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Joan Robinson On Public Sector Deficits And Debt

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Some good quotes by Joan Robinson on deficits and debt:

In Introduction To The Theory Of Employment, Chapter 5, Change In Thriftiness, in the section A Budget Deficit, 1937:

A special kind of reduction in thriftiness is represented by a budget deficit. If the state is paying out more money in salaries to civil servant, commissions to contractors and so forth, than it is receiving in taxation, and is borrowing the difference by issuing Treasury bills or otherwise raising loans from the public, then it is in just the same position as an individual who is spending on current consumption more than his income, by means of drawing on past accumulated wealth or getting into debt. In short the state is dis-saving. The result is to increase incomes and expenditure all round. Suppose that the state keeps its outlay constant and remits taxation. Then out of the increased net income of taxpayers part will be spent, and this extra spending will raise the incomes of those on whose output the expenditure is made. Out of this extra income, again, a part will be spent; and so on. Just as in the case of investment, the extra expenditure will lead to such an increase in incomes that the public are saving more than they otherwise would have done at just the same rate the government is borrowing.

The idea that a budget deficit is good for trade is often found to be shocking, but it is a fact which has become obvious to the governments of the world since the great depression began in 1929. The argument used to be common, particularly in England, that a budget deficit upsets the confidence of entrepreneurs, and so does more indirect harm to employment than direct good. But this is a case where “thinking makes it so”, and it is found nowadays that a deficit accompanies by the right kind of propaganda can have a very beneficial effect.

The mere fact that a deficit is good for trade is not a sufficient argument for having a deficit, since other methods of improving trade may be preferable. It can, however, be regarded as a merciful dispensation that budgets have a tendency to come unstuck when trade is very bad. Taxes fail to yield as much as was expected, while expenses in connection with unemployment go up, and the government is forced to borrow to meet its current outgoings. This has the effect if preventing the decline in employment from going so far as it would if the budget were kept balanced.

In The Problem Of Full Employment, Chapter 9, Some Fallacies, 1943:

1. “THE TREASURY VIEW”
During the great slump it was the official view that Government investment cannot increase employment. The argument ran: there is a certain amount of saving going on at any time, and if more savings are invested by the Government, less will be available for private enterprise. This overlooks the fact that if there is more investment there will be a higher level of activity and of incomes and consequently more saving. The argument is so childish that it would not deceive anyone who had not a strong wish to believe it. Nevertheless, it was for many years the basis of Government policy, and was set out in a famous White Paper in 1929.

2. “ECONOMY”
The National Government which was formed in 1931 went in for a great economy campaign. Local authorities were compelled to cease work on building schemes, roads, fen drainage, and so forth. An emergency budget was introduced, increasing taxation, cutting unemployment allowances and reducing the pay of public servants, such as teachers and the armed forces. Private citizens felt it was patriotic to spend less. Some Cambridge Colleges gave up their traditional feasts as a recognition of the crisis. All this helped to increase unemployment and make the economic situation of the country still more depressed. Nowadays there is considerably more understanding of how things work and it is unlikely that such a completely idiotic policy will be tried again.

3. THE BURDEN OF THE NATIONAL DEBT
The National Debt is often brought forward as an argument against public spending to create employment. There is a good deal of confusion between the National Debt and the debt of an individual. An individual who is in debt has to pay interest to someone else, and will be obliged to return the sum borrowed to the lender. A nation which is in debt has to pay interest to its own citizens (a foreign debt is a different story and is much more like a private debt). That is to say, the Government has to raise taxes from Peter and Paul and pay interest to Paul and Peter. Taking the country as a whole, there is no burden of the debt. Moreover, the debt need never be repaid. As one lot of bonds fall due to be redeemed a fresh lot can be sold to the public. If the debt is finally repaid, it is repaid out of the wealth of the citizens of the country, and this, like interest payments, is merely a swap round among the members of the community.

