Monday, February 24, 2014

Before we solve the problem...

David Glasner is an economist. I am not. He did good, though: I understood about half of his What Does “Keynesian” Mean?. I lost it in the second half. But I got to his last paragraph, and I think I understood that one:

If there is widespread unemployment, it may indeed be that wages are too high, and that a reduction in wages would restore equilibrium. But there is no general presumption that unemployment will be cured by a reduction in wages. Unemployment may be the result of a more general dysfunction in which all prices are away from their equilibrium levels, in which case no adjustment of the wage would solve the problem, so that there is no presumption that the current wage exceeds the full-equilibrium wage.

Glasner says unemployment may be part of a larger problem -- "a more general dysfunction". That's important. It means we can't fix the problem with a jobs program, for example, or by printing so much money that NGDP increases at a 5% annual rate.

What it means is, we have to stop and figure out what this "more general dysfunction" is. Figure out what the problem is. Go back to square one and work it out. I don't think Glasner quite says that, but how else are we going to figure out what the underlying problem is?


Tom Hickey said...

The underlying problem is not economic per se but actually political, resulting from capture on a vast scale by an elite determined to carve the pie in its favor. This involves institutional capture, intellectual capture, regulatory capture, and even state capture.

Unemployment, boom-bust cycles, imperfect competition, and the rest of the pimples on the face of neoclassical economic theory in its application, including contemporary mainstream so-called Keynesianism, result from not only flawed theory but also neoliberal policies that are rationalized by academia in the pay of the elite to dupe the rubes and deliver the goods to the top.

The essences of neoliberal "capitalism" is crony capitalism, and its political counterpart is the corporate state masquerading as the market state. Just as the excess of socialism is totalitarian communism; so too, the excess of capitalism is totalitarian fascism.

The Arthurian said...

"The underlying problem is not economic per se but actually political..."

See, now I have just the opposite view, Tom. I think that when the economy goes bad, people respond politically... and that they fail to solve the problem because they have the wrong solution. But the failure does not cause people to stop and re-evaluate their position. No. Rather, they tend to become more extreme in their views, quicker to point the finger, and more certain that "the other guy" is at fault.

The economy is a system that does not respond well to mismanagement.

Regarding Fascism, I can only direct you to the Archdruid.

Jazzbumpa said...

But the failure does not cause people to stop and re-evaluate their position. No. Rather, they tend to become more extreme in their views

This, alas, is just part of human nature. It's why you can seldom change anybody's mind with a rational argument. It is Derp.

I think Tom has this exactly right. And I don't see how your view is opposite. The economy and politics are evil twins, inextricably joined and intertwined. And politics is controlled by the rich elite, who thus control the economy. They get richer. We don't.

The entangled roots of the current economic malaise are excessive rents captured by the finance sector, and grotesquely uneven wealth and income distribution. The solutions - tax policy and regulation - are political, and that is why they cannot be implemented.


The Arthurian said...

Jazz, seeing tax policy as political is certainly part of the problem. I agree with that.