DOCSLIB.ORG

Axel Leijonhufvud, University of Trento

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Axel Leijonhufvud, University of Trento abcd a POLICY INSIGHT No. 23 MAY 2008 Keynes and the Crisis Axel Leijonhufvud, University of Trento 1 Introduction Keynes saw it, was the declining trend in the return to investment since the end of World War I (at which time In working on Keynes more than 40 years ago, when the it had been exceptionally high). Britain had returned to General Theory seemed already ancient but was only 30 gold at an overvalued parity and the imperative of years old, I was fortunate in not having to cope with defending the exchange rate had caused it to maintain Keynes's Collected Works, which had not yet begun to too high a level of interest rates. The combination of a appear. Since then, Keynes scholarship has become per- declining marginal efficiency of capital and interest haps easier in some respects but overall a more formi- rates that did not decline propelled the country into a dable challenge. No doubt we have learned a great deal recession that was deep even before the United States but I am not prepared to take stock of it all. Instead, I slipped into depression. take the liberty of changing the question and to ask: The process leading up to today's American financial What should we have learned from Keynes? crisis had the dollar exchange rate supported by foreign The most important lesson from his life and work may central banks exporting capital to the United States. be that the macroeconomist should start from the This capital inflow was not even to be discouraged by a important problems of the day and should face the fol- Federal Reserve policy of extremely low interest rates. lowing questions: (1) How are we to understand what is The price elasticity of exports from the countries that happening right now? (2) What can be done about it? prevented the appreciation of their own currencies in What is the best policy to follow? (3) Do recent events this way kept US consumer goods prices from rising. force us to modify what is today widely accepted eco- Operating an interest-targeting regime keying on the 3 nomic theory? If so, what is wrong and how might we CPI, the Fed was lured into keeping rates far too low far 2 go about arriving at a more satisfying theory? too long. The result was inflation of asset prices com- There are some things that Keynes would not have us bined with a general deterioration of credit quality . do. He would not have us try to deduce how the world (Leijonhufvud 2007a). This, of course, does not make a o works from a small set of doubtful ‘axioms’ about tastes Keynesian story. It is rather a variation on the Austrian N and technologies.1 And he would not approve of stren- overinvestment theme. uous attempts to squeeze every current issue into some T such preconceived framework. Neither would he be 3 Keynes and the financial side of H happy to see economists become absorbed in scholastic recessions disputes over the economic thought of seventy years G I ago. What then can we learn from Keynes that is relevant to S our current troubles? I do not find the General Theory N 2 The credit crisis particularly helpful. The warning not to allow the real I economy to be governed by the machinations of a casi- The important economic problem of today is the current no may be well taken but, once you have ignored it to Y financial crisis centred in the United States. What might your peril, what do you do then? His various papers C we learn from Keynes about it? The current situation is from the early thirties are more focused on the financial I almost the opposite of the one that Keynes dealt with crisis than the General Theory, in which the notion has L in the General Theory. taken over that the real nexus of the problem is the O The background to the Great Depression in Britain, as coordination of household saving and business invest- P ment. Author’s note: Invited Lecture at the conference ‘Keynes 125 Years - The Treatise on Money contains a piece of analysis R What Have We Learned?,’ Copenhagen-Roskilde April 23-24, that I have found illuminating. It deals with the finan- P 2008. cial side of a business downturn. Keynes assumes an E 1 The kind of theory that makes one recall a great line by a great Dane: ‘But you are not thinking. You're just being logical!’ (Niels initial equilibrium disturbed by a decline in expected C Bohr). future revenues from present capital accumulation. To download this and other Policy Insights visit www.cepr.org MAY 2008 2 Firms cut back on investment and, as activity levels its aftermath. One should remember, however, that decline, direct some part of cash flow to the repayment Japan had two enormous bubbles bursting at the same of trade credit and of bank loans. As short rates decline, time – one in the stock market, the other one in real banks choose not to relend all these funds but instead estate – and that its banking system was heavily to improve their own reserve positions. Thus the system engaged in both. In the present instance, we have to as a whole shows an increased demand for high-pow- cope with the bursting of just one bubble, albeit a real- ered money and simultaneously a decrease in the vol- ly big one, and the United States also has a small ume of bank money held by the non-bank sector. advantage over Japan in that some part of the financial Keynes's preference for speaking of ‘liquidity preference’ damage has to be absorbed by foreign interests, be they rather than ‘demand for money’ becomes understand- German banks or small Norwegian communities. able in this context since while