Jason Hickel — Inequality metrics and the question of power

How should we measure inequality? There are two metrics that economists use: relative and absolute. In the past I have argued that the relative metric – which is by far the dominant approach, embodied in the standard Gini index, in the famous “elephant graph”, and inlogarithmic distribution graphs – is problematic in that it is aligned with the interests and perspectives of the rich, and effectively obscures real inequalities in the distribution of new income around the world. From the perspective of justice, and indeed from the perspective of the poor themselves, what really matters is the absolute gap between rich and poor, not relative rates of change.

But there is another question that we need to consider here, about the relationship between income and power. One of the main reasons we are concerned about inequality in the first place is that it allows rich people to exercise power over the lives of the poor. In political terms, they can use it to lobby policymakers, fund political campaigns, buy media outlets, set up think tanks, or even outright bribe government officials. In economic terms, they can use it to, say, push wages down (by lobbying to restrict labour unions, for example), and push house prices up (because the excess income of rich people ends up flowing to assets).

So which metric gives us more traction in thinking about the power dimension of inequality? Relative or absolute?...

Jason Hickel Blog
Inequality metrics and the question of power

Jason Hickel

Bill Mitchell — The ‘tax the rich’ call bestows unwarranted importance on them

Bill answers the main questions about MMT and a progressive agenda to address wealth inequality.

There is no need for a currency issuer to tax to obtain the funds it issues itself.

The reasons that a currency issuer should tax excessive wealth is political, in that wealth conveys political power.

Neoliberalism differs from classical liberalism (laissez-faire) by harnessing government to promoting the interests of capital rather than reducing government involvement in the economy as a matter of principle.

Bill Mitchell – billy blog
The ‘tax the rich’ call bestows unwarranted importance on them
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Jacob A. Robbins — How the rise of market power in the United States may explain some macroeconomic puzzles

These new facts are particularly puzzling from the point of view of the standard neoclassical economic model, in which markets are perfectly competitive. In this view, profits should not persist over the long run, let alone enable the owners of corporations to increase their share of income over time. The standard model, however, cannot address many of the fundamental changes that have occurred in the U.S. economy over the past 40 years.

In order to explain these new trends, I and my co-authors make several modifications to the standard model, among them positing imperfect market competition, financial assets based on monopoly profits, and the possibility that the natural rate of interest can change. With these parsimonious modifications, our model can explain the data in ways the old model cannot.

Here’s how it works: 

WCEG
How the rise of market power in the United States may explain some macroeconomic puzzles
Jacob A. Robbins, Ph.D. candidate in economics at Brown University and a doctoral fellow at the Washington Center for Equitable Growth

See also

Kaldor and Piketty’s facts: The rise of monopoly power in the United States
Gauti Eggertsson, Jacob A. Robbins, Ella Getz Wold

Bill Mitchell — What matters about the Paradise Papers

A cursory glance at the World’s leading tax havens illustrates the hypocrisy of politicians getting wound up about the revelations in the recently released Paradise Papers and the Panama Papers before them. Many of the havens are within the direct legislative jurisdiction of nations such as the US (which is itself a tax haven) and the UK, for example. And we should not forget that Luxembourg, Switzerland are key European homes of tax avoidance. Remember that the current President of the European Commission “spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations” (Source) ably supported by the Netherlands, another nation engaged in the practice. If the politicians were truly worried about this issue they could do something about it directly with the stroke of a legislative pen. Britain could, for example, eliminate Jersey, the Isle of Man, and its Overseas Territories from this corporate scam. The US could do similarly. The EU could bring in new rules to stop Luxembourg. But they don’t stop it, which tells you everything. But, the problem of tax avoidance and evasion is not fiscal. Progressives get stuck on that point. It is largely irrelevant. The real issues are inequality, power and macroeconomic stability. That is what this blog is about....

Bill Mitchell – billy blog
What matters about the Paradise Papers
Bill Mitchell | Professor in Economics, University of Newcastle, New South Wales, and Director of the Centre of Full Employment and Equity (CofFEE)

Gerald Epstein — Trumponomics: Should We Just Say "No"?

Abstract

Trumponomics, argues this economist, may look like Reaganomics, but it is more about political power than optimal economics strategies. Economists should be aware of this, but many, even progressives, are not. The author provides a way of looking at and criticizing Trumponomics for the popular, power-aggrandizing strategy and ultimately deeply dangerous set of policies he thinks it is.

