Galbraith on Piketty, Cambridge was right

I learned that James Galbraith had written a review of Piketty on Krugman's Blog. Krugman brushed it aside as another Hangup of the Heterodox, "a fairly desperate attempt to …somehow prove that Joan Robinson and Nicholas Kaldor were right in the Cambridge controversies of the 1960's."

Now Galbraith is one of my favorite economists, so I had to have a look.  I very much like Galbraith's critique of Piketty!  I posted the following comment to Krugman's blog.

Galbraith's critique of Piketty seems right on to me, and it's not just about the Cambridge Controversy. Surely a global wealth tax is impossible, but a strong estate tax and unions are not. Reading Galbraith, I'm inclined to believe him on Cambridge also. According to Wikipedia, it's US economists who are the outliers who pretend it didn't happen. That figures too.

Now one way of looking at the Cambridge Controversy was that it was about the definition of Capital. The old fashioned idea was it was exclusively things like industrial machinery, stuff used to make stuff, which doesn't change rapidly (even wars don't usually diminish it much), but may fluctuate rapidly in price depending on the outlook of the economy and the availability of funds.  But those fluctuations in price don't represent the capital itself.

American economists want to make Capital equivalent to financial investment, which does fluctuate rapidly, and further includes a lot of crap, like toxic MBS's in the late 2000's.  This is not unlike the way that GDP (invented by Keynes as a part of understanding a wartime economy--and explicitly not as a measure of economic health) has come to be used, over the dead body of it's creator, a measure of economic health.  And GDP also includes a lot of crap which we might be better off not doing.

Though French, Piketty falls into the trap of the American economists.  And so the part of his story which includes huge "capital destruction" at various times in history, is made of this bogosity also.

Piketty is right on only with regards to inequality.  He tells that story well.  But according to Galbraith, his findings based on income tax returns, while impressive and useful, is not original, and merely confirms what has previously been shown by others, like Galbraith himself, from other measures.

Update: Now, mind you, despite Galbraith's critique, I find Piketty very impressive and timely.  Most of what he says is right on.  We need progressive income taxes.  (As well as carbon taxes and the like.)  We need strong estate tax on super wealthy estates (I'm fine with a $10M exemption, adjusted for inflation, but inescapable 50% rate above that and 80% above $1B).  An international weath tax is likely impossible, but it it were not, it would be a fine idea too.  Capitalism steals the wealth of society for the wealthy, and ultimately (in advanced Capitalism, where we are now) locks it up beyond productive use.

It's the dismissal of Marxism, and the failure to emphase the need for strong labor unions.  I call for universal unionization, all working people should have collective bargaining on their behalf.  The very reason why "the wealth" are able to increase the return to themselves is organization.  A capitalist system enables and subsides the organization of Capital.  Labor needs a corresponding force.  Everywhere and Always.

Krugman rightly, in many ways, praises Piketty.  But his Hangups of the Heterodox post linked above is one of Krugman's worst (in the ideas it expresses…not with regards to being an opening for debate…it's an outstanding opening for debate…Bravo Krugman!).  And it does reveal the fundamental limitation of Krugman's writing.  I should emphasize first, however, that we are most lucky to have Krugman!  Long Live Krugman!  Krugman is great and wonderful in almost everything he says at the NYTimes, on his modern classes, tours, and seminars.  In this, I fault Steve Keen for not emphasizing enough (or claiming otherwise).

Krugman just has one particular weakness, and it's easy to see how it comes about.  Krugman is NOT representative of the "field" of Economics.  Krugman is an outlier.  He is far better than almost everyone in mainstream Economics, or even what he calls Keynesian Economics (what I would call Hicksian and Samuelsonian).  Krugman is far better than almost all professional economists precisely because he has an intuitive sense of economics which goes far deeper than the near useless models of neoclassical economics, though Samuelsonian economics relies on them.  Krugman uses his deeper intuitive sense to know which models to apply and when.  And thus he can claim to be a modern Keynesian, as he defines it, when he really isn't fundamentally so.  He just puts on that clothing where it actually works.

But meanwhile, to maintain his credibility, his acceptability to Capitalist media, he must insist that he is the representative of the continuing grand tradition of Capitalist Economics.  He is not a Marxist!  And he does so by having his anti-Heterodox flag, fighting the rear guard on the Marxians, Cambridgians, even the truest Keynesians (who are the Post Keynesians, don't you know, and I would like to be considered Marxian Post Keynesian).

Cambridge was right!  And you should know that. Regardless of what Krugman, who is right about nearly everything else, says.

Dean Baker also denies he follows the Cambridgeans, but then, he dismisses the American side of the Cambridge controversy without explicitly saying he is doing that.  A kind of pox on both houses. Take a look at the fine comment by Sandwichman, who also sees Krugman's Hangups piece as a rear guard action defending economic orthodoxy, but also refuses to come to the defense of Cambridge as I fearlessly do.

Henwood Reviews Piketty

Left to its own devices, wealth inevitably tends to concentrate in capitalist economies, to summarize Henwoods summary of Piketty, in a marvelous review.

Deflation is not benign

Excellent analysis of deflation by Frances Coppola.

Noam Chomsky (2014) "How to Ruin an Economy; Some Simple Ways"

Noam Chomsky (2014) "How to Ruin an Economy; Some Simple Ways" is great!



