Tag Archives: joan robinson

Free Trade? Heterodox Dissent

One of the most important message of this blog is that “free trade” is quite devastating to economies. In a recent article Economists Actually Agree on This: The Wisdom of Free Trade for The New York Times, Greg Mankiw once again pushes for free trade and also mentions that there is consensus in the profession.

Many of heterodox economists dissent on the issue of free trade. In this post, I will provide two examples: Joan Robinson and Wynne Godley.

Mankiw says:

Economists are famous for disagreeing with one another, and indeed, seminars in economics departments are known for their vociferous debate. But economists reach near unanimity on some topics, including international trade.

In the article, Mankiw tries to show among other things how free trade is the opposite of Mercantilism. Joan Robinson explained in her 1977 essay What Are The Questions? how foreign trade is important and that free trade is a subtle form of mercantilism.

According to Robinson:

A surplus of exports is advantageous, first of all, in connection with the short-period problem of effective demand. A surplus of value of exports over value of imports represents “foreign investment.” An increase in it has an employment and multiplier effect. Any increase in activity at home is liable to increase imports so that a boost to income and employment from an increase in the flow of home investment is partly offset by a reduction in foreign investment. A boost due to increasing exports or production of home substitutes for imports (when there is sufficient slack in the economy) does not reduce home investment, but creates conditions favorable to raising it. Thus, an export surplus is a more powerful stimulus to income than home investment.

In the beggar-my-neighbor scramble for trade during the great slump, every country was desparately trying to export its own unemployment. Every country had to join in, for any one that attempted to maintain employment without protecting its balance of trade (through tariffs, subsidies, depreciation, etc.) would have been beggared by the others.

From a long-run point of view, export-led growth is the basis of success. A country that has a competitive advantage in industrial production can maintain a high level of home investment, without fear of being checked by a balance-of-payments crisis. Capital accumulation and technical improvements then progressively enhance its competitive advantage. Employment is high and real-wage rates rising so that “labor trouble” is kept at bay. Its financial position is strong. If it prefers an extra rise of home consumption to acquiring foreign assets, it can allow its exchange rate to appreciate and turn the terms of trade in its own favor. In all these respects, a country in a weak competitive position suffers the corresponding disadvantages.

When Ricardo set out the case against protection, he was supporting British economic interests. Free trade ruined Portuguese industry. Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism. When Britain was the workshop of the world, universal free trade suited her interests. When (with the aid of protection) rival industries developed in Germany and the United States, she was still able to preserve free trade for her own exports in the Empire. The historical tradition of attachment to free trade doctrine is so strong in England that even now, in her weakness, the idea of protectionism is considered shocking.

[emphasis: mine]

According to her colleague Wynne Godley, dissenting against free trade was one of the most important reasons for his dissent against the profession. In his short autobiography written in 2001 for A Biographical Dictionary Of Dissenting Economists (Edward Elgar book site), Godley says:

There are two aspects (in particular) of the work of the CEPG [Cambridge Economic Policy Group] which put its members into a category which may he termed ‘dissenting’. The first – a matter mainly of concern to the modelling fraternity and academic econometricians – was the unconventional view we took about how to construct and use an econometric model. Thus we attached prime importance to what may be termed ‘model architecture’ by which I mean that the underlying accounting was coherent, without any ‘dustbin’ equations or sectors; everything came from somewhere and went somewhere. Our view, by which I still stand, was that model architecture in this sense takes priority over parameter estimation; I am even prepared to conjecture that a properly a ‘architected’ model will deliver much the same results over a wide range of parameter estimates, particularly if the model is used for the simulation of medium- or long-term scenarios. Furthermore our use of the model was unconventional in that we treated it, not as something which would generate accurate forecasts of what would actually happen, but as a tool that informed our minds as to a great many possible outcomes conditional on a wide range of alternative assumptions both about exogenous variables and about parameter values. In using our model in this way we were greatly assisted by Cripps’s programming expertise, which permitted us to work with a speed and flexibility not generally available at that time. I should add that econometrics, as usually defined, played (advisedly) a relatively minor role in our work.

