Thursday, August 24, 2017

Labor share and super firms

I discussed on several occasions before the worsening of income distribution and the squeeze of the labor share in total income. Figure below provides updated information.
Professor Autor and some of his co-authors suggest this in part might result from the rise of the 'superstar firm.' In other words, Facebook, Google (Alphabet), Amazon, Apple, etc and the winner take all economy. This paper (h/t Santiago Capraro) argues that this results from market power reflected in higher mark ups.

Note that the paper by Autor et. al. suggests that superstar firms are more efficient and as their share of the market increase, their higher productivity and reduced labor force leads to a lower share for labor in the aggregate. It is mostly a technological effect for them.

I have my doubts, of course, about any story that leaves out the relative bargaining power of the labor force, and in this story the regulatory environment that has allowed the information age firms to have such large shares of the market. But that's another story.

Tuesday, August 22, 2017

The Routledge Handbook of Heterodox Economics

(click to enlarge)
The Routledge Handbook of Heterodox Economics presents a comprehensive overview of the latest work on economic theory and policy from a ‘pluralistic’ heterodox perspective. Contributions
throughout the Handbook explore different theoretical perspectives including: Marxian-radical political economics; Post Keynesian-Sraffian economics; institutionalist-evolutionary economics; feminist economics; social economics; Régulation theory; the Social Structure of Accumulation approach; and ecological economics. They explain the structural properties and dynamics of  capitalism, as well as propose economic and social policies for the benefit of the majority of the population. You can buy it here.

Saturday, August 19, 2017

A theory of economic policy and the role of institutions

Nicola Acocella published a paper in the Journal of Economic Surveys (a free, preliminary version is available here) on the development of the theory of economic policy. Acocella is clearly fully aware of the differences between classical political economics and marginalism (neoclassical economics).* And he dismisses the pre-margnialist views on economic policy as being unsystematic and devoid of general principles.
In his words:
Most classical writers and the marginalists had suggested cases where public intervention was in order. This had been so for Smith (1776), Ricardo (1817), Mill (1848), Marshall (1890), Walras (1874-1877, 1898). But these cases were mainly what Walras called ‘examples of empirical policy’ rather than consistent policy. They were certainly dictated on the basis of an analytical evaluation of the circumstances suggesting them, but were not part of a systematic and consistent assessment of the foundations and the articulation of public policy.
In his view, economic policy as an autonomous discipline, meaning one based on theoretical principles, only started with Sidgwick,  Marshall and Pigou, that is, with Welfare Economics or Social Choice Theory, which apparently now is referred to as Implementation Theory (I didn't know that, I might confess). So it is in the debate of the 1930s, with Robbins and his followers and critics, and more fundamentally with Arrow's Impossibility Theorem that he sees the development of the main themes of a theory of economic policy.

He also suggests that before the development of a the theory of economic policy proper "the ‘night-watchman’ position became an exception as most classical and marginalist economists tended to state a number of specific or general cases where government intervention was in order." I'm not fully convinced about that. Sure there were some views about government intervention, but for the most part the Victorian consensus, among economists (not necessarily in practice, meaning actual economic policy) was for free trade, adherence to the rules of the Gold Standard, and sound finance. The idea of the minimal state was probably dominant, and the exceptions, particularly among marginalists that dominated in the UK at least, were associated to market failures.

The two major obstacles to this dominant view that government action was possible, in Acoccela's view were due to Arrow and Lucas. In his words, these 'vital failures' were: "the impossibility of taking people’s preferences as a reference for public action, underlined by Arrow (1951) and ‘radical’ objections to effectiveness of public action of the kind raised by Lucas (1976)." I should note that it seems that, in his view, the major critiques have been successfully dealt with, by Sen and his followers in one field and New Keynesians in the other, and the current consensus would be that government action is possible and desirable.

In this view, then, the history of the development of of the field is one in which the profession goes from being in favor of government action up to the development of the theory (essentially the from the beginning of marginalism to the 40s), broadly speaking, to being critical from the 50s to the 80s, with a slow return to a more interventionist consensus ever since. And maybe this describes well the field of Implementation Theory. But it strikes me as being at odds with conventional views of what the profession thinks about the role of government over time.

