Noah Smith — Bust Up America's Monopolies Before They Do More Harm

Economists have been sounding the alarm about this trend for a while now. John Kwoka, an economist at Northeastern University, has literally written the book on the follies of the modern age of antitrust. In a new report, he shows how much more complacent the government has gotten toward oligopolies. The government still doesn’t tend to let a single company dominate any industry, but it’s usually fine with just five or six. Kwoka traces the change in attitudes to the rise of the so-called Chicago school approach to antitrust policy:

Bloomberg View
Bust Up America's Monopolies Before They Do More Harm
Noah Smith, contributor

Chris Dillow — Two posts on power and rent-seeking

When capital is favored as a factor, asymmetrical power and consequent rent extraction result. The consequence is push back from those that perceive themselves as being cheated.

Stumbling and Mumbling

Reinventing The Wheel

Cronyism, & the Demand for Redistribution

Chris Dillow | Investors Chronicle

Dean Baker — The Question Is Not "Free Trade" and Globalization, It Is Free Trade and Globalization Designed to Screw Workers

Will the media ever stop the ridiculous charade of pretending that the path of globalization that we are on is somehow and natural and that it is the outcome of a "free" market?

The bulk of the post is kind of weak, but the title and above quote get it right.

Beat the Press

The Question Is Not "Free Trade" and Globalization, It Is Free Trade and Globalization Designed to Screw Workers
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

Don Quijones — The Men Who Stole The Sun

Incredible.

If there’s one thing we should have learnt from this extended period of post-crisis drudgery, it is that there is no limit to how far our elected governments will go to protect the interests and privileges of oligarchs and oligopolies. In Spain, the government will even steal the sun’s rays to protect the country’s energy plutocracy.

Now the Spanish government is planning to tax homes that produce their own energy through solar power and store some of it using batteries. El País reports:

A draft decree prepared by the Industry, Energy and Tourism Ministry establishes a new fee to discourage the use of batteries or other storage systems by people who produce electricity, with solar or photovoltaic panels for instance, and who are connected to the national power grid.

This latest royal decree follows on the heels of an earlier one announced in 2013 that levied a tax solely on those who generate their own electricity. Once passed into law, intrepid small-time energy producers will be forced to pay a backup toll for the power from their solar panels, in addition to the access toll paid by everyone who consumes electricity from the conventional grid.

What’s worse, in order to figure out who is producing what level of energy (and, of course, how much to tax it), all solar panels would have to be hooked up to the grid. Energy producers who don’t connect to the grid could face a fine of up to 30 million euros (yes, seven zeros!). As Forbes reports, the intention is clear: to scare taxpayers into connecting to the grid in order to be taxed:....

Not mention that in some places gathering rain water is prohibited.

Wolf Street
The Men Who Stole The SunDon Quijones

Tony Wikrent — “If You Are Not Building a Nation, Then What the Fuck Are You Doing?”

May good points but I think that Tony is confused about the role of political and economic geography, geopolitics, and geostrategy. While the points he makes about development are well taken, they are largely orthogonal to the points that Alfred McCoy make about position relative to Halford Mackinder, and he might have included Nicholas Spyckman, too. Now, development is coming together with geographical position in Eurasia. This is likely to have much greater impact on much greater land space than the US has had owing to the relatively isolated position of the US geographically, which required amassing sea power like England previously.

The point is that if one doesn't understand how the players view the game as a set of rules on a particularly configured board, then one is not going to understand the moves that they are making and liable to make based on objectives and tradeoffs. It's therefore essential to understand the "grand chessboard," whatever one thinks of it. It is a high stakes game that the players take very seriously.

Naked Capitalism
“If You Are Not Building a Nation, Then What the Fuck Are You Doing?”
Yves Smith
Guest post by Tony Wikrent

Paul Romer — Mathiness and Academic Identity

Paul Romer clarifies his position on mathiness.

I see a marked deterioration in the progress that economics is making as a scientific discipline. I point to objective evidence that economics is not functioning as a scientific discipline should. The problem seems to be getting worse. 

Science is about establishing what is true. Scientists say what they believe. They support their claims with evidence and logic. They evaluate seriously the claims that other scientists make. They admit when they are wrong.

Science is not like an inter-faith congress, where everyone is supposed to listen, in tolerant and respectful silence, to recitations of dogma that maintain sub-group cohesion.

I could be wrong. I’ll listen and admit it if I am persuaded that I am wrong. But until logic and evidence show that some other position is closer to being right, I will say what I think because I care about more about protecting science in general and economics in particular than about avoiding hurt feelings.

Paul Romer
Mathiness and Academic Identity

Btw, in the post Romer makes clear that the issue is about economic power and economic rent, although he does not use those words.

