Reiterating Keynes and Segueing to Austrian Economics

1. Reiterating Keynes and Segueing to Austrian Economics A critique byRobert Skidelsky, Keynes’ biographer, of Joseph Stiglitz’s Making Globalization Work -- making it “fairer” for poor countries: However valid Stiglitz’s argument is in its own microeconomic terms, “the main problems of globalization lie in its uncontrolled macroeconomy…The 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 money…This 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 to…provide 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)

2. 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 Wicksell’s monetary cycle theory: Easy credit  I  forced saving  C  I Expectations are disappointed. What seemed like a good idea turns out to be malinvestment Hayek’s prescriptions for stable money 1940s: Commodity reserve currency 1970s: Free banking  competitive monies  neutered central banks

3. 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 America’s 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-16m.mp3

4. Keynes’ complaint: • Financial capitalism inherently unstable (animal spirits reign) • The State to the rescue • Friedman’s complaint: • Too much, too late  laissez - faire … just prevent landslide • Austrian’s complaint: • The State inhibits dynamism of free enterprise capitalism • Anarcho - capitalism: down with the State • Radical’s 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”

5. Leonard Rapping 1938 - 1991 Advisor, Theodore Schultz? Human capital pioneer BA, UCLA Brunner - Meltzer / Sharpe - Pascal PhD, Chicago WWII Shipbuilding  Learning-by-doing A “Radical” detour Lucas - Rapping Supply Curve Rand - Carnegie Vietnam Greenspan’s 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.

6. 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

7. 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.

8. 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