an increase in liquidity Japan tried policies inspired by Keynesian economics preference does constitute an increase in the demand of the variety propounded in macro textbooks of some for outside money it also leads to a decrease in the vol- decades ago. Enormous amounts of money were spent ume of inside money. on 'bridges to nowhere’ and other, hopefully better motivated, projects until Japan's national debt grew to Today, we are faced with the a size that discouraged any continuation of the policy- converse question of whether or not all to little apparent avail. the deleveraging that the financial Why so? Recall that, in the Keynesian theory, public sector is rather desperately trying to works spending is supposed to work and have a strong multiplier effect when unemployed labour is cash con- carry through will of necessity bring strained and unable to exercise effective demand for about a serious recession. consumer goods. That was not Japan's problem. The effective demand failure that plagued Japan rather was What makes this analysis relevant in today's context is that business firms could not and later would not do that it describes a process of general deleveraging as the intertemporal trade of expected revenues from part of a business downturn. Causally, it is the decline future output for the factor services in the present of investment expectations and the consequent con- needed to produce that output; that is, they could not traction of output that prompts deleveraging. Today, we or would not borrow to finance investment. In the early are faced with the converse question of whether or not post-crash years, the state of the banks was such that the deleveraging that the financial sector is rather des- they would not lend. Even when the Japanese banks perately trying to carry through will of necessity bring eventually got into healthier shape, many business firms about a serious recession. For many months now, we still had balance sheets in such condition that they were have been treated to brave protestations from all sorts loath to borrow (Koo, 2003). So Japan was unable to of sources that the real economy is strong and will not resume the growth rates that it had achieved before the be much affected by the credit crisis. Yet, it is quite clear bubbles burst. that, in a closed system, it is a fallacy of composition to The other lesson to draw from the Japanese experi- suppose that general deleveraging can take place with- ence is that once the credit system had crashed, a cen- 3 out a decline in asset prices and excess supply of goods tral bank policy of low interest rates could not counter- 2 and services in general (Leijonhufvud 2007c). act this intertemporal effective demand failure. Year . Of course, the US private sector is not a closed sys- after year after year, the Bank of Japan kept its rate so o tem. Leverage can be reduced and liquidity improved by close to zero as to make no difference, and even so the N inducing sovereign wealth funds or other foreign enti- economy was under steady deflationary pressure and ties to assume an equity interest in domestic enterpris- healthy growth did not resume. The low interest policy T es as some American banks have done. Similarly, the served as a subsidy that enabled the banks eventually to H government can guarantee certain private sector debts earn their way back into the black, but this took a very G and/or swap safe and liquid government debt for risky long time. I and illiquid private debt. This too has been done. But Contrast this experience with that of Sweden or S there are limits to both these safety valves2 and it Finland in the wake of their real estate bubbles (and in N remains a serious question whether they will suffice to Finland's case the loss of its Soviet Union export mar- I stave off a serious and long-lasting recession.
Load more

Recommended publications
  • Tribute to Axel Leijonhufvud
    A great teacher 6 Computable economics 24 Experimental Economics 30 Adaptive Economic Process 32 Behavioral Economics 36 Institutional Economics 40 Evolutionary Economic 44 Dynamics Agent-Based Computational 48 Economics Agent-Based Finance 58 Financial Instability and 62 Crisis 68 Networks and Innovation 72 Macroeconomics and Financial Crisis 78 Evolution of Social Preferences 84 Market Design 88 Modularity and Design for Innovation 92 Financial Crisis 98 Inequality and the Changing Distribution of Income 104 Macroeconomic Coordination and Externalities 110 New Thinking on the Firm 118 Macroeconomics after the crisis: looking ahead A GREAT TEACHER 6 his is the last Summer School after almost twenty years. It could be a melancholic event, but should not be so. We had Ta rare chance to reflect on the challenges for economic analysis, in the spirit of open- minded exploration that Axel instilled to the School form beginning to end. This meeting today is also an opportunity to celebrate Axel´s contributions to our craft and to express the gratitude that we (quite a few of us here) feel for having been able to learn for him, professionally, and also personally. It is on both these terms that I would like to offer my brief remarks. I first knew about Axel in Argentina through a friend who referred me to the Spanish translation of the book on Keynes. Those were grim times in the country, economically and otherwise, and we were anxious searching for ideas to understand what had been going on. The book impressed me strongly. It was full of analytical insights on crucial questions about economic coordination, and at the same time, it allowed one to glimpse useful ways to speak about actual experiences of macro instability.
