11 posts categorized "Commentary"

02/12/2016

Irene van Staveren on Anthony Atkinson’s Inequality: What Can Be Done?

AtkinsonVarious important books have been published recently about economic inequality, from Piketty on wealth to Wilkinson and Pickett on social impacts. Tony Atkinson's book Inequality: What Can Be Done? focuses on the characteristics of income inequality and what can be done about it.

First, Atkinson presents data on household income inequality from the Luxembourg Income Studies data (LIS). A country comparison shows that the Gini coefficients of both the US and the UK are relatively high, above 35, with many continental European countries showing figures between 25 and 30. He also points out that the Gini coefficients have been on the rise since the 1980s in most Western countries.

Second, he presents a long list of policy proposals. Let me share a few with you, which are of particular interest for social economics. On taxation, he proposes to raise the marginal income tax rate to 65 percent and to introduce a substantive earned income discount. Furthermore, he comes with an innovative proposal on inheritance taxation: no longer on the giver but on the receiver, with a lifetime progressive capital taxation. This is an incentive to leave one’s wealth behind for the poorest relatives, charities or other goals, rather than for the richest relatives. Next, he proposes a substantial child benefit, to be taxed as income, so that the rich benefit much less than the poor. Moreover, he pleas for a basic children’s income and a basic capital endowment for all at adulthood. And he insists on a one percent development aid of GNP.

On employment, he argues for a target for unemployment reduction in the UK, as in the US, as well as a minimum wage as a living wage, as in the Netherlands, and a public employment guarantee, as in India.

Atkinson's argumentation is smart. He demonstrates the history of his proposals, with old and new claims by politicians, activists, and even business leaders (UK premier league football clubs, such as Chelsea). And he argues that “there is not just one economics” (p. 5), showing a variety of economic arguments, including Kenneth Arrow’s argument that ethical codes should be part of businesses behavior. Of course, Atkinson criticizes the break-down of the welfare state in many Western countries, with a reduction in benefits and coverage for disadvantaged groups. But he does not fall into the trap of proposing increasing public expenditures in times where many governments seek to reduce public debt and budget deficits. Instead, his fiscal proposals are all revenue-neutral. Hence, the political feasibility should not be a constraint. I find this part of his policy proposals the smartest one of all.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

10/02/2015

Irene van Staveren shows the value of introducing alternative economic thinking to students

Irene bookI am currently teaching with my own new textbook Economics after the Crisis. I make use of blended learning techniques such as quizzes, flipping the classroom with YouTube videos with my slide shows and voice-over, and visual one-page summaries of each chapter on Facebook page of the book. This all frees up lots of time for classroom discussions. In this blog I would like to share a few of these discussions with you.

Student A, from the UK, asks why Margaret Thatcher was so much in favour of markets but did not want the government to regulate markets to ensure fair competition. Others seemed equally puzzled: if markets have a tendency to lead to oligopolies, they move away from the ideal of full competition, and hence, they need the state to ensure that it does not happen. Of course, they are right. Not bad for students of an introductory course. It is, of course, the same issue that Joan Robinson addressed when analysing real-world markets. My answer, though, is not Post-Keynesian but social economic. The tendency of markets to allow, or even support, winners over losers to accumulate market shares, through mergers and acquisitions, lobbying, and explicit or implicit price agreements, is enabled by a dominant social norm among economists as well as policy makers that markets are good and the states are bad, when it comes to efficiency and wellbeing and growth. This leads the discussion towards the dominant policy paradigm of neoliberalism in the world since Thatcher and Reagan.

EC Matrix CH 01[1]The students had to write a mini-essay about the dominant policy debate in their countries. Here is what student B, from Mexico, answered. The indigenous people aligned in the Zapatista movement regard nature and earth as a mother. Hence, the farmers are in a caring relationship with the land and for this reason resist production for commercial firms and the market beyond their own community. Only by producing for their own community they can maintain this relationship with the mother. They therefore also resist the state, which offers to provide social security. The Zapatista farmers understand that by accepting this, they are drawn into the national and international market economy, which will undermine their caring relationship with mother earth.