The second, and more egregious, respect in which we became a ‘dissident’ group was that, as a result of trying to think through the possible ways in which Britain’s net export demand might be improved, we entertained the possibility that international trade should be, in some sense, ‘managed’. There might, we argued, be no way in which the adverse trends could be reversed other than some form of control of imports. Our argument (see for instance Cripps, 1978; Cripps and Godley, 1978) was never one in favour of protectionism as normally understood – that is, the selective and unilateral protection of relatively failing industries under conditions of general stagnation. On the contrary, we were most careful to lay down conditions under which the management of trade would benefit not only our own country (without making its industry less efficient) but would also increase the level of trade and output in the rest of the world. The two basic principles were, first, that trade management should reduce import propensities without ever reducing imports themselves (in total) below what they otherwise would have been; and, second, that ‘protection’ should be as minimally selective as possible (for example, through the use of market mechanisms such as auction quotas) so that industrial inefficiency would not be sponsored.

I was surprised by the hostility with which our ideas about trade were received. It seemed to me at the time, and still seems to me, that the arguments actually used against us (at their most coherent by Maurice Scott et al., 1980) did not, in practice, rest on a well-articulated theoretical position but on very special assumptions about behavioural relationships and international political responses. (I have, to the best of my ability, answered these particular points in Christodoulakis and Godley, 1987.)

The ‘dissident’ argument in favour of managed trade is well summarized in Kaldor (1980), where he points out that the modern theory of international trade is based on the assumption that all production takes place according to the conditions described by the neoclassical production function, with constant returns to scale. Kaldor postulated instead, and he was surely right to do so, that the principle of circular and cumulative causation leads (through dynamically increasing returns) to a process, not of convergence, but of polarization between successful and unsuccessful economies in which success in competitive performance feeds on itself and losers become immiserated by trade.

The above quote is interesting from another perspective: it explains Godley’s views about modeling, policy, “forecasting” etc.

The Writings Of Joan Robinson

Maria Cristina Marcuzzo has a bibliography of Joan Robinson at her website. The scan is from a 7-volume set published by Palgrave Macmillan titled Joan Robinson: Writings on Economics. An earlier version appeared in the book The Economics Of Joan Robinson edited by Maria Cristina Marcuzzo, Luigi L. Pasinetti and Alessandro Roncaglia (Google Books link)

Joan Violet Robinson

(photography via NPG, London)

What a great writer. I was re-reading an article The Second Crisis Of Economic Theory (1972) and two passages caught my attention this time:

To understand how disconcerting the slump was it is necessary to recall the atmosphere of the times. For fifty years before 1914 the established economists of various schools had all been preaching one doctrine, with great self-confidence and pomposity – the doctrine of laissez faire, the beneficial effects of the free play of market forces. In the English-speaking world, in particular, free trade and balanced budgets were all that was required of government policy. Economic equilibrium would always establish itself. These doctrines were still dominant in the 1920’s.

That’s quite like talks about the “great moderation” before the current crisis.

And while discussion economic problems of nations …

These problems arise in the economies that boast of their wealth. Perhaps they can afford the luxury of an economics profession that builds intricate theories in the air that have no contact with reality. But this luxury is too expensive for the so-called developing world where the doctrines of laissez faire and the free play of market forces are exported along with armaments to keep them from looking for any way out of their infinitely more grievous situation.

Nice Thomas Palley Interview

Here’s a nice Tom Palley interview from yesterday with Erin Ade for the program Boom Bust where he touches on various economic issues of recent years for the United States and consequently for the rest of the world such as the global race to the bottom.

(h/t Matias Vernengo):

The interview points out the different meaning of what Keynesianism is and ought to be. In particular, it talks of the word stagnation and Palley points out that this phrase is not new and only recently have Paul Krugman and Larry Summers realized the importance of it.

As you may be aware, Joan Robinson used the phrase Bastard Keynesianism to describe the Samuelson et. al.

