From: dlaibman@JJAY.CUNY.EDU
Date: Mon Mar 14 2005 - 08:46:13 EST
Dear Anders,
Not sure what you mean by "check(ing) stability with a 'larger' dynamic model." But I do get stability in the narrower sense that the configuration (price-quantity pair) resulting from a one-time shift in AD persists, unless underlying conditions change. And yes, the model is in difference-equation form (discrete time).
best,
David
I will respond to some of Jerry's and Rakesh's points soon.
----- Original Message -----
From: Anders Ekeland <anders.ekeland@ONLINE.NO>
Date: Monday, March 14, 2005 2:46 am
Subject: Re: [OPE-L] Teaching Tautologies : dynamic or static?
> Dear David L,
>
> - look forward to read the paper, but
>
> are these thoughts/models formulated mathematically as difference or
> differential equations, i.e. a real dynamic model, or is this
> traditionalcurve-shift analysis?
>
> The latter is IMHO inadequate for real analysis of stability,
> robustness of
> results etc.
>
> So if static - did you check stability etc. with a "larger"
> dynamic model?
> Just curious.
>
>
> Regards
> Anders
> Norway
>
>
> At 19:10 13.03.2005, dlaibman@JJAY.CUNY.EDU wrote:
> >Gerry (and OPE),
> > This discussion might work better if OPE listmembers had
> copies of the
> > paper, or knew its argument. I would be happy to attach the
> paper, but
> > the diagrams -- which are essential to the argument -- are not
> (yet) in
> > electronic form, and I have not gotten enough specific and
> operational> advice on how to get them there.
> > In the meantime, the essential point of the paper is this. New
> > classical macroeconomics (the vertical long-run aggregate supply
> curve)> assumes money wages are flexible, and the real supply of
> labor -- the
> > labor supply curve, drawn against the *real* wage rate -- is
> fixed. I
> > propose a "dual": the money wage rate is fixed, but the supply
> of labor,
> > based on the real conditions facing workers as determined by the
> recent> history of wage bargains, is variable. I call this latter
> the "Dobb
> > Effect," for Dobb's 1929 article (which, incidentally, is
> clearly a
> > development from Sraffa's much better known 1926 piece). The
> the real
> > wage rate, w, is pushed below a customary or standard level, w*, the
> > workers' social condition deteriorates and they have no choice
> but to
> > offer more labor at every wage: the supply curve of labor shifts
> outward.> Under these circumstances, a demand expansion that
> raises the price
> > level in the goods market will push w below w*, the Dobb Effect
> will kick
> > in, and AS will shift to the *right*: as workers offer more labor
> > (overtime, multiple jobs, etc.), output rises and the price
> level *falls*
> > to accommodate this. The new equilibrium is established at the
> old price
> > level (which I call P*), and a new level of output consistent
> with AD at
> > that price level. The long-run aggregate supply curve is
> *horizontal*,> and Keynes is vindicated.
> > The paper also sketches a synthesis of the two models (New
> Classical;> New Critical). Preliminary result is that the
> synthesis multiplier is
> > positive. Policy has real effects, even with full price
> flexibility and
> > rational expectations, etc. etc. This is not a return to "fine-
> tuning,"> of course: the social cost of the real effect of the
> demand expansion is
> > deterioration in the social position of the working class, with the
> > attendant disequilibrating effects. (Note that this implies a full
> > measure of exploitation that goes beyong the usual rate of
> exploitation> or wage share.)
> > This may be too condensed a statement to be fully useful to
> anyone who
> > hasn't read the paper, and/or is not already steeped in the
> fashions of
> > present-day macroeconomics.
> > In response to (a few of) Jerry's points:
> > First, my argument uses the tautology, real wage rate = money
> wage> rate divided by price level. So does the New Classical
> story. I think
> > no one will dispute the fact that if the price level increases
> while the
> > money wage rate is constant, the real wage rate falls. The
> *story* takes
> > off from there; the Dobb Effect is the effect of the fall in w
> (below w*)
> > on the real supply of labor. That is not a tautology. In fact,
> it may
> > not even be true! If it is true, it may take effect in too long
> a time
> > frame for it to serve as the basis for a policy impact in the short
> > run. And empirical evidence is not too clear on it (of course,
> empirical> evidence is not clear on the New Classical story
> either). All economic
> > models use some combination of behavioral assumptions, definitions
> > (tautologies), and (where appropriate) equilibrium conditions.
