An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Sunday, April 7, 2019
LarsP. Syll — Mainstream theories of income distribution
Increasing asymmetry of income and wealth, which now goes by the name "inequality" as the buzzword, arises either from the function of perfect markets or from asymmetry of power. A perfect market is one in which there is no asymmetry, that is, the agents are homogenous.
A perfect market could generate asymmetry through difference in ability that lead to differences in distribution owing based on merit and just deserts (as conventional economics assumes). However, perfect markets don't exist other than as modeling constructs. Class structure, for example, generates asymmetries. Always has and always will, to the degree that is is permitted and not compensated for.
Addressing rising inequality by addressing the causes involves addressing the asymmetries from which inequality arises. Libertarians assume that all asymmetry of power and influence is introduced by "state" (government) influence on markets. That is only partially true, however. Influence does often occur through government but this is through asymmetrical power that exists among agents, enabling capture. In addition, economies of scale produce greater efficiency but at the expense of concentration, which risks monopoly and monopsony power and monopoly and monopsony rents as a consequence. This generates "monopoly capitalism."
The upshot is that market "imperfections" lead to asymmetric power, and asymmetric power enable the extraction of economic rent as unearned gains, which in turn results in asymmetric distribution that is not based on merit and gained through competition in perfect markets.
Further elaboration of this cycle is needed to clarify for electorates what the reasons for rising inequality rather rather than appealing to models based on unrealistic assumptions that exist only in economists' brains.
This necessitates an investigation of power and its operation in a society as a social system (complex adaptive system). This was initiated by the classical economists in their investigation of economic rent, continued by Karl Marx, taken up by Veblen and the institutionalists, and subsequently shunted over to sociology ( cf. C. Wright Mills) and political science since the advent of marginalism explained economic rent away based on idealistic models of a market economy based on near perfect markets.
Conventional economists know about market imperfection, rent, rent-seeking and rent extraction but they have avoided dealing with it as a socio-economic factor. Now rising social dysfunctionality is forcing a return to investigating distribution and the causes of increasing inequality of income and wealth.
This can no longer be avoided but no one has yet grasped the "third rail" of economics — other than the Marxists and Marxians, that is, which a reason no one else dares touch it, since contemporary capitalism is based on it and argues unequal distribution is necessary because "incentive." Well then, even if this would be the actual reason, which is highly doubtful, it is a bug rather than a feature.
LarsP. Syll’s Blog
Mainstream theories of income distribution
Lars P. Syll | Professor, Malmo University
See also
Michael Roberts Blog
Invisible Leviathan – Marx’s law of value in the twilight of capitalism
Michael Roberts
Dear idiots, it is deficit spending that creates the distribution people complain about
ReplyDeleteComment on Lars Syll on ‘Mainstream theories of income distribution’
David Ricardo defined economics back in 1821: “To determine the laws which regulate this distribution [between rent, profit, wages], is the principal problem in Political Economy.” (Principles, p. 5)
Yet, the scientifically incompetent Ricardo himself messed distribution theory up and so it remained to this day.#1, #2
The economist Lars Syll sums up: “As has become abundantly clear to students of economics these days, mainstream textbook economics has pretty little in common with the real world in which we actually live. Especially when it comes to the mainstream theories of income distribution, the gap between theory and reality is ocean wide.” and “History has over and over again disconfirmed the close connection between productivity and remuneration postulated in mainstream income distribution theory. Neoclassical marginal productivity theory is obviously a collapsed theory from both a historical and a theoretical point of view, as shown already by Sraffa in the 1920s, and in the Cambridge capital controversy in the 1960s and 1970s.”
The philosopher Tom Hickey sums up: “This necessitates an investigation of power and its operation in a society as a social system (complex adaptive system). This was initiated by the classical economists in their investigation of economic rent, continued by Karl Marx, taken up by Veblen and the institutionalists, and subsequently shunted over to sociology … and political science since the advent of marginalism explained economic rent away based on idealistic models of a market economy based on near perfect markets. Conventional economists know about market imperfection, rent, rent-seeking and rent extraction but they have avoided dealing with it as a socio-economic factor. Now rising social dysfunctionality is forcing a return to investigating distribution and the causes of increasing inequality of income and wealth.”
Both Lars Syll and Tom Hickey belong to the heterodox camp. The characteristic of heterodox economists is that they demonstrate for 200+ years now that mainstream economics is false but have not come up in the meantime with something better. The unsurprising result of inconclusive blather is that the four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and that all got the foundational concept of the subject matter ― profit ― wrong. Because profit theory is false, distribution theory is false to this day.
Both Lars Syll and Tom Hickey promote MMT. And at this point, things escalate from scientific incompetence to political corruption.
To make matter short here, the macroeconomic Profit Law is given as Q=Yd+(I−S)+(G−T)+(X−M).#3 In the most elementary case of a pure production-consumption economy, this reduces to Q=−S.
See part 2
Part 2
ReplyDeleteFrom the Profit Law follows: (1) the business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income, (2) macroeconomic profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on markup setting, nor on risk-taking, (3) in order that profit comes into existence for the first time in the production-consumption economy, the household sector must run a deficit at least in one period, (4) this presupposes the existence of a credit-creating entity, (5) profit/loss is, in the most elementary case, determined by the increase and decrease of the household sector’s debt, (6) monopoly power/rent-seeking is irrelevant for macroeconomic profit and affects only the distribution of macroeconomic profit BETWEEN firms, (7) there is no relation at all between profit, capital, marginal or average productivity, (8) innovation and efficiency are irrelevant for the profit of the business sector as a whole, (9) profit is a factor-independent residual and qualitatively different from wage income, (10) it is an elementary mistake to maintain that total income is the sum of wages and profits, (11) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (12) distributed profit Yd is income and adds up with wage income Yw to total income, (13) total income is NEVER equal to total spending, (14) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (15) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, (16) saving and investment are causally INDEPENDENT and NEVER equal, (17) all I=S/IS-LM models are false since Keynes/Hicks, (18) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (19) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (20) because profit is false, the whole of MMT is false, (21) because the theory is false, MMT policy guidance has no sound scientific foundations.#4, #5
With regard to government spending, the macroeconomic Profit Law boils down to Public Deficit = Private Profit and therefore the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. Roughly speaking, fabulous financial wealth is the mirror image of continuous deficit spending of the household and the government sector and has nothing to do with value creation or exploitation.
MMT theory is provably false, MMT policy serves the Oligarchy. From Ricardo onward, economists in both their orthodox and heterodox incarnations are NOT scientists but useful political idiots.#6
Egmont Kakarot-Handtke
#1 Ricardo, too, got profit theory wrong
https://axecorg.blogspot.com/2018/02/ricardo-too-got-profit-theory-wrong-sad.html
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
#3 For details of the big picture see cross-references Profit/Distribution
https://axecorg.blogspot.com/2015/03/profit-cross-references.html
#4 Refuting MMT’s new Macroeconomics Textbook
https://axecorg.blogspot.com/2019/03/refuting-mmts-new-macroeconomics.html
#5 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
#6 Economists: “a bevy of camp-following whores”
https://axecorg.blogspot.com/2019/03/economists-bevy-of-camp-following-whores.html