Exhibit A: The Arrogance of the Neoclassical Economists
David Harvey
February 15, 2009
http://davidharvey.org
A response to DeLong.
The real mystery here is the arrogance of the economists in the face of a catastrophic situation. I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.
The charge that I have neither read nor understood DeLong’s canonical writings is the usual technocratic hubris deployed by economists when they have nothing to say. I might as well reply that DeLong has neither read nor understood his Marx (I have a remedial course on line) and in any case I don’t see why I should go back to Friedman rather than to Galbraith, Hicks rather than Joan Robinson and why it is that he presumes that Dobb, Sweezy, Glyn, Itoh and Morishima have nothing to say of relevance to our current difficulties because neoclassical economics is a God-given truth beyond contestation?
I did once upon a time make the mistake of studying Sraffa somewhat carefully. His sophisticated mathematical proof (as yet never refuted, in spite of the best efforts of people like Peter Newman) that all of neoclassical theory is based on a tautology I found all too persuasive. Why bother with a theory that proves what it assumes to be true? At the heart of the controversy lies the question of how to value capital assets independently of market prices and since our contemporary difficulties rest on the problem of how to value paper claims to capital assets held by banks in the absence of a market, I would have thought some re-visitation of the so-called “capital controversy” of the 1970s is in order. At the time I concluded (possibly erroneously) that Joan Robinson had the better of the argument against Samuelson but that the Cambridge (Mass) neoclassicals then merely decided to ignore the problem and go on with their theorizing as if nothing had happened. But now look at the mess!
Of course, when theory is not invoked then a bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries is thrown into the hopper as proof of my economic ignorance. I did tacitly address the problem of what happens down the road if the Chinese and other Asian countries turn inwards and find better things to do with their money than lend to the United States. A run on the dollar would indeed imply some of the dire consequences that DeLong outlines and the question then arises as to the likelihood of that.
The United States has the power of seigneurage over the world’s reserve currency and is using that power up to the hilt right now and the rest of the world has little choice except to go along. The last time the US did this in the late 1960s, to fund a war and to deal with domestic unrest, this led to collapse of the Bretton Woods system and the grand stagflation of the 1970s. I am not saying this history will be repeated but I do want to emphasize that short-run moves have longer-term consequences (well before that long term in which “we are all dead” as Keynes famously remarked).
What I was concerned about, a topic which DeLong totally ignores, is the likely uneven geographical impacts and responses to the crisis conditions and the degree to which this accelerates the scenario depicted in the NIC report. The export oriented development model that has dominated in East Asia is in deep trouble. Exports are falling dramatically and unemployment rates are soaring in South Korea, Taiwan, Indonesia and China and the likelihood of massive movements of class struggle (a category that neoclassicals will have nothing to do with but which has been demonstrably and empirically of huge historical importance even in the United States) is very much on the cards. Maoist movements are rife in India, the unrest throughout Latin America is promoting all manner of political adjustments and reports of widespread unrest in China are proliferating.
If the Chinese and other East Asian powers find themselves forced to abandon the Export-Industrialization model (which is now failing catastrophically) and to go to something like an Import-Substitution strategy (which was by no means as unsuccessful as it is usually depicted when practiced in the 1960s in Latin America) and a development of their internal markets (almost certainly coupled with internal repression of dissidence), then they will not have the money to lend to the US. The track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).
My main point about the current US stimulus package is that it is too small to do the job (I am surely not alone in saying that) and that it is poorly targeted towards tax cuts rather than real stimuli for political and ideological reasons. The distinction between white elephants and real stimuli is also important and unless coupled with a real strategy (e.g. a radical transformation in urbanization patterns and ways of life) the stimuli will merely cover deferred maintenance on infrastructures rather than point to anything new. The result is a policy blockage that prevents the US from taking advantage of what may be a brief window of continued financial hegemony to bring its own economy around. I am not the only one to say our situation is all too reminiscent of Japan in the 1990s. But in our case we cannot afford a lost decade precisely because the rest of the world is bound to adjust rapidly in ways that are unlikely to be advantageous to the United States. An internal Keynesian project is far more feasible in China but this then entails a radical re-orientation of the Chinese economy towards the rest of the world.
To this must be added that a turn to protectionism is politically very much on the cards. Even some economists now recognize that the Ricardian doctrine of comparative advantage does not work and that gains from free trade are inevitably asymmetrical. Theoretically and politically the attempt of states to protect themselves at the expense of others becomes more likely. The break up of global capitalism into competing and warring factions is entirely possible and while the horrible history of the 1930s won’t necessarily be repeated either, we should at least be cognizant of the dangers. I may not be an expert neoclassical economist but I am a first rate student of geopolitics and geoeconomics, fields of study totally foreign, apparently to DeLong.
