Reiterating Keynes and Segueing to Austrian Economics

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Reiterating Keynes and Segueing to Austrian
Economics

• A critique by Robert Skidelsky, Keynes
  biographer, of Joseph Stiglitzs Making
  Globalization Work -- making it fairer for poor
  countries
• However valid Stiglitzs argument is in its own
  microeconomic terms, the main problems of
  globalization lie in its uncontrolled
  macroeconomyThe 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 moneyThis 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 toprovide 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
• (Skidelsky acknowledges comments by Paul Davidson)

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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
Wicksells monetary cycle theory
Easy credit ? I ? forced saving ? C ? I
Expectations are disappointed. What seemed like a
good idea turns out to be malinvestment
Hayeks prescriptions for stable money 1940s
Commodity reserve currency 1970s Free banking ?
competitive monies ? neutered central banks
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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
Man, Economy, and State, 1962 The Panic of 1819,
1962 Americas Great Depression, 1963 For a New
Liberty A Libertarian Manifesto, 1973 An
Austrian Perspective on the History of
Economic Thought (2 volumes), 1995
Columbia Ph.D. Polytechnic University ?UNLV von
Mises Institute
https//www.mises.org/multimedia/mp3/rothbard/RA-1
6m.mp3
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• Keynes complaint
• Financial capitalism inherently unstable (animal
  spirits reign)
• The State to the rescue
• Friedmans complaint
• Too much, too late
• ? laissez - faire just prevent landslide
• Austrians complaint
• The State inhibits dynamism of free enterprise
  capitalism
• Anarcho - capitalism down with the State
• Radicals 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

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• A Radical detour

Leonard Rapping 1938 - 1991
Advisor, Theodore Schultz? Human capital pioneer
Brunner - Meltzer / Sharpe - Pascal
BA, UCLA
WWII Shipbuilding ? Learning-by-doing
PhD, Chicago
Lucas - Rapping Supply Curve
Rand - Carnegie
Vietnam
Greenspans 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.
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• 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

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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
Gary Becker, 1930 - Clark Medal, 1967 Nobel
Prize, 1992
Home Economics
Allocation of time
Time budget Income budget
Marriage market
Cost of kids
Rotten kid theorem
Altruism
Cost of divorce
Economic Imperialism
Economics Rocks
Crime and punishment a cost - benefit analysis
Organ donor market
Politics Interest group conflict
Linear gain / Exponential Deadweight Loss ? Equil.
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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
Goods are complementary inputs to household
production.
J. B. Clark Professor at Columbia University
Why not whole spectrum of offerings?
Increasing returns to scale
Intra-industry trade theory