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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Friday, December 2, 2022
Betrayal — Steve Randy Waldman
There is no other word for what the Democratic Party has just done to railworkers than betrayal.
A person's position on unions depends on who they think bears the burden of those higher wages brought about by union power. Joan Robinson made it clear that it was the non-union workers who would see a decline in their real wage.
Generally speaking, in the orthodox system, it was taken for granted, without much thought, that a rise in money-wage rates, brought about by a bargain between employers and employed, entails a more or less commensurate rise in real-wage rates, and that a rise in real wages causes a decrease in employment. In any one industry the workers obtain a higher real wage when their money wage rises, for even if the product of the industry is consumed by the workers, a rise in its price, following the rise in its wages cost, will make only a small reduction in the purchasing power of money, so that the workers in that industry gain, while the countervailing loss is thinly spread over the rest of the community. Again, in a single country, an all-round rise in money wages, even if it is accompanied by an equivalent rise in home prices, leaves the prices of imported goods unchanged in the first instance, and so leads to some rise in real wages in the home country. The orthodox economists seem to have pushed the inquiry no further than this, and appear never to have posed the question : What happens when there is an all-round rise in money wages in a closed system without international trade?
There is no doubt what their answer ought to have been. On the orthodox assumptions of perfect competition, marginal prime cost is equal to marginal wages cost in a closed system. An equal proportional rise in all money wages must therefore lead to the same proportional rise in the level of prices of a given rate of output. It follows that, unless something happens to alter the rate of output, real wages remain unchanged when money wages rise. But this proposition is not to be found in the orthodox writings. On the contrary, it was always assumed that the money-wage bargain determines the real wage, and it was not until Mr. Keynes challenged this assumption that any discussion of the problem was undertaken at all.
"leaves the prices of imported goods unchanged in the first instance"
That's where they go wrong in a floating exchange rate environment. In a floating rate environment what people pay for a country's imports is all the money there is to pay the costs of the exporters in that country. However if exporters money wages have gone up, there is an imbalance.
Floating rate means you can treat the system as though there is no international trade in money terms.
A person's position on unions depends on who they think bears the burden of those higher wages brought about by union power. Joan Robinson made it clear that it was the non-union workers who would see a decline in their real wage.
ReplyDeleteGenerally speaking, in the orthodox system, it was taken for granted, without much thought, that a rise in money-wage rates, brought about by a bargain between employers and employed, entails a more or less commensurate rise in real-wage rates, and that a rise in real wages causes a decrease in employment. In any one industry the workers obtain a higher real wage when their money wage rises, for even if the product of the industry is consumed by the workers, a rise in its price, following the rise in its wages cost, will make only a small reduction in the purchasing power of money, so that the workers in that industry gain, while the countervailing loss is thinly spread over the rest of the community. Again, in a single country, an all-round rise in money wages, even if it is accompanied by an equivalent rise in home prices, leaves the prices of imported goods unchanged in the first instance, and so leads to some rise in real wages in the home country. The orthodox economists seem to have pushed the inquiry no further than this, and appear never to have posed the question : What happens when there is an all-round rise in money wages in a closed system without international trade?
There is no doubt what their answer ought to have been. On the orthodox assumptions of perfect competition, marginal prime cost is equal to marginal wages cost in a closed system. An equal proportional rise in all money wages must therefore lead to the same proportional rise in the level of prices of a given rate of output. It follows that, unless something happens to alter the rate of output, real wages remain unchanged when money wages rise. But this proposition is not to be found in the orthodox writings. On the contrary, it was always assumed that the money-wage bargain determines the real wage, and it was not until Mr. Keynes challenged this assumption that any discussion of the problem was undertaken at all.
—Joan Robinson (An Essay On Marxian Economics)
Biden people want to sustain the US economy..
ReplyDeleteEssential workers are prohibited from striking.
ReplyDeleteMost are bearish on the economy right now..,
ReplyDelete"leaves the prices of imported goods unchanged in the first instance"
ReplyDeleteThat's where they go wrong in a floating exchange rate environment. In a floating rate environment what people pay for a country's imports is all the money there is to pay the costs of the exporters in that country. However if exporters money wages have gone up, there is an imbalance.
Floating rate means you can treat the system as though there is no international trade in money terms.