These are dangerous times and I would have thought the definition of fair and unbiased to which DeLong subscribes might go somewhat further than that given by Bill O’Reilly. What is needed is generous critique, the taking of whatever is positive in competing accounts and a real struggle to come to terms with ways we might better proceed. It will be hard enough to save capitalism from the capitalists but the real tragedy here is that the real message from DeLong’s commentary is that we need also to save capitalism from the economists.
—
http://davidharvey.org/2009/02/exhibit-a-the-arrogance-of-the-neoclassical-economists/
Discuss this post.
I have a foot in both camps here. I was a big fan of Harvey in college and I read DeLong’s blog often now. I don’t think DeLong is nearly as doctrinaire as he came off in his post. So I’m not sure why he felt the need to be so disrespectful about a legitimate conceptual disagreement.
Honestly, I think a very important part of DeLong’s reaction simply has to do with writing style, as silly as that may seem. Harvey has a lot of valuable things to say, but I have to say, his writing (like Marx’s) can be nearly inpenetrable to even the pretty sophisticated layperson. Many readers instinctively get defensive when they want to understand what someone is saying but have no clue what the author is talking about. In this respect I think Harvey’s response to DeLong’s response was far more effective than his original post.
Of course, the economists are every bit as guilty of this “inpenetrability.” I’m not sure what it says when the traditionally-trained Keynesian economists and the Marxists are talking past each other, where neither camp really understands what the other is saying, and where the rest of us understand neither. “Dumb it down” is of course an unsatisfactory solution in a world governed by complicated forces. But it would be better for all of us, from the center-left to the far-left, if we could try to argue in the same language. And it would be better still if that language were standard modern English.
Communication across intellectual boundaries in a common language is a nice ideal, but I think it’s a bit more complicated than that. Marxism and neoclassical economics are both complicated systems which require a certain amount of conceptual apparatus to understand. And I think that this whole question of who has to speak in “standard modern English” is mostly an issue of power relations between intellectuals. Neoclassical economists like DeLong are hegemonic, so they can force people to learn their technical jargon. People like David Harvey are more marginal, so they are constantly told that they must relinquish all their special intellectual apparatus as the price of admission to polite discussion.
But I don’t think any amount of translation or rephrasing would address the core difference here, which is the difference between a conception of economics as a narrow technocratic enterprise and an analysis that attempts to draw together social, political, and economic elements of the present conjuncture.
As for DeLong, I read him too, and often find him useful, but his vicious and semi-irrational antipathy to Marxists of any kind is well-attested. It’s a little odd, actually–most people in his position are happy to just ignore Marxists, but DeLong seems to feel threatened by them.
DeLong gave an extremely unsympathetic reading to Harvey’s piece, and had to strain to put the whole Treasury View interpretation on top of it, but at the same time Harvey evinces absolutely no understanding of mainstream economics. For example, Sraffa’s work has nothing to do with Keynesianism, and the merits of the stimulus package have nothing to do with the capital controversy.
Reswitching, the phenomenon that Sraffa observed in the Cambridge Capital Controversy is sufficiently well-known that it is in fact taught in business schools. (Though not under that name; I imagine it was independently rediscovered.)
I think DeLong was so testy because he was being lumped in with the fanatics who are against all government intervention at the very moment when he is in the middle of a public fight with those fanatics for the soul of mainstream economics. DeLong is deploying his technocratic hubris in this situation not because he has nothing to say, but because he has lots to say. This is the very situation Keynesianism was invented for.
In his diatribe against David Harvey, Brad DeLong called upon the authority of John R. Hicks more than once.
“He (Harvey) doesn’t understand Keynes, probably never read Hicks…”
And most tellingly,
Presenting the J.R. Hicks of “Mr. Keynes and the Classics” and the IS curve as the ultimate authority on Keynes is disingenuous. Hicks himself repudiated in the 1970s his earlier formulation. But meanwhile its adoption by the US proponents of the “Keynesian neo-classical synthesis” could best be seen as an attempt to inoculate economics against the more radical implications of Keynes’s theory. A footnote from an essay by Luigi Pasinetti elaborates:
Of course, the story is more complex than that, even, and for Pasinetti’s full take on Hick’s Conversion there is no substitute for reading the article if for no other reason than to relish Joan Robinson’s acerbic remark that:
So much for “knowing more about Keynesian economics than Joan Robinson”. DeLong thus cites as definitive a “little analytical toy” that the toy-maker himself repudiated and cherry picks quotes from Joan Robinson who elsewhere disparaged the very toy that DeLong upholds as definitive. Sheesh.