At the same time there are genuine objections to a large National Debt. It means that there is a large volume of rentier income (the interest on Government bonds), so that the active part of the population has to allot a large share of the proceeds of production to the mere owners of wealth. This objection is all the stronger if the holders of the National Debt are mainly the richer part of the community, while taxes to pay their interest are raised from the population as a whole. This drawback can be kept within bounds, first, by keeping interest rates low, and second, by arranging the tax system so that the same class which gets the interest has to pay the extra taxes. But however well the national finances are managed, some objection must remain.

This does not mean that fear of increasing the National Debt is a sound objection to having a full employment policy. The drawback of having a swollen rentier class is trivial compared to the loss of wealth and of happiness, and of life itself, which is entailed by unemployment.

If, however, we are to have a full employment policy in any case, the problem must be viewed in a different light. Government outlay covered by taxation on the rich is to be preferred to borrowing. A full employment policy conducted according to the rules of Sound Finance is far more radical than a policy of deficits, and Government loan expenditure can only be justified as a concession to the status quo.

Joan Robinson On Michal Kalecki’s Claim To Priority

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Keynesian policy is popular again. Many fiscal hawks are now arguing for stimulus, although they want to do it only temporarily. I came across this 1976 article Michal Kalecki: A Neglected Prophet by Joan Robinson where she argued once again for Michal Kalecki’s originality.

Robinson:

He told me that he had taken a year’s leave from the institute where he was working in Warsaw to write his own General Theory. (When his early Polish essays were published in English, it became clear that he had worked out the main points by 1933.) In Stockholm someone gave him Keynes’s book. He began to read it—it was the book that he had intended to write. He thought, perhaps further on there will be something different. No, it was his book all the way. He said: “I confess, I became ill. Three days I lay in bed. Then I thought—Keynes is better known than I am. These ideas will get across much quicker with him and then we can get on to the interesting question, which is of course the application of these theoretical ideas to policy-making. Then I got up.”
Kalecki did not make any public claim to his independent discovery of what became known as Keynes’s General Theory. I made it my business to blow his trumpet for him, but I was often met with skepticism. In the US, only Lawrence Klein recognized (in The Keynesian Revolution, 1947) that Kalecki’s system of analysis was as complete as Keynes’s and in some respects superior to it.

At the end of his life Michal told me that he felt he had done right not to make any claim to priority over Keynes. It would only have led to a tiresome kind of argument. Perhaps people have been skeptical of Kalecki’s contribution to the history of economic theory precisely because he did not demand recognition himself. Such dignified behavior is rare in this degenerate age. The only reference Kalecki ever made to the question is in the preface to a selection of essays, published, alas, posthumously. “The first part includes three papers published in 1933, 1934, and 1935 in Polish before Keynes’ General Theory appeared, and containing, I believe, its essentials.”3

3Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970 (Cambridge University Press, 1971), p. vii.

There are many other by Joan Robinson where she argued this, especially this.

Picture credit: Poland Today

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Economics In Ten Episode On Joan Robinson

The latest episode of the podcast Economics In Ten is on Joan Robinson.

Description:

George Bernard Shaw once noted: ‘The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.’  What George forgot though was unreasonable women and when it comes to Economics, Joan Robinson was the unreasonable, brilliant woman and wow…did she make progress! Sadly in the male dominated economics world, she’s rather over-looked and this needs to change. She changed the way we thought about markets, she challenged economic orthodoxy, was part of Keynes’ inner circle and offered up her own growth theories. In this new podcast, you will find out all this and more! Guiding you through as always are Pete and Gav, your friendly neighbourhood economists with technical support from Nic (check out his app – cheeky fingers). Music comes from Jukedeck and you can create your own at jukedeck.com. PS Apologies for a brief sound outage that occurs around the 20 minute mark. You might think the podcast is over at this point but fear not you have another hour of fun/learning about the great Joan to go….

