Wednesday, July 5, 2017

Bill Mitchell — The rise of the “private government”

I have always found it odd (read totally inconsistent) that people rail against government intervention as if it is a blight on our freedom, but ignore the ‘governance’ of workplaces by capital, who seek every way possible to destroy our freedom and initiative unless it is serving to advance their bottom line. We ignore the benefits of collective goods and laws that protect us, but turn a blind eye to the on-going, minute-by-minute, repression in the workplace. I was reminded of this again as I was reading a new book that came out in May 2017 – Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It) – by American philosopher Elizabeth Anderson. She studies that way in which corporate America serves in effect as a “private government” minutely and vicariously controlling our daily working lives yet many of us still accept the construction that this is the ‘free market’ operating. It is when the word ‘free’ loses all meaning. I especially like her use of the term “private government” to reinforce the hypocrisy of the elites and the inconsistency of those (workers included) who call for small ‘government’ as if that is the exemplar of freedom.
This is what happens when economic liberalism is equated with liberalism. Then economic liberalism is prioritized institutionally over social and political liberalism, and the result is illiberal. This is one of the internal contradictions of liberalism that are also called paradoxes of liberalism.

Whose freedom?

Bill Mitchell – billy blog
The rise of the “private government”
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Bob said...

Working as designed.

AXEC / E.K-H said...

Macrofounded labor market theory
Comment on Bill Mitchell on ‘The rise of the “private government”’

Economics suffers from the fact that the subject matter is ill-defined. Economists think that they are doing economics while they bungle amateurishly in sociology and psychology, that is, in some conveniently stripped down version of these disciplines. What economists overlook is that their subject matter is the structure and behavior of the economic system and that all questions about Human Nature/motives/behavior/action is NOT their business.

Bill Mitchell’s post about the relationship between employees and the firm’s government is pure sociology and firmly rooted in a tradition that goes back to the founding fathers. John Stuart Mill, to recall, had been engaged in a pen-friendship with Auguste Comte, the founder of sociology.#1

The subject matter of standard economics is defined by the Walrasian axiom set which is ultimately based on methodological individualism. Microfoundations ― with constrained optimization and equilibrium as pivotal axioms ― is the wrong approach. This explains why economics is a failed science. Economics is a system science, NOT a social science. Accordingly, the correct approach is macrofoundations.

The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is shown on Wikimedia:#2

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete employment equation contains in addition profit distribution, the public sector and foreign trade.

Item (i) and (ii) cover Keynes’ familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what microfounded economics teaches.

See part 2

AXEC / E.K-H said...

Part 2

“We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin)

“If the price of bananas is kept too high in relation to the price required to balance supply and demand there will be a surplus of bananas. If the price of bananas is below the market clearing price there will be a shortage. The same applies to labour. If the price ― i.e. the wage ― is too high there will be a surplus of workers, i.e. unemployment. If it is kept too low there will be a shortage of workers … Workers do sell their services just as banana producers sell their bananas.” (Brittain)

The banana theory of the labor market is just that: bananas. The lethal methodological blunder of microfounded employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole. NO way leads from the explanation of Human Nature/motives/behavior/action to the explanation of how the economic system works.#3

False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment.#4

Egmont Kakarot-Handtke

#1 See also ‘John Stuart Mill as a social science founder’

#2 The macrofoundations approach starts with three systemic (= behavior-free) axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start it holds X=O.

#3 See also ‘The happy end of the social science delusion’

#4 For more details see cross-references Employment

Kaivey said...

I shudder to think of an economic system as efficient as a machine with no conscience or human values whatsoever. The system is pretty near like that in many countries in the third world.

And capitalist efficiency is destroying the planet, with forests disappearing to be replaced with palm trees. The wheels of industry going 24/7. There is no rest.

The Scandinavian modal is quite good.

Steve D said...

AXEC / E.K-H needs to take his relentless ranting over to Billyblog and complain there. Good riddance asshole.

AXEC / E.K-H said...

Steve D

Your good advice to take the “relentless ranting over to Billyblog” is not as novel as you might think. These comments have already been posted on Billyblog:

Macrofounded labor market theory

Economics is NOT about Human Nature but the economic system

Where MMT got macro wrong

Rectification and generalization of MMT

Economics as poultry entrails reading

Rethinking MMT

Hobson got full employment policy almost right

How to start off at the right foot

Australian upside-down economics

Modern moronomic theory

Egmont Kakarot-Handtke