Download PDF at link.

PERI
Trumponomics: Should We Just Say "No"?
February 12, 2017 | Journal Article
Gerald Epstein | professor of economics at the University of Massachusetts Amherst, and co-director of the Political Economy Research Institute (PERI)

Nobel Laureates — Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Eliminating rent seeking and toughening enforcement of antitrust laws are “critical” to reducing rising inequality, said two Nobel Laureates, Angus Deaton and Joseph Stiglitz, during a panel of Nobel laureates last Friday. Two fellow laureates, Roger Myerson and Edmund Phelps, echoed their message and warned of a return to 1930s-style corporatism.

“To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced,” said Angus Deaton, recipient of the 2015 Nobel Prize in Economics. Deaton described inequality in the U.S. as being primarily driven by industry rents, and rejected proposals to increase taxes on the rich as a way to reduce rent seeking.

“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.

The panel was part of the annual Allied Social Sciences Associations (ASSA) meeting in Chicago. Fellow Nobel Laureate Joseph Stiglitz, recipient of the 2001 prize, offered a more sympathetic view of higher taxes on the rich as a method to reduce inequality, but stressed the importance of rent-seeking to the rise in inequality in the U.S....

Rent extraction is made possible by asymmetric power. The way to reduce rent-seeking is to level the power. Symmetrical power is an assumption of neoclassical economics as the basis of free markets that are fair.

But markets are not naturally symmetrical because societies are structured on the basis of class and power is distributed asymmetrically as matter of social structure.

The problem in addressing rent this way is that this was a key insight of Marx. So anyone proposing such a solution is bound to be attacked as a 'Marxist," "socialist," or 'communist." Most people capable of making difference don’t' want to go there, at least alone, and no one wants to go first.

Pro-Market
Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

David F. Ruccio — Markets, power, and the distribution of income

Joseph Stiglitz usefully explains that there’s more than one theory of the distribution of income. One theory, he writes, focuses on competitive markets (according to which “factors of production” receive their marginal contributions to production, the “just deserts” of capitalism); the other, on power (“including the ability to exercise monopoly control or, in labor markets, to assert authority over workers”).…

The only major problem with Stiglitz’s account is he leaves out a third possibility, an approach that combines a focus on market with power, that is, a class analysis of the distribution of income (which the late Stephen Resnick begins to explain in the lecture above).

According to this class or Marxian theory, markets are absolutely central to capitalism—on both the input side (e.g., when workers sell their labor power to capitalists) and the output side (when capitalists sell the finished goods to realize their value). But so is power: workers are forced to have the freedom to sell their labor to capitalists because it has no use-value for them; and capitalists, who have access to the money to purchase the labor power do so because they can productively consume it in order to appropriate the surplus-value the workers create.…

My only point is to point out there’s a third possibility in the debate over the distribution of income—a theory that combines markets and power and is focused on the role of class in making sense of the grotesque levels of inequality we’re seeing in the United States today.

And, of course, that third approach has policy implications very different from the others—not to force workers to increase their productivity in order to receive higher wages through the labor market or to hope that decreasing market concentration will make the distribution of income more equal, but instead to attack the problem at its source. That would mean changing both markets and power and, thus, eliminating class exploitation.

Occasional Links & Commentary
Markets, power, and the distribution of income
David F. Ruccio | Professor of Economics, University of Notre Dame

Mark Thoma — Economic Models Must Account for ‘Who Has the Power’

Finally, power is beginning to surface in the mainstream debate about economics and economic policy.

The Fiscal Times
Economic Models Must Account for ‘Who Has the Power’

Mark Thoma | Professor of Economics, University of Oregon 

Joseph Stiglitz — The New Era Of Monopoly Is Here

For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions. One, emanating from Adam Smith and 19th-century liberal economists, focuses on competitive markets. The other, cognisant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality.…

Joe goes "there" and mentions the "p" world. Apparently his Nobel is his sword and also his shield. The post is short and incisive.

The implications of this are profound. Many of the assumptions about market economies are based on acceptance of the competitive model, with marginal returns commensurate with social contributions. This view has led to hesitancy about official intervention: If markets are fundamentally efficient and fair, there is little that even the best of governments could do to improve matters. But if markets are based on exploitation [rent extraction], the rationale for laissez-faire [economic liberalism] disappears. Indeed, in that case, the battle against entrenched power is not only a battle for democracy; it is also a battle for efficiency and shared prosperity.