Joan Robinson On Diagrams

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Marjorie Shepherd Turner in Joan Robinson And The Americans has a good description of the useless nature of economic diagrams in general:

Robinson saw general equilibrium, then, as a block to appropriate analysis, for it had assumed away the economic problems. She objected to economists who admired equilibrium analysis for its “logical elegance and completeness” even though they knew it was “useless”: “Human life does not exist outside history and no one has correct foresight of his own future behavior, let alone of the behavior of all the other individuals which will impinge upon his. I do not think that it is right to praise the logical elegance of a system which becomes self-contradictory when it is applied to the question that it was designed to answer.”25

On the other hand, Robinson reserved the right to compare positions of equilibrium “each with its own past and its own expectations about the future.” She complained that American economist “Dr. Findlay” (Ronald Findlay) failed to recognize the difference between such a comparison of existing positions and “the analysis or a process going on through time, with expectations changing.26

To the end or her life she believed that “mainstream teaching” had “been inculcating defective methodology,” especially in the United States:

The exposition both of general equilibrium and of long-run accumulation seems generally to be conducted by drawing a two-dimensional diagram on a black-board and then introducing historical events into it. A change cannot be depicted on the plane surface or the blackboard. Changes occur in time, and as soon as a point moves off the blackboard into the third dimension of time, it is no longer bound by the relationships shown in the diagram.27

Robinson was particularly critical or Samuelson who, as a mathematician,

… knows that a functional relationship is timeless and makes no reference to history or to the direction of change … However, Professor Samuelson continues to use his construction to describe a process or accumulation that raises wages, alters technology, and changes a stock or inputs made, say, or wood into one made of iron and then into copper … To Kornai. Harcourt, and myself, this methodology is unacceptable, but Professor Samuelson assures us that it is quite all right.”28

…

Endnotes

  1. JR 1978a:126-136.
  2. CEP 3:50.
  3. CEP 5:69. Elsewhere in the article (60), JR associated mainstream teaching with the United States.
  4. CEP 5:88. Samuelson feels that JR refused to understand what he was arguing. Samuelson Interview 1985 and see Chapter 10.

…

References

Robinson, Joan
…
⸻ (1965a) Collected Economic Papers vol. 3. Oxford: Basil Blackwell 1975.
…
⸻ (1978a) Contributions to Modern Economics, New York: Academic Press.
…
⸻ (1979g) Collected Economic Papers vol. 5. Oxford: Basil Blackwell 1980.
Reprinted by MIT Press.

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Maria Cristina Marcuzzo — Joan Robinson, The Rational Rebel

Maria Cristina Marcuzzo on Joan Robinson’s critique that economics ought to be driven by science and not ideology:

… In her view, the main problem with contemporary economic theory was that it made fundamental issues increasingly obscure rather than clear. Her last paper, which was published posthumously, had a telling title “Spring Cleaning”: “It seems to me that the whole complex of theories and models in the textbooks is in need of a thorough spring cleaning. We should throw out all self-contradictory propositions, un-measurable quantities and indefinable concepts and reconstruct a logical basis for analysis with what, if anything, remains.”

Misinterpretation Of Joan Robinson’s Quote On Dropping Rocks

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In her famous 1937 article, Beggar-My-Neighbour Remedies For Unemployment, Joan Robinson made this famous remark about dropping rocks into our harbours, i.e., imposing tariffs as retaliation:

The popular view that free trade is all very well so long as all nations are free-traders, but that when other nations erect tariffs we must erect tariffs too, is countered by the argument that it would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.6 This argument, once more, is unexceptionable on its own ground. The tariffs of foreign nations (except in so far as they can be modified by bargaining) are simply a fact of nature from the point of view of the home authorities, and the maximum of specialization that is possible in face of them still yields the maximum of efficiency. But when the game of beggar-my-neighbour has been played for one or two rounds, and foreign nations have stimulated their exports and cut down their imports by every device in their power, the burden of unemployment upon any country which refuses to join in the game will become intolerable and the demand for some form of retaliation irresistible. The popular view that tariffs must be answered by tariffs has therefore much practical force, though the question still remains open from which suit in any given circumstances it is wisest to play a card.

