From: Anders Ekeland (anders.ekeland@ONLINE.NO)
Date: Tue Mar 15 2005 - 13:42:10 EST
At 14:46 14.03.2005, dlaibman@JJAY.CUNY.EDU wrote: >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). My point was that there is nothing wrong with static analysis if you can show with a dynamic model that there is stability around the equilibria. But as a cob-web model show - convergence/stability is not given - even for a simple market cross. It should be a fundamental rule of economics not to accept any result from a static model, where stability is not shown in a dynamic setting. But since your model is in difference-eq form (dynamic), my comment was not relevant in this case. All the best Anders > 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 > > > > > > > > > > > > ----------------------------------------------------- > > > > This email has been automatically scanned for viruses. > > > > However, it might still contain undetectable virus(es). > > > > Addressee should take precautions in opening any unsolicited > > emails.> > -- DoIT, John Jay College of Criminal Justice -1- > > > > > > > > > > > > > > ----------------------------------------------------- > > This email has been automatically scanned for viruses. > > However, it might still contain undetectable virus(es). > > Addressee should take precautions in opening any unsolicited emails. > > -- DoIT, John Jay College of Criminal Justice -1- > > > >
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