Re: [OPE-L] Teaching Tautologies : a response to David L

From: dlaibman@JJAY.CUNY.EDU
Date: Sun Mar 13 2005 - 13:10:19 EST

Gerry (and OPE),
  This discussion might work better if OPE listmembers had copies of the paper, or knew its argument.  I would be happy to attach the paper, but the diagrams -- which are essential to the argument -- are not (yet) in electronic form, and I have not gotten enough specific and operational advice on how to get them there.
  In the meantime, the essential point of the paper is this.  New classical macroeconomics (the vertical long-run aggregate supply curve) assumes money wages are flexible, and the real supply of labor -- the labor supply curve, drawn against the *real* wage rate -- is fixed.  I propose a "dual": the money wage rate is fixed, but the supply of labor, based on the real conditions facing workers as determined by the recent history of wage bargains, is variable.  I call this latter the "Dobb Effect," for Dobb's 1929 article (which, incidentally, is clearly a development from Sraffa's much better known 1926 piece).  The the real wage rate, w, is pushed below a customary or standard level, w*, the workers' social condition deteriorates and they have no choice but to offer more labor at every wage: the supply curve of labor shifts outward.
   Under these circumstances, a demand expansion that raises the price level in the goods market will push w below w*, the Dobb Effect will kick in, and AS will shift to the *right*: as workers offer more labor (overtime, multiple jobs, etc.), output rises and the price level *falls* to accommodate this.  The new equilibrium is established at the old price level (which I call P*), and a new level of output consistent with AD at that price level.  The long-run aggregate supply curve is *horizontal*, and Keynes is vindicated.
   The paper also sketches a synthesis of the two models (New Classical; New Critical).  Preliminary result is that the synthesis multiplier is positive.  Policy has real effects, even with full price flexibility and rational expectations, etc. etc.  This is not a return to "fine-tuning," of course: the social cost of the real effect of the demand expansion is deterioration in the social position of the working class, with the attendant disequilibrating effects.  (Note that this implies a full measure of exploitation that goes beyong the usual rate of exploitation or wage share.)
   This may be too condensed a statement to be fully useful to anyone who hasn't read the paper, and/or is not already steeped in the fashions of present-day macroeconomics.
   In response to (a few of) Jerry's points:
   First, my argument uses the tautology, real wage rate = money wage rate divided by price level.  So does the New Classical story.  I think no one will dispute the fact that if the price level increases while the money wage rate is constant, the real wage rate falls.  The *story* takes off from there; the Dobb Effect is the effect of the fall in w (below w*) on the real supply of labor.  That is not a tautology.  In fact, it may not even be true!  If it is true, it may take effect in too long a time frame for it to serve as the basis for a policy impact in the short run.  And empirical evidence is not too clear on it (of course, empirical evidence is not clear on the New Classical story either).  All economic models use some combination of behavioral assumptions, definitions (tautologies), and (where appropriate) equilibrium conditions.
    Second, OPE folks need to be clear: this is an attempt at *immanent critique* of mainstream macroeconomics -- to get under their skin, in their own terms, and upset the dogma of policy ineffectiveness -- the main conclusion of the free-market hegemony.  For this purpose, I use *their* tools.  I use, yes, diagrams.  You need to answer one diagrammatic argument with another one, not with something that could be taken to be a mooshy evasion.  I simply assume, in this paper, the usual downward sloping AD curve.  *Of course* all of this needs to be questioned in the full light of Marxist categories.  But the limited purpose of this one paper needs to be borne in mind.  If we can provide a simple, compelling case that makes the AS curve not vertical after all, and opens up a discussion of the wider social effects of fiscal and monetary policy, is that not something worth doing?
    On a more theoretically rigorous terrain, we will then need to ask: is there a Marxist analysis of the capitalist short run?  In other words, should we even bother to try to construct a theory of capitalist behavior in a period in which productivity, population, and physical capital stocks in place are all constant?  This behavior would then be the basis for a theory of how the capitalist economy responds in the short run to (capitalist) government policy moves.  Is this a useful inquiry, or should we simply assume that it is submerged in the dynamics of accumulation, crisis, etc.?  I am not sure, but I do think the immanent critical strategy is important to develop in the meantime.
    In solidarity,
David Laibman

----- Original Message -----
From: Gerald_A_Levy@MSN.COM
Date: Saturday, March 12, 2005 7:01 pm
Subject: [OPE-L] Teaching  Tautologies : a response to David L

