Wednesday, June 27, 2012

Re: The Krugman-Layard "Manifesto for Economic Sense"

"The whole world suffers when men and women are silent about what they know is wrong." Paul Krugman and Richard Layard, Financial Times.
Mr. Keynes always knew this day would come:

"When the rate of interest has fallen to a very low figure and has remained there sufficiently long to show that there is no further capital construction worth doing even at that low rate, then I should agree that the facts point to the necessity of drastic social changes directed towards increasing consumption. For it would be clear that we already had as great a stock of capital as we could usefully employ." -- 1934, "Is the Economic System Self-Adjusting?"

And he had a prescription for it:


"when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises... [i]t becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours." -- 1943 "The Long-Term Problem of Full Employment."

He explained his rationale in a 1945 letter to T.S. Eliot:

"The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In US it almost certainly will not do the trick. Less work is the ultimate solution. How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge."

Ironically, both Professor Krugman and Professor Layard implicitly rejected Keynes's intellectual theorem with their unwitting embrace of the bogus "lump-of-labor (or output) fallacy" claim, which descended from a archaic prototype of Jean-Baptiste Say's "Law of Markets" (aggregate supply creates its own aggregate demand) that Keynes directly opposed.

(See also 'Kick-starting the Recovery': An Open Letter to Jonathan Portes.)

1 comment:

  1. Now there's a corrected version from marxist economist Michael Roberts:
    http://thenextrecession.files.wordpress.com/2012/07/a-manifesto-for-socialist-sense1.pdf

    ReplyDelete