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AFEEMAIL  April 2010

AFEEMAIL April 2010

Subject:

Adam Smith

From:

"Stanfield,Ron" <[log in to unmask]>

Reply-To:

AFEEMAIL Discussion List <[log in to unmask]>

Date:

Thu, 22 Apr 2010 20:52:03 -0600

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (138 lines)

"Now one of your former students once mentioned that you knew Adam Smith personally...,'

Well actually I exaggerated in the class that that student was in, I didn't know Smith ... but I did know his son.  (Yes, John Henry, I know Smith was a bachelor
and his son illegitimate, but we called him "Smitty" anyway.)
 
Bread & Roses,
[log in to unmask]


________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] On Behalf Of Forstater, Mathew [[log in to unmask]]
Sent: Monday, April 19, 2010 3:33 PM
To: [log in to unmask]
Subject: Re: best Keynesian/PK critiques of BBA?

:) point well taken, ron, butt: it depends on a few things. When I was
at a small conservative liberal arts college, I found my students were
quite influenced by Adam Smith's Theory of Moral Sentiments, and lesser
known passages from the Wealth of Nations that did anything but glorify
markets and self-interest. Now one of your former students once
mentioned that you knew Adam Smith personally, so you would know better
about all that.:) anyway, sometimes more important than the year is the
power of the name. Samuelson and Tobin are famous, mainstream, nobel
prize winners, so it helps sometimes to show that it is not only on the
post-autistic margins that these views are found. later, when I was at a
small radical liberal arts college, they had no problem with articles
more than five years old.  At my present institution, a big liberal
liberal arts college, some of the students simply don't look at the
article's date; others look at the article's date, but don't know what
date it is now! and at every one of these schools, the most powerful
argument against deficit hawkishness (a word accepted by spellcheck,
apparently, although the word "spellcheck" is rejected by spellcheck)
is: ANYTHING WHICH ALL REPUBLICRATS AND DEMUBLICANS AGREE ON MUST BE
WRONG!
As Bob Heilbroner, who I know you respected, once remarked to me: "Who
is this Ron Stanfield who keeps trying to friend me on facebook?" :) by
the way, if one exhibits mawkishness concerning the deficit does that
make you a deficit mawk?

-----Original Message-----
From: AFEEMAIL Discussion List [mailto:[log in to unmask]] On
Behalf Of Stanfield,Ron
Sent: Monday, April 19, 2010 11:46 AM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] best Keynesian/PK critiques of BBA?


 I think that Jamie's very current open-economy macro argument on "The
Impossible Dream of a Balanced Budget" is likely to be more compelling
to current students (doctoral students in HET&M possibly excepted -- but
do they exist any more?) than stuff from the 1960s. (Good god, Mat, even
old fogies like me were young then.)

Bread & Roses,
[log in to unmask]


________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] On Behalf Of
Forstater, Mathew [[log in to unmask]]
Sent: Monday, April 19, 2010 7:40 AM
To: [log in to unmask]
Subject: Re: best Keynesian/PK critiques of BBA?

Rob, Along the lines of what Anne is suggesting, Samuelson had a piece
from 1961 called "Functional Fiscal Policy for the 1960s" that invokes
what he calls Smith's Law (Warren Smith, not Adam): Smith's Law: THE
FEDERAL GOVERNMENT BUDGET SHOULD NEVER BE BALANCED [in any one year].
You can find the piece in an edited collection called Problems of the
Modern Economy edited by E. Phelps, et al.  W.W. Norton, 1966.

Heilbroner had an article in The Nation called "thedeficit" (no space
between the two words, like a meaningless mantra, thedeficit,
thedeficit, thedeficit...) it was in the 1/27/92 issue. (there is also
his 1989 book with Peter Bernstein, The Debt and the Deficit: False
Alarms, real Possibilities, Norton. Also Francis X. Cavanaugh, The Truth
about the National Debt, 1996, Harvard Business School Press, and Arthur
Benavie, Deficit hysteria: a common sense look at America's rush to
balance the budget, Westport, Conn: Praeger, 1998.)

Francis M. Bator had an excellent article called "Money and Government"
Atlantic Monthly, April, 1962. (what can I say, people were smarter back
then). Like James Tobin in his article, "Deficit, Deficit, Who's Got the
Deficit?" from The New Republic, January 19, 1963.  It begins with one
of Eisner's favorite truisms: "For every buyer there must be a seller
and for every lender a borrower. One man's expenditure is another's
receipt. My debts are your assets, my deficit your surplus.  If all of
us were consistently 'neither borrower nor lender' as Polonius advised,
no one would ever need to violate the revered wisdom of Mr. Micawber.
But if the prudent among us insist on running surpluses, some of the
rest of us are willy-nilly going to [have to run] deficits."

This is one of the points I emphasize when explaining this stuff to my
Principles students. You cannot have a deficit or a debt somewhere in
the economy without there being a surplus or an asset of equal value
somewhere else. So we should not speak about the Federal Government
deficit or debt without asking where is the surplus or the assets
showing up on the other side of the ledger.  Normally, historically, the
private sector (households and firms) in the aggregate is in surplus. So
the federal government is in deficit. If you want to reduce the
government budget deficit, then we will have to reduce the private
sector surplus, and if you want to balance the federal budget then we
will have wiped out the private sector surplus and if you want the
federal budget in surplus then the private sector will be in deficit.
(you have to explain that either we are abstracting from the foreign
sector but that including it will not fundamentally change the result;
or, the foreign secto!
 r - including foreign governments - can be included in the
'non-government' sector where non-government means not the home
government of whatever country we are talking about, the U.S. in this
case. You can show then the basic macro identity (injections =
withdrawals):

I + G + X = S + T + M

 Then re-arrange to show the three balances:

(G - T) = (S - I) + (M - X)

The government deficit = the private sector surplus + the foreign sector
surplus (trade deficit)

(you need to explain perhaps that the international community also likes
to save in $ or keep a good deal of their wealth in $.)

Then you can also explain that in the same way, the National Debt must
correspond to assets of an equal value, National Wealth in the form of
treasury bonds, so if you want to reduce the National Debt you must also
reduce National Wealth.

By the way, Rob, since this is the AFEE list, I have learned from Randy
that not only Kians and PKians understood this stuff, but
institutionalists, like Dudley Dillard, Kenneth Boulding, and people I
and others have mentioned like Galbraith, Heilbroner. Of course, some of
this is "deficit dove" rather than functional finance but it still can
be employed against the deficit hawk arguments, if selectively.

Best, Mat

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