Re: [OPE-L] Crashes, adjustment, and the long-run

From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Mon Mar 20 2006 - 09:47:24 EST

> I sent to ope-l messages about a US economy crash possibility in 
> 2000 or so. I have articles discussing this issue since 1989 or so.  
> The crash possibility had pointed out by quite different economist: 
> Roubini (coauthor in Setser article) is an economist from 
> establishment, by example.  The main reason for predicting a crash 
> is that disequilibrium can not remain for a long time and there are not 
> balancing variables for correcting such disequilibrium in  a smoothing 
> path. 

Hi Alejandro, 

I don't think anyone from a Marxian perspective denies the _possibility_
that there will be a crash of the US economy.   I doubt that even Doug
Henwood would deny that.   In recognizing such a possibility, though, 
one is not necessarily _predicting_ a crash or even a period of stagnation in 
the short- to medium-term.

What I find unconvincing for your "main reason for predicting a crash"
is an implicit belief about disequilibrium, the adjustment mechanism, 
and the long-run.    Mainstream economics offers its own definitions 
of short-term, medium-term, long-run, very-long-run.  These definitions,
which are accepted by many heterodox economists,  embody a certain
conception of logical time  and are tied to mainstream methodologies
including the method of comparative statics.   

From a Marxian perspective,  when there is 'disequilibrium', 

-- this is normal for capitalism (i.e. disequilibrium in _real_ time is
the norm; equilibrium is the exception historically);

-- the process of 'adjustment' could be thought of as being ongoing,
but uneven with significant temporal lags and certainly not harmonious,
and not necessarily or even ordinarily yielding a new equilibrium;

-- one has to consider how classes are affected by this disequilibrium 
and in the course of their struggle can mollify or exacerbate 
disequilibrium.  In that sense, the process of 'adjustment' is the
process of class struggle.

You may agree with all of the above (or not).  

What I want to ask, though, is: *how do you define a 'long time'?*

Clearly, your prediction of a crash is related to the assertion that
"disequilibrium can not remain for a long time."  So, how long 
_in years_ is a long-time (approximations are OK, but I really 
think this question has to be answered, since otherwise one 
could say 3, 5, 10, 20, 50, or 100, etc. years and hence the
prediction becomes meaningless.)

I think this is a general question which Marxians should be able
to answer:  how do we define long-run?;  is our definition 
different than that used in mainstream economic theory?
 (I think it is.)

> [...] there are many different ways of adjustment: a crash, or 
> several recessions in few years, or stagnation during several 
> years, as in Japan happened. 

Well, yes, but there is quite a difference between predicting a

a) crash;

b) recessions;

c)  multi-year period of stagnation.

If the prediction is going to be meaningful, I think that one has
to be more specific.  

*What determines whether a), b) or c) will occur?*

*What determines whether the 'adjustment' will occur this year,
next year, 5 years from now, 10 years from now, 20 years from now,

> Even a great crash like 1929 have not  occurred yet; it do not 
> mean a great crisis can not happen again.  

Indeed.  Neither does it necessarily mean that a "great crisis"
will occur in the foreseeable future.  

There is another issue as well: *even if* there is a crash/recession/
stagnation, what will be the cause?  For instance, the reasons offered 
by Loren Goldner  or the "prudent bear" are quite different -- it seems 
to me -- from the reasons offered by Anwar Shaikh, Dimitri  
Papadimitriou,  Claudio do Santos and Gennaro Zezza  in "How 
Fragile is the US Economy"
(can be downloaded at ).

In solidarity, Jerry

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