> > Second, OPE folks need to be clear: this is an attempt at
> *immanent> critique* of mainstream macroeconomics -- to get under
> their skin, in
> > their own terms, and upset the dogma of policy ineffectiveness --
> the
> > main conclusion of the free-market hegemony. For this purpose,
> I use
> > *their* tools. I use, yes, diagrams. You need to answer one
> > diagrammatic argument with another one, not with something that
> could be
> > taken to be a mooshy evasion. I simply assume, in this paper,
> the usual
> > downward sloping AD curve. *Of course* all of this needs to be
> > questioned in the full light of Marxist categories. But the limited
> > purpose of this one paper needs to be borne in mind. If we can
> provide a
> > simple, compelling case that makes the AS curve not vertical
> after all,
> > and opens up a discussion of the wider social effects of fiscal and
> > monetary policy, is that not something worth doing?
> > On a more theoretically rigorous terrain, we will then need
> to ask:
> > is there a Marxist analysis of the capitalist short run? In
> other words,
> > should we even bother to try to construct a theory of capitalist
> behavior> in a period in which productivity, population, and
> physical capital
> > stocks in place are all constant? This behavior would then be
> the basis
> > for a theory of how the capitalist economy responds in the short
> run to
> > (capitalist) government policy moves. Is this a useful inquiry, or
> > should we simply assume that it is submerged in the dynamics of
> > accumulation, crisis, etc.? I am not sure, but I do think the
> immanent> critical strategy is important to develop in the meantime.
> > In solidarity,
> > David
> >David Laibman
> >dlaibman@jjay.cuny.edu
> >
> >
> >----- Original Message -----
> >From: Gerald_A_Levy@MSN.COM
> >Date: Saturday, March 12, 2005 7:01 pm
> >Subject: [OPE-L] Teaching Tautologies : a response to David L
> >
> > > I also attended the EEA session last week chaired by David L.
> > > Besides David, Ingrid Rima and Mary C. Cleveland presented
> > > papers. Cleveland is a modern-day disciple of Henry George
> > > and there were a number of other people at the session who
> > > also admired George. In a throw-back to the period before
> > > George, she presented a *corn model* in her paper on "Inequality
> > > and Macroeconomic Instability". When Rima emphasized in
> > > her presentation that "money matters", I thought there would be
> > > a discussion of the failings of the moneyless corn model but no
> > > one picked-up on that issue. Interestingly, David suggested that
> > > a Marxian response to the writings of Henry George could be
> > > found in Blake's _An American Looks at Karl Marx_. Yet,
> > > when I reexamined my copy later I couldn't find a whole lot in
> > > Blake on George.
> > >
> > > Now I turn to David's paper and the main concern of this post.
> > >
> > > You might recall that David told us about his paper presenting a
> > > "new critical" macro proposal some time ago:
> > >
> > > > I call it the "Dobb Effect," linking Maurice Dobb's 1929
> > > article, "A
> > > > Skeptical View of the Theory of Wages," to macro policy issues
> > > (which he
> > > > did not do). Macro policy moves a) influence the *balance
> of class
> > > > forces* (a term that does *not* appear in the paper!); and b)
> > > flatten> out the AS curve (even in the presence of full price
> > > flexibility and
> > > > rational expectations).
> > >
> > > The context of David's paper is that it addressed a point
> related to
> > > the _teaching_ of (undergraduate) intermediate macroeconomics.
> > > This is an important point to remember -- which I will return to
> > > later in the post.
> > >
> > > Employing the well-known graphics of an aggregate supply and
> aggregate> > demand curve graph, David sought to demonstrate the
> consequences of
> > > increasing aggregate demand (under a condition I am about to
> mention)> > on the working class.
> > >
> > > In listening to David's presentation, I realized that the
> point of his
> > > formalism could be made even more simply without equations and
> > > graphs.
> > >
> > > Start by assuming a fixed money wage rate.
> > >
> > > Then, suppose that aggregate demand grows.
> > >
> > > Consequence: the working class is hurt.
> > >
> > > I can hear you say: could you run that by me one time again?
> > >
> > > Sure. I'll change the words a little.
> > >
> > > a) Start (as before) by assuming that there is a fixed money wage
> > > rate.
