Commentary on Political Economy

Saturday 6 August 2011

Krugman and Economic Theory

I agree with Paul Krugman that orthodox economics has lost all credibility - because it evidently flies into the face of immediately perceived reality. Here is the short piece

But unfortunately his own brand of Keynes-Hicksian economic analysis is of limited use for the essential reason that it takes the present "economic system" as a "given", as a "machine" that can be fixed, when in fact it now needs to be "trans-formed". What I am saying - and Krugman would probably agree up to a point - is that it is no longer the "quantities" or "the policy mix" that are called into question: - it is the "institutions themselves" that need fundamental reform. Our piece below on Mishkin's work, and the other more theoretical work, shows that capitalism has hit a "barrier" whereby it can no longer maintain the "profitability" of investments without undermining the very "reproduction" of what we have called "the society of capital". In other words, capital has become a "barrier" to social development because the social institutions that we have forced it to develop - the very inter-dependence of social life - preclude the "separation" of workers from the means of production, which are increasingly in "private capitalist" hands.

The "private" control of social resources has become incompatible with the clear indisputable "sociality" of their utilisation - so that it is no longer possible to present as "technological" or "scientific" what is clearly a vitally social "use" of available resources! Once the reproduction of society becomes entirely dependent on on the "profitability" of capitalist control of social resources ("investment"), it is clear that low "profitability" poses a clear and present danger ("systemic risk") to the very "reproduction" of society ("the society of capital") - so that "the collective capitalist" (the State) has to intervene - but can no longer do so in terms of the overriding "investment logic" of capital!

And because Krugman's economic paradigm essentially preserves that "logic", it must then contradict itself (propose policies that destroy its "privatistic" assumptions). Keynesians have traditionally done so by hiding behind what they call "animal spirits". But those "spirits" are now deserting them - we see them for the fantasy that they truly are!

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