I found this a nice example of how local communities resist not just neoliberalism but even the state in a neoliberal policy environment—their distrust is most likely justified.

Student C, from Indonesia, offered a very different example, but also from a social economics perspective. He argued for keeping the fuel subsidy for the poor, whereas neoliberal policy makers want to abolish the fuel subsidy. His argument is that fuel is a key commodity for the poor and the subsidy helps them to purchase this (for example, fuel for cooking and transport). Here, it is the inequality and poverty argument that was used from social economics, to support a redistributive policy. Even when it may not be friendly to mother earth...

My students' feedback teaches me that even though it is not easy to teach four economic theories at the introductory level, they quickly see the relevance of it for their own economic context. If only to be able to see alternatives to dominant policies, rightly or wrongly.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

07/03/2015

Steve Pressman on the ethics and economics of the Greek financial crisis

AristotleAt the American Institute Economic Research's Daily Economy blog, visiting fellow (and ASE trustee) Steve Pressman of Monmouth University looks at the Greek financial crisis through the lens of several philosophers, namely Adam Smith, Jeremy Bentham, and Aristotle, injecting a much needed ethical dimension to this economic debate:

Greek Financial Crisis: What Would Aristotle Do?

A common put-down of economists is that they know the price of everything but the value of nothing. This pithy comment encapsulates two very different views of money, and can be helpful in understanding how to resolve the Greek financial crisis.

Adam Smith, regarded as the father of economics, took a moral view of money. For Smith, money was about being able to have a decent standard of living, or being able to “appear in public without shame.” He supported government regulation of lending rates because he feared that lenders would take unfair advantage of the destitute. Following the Smithian view of money, we developed bankruptcy laws that let people (and business firms) escape from crushing debt, and survive without this debt hanging over them.  

The philosopher Jeremy Bentham adopted a more economic perspective. He thought that Smith’s moral view of money was inconsistent with his laissez-faire economics, where people determined what was best for them, and markets determined what was best for the economy overall. Bentham pointed out that usury laws limited individual freedom and had bad economic consequences: Lenders would not lend at low rates, and so we had less investment and spending. The economic view of money states that bankruptcy laws encourage reckless behavior and speculation, since if something goes wrong there is a simple out.

Understanding these two views of money is crucial for understanding the Greek tragedy whose last act will take place this week in Brussels (unless everyone agrees to kick the can down the road for another few weeks).

Continue reading here.

05/22/2015

Op-Ed by Deborah Figart and Ellen Mutari: Summertime and the living isn't easy for area workers

Figart bookDeborah Figart (past president of ASE) and Ellen Mutari (current president of ASE), both of The Richard Stockton College of New Jersey, published an op-ed on the casino industry in Atlantic City, New Jersey, yesterday in the Press of Atlantic City. It highlights the stark contrast between the investment in opulence on the part of casino owners and the dire economic circumstances of the workers and families. An excerpt:

In preparation for the new season, the Tropicana Casino and Resort recently unveiled its $50 million facelift at a ribbon-cutting last week, just in time to lure new customers and welcome back old ones. The casino has erected giant LED panels for a new light show. A new granite pathway and coffered ceilings augment a renovation of 434 hotel rooms. New televisions are sprinkled among the table games. With AtlantiCare as a partner, the Trop opened a state-of-the-art fitness facility at the property. One executive boasted that the leg-press machine alone cost $9,000.

Such investments in Atlantic City's business properties are welcome, and increasingly important in a saturated casino industry. The opulence of these facilities, however, contrasts sharply with the Memorial Day 2015 realties of casino workers and former workers. In Atlantic County, as elsewhere in America, working families are feeling squeezed. Beef prices for those barbequed hamburgers are at an all-time high. The prices of chicken and pork are up too due to drought and a virus in the hog industry, as are the prices white bread, iceberg lettuce, American cheese, potato chips and ice cream, the other key commodities measured by Fortune magazine's BBQ Index.