> > > b) Then, suppose that there is a general rise in prices
> > > (inflation) caused
> > > by an increase in aggregate demand.
> > >
> > > c) Real wages for workers decline.
> > >
> > > From the foregoing, David was able to further hypothesize (in
> my view,
> > > quite reasonably) that under these conditions workers will often
> > > attempt to maintain their real wage by taking a 2nd and/or
> possibly> > a 3rd job.
> > >
> > > What became obvious to me is that -- despite the elegant graphics
> > > and formal equations -- c) was simply, under the conditions of a)
> > > and b),
> > > a *tautology*. I thought ... well ... yeah ... of course ...
> > > if money
> > > wages
> > > are fixed and there is inflation then real wages will decline *by
> > > definition*.
> > > So, in the discussion that ensued, I called this to the attn. of
> > > DL and
> > > asked
> > > him why his proposition wasn't a tautology.
> > >
> > > I don't recall his exact response, but it seemed to me to make
> > > two points:
> > >
> > > i) it was more than a _simple_ tautology in the sense that it
> > > embodied particular historical and conceptual understandings about
> > > the wage. For example, the proposition that the money wage
> > > rate was, especially in the short-run, fixed was based on the
> > > Keynesian idea that money wages are "sticky."
> > >
> > > ii) it _was_ a tautology but tautologies have legitimate uses in
> > > political economy.
> > >
> > > I'll grant him i).
> > >
> > > ----------------------------
> > >
> > > *FIRST SET OF QUESTIONS*
> > >
> > > I'm wondering if we could have a discussion on *what, if any, are
> > > the legitimate uses of tautologies in political economy?*
> > >
> > > Can any of you, including David, explain _when_ it is appropriate
> > > to base theoretical understandings on tautologies and _when_
> it is
> > > inappropriate?
> > >
> > > ---------------------------
> > >
> > > Now, I return to the context that this issue came up for David
> > > in *teaching* intermediate macroeconomics.
> > >
> > > I'll grant that it is a legitimate and important point to make
> in the
> > > classroom in order to explain the meaning of inflation for
> workers> > under varying conditions. I'll even grant that David's
> paper> > describeswhat I take to be a *historical pattern*. I
> think it's
> > > especially true
> > > during high inflationary periods -- e.g. his graphs could be used
> > > to suggest why in the US in the 1970's, more and more working
> > > class families had two income earners rather than one. (Of course
> > > it's not the whole explanation. I'm sure DL would agree.
> But, it
> > > is a large part of the story.)
> > >
> > > What really confuses me, though, is that David said that when
> > > he presented his graphs in the classroom to make this point,
> > > his students really *appreciated* the graphs. This made me think:
> > > what kind of students does DL teach?
> > >
> > > I can tell you that my students *strongly* prefer that I keep
> > > the graphs presented in the classroom to a minimum. Indeed,
> > > when graphs are drawn -- no matter how well explained by the
> > > instructor -- there are always some students whose eyes
> > > glaze over. They can think logically, no doubt. But they are
> > > not used to and don't generally like graphs.
> > >
> > > Well, of course, you have to have _some_ graphs when teaching
> > > economics, but were equations and graphs really needed for
> > > DL to forcefully make the point in the classroom that he wanted
> > > to make? I don't see why. After all, any relationship that can
> > > be expressed graphically can also be expressed orally and
> verbally.> > And, in this case, I think that his point could have
> been made
> > > easier *without* graphs.
> > >
> > > So, it makes me wonder: is there something wrong with his
> > > students or mine; is his teaching too graph-intensive or is my
> > > teachingnot graph-intensive enough?
> > >
> > > ------------------------------
> > >
> > > *SECOND SET OF QUESTIONS*
> > >
> > > Are elegant graphics really needed to explain tautologies?
> > >
> > > What other tautologies are *taught* in the economics classroom?
> > >
> > > What are examples of legitimate tautologies advanced by Marx
> > > in his presentation in _Capital_?
> > >
> > > What are examples of legitimate tautologies advanced by Marxians
> > > in the presentation of political economy?
> > >
> > > Do we all teach what a tautology is in the classroom? What do we
> > > say? In particular, what do we tell students about the legitimate
> > > (?) *uses of* tautologies in economic theory?
> > >
> > > In solidarity, Jerry
> > >
> > >
> > > -----------------------------------------------------
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> > >
> > >
>
>
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