I mean, normally you would think of the profession as being essentially for laissez-faire, the reason why sometimes there is a conflation of classical and marginalist authors, and then after the Great Depression and the Keynesian Revolution (even if not complete, and dominated by an imperfectionist view) there would be an interventionist turn, which starts to be contested in the 1970s, with the Conservative Revolution and the Great Inflation. The apotheosis of the return of the market would come with the fall of the Soviet Union, shock therapy and the so-called Washington Consensus. The question would be to what extent this neoliberal dominance has been undermined by the last Global Financial Crisis (I would say less than what people think).

I also think that the dismissal of the classical political economy approach to economic policy, which was based on historical understanding of the specific conditions of a particular situation, is a mistake, and that there is a lot be learned from that tradition. Note that for classical political economy authors history and institutions, and, hence, policy analysis, were at a different level of abstraction, and had a different relation with the core of the theory (value and distribution). At any rate, this is an interesting paper worth reading.

* For example, he is careful to note that the meaning of the invisible hand in Adam Smith is often out of context. However, he argues that: "we use the term ‘invisible hand’ as a metaphor of the Smithian position as well as of later theories, in particular neo-classical thinking, which has then prevailed, even if the latter are deprived of some social aspects of the working of the market that certainly were in Adam Smith." This reading of Smith leaves room for intervention in the case of imperfections, and seems to follow the ideas of Acoccela's mentor, the famous Italian economist Federico Caffè.

Tuesday, August 15, 2017

Racism, the election and more

After writing on Venezuela last week, Trump suggested that the US might intervene there. And then the predictable happened, violence and death ensued... in the US. I don't have much to say about what happened in Charlottesville. It is worth noting that even though the city and the University of Virginia are relatively progressive places these days, they do have a long history that ties them to slavery and white supremacy (see this on NPR; h/t URPE blog).*

At any rate, it's not surprise that Trump didn't condemn his base (and yes the racist voted for him; but as I noticed before 1964 those votes went mostly to Democrats). He certainly is more explicit than previous Republicans going beyond racist dog whistle  politics. I would insist that racism is not the main reason why he won the election, and that a left wing populist right have won.

The topic is still relevant (even in the middle of the violence and crazy confrontation with North Korea; btw, this is a must read for those interested on the history of US-Korea relations), since the lessons of the defeat are important to preclude 8 years of this madness. So this piece in the NYTimes shows that Obama-Trump voters, meaning voted for Obama in 2012 and for Trump in 2016, are real.

As the authors says, echoing what I said here a while ago:
... the national vote doesn’t count, and Mrs. Clinton is not the president. She lost primarily because of the narrow but deep swing among white working-class voters who were overrepresented in decisive battleground states.
The interesting twist is that racism did play a role in the flip from Obama to Trump, at least more than I thought it did by looking at the Rust Belt alone. The piece says:
... racial resentment is the strongest predictor of the Obama-Trump vote in this survey data. White, working-class Obama voters with racially conservative views were very likely to flip to the Republicans.
Note that not all the 'rednecks' in the Rust Belt are racists though. There is an interesting piece on the redneck revolt here.

* It's also the home of the Virginia School, or the Public Choice School of Buchanan (briefly discussed here), that has been the subject of a new book that generated some controversy in economics circles. I'll have more to say about the book later, once I'm done reading it.

Wednesday, August 9, 2017

On Venezuela, Democracy, Violence and Neoliberalism

Many pieces have been written recently on the situation in Venezuela, including some on the left, that are very critical of the Maduro government (see for example this Jacobin piece that has been widely cited). Interestingly, during the sleepy months of the summer in which I almost didn’t write anything here, this old post on Venezuela has become the most read on the blog (as we approach almost 3 million hits).

Let me first say that I am for democracy and against violence, irrespective of who is behind it. Calls to reduce violence on both sides should be at the top of the international agenda. So, any government constraints on the ability of the people to participate in its own government (some form of democracy) and government repression of manifestations (violence) is wrong. As far as I can tell, the current claims about the lack of democracy in Venezuela are not associated, for the most part, to the election of the president (even though right-wing activists insist, without proof, that Maduro and Chávez have rigged past elections; truth is that they won every time, including the last, even if by a smaller margin), but rather to the Supreme Court reduction of legislative power, and to the new constitutional convention. One could also point out the imprisonment of some opposition leaders, like Leopoldo López, who is under house arrest now. All legitimate concerns, no doubt.