It is almost like a tale of two cities: the Haves and the Have-Nots. Our local economy is still struggling with the closing of four casinos last year and the loss of 8,000 casino jobs. The ripple effects have been felt by businesses, communities and families throughout the area. Unemployment checks are now running out. Those who still have jobs are often working fewer hours, bringing home less after-tip income, and paying more for their benefits packages. And, at the same time that Tropicana Entertainment was shopping for gym equipment and installing the light show, its key investor, Carl Icahn, was cutting payments for health care and pensions for workers at Trump Taj Mahal. This is still being fought in court.

Read the rest here, and see also Mutari and Figart's recent book (shown above), Just One More Hand: Life in the Casino Economy, on economic conditions in the casino industry in Atlantic City.

04/29/2015

Wilfred Dolfsma: “The market cannot be usefully understood as separate from society."

Elgar bookValues such as care and fairness are not just values that may be found in families, closely-knit communities, or that are discussed among only some philosophically-minded people as their working week ends and they enjoy a glass of wine.

While social economics does not tend to favour any particular set of values over others (values are discussed equally well over a glass of wine as over a pint of beer or a smoothie), social economists are concerned about inclusiveness. Values in support of inclusion of the disfavoured, allowing people to take part in the economy as a practice through which we can provide for ourselves and those we love, are still a broad set of values.

In this respect, the market is no different from any other social practice: all are value-laden, and practices are laden with a plurality of values. Indeed, even when adopting an academic mind, one that is trained to abstract, applying Occam’s Razor, a social economist would emphasize that any single social practice must be understood as part of a larger social setting. Even such a multifaceted practice as the market cannot be usefully understood as separate from society.

The early economists have always understood this to be the case. For a plurality of reasons, one among these being a streak of physics-envy, economists have abstraction to an extreme in the name of academic rigour. Many economists have looked at the market as fully separate, oddly in line with Marxists. While precision has certainly increased, relevance has definitely not. Rather the opposite.

Fortunately, this is realized by many, and not just by economists, and so social economics has come into even more favourable light. Just as the first edition of the Elgar Companion to Social Economics, in 2008, offering cutting edge thought on core themes in social economics, the economic crisis hit much of the globe. To social economists this crisis did not come as a surprise – even though there is not a single social economists who will claim to have predicted the crisis’ occurrence to the day. Social economists are much too well aware of the complexity of the economy, and perhaps because of it too they are too modest too.

Not being afraid to go against the grain of contemporary economics that still separates the positive from the normative in science, and shuns the latter, social economists have developed a comprehensive approach to judging the current state-of-affairs of a setting. Is it duly serving the needs of all, and how can it be improved upon, tentatively? While recommendations will be provided with due care and caution, there is not the active resistance to stepping in to policy debates. Social economists want to change all society for the better, and particularly for those who are in danger of being excluded (and not just change in favour of some, for instance those who can cough up high speakers’ or consultants’ fees).

Social economists thus discuss high theory, connecting from what many will understand as economics-proper, but relate to domains in the social science that some might believe is beyond the scope of economics, even to domains that squarely no longer are economics. If a proper understanding of a problem demands that this be done, social economists should not and do not shy away from it. Social economists also do not shy away from philosophical discussions, continuously determining if its premises are in need of further strengthening. Never, however, is social economics involved in theory-for-theory’s sake, A’-C’ modelling exercises that only very few fellow economists can understand. Depth and rigour in analysis can never be an excuse for arcane academic work. Contributions to the Elgar Companion to Social Economics, 2nd Edition, are indications of this.


WilfredDr Wilfred Dolfsma is a member of the University of Groningen School of Economics and Business. He is Editor-in-Chief, with Robert McMaster, of the Review of Social Economy and Editor, with John Davis, of Elgar Companion to Social Economics, 2nd Edition.

This post was originally published on the Elgar Blog, and is reproduced here with permission of the author.

03/18/2015

Economics After the Crisis, by Irene van Staveren

Irene bookA year after the fall of Lehman Brothers, The Economist's headline proclaimed the end of modern economics. What has happened since? Well... almost nothing.

