Thursday, October 19, 2017

David F. Ruccio — Laughter is the best medicine

So what are the problems according to Blanchard and Summers? In their view, “the events of the last ten years have put into question the presumption that economies are self stabilizing, have raised again the issue of whether temporary shocks can have permanent effects, and have shown the importance of non linearities.”
Only mainstream macroeconomists could possibly have thought that capitalism is self stabilizing. The rest of us—who have read Marx and Keynes as well as the work of Robert Clower, Hyman Minsky, and Axel Leijonhufvud—actually knew something about the roots of capitalist instability: the various ways a monetary commodity-producing economy might (but not necessarily) generate imbalances and instabilities based on the normal workings of the system.
Yes, of course, temporary shocks can have permanent effects. How could they not, when tens of millions of people are thrown out of work and, especially in the wake of the most recent crash, inequality has soared to new heights?
And then there are those “non linearities,” the idea that financial crises are characterized by feedback effects such that shocks, even small ones, “are strongly amplified rather than damped as they propagate.” Bank runs are the quintessential example—whether customers demanding their deposits in the first Great Depression or the run on financial institutions (including insurance companies that issued credit default swaps) that occurred in the midst of the second Great Depression. But that’s not all: when corporations, facing a declining profit rate, choose to sell but not purchase, they make individually rational decisions that can have large-scale social ramifications—for workers, indebted households, and other corporations (on both Main Street and Wall Street).
So mainstream macroeconomists appear to be waking up from their slumber and seeing capitalism as it is—and as it has functioned for 150 years or so.
Moreover, the reason that conventional economists are concerned is not economics but politics. Capitalism is not working and the result is social dysfunction that is creating a political backlash against not only politicians but also economists. I suspect that if this were not happening, everything would be just fine. Even so, they are not actually questioning basic assumptions, the adverse consequences of which heterodox economists and political theorists have pointed out from many different angles.

Occasional Links & Commentary
Laughter is the best medicine
David F. Ruccio | Professor of Economics, University of Notre Dame

See also
The real sea change is the third one -- the reconsideration of what recessions really are. Most modern econ theories posit that recessions arrive randomly, instead of as the result of pressures that build up over time. And they assume that recessions are short-lived affairs that go away of their own accord. If these assumptions are wrong, then most of the theories written down in macroeconomics journals over the past several decades -- and most of those being written as we speak -- are of questionable usefulness....
Bloomberg View
Fixing Macroeconomics Will Be Really Hard
Noah Smith, columnist

3 comments:

Bob Roddis said...

With Rothbardian Austrian theory having explained everything about recessions and depressions decades ago, including how Keynesian “solutions” are the cause of the problem (as they attempt to cure problems that don’t otherwise exist but for the harebrained “solutions”), I suppose it’s humorous to see the defenders of the faith afraid to even stick the hangnail on their little toe into the sea of knowledge.

You can make all the snide remarks you like. It does not change the fact that you are all still afraid to engage Austrian analysis. And never do.

MRW said...

The real history.

Bob Roddis said...

MRW:

It’s like you’re running around bragging that you can play the entire and detailed version “Stairway to Heaven” on acoustical guitar from start to finish. Someone hands you a nice guitar and asks you to demonstrate. You start screaming, calling names and storm out.
You not only cannot play the song, you can’t play the instrument and you don’t even know the song. Otherwise, you’d show your understanding. You cannot demonstrate an understanding of (or even a cursory familiarity with) Austrian analysis and you know it.