Incidentally, just today I read Joan Robinson’s article Full Employment And Inflation (originally a lecture from 1958 and published in her Collected Economic Papers, Vol II) where she talks of stagnation:

Formerly economic theory drew a very flattering picture of the private-enterprise system. It was depicted as a beautiful machine with delicately-balanced interacting parts and with a self-righting mechanism that ensured that it kept itself in balance. Full employment of labour was regarded as a normal state of affairs and stability in the value of money taken for granted. Equilibrium in international trade only required the abolition of tariffs and the maintenance of the gold standard. Any departure of actual developments from the ideal equilibrium  was regarded as due to frictions which the operation of the machine would overcome by itself, or were attributed to the stupid interference of governments which were often foolish enough to depart from the strict rule of laisser-faire. 

All this was shattered by experience in the inter-war period of massive unemployment and chronic crisis. A new theory was formulated by Keynes in place of the discredited orthodoxy. He showed that there is, in fact, no self-righting mechanism in a laisser-faire system. Periodic crises and chronic stagnation are quite natural and to be expected in an unregulated system, and the maintenance of full employment requires a strong and active government policy.

The Bastard Keynesians on the other hand, in the guise of “Keynesianism” simply ignore all this and in fact their views are quite the same as Robinson talks of in the first paragraph of the above quote. Of course in recent times, economists such as Krugman have changed a bit but finally their view of the world is still Samuelsonian or Pigouvian (in spite of the fact that Krugman did a mea culpa recently on this).

Joan Robinson On Economists

I managed to get hold of Joan Robinson’s article Marx, Marshall And Keynes, published by the Delhi School of Economics as Occasional Paper No. 9 in 1955 based on lectures given by her at the School and republished in her Collected Economic Papers, Volume II.

It is an interesting essay on economists in general via analysing the ideas of Marx, Marshall and Keynes. So here are some gems.

From Introduction (page iv):

… Analysis dealing with actual events encounters the difficulty that the answers to economic problems are only political questions. With politics, enters ideological prejudice. As Gunnar Myrdal has pointed out, the very choice of questions to discuss is an expression of ideology; yet I believe that economic analysis, though it cannot help containing an element of propaganda, yet can be scientific as well. This question is discussed in the first paper,  ‘Marx, Marshall and Keynes’.

I have always aimed to make my own prejudices sufficiently obvious to allow a reader, while studying the argument, to discount them as he thinks fit, though of course, this generally leads a reader of opposite prejudices to reject the argument in advance …

From the main essay (pages 3-5):

… Economic doctrines always come to us propaganda. This is bound up with the very nature of the subject and to pretend that it is not so in the name of ‘pure science’ is a very unscientific refusal to accept the facts.

The element of propaganda is inherent in the subject because it is concerned with policy. It would be of no interest if it were not. If you want a subject that is worth pursuing for its intrinsic appeal without any view to consequences you would not be attending a lecture on economics. You would be, say, doing pure mathematics or studying the behaviour of birds.

The once orthodox laisser-faire theory evaded the issue by trying to show that there is no problem about choosing policies. Let everyone pursue self-interest and free competition will ensure the maximum benefit for everyone. This obviously cannot apply where any over-all organization is necessary …

… Economic theory, in its scientific aspect, is concerned with showing how a particular set of rules of the game operates, but in doing so it cannot help them appear in a favourable or unfavourable light to the people who are playing the game. Even if a writer can school himself to perfect detachment he is still making propaganda, for his readers have interested views …

… This element of propaganda enters into even the most severly technical details of the subject. It cannot fail to be present when the broad issue of the system as a whole is under discussion …

… The description and the evaluation cannot be separated, and to pretend that we are not interested in the evaluation is mere self-deception.

In the section ‘Ideas and Ideology’, Robinson says:

We must admit that every economic doctrine that is not trivial formalism contains political judgments. But it is the greatest possible folly to choose the doctrines that we want to accept by their political content. It is folly to reject a piece of analysis because we do not agree with the political judgement of the economist who puts it forward. Unfortunately, this approach to economics is very prevalent …

… To learn from the economists regarded as scientists it is necessary to separate what is valid in their description of the system from the propaganda that they make, overtly or unconsciously, each for his own ideology. The best way to separate out scientific ideas from ideology is to stand the ideology on its head and see how the ideas look the other way up. If they disintegrate with the ideology, they have no validity on their own. If they make sense as a description of reality, then there is something to be learned from them, whether we like the ideology or not.