Mainstream and near-mainstream economic textbooks still sell like before. And INET has supported some initiatives that eliminate the rough sides of neoclassical thought and neoliberal policy advice. Very laudable initiatives, with, for example, Wendy Carlin's work on developing a new undergraduate curriculum CORE. But students of economics are not satisfied with these minor changes, so many years after the start of the financial crisis. Their Rethink Economics petition demands more fundamental changes to textbooks.

As a supporter of every single petition, pamphlet, op-ed, and plea for pluralism in economics before and after the crisis, I decided three years ago that I should practice what I preach. The result is Economics after the Crisis, a pluralist introductory textbook published by Routledge in January 2015. It offers a tool to understand the basics of economics from four theoretical perspectives either for use in the classroom or for self-study alongside a standard course book. The theories are presented in every chapter, micro and macro. And from interdisciplinary and close to real-world experiences to mathematically in an idealized world of perfect markets and agents following the single ethical guide of utility maximization. The book presents social economics, institutional economics, post Keynesian economics, and neoclassical economics and thereby shows that almost no economic concept or tool is theory-neutral. If only this message gets across, the book will have accomplished already more than I could hope for.

The window of opportunity to reform economic teaching is almost shut. Banks pass stress tests in Europe and the US while still being too big to fail. Nobel Prizes are awarded to economists who show no effort at all in rethinking economics. And economic policies ignore the danger of continuously increasing private and public debt, while shifting the consequences of such myopia on disadvantaged groups and whole populations.

If it is not now, we may have to wait for the next crisis to change economic thinking and teaching. I truly hope that the combined efforts of critical economists, activist students, and courageous teachers will help to make the change. We cannot afford to standby any longer.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

10/17/2014

There Is Little Happiness to Be Found in Happiness-Based Policy (Mark D. White)

By Mark D. White

Governments around the world are starting to measure happiness (or subjective well-being) with the goal of a more humane process of policymaking. According to supporters, happiness-based policy will focus governments’ attention on what really matters to their citizens, their essential well-being, better than economic measures such as gross domestic product or national income that are too far removed from the day-to-day concerns of the people.

While the intentions may be good, the benefits of happiness-based policy are illusory at best and counterproductive at worst. There are fundamental problems with defining and measuring happiness, as well as implementing policy based on it, that prevent it from being a viable alternative to traditional policymaking based on GDP and other economic statistics.

First, the term “happiness” is notoriously difficult to define. Philosophers have tried to do this for centuries, identifying and detailing many types of happiness but arriving at no universal definition. Songwriters, poets, and novelists have done a better job describing happiness in all of its nuance and glory, but this does not provide a solid basis for measurement. For the most part, psychologists and economists who try to measure happiness do not worry about definitions, satisfied that “everyone knows what is,” but with no guarantee that everyone knows it to the be the same thing. Happiness is simply too vague a concept to define precisely enough for measurement without excluding what many people consider happiness to be to them.

Second, there is no straightforward way to translate an essentially qualitative and subjective feeling such as happiness into quantitative data. Most happiness surveys consist of questions about the respondents’ current state of happiness or satisfaction with their lives, which they answer on a numerical scale with the units labeled “very unhappy” to “very happy” or “the least satisfied I can imagine” to “the most satisfied I can imagine.” Even if the definition of happiness were clear, these labels are not. For instance, how a person interprets these labels depends critically on the experiences and circumstances of his or her life. A wealthy and successful CEO may feel she has not lived up to her potential, while the janitor in her building may be very pleased with his lot in life. Human beings have the ability to adapt to their life circumstances, which explains why people living in deplorable conditions may nonetheless report high levels of happiness and well-being. This also implies that the steps on the happiness scale are inherently subjective, nonuniform, and incomparable, rendering them unable to support the mathematical processes researchers need to perform on them to provide information for policymakers.

Finally, even if there were no problems with definition or measurement, happiness-based policymaking raises numerous ethical and political issues when it comes to implementation. For example, would the government target a growth rate for happiness? This is problematic in light of the “hedonic treadmill,” by which we work hard to achieve more happiness, only to adapt to that level and strive for more. In the end, we work more and more and end up with little increase in happiness, and the same would likely hold for official happiness “stimulus.” Another concern is the possibility of significant inequality of happiness: due to adaptation, the underprivileged may report levels of happiness that mask their circumstances while the affluent express dissatisfaction and boredom. Would we then redistribute resources from the poor who seem happy to the rich who don’t? Finally, people often give up some happiness now in exchange for more later, such as when they go to school or on a diet. How would government measures focused on the now take account of investments in the future? All of these are questions that policymakers will be forced to struggle with if they choose to base policy on measures of happiness.

