RE: [OPE] David Harvey on stimulus failure

Date: Thu Feb 12 2009 - 10:05:24 EST

> Suppose, Paul, that you lent me money, and for some reason I cannot pay it back.
> Yes, you can of course kindly cancel the debt and thereby annul any possibility of
> reclaiming the money at any future point in time or from a third party. But in that case,
> why would anybody lend money to me again? I imagine that I might start again, but not
> get anywhere anymore.
The fallacy of composition is the mistaken belief that what is true for one (or a part) is true
for the whole. Thus, if someone asserts that what's true for an individual (consumer, worker,
firm, market, nation, etc) is true for all (consumers, workers and classes, firms, markets, nations,
etc), then someone would be committing the fallacy of composition. (NB: the inverse is also
a fallacy: the mistaken assumption that what is true for the whole is also true for all parts
is called the 'fallacy of division' and I think that it is very widely and commonly committed
by Marxians, but that's another story which I will discuss on another occasion perhaps.)
The reason the above strikes me as an example of the fallacy of composition - to the
extent that it was an argument with Paul C about the debts of banks being cancelled - is that
you were making inferences about what would happen to all former debtors based on
what it might mean if one person (you) didn't pay back a debt. But, clearly, if all bank
debts were cancelled that would be a very different situation and you could no longer
reasonably conclude that the consequences for former debtors would be the same.
While I am not firmly committed to this position, I tend to believe that if the debts were
cancelled then the banks (not necessarily the same banks, but perhaps the new banks
that might emerge from the rubble of the financial system) would indeed lend money to
former debtors who had their debt 'forgiven'. It is in the interests of banks, after all, to
once again increase lending. Furthermore, a major 'player' (the state, including
the Fed) that doesn't enter into the picture of what might happen to one debtor if her/
his debts were not repaid would certainly have a role in determining what would
happen in a reconstituted banking system. E.g. the Fed could, through various means,
encourage banks to lend to these groups - if they wanted to.
I agree with some comments you made in your next post: e.g. I agree that debt
cancellations are not "intrinsically progressive" and that one needs to look at
"the specifics of the case".
Getting back to Harvey's perspective, I tend to agree with him that the stimulus
package is almost certainly going to fail. At best, it simply causes the loss of
jobs to be less than it otherwise might have been. You can see this if you look at
the details for how the money is going to be spent. There won't be a whole
lot of new jobs created and those that are will often be temporary and short-lived.
I also am sympathetic to Paul C's suggestion that "the only way out is to press
re-set". We have all heard the arguments that the large banks are "too big to
fail". But, as Tony T argued, there is a lot of reason to believe that they are also
"too big to save". If the latter is the case, then - even from capital's perspective -
it might make more sense to let them fail (a kind of controlled demolition) and
then to "re-boot" the financial system. Obviously, there's a lot more that can and
should be said about this, but I'll leave it at that for now. What do others on the
list think?
In solidarity, Jerry

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Received on Thu Feb 12 10:07:21 2009

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