Right on, bro. Power to the people!

The Guardian
The New Era Of Monopoly Is Here

Joseph Stiglitz | Nobel-prizewinning economist, professor at Columbia University, former senior chief economist of the World Bank and chair of the council of economic advisers under Bill Clinton

Diane Coyle — Power and economics

My esteemed colleague Adam Ozanne has written a very interesting, short book on the strange absence of the concept of power from mainstream modern economics. The book, Power and Neoclassical Economics, argues that the fact that economics ignores power in social relations has also affected other social sciences, especially political science, as they have adopted techniques and approaches used in economics.

What explains the lacuna? Adam dates it to, first, the marginalist turn in economics in the 1870s, which started the process of abstracting from the particulars of reality into formalism; and then to the ordinalism of the 1930s and Lionel Robbins’ insistence that ‘positive’ and ‘normative’ economics could be separated. The new welfare economics of the 1950s finished the job. Indeed, Arrow’s famous impossibility theorem seemed to conclude that we can’t say anything practical about social choice. As the book puts it: “It must seem strange to non-economists that economic and social choice theorists have dug themselves into such a deep hole (though a very tidy, immaculately constructed hole) that they cannot even distinguish between rich and poor, but that appears to be the case.”….

From class structure flows power, from power flows economic, and from economic rent flows concentrated incomes and wealth. Ignoring power is to ignore economics as a social science and get lost in empty formalism. Worse, politic economy without considering power is ideology that establishes privilege.

The Enlightened Economist
Power and economics
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Publisher's blurb:

Mainstream economics almost completely ignores the role power plays in determining economic outcomes, which means it can only provide partial explanations of the distribution of wealth and income, and of the problems associated with inequality and poverty. For many, this is a fundamental failing that severely limits its relevance to the real world and is the source of much dissatisfaction with, and cynicism about, economics and economists. Ozanne explains how this neglect of power has come about over the past 150 years and why it is important. He reviews various definitions and theories of power from across the social sciences and proposes a new approach that could bring considerations of power back into standard economic theory and economics teaching. The approach is simple and intuitive, involving little more than re-envisioning the social welfare function as a 'political economy function'. However, if adopted in economics teaching, it could radically change the way young economists are taught to think about economic problems and lead to a 'return to political economy'.

Adam Ozanne has degrees in physics and astronomy, rural development, and agricultural economics. He also began a DPhil in nuclear astrophysics but abandoned it and went instead to teach maths and physics in Pakistan and work for a Third World development agency. He is now a Senior Lecturer teaching economics at the University of Manchester, UK.

Mark Thoma — Paul Krugman: Robber Baron Recessions

Krugman on monopoly power.

Finally, some economists are waking up to the fact that it's the rent, stupid, and that economic rent flows from economic power that is based on political power.

Economist’s View
Paul Krugman: Robber Baron Recessions
Mark Thoma | Professor of Economics, University of Oregon

Nick Johnson — Power under capitalism: the public and the private

Tradeoffs and frictions in the view of neoclassical economics. The nature of capitalism in the view of Marx.

The Political Economy of Development
Power under capitalism: the public and the private

Nick Johnson

Asad Zaman — Theories of Knowledge

The following is the foundation on which the argument is built. The whole post is worth reading from the point of view of heterodoxy successfully confronting orthodoxy.

All heterodox economists agree on one thing, by definition of heterodoxy: orthodox economics contains (huge) errors. INSTEAD of explaining what these errors are and trying to fix them, I would like to stand back from the fray and try to examine what is going on from a distance. WHAT makes certain theories popular? WHY do most people come to believe in theories? WHAT causes changes in these beliefs? By studying the Methodology of Polanyi’s Great Transformation, I came to the understanding that theories can only be understood within their historical context. This understanding is violently in conflict with the conception of knowledge, based on positivist ideas, that I learned in the universities. Contrary to positivist ideas, to understand the process of emergence of theories, and how these theories change over time, one has to do analysis at three levels simultaneously:

LEVEL 1: The Historical Facts, the Context, The Various Groups engaged in the struggle for power, and their interests and ideological positions.

