Jim Devine writes: "One good piece of evidence for Keynesianism (including its many variations, e.g., Marxo-Keynesianism): the US national unemployment rate soared between 2007 and 2010 for large numbers of different occupational & demographic groups, associated with a fall in both consumer spending and gross private domestic fixed investment. An "Austrian" theory would predict that the latter type of spending would fall but the former would rise, causing excess supply of labor-power in capital goods-producing sectors at the same time there's excess demand in consumption goods-producing sectors (leading to unemployment that persists until labor-power markets adjust). But that didn't happen. The "Austrian" theory predicts that they rise in the unemployment rate would be associated with a rise in the vacancy rate (open jobs). But in reality, unemployment rose at the same time that the number of vacancies plummeted between 2007 and 2010."
I didn't ask you for evidence that disproves Austrian theory. I asked for evidence that proves Keynesian theory. If Austrian theory was proved correct every time something happened inconsistent with Keynesian theory, we would all be speaking Austrian. Robert Barro says the evidence is thin: http://www.hoover.org/news/daily-report/90486. What is he missing? "The big logical error of Say's "Law" is that in real-world economies, people do not simply use money as a means of exchange (as for Say) so that the world works _as if_ exchange were barter. Money is also used as an asset, so that people can hoard it and can increase their hoards. An excess supply of goods (and services) or "unwanted inventory accumulation" that results from a recession can thus coexist with an excess demand for money (hoarding). In simplistic theory, prices (including interest rates) immediately adjust to end both the excess supply of goods and the excess demand for money. The problem is that at the same time that prices adjust -- and often more quickly -- there is also _quantity adjustment_: the firms producing goods see that they have too many inventories and so cut both production and employment of labor-power (or cuts wages). This reduces national income and spending, which makes the excess supply of goods even worse, but it does reduce the excess dem! and for money (fewer transactions = less demand for money). Luckily, the downward spiral of goods demand and production doesn't continue forever, as Keynes pointed out." I just took the time to read Book 1, Chapter XV, and a couple of things: 1. Say never says there cannot be a glut. To the contrary, his entire analysis is trying to explain why gluts occur: "But it may be asked, if this be so, how does it happen, that there is at times so great a glut of commodities in the market, and so much difficulty in finding a vent for them? Why cannot one of these superabundant commodities be exchanged for another?" 2. His argument is intended as a refutation of the argument that gluts occur because of a lack of money. Instead gluts occur because of misallocation of resources/change in preferences: " I answer that the glut of a particular commodity arises from its having outrun the total demand for it in one or two ways; either because it has been produced in excessive abundance, or because the production of other commodities has fallen short. It is because the production of some commodities has declined, that other commodities are superabundant. To use a more hackneyed phrase, people have bought less, because they have made less profit and they have made less profit for one or two causes; either they have found difficulties in the employment of their productive means, or these means have themselves been deficient." 3 Say argues that there can be exogenous causes for a glut: "It is observable, moreover, that precisely at the same time that one commodity makes a loss, another commodity is making excessive profit. And, since such profits must operate as a powerful stimulus to the cultivation of that particular kind of products, there must needs be some violent means, or some extraordinary cause, a political or natural convulsion, or the avarice or ignorance of authority, to perpetuate this scarcity on the one hand, and consequent glut on the other. No sooner is the cause of this political disease removed, than the means of production feel a natural impulse towards the vacant channels, the replenishment of which restores activity to all the others. One kind of production would seldom outstrip every other, and its products be disproportionately cheapened, were production left entirely free. 4. To the possibility that the glut can be caused by the hoarding of money, Say responds: "Even when money is obtained with a view to hoard or bury it, the ultimate object is always to employ it in a purchase of some kind. The heir of the lucky finder uses it in that way, if the miser do not; for money, as money, has no other use than to buy with." To summarize what I think is the issue presented by the Keynesian obsession with Say's Law, Say would argue that, since money hoarding is irrational and a short-term phenomenon, if there is an extended general glut in which people with resources are strongly preferring money to goods, the reason must be exogenous. Keynesians, on the other hand, believe hoarding can happen for no good reason -- perhaps a spontaneous lack of animal spirits or other arational or emotional reasons, and such occurrences are endogenous. That is why Keynesians are rarely interested in solving a recession by addressing the cause of a recession, and instead try to solve the problem by deceiving economic actors (e.g., lowering real, but not nominal, wages, etc.). "To my mind, capitalists are always interested in justifications for maintaining high unemployment, since it disciplines labor (keeping wages low and labor-effort high, promoting profits) and protects the purchasing power of their paper assets. (Except for a small minority, they totally lack a macroeconomic perspective.) Of course, to some extent the problem is ignorance, as with those who believe that the current government deficit is a much bigger problem than the deficit in the availability of jobs. (There are some very rich people, such as Peter G. Peterson, who pay a lot of money to reinforce this ignorance.)" Total fantasy. The notion that there are capitalists interested in maintaining high employment is ludicrous. It is the progressive left that supports policies that increase labor costs and encourage unemployment, whether it is minimum wage, unionization, mandatory health care benefits, unemployment benefits, workplace regulations, terrible public schools and useless college education that produce individuals that are unemployable. Each of these policies is designed to discourage the employment of human beings and substitute machinery, and they do what they are supposed to do. David Shemano _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
