Principals of Macroeconomics 5: Robinson and the Theory of Capital — John Weeks

In Chapter 1 of The General Theory Keynes famously refers to two “postulates of Classical economics”, one of which determines the demand for labour and the other the supply. He states that “I shall argue that the postulates…are applicable to a special case only and not to the general case”, with continuous full employment the “special case” and less than full employment the general case.

In the context of later parts of The General Theory (for example, Appendix on User Cost and Chapter 20 on “The Employment Function”) it is clear that Keynes wrote tactically in accepting the limited applicability of mainstream supply and demand for labour. With an eye to what he considered his important contributions to come later in his book, he apparently decided to not to fight a battle over the theory of the labour market.

Robinson took on this fight with her path-breaking 1953 article, “Production Function and the Theory of Capital”, which initiated what came to be called the Cambridge Capital Controversy. Superficially arcane and esoteric, this controversy goes to the heart of mainstream economics. I do not exaggerate when stating that if Robinson’s critique is correct, mainstream economic theory collapses....

Progressive Economy Forum

Principals of Macroeconomics 5: Robinson and the Theory of Capital

John Weeks

Bill Mitchell — Of course governments will be fiscally stretched if they define large surpluses as the norm

Wednesday and a short blog post. I regularly work for unions as an expert analyst/witness in their struggles to achieve wage justice with employers who are intent on paying as little as possible. Often these are private employers but at the moment I am helping a union with their campaign to win a reasonable wage increase against a state government. The logic deployed by the government in relation to their fiscal affairs and their wage setting behaviour is a classic demonstration of how neoliberalism has distorted any sense of reason and created self-fulfilling problems. So today, I will just introduce this issue – given how fascinating it is....

Bill Mitchell – billy blog
Of course governments will be fiscally stretched if they define large surpluses as the norm
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Mark Paul and Mark Stelzner — Rethinking collective action and U.S. labor laws in a monopsonist economy

Discussions today are pervasive among economists and policymakers about the increasing rise of firms’ market power and the potential negative effects of that power on the U.S. economy. Of particular concern is the rise of new technologies and the dominance of platform giants—such as Amazon.com Inc., Alphabet Inc.’s Google unit, Apple Inc., and Uber Technologies Inc., among others—which are not improving the U.S. socioeconomic landscape by reaping gains from potential economies of scale, but rather are throwing around their weight to suppress wages, raise prices on consumers, and enter the political arena to ensure the federal government allows the U.S. economy to continue on the path of market consolidation.

Many economists point to this disconcerting rise in market power as leading to a simultaneous rise in monopsony power—the ability of the firm to have an influence over the determination of workers’ wages—which may contribute to the persistence of stagnant wages despite relatively low headline unemployment numbers in recent times.

This is in stark contrast to decades of research and modeling in economics following the so-called marginalist revolution in the discipline, which resulted in most economists simply treating monopsony power as a special case only existing in the now long-gone company towns of Homestead, Pennsylvania, and Pullman, Illinois, of the 19th century or in highly concentrated island economies of introductory economics textbooks.4

Recent empirical investigations into U.S. labor markets no longer allow reasonable economists to bury their heads in the sand about market power and assume that workers’ wages are simply equal to the value of their marginal product or service. There’s now insurmountable evidence that monopsony power is prevalent throughout the U.S. economy, though the degree to which it may contribute to widening income inequality and underemployment remains an open question. These findings imply that employers can siphon off “rents”—economic parlance for excessive profits beyond the cost of production—from workers through the exercise of monopsony power. These findings are the complete opposite of the dynamic formulated in most current labor market models.