Adam Smith coined the phrase Vile Maxim to describe the goals of the masters of society.  "All for ourselves and none for anybody else."  That's the essence of neoliberalism.  Chomsky describes how it works (drive for short-term profits), who is for it (the richest nations of the world), who provides most of the opposition (so-called "primitive" indigenous societies), where it's going (total catastrophe), and what we can do (many good ways to oppose it, but we haven't got much time).

Disinflation here in USA

Krugman was discussion disinflation in Europe, showing the concentration of wage increases at zero.

I replied.

Disinflation is right here in the USA as well, with a major driver being the US Government itself, driven by the VSP in Chief, Barack Obama. Exactly where have Federal wages gone in the past 5 years since Obama enacted a wage freeze (not to mention shut downs and hourly cutbacks)? Well, it's worse, actually, as jobs have been hugely cut as well, and a new pile is just hitting the fan as returning war veterans are being laid off, and orders to the military industrial complex cut back, and when new jobs are created, they get staffed by bottom feeder contractors. So good paying jobs are being replaced by low paying jobs, when they are being replaced at all. We should be replacing useless military spending with Plan B renewable energy development. But with Fracking, we've got no energy shortage, just a climate that's getting worse faster and faster, and a beautiful country being turned into toxic waste dump.

Leftist Krugman Bashing

Leftist Krugman bashing is unfair and counterproductive.

Paul Krugman isn't perfect, but his is the best voice there is inside the mainstream media.  In fact, it's amazing that he says so much from a perch at the Grey Lady, not known for being friendly to the left.  (How many times has the Times presented a Chomsky op ed, for example?)  I pay to subscribe to the New York Times for only one reason…Paul Krugman!

Paul Krugman cheered on the Occupy Movement, and accepted and even adopted the 99% vs 1% rhetoric.

Paul Krugman has consistently pointed to inequality as the key issue of our time.  And I'm not just talking about "equal opportunity," which he has also shown is far from being true.  He is one of the best voices there is on topics like this.  He cuts through the right wing bullshit better than anyone.  He has showed how mobility in the US is not as many people imagine, or as good as it is in many other places.  And, regardless of mobility, that there still needs to be decent pay for all.  He favors raising the minimum wage, and making it easier for unions to organize.  (Where else in the mainstream corporate media do you hear people calling for more unionization???)  He has spoken positively of the examples set by Scandinavian countries in terms of equality and taking care of everyone.

Though Paul Krugman has defended Obamacare as better than what we had before (bringing him much anger from some quarters of the left) he has also always made it plain that he believes a Single Payer system would be better.  He favors lowering the medicare eligibility age.  He favors increasing the minimum wage.  He has strongly opposed cutting Social Security and has said it should be increased in several ways, including lowering the eligibility age.  He fought back strongly against cuts, including the cut disguised as a technical adjustment to the cost of living adjustment.  He fought back strongly against raising the eligibility age, pointing out that people with lower income are not necessarily living longer.  Back in the day, he wrote the best articles opposing privatization of social security, and he wrote the best articles showing that contrary to critics (and he pointed to their roots in the finance industry) the Social Security system is fundamentally sound, and the best way to run a government pension system.  (Fortunately, privatization of social security is no longer being actively promoted--and we owe Krugman much gratitude for this.)

Rather than falling in line (with the neoliberals) that unemployment has been coming down--so there's no problem anymore they claim) Paul Krugman has consistently pointed out the fall in employment to population ratio has not recovered, and that the great recession, aka depression, is not over yet, nor can we say it will just take care of itself over any time span.

Krugman has also been quite critical of many people in the Economics profession, almost inventing the Saltwater vs Freshwater divide, and pointing out many if not all of the problems with the economics profession as it exists now.  (It's that "if not all" that seems to bother many lefty econo-bloggers, such as Yves Smith at Naked Capitalism.)

I read Krugman daily and I think everyone should.

The Economics Profession

Krugman had a great and long post addressing the legion of major economists who ignore the obvious realities of depressions.  I highly endorse the ideas he represented.

However, in this long post he chose to specifically mention Milton Friedman and Larry Summers as ones who had far more pro-social ideas than Barro and others like him.

That inspired me to write this (but, actually, I'd put the beginning of our downfall back a bit further to the Kennedy Tax Cuts, which had the hands of Hicksian economists all over it--and John K. Galbraith was so right.)

Here here! And quite in line with Keynes himself, who did a great job putting down faith based classical economics in his day. But where there's money, there's always more faith proclaimed. Perhaps you need a new profession with public financing, independent of corporate funded institutions. Didn't said Larry Summers have a lot to do with the destruction of financial regulation started by FDR which had proven useful for decades, only to see unprecedented banking failure and public bailouts result? What does he have to say about this? I hear nothing. I see every weakening of the structure FDR created as having had ill effects, including say Nixon's abandonment of Bretton Woods. I realize these are all now said to have been inevitable, but I doubt both that and the pro-big-finance system which has been created were inevitable, but the result of deliberate choices made by people like and including Larry Summers. And now I see no going back, and THAT is still our biggest problem. I'd call it the neoliberal revolution, which also included the cited Milton Friedman. I suppose it's good that these people had some good ideas. Or was it? A few good ideas may have made the others more acceptable. And a similar thing happens when there is a powerless minority or majority of economists with good ideas. They candy coat the creeping pro wealth bias made inevitable by the others.