherman
The Superbowl is about to start and while I might have preferred Denver on other grounds, this epic rant by Richard Sherman after the NFC championship game has me totally won over. Defensive corners are seldom the stars, but Sherman in the very last minute had gone one-on-one with the star receiver of the 49ers and had tipped the ball away after an acrobatic half twist and pike that ended up with a Seahawk interception. So there he was, being interviewed, moments later.
Might just mention here the best book on North American football ever, The Blind Side, which is about how the least glamorous position in the game, left offensive tackle – which incidentally was the position I used to play – became the second highest paid position on the team. An amazing story in many ways, by the incomparable Michael Lewis.
Enjoy the game for those who enjoy the game.
Law of Markets 