    [Show full text]
  • Lucas on the Lucasian Transformation of Macroeconomics: an Assessment M
    Lucas on the Lucasian Transformation of Macroeconomics: an Assessment M. De Vroey Discussion Paper 2010-32 LUCAS ON THE LUCASIAN TRANSFORMATION OF MACROECONOMICS: AN ASSESSMENT Michel De Vroey ◊ July 2010 Abstract Robert Lucas is rightfully credited with having changed the course of macroeconomic theory. The aim of this paper is to document his transformation from a potential contributor to Keynesian macroeconomics to the master builder of an alternative paradigm, equilibrium macroeconomics. I reconstruct Lucas’s theoretical journey as involving seven steps: (1) his pre-macroeconomic years, (2) his early work as a macroeconomist, jointly with Rapping, (3) the ‘Expectations and the Neutrality of Money’ 1972 article, (4) his inaugural equilibrium model of the business cycle, (5) his all-out attack on Keynesian macroeconomics, (6) the passing of the baton to Kydland and Prescott, and (7) his standpoint after the victory of the approach he so much contributed to launch. JEL classification: B 22; B 31; E30. Keywords: Lucas, new classical macroeconomics. ◊ IRES, University of Louvain, [email protected] A first version of this paper was presented at seminars given at the University of Toronto and the University of British Columbia. The author is grateful to the participants at these seminars for their remarks. He also acknowledges his gratitude to Robert Lucas for having authorized him to quote from the Lucas Archives held at Duke University, as well as for his comments on the paper. Kevin Hoover’s vivid comments on an earlier version were also stimulating. 1 INTRODUCTION In the late 1970s and the beginning of the 1980s, macroeconomics underwent a radical change, which resulted in the overthrow of Keynesian IS-LM macroeconomics and its replacement by dynamic stochastic general-equilibrium macroeconomics.
    [Show full text]
  • Axel Leijonhufvud’S
    A Dictionary Article on Axel Leijonhufvud’s On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory by Peter Howitt Brown University January 29, 2002 Draft of an article to be translated into French and published in the Dictionnaire des grandes œuvres économiques, edited by Xavier Greffe, Jérôme Lallement and Michel deVroey, to be published by Éditions Dalloz. On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory 1. Professor Leijonhufvud’s book, which emerged from his PhD. Dissertation at Northwestern University, was published in 1968, a critical time in the development of macroeconomic theory. Keynesian Economics was at its zenith. Policymakers around the world had adopted it as their guide to conducting stabilization policy. American Keynesians, proudly pointing to the long economic expansion following the 1962 tax-cuts that they had advocated to close the deflationary gap, claimed that their “New Economics” had vanquished the business cycle. Keynesian ideas had won over all but the most willful advocates of laissez-faire, to the point where it was commonly agreed that “we are all Keynesians now.” Keynesian Economics dominated teaching and academic research as much as it did policy-making. The IS-LM model that Hicks and Hansen had extracted from Keynes’s General Theory had become the reigning paradigm of macroeconomics. Theorists had developed choice- theoretic microfoundations for its major components - the consumption function, the demand function for investment and the demand function for money - informed by a huge volume of empirical research. The apparent success of the Keynesian research program had persuaded many that the broad outlines of macroeconomic theory were now settled, that there was nothing left for theorists to do but fill in the details.