For example, one of the things that the people I criticize are campaigning for is a methodological restriction to models with price-taking. For them, price-taking is dogma. To make the case for this restriction, they are not presenting scientific arguments grounded in logic and evidence.

I do not think that the outcome of this campaign over methodological dogma will have any effect on national politics or actual policy decisions. Nor do I think that the proponents of price-taking are fooling themselves into thinking that the outcome of this campaign will have any affect on national politics or actual policy decisions. They are fighting to preserve a sense of academic group identity grounded in a common defense of this dogmatic position.

I have written that Stigler and Friedman opposed Chamberlin’s theory of monopolistic competition because they did think that letting this deviation from Marshallian price-taking into mainstream economics could influence national politics and actual policy decisions. But that was then. This is now.

I suspect that path dependence explains why economists at the University of Chicago still make hostility to monopolistic competition central to their sense of academic identity, but if so, it is a vestigial holdover from battles about national politics from the 1950s to the 1980s, not part of an ongoing battle over national politics.

Many of us don't view this argument as "vestigial" and about academic politics. It is very much an article of faith of neoliberal dogma that the Chicago School largely initiated, promoted and continues to maintain as an ideological political lever.

John Quiggin — Economics in Two Lessons

I’ve been promising for a long time to write a new book, framed as a reply to a free-market tract Economics in One Lesson by Henry Hazlitt, published in 1946, but still in print and popular among free market advocates. Its popularity reflects the fact that it’s a reworking of Bastiat’s “What is Seen and What is Not Seen”, still one of the best statements of the case for free markets.... 

But as a general statement, Hazlitt’s One Lesson is false, which is why my working title is Economics in Two Lessons”.

I've been wondering when someone was going to write this.

Lesson Two is “Market prices do not reflect all the opportunity costs we face as a society”

To someone trained in mainstream economics, as I have been, the immediate examples of this Lesson are “market failures”, such as externality, monopoly and information asymmetries. I originally planned my book to focus on these market failures, making it a somewhat idiosyncratic take on what is usually called public economics. But I kept feeling that I was missing out too much that was important: unemployment, income distribution and many other issues.

John Quiggin
Economics in Two Lessons

Branko Milanovic — Bob Solow on rents and decoupling of productivity and wages

What I find interesting here is a “marriage” between a standard neoclassical view of how income shares of capital and labor are determined (because even if they are determined in a kind of a monopolistic competition, this is still handled by the neoclassical production function), and the distribution of the rent that responds only in part to economic, and mostly to political factors. Readers will remember that the latter was an old idea, going back to neo-Ricardians who simply argued that the distribution between w and rcan take place at any point along the w-r frontier: it is entirely politically determined. In Solow’s view, the determination of what share of the rent goes to labor and what to capital is not solely political. It depends also on their relative scarcities (or put it the other way, on "the reserve army of the unemployed"). But political factors do play a role too: power of trade unions, ideology, who controls the government, probably fear or not of a social revolution etc. So, as these political factors have moved in a direction adverse for labor, the division of the pie has become more favorable to capital.

It is a nice story, and I like that it seems realistic in its combination of purely economic analysis with real-world politics. It needs to be obviously, fleshed out. Solow was surprised by lack of empirical knowledge among economists of the price mark-ups in different industries (mark-ups are an indication of the existence of rents). Apparently, it is not much studied empirically. If, as Solow said, we come up with an estimate that (say) 20-30% of national income is rent, then surely political factors can explain why capital's share is up. If our estimate of rent is 2-3% of national income, then this is not a very promising story. So, it is back to the empirics!—a nice theory to test where many a young economist can hope to make a difference and become famous. Perhaps, who knows, as much as Solow has!

Global Inequality
Bob Solow on rents and decoupling of productivity and wages
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Merijn Knibbe — Socializing losses, privatising gains: bilateral investment treaties

Milieudefensie published a new report about these treaties. From the report:

Even insiders agree that ISDS undermines democratic decision making. An international arbitrator has summed it up nicely: “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all […] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” That many “healthy, vibrant democracies have signed on to investor state dispute settlement” does not change the fact that national legal (democratic) systems are by definition bypassed when international investors – mostly transnational corporations – are enabled to challenge democratic policies for interfering with their profits before ad hoc and non-transparent investment tribunals. In addition, international investment agreements generally do not contain any provisions to exhaust local remedies before reverting to international arbitration. ISDS enables transnational corporations to bring a case directly against a country. In the eyes of its advocates this adds to the expediency of the system. But critics argue that ISDS gives transnational corporations a powerful tool to challenge a wide range of government regulation and public interest measures. Direct access to investment arbitration allows foreign investors to bypass the domestic legal system and effectively grants them more rights than domestic investors, effectively and unfairly undermining their competitiveness. The ISDS system not only lacks independence, accountability, transparency and coherence in law, it also makes little sense in economic terms as it appears to be inconsistent with the general free market paradigm…

Then present situation is already anti-democratic, and TPP and TIPP significantly up the ante.