In our new Washington Center for Equitable Growth working paper, “Monopsony and Collective Action in an Institutional Context,” we seek to better understand the theoretical implications of this new and growing empirical literature on monopsony power and the resulting lower wages for workers

WCEG — The Equitablog
Rethinking collective action and U.S. labor laws in a monopsonist economy

Mark Paul, assistant professor of economics at New College of Florida and a fellow at the Roosevelt Institute, and Mark Stelzner, assistant professor of economics at Connecticut College

See also

Oxfam Blogs — From Poverty to Power
Book Review: New Power: How it’s Changing the 21st Century and Why you need to KnowDuncan Green, strategic adviser for Oxfam GB

Liz Hipple — New Fed paper suggests it’s not all millennials’ fault after all

What are the possible explanations for why millennials have lower incomes and fewer assets than did prior generations at similar ages? The authors conclude: “These balance sheet comparisons likely reflect, in part, the unfavorable labor and credit markets conditions that prevailed during the 2007–09 recession, some of which had prolonged effects.”

The Fed paper’s emphasis on the importance of the labor market conditions into which millennials graduated echoes the arguments made in my and my co-author Elisabeth Jacobs’ recent report, “Are today’s inequalities limiting tomorrow’s opportunities?” In the report, we lay out a framework for understanding the channels via which upward mobility can either be facilitated or impeded, arguing that while a great deal of attention is paid to factors that develop human capital such as education, more research is needed to understand how things such as prevailing labor market conditions can impede the deploymentof that human capital....

WCEG — The Equitablog
New Fed paper suggests it’s not all millennials’ fault after all
Liz Hipple

Kate Bahn — Understanding the importance of monopsony power in the U.S. labor market

With the launch of our new website, we are reintroducing visitors to our policy issue areas. Informed by the academic research we fund, these issue areas are critical to our mission of advancing evidence-based ideas that promote strong, stable, and broad-based economic growth. Through June and continuing in July, expert staff have been publishing posts on our Value Added blog about each of these issue areas, describing the work we do and the issues we seek to address. The following post is about Wages. For previous posts on other issue areas, please go to our Value Added home.

WCEG — The Equitablog
Understanding the importance of monopsony power in the U.S. labor market

Kate Bahn

Bill Mitchell — US labour market tepid – there is plenty of scope fiscal expansion

On May 4, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2018 – which showed that total non-farm employment from the payroll survey rose by just 164,000 in April, which was an improvement on the very modest rise in March. The Labour Force Survey data, however, showed that employment only rose by 3 thousand) in April 2018 but was accompanied by a substantial fall in the labour force (236 thousand) which meant that total unemployment fell by 239 thousand. The unemployment rate fell to 3.93 per cent (from 4.07) but this does not signal a stronger labour market. There is still a large jobs deficit remaining. Finally, there is no evidence of a wages breakout going on. Taken together, the US labour market is showing no definite trend up or down at present and it is still some distance from being at full employment.

Bill Mitchell – billy blog
US labour market tepid – there is plenty of scope fiscal expansion
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

See also

Bond Economics
Why The U.S. Labour Market Befuddles Forecasters
Brian Romanchuk

Brian Romanchuk — How I Would Analyse A Job Guarantee

The Job Guarantee proposal is a core part of the policy analysis of Modern Monetary Theory (MMT). If implemented, it would be expected to cause a structural change in the economic structure, and so analysis techniques that extrapolate current conditions would be inapplicable. Although this analysis is aimed at the Job Guarantee, the basic principles would be applicable for other measures that cause a structural change in the labour market, such as the Universal Basic Income. (In fact, it's my adaptation of analysis by Hyman Minsky for the fore-runner of the basic income proposal, the negative income tax.) The analysis here is a back-of-the-envelope discussion for Canada; it could be adapted to other countries and more detailed at the analyst's discretion.

As an initial disclaimer, the title of this article is a very deliberate choice: it is how I would approach the problem, and does not reflect the state-of-the-art research on the topic by academics in the MMT school of thought. I only have a limited knowledge of their detailed research. Furthermore, I discuss a potential implementation in Canada that is based on my political instincts as to what would be politically sustainable programme; as a result, my views on implementation probably vary from the main MMT academics. My political instincts are probably out-of-date, so what I write here should not be taken as a definitive statement on how Canada should approach implementation....