    [Show full text]
  • Old Keynesian Economics∗
    Old Keynesian Economics∗ Roger E. A. Farmer† UCLA, Dept. of Economics September 21, 2006 Abstract I provide an outline of how a modern theory of search, modelled by a two-sided matching function, can be used to form a microfoundation to Keynesian economics. This search theory of the labor market has one less equation than unknown and, when combined with the idea that investment is driven exogenously by ‘animal spirits,’ the marriage leads to a microfounded theory of business cycles. This alternative theory has very different implications from the standard interpretations of Keynes that has become enshrined in new-Keynesian economics. I call the alternative, ‘old-Keynesian economics’ and I show that it leads to a model with multiple belief driven steady states. 1 Keynes and the Keynesians In his (1966) book, On Keynesian Economics and the Economics of Keynes, Axel Leijonhufvud made the distinction between the economics of the Gen- eral Theory (Keynes 1936) and the interpretation of Keynesian economics by Hicks and Hansen that was incorporated into the IS-LM model and that forms the basis for new-Keynesian economics. In that book, he pointed out that although the new-Keynesians give a central role to the assumption of sticky prices, the sticky-price assumption is a part of the mythology of Key- nesian economics that is inessential to the main themes of the General The- ory. In this paper I will sketch an alternative microfoundation to Keynesian ∗This paper was prepared for a Conference in honor of Axel Leijonhufvud held at UCLA on August 30th - 31st 2006.
    [Show full text]
  • Inside the Economist's Mind: the History of Modern
    1 Inside the Economist’s Mind: The History of Modern Economic Thought, as Explained by Those Who Produced It Paul A. Samuelson and William A. Barnett (eds.) CONTENTS Foreword: Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography Paul A. Samuelson Preface: An Overview of the Objectives and Contents of the Volume William A. Barnett History of Thought Introduction: Economists Talking with Economists, An Historian’s Perspective E. Roy Weintraub INTERVIEWS Chapter 1 An Interview with Wassily Leontief Interviewed by Duncan K. Foley Chapter 2 An Interview with David Cass Interviewed jointly by Steven E. Spear and Randall Wright Chapter 3 An Interview with Robert E. Lucas, Jr. Interviewed by Bennett T. McCallum Chapter 4 An Interview with Janos Kornai Interviewed by Olivier Blanchard Chapter 5 An Interview with Franco Modigliani Interviewed by William A. Barnett and Robert Solow Chapter 6 An Interview with Milton Friedman Interviewed by John B. Taylor Chapter 7 An Interview with Paul A. Samuelson Interviewed by William A. Barnett Chapter 8 An Interview with Paul A. Volcker Interviewed by Perry Mehrling 2 Chapter 9 An Interview with Martin Feldstein Interviewed by James M. Poterba Chapter 10 An Interview with Christopher A. Sims Interviewed by Lars Peter Hansen Chapter 11 An Interview with Robert J. Shiller Interviewed by John Y. Campbell Chapter 12 An Interview with Stanley Fischer Interviewed by Olivier Blanchard Chapter 13 From Uncertainty to Macroeconomics and Back: An Interview with Jacques Drèze Interviewed by Pierre Dehez and Omar Licandro Chapter 14 An Interview with Tom J. Sargent Interviewed by George W.
    [Show full text]
  • 'Wigforss Connection': the Stockholm School Vs. Keynes
    This article was downloaded by: [University of Stockholm] On: 09 January 2013, At: 06:04 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK The European Journal of the History of Economic Thought Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rejh20 The ‘Wigforss Connection’: the Stockholm School vs. Keynes debate revisited Martin Kragh Version of record first published: 09 Nov 2012. To cite this article: Martin Kragh (2012): The ‘Wigforss Connection’: the Stockholm School vs. Keynes debate revisited, The European Journal of the History of Economic Thought, DOI:10.1080/09672567.2012.708770 To link to this article: http://dx.doi.org/10.1080/09672567.2012.708770 PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.tandfonline.com/page/terms- and-conditions This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub- licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.
    [Show full text]
  • Lucas, Keynes, and the Crisis
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Laidler, David Working Paper Lucas, Keynes, and the crisis Research Report, No. 2009-2 Provided in Cooperation with: Department of Economics, University of Western Ontario Suggested Citation: Laidler, David (2009) : Lucas, Keynes, and the crisis, Research Report, No. 2009-2, The University of Western Ontario, Department of Economics, London (Ontario) This Version is available at: http://hdl.handle.net/10419/70391 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Lucas, Keynes, and the Crisis by David Laidler Research Report # 2009-2 July 2009 Department of Economics Research Report Series Department of Economics Social Science Centre The University of Western Ontario London, Ontario, N6A 5C2 Canada This research report is available as a downloadable pdf file on our website http://economics.uwo.ca/econref/WorkingPapers/departmentresearchreports.html.
