Over at Macrobusiness we find the quite accurate statement by Rumplestatskin that “Say’s law seems to be making a resurgence”. He does not regard this as a positive step but nevertheless he does take note that there are a few of us around who seem to look on this development with favour. He even crosses to a post of my own which really only disappoints since nothing I have written seems to make the slightest dent. Such is life.
And to tell the truth I’m not all that keen to get into this yet again. How stupid these people must believe our ancestral economists to have been to make such obvious blunders that even they can see them. The things they say economists used to believe are quite incredible. But I am drawn back in because I received in the post today a book I had ordered that I didn’t even recall having asked for but how wise I was to make the purchase. It is a reprint of John McVickar’s Outlines of Political Economy, the first American text in economics, published in 1825. And the very first bit I read was about value added and the nature of the production process, the very thing I had been teaching my class today, having first noted that nothing like this is found in any textbook of the modern era. Economic theory has so regressed in the past 200 years that we are now more primitive than the mercantilists that Adam Smith used to make fun of. We disguise our ignorance by putting it all into maths.
Mr Statskin, of course, has no idea what Say’s Law is about so goes about comprehensively demolishing a construction of his own devices. But if he is ever to work out what the real meaning is, what he needs to do is recognise that the following two statements are 100% compatible and if you understand Say’s Law, 100% valid:
. a general glut is impossible
. recessions are not uncommon and when they occur last a long time.
Let me therefore quote a bit from Mr McVickar which seems relevant to economics today. Were he to have advised our political leaders it might have been possible to constrain their headlong rush into useless, unproductive spending, and we might have been spared the many years in the wildnerness we are about to endure. This is McVickar writing in 1825 (pages 167-68):
It is a fallacy and an absurdity to suppose that production can ever be encouraged by a wasteful consumption of the products of industry. A man is stimulated to produce when he finds a ready market for the produce of his labour, that is, when he can readily exchange them for other products. And hence the true and only encouragement of industry consists, not in the increase of wasteful and improvident consumption, but in the increase in [value adding] production. (Italics in the original)
Mr Statskin, whose beliefs are as fallacious and absurd as the rest of his crowd, seems to believe that such views represent an “ideology, because these writers cannot translate their beliefs into practice.” Oh but we can. Try this for some practical advice. Governments must reduce their spending, balance their budgets and never attempt to revive an economy from the demand side. Seems practical enough to me but no doubt everything Mr McVickar is trying to explain will fly right over Mr Statskin’s head. But nevertheless, Say’s Law will continue its resurgence whether he likes it or not, whether he understands it or not.
LOL. This is, what, your two hundred and thirtieth post on the issue. Face it Steve, like Rafe on Mises et al, you will probably be admonishing everyone else on their stupidity for not recognising your brilliance on this matter for at least until the third coming of Christ.
William Bragg
13 Mar 13 at 12:46 am
Dear Prof. Kates,
There is a continuing thread of anti-mathematics in your blogs. Today it was;”We disguise our ignorance by putting it all into maths”. I’d re-write this as; “We display our ignorance by not being able to put it into maths”.
By the way, there’s a good article today in the HuffPo (of all places) by Jeffrey Sachs, attacking “crude” Keynesianism.
bushwalker
13 Mar 13 at 6:33 am
I read that post and I was surprised how many commenters on that site disagreed with Mr Statskin.
Forester
13 Mar 13 at 7:09 am
“recessions are not uncommon and when they occur last a long time.”
I think you left out “do not” in there.
Capitalist Piggy
13 Mar 13 at 8:18 am
A plea from a non-economist. I follow with interest and complete agreement your comments on Keynes etc. My problem is I have to take your words on Say’s Law and Aggregate Demand at face value because, despite your oft repeated explanations, they are still not simple enough for simple me – and, presumably, not simple enough for most of our modern economists! Can you, sometime, do a “Say’s Law for Dummies” with simple and obvious examples to demonstrate your points? Something even a poor History graduate can follow? I would be eternally grateful!!
Roger
13 Mar 13 at 10:16 am
Steve – had the chance recently to re-read your paper “Alesina and the Keynesians,” which appeared in the Atlantic Economic Journal. What a lovely piece of writing and economic logic that is!
Julie Novak
13 Mar 13 at 10:56 am
Roger,
Say’s law is quite simple – say you are hungry and need food – so what are you going to exchange with the food providor in order to eat? Money. How do you get this money, assuming you are totally limited to peaceful exchange. You need to produce something to exchange it for money, which you then use to exchange it for, say, a plate of eggs and bacon etc. This is Say’s law.
The Keynsian explanation is the opposite – they refute it, hence when they are hungry instead of producing something to exchange for food, they simply take what they need from you by force, or when you are not looking, steal. Keynesians want something for nothing, in other words.
Say’s law means there’s no such thing as a free breakfast,
Louis Hissink
13 Mar 13 at 11:14 am
Macrobusiness is a great example of what happens when you turn a really good concept into a festering pit of left wing group think. A couple of the contributers are excellent, the rest are nothing but left wing ignoramuses that have absolutely no idea how the economy really works.
Rumplestateskin is the perfect example of how decrepit that blog has become over the last year or so. It’s nothing but discredited Keynesian nonsense and pro-ALP (pro-AGW scare) garbage that belongs more on the ABC or Fairfax.
It’s such a shame because I used to love reading some of their blogs, they had some great insights into the property market and investment strategies. Now you can’t go there without some attack on Classical Economics, the economics of investment, production and growth (in other words actual economics), some attack on Tony Abbott, some defense of the ALP, some pro-Carbon Tax baloney and more.
Such a shame.
MattR
13 Mar 13 at 1:41 pm
Louis Hissink,
But I thought the government could just borrow/print a bunch of money and give it to you! That way you can eat.
This wouldn’t increase the price of goods or anything I promise!
MattR
13 Mar 13 at 1:49 pm
I used to read Macrobusiness when it first started up as it was a good informational site at the time, with generally good discussion covering various points of view.
My interest in the site started to decline when they introduced amongst the contributors a wildly pro-AGW ‘Carbon E Coyote” advocating for carbon taxes and other such nonsense.
The site has gone severely downhill since. The discussion there, as MattR say above, is reminiscent of the ABC blogs.
Even the lead contributor, David Llewellyn-Smith, is a big government statist.
I no longer visit over there.
John Bayley
13 Mar 13 at 1:58 pm
What annoys me most about this guy is that he will say “I want free-markets, small government, deregulation, etc…” on one hand, then every single policy he advocates is some big-government, nanny intervention like the Carbon Tax or an ETS, which he believes is ‘market based’. Every second post was some bashing of Abbott or a policy that would actually free up markets.
In fact, if you dare to propose policies and ideas that are actually free-market, small government based he scoffs and says something idiotic like “yeah well that will create a bunch of poverty and inequality and we will end up a third world nation!” Then some moron would complain about all the perceived “inequality” it would create.
So cringe worthy and irritating, no longer visit it which is unfortunate because when it started it really did have some good discussion and was quite informative. Now it’s nothing but a leftist political blog posing as an economics discussion site.
MattR
13 Mar 13 at 2:26 pm
A straw man within a straw man even in a closed economy.
New Keynesian macroeconomics is mostly about the science of monetary policy. As Brad Delong pointed out in 1997, new Keynesian macroeconomics is Friedman’s macroeconomics from the 1960s and 1970s.
See too the views of Delong and Summers on fiscal policy where they say at http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf
Jim Rose
13 Mar 13 at 6:14 pm