6 Beveridge, op. cit., p. 110. [Tariffs: the Case Examined]

[bolding and italics mine]

Joan Robinson

Joan Robinson, left. Picture credit: Nationaal Archief

This quote however gets misinterpreted often as a recent Financial Times article did:

… All these complications are real, but they do not change the fundamental nature of the argument about trade, which was best summarised by the British economist Joan Robinson. In 1937 she pointed out that, except as a narrow negotiating ploy, it made little sense to meet tariffs with tariffs: “It would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.”

This quote makes it look like Joan Robinson was a free trader, whereas Robinson was opposed to it from the very beginning to the end and her stand free trade was far ahead and louder than John Maynard Keynes.

But what Robinson is saying is that according to the arguments of those for free trade, retaliation is wrong. But as Joan says, it has a practical force. Robinson is saying that if you retaliate you don’t believe in free trade.

Contrasting Joan Robinson And Paul Krugman’s Views On The Global Rules Of Trade

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Paul Krugman has a new article, Why A Trade War With China Isn’t ‘Easy To Win’ (Slightly Wonkish), in The New York Times, in which he rightly points out Donald Trump’s switching positions on trade with China. Krugman however has a generic point about international trade as some kind of mercantilism:

Admittedly, the political economy of trade is kind of mercantilist, because it’s driven largely by producer interests. Long ago I wrote about “GATT-think”, the view of trade, enshrined in international negotiations, that sees exports as good, imports as bad, so that letting someone sell us stuff, even if it’s better and cheaper than we could make ourselves, is a “concession.” The genius of the postwar international trading system was that it harnessed this special-interest reality, using the ambitions of exporters to offset the protectionism of those competing with imports, to engineer a kind of enlightened mercantilism that vastly expanded world trade.

[italics: mine]

So Krugman is admitting that it is in the interest of big producers, but claiming that his interests aren’t aligned with them and that the rules of trading were made such that it somehow offset them.

The reality is of course different. More successful countries do not need protection at home. At least we can say that they’re are willing to forgo protectionism as the advantage from selling more easily in markets abroad is immense. As Joan Robinson pointed out in a 1977 article (and even before), What Are The Questions?

From a long-run point of view, export-led growth is the basis of success. A country that has a competitive advantage in industrial production can maintain a high level of home investment, without fear of being checked by a balance-of-payments crisis. Capital accumulation and technical improvements then progressively enhance its competitive advantage. Employment is high and real-wage rates rising so that “labour trouble” is kept at bay. Its financial position is strong. If it prefers an extra rise of home consumption to acquiring foreign assets, it can allow its exchange rate to appreciate and turn the terms of trade in its own favor. In all these respects, a country in a weak competitive position suffers the corresponding disadvantages.

When Ricardo set out the case against protection, he was supporting British economic interests. Free trade ruined Portuguese industry. Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism. When Britain was the workshop of the world, universal free trade suited her interests. When (with the aid of protection) rival industries developed in Germany and the United States, she was still able to preserve free trade for her own exports in the Empire. The historical tradition of attachment to free trade doctrine is so strong in England that even now, in her weakness, the idea of protectionism is considered shocking.

[italics: mine]

The last sentence is also important when discussing Krugman. The United States’ balance of payments has deteriorated and needs some protectionism. But economists are attached to the idea of free trade like it’s some dogma.

Joan Robinson And Nicholas Kaldor On Antagonism To Keynesian Ideas

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After the recent Employment Situation Summary by the U.S. Bureau Of Labour Studies, it is becoming more clear that the concept of NAIRU is a chimera, a deceit.