Real-World Economics Review Blog
Socializing losses, privatising gains: bilateral investment treatiesMerijn Knibbe

Yves Smith — Masaccio: Piketty Shreds Marginal Productivity as Neoclassical Justification for Supersized Pay

Yves here. One of the main agendas of neoclassical economics is to give Panglossian defenses of the current order a veneer of intellectual legitimacy. If our system is the result of individuals and businesses behaving in logical ways, at least in the minds of economists, surely the outcome is inevitable, and therefore virtuous, or else those operators would do things differently. The Big Lie in all of this is that neoclassical economics takes power completely out of the equation. While it does assume selfishness, in that everyone is out or himself to maximize his utility, it also assumes atomized actors who lack the power to influence markets. As we wrote in ECONNED: 

To put it another way: the neoclassical paradigm is that of pure competition, where providers are mere price takers and cannot influence market dynamics. But that is a profoundly unattractive business proposition.Even if one were to wave a wand and reconfigure the modern economy along those lines, it would in short order coalesce into larger units as individuals did deals (either via alliances or merging operations) to gain the advantages of greater size, and sought to distinguish their offerings to give them pricing power. And differentiation doesn’t necessarily mean having unique products, but can come through the service related to the products. For instance, convenience stores charge more for staples like milk by virtue of location (on highways where there are no alternatives nearby) or being open at 3:00 a.m.

Yet larger enterprises, or indeed anywhere group ties matter, are weirdly disturbing to neoclassical loyalists. One of the reasons they cling so fiercely to ideas like individuals as the locus of activity, along with rationality and welfare-maximizing results (despite the considerable distortions that result) is that they believe any other stance would support a restriction of personal rights. (An aside: this view is counterfactual. Societies where social bonds have broken down and many individuals are isolated are in fact much more subject to totalitarianism and manipulation by propaganda.)

One widely repeated bit of propaganda in the US is that how much people earn reflects their worth in an economic sense. Given how important business is in American society, maintaining this belief is critical to maintaining legitimacy; otherwise, more and more people would see corporate executives not as captain of enterprise but individuals by luck or connivance, got in a position where they could exploit a system that gives them control over assets and cash flows with perilous little in the way of controls over them (there is a vast literature on principal/agent issues in large corporations).

Here, Ed Walker explains how Piketty took a wrecking ball to the ideas that compensation at the top end of the pay spectrum has anything to do with the type of performance economists care about: marginal productivity. It is telling that this part of Piketty’s argument hasn’t gotten the attention it warrants.

Naked Capitalism

Masaccio: Piketty Shreds Marginal Productivity as Neoclassical Justification for Supersized Pay

Yves Smith 

Thomas Frank — Free markets killed capitalism: Ayn Rand, Ronald Reagan, Wal-Mart, Amazon and the 1 percent’s sick triumph over us all

Barry C. Lynn is a senior fellow at the New America Foundation and the author of two important books, “End of the Line” and ”Cornered,” the latter of which describes the dramatic return of monopoly to the American landscape. Both books had a big effect on me when they appeared, as did Lynn’s periodic articles in Harper’s Magazine describing the concentration of economic power in all sorts of different industries. One of the reasons his books startled me is the weird silence of virtually all our other popular economic writers on the subject. Monopoly is back, in a massive way, and yet it seems as though even liberals often have trouble talking about it. If we’re really going to do something about inequality, however, it’s time we looked this thing in the face. 

Barry Lynn and I sat down and talked it over last week. What follows is an edited transcript of our conversation.…

Salon
Free markets killed capitalism: Ayn Rand, Ronald Reagan, Wal-Mart, Amazon and the 1 percent’s sick triumph over us all

Thomas Frank

Philip Pilkington — False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues

So, what then is Krugman avoiding by positing what seems to be an emotionally appealing narrative? Simple: class power. Those two words neoclassical economists cannot stand to hear. The fact is that the idea of neoclassical competition is, at best, a relic of the 19th century, at worst, a fantasy pure and simple and income distribution has far more to do with class power than anything else. Class power is, of course, a political issue first and an economic issue second – one of the reasons that neoclassicals, who claim to practice “pure economics”, tend to avoid it. But it is class power that underlies the manner in which income is distributed today – especially when we are considering the role of finance.

Fixing the Economists
False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues
Philip Pilkington

The plot (wrt rents) thickens. This single paragraphs sums it up.

For elaboration, see Michael Perelman, The Power of Economics vs. The Economics of Power (pdf) and C. Wright Mills, The Power Elite (pdf).

digby — A 1 percenter tells the truth about "job creators"

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

Hullabaloo
A 1 percenter tells the truth about "job creators"
digby

(h/t Mark Thoma at Economist's View)