Transcript Out-of-Mainstream / Radical Micro

Reiterating Keynes and Segueing to Austrian Economics
•A critique by Robert Skidelsky, Keynes’ biographer, of Joseph Stiglitz’s
Making Globalization Work -- making it “fairer” for poor countries:
•However valid Stiglitz’s argument is in its own microeconomic terms,
“the main problems of globalization lie in its uncontrolled
macroeconomy…The relatively permissive attitude with regard to the
so-called market failures displayed by the great 20th century economists
Keynes and Hayek and their greater concern with the problem of
securing macroeconomic stability, different though they set about it, are
more relevant. They understood that uncertainty and the
disappointment of expectation were inherent features of economic
life. In Keynes’ economics, a loss of confidence, whatever its causes,
leads to an increase in “liquidity preference,” or a flight from investment
into money…This is happening today. The credit crunch in the US and
the excess accumulation of reserves in East Asia are signs of an
increase in liquidity preference. The need is to…provide a
macroeconomic environment that reduces the chances of financial
shocks that cause a flight into money.”
The New York Review of Books, April 17, 2008
Vienna  LSE  Chicago (Committee on Social Thought)
 Freiburg  Salzburg
Champion of von Mises in socialist calculation debate
Critic of Keynes: The Road to Serfdom
Founder of libertarian "Mont Pelerin Society"
Friedrich August von Hayek
1889-1992
Nobel Prize, 1976
Prices and Production (1931), in tradition of Wicksell’s monetary cycle theory:
Easy credit  I  forced saving  C  I
Expectations are disappointed.
What seemed like a good idea turns out to be malinvestment
Hayek’s prescriptions for stable money
1940s: Commodity reserve currency
1970s: Free banking  competitive monies  neutered central banks
Anarcho-capitalism or free-market anarchism (a form of
individualistic anarchism -- an anti-state political philosophy
that attempts to reconcile anarchism with capitalism.
It advocates the elimination of the state; the provision of law
enforcement, courts, national defense, and all other security
services by voluntarily-funded competitors in a free market
rather than through compulsory taxation; the complete
deregulation of nonintrusive personal and economic
activities; and a self-regulated market.
"I grew up in a Communist culture," Rothbard recalls.
1926 - 1995
Columbia Ph.D.
Polytechnic University UNLV
von Mises Institute
Man, Economy, and State, 1962
The Panic of 1819, 1962
America’s Great Depression, 1963
For a New Liberty: A Libertarian Manifesto, 1973
:
:
An Austrian Perspective on the History of Economic
Thought (2 volumes), 1995
https://www.mises.org/multimedia/mp3/rothbard/RA-16m.mp3
• Keynes’ complaint:
– Financial capitalism inherently unstable (animal spirits reign)
– The State to the rescue
• Friedman’s complaint:
– Too much, too late
 laissez - faire … just prevent landslide
• Austrian’s complaint:
– The State inhibits dynamism of free enterprise capitalism
– Anarcho - capitalism: down with the State
• Radical’s complaint:
– The State is subservient to monopoly capital
– Commitment is to sustained profits, not high employment
• Kalecki: “…under a regime of permanent full employment, the ‘sack’
would cease to play its role as a disciplinary measure.”
Recession: “The pause that represses”
A “Radical” detour
Leonard Rapping
1938 - 1991
Advisor, Theodore Schultz?
BA, UCLA Brunner - Meltzer / Sharpe - Pascal
Human capital pioneer
PhD, Chicago WWII Shipbuilding  Learning-by-doing
Lucas - Rapping Supply Curve
Rand - Carnegie
Vietnam
Greenspan’s CEA
UMass Crotty-Rapping, 1975 CEA Report: A Radical Critique
UNLV - Brandeis
“Naïve pluralism”: the assumption of shared
interest in price stability and high employment
Progressive Policy Institute
Labor - capital conflict
Govts seek to maximize profits of major corporations
Full-employment squeezes profit
•Higher wages/Shirking/Strikes
Full-employment  financial instability
“Recession creates precondition for new expansion of profits”
International capitalist conflict
US as hegemon: maintain order, a la Kindleberger
$ as reserve currency  dominance financed by printing money
Vietnam /collapse of Bretton Woods  power vacuum
Macropolicies in defense of post-WWII system accelerated its demise
1974: The economy had to be purged.
Chicago radicalism: Applying free market lessons
• Milton Friedman, Capitalism and Freedom (1962)
• Money growth rule (3 – 5% per year)
• Floating exchange rates
• Negative income tax
• School vouchers
• End occupational licensure
• “Why Not a Volunteer Army?” (1967) / Gates
Commission (1968)
• http://www.econtalk.org/archives/2006/09/friedman_on_cap_1.html
Ph.D., University of Chicago, 1955
Columbia University, 1957 - 1969
University of Chicago
Professor of Economics and Sociology
1969 Extending the Indifference Map
Incentives Matter
Economics of Discrimination  Biases / ethnic preferences
Human Capital: Return to education
Home Economics
Allocation of time:Time budget & Income budget
Marriage market
Cost of kids Rotten kid theorem
Cost of divorce
Economics Rocks
Economic Imperialism
Gary Becker, 1930 Clark Medal, 1967
Nobel Prize, 1992
Altruism
Crime and punishment: a cost - benefit analysis
Organ donor market
Politics: Interest group conflict
Linear gain / Exponential Deadweight Loss  Equil.
Theory of the Second Best:
Doing the “right” thing may be wrong in an
imperfect world.
Consumer Demand: A New Approach
People want attributes, not products.
Kelvin Lancaster
1924 - 1999
J. B. Clark Professor at
Columbia University
Goods are complementary
inputs to household production.
Why not whole spectrum of offerings?
Increasing returns to scale
Intra-industry trade theory