In a 1943 article, Joan Robinson talked of why the establishment wishes to keep a fraction of the population unemployed. It is quoted in Nicholas Kaldor’s 1983 article, Keynesian Economics After Fifty Years:

… recession hit a number of countries and it became generally believed (rightly or wrongly) that ‘Keynesian’ instruments of economic policy were unavailable for coping with this situation. At the same time the anti-Keynesian school of economists, the ‘new’ monetarists, rapidly gained followers among influential people more or less simultaneously in a number of countries and this was combined by widespread and rapidly growing antagonism to Keynesian ideas. The reason for this antagonism, not openly acknowledged, was the change in the power structure of society which the pursuit of Keynesian policies had brought about. This was foreseen well before the adoption of Keynesian methods of demand management. Thus in an article in The Times in January 1943 on post-war Full Employment it was stated:

Unemployment is not a mere accidental blemish in a private- enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definitive function to fulfil. The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of masters over men. The master has normally been in a position to say: ‘If you don’t want the job, there are plenty of others who do’. When the man can say ‘If you don’t want to employ me there are plenty of others who will’ the situation is radically altered.4

The change in the workers’ bargaining position which should follow from the abolition of unemployment would show itself in another and more subtle way. Unemployment in a private enterprise economy has not only the function of preserving discipline in industry, but also indirectly the function of preserving the value of money. If free wage bargaining as we have known it hitherto, is continued in conditions of full employment, there would be a constant upward pressure upon money wage-rates. This phenomenon also exists at the present time, and is kept within bound by the appeal of patriotism. In peace-time the vicious spiral of wages and prices might become chronic.5

4 The doctrine is usually associated with Karl Marx who argued that capitalism can only function with a ‘reserve army’ of unemployed labour. But Marx himself owes these ideas (though he never seems to have acknowledged it) to Adam Smith, who wrote in the Wealth of Nations that normally there is always a scarcity of jobs relative to job-seekers: ‘There could seldom be any scarcity of hands nor could the masters be obliged to bid against one another in order to get them. The hands, on the contrary, would in this case, naturally multiply beyond their employment. There would be a constant scarcity of employment and the labourers would be obliged to bid against one another in order to get it. If in such a country the wages of labour had ever been more than sufficient to maintain the labourer and to enable him to bring up a family, the competition of the labourers and the interest of the masters would soon reduce them to the lowest rate which is consistent with common humanity’ (Book I, ch. VIII, p. 24).

5 ‘Planning Full Employment – Alternative Solutions of a Dilemma’, The Times, 23 January 1943. (A ‘turnover’ article; the article was unsigned but its authorship is generally attributed to Joan Robinson.)

New Book: Vol II Of Michał Kalecki’s Intellectual Biography By Jan Toporowski

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The General Theory of Employment, Interest and Money was published in January, 1936.

Meanwhile, … , Michal Kalecki had found the same solution.

His book, Essays in the Theory of Business Cycles, published in Polish in 1933, clearly states the principle of effective demand in mathematical form. At the same time he was already exploring the implications of the analysis for the problem of a country’s balance of trade, along the same lines that I followed in drawing riders from the General Theory in essays published in 1937.

The version of his theory set out in prose (published in ‘Polska Gospodarcza’ No. 43, X, 1935) could very well be used today as an introduction to the theory of employment.

He opens by attacking the orthodox theory at the most vital point – the view that unemployment could be reduced  by cutting money wage rates. And he shows (a point that Keynesians came to much later, and under his influence) that , of monopolistic influences prevent prices from falling when wage costs are lowered, the situation is still worse, because reduced purchasing power causes a fall in sales on consumption goods …

…

Michal Kalecki’s claim to priority of publication is indisputable.

– Joan Robinson, Kalecki And Keynes in Essays In Honour Of Michal Kalecki, 1964. 

Jan Toporowski’s intellectual biography, volume 2 of Michał Kalecki is out now.

click to view on Google Books

Volume I was released in 2013.

click to view on Google Books