In the section ‘The Great Contradictions’ she says:

It is foolish to refuse to learn from the ideas of an economist whose ideology we dislike. It is equally unwise to rely upon the theories of one whose ideology we approve …

… In short, no economic theory gives us ready-made answers. Any theory that we follow blindly will lead us astray. To make good use of an economic theory we must first sort out the relations of the propagandist and the scientific elements in it, then by checking with experience, see how far the scientific element appears convincing, and finally recombine it with our own political views. The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.


Joan Robinson - Collected Economic Papers, Volume II

New Book By Felipe And McCombie

The production function has been a powerful instrument of miseducation.

– Joan Robinson (1953–54), The Production Function and the Theory of Capital, Review of Economic Studies, vol. 21(2), pp. 81–106. (jstor)

… that is how Jesus Felipe and John McCombie begin their new book The Aggregate Production Function and the Measurement of Technical Change.

I have observed that although neoclassical economists use the aggregate production function heavily, even those who do not learn it somehow err and assume it implicitly somewhere in their analysis. This book I believe is a rewriting of both authors’ work in this area collecting various papers written in many places — critiquing the very “foundation” of neoclassical economics.

From the publisher’s site for the book:

‘This is an extremely important and long-awaited book. The authors provide a cogent guide to all that is wrong with the theory and empirical applications of the discredited notion of an aggregate production function. Their critique has devastating implications for orthodox macroeconomics.’ – Anwar Shaikh, New School for Social Research, US

h/t Matias Vernengo

Happy New Year 2014

Here’s wishing the readers a happy new year. May you (and I) have a prosperous year ahead and learn more about the shell game of economists!

Good time to talk briefly about time.

Joan Robinson was perhaps the best critic of neoclassical economics and she did this by attacking the very basic concepts of mainstream theory. In her essay Time In Economic Theory (1980, Ch 7 in What Are The Questions?: And Other Essays), page 87 in Section 1: ‘Logical Time’ she says:

In a properly specified stationary state, there is no distinction between any one day and any other. On a properly specified growth path, such as a von Neumann ray, exhibiting a particular pace of expansion of employment and of a specified stock of means of production, there is no movement forward and upward or backward and downward, except the movement of the reader’s eye along the curve.

Unfortunately, the great majority of models in the textbooks are not properly specified. Take, for instance, the familiar Marshallian cross of supply and demand curves showing an equilibrium point in the middle. At a price above the equilibrium level, offer exceeds demand, and below, demand exceeds offer.

Now we are told, if price at any moment is not at the equilibrium level, it will tend toward it. This means that historical events are introduced into a timeless picture. As Professor Samuelson kindly explained to me, ‘When a mathematician says “y rises as  x falls”, he is implying nothing about temporal sequences or anything different from “When x is low, y is high”.’ 

To move implies a temporal sequence. To fill in the story of a movement towards equilibrium, a complicated dynamic process must be specified and to specify a process that will actually reach equilibrium is by no means a simple matter.

[emphasis added]

A footnote refers to page 138 of the book – another essay quoting Samuelson:

[Samuelson]: I do not think that the real stumbling block has been the failure of a literary writer to understand that when a mathematician says, ‘rises as falls’, he is implying nothing about temporal sequences or anything different from ‘when is low, is high’.

Robinson’s response is:

My dear sir! That is my point. I really cannot allow you to get away with that.

Unfortunately, economists keep getting away from this.

Joan Robinson - What Are The Questions And Other Essays Back CoverBack cover of What Are The Questions? …  And Other Essays

Happy Holidays

Here’s wishing the readers of this blog a happy holiday break.

Happy Holidays

 via hallmark.com

I can never repeat this often enough – always remember:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

– Joan Robinson, 1955, “Marx, Marshall And Keynes”, Occasional Paper No. 9, Delhi School of Economics. Also in Collected Economic Papers, Volume Two, 1960.


Manmohan Violet Singh

In a short recent speech, the Indian Prime Minister – the great man who steered the direction of the Indian economy in the early 1990s – says:

The purpose of the study of economics is not to provide settled answers to unsettled and difficult questions, but sometimes to warn economists and the world-at-large, how not to be misled by clever governments.

which is similar to what Joan Robinson once:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

– in “Marx, Marshall And Keynes”Occasional Paper No. 9, The Delhi School of Economics, University Of Delhi, Delhi, 1955.

