I haven’t posted in a while, or at least it feels like it. There was an exchange I uncovered between Brad DeLong, who is roughly a Keynesian economist at Berkeley, and David Harvey, a Marxian geoeconomist at CUNY.
Harvey started out by saying the stimulus won’t work, partly because it’s half-assed. But his real critique, as a geoeconomist, lies with the long-term geographic redistribution that is accelerating from the West to the East. His opening lob is this:
Much is to be gained by viewing the contemporary crisis as a surface eruption generated out of deep tectonic shifts in the spatio-temporal disposition of capitalist development. The tectonic plates are now accelerating their motion and the likelihood of more frequent and more violent crises of the sort that have been occurring since 1980 or so will almost certainly increase. The manner, form, spatiality and time of these surface disruptions are almost impossible to predict, but that they will occur with greater frequency and depth is almost certain.
He talks at length about the problems in a real stimulus in the US: a starting position in debt, lack of political will for downward redistribution, and lack of commitment to infrastructure. He then compares to China, which has none of these problems, and basically says that China will be able to do a real stimulus (lo and behold-maybe this post is timely-China is expected to announce a bold stimulus soon).
Out of this crisis, Harvey posits a global reorganization:
Whether or not true Keynesianism in China (along with some other states in a similar position) will be sufficient to compensate for the inevitable failure of reluctant Keynesianism in the West is an open question, but the unevenness coupled with fading US hegemony may well be the precursor to a break up of the global economy into regional hegemonic structures which could just as easily fiercely compete with each other as collaborate on the miserable question of who is to bear the brunt of long-lasting depression. That is not a heartening thought but then thinking of such a prospect might just awaken much of the West to the urgency of the task before it and get political leaders to stop preaching banalities about restoring trust and confidence and get down to doing what has to be done to rescue capitalism from the capitalists and their false neoliberal ideology. And if that means socialism, nationalizations, strong state direction, binding international collaborations, and a new and far more inclusive (dare I say “democratic”) international financial architecture, then so be it.
Now, Brad DeLong takes offense at this argument, and acts confused. He responds by lumping Harvey in with Eugene Fama, a Chicago economist who has attacked the stimulus from the right. He also sort of insults Harvey’s intelligence:
If we forced Harvey to actually construct on argument here, he might be able to…
The heart of his argument, and this is something Krugman has been harping on a lot too, is that we don’t need to worry about deficit spending because interest rates are so low and the flight to safety in the dollar will finance our spending. Notice that they are speaking in short-run terms.
Well, if it were going to happen we would have seen the interest rates on U.S. long-term government bonds spiking upwards to scarily-high levels as the stimulus bill moves through the congress and its chances of final passage grow. Did we? No. High long-term interest rates on U.S. Treasury bonds are simply not a concern right now
Again, it seems he’s talking right past Harvey. And then there’s the title and subtitle of the post:
Department of “Huh?”: In Praise of Neoclassical Economics
Why neoclassical economics is an absolutely wonderful thing: Exhibit 1: David Harvey
Well, good thing we have the blogosphere, because Harvey gets to respond.
The real mystery here is the arrogance of the economists in the face of a catastrophic situation. I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.
The charge that I have neither read nor understood DeLong’s canonical writings is the usual technocratic hubris deployed by economists when they have nothing to say. I might as well reply that DeLong has neither read nor understood his Marx (I have a remedial course on line) and in any case I don’t see why I should go back to Friedman rather than to Galbraith, Hicks rather than Joan Robinson and why it is that he presumes that Dobb, Sweezy, Glyn, Itoh and Morishima have nothing to say of relevance to our current difficulties because neoclassical economics is a God-given truth beyond contestation?
And he reiterates the meat of his argument:
The United States has the power of seigneurage over the world’s reserve currency and is using that power up to the hilt right now and the rest of the world has little choice except to go along. The last time the US did this in the late 1960s, to fund a war and to deal with domestic unrest, this led to collapse of the Bretton Woods system and the grand stagflation of the 1970s. I am not saying this history will be repeated but I do want to emphasize that short-run moves have longer-term consequences (well before that long term in which “we are all dead” as Keynes famously remarked).
What I was concerned about, a topic which DeLong totally ignores, is the likely uneven geographical impacts and responses to the crisis conditions and the degree to which this accelerates the scenario depicted in the NIC report…
If the Chinese and other East Asian powers find themselves forced to abandon the Export-Industrialization model (which is now failing catastrophically) and to go to something like an Import-Substitution strategy (which was by no means as unsuccessful as it is usually depicted when practiced in the 1960s in Latin America) and a development of their internal markets (almost certainly coupled with internal repression of dissidence), then they will not have the money to lend to the US. The track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).
My main point about the current US stimulus package is that it is too small to do the job (I am surely not alone in saying that) and that it is poorly targeted towards tax cuts rather than real stimuli for political and ideological reasons.
What is needed is generous critique, the taking of whatever is positive in competing accounts and a real struggle to come to terms with ways we might better proceed. It will be hard enough to save capitalism from the capitalists but the real tragedy here is that the real message from DeLong’s commentary is that we need also to save capitalism from the economists.