In this four-part INET “From the Director’s Chair” interview, INET Executive Director Robert Johnson talks with Journal of Post Keynesian Economics co-founder Paul Davidson about Davidson’s book The Keynes Solution: The Path to Global Economic Prosperity.
Davidson discusses Keynes’s oft-forgotten insights into the foundational assumptions of economics. Classical economists were treated as “Euclidians in a non-Euclidian world,” Davidson says. “When they saw parallel lines intersecting they rebuked them for intersecting.” Keynes saw that the problem with Euclidean economics was what he called uncertainty, meaning the idea that the future cannot be predicted from the past – an insight that modern economics too often ignores.
Davidson also explores Keynes's insights into the ergodic axiom by drawing upon Keynes's notion of uncertainty, what Keynes would say about the trouble in Europe, and how the concept of comparative advantage has fallen into gross misuse in today's economics.
Part 1: Keynes’s Forgotten Lessons
Part 2: The Trouble With the Ergodic Axiom
Part 3: What Goes Around Comes Around
Part 4: Legal Arbitrage Is Not Comparative Advantage
Comments
Dear INET,
Your search for new economic thinking means that you must be able to embrace and discuss outside normal economics! The EU crisis, together with other global crises and hundreds of serious problems in society, adding up to several tens of percent of GNP, has ONE mutual cause – a deeply egocentric social system permeating every aspect of human life. INET must realize this in order to add value to the debate. I have tried to explain this on my site www.empathiccivilisation.com. It require readers with deep insight, wisdom and interest to understand. Please, take the required time to reach a deeper apprehension of the problems of our planet. Best regards/Christer Nylander, Sweden
Excellant interview. Where do we go from here?
Comparitive advantage, legal advantage, capital controls.
My interest was peaked by what Paul Davidson and Rob Johnson had to say about the need, to enable interest rates to be what a particular national economy requires for its health at a particular point in history, for some control of cross-border capital flows in a globalizing economy. I agree that, when thinking about the form of such possible controls, we will be wise to distinguish between various kinds of comparitive advantage -- specifically to distinguish between rent-seeking activity and activity that provides a genuine advantage for all concerned in an economy.
In this context, many people have observed that Greece's tax practices are unfair -- an archaic leftover from a time when governments in Greece were dictatorial. It appears that, under the Greek collection system, too many people are enabled to evade taxes that have been democratically legislated. This evasion of democratic advance has not only fueled social division but it appears it was in part facilitated by certain officials in Greece being able to avoid addressing purposefully the disgrace of the country's tax collection system reality by the expedient availability of being able to enter into complex derivative contracts with what many today would call rent-seeking investment banks outside Greece. Sure, both parties were benefitting in a loose Ricardo comparitive advantage sense, yet is that the kind of capital flow transaction that we want today to be considered an ethical exploitation of Ricardo's Law?
I think we would be able to curtail the rent-seeking part of the intents that have found expression in complex derivatives by a smart form of financial transaction tax. The essence of the idea has been around since Keynes' time, but despite Tobin's call for its use to curb egregious forms of speculation, financial institutions have so far been able to cloud the issue sufficiently in Anglo-Saxon legislatures to prevent one being implemented globally. Given that governments are now recognizing both the inequity of egregiously unequal incomes and the instability that such egregious inequality sows, and given also that governments can also behave irresponsibly (as in the above Greek example), I think it's time to consider a smart version of the FTT such as is described at this link:
http://www.authentixcoaches.com/ACdsFCF-1.html
We live in a world without capital controls and where governments have a tendency to spend on short term, politically advantageous projects.
In this environment, how do we stop a government deficit from being pocketed by the existing rich politically powerful elite?
I think this is THE key question of our economic era, SilverPolisher. While it's not an easy question to answer, I think it has become clear that one of the biggest channels by which funds taxed to cover a government deficit finding their way into the pockets of the existing rich politically powerful elite is via complex derivatives. Because this has been the case, it has become customary for many people to despair that regulators can ever end unscrupulous financial innovators using complex derivatives to that very often but not always nefarious end. Yet, if you read carefully my paper on the dsFCF, you will see that there is a way for regulators to do it -- one that simply makes certain attributes of derivatives attract a prohibitively large transaction tax.
Informative.I'd think it'll make more sense getting the leaders putting the world into financial chaos to listen to such valuable information rather than their mostly-wrong gut feelings.
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