I’d say Manmohan Singh doesn’t go as far as Robinson in putting the blame on economists themselves but I guess there is some amount of influence. But what Singh says is true – governments of advanced nations mislead the less advanced ones.

Also in the short speech:

I would like to say, that when we study economics, our impulse is not the philosopher’s impulse – knowledge for the sake of knowledge – but for healing that that knowledge may help to bring. These are the words of past thinkers: Wonder is the beginning of philosophy; but it is not wonder, but social enthusiasm, which revolts against the silence of fixed life, and the orderliness of the mainstream, which is the beginning of economic science.

Which is not not surprising since Manmohan Singh is influenced by Joan Robinson and Nicholas Kaldor. Here is a nice interview by the BBC’s Mark Tully from 2005 Architect Of The New India published in the October 2005 issue of the Cambridge University Alumnus Magazine. 

Here is an excerpt from the interview:

The thinking behind his solutions to India’s financial problems was first shaped at Cambridge by the theories of John Maynard Keynes. The great man had died almost 10 years before Manmohan Singh arrived but his legacy was still very much alive. ‘At university I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers, Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal, and made me think the unthinkable. She propounded the leftwing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development and social equity.’

‘Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work. So I was exposed to two alternative schools of thought. I was very close to both teachers, so the clash of thinking sometimes got me into difficulties. But that made me think independently.’

In Other News

The Reserve Bank of India announced some measures recently to curb the instability of the Indian Rupee:

The first announcement – effectively raising short term interest rates and which caught everyone by surprise – was on 15 July 2013:

The market perception of likely tapering of US Quantitative Easing has triggered outflows of portfolio investment, particularly from the debt segment. Consequently, the Rupee has depreciated markedly in the last six weeks. Countries with large current account deficits, such as India, have been particularly affected despite their relatively promising economic fundamentals. The exchange rate pressure also evidences that the demand for foreign currency has increased vis-a-vis that of the Rupee in part because of the improving domestic liquidity situation.

Against this backdrop, and the need to restore stability to the foreign exchange market, the following measures are announced:

On 23 July it further tightened monetary policy:

Over the last two months, the Reserve Bank of India (RBI) has undertaken several measures to contain the volatility in the foreign exchange market. Among them, some measures intended to check excessive speculation adding to undue volatility in market conditions were instituted vide the RBI’s Press Release No.2013-2014/100 dated July 15, 2013. These measures have had a restraining effect on volatility with a concomitant stabilising effect on the exchange rate. Based on a review of the measures, and an assessment of the liquidity and overall market conditions going forward, it has been decided to modify the liquidity tightening measures as follows:

There Is No Such Thing As A “Purely Economic” Problem That Can Be Settled By Purely Economic Logic

… and politics and ideology will seep into it.

Tom Hickey writes a nice reply to Noah Smith’s blog post How Normal People See Macroeconomics.

Smith says:

I’ve been thinking about these differences for a while, and I’ve reached two major conclusions:

1. Normal people see macro as inherently political.

2. Normal people see macro as being mostly about redistribution rather than about efficiency….

The whole essay is like economists are doing something value free and that politics is not important. Joan Robinson nicely summarized the situation in her essay What Are The Questions (jstor URL):

The movement of the thirties was a attempt to bring analysis to bear on actual problems. Discussion of an actual problem cannot avoid the question of what should be done about it; questions of policy involve politics (laissez-faire is just as much a policy as any other). Politics involve ideology; there is no such thing as a “purely economic” problem that can be settled by purely economic logic; political interests and political prejudice are involved in every discussion of questions. The participants in controversy divide themselves in schools – conservative or radical and ideology is apt to seep into logic. In economics, arguments are largely devoted, as in theology, to supporting doctrines rather than testing hypotheses.

Smith writes as if what he is doing is good for the society as a whole – despite the fact that his own colleagues are pushing their own ideologies in policy which is bad for society as a whole.

Smith also writes:

Many people see the “-isms” of macro – “New Keyneisanism”, “New Classicalism”, etc. – as political advocacy rather than as dispassionate scientific attempts to explain the world around us….

