Date: Mon, 7 Feb 2000 11:13:58 -0500 (EST) From: bhandari at mmp.Princeton.EDU (Rakesh Bhandari)
The late Robert Eisner seems to be one of the towering figures of post keynesian economics along with Hymann Minsky, Paul Davidson, Robert Pollin and a few younger scholars.
On Max's recommendation, I found myself reading Eisner's *The Misuderstood Economy: What Counts and how to Count It* Harvard Business School Press, 1995. It is written for the non economist, and I appreciate his marvelously lucid prose.
Eisner would have doubtless argued that the stimulus to investment from the lower interest rates engendered by debt retirement would be more than counteracted by negative effects from the loss in effective demand from fiscal austerity. It does not seem that pundits have even recognized such a keynesian like argument in any of the major media.
I however have a question about his conceptualisation of 'investment'.
Before that, two quick points.
1. Would Eisner have opposed the social protection fashioned by a younger post keynesian: "What is not usually recognized is that anything, including protection, which reduces our imports, reduces the supply of dollars on foreign exchange markets, and thus raises the price of the dollar. A higher price of the dollar, though, makes it more difficult for foreigners to buy our goods. We may then find that Japan buys Airbuses in Europe instead of Boeings in Seattle. The workers in General Motors may save their high wage jobs at the expense of the jobs at the Boeing plants." p. 65, footnote 2
It all depends on the magnitude of effects based on elasticities, in the jargon of the economist.
Yet if the Treasury is working at cross purposes with the Fed by reducing deficit/debt>raising bond prices>lowering interest rates while the Fed is trying to cool the economy down with interest rate hikes, don't we have post keynesian theorists simply at war with themselves: raising the price of the dollar by calling for protection while advocating dollar devaluation as a way of increasing effective demand through stimulus of net exports?
Or does the threat of social protection remain a red herring (as its advocates know full well what the adverse macroeconomic effects would be)?
2. Most interesting to me has been Eisner's careful criticism of bloated fears about the US' status as the world's greatest debtor nation, a fear played to the max (not sawicky) by our eloquent Dennis Redmond. Eisner makes several points: US investments abroad are often valued at original cost while foreign investments in the US, being younger, are closer to market value or replacement cost, leading to severe underestimation of value of US holdings; net investment income had remained surplus (though this has changed since 1997 but about $70 bn deficit on net portfolio or DFI investment hardly seems foreboding for such a mammoth reserve center as the US); US debt being denominated in dollars forecloses the threat of default while the inflationary effect of printing dollars to service it could only have a stimulatory effect; there are several reasons why foreigners may want to continue to accumulate dollars despite the run up of US current account deficit, allowing the US to offer low returns on safe and stable US assets while the resultant stronger dollar allows US investors to buy up foreign assets for a song.
Eisner even argues that the US receives the benefit of foreign investment without having to pay for it! (p. 85)
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Now my question is based on the Keynesian understanding of investment as Eisner collapses much govt-financed and -ordered production with capital accumulation carried out in the private sector. But it seems to me that by, say, building a road, the govt does not have in hand means of production with which labor can produce additional commodity product embodying surplus value, realized through the market.
Of course the road may allow a future stream of income through tolls, but this income is not derived from additional commodity output but from a defacto tax, required to retire the debt undertaken for road construction. This is not to deny that payment to factors of production in order to take out road construction may enable realisation through multiplier effects of surplus value already embodied in commodity output.
But I don't see how continuous additional road building, like pyramid building, in any way spurs--much less simply *is*--capital accumulation though it may help overcomes realisation difficulties in the short run, though at the expense of piling on debt.
Also the govt can only undertake 'investments' which will not compete with the private sector if the stimulus of the latter through multiplier/acclerator effects is the raison d etre of the Keynesian program; it seems then to me a certainty that govt ordered production will be wasteful, if not destructive such as arms production.
So how is road construction itself capital investment unless we accept Samuelson's fetishistic def of investment: 'The importance of investment consists in the fact that it involves disbursal of income to the factors of production while not at the same bringing to the market goods, which must be currently sold.'
Well then net exports are an investment as well as well as any govt project from which there is never any commodity that is brought to the market?
It seems that under this framework it is impossible as Paul Mattick wrote in a work highly praised by Keynesian Robert Lekachman Economic Crisis and Crisis Theory "to see that 'productive' and 'capitalistically productive' mean two different things, and that public like private investments are capitalistically productive only if they create surplus value, not because they supply material goods or amenties."
Yours, Rakesh