Given the inherently vague, qualitative, and subjective nature of happiness, it is impossible to define and measure it well enough for the purpose of policymaking. This is not a simple matter of refining statistical techniques; the problems with happiness measurement are more fundamental than that.

There is, however, a better way. Instead of trying to determine what happiness is and how to measure it, the government can trust individuals to make choices in pursuit of their own interests. Instead of trying to boost the happiness of those doing fairly well, the government can devote its resources to alleviating the suffering of the poor. Instead of targeting the general level of happiness based on arbitrary definitions and inaccurate measurement, the government can address specific problems that their citizens tell them need to be addressed.

In short, the government does not need to define, measure, and evaluate happiness in order to find problems to address. There are enough problems facing the country that are readily apparent. Liberals, conservatives, and libertarians may disagree about the scale and scope of what government should do, but I think they would all agree that the government should deal with the problems at hand rather than invent new ways to find them. In the end, that may be the best way to make people happy.

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1 me may 2014 sqMark D. White is chair and professor of the Department of Philosophy at the College of Staten Island/CUNY and currnetly serves as president of the Association for Social Economics. This post was originally published at Economics and Ethics and is reprinted with the permission of the author. It is based on his latest book, The Illusion of Well-Being: Economic Policymaking Based on Respect and Responsiveness (Palgrave) and an earlier article from the Review of Social Economy, "Can We—and Should We—Measure Well-Being?" He can also found on Twitter: @profmdwhite.

10/10/2014

From Piketty to Law and Political Economy

By Frank Pasquale

Thomas Piketty's Capital in the Twenty-First Century continues to spur debate among economists. It has many lessons for attorneys, as well. But does law have something to offer in return? I make that case in my review of Capital, focusing on Piketty's call for a renewal of the social science of political economy. My review underscores the complexity of the relationship between law and social science. Legal academics import ideas from other fields, but also return the favor by informing those fields. Ideally, the process is dialectic, with lawyers and social scientists in dialogue.

At the conference Critiquing Cost-Benefit Analysis of Financial Regulation, I saw that process first hand back in May. We at the Association of Professors of Political Economy and the Law (APPEAL) are planning further events and projects to continue that dialogue.

I also saw a renewed synergy between law and social sciences at the Rethinking Economics conference last month. Economists inquired about bankruptcy law to better understand the roots of the financial crisis, and identified the limits that pension law places on certain types of investment strategies.

Some of the organizers of the conference recently took the argument in a new direction, focusing on the interaction between Modern Monetary Theory (MMT) and campaign finance reform. "Leveling up" modes of campaign finance reform have often stalled because taxpayers balk at funding political campaigns. Given that private campaign funders' return on investment has been estimated at 22,000%, that seems an unwise concession to crony capitalism. So how do we get movement on the issue?

For MMT backers, the answer is relatively clear:

[M]oney is not a feature of our natural environment, but a social construct, mediated by law. . . . One profound implication of this view is that the common belief that the U.S. federal budget is constrained like a household budget is a myth. . . . The U.S. federal government does not need to tax or borrow in order to fund itself. Taxes accomplish many functions, but they do not “fund” federal government spending. . . .[For] the campaign finance reform community to increase its chances of victory in implementing its policies (especially those aimed at changing the initial distribution of economic power), it must provide a more truthful and accurate account of the relationship between governance and modern money. In order to win over skeptics, campaign finance reform advocates need to explain that neither the national fiscal position nor people’s checkbooks need suffer in order for a scheme like democracy vouchers to work. People need to hear that it is right and reasonable for them to ask that public money be put to work for public purpose.