But it is right – people like Greg Mankiw have pushed their agendas. What is wrong with “normal people’s view” on this? They are exactly right. Mankiw’s defending the 1% is a dispassionate scientific attempt?

And the above Robinson quote is actually a dispassionate description of the situation than Smith’s own!

Who is Smith trying to fool here?

In fact,

One of the main effects … of orthodox traditional economics was … a plan for explaining to the privileged class that their position was morally right and was right for the welfare of society.

– Joan Robinson, 1937, “An Economist’s Sermon”, Essays In The Theory Of Employment, The Macmillan Company

Smith also writes:

If monetarists or New Keynesians (is there a difference?) suggest monetary expansion, for example, a lot of readers see it instead as a liberal attempt to use inflation to redistribute money from rich creditors to poor debtors, while a few see it as a conservative attempt to boost the profits of big banks. Only a small minority seem to consider the question of whether monetary expansion is a Pareto efficient response to the business cycle. Because of this, monetarists like Scott Sumner often spend a lot of time “punching hippies” on every issue other than monetary policy, trying to avoid being tarred as hippies themselves for their lack of fear of inflation.

Whatever Pareto efficiency is.  But it is mainstream economists themselves who have promoted deflationary policies by selling them to the public that such policies are good for them. Monetarism was a scourge in the 1980s and has permanently distorted economists and the common man. Now he completely avoids history and presents the case as if (mainstream) economists want a rise in demand, not the normal people!

Games Economists Play

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

– Joan Robinson, 1955, “Marx, Marshall And Keynes”Occasional Paper No. 9, The Delhi School of Economics, University Of Delhi, Delhi.

It is fun to watch what economists have to say after the recent Reinhart-Rogoff episode and look at their behaviour.

To be brutally straightforward, I think economists are playing games here to mislead and deceive everyone. Mainstream economists in the past few days have been trying their best to persuade everyone into believing that they are modest people and economics is a hard science* and it’s two outliers who have misled politicians into worldwide austerity etc.

So we hear Mark Thoma saying something like lack of sufficient data prevents economists from choosing the best model. It gives the impression that mainstream economists broadly know how the world works and that they are just unable to give the best solution from a pack of 10 good models. But it hides the fact that at the most elementary level, macroeconomists struggle to even understand basic macroeconomics and that there exists a supreme Post-Keynesian alternative.

In a recent NYT blog post Destructive Creativity Paul Krugman tries his best to mislead everyone about the status of macroeconomics.

According to him:

If you stayed with Econ 101, you got it right, if you went with the trendy stuff you made a fool of yourself.

It is the most inaccurate statement about the state of macroeconomics and reflects poorly on someone who has written articles such as A Dark Age Of Macroeconomics. Econ 101 – as taught in most universities – is deeply misleading and erroneous.

I won’t go into how chimerical macroeconomics is because there are already a few good blogs there. This post is not about attempting to prove how economics taught at universities is chimerical but to point out games economists play.

Krugman tries to play a supergame on top of what other economists are doing. He says:

You can already see quite a few people reacting to this affair by declaring that macro is humbug, we don’t know anything, and we should just ignore economists’ pronouncements. Some of the people saying this are economists themselves!

No, this is misleading. Mainstream economists are not saying this really but are playing games. Those who have been saying that mainstream economics is a chimera have been saying this for a long time. There is hardly any new entrant in this from within the orthodox community. And Krugman tries to defend the subject itself:

What we have experienced since 2007 is a series of huge policy shocks — and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall.

There are three things wrong about this. First, basic macroeconomics did not make these predictions. Second, Krugman – as he has done in the past – is saying that in liquidity trap situations exceptions appear and more importantly he knew it beforehand! Third, Krugman says Econ 101 notes the exception.

(Some great tactics to avoid saying that Econ 101 is garbage).

Of course some points should be given to Krugman because he has been saying things which are different from most of his colleagues but it is incorrect and thoroughly misleading and to say that Econ 101 survives the crisis.

*of course true that Macroeconomics is hard but read Luigi Pasinetti’s Keynes And The Cambridge Keynesians: A Revolution In Economics To Be Accomplished.