A very interesting (and contentious!) debate between two well-known political economists-- Professor David Harvey and Professor Brad DeLong-- is not to be missed.
It started with an article by Professor David Harvey (CUNY) about the economic and political limits to the implementation of a true Keynesian solution to the crisis in the US (and China): Why the U.S. Stimulus Package is Bound To Fail. A couple of key paragraphs:
In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers that are almost impossible to overcome. A Keynesian solution would require massive and prolonged deficit financing if it were to succeed...
The problem for the United States in 2008-9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2 billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred. (This was not a serious problem for Roosevelt who began with a roughly balanced budget). There is also a geo- political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy. This problem is exacerbated by ideological reluctance on the part of both political parties to embrace the huge amounts of deficit spending that will be required, ironically in part because the previous Republican administration worked on Dick Cheney’s principle that "Reagan taught us that deficits don’t matter."
In response, Professor Brad DeLong (Berkeley) launched this critique: Department of "Huh?": In Praise of Neoclassical Economics. An excerpt:
People who say that the stimulus won't work are relying--whether they know it or not--on one of two channels. Either they believe that resources are in short enough supply that increased nominal spending will not increase real spending because it will be eaten up by inflation, or they believe that financial markets are such that the increased supply of bonds produced by deficit spending will push bond prices down and interest rates up enough to crowd out exports and investment spending roughly dollar-for-dollar. Both of these claims are empirical claims. And both of them are completely without support in the present conjuncture.
If we forced Harvey to turn his... um... into an argument we would see that the argument he would be making does not hold together. But, of course, we cannot say that Harvey's argument does not hold together because he does not make one. He doesn't understand Keynes, probably never read Hicks, does not understand Friedman, and I'm sure has never heard of Patinkin or Tobin or Modigliani. Yet somehow he thinks he has standing to make judgments as to the likely success of Keynesian policy moves.
And Professor Harvey's reply: Exhibit A: The Arrogance of the Neoclassical Economists. Excerpt:
The real mystery here is the arrogance of the economists in the face of a catastrophic situation. I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.
The charge that I have neither read nor understood DeLong’s canonical writings is the usual technocratic hubris deployed by economists when they have nothing to say. I might as well reply that DeLong has neither read nor understood his Marx (I have a remedial course on line) and in any case I don’t see why I should go back to Friedman rather than to Galbraith, Hicks rather than Joan Robinson and why it is that he presumes that Dobb, Sweezy, Glyn, Itoh and Morishima have nothing to say of relevance to our current difficulties because neoclassical economics is a God-given truth beyond contestation?