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.