I don’t want to belabor Uncle J.R.’s culpability for “little analytical toys” and “simplifying assumptions” that make the neo-classical economist’s work more exciting, more lucrative and less relevant to the real world. But I do want to mention Hicks’s assumption about the hours of work that has displaced an important argument from neo-classical economics that, if widely known, would decisively demonstrate the futility of the tautologies many contemporary neo-classicals amuse themselves with — Sydney Chapman’s theory of the hours of labor. Think of it as the labor version of the Cambridge Capital Controversy.
As Chris Nyland wrote some twenty years ago, Chapman’s theory essentially confirmed Marx’s regarding the extensive and intensive dimensions of the hours of work. Sadly, with few exceptions, Marxists appear no more eager than neo-classicals to examine that compelling — and this year 100-year old — theoretical convergence.
Peter: I did not mean to suggest that rephrasing would harmonize views, only that it would make clearer what the differences in views are, and therefore help facilitate an intelligible debate. I also meant to say that Harvery’s writing style may be part of the cause for DeLong’s hysterical posture towards Marxist writings. This is of course no justification for his unprofessional tone.
Otherwise, points well taken. I suppose I just would very much like to see a world where the fundamental debates of political economy could be a real part of the civil and political discourse rather than a marginal intellectual exercise.
One more thing – are the conceptual foundations really all that complicated? You may be right, but I’m not sure that the ideas of overaccumulation and/or multiple equilibria (just to throw out two important examples) are all that difficult to comprehend.
I don’t entirely agree with David Harvey’s argument [1], but I thought DeLong’s initial response was ludicrous. He seemed to be arguing that so long as the interest rate was sufficiently high, then you could always sell a bond. Clearly there will be circumstances where nobody will touch your bonds whatever the rate (fancy buying Zimbabwean bonds?). Whether the US is, or is likely to be, in that situation is another matter entirely and to be argued on its merits, but clearly such a situation is possible.
Walt – DeLong isn’t really a Keynesian, any more than Krugman is. He’s a neoclassical with bits of Keynes bolted on, as are most (American, at least) self-professed Keynesians. Its possible that DeLong is right about the stimulus, but the argument doesn’t seem nearly as clear cut as he makes it. Japan had a decade of stimulae without any great effect. Debt overhang is the big problem, and I don’t really see how a stimulus can (except very inefficiently) address that. Debt forgiveness might be more appropriate, but I doubt DeLong has the imagination to think of that.
The only surprising thing about this diatribe is that Harvey bothered to answer. I would call it an act of mispalced generosity. There comes a time, as Karl Marx would say, when “It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested inquirers, there were hired prize fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic”.
But unlike the obtrusive pamphlets with which the Anti-Corn Law League deluged the world, the pronouncements of Mr.De Long have neither historic nor scientific interest. I guess Berkley students deserve much better.
pietro, your comment is absurd.
Cian, we’re a long way from being Zimbabwe. Given that the 30-year bond rate is just under 4%, the US is nowhere near its credit constraint. The more deflation we see, the bigger the debt overhang gets. Widespread debt forgiveness is inevitable at this point; the question is how to prevent the economy from falling over while that happens.
Plus, how are DeLong and Krugman not Keynesians? Fiscal stimulus in response to an economic downturn is the the hallmark Keynesian policy.
walt, you are being too harsh on me in defining my comment “absurd”. that’s surprising, since from your previuous postings you seem a well-informed commentator.
if you looked at the “controversy” more from a “political economy” point of view than an “economics” point of view, as i would sugggest you do, you might come to see what i was aiming at
“For example, Sraffa’s work has nothing to do with Keynesianism,”
Er, Walt, Sraffa was brought to Cambridge at the behest of J.M. Keynes, Keynes specifically asked him to deputize for him in his debate with von Hayek, and Keynes lifted Sraffa’s conception of “own rate of interest” from that debate for use in “General Theory”, which offended Sraffa less for the “plagiarism” than because of the lack of theoretical rigor with which Keynes applied it. Sraffa was a close friend of Joan Robinson and a key figure in developing the “post-Keynsian” line of interpretation and further research stemming from the “General Theory”.
So, er, you’re talking nonsense, and, er, yes, the status of capital theory and of marginalism are bound up in questions about the adequacy and very possibility of such fiscal stimulus, if not in any simple way.
Walt, I didn’t say that the US was Zimbabwe. I was merely making the point that the idea that any bond can be sold so long as the price is sufficiently attractive is absurd. Brad de Long was not arguing the specifics of the particular situation, he was making a theoretical argument about all situations. Its a stupid argument, that suggests Brad needs to leave his Ivory tower.
Given that the 30-year bond rate is just under 4%, the US is nowhere near its credit constraint.
Well long term probably not, but that’s irrelivant. The short term is the problem.
1) The US is trying to borrow a vast sum of money in a fairly short period of time. Nobody has any idea whether there are enough buyers. There is a big difference between borrowing $1 trillion over several years, and over a few months. The US is talking about the largest (by a considerable margin) bond issuance ever, in a market where pretty much other country will be doing the same thing. I find the complacency of people like Brad de Long rather disturbing.