The question then is how much of the push to limits to the power of the legislative assembly dominated by the opposition, and how much of the political repression (including the treatment of opposition leaders, but also the police violence) results from the very violent and anti-democratic push from the opposition itself, that has tried to bring down the government since the very beginning (including a failed coup attempt in 2002). And this is also a valid concern that many (almost all the mainstream media) on the left seem to forget. I can’t honestly respond. But I can provide a perspective, based on my understanding of the Argentine and Brazilian cases that are closer to my experience.

In Argentina, the right-wing neoliberal agenda eventually dislocated the Kirchner governments in the ballot (when Cristina was not a candidate I should add), but it basically needed to lie about its intentions. Macri said he would not devalue the currency (and reduce real wages), that he would not cut the tax on exports, that he would not promote austerity, he also said he would end corruption, and he lied on every single element of his platform. Certainly that undermines democracy in my view. A demagogue that on top has been connected to corruption (for example, his name is in the Panama papers) is not necessarily good for democracy (many on the left here in the US are afraid of what another demagogue with corrupt practices may do to democracy). And there are now at least one ‘desaparecido’ (missing, presumably killed like during the last dictatorship) and at least one famous political prisoner (Milagro Sala). These are significant restrictions on democratic values and certainly indicate some connivance (if not direct participation) with violence. But yet I don’t think Macri is a dictator (and certainly the international media doesn’t think that either).

In Brazil, unlike Argentina, the left won the elections (like in Ecuador, btw). Dilma got a second mandate in 2014, and a fourth electoral victory for the Workers’ Party. The solution there for the right-wingers and their neoliberal agenda was a mediatic-judicial coup (and yes Dilma had accepted some of the economic agenda before the impeachment, in particular austerity; but note that Chávez too tried some neoliberal things before too; see my old piece in Dollars & Sense back in 2005 criticizing the left of center governments in the region). In this case, there have been several people imprisoned as a result of corruption charges, in many cases without other proof than the accusation of self-confessed criminals after plea bargains. Also, there has been a lot of abuse of power, including violence against protestors, and they almost certainly will try to preclude Lula from being a candidate in the next election (he too was condemned because somebody says he owns an apartment, without any formal proof). And yes, I would suggest that the current Brazilian government is not democratic.

So why is this relevant to understand Venezuela you ask. Part of the story is that the opposition in Venezuela says that they need to push the boundaries of the democratic system, because the Chavistas are anti-democratic and would not leave power. The US provides full support to that narrative, suggesting that the Venezuelan government is a threat, and that was true of the Bush, Obama and Trump administrations (there is State policy when it comes to the left in Latin America). That’s why Maduro needs to be recalled, in their view, even though he won the election. At any cost. A coup is acceptable and changing the rules too. That was also repeated ad nauseam in Argentina, and it wasn’t true as it is clear now, since Cristina stepped down and followed democratic principles (also that was kind of the argument used against Allende and many other left of center governments in the region before). In addition, the Brazilian case is important because, when the right-wingers loose, as they did in Brazil, they do push and try to promote a coup (if anything Dilma and the left in Brazil were outmaneuvered, but I don’t think they should not have tried to remain in power, since they did win the election, as did Maduro). In my view what we are seeing is a long slow coup in motion, with the US support (and now Argentina and Brazil too), and the Maduro administration is trying to survive.

So, the stakes are high, and the fall of Maduro may come electorally, later (as in Argentina), or by a coup (as in Brazil, but perhaps more violently), maybe sooner, and should not be a surprise. Note that the constitutional crisis to deal with the contested recall of Maduro, and the taking over of legislative powers by the supreme court do restrict some forms of self-government and are problematic and should be criticized. But I hardly think this means that the government is not democratic. For example, in the US the candidate that won the majority of the vote didn’t win the popular vote, and some may think this is not democratic (and that was the original intent of the electoral college, btw). And yes, the rules were in place already you may suggest. But rules are changed all the time, like the rules for financing of campaigns, or gerrymandering, or the rules for who is eligible to vote. It is quite legitimate to argue that the supreme court has restricted democracy in the US with Citizen United. And several states are trying to restrict the ability of minorities to vote, let alone that voting is done on Tuesdays when a significant number of workers cannot vote. And I could go on.

