Kalecki said other things, too
Mainstream economists periodically rescue authors from what they see as the economic graveyard. The latest exhumation is of Michal Kalecki by Paul Krugman.
Quoting from Kalecki’s well-known essay Political Aspects of Full Employment, Krugman in his latest New York Times column tries to understand why companies might oppose full employment during a downturn.
Wonder of wonders, Krugman quotes Kalecki http://t.co/hqB0DYQkO7 An entire PhD could be written on the slow radicalisation of The Krug
— Aditya Chakrabortty (@chakrabortty) August 9, 2013
Opposition to government spending seems counter-intuitive because you’d think businesses would want the economy to recover so that they could raise profits. Kalecki’s answer was that bosses understand that job-creation would undermine their influence:
In the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany.
The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?
Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous.
The “state of confidence” argument, it goes without saying, is nonsense. It’s just a ploy to stop people from supporting public spending to boost employment.
Krugman first blogged about Kalecki in May 2013 (h/t David Spencer), saying that he had been “reminded” (code for “read for the first time”) about Kalecki’s essay two-and-a-half years previously via a blog by Mike Konczal: one of those respected gatekeepers who you’re allowed to trust, unlike the hundreds of less-public academics who’ve been writing about Kalecki for decades.
It’s not clear that Krugman has read much else of Kalecki, although he does note that he was a naughty Marxist. Chris Sturr points out that “liberals like Krugman… go out of their way to distance themselves from Marx and Marxists (“I don’t see much of Marx in his writings”), lest anyone think they are flaming radicals.”
Krugman might have seen more of Marx if he’d read the rest of Kalecki’s essay:
Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension.
It’s hard to see a New York Times columnist writing about class-consciousness or strikes with anything other than a sneer. But you’d at least think that Krugman as academic might make some sort of attempt to convey the wider context of Kalecki’s writings.
That he doesn’t is perhaps because Kalecki’s approach completely opposes the neoclassical tradition from which Krugman hails. Kalecki thought that the assumptions of a model should be realistic. He never used the concept of utility. Equilibrium, for him, was a fiction. He disputed marginalism and rarely used the idea of supply and demand. He thought that analysis should take place at the level of the social class rather than the individual.
Unlike the physics-envious mainstream of economics, Kalecki didn’t think that “solutions” were ever likely, suggesting that analysis should vary according to time and place. What worked in India might not work in Cuba. He believed firmly that politics and power were important, unlike the neoclassicals, who imagine themselves to be neutral scientists labouring in the background to present a range of objective answers to politicians.
Despite pre-empting Keynes’s notion of effective demand by several years Kalecki opposed blanket Keynesianism. In his Essays on Developing Economies he wrote that developing countries are often not limited by a temporary shortfall in demand but by a permanent deficit of capital. Developing countries don’t have enough capacity to be able to produce things, so the task of development should be to industrialise using government and outside help and to improve the use of technology.
Mainstream economists are often accused of ignoring alternatives. But they sometimes do rock down to eclectic avenue, as Eddie Grant never sang. They occasionally mention the heterodox in their writings, making it look like they are open to all kinds of ideas and that the mainstream constantly accommodates the fringe. This allows them to portray the rest of the fringe as lunatic and to dismiss it. So the apparent open-mindedness of Krugman and his ilk is actually conservative, enabling conventional economics to lumber onwards.
The study of political economy, like any other social science and any way of looking at human relations, is characterised by disagreement; by differing thought-systems each with their own merits and problems. Sometimes these thought-systems have to be considered in their entirety. It’s not always useful to pick the parts you like and to ignore the others. I can’t see how you can quote Kalecki on public spending and ignore his entire methodology. It’s a bit like Krugman on Keynes’s General Theory: he likes the parts about government spending but not the stuff about uncertainty and expectations.
Another example is Hyman Minsky. Everyone suddenly had their Minsky Moment in 2008 – but by then it was too late. A full understanding of Minsky’s vision of capitalism – as an inherently unstable if not non-viable system which tends to become unduly dominated by finance – would have alerted many in advance to the fact that the boom was unsustainable, rather than allowing them retrospectively to claim that they understand the crisis. A deep comprehension of Minsky would have required a vision of economics that was different to that of the mainstream, which sees capitalism as essentially stable and analytically understandable using techniques of equilibrium.
People can be eclectic if they want, but if their cherry-picking somehow further marginalises the margins, then in effect the whole exercise is more monolithic and less conducive to diversity, despite appearances.
So Krugman’s Kalecki moment doesn’t truly represent his progressive radicalisation and it’s unlikely to advance our collective ability to predict future economic outcomes using Kalecki’s methods. It’s just another example of the selective quoting of alternatives whenever it suits. Paradoxically, the periodic resurrection of radicals suppresses their broad insights.