On Sep 19, 2007, at 2:01 PM, Rakesh Bhandari wrote:
> But putting aside grave political uncertainty or war Doug there needs
> to be an explanation of what annoys the nerves and creates hysteria
> and why they can't always be turned back again by a wave of the hand,
> a little regressive tax relief here or big government program there.
> Investment is not just a collective action problem or a matter of
> nerves and digestion. As an explanation of the investment deficit in
> the Great Depression it is as absurd explanation as the idea that
> workers all of sudden preferred leisure to work. But one is led to
> subjectivize and psychologize investment--and it is quite a few
> economists actually do believe deep down, see Partha Dasgupta's new
> intro to economics--once the labor theory of value is abandoned.
Sometimes it is psychological, sometimes it isn't. In Marxian and neoclassical models, it all seems very mechanical - a rational valuation of expected profits. But there's a lot of play in the formation of expectations. Keynes overpsychologized, since he approached the matter of capital expenditures with a sensibility formed in the financial markets. But the others underpsychologize.
Doug