Accountability from the Keynesians

George A. Akerlof & Robert J. Shiller
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
Princeton University Press, 2009, 230 pp. hb

Not to call for the gold standard or anything like that, but U.$. dollars run amok factor into global economic crisis even according to Krugman now.(1) An explanation for the exchange rates is not a major concern in this book by Akerlof and Shiller. However, Akerlof is the Nobel Prize winner in economics for 2001 and Shiller an economic professor at Yale. Together they make the economics profession more accountable with their statement here.

Akerlof and Shiller explain that in the minds of the economics profession, “animal spirits” got written off de facto in the decades after Keynes and the Great Depression. It now has to come back into fashion, but the profession will continue to see it as sort of external to the profession.

When MIM told the First World Marxists that Amerikan “workers” are net exploiters, we heard back that we were being “academic.” There could hardly be a bigger and more consequential question for a U.$-based communist party, and this will have to go down as a joke on us here, being so impoverished of communism.

What is academic however, is the production of economics knowledge. Specifically, the problem is what subjects are counted as outside the profession. That has to do with not stepping on the toes of other academic departments common at U.$. universities — artificial bureaucratic divisions not accepted in Mao’s China for instance.

In their own view of themselves, economists always deserve a grade of at least C or better, because unemployment only reached 25% in the Great Depression, which leaves a grade of 75%. (p. 2) The remaining 25% we chalk up — to put this rudely — stuff handed to economists from outside the profession, psychology and whatever else that goes into “animal spirits.” Animal spirits dictate the business cycle according to real Keynesians.

Of course, the rich countries dominate the whole globe including by occupation, so we at MIM are not going to give economics a 75% grade unless that 75% is achieved in a test — without outside help — in other words without cheating. So it is not within the economics profession where we learn about economics as an international subject. [Disclosure — I am on no academic payroll, another irony in the debate about “academic” responses on exploitation questions. My critics on the other hand generally worked with people on academic payroll.]

For some questions handed to economists they can legitimately say “either way it’s not big enough to affect the economy enough to change our work.” If however a business cycle suddenly throws 50% out of work or if the global unemployment rate is very high, one may have a counter-argument. So Akerlof and Shiller provide accountability — a picture of how they see themselves and what questions they are answering. This book fleshes out subjects that may have to go under the rubric of “animal spirits.”

Of note, I’ll just say that the dollar has been the ultimate Keynesian confidence game; albeit, not covered in textbooks. Confidence in exporting to the united $tates has been linked to the dollar and has dragged $outhern Korea, Taiwan and Singapore out of poverty. But as MIM has said since MIM Theory #4, there is a limit to how much the world can expand economically via U.$. imports.

Surplus-value is linked to class struggle. In its “realization” aspects, Sweezy has already covered common ground with Keynesianism. However, in the class struggle, production-sided aspects of surplus-value, Marxism still stands apart.

On the subject of the dollar, some will say its exchange should have been regulated, thus the animal spirits idea again. “Sure we had military Keynesianism with Reagan. We had money illusion through a strong and stable dollar to con the world, but give us one more chance and we will regulate X ____ (fill in the blank with something missed in the last regulation cycle.)”

The appeal of Keynesianism is that it is incremental and useful to state bureaucrats. Rahm Emmanuel has said: “‘That’s how you make change possible, because it’s not threatening but accessible.'”(2) Our political response has appeal outside the united $tates, but Keynesianism lays a basis for corporatism in the united $tates, because there is no social vehicle for it to end up otherwise.

Along these lines, according to Akerlof and Shiller, the existence of capitalism comes down to the probity and intelligence of accountants — yikes. I’m sure many will read chapter 3 and come out saying, “OK, that’s the last straw! I’m signing up with the Maoists!” Akerlof and Shiller cover in a nutshell the various ways that executives and bankers have of making money without doing anything. Then in what Marx criticized as “idealist” thought, we are to believe in a neutral state intervention to regulate these executives. Well, but anyway, we only need that intervention to nail down the last 25% of employment is how they reason.

The weakness of Keynesianism as of today will be its lack of internationalism relative to Marxism. Akerlof and Shiller note global inequality, but do not link it to anything economic. We are supposed to accept that those with superior technological experiences are more productive — thus global inequality.(pp. 143, 194) (As stated in the footnote, however, the argument cannot be distinguished from the labor theory of value, because having additional physical capital is not the same thing as having additional technical experience. Countries with capital may invest more appropriated dead labor into education.)

Not at all to characterize the whole book this way, but there is a chapter on racial discrimination but not exchange rates and global inequality. We learn among other things before that chapter that affirmative action in lending led to the sub-prime mortgage crisis,(p. 155) a sort of variation on the idea that affirmative action led to grading inflation in universities.

This book is very timely for expressing the economic logic of the Obama counterrevolution. Against it we can sharpen our own arguments, but that would require another book. We are very thankful for the degree of accountability seen here.

1. “For a while, the inrush of capital created the illusion of wealth in these countries, just as it did for American homeowners: asset prices were rising, currencies were strong, and everything looked fine. But bubbles always burst sooner or later, and yesterday’s miracle economies have become today’s basket cases, nations whose assets have evaporated but whose debts remain all too real. And these debts are an especially heavy burden because most of the loans were denominated in other countries’ currencies.”



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