We do see the unrestrained money-creating capacity of the government on display in endless rounds of "quantitative easing." The AIG trial reminds us that intervention can become extraordinarily fine-grained and manipulative. Modern monetary theorists seek to harness that power in favor of public purposes, such as infrastructure building, campaign finance, or other investments. And we should be under no illusion that they are trying to shift economics from a stable science to politicized ideology. Dominant paradigms of economics in general (and public finance and accounting in particular) are the site of constant struggle over values. Advocates of austerity push for "fair value accounting" and "dynamic scoring," for little discernible purpose other than upward wealth redistribution. If those committed to some baseline of infrastructure, health, and education fail to press back with our own theory of public finance, we will fail, both intellectually and strategically.

To return to my original, methodological concern: a renewed emphasis on a key legal insight (the government cannot default on debt it issues in its own currency) can lead to an adjustment to economic theory (MMT), which in turn informs a new legal proposal to get past the current, futile campaign finance reform debate. It's a movement from legal insight to economic insight back to legal insight, or L - E - L. Of course, any implementation of MMT-driven campaign finance reform will need to sidestep SCOTUS's AZ FECFCPAC v. Bennett strictures. But that will be a much easier task than, say, trying to impose limits on spending by wealthy candidates or corporations. Just as MMT gets us past the zero-sum logic of taxation and CBO scoring in fiscal policy generally, it transcends the usual "level playing field" or "equal influence" paradigm of campaign finance. The legal foundations of MMT make it both scientifically, and normatively, a better theory of our economic system than the dominant paradigms of monetary policy.

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PasqualeFrank Pasquale is Professor of Law at the Francis King Carey School of Law, University of Maryland. His research addresses the challenges posed to information law by rapidly changing technology, particularly in the health care, internet, and finance industries. His book The Black Box Society: The Secret Algorithms That Control Money and Information (Harvard University Press, 2015) develops a social theory of reputation, search, and finance. He is also a prolific blogger, posting at both Balkanization and Concurring Opinions; this post is reprinted from the former with the permission of the author.

10/06/2014

Econogenic harm, economists, and the tragedy of economics (George DeMartino)

By George DeMartino

DemartinoIn a recent editorial in The New York Times Harvard economist N. Gregory Mankiw acknowledged that economists have:

only a basic understanding of how most policies work. The economy is complex, and economic science is still a primitive body of knowledge. Because unintended consequences are the norm, what seems like a utility maximizing policy can often backfire.

Mankiw infers from this grave epistemic problem an ethical duty among economists to apply the Hippocratic principle “first do no harm” when assessing policy. On this basis he assails both the Affordable Care Act and new initiative in the US Congress to raise the legislated minimum wage. Both “fail the do-no-harm test”: the Affordable Care Act will lead to the termination of some insurance policies that don’t meet the standards required under the law, while raising the minimum wage “would disrupt some deals that workers and employers have made voluntarily.” But of course, applying the Hippocratic principle consistently would also require Mankiw to assail rather than support those policies to which he has an ideological affinity. Like free trade (which he supports), for instance, the harms of which to US workers surely exceed those of Obamacare. As J.R. Hicks recognized seventy-five years ago, any policy intervention that affects relative prices—which is to say, all interventions —“benefits those on one side of the market, and damages those on the other.” Surely Mankiw knows all this. What is troubling, then, is not Mankiw’s worry about the potential harm of the economic policies he opposes. He is quite right to expose the harms he associates with one policy or another. The problem is the ineptness and obvious bias with which he introduces ethical concerns into policy debate.

Continue reading "Econogenic harm, economists, and the tragedy of economics (George DeMartino)" »

03/11/2013

Is Jeffrey Sachs taking the name of Keynes in vain?

By Steven Pressman

Jeffrey Sachs has written an unbelievably bad piece for the Huffington Post. The piece is a follow-up to his Washington Post op-ed with Joe Scarborough entitled “Deficits Do Matter” as well as Krugman’s response to this op-ed on his New York Times blog.
 
I don’t really want to delve deeply into the issue of whether or not a short-term stimulus will contribute to economic growth and employment. That is an issue on which I will not likely convince Sachs or opponents of fiscal stimulus.
 