The point is that the US (which until very recently, 1964 in fact, did not allow a vast majority of the African-American population to vote) is a democracy (some may actually disagree with this), a very imperfect one (and Churchill was right, if he said it, that democracy is the worst form of government, except for all the others), but one none the less, like Argentina, and in my view Venezuela. Reasonable people may disagree, as much as some people may think that the US is not a democracy too.

Violence is a more complicated issue. There has been violence on both sides of the dispute, even though you would think it's all the government's fault if you only get the mainstream media. A lot of the discussion is related to the fact that young, middle class, university students are on the receiving end of some of the violence which is not common in Latin America. There has been less coverage or preoccupation with the regular violence against working class people in Venezuela. But as I said, I think here the government should err on the side of extreme caution and avoid all confrontation.

Note that in the Argentina, Brazil and the US (and in Venezuela too; the recent burning alive of a lower-class man because he was a Chavista is an example of that) there is a lot of violence against minorities and working-class people. More often than not it goes undiscussed in the media. In the US, only recently as a result of the widespread use of smart phones with cameras the systematic killings of black people have shocked the nation. For violence to be controlled institutions have to be strong and capable of punishing the culprits. In the US, clearly institutions still fail, as the many policemen that shot African-American kids go free. Again, I do think the US is democratic, but for many black folks that couldn’t vote until a generation ago, and/or have been imprisoned and deprived of their political rights the idea of American democracy probably rings hollow. In other words, restrictions on democratic processes, which exist in both Argentina and Brazil (and in the US too), and the existence of violence (always condemnable) per se does not necessarily mean that the government is a dictatorship. Anti-democratic tendencies like those of Macri, Trump and Maduro (Temer in Brazil is the representative of a coup and beyond just having anti-democratic tendencies) should be discussed and condemned, as much as of the opposition to their governments when they exist (if you think Dems in the US have no anti-democratic tendencies, check the primaries, the super delegates and so on). And the opposition in Venezuela is also accountable for a fair share of violence and undemocratic practices.

Don’t get me wrong, there were lots of problems with Chávez (and still true with Maduro) and with the left of center governments in the region. The inability to break with the dependence on exports of commodities (and the price being paid now that prices have fallen), the lack of counter cyclical policies at crucial times, the absence of a coherent industrial policy, the integration with China on subordinate way and so on (read my post on Venezuela linked above). In the case of Venezuela, it’s worth quoting at some length this excerpt from Tarver and Fredrick’s history of the country:
the Chávez-Maduro tenure has also been termed a ‘petroleum dictatorship’… The enormous increase in national revenue allowed Chávez and Maduro to pay off Venezuela’s foreign debt and undertake a massive social works program… For most Venezuelans, the petroleum era did not bring with it additional jobs, increased wages, or an improvement in the standard of living. Instead, the oil boom brought about a decline in domestic industry, and increase in imports and inflation.
Seems like a familiar critique of Chavismo, doesn’t it? As it turns out, this is a misquote (oops, my bad). The book actually says the Gómez tenure (president in the first decades of the 20th century), public works instead of social works program, and agriculture instead of industry. The point is (as noted in my post linked above) that these problems are not new. In the case of Venezuela there are two excellent papers (in Portuguese) written by Celso Furtado, in 1957 (a report for ECLAC) and in 1974, showing the problems of development with abundance of foreign reserves (should be a paradox since the normal problem, the constraint, is lack of dollars), which are a must read for those interested in the problems of development.

As I said in my previous post too, this is a tragedy, and there are no good solutions. I would prefer the continuation of the democratic institutions, meaning Maduro’s government with an opposition with a significant role in parliament, and without violence of course. And it would be even better if it could be achieved without a return to neoliberal policies. But this seems increasingly unlikely. The fall of the Maduro government will not end violence, and will not bring back democracy. Unless you have a very Manichean view of the meaning of violence and democracy. But hey, Hayek thought that Pinochet was a paragon of democracy, so who knows what neoliberals think.

Tuesday, August 8, 2017

The wage share in Argentina

In his book, Estudios de Historia Económica Argentina, Eduardo Basualdo has several tables with the data for the share of wages in income. Sources seem to be different and not necessarily compatible (although I 'm not sure about that). He also published a paper in 2008 with additional data. The graph below adds the numbers shown here, which I think are also from Basualdo (the newspaper only cites CIFRA; I couldn't find another source in their website).
To the extent that one can trust numbers on functional income distribution, these numbers give a reasonable picture of what happened in Argentina since the first Peronist government back in 1946. It is clear that the military coup in 1976 was implemented to reduce the share of wages. The graph also puts in perspective the last progressive administration of the Kirchners, which brought wages up from very low levels, but not quite to the pre-1976 level. I would expect the decline with Macri, that seems to have started (as I predicted), will go considerably further.