    [Show full text]
  • Complexity and Policy Making I Ty an Ty D P Ol Ic Y Mak I Ng
    OECD INSIGHTS EDITED BY PATRICK LOVE AND JULIA STOCKDAle-OTÁROLA AND JU AND EDIT E D BY PATRICK LOV PATRICK D BY L IA STOCKDA IA le - O E , TÁRO L A DEBATE THE ISSUES: DEBATE THE ISSUES: COMPLEX ISSUES: THE DEBATE COMPLEXITY AND POLICY MAKING I TY AN D P OL ic Y MAK I NG OECD Insights Debate the Issues: Complexity and policy making This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2017), Debate the Issues: Complexity and policy making, OECD Insights, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264271531-en. ISBN 978-92-64-27152-4 (print) ISBN 978-92-64-27153-1 (PDF) ISBN 978-92-64-27158-6 (epub) Series: OECD Insights ISSN 1993-6745 (print) ISSN 1993-6753 (online) Revised version, June 2017 Details of revisions available at: http://www.oecd.org/about/publishing/Corrigendum_Debate_the_Issues- Complexity_and_policy_making.pdf Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given.
    [Show full text]
  • Economics of the Crisis and the Crisis of Economics 1
    Arenas ekonomiska råd Rapport 2 Axel Leijonhufvud Economics of the Crisis and the Crisis of Economics Axel Leijonhufvud, professor emeritus UCLA and University of Trento Economics of the Crisis and the Crisis of Economics 2 Publicerat i oktober 2011 ©Författaren och Arena Idé Arena Idé är en del av Arenagruppen www.arenagruppen.se Arenagruppen Drottninggatan 83 111 60 Stockholm Tel (vx) 08‐789 11 60 Fax: 08‐411 42 42 Arenas ekonomiska råd är en verksamhet inom tankesmedjan Arena Idé. Syftet är att utifrån en radikal och progressiv utgångspunkt bredda den ekonomiska och politiska diskussionen i Sverige. Vi vill skapa en oberoende arena för kunskapsutveckling och förnyelse av den ekonomiska debatten. Arenas ekonomiska råd är ett samarbete mellan Arena Idé och Friedrich Ebert Stiftungs kontor i Stockholm. 3 Axel Leijonhufvud Economics of the Crisis and the Crisis of Economics1 Balance sheet troubles 5 Stability and Instability 5 Markets for produced goods 6 Financial markets 7 Leverage Dynamics: The build‐up 8 Instability and Economic Logic 9 Leverage Dynamics: Unravelling 10 Network structures and instability 11 Corridor stability and bifurcation 13 A Complex dynamical System 13 Financial bifurcation 15 Macroeconomics and Financial Economics: In Crisis? 16 ( 1 ) Unemployment in DSGE: An example 16 ( 2 ) Representative agent models, fallacies of composition and instabilities. 18 ( 3 ) Stable GE with “frictions” vs. instability. 18 ( 4 ) Violations of budget constraints and their consequences 20 ( 5 ) An external critique: Ontology 21 1 Lecture given at the Stockholm School of Economics, September 20, 2011 4 Balance sheet troubles This is not an ordinary recession. The problems unleashed by he financial crisis are far more serious and intractable than that.
