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Viral Fanasia. Sumeru Hosihi. Alankar Sharma. Sam catlin. Preetesh Anand. Fatima Lamar. Tithi Raheja. Bir Malla. Quick navigation Home. From afar, the May protests in France seemed to herald the breakdown of the existing order. My most vivid memory was of a group of undergraduates from an intermediate theory course who came to my office one day to ask me to help them prepare anti-Vietnam War arguments that might convince their fathers, who as I recall were executives of prominent New York banks.
I remember thinking that the anti-war movement had finally won in the battleground of public opinion, whatever their fathers might think. So it was the combination of my personal experiences and the general political shift that changed me and, hardly incidentally, changed my understanding of economics and its role in legitimizing the existing economic order.
This all happened shortly after I got tenure, so it was easy for friend and foe alike to mistake tenure as the life-changing event.
For a time, because of the pressure of students, Harvard and Harvard economics opened up to new ideas. Unfortunately, the openness of the economics department was very brief. While my radicalization and my tenure were coincidental, the denial of tenure to slightly younger colleagues like Sam Bowles and Herb Gintis was not coincidence. They paid a price for their radical views even as they went on to distinguished academic careers elsewhere.
At Harvard, there was a period of great intellectual ferment from until about , when Bowles and Gintis left. I had Michael Reich, David Gordon, and Rick Edwards all in my first graduate economic theory class in the fall of From my perspective, the decade from the mids to the mids was the last time that there was so much intellectual ferment in department. But much of your work forwards a moral critique of capitalism, as a set of attitudes.
Which of these understandings of capitalism do you find more compelling? And, if we do conceptualize capitalism morally, what does that say about the potential for change? Markets require a certain kind of individual, and they create a certain kind of individual. For me, the assumptions of neoclassical economics are really the assumptions of modernity. These chickens are coming home to roost. A key assumption of modernity and mainstream economics is that we live in a world without limits to consumption and accumulation.
This is a bit ironic given that the conventional definition of economics is the allocation of scarce means to unlimited wants. I argue that the Keynesian revolution was successful because it coincided with the rise of a new politics: the New Deal in the United States and social democracy in Europe. But the Keynesian revolution and the left politics of the period from the s to the s were mutually supportive, symbiotic.
Nonetheless, we do what we can to raise our crops; we not only hope for a good harvest, we work for one. Instead, it was a critique of fundamental aspects of the capitalist system. The capitalist system, even stripped of all its warts and imperfections, has no self regulating mechanism. To see why, we have to abandon the conventional focus on equilibrium as demand equals supply and instead focus on the dynamic adjustment process. Equilibrium as a balance of forces tending in different directions may or may not exist.
But if it does, there is no reason why it would imply full employment. A second challenge to mainstream macroeconomics is that demand matters in the long run as well as in the short run.
The conventional view is that imperfections and rigidities—the warts on the capitalist body—dissolve in the long run. Even if unemployment can exist in the short run, there is a self-regulating mechanism at work in the long run. There is a self-regulating mechanism, but in my view the mainstream has it backwards: it is not that the demand for labor adjusts to the supply, but that the supply adjusts to the demand. In the long run, the labor force available to a capitalist economy is endogenous.
The second is women, who were increasingly integrated directly into the capitalist labor market. And the third is immigrants. So far, so good. There is a missing link because Keynes provides only a theory of interest rate spreads the difference between, say, short- and long-term interest rates on government bonds or the difference between rates on government and corporate bonds.
He does not provide a theory of the level of interest rates. The General Theory obscured this lack because it never went beyond a simplified model with only two financial assets—cash and bonds.
Because the interest rate for cash is zero, a theory of interest which only considers cash and bonds is a theory of the level of the interest rate as well as a theory of the spread between the return on cash and the return on bonds. But a cash vs. Does this matter? At one level no, because central banks fix the rate of interest on short-term Treasury bills, so knowing the spread also means knowing the level.
In this perspective the missing link has drastic implications. Keynes disputed the mainstream view that a market equilibrium meant full employment; he believed instead that equilibrium would usually fall short of full employment. We are thrown back on a non-market theory of interest rates! The final innovation of the book is more directly related to current policy proposals like the Green New Deal. In this case functional finance would imply a growing public debt.
Over the last half century we have had a quasi-permanent deficit, but not because of the lack of private demand that Hansen and others expected. If all that were at issue was stabilizing the economy, deficits needed to maintain the economy on an even keel in periods of slack demand could and would have been offset by surpluses in the good times. My contribution in Raising Keynes is to provide a framework for analyzing a second Lernerian explanation for why the government budget might not be in balance, a political choice about the combination of private consumption, publicly funded consumption think public parks or summer camps for disadvantaged children , publicly funded investment schools, roads, airports , and private investment.
This is a choice about the composition of aggregate demand, not about its level. Unlike the use of the government budget to stabilize the economy, choices about the composition of aggregate demand necessarily have permanent consequences for the deficit and the debt. Consider in this light the Green New Deal, which proposes public investment of trillions of dollars to repurpose the American economy to meet the challenges of the twenty-first century, starting with the threat of climate chaos.
The point is that at full employment something has to give if public investment is significantly increased. This suggests two important qualifications to the need for taxation to pay for a Green New Deal. First, if the program is undertaken in a time of slack private demand and unemployment, then the new GND jobs would be a bonus, a free lunch for the economy as a whole, paid for by a deficit that fights unemployment at the same time it repurposes the economy for a green future.
Instead one or more reserve armies would be mobilized. Which ones? That remains to be seen, but the gig economy seems to be a prime candidate. And I imagine that a large number of part-time workers in the private sector would readily enlist in better-paid, career-building jobs that pave the way perhaps literally to a green future.
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