Monday, August 7, 2017

Economic Survey of Latin America and the Caribbean

 The Economic Commission for Latin America and the Caribbean´s (ECLAC) Economic Survey of Latin America and the Caribbean (“Dynamics of the current economic cycle and policy challenges for boosting investment and growth”) for 2016-2017 was published last Thursday (3 of August). It incorporates a number of heterodox concepts and ideas mainly in Part II. These include the notion of center and periphery (which provides the framework for Chapter III “The region’s current economic cycle and its various characteristics are partly a reflection of changes that have occurred in the international economy and in the way forces are transmitted from the more advanced to the developing economies.” p.117 ); the importance of the productive structure (Chapters III and IV) to analyze the impact of the impulses from the center to the periphery; aggregate demand as a key driver of the world slowdown in trade (pp. 123-124); the relative importance of income versus substitution effects (pp.147-149); the investment multiplier (“There is ample evidence that points to the importance of protecting public investment …it represents a significant boost to economic growth in the medium term. …the cumulative effects of public spending variations on the output of 16 Latin American countries, with results showing that the cumulative multiplier of investment spending is significantly higher than that of consumption” p. 158); and the concept of total monetary demand (pp.163-166). As such the report represents a significant attempt to return to ECLAC´s Structuralist roots while at the same including some of the main ideas of other heterodox schools of thought (i.e., post-Keynesian).

Sunday, August 6, 2017

The positive profit with negative surplus-value paradox

New paper by Lucas (not that one) and Serrano. From the abstract:

This paper explains the “positive profits with negative surplus-value” example of Steedman (1975) and shows that while in joint production systems individual labour values can be negative, the claim that the total labour embodied in the surplus product of the economy (surplus-value) can also be negative is based on assumptions that have no economic meaning (such as negative activity levels). The paper also provides a way to measure the surplus-value of joint production systems which overcomes the problems of the traditional concept and restates the proposition that a positive amount of surplus labour is a necessary condition for positive profits.
Read full paper here. A preliminary version was briefly noted here in 2012. Academic publications are slow indeed.

Saturday, August 5, 2017

On job numbers, the stock market and more at the Rick Smith Show

Full show here. I'm interviewed at around 1:03 into the show, and the whole thing is about a bit less than 20 minutes long.

"Wages, prices, and employment in a Keynesian long-run" by Marglin

New issue of ROKE with papers by Stephen Marglin, Amit Bhaduri, Esteban Pérez (with your truly) among others. Last issue of the several in honor of the 25 years of the Marglin-Bhaduri papers on profit-led/wage-led growth. From the abstract of Marglin's paper:
The central question this paper addresses is the same one I explored in my joint work with Amit Bhaduri 25 years ago: under what circumstances are high wages good for employment? I extend our 1990 argument in three directions. First, instead of mark-up pricing, I model labor and product markets separately. The labor supply to the capitalist sector of the economy is assumed à la Lewis to be unlimited. Consequently the wage cannot be determined endogenously but is fixed by an extended notion of subsistence based on Smith, Ricardo, and Marx. For tractability the product market is assumed to be perfectly competitive. The second innovation is to show how disequilibrium adjustment resolves the overdetermination inherent in the model. There are three equations – aggregate demand, goods supply, and labor supply – but two unknowns – the labor–capital ratio and the real price (the inverse of the real wage). Consequently equilibrium does not even exist until we define the adjustment process. The third innovation is to distinguish capital deepening from capital widening. This is important because, ceteris paribus, wage-led growth is more likely to stimulate the economy the greater the fraction of investment devoted to capital deepening. A final section of the paper shows that US data on employment and inflation since the 1950s are consistent with the theory developed in this paper.
Marglin's paper is open, and so is Bhaduri's. Full issue here.

Podcast with about the never ending crisis in Argentina

Podcast with about the never ending crisis in Argentina with Fabián Amico, and myself and interview by Carlos Pinkusfeld Bastos and Caio Be...