LEVEL 2: The THEORIES which are in use by different groups to analyze the historical experience. It is crucial to understand theories as the lens and framework used by different groups to understand history. Theories prescribe actions to be taken, and groups act to shape history in light of understanding furnished by (often false) theories.

LEVEL 3: Rise and fall of theories as a consequence of the shifting sands of political fortunes of different groups, as well as twists and turns of emergent historical events.…
The naive notion about emergence and adoption of theories can be summarized as:

STANDARD (logical positivist) THEORY OF KNOWLEDGE: A theory will be discarded once it is shown to be false. A theory will be adopted if it can be proven to be true.

On the basis of this positivist idea, we try to prove that dominant theories are false, and offer alternatives which we try to prove true. We think that if we are successful in this attempt, our theories will be accepted. Of all people, heterodox economists should be the first to understand that this theory of knowledge is wrong. They are witness to the long standing dominance and widespread acceptance of theories which are obviously false, and easily demonstrated to be wrong. Thus we need to move to a more sophisticated theory of knowledge. Foucault builds on Marx, and provides a very useful improvement.

POWER/KNOWLEDGE: Theories which are aligned with interests of power become accepted. Moreover, acceptance of these theories actually creates power — power and knowledge are entangled.

Thus, acceptance of neoclassical economics is very beneficial to the interests of the rich and powerful, and that is why it is the dominant theory. Universities serve to indoctrinate a select class to serve the interests of power. Based on this understanding of knowledge, we would not waste time trying to convince those in power of the truth and validity of our theories. Instead, we would appeal to those groups whose interests would be served by the theories we are offering as alternatives. We would focus on the benefits of believing our theories more than on the proof of their validity. The bottom 90%, those who are deeply in debt, those who are powerless, would be the natural target audience, who would listen to our theories because they are aligned with their interests.

I think Polanyi’s analysis of emergence and transformation of structures of knowledge goes further than this, and is more complex. We must understand human knowledge as a social construct — it comes into being because we agree to accept it, and consensus emerges. The agreement can be forced by powers that be using coercion and persuasion in different combinations. Truth is helpful in persuasion, and so it does matter, but it is not the only factor which is relevant. Many readings on the relation between power and knowledge are given on my webpage linked.…

Real-World Economics Review Blog
Theories of Knowledge
Asad Zaman | Vice Chancellor, Pakistan Institute of Development Economics and former Director General, International Institute of Islamic Economics, International Islamic University Islamabad

Yanis Varoufakis — How Do the Economic Elites Get the Idea That They ‘Deserve’ More? Lessons from Game Theory

The ‘haves’ of the world are always convinced that they deserve their wealth. That their gargantuan income reflects their ingenuity, ‘human capital’, the risks they (or their parents) took, their work ethic, their acumen, their application, their good luck even. The economists (especially members of the so-called Chicago School. e.g. Gary Becker) aid and abet the self-serving beliefs of the powerful by arguing that arbitrary discrimination in the distribution of wealth and social roles cannot survive for long the pressures of competition (i.e. that, sooner or later, people will be rewarded in proportion to their contribution to society). Most of the rest of us suspect that this is plainly false. That the distribution of power and wealth can be, and usually is, highly arbitrary and independent of ‘marginal productivity’, ‘risk taking’ or, indeed, any personal characteristic of those who rise to the top. In this post I present a body of experimental work that argues the latter point: Arbitrary distributions of roles and wealth are not only sustainable in competitive environments but, indeed, they are unavoidable until and unless there are political interventions to keep them in check.…

Evonomics
How Do the Economic Elites Get the Idea That They ‘Deserve’ More? Lessons from Game Theory
Yanis Varoufakis

Bill Mitchell — The co-option of government by transnational organisations

Today, some more analysis of the debate about globalisation and the capacities of the nation-state. We consider the debates in the early 1970s about the power of transnational corporations and the claims that they undermined the capacity of the nation-state to further the interests of the population. On the one hand, the free-market liberals claimed that the emergence of the transnational corporation was a move towards increased global efficiency and the nation-state, which served narrower interests, would be swept aside, along with its regulative structures, by this trend. Global welfare (and solutions to international poverty) would be maximised by the demolition of national borders by transnational capitalism. This view considered the nation-state to be ‘dispensable’ – that it only served narrow interests and the global organisation of production no longer required national governments to operate in this way. The Marxist position was, understandably, at odds with this view. It considered the nation-state to be indispensable to the growing needs of international capital. This was in the sense that governments could provide essential stability to reduce the risk of transnational operations. My position is more in line with the latter view although it clearly recognises the relevance (and power) of the national governments in which they choose to operate. Further, these transnational corporations are typically very large firms within the nations they operate. it is hard to differentiate the political clout that being large exerted from the influence of being global. Certainly, the early literature was not clear on that issue.…