    [Show full text]
  • Roger E. A. Farmer Curriculum Vitae April 2020 Warwick Professor Of
    Curriculum Vitae Roger E A Farmer April 2020 Roger E. A. Farmer Curriculum Vitae April 2020 Warwick UCLA Professor of Economics Distinguished Emeritus Professor of Department of Economics, Economics University of Warwick University of California Coventry, CV4 7AL, Los Angeles CA 90095 United Kingdom United States Email: [email protected] Email: [email protected] Phone: +44 (0) 24 761 5008 Phone: +1 (310) 825 1011 Citizenship • Dual British and U.S. Education • Ph.D. Economics, University of Western Ontario, London, Ontario, Canada • M.A. Econometrics, Manchester University, Manchester, UK • B.A. Economics, First Class Honours, Manchester University, Manchester UK Employment • Professor of Economics, Department of Economics, University of Warwick, UK, September 2017 – Present • Research Director, National Institute of Economic and Social Research, (NIESR) UK, November 2016 – September 2019 • Visiting Professor of Economics, Department of Economics, University of Warwick, UK, September 2016 – 2017 • Emeritus Distinguished Professor of Economics, Department of Economics, UCLA, 2017 – Present • Department Chair, Department of Economics, UCLA, July 2009 – December 2012 • Department Vice Chair, Department of Economics, UCLA, 2006 – 2009 • Professor of Economics, Department of Economics, UCLA, 1991 – 2010 • Professor of Economics, European University Institute, Florence, Italy , 1998 – 2000 • Associate Professor of Economics with Tenure, Department of Economics, UCLA, 1988 – 1991 • Associate Professor of Economics with Tenure, Department
    [Show full text]
  • Arjun Jayadev and Josh Mason Carried This Interview with Axel Leijonhufvud out Over Two Sessions in Pismo Beach in Fall and Winter 2015
    Arjun Jayadev and Josh Mason carried this interview with Axel Leijonhufvud out over two sessions in Pismo beach in fall and winter 2015. Some additions were made from email conversations. The video and audio to the transcripts are available on request from INET. ON HIS YOUTH I: Let us begin at the beginning. Tell us a little about what were your most formative experiences as a young person. AL: I was a bit overage when I entered the University. In 1950, my parents – undoubtedly with considerable trepidation – allowed me to sign on to the school-ship, S/V Sunbeam, a 450-ton three-masted schooner operated by the Abraham Rydberg Foundation. The Sunbeam cruise went from Goeteborg to Las Palmas and from there to Recife in Brasil and then Barbados, Martinique and St Barthelemy in the Caribbean, Faial in the Azores – nine months in all. After Sunbeam I spent three months on a merchant ship (M/S Immen) around the North Sea but then sobered up a bit and returned to school to go through the Gymnasium. We sailed from Sweden through the Bay of Biscayne to the Canary Islands and then over to Brazil and the Azores and back home. Been gone for nine months plus. I was 17. But then I did go back to school. Each summer I would actually quit school a couple of weeks ahead of ending and sign on to a ship and be gone all summer. The first summer I went through the Panama Canal up the West Coast here to –Vancouver, stopping at all the major ports and a lot of very, very small ports in Central America and back.
    [Show full text]
  • Axel Leijonhufvud
    abcd a POLICY INSIGHT No.53 FEBRUARY 2011 Nature of an economy Axel Leijonhufvud UCLA and University of Trento he financial crisis and the ensuing recession Keynesian economics as a stable system with a have prompted reappraisals of the state of “friction”, rather than a theory of an economy Tmacroeconomic theory. Opinions differ harbouring dangerous instabilities. on how serious are its problems but critics and Models with “rigid wages” were not of much use defenders alike are agreed that they should when the nominal scale of Western economies be addressed by systematically examining came adrift in the 1960’s and 70’s. The ‘ad hoc’ and, where deemed necessary, modifying the response was to paste the Phillips curve onto the assumptions of the reigning dynamic stochastic IS-LM model. This became the Achilles heel of general equilibrium (DSGE) theory. the IS-LM brand of Keynesian economics. This is a rather natural reaction to conceptual By restating the Quantity Theory in first failure. But is it the right strategy? differences, Friedman (1968) fashioned the perfect tool of attack, accounting at the same • How many critical assumptions are there that time both for the instability of the Phillips Curve need to be reexamined? and the Fisher premium on nominal interest rates. In the course of so doing, however, he also • What is the framework within which we introduced the concept of the “natural rate of identify the assumptions that seem critical? unemployment.” In Monetarist theory, flexibility of wages were • How do we count the presumptions of which sufficient to guarantee that the economy would we may not even be aware? converge on this natural rate of unemployment – a doctrine that held sway in macroeconomics Macroeconomics by now has a long history of for 40 years.
    [Show full text]