What I mainly want to take issue with is using the name of Keynes in vein, and presenting a misleading view of what Keynes wrote to argue against the sort of Keynesian stimulus that Keynes himself clearly supported. It is hard to read The General Theory, especially when thinking about the context in which it was written, and not see that Keynes was proposing an active policy of tax cuts and government spending in order to increase demand and put people to work. Many other writings by Keynes from the early 1930s (and even earlier) make the same point about fiscal policy. It is clear where Keynes stands on deficits in the midst of high unemployment; to imply otherwise is to do Keynes a grave injustice.

Sachs starts by quoting Keynes on the need for structural policies to deal with the unemployment problem facing the UK in 1937. In an article in The Times, Keynes wrote in 1937: "We are in more need today of a rightly distributed demand than of a greater aggregate demand." Then, adopting the debating technique of the non-sequitur, Sachs accuses Krugman of holding several views that he calls “crude Keynesian” and refers to some of Keynes’s writing that seems to support this. He then moves on to critique some elements of this crude Keynesian economics.
 
First, the one sentence quotation from Keynes is not a clarion call for structural policies; nor is it an admission that the UK was experiencing structural rather cyclical unemployment (it was written when unemployment in the UK was 12%). For a long time Keynes had supported policies that would increase demand through redistribution—policies such as family or child allowances financed by higher taxes on business profits. His 1930 article in the Political Quarterly, "The Question of High Wages," makes the case for such redistributive policies in order to raise demand. This piece also advocates greater government spending on social insurance programs, pensions and "useful expenditures" such as health, education and travel.

All this is not really much different from what Keynes set forth in The General Theory. To argue that Keynes abandoned Keynesian demand policies for structural policies based on this single sentence fails to do justice to Keynes. The sort of policies he supported in 1937 were the sort of policies he had supported for years—running large government deficits in times of unemployment (and surpluses in good economic times) in the belief that unemployment was cyclical in nature. His preferred solution was always the sort of public investments that most economists (including Jeff Sachs) advance and support. But Keynes was a realist. He knew that when, for political reasons, we could not build schools and hospitals, or invest in pre-school, we would have to print money and bury it in abandoned coal mines—the deficit be damned. Keynes was focused on a practical means to increase demand and employment; he wanted the biggest bang in terms of jobs for the lowest buck (government deficits). If Sachs would only read some Keynes, or some good commentaries on Keynes (the chapter on Keynes in my book 50 Major Economists is a simple and easy place to start), he would at least get Keynes right.
 
Sachs’ rejection of crude Keynesian economics because it depends on a particular value of Keynesian multipliers and assumes their consistency over time is even more disturbing. It is also really beside the point. It does not matter if the spending multiplier is 1.5 or 1.3 or even 1.7. And it does not matter if the value of multiplier changes or varies within this range, as long as fiscal policy does what it is supposed to do and creates jobs. In fact, even if the government spending multiplier were 1, and even if it varied substantially around its mean value of 1, each dollar of government spending would increase GDP by one dollar (on average) and more jobs would be created as a result. There is absolutely nothing in Keynes and nothing Keynesian that requires a large and stable multiplier. Again, some familiarity with Keynes and Keynesian economics before writing about them is the least one would expect from an economist teaching at Columbia.  
 
This would somewhat excusable if the debate were mainly a matter of abstract theory. But much is at stake here. At this point in time, the choice for both the US and Europe seems relatively simple. Are we to have a stimulus program in the face of high unemployment, as Keynes advocated? Or are we to have austerity and extremely high rates of unemployment? Do we have Keynesian economics or do we have de-Keynesian (pardon the pun) economics due to Jeff Sachs?

Steven Pressman is Professor of Economics and Finance at Monmouth University in Long Branch, NJ, USA. He is a trustee of the Association for Social Economics and a member of the editorial board of Forum for Social Economics, as well as the North American editor of Review of Political Economy and associate editor/book review Editor of Eastern Economic Journal. He is author/editor of more than a dozen books, including Fifty Major Economists, 3rd ed. (Routledge, forthcoming in 2013), and can be found on Facebook and Twitter.