The late Polish economist Michał Kalecki, a contemporary of Keynes and who developed an understanding of how the economic cycle works in much more detail and richness than that presented by Keynes in his General Theory, rejected the notion of a long-run. He was arguing against the classical/neo-classical notion that such a long-run state can be conceptualised where equilibrium rules and the ‘true’ nature of relationships are revealed including the ineffectiveness of government policy to alter the real outcomes that the market produces. Any discussion of the long-run in Kalecki’s work contains no notion that the long-run is a steady-state attractor (that is, a (natural) point that the macroeconomy gravitates to when imperfections are eliminated). Kalecki’s notion of the long-run bore no insinuation of “equilibrium” (competitive equalisation of rates of profit; realised expectations; full employment). In effect, while his position shifted (in nuances) throughout his life, Kalecki rejected the mainstream view that there was a state we might call the long-run, which was separable from the economic cycle. Kalecki said: In fact, the long run trend is but a slowly changing component of a chain of short run situations; it has no independent entity … That is the long-run is just a sequence of short-runs. And that these short-runs are all linked by path-determinancy – so you are today where you have come from. Effective demand (with investment as a major variable component) drives output and employment, but, in turn, influences investment (through expectations and profit realisation), which determines the path of potential output.
Posted on: Sun, 21 Dec 2014 17:36:52 +0000