Two Fictions of Mainstream Economics

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    • #320069
      sonofspy777
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      Mainstream economics consistently fails to predict the future. I’m talking about those ‘schools’ of mis-thought, ranging from Paul Krugman on the ‘left’ to Glenn Hubbard and other apologists of business and neoliberalism on the ‘right’.

      One of the favorite myths they perpetrate is that ‘wages are sticky downwards’. That means that in conditions of recession or worse, because workers won’t accept lower wages the recession tends to continue. If only workers would allow wage reductions it would mean business would have more disposable income (from wage cost savings) on hand. Business would then reinvest the extra income. Investment would rise. Workers would be rehired. Wage income would then recover and the economy would grow from more investment and consumption.

      This fiction has ruled for more than a century. The economist John Maynard Keynes debunked it in the 1930s. But it was retained by the mainstream economics profession nonetheless, even to this day. Just read most of the entry college level textbooks. It’s still there. Along with at least a dozen other false propositions (like free trade benefits all; inflation is caused by too much money chasing too few goods; income inequality is due to workers not educating themselves and making themselves more productive; business tax cuts create jobs–and a host of other nonsense statements with no support in reality.

      https://www.counterpunch.org/2020/05/28/two-fictions-of-mainstream-economics/

      Bernie figured he could do more good ALIVE,
      than dead in a small plane "accident".
      I think he's right.

      Don't you?

    • #320084
      Punxsutawney
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      He just get’s well paid to pretend he is, but his policies and proscriptions hardly qualify as where the “Left” is economically nowadays, just more watered down neoliberal bs. And as to those to his right, well I suspect that outright feudalism would be the center for them.

      In America, “Liberty” means “Free to Die in Service of Capital” - Amfortas the hippie

      • #320185
        Jim Lane
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        @punxsutawney

        I note that the author can’t be bothered to link to any actual writings by Krugman.

        Although I’m no expert on economics, I have read many, many columns by Krugman over the years.  If I had to bet one way or the other, I’d bet that he has never advanced most of those views.  It wouldn’t surprise me if he’s never advanced any of them.

         

        • #320227
          Punxsutawney
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          • Total Posts: 1,518

          Yes, he talks as though he cares, and he may very well believe that his ideas will work, but he always circles back to “free-trade” and “market” based solutions, and as far as I can tell, hasn’t been correct on economic issues in what seems like two decades. The folks over at naked capitalism excoriate him mercilessly from time to time.  I was fortunate to get my undergrad economics education right before the Chicago School took over.


          @jimlane

          In America, “Liberty” means “Free to Die in Service of Capital” - Amfortas the hippie

        • #320439
          game meat
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          I just took it to mean that mainstream economics doesn’t really consider anything further to the left than the sort of views people like Krugman espouse, and that the idea of him being representative of that school of thought is a stretch.

          If you compare Krugman to someone more solidly left like Michael Hudson, it is night and day. @jimlane

          • #320483
            Jim Lane
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            • Total Posts: 413

            @gamemeat

            You seem to be addressing the question whether Paul Krugman is the leftmost prominent economist in the United States today. I’m not addressing that question. I’m addressing the excerpt in the OP. That passage, directly or by clear inference, identified Krugman with the tenets of the Chicago School. That assertion is false.

            The excerpt lumped in Krugman with all other proponents of “mainstream economics”. That group was then held to have retained “at least a dozen other false propositions (like … inflation is caused by too much money chasing too few goods; … business tax cuts create jobs…).” As to the latter, I already pointed out that Krugman criticized the Obama stimulus plan for its business tax cuts. He argued that the same increase in the deficit, if caused by spending increases, would be more effective in countering the recession.

            As for inflation, well, some inflation is caused that way. It’s called demand-pull inflation. The error would be in arguing (as I think some right-wing economists would) that all inflation arises from that cause. This is part of their jihad against government spending.

            In contrast, Krugman and most mainstream economists recognize that there is also cost-push inflation. Notably, in an oligopoly situation, where a small number of suppliers can collude to control a market, they can drive prices up. One difference between the left and the right in contemporary economics is that the right (including the Chicago School) will readily bow down before “the magic of the marketplace” while the left can see where the market is not perfect.

            You mention Michael Hudson. He identifies himself as a Marxist. Krugman identifies himself as a Keynesian. If you have room for only two mental categories, “Marxist” and “non-Marxist”, then I guess you have to use a term like “mainstream economists” for all non-Marxists. That’s how the linked article could lump in Krugman with Glenn Hubbard.

            But that’s far too simplistic. There are more than two categories. Hubbard is a supply-sider who chaired the Council of Economic Advisors under George W. Bush. He helped push through tax cuts, and, as I’ve pointed out, Krugman has been critical of the GOP’s fixation on tax cuts as an economic cure-all.

            The author of the linked article should have confined himself to analyzing the specific economic issue of the effects of the pandemic, instead of making sloppy over-generalizations about schools of economic thought.

            • #320554
              game meat
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              • Total Posts: 1,216

              I’m addressing how the writer of the piece seems to be defining mainstream economics in his opening paragraph and how my interpretation differed from yours.

              …ranging from Paul Krugman on the ‘left’ to Glenn Hubbard and other apologists of business and neoliberalism on the ‘right’.

              It seems to me that he is acknowledging that there is a range of thought in mainstream economics, that there are differences between Krugman and Hubbard, while implying that anything to Krugman’s left is outside of the mainstream. This is fairly accurate. Keynesian policies are frequently a part of the discussion and are occasionally implemented, often in a watered down form. Supply-side policies are also a part of the mainstream in the US, and arguably the dominant viewpoint when it comes to actually implementing policy. A self-identifying Marxist like Hudson was just an example I used of an economist to the left of the mainstream, outside the ‘range’ identified by the author. How often do any Marxist policies get serious consideration in US politics?

              I certainly don’t consider mainstream economics to be a monolith of identical thought, and I don’t think that was the author’s argument. Of course, he never mentions Hubbard or Krugman again throughout the rest of the article, so it’s anybody’s guess what, if anything, that follows throughout the rest of the piece is relevant to either of them specifically.

              The issue may be that it just isn’t the greatest example of quality writing out there. @jimlane

               

            • #320567
              Voltairine
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              • Total Posts: 1,767

              they get some things right. Inflation as defined by Austrians is as simple as can be and hence most accurate and meaningful: Inflation of monetary supply.

              Consumer price “inflation” is only meant to confuse and mangle clear thinking about relations of monetary supply, ownership of money creation and initial distribution of money, and purchasing power of various groups of people, etc.

              Aloha!

      • #320284
        Cold Mountain Trail
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        which is why the writer put ‘left’ in scare quotes, i’d assume

        he acknowledges that by doing so

    • #320138
      Punxsutawney
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      • Total Posts: 1,518

      Tax cuts for the wealthy will stimulate the economy, i.e. more economic output.

      In America, “Liberty” means “Free to Die in Service of Capital” - Amfortas the hippie

    • #320250
      Fasttense
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