Wednesday, August 26, 2020

Combating the market power of U.S. corporations over workers and consumers — Equitable Growth

Recent economic research establishes that the United States suffers from a growing market power problem. Market power, often referred to as monopoly power, means consumers pay more for the goods and services they need. Workers earn less. Small businesses have a harder time succeeding. Innovation slows. Market power exacerbates wealth inequality, too, because those who benefit from monopolies—the high-paid executives and stockholders of corporations—are wealthier, on average, than the consumers, workers, and small businesses who bear monopolies’ costs.
U.S. antitrust laws, as interpreted and enforced today, are inadequate to confront and deter growing market power in the U.S. economy. To restore a fair and competitive market, we need legislation that strengthens the law and counters growing corporate power, enforcers who are willing to aggressively enforce laws, and increased fiscal resources to enforce the law.
Workers getting paid less and consumers paying more than they would in a symmetrical market as a result of market power is rent extraction, in this case, monopoly-monopsony rent. The genuine economic meaning of "free market" is symmetrical market, aka perfect market. That is to say, in perfect markets having no asymmetry, prices reflect costs vertically and horizontally, and there is no opportunity to extract economic rent.

Econ 101 is based on the ideal of a perfect market, which does not exist in the real world owing to many factors, one of the primary ones being class structure and power in bourgeois liberalism, where "capital" (property ownership) is privileged. The result is structural inequality of power, income and wealth, skewing economic distribution toward the top. It is as endemic to "capitalism" as business and financial cycles.

WCEG — The Equitablog
Equitable Growth

See also

Neoclassical economics deconstructed. The foundation turns out to be power rather than supply and demand as claimed.

Real-World Economics Review Blog
Supply and demand deconstructed
Blair Fix

1 comment:

AXEC / E.K-H said...

Price theory — more than beating the dead horse again and again
Comment on Blair Fix on ‘Supply and demand deconstructed’

Blair Fix summarizes “… Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory.”

Mainstream economics, though, does not need another deconstruction. Mainstreamers have admitted failure long ago “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990)

Clearly, everybody knows by now for sure that supply-demand-equilibrium is scientific garbage. Back in 1954 Schumpeter found it still necessary to diffuse doubts about the scientific status of the supply-demand-equilibrium approach “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

So, the right thing to do is to bury and forget the “Totem of the Micro”: “If neoclassical theory is bunk, then what explains prices? Jonathan Nitzan, together with Shimshon Bichler, argues that prices are inseparable from power.”#4

With this, though, all remains in the old economics-is-a-social-science paradigm. The behavioral assumption of price-taking is replaced by the assumption of price-setting. To remain in the psycho-sociological sphere is the lethal blunder of the power-approach because economics is a system science.#5

Here are the basics of the macrofoundations approach. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) 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.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. This is the most elementary case.

The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set or how long the individual or aggregate working time L is. Full employment is possible, the workers always get the whole product O. The workers' living standard depends ultimately on productivity.

The logical next steps are (i) to skip the conditions of market-clearing and budget-balancing and to allow for price-setting, (ii) to differentiate the business sector into multiple firms and markets and to determine the price structure.#6

Egmont Kakarot-Handtke

#1 There is NO such thing as supply-demand-equilibrium

#2 How to Get Rid of Supply-Demand-Equilibrium

#3 The Law of Supply and Demand: Here It Is Finally

#4 This echoes Macht und ökonomisches Gesetz (Power and Economic Law), Schriften des Vereins für Socialpolitik, 1972.

#5 Your economics is refuted on all counts: here is the real thing

#6 See Ch. 3 Market interdependence in Sovereign Economics