Re: [OPE-L] Teaching Tautologies : dynamic or static?

From: Anders Ekeland (anders.ekeland@ONLINE.NO)
Date: Mon Mar 14 2005 - 02:46:14 EST

Dear David L,

- look forward to read the paper, but

are these thoughts/models formulated mathematically as difference or
differential equations, i.e. a real dynamic model, or is this traditional
curve-shift analysis?

The latter is IMHO inadequate for real analysis of stability, robustness of
results etc.

So if static - did you check stability etc. with a "larger" dynamic model?
Just curious.


At 19:10 13.03.2005, dlaibman@JJAY.CUNY.EDU wrote:
>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
>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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> >
> >

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