2) A large quantity of US bonds are bought by central banks, several of whom are hinting that they may reduce their exposure (particularly the Chinese who are seriously pissed off with America. May not come to anything, or it may, depending upon which internal faction wins the turf war), while other buyers (commodity rich countries) are currently suffering cash flow problems and may end up selling existing bonds.
Now there are also reasons to think they may be successful. For the moment the dollar is still a reserve currency (there are signs that the Eurozone is finally getting its act together and will create a lender of last resort – if so, the dollar’s hegenomy may be ending), and there aren’t there many other places to put money. The Swiss economy is looking shaky and very exposed and the Eurozone is heavily exposed to E. Europe, while several member countries are in trouble. But you know – that’s an argument, which Brad de Long seems to think beneath him.
Plus, how are DeLong and Krugman not Keynesians? Fiscal stimulus in response to an economic downturn is the the hallmark Keynesian policy.
“Keynes” in quotes perhaps. He certainly argued that it was the policy for the great depression, I kind of doubt that he would have seen it as the solution to every downturn. That was a rather idiotic and mindless application of his theories (which is probably why it didn’t work out too well).
As for deLong, Krugman, etc. Well for the most part they don’t follow Keynes, but rather Keynes via Hicks – which is to say Keynes made safe for neoclassical, with all the innovative parts removed and you essentially end up with old theories of macroeconomics, save Keynes for recessions. Krugman is a little better, but its not Keynesianism, as Joan Robinson tirelessly pointed out.
Cian
Sraffa was also partially responsible for getting Gramsci published, if I remember correctly. To bring this back to Marx
Friend of Wittgenstein as well. Neat guy.
I must confess that it never crossed my mind that anyone would ever cite Joan Robinson as an authority for the claim that Keynesian policies would not work, and that we live in a classical-economist world where deficit spending does not add to employment and production. Never. Yet David Harvey does.
This is a complete cognitive and intellectual FAIL on so many levels…
For the record: I never said that Keynesian policies would not work. Indeed, if you go back to The New Imperialism (2003) and to A Brief History of Neoliberalism (2005) I argued that what I then saw as an impending crack up could best be staved off by creating a “new New Deal” (i.e. something along Keynesian lines). I argued that the US stimulus package was not Keynesian enough. It was too small and badly targetted, the inhibitions deriving from political, ideological and technical barriers that seemed to me insurmountable. The only matter under dispute in DeLong’s diatribe is whether the debt overhang with which the US starts is an insurmountable technical barrier and that seems to me to be a legitimate matter to debate, provided we do not lose sight of the political and ideological barriers in the US to both assuming even more debt and targetting the stimulus package right. My point about China is that they can be full-blooded Keynesians and make it work for them if that is where they want to go, but that this may have ramifications elsewhere (interesting that Clinton, on arriving in China, felt it necessary to thank the Chinese for continuing to buy US treasuries….).
I posted this on deLong blog but the comment has been repeatedly deleted.
“Harvey is trying to understand if historical circumstances are likely to support rather than oppose to that kind of measures, and why.
This doesn’t mean He neglects a priori any attempt of deficit-spending, something that Robinson attached to Baran as She successfully understood that -AT THAT TIME- deficit-financed growth was possible.
Harvey “re-opened” the debate because -instead of the narrow minded dogmatic attitude of Mr. DeLong- Harvey knows that historical context DOES matter in order to fully understand the potential of models.
Models are built on assumptions, and assumptions are no less and no more than historically-defined normative statemens. Reasoning on a model like the Hicks IS curve without any historical contextualization of its assumptions, something that today clearly concerns the sustainability of american debt in comparative terms, is profoundly erroneous.
In building his model, Hicks forgot to take care of uncertainty, he admitted this fact and eventually abbandoned the model. No risks are accounted in IS curve. This could explain DeLong arrogance in his postmodern empty self referential sarcasm, pretending to invalidate Harvey’s highly articulated intervention with the mere “evidence” of a model. It’s clear that today the uncertainty hoovering around the question of how long the foreign contribution to the us debt will sustain the american economic policy at the moment the government annouces huge public programmes its quite an important, if not the main factor to be accounted.
It’s incredible that DeLong fails to understand that. Really.
About Harvey advocating for more intervention, it could be “more” without meaning “more public spending”. “More” could mean a new international monetary system, a new round of international regulation -completely different from the neoliberal ones- focused on relocalization of production through standard setting and institutionalisation of regional unities like EU and MERCOSUR, turning them from mere free trade arenas into political blocks, so able to govern the crisis at the proper geographical scale. It could mean also emproving changes in the productive process rather than mere state interventionism on the market.