> I also attended the EEA session last week chaired by David L.
> Besides David,  Ingrid Rima and Mary C. Cleveland presented
> papers.  Cleveland is a modern-day disciple of Henry George
> and there were a number of  other people at the session who
> also admired George.  In a throw-back to the period before
> George, she presented a *corn model* in her paper on "Inequality
> and Macroeconomic Instability".   When Rima emphasized in
> her presentation that "money matters", I thought there would be
> a discussion of the failings of the moneyless corn model but no
> one picked-up on that issue.  Interestingly, David suggested that
> a Marxian response to the writings of Henry George could be
> found in Blake's _An American Looks at Karl Marx_.  Yet,
> when I reexamined my copy later I couldn't find a whole lot in
> Blake on George.
> Now I turn to David's paper and the main concern of this post.
> You might recall that David told us about his paper presenting a
> "new critical" macro proposal some time ago:
> > I call it the "Dobb Effect," linking Maurice Dobb's 1929
> article, "A
> > Skeptical View of the Theory of Wages," to macro policy issues
> (which he
> > did not do).  Macro policy moves a) influence the *balance of class
> > forces* (a  term that does *not* appear in the paper!); and b)
> flatten> out the AS curve  (even in the presence of full price
> flexibility and
> > rational expectations).
> The context of David's paper is that it addressed a point related to
> the _teaching_ of  (undergraduate) intermediate macroeconomics.
> This is an important point to remember -- which I will return to
> later in the post.
> Employing the well-known graphics of an aggregate supply and aggregate
> demand curve graph, David sought to demonstrate the consequences of
> increasing aggregate demand (under a condition I am about to mention)
> on the working class.
> In listening to David's presentation, I realized that the point of his
> formalism could be made even more simply without equations and
> graphs.
> Start by assuming a fixed money wage rate.
> Then, suppose that aggregate demand grows.
> Consequence:  the working class is hurt.
> I can hear you say:  could you run that by me one time again?
> Sure.  I'll change the words a little.
> a) Start (as before) by assuming that there is  a fixed money wage
> rate.
> b) Then, suppose that there is a general rise in prices
> (inflation) caused
>    by an increase in aggregate demand.
> c)  Real wages for workers decline.
> From the foregoing, David was able to further hypothesize (in my view,
> quite reasonably) that under these conditions workers will often
> attempt to maintain their real wage by taking a 2nd and/or possibly
> a 3rd job.
> What became obvious to me is that -- despite the elegant graphics
> and formal equations -- c) was simply, under the conditions of a)
> and b),
> a *tautology*.    I thought ...  well ... yeah ... of course ...
> if money
> wages
> are fixed and there is inflation then real wages will decline *by
> definition*.
> So, in the discussion that ensued, I called this to the attn. of
> DL and
> asked
> him why his proposition wasn't a tautology.
> I don't recall his exact response, but it seemed to me to make
> two points:
> i) it was more than a _simple_ tautology in the sense that it
> embodied particular historical and conceptual understandings about
> the wage.  For example, the proposition that the money wage
> rate was, especially in the short-run, fixed was based on the
> Keynesian idea that money wages are "sticky."
> ii) it _was_ a tautology but tautologies have legitimate uses in
> political economy.
> I'll grant him i).
> ----------------------------
> I'm wondering if we could have a discussion on  *what, if any, are
> the legitimate uses of tautologies in political economy?*
> Can any of you, including David, explain _when_ it is appropriate
> to base theoretical understandings on tautologies and _when_ it is
> inappropriate?
> ---------------------------
> Now, I return to the context that this issue came up for David
> in  *teaching* intermediate macroeconomics.
> I'll grant that it is a legitimate and important point to make in the
> classroom in order to explain the meaning of  inflation for workers
> under varying conditions.  I'll even grant that David's paper
> describeswhat I take to be a *historical pattern*.  I think it's
> especially true
> during high inflationary periods -- e.g. his graphs could be used
> to suggest why in the US in the 1970's, more and more working
> class families had two income earners rather than one.  (Of course
> it's not the whole explanation.  I'm sure DL would agree.  But, it
> is a large part of the story.)
> What really confuses  me, though, is that David said that when
> he presented his graphs in the classroom to make this point,
> his students really *appreciated* the graphs.  This made me think:
> what kind of students does DL teach?
> I can tell you that my students *strongly* prefer that I keep
> the graphs presented in the classroom to a minimum.  Indeed,
> when graphs are drawn -- no matter how well explained by the
> instructor -- there are always some students whose eyes
> glaze over.  They can think logically, no doubt.  But they are
> not used to and don't generally like graphs.
> Well, of course, you have to have _some_ graphs when teaching
> economics, but were equations and graphs really needed for
> DL to forcefully make the point in the classroom that he wanted
> to make?  I don't see why.  After all,  any relationship that can
> be expressed graphically can also be expressed orally and verbally.
> And, in this case, I think that his point could have been made
> easier *without* graphs.
> So,  it makes me wonder:  is there something wrong with his
> students or mine; is his teaching too graph-intensive or is my
> teachingnot graph-intensive enough?
> ------------------------------
> Are elegant graphics really needed to explain tautologies?
> What other tautologies are *taught* in the economics classroom?
> What are examples of legitimate tautologies advanced by Marx
> in his presentation in _Capital_?
> What are examples of legitimate tautologies advanced by Marxians
> in the presentation of political economy?
> Do we all teach what a tautology is in the classroom?  What do we
> say?  In particular, what do we tell students about the legitimate
> (?)  *uses of* tautologies in economic theory?
> In solidarity, Jerry
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