Bill Mitchell – billy blog
The co-option of government by transnational organisations
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brad DeLong — Future Economists Will Probably Call This Decade the 'Longest Depression'

Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a "Great Malaise." This week, he followed up on that grim prediction, saying, "We didn't do what was needed, and we have ended up precisely where I feared we would."
The problems we face now, Stiglitz points out, include "a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity."

He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, "are not rooted in economics, but in politics and ideology."

Indeed. Joe Stiglitz is right.…

World Post
Future Economists Will Probably Call This Decade the 'Longest Depression'
Brad DeLong

Completely ignores Post Keynesians and MMT economists who were right in advance of the crisis and warning about it and who prescribed addressing the demand issue when the crisis hit. Imputes Hyman Minsky's financial instability theory based on the three stage financial cycle to Martin Wolf.

The disturbing thing is that Brad knows better.

Dirk Ehnts — Some random thoughts on inequality

This ties in nicely with my political economy course from last semester. Economics and politics are intertwined, and most of the times economic reasoning was motivated by particular interests that would gain from a change in policy. It was probably more obvious when nations sponsored state universities in the 19th century, but today the outcome might be the same. Political power interferes with the way professors are hired, and there is a serious distortion in economics.

If inequality is a problem, and I agree with Gates and Piketty, then we need a different kind of economics to attack it.…

Politics is about power and control. This pertains not only to governments as state institutions but within private institutions. The economic profession is a case in point. Positions and status in the profession is regulated by gatekeepers in charge of hiring and access to publication in professional journals.

econoblog 101
Some random thoughts on inequality
Dirk Ehnts | Lecturer at Bard College Berlin

Brad DeLong — Must-Read: Miriam Ronzoni: Where Are the Power Relations in Piketty’s Capital?

The extremely-sharp Miriam Ronzoni excellently puts her finger on a substantial hole in Thomas Piketty’s Capital in the Twenty-First Century…

WCEG — The Equitablog
Must-Read: Miriam Ronzoni: Where Are the Power Relations in Piketty’s Capital?
Brad DeLong

Tony Wikrent — Paul Krugman on Challenging the Oligarchy

This past Sunday, Stirling Newberry noted that the latest New York Review of Books includes a review by Paul Krugman of Robert Reich’s new book, Saving Capitalism: For the Many, Not the Few. It is an excellent review of what promises to be a seminal book on crucial issues of political economy. Remarkably, Krugman review is entitled, simply, Challenging the Oligarchy. Read on if you’re wondering why that title is so remarkable.

Both Reich and Krugman are generally regarded as liberal stalwarts, but the fact is that both were dangerously neo-liberal in their beliefs in the 1990s and early 2000s. I think the multiple failures of the Dubya administration, especially the 2007-2008 financial crash, caused them to rethink some basic beliefs and assumptions. But what especially forced them to rethink their economics was the brutal and shameless way Bush and the neo-cons used their political power to drive us into the Iraq War. They seemed to have had nagging doubts regarding the issue of how political power impacts economics, but by the end of the Bush Jr. regime, both Reich and Krugman were openly discussing how political power was shaping economic results.…

real economics
Paul Krugman on Challenging the Oligarchy

Tony Wikrent

Max Weber on power as institutional

LAW exists when there is a probability that an order will be upheld by a specific staff of men who will use physical or psychical compulsion with the intention of obtaining conformity with the order, or of inflicting sanctions for infringement of it. The structure of every legal order directly influences the distribution of power, economic or otherwise, within its respective community. This is true of all legal orders and not only that of the state. In general, we understand by "power" the chance of a man or of a number of men to realize their own will in a communal action even against the resistance of others who are participating in the action.…

Max Weber
Class, Status, Party
Translated and Edited by H. H. Gerth and C. Wright Mills
Politics, October 1944, pp. 271