Bond Economics
How I Would Analyse A Job Guarantee
Brian Romanchuk

Noah Smith — Why Workers Are Losing to Capitalists

Back in April, I wrote about one of the most troubling mysteries in economics, the falling labor share. Less of the income the economy produces is going to people who work, and more is going to people who own things....

Mystery to morons conventional economists maybe.

Here, Noah, read this: Michal Kalecki, "Political Aspects of Full Employment" (Political Quarterly, 1943). It's even posted at Brad DeLong's site.

It's a feature of capitalism, or a bug, depending on which side one is on. The so-called labor market is rigged in favor of ownership (capital) under capitalism. Capitalism is the economic system that favors capital (ownership) and is naturally suited for oligarchy of the plutocratic sort.

No mystery at all for those not living in ivory towers.

Bloomberg View
Why Workers Are Losing to Capitalists

Noah Smith

Ramanan — Effective Demand And The Labour Market

Noah Smith asks, “Why the 101 model doesn’t work for labor markets”.|

He realizes the answer but attributes it to Nick Hanauer.…

So Smith indeed concedes that the profession missed it out. But the attribution is incorrect. All this was figured out by Michal Kalecki in the 1930s....

The Case for Concerted Action
Effective Demand And The Labour Market
V. Ramanan

See also

Information Transfer Economics
It's a production input. No, it's a market good. Relax, it's both.
Jason Smith

Econospeak
Noah Smith: "Why the 101 model doesn't work for labor markets"

Sandwichman

Ramanan — Robots, Globalization, Unemployment, Etc

Economists have played down the notion of technological unemployment. If production is constant and productivity rises, there’s a fall in employment because less labour is required to produce the same output. So output has to rise to keep employment from falling because of “automation”. In Post-Keynesian economics, the principle of effective demand matters both in the short run and the long run. So technological unemployment is a real possibility. New Consensus economists concede that John Maynard Keynes rules in the short run but assume that Jean-Baptiste Say rules in the long run. The irony hence is that New Consensus economists seem to show worry about automation these days.

In my opinion, this is because the sacred tenet of free trade must be defended by economists at all costs. So they make a concession about loss of employment to robots. Unfortunately that’s not right either. Globalization—both because of competition by international producers and offshoring of jobs via global supply chains—has led to the loss of livelihood for many in the Western world....

Tradeoffs.

Automation and robotization increase productivity, reducing the need for labor, which reduces worker incomes in developed countries. Globalization increases the available work force in open economies, increasing competition among workers in the global labor pool and reducing worker incomes in developed countries. Reduction in worker incomes undeveloped countries reduces effective demand, leading to excess capacity and potential oversupply, unless lagging demand is addressed by government fiscal policy.

Both globalization, which benefits emerging world workers, and automation and robotics, which increases productivity across the board, should be welcomed as an emergent opportunity and addressed simultaneously as an emergent challenge. Government that are currency sovereigns have tool for this, and global economy policy aimed at win-win can be achieved through concerted action rather than harmful competition and a beggar-thy-neighbor approach.

The developing world can be lifted up without necessarily dragging down the developed world.

The Case for Concerted Action
Robots, Globalization, Unemployment, Etc
V. Ramanan

Neil Wilson — Jobs and Vacancies

Another good one on unemployment from Neil on how the JG solves an unrecognized issue in analysis of employment and the dynamics of the labor market.

Modern Money Matters
Jobs and Vacancies
Neil Wilson

Labor Market Monopsonies and the Decline of the Labor Share — Q&A with Sandra Black

Monopsony is the converse of monopoly. Monopoly is about sellers using market power to influence market price through control of supply, while monopsony is about buyers using market power to influence market price through control of suppliers. They both involve using power to extract economic rent that would be eliminated in competitive markets.

Pro-Market — The blog of the Stigler Center at the University of Chicago Booth School of Business
Labor Market Monopsonies and the Decline of the Labor Share: Q&A with Sandra Black

Sandra Black, member of President Obama’s White House Council of Economic Advisers

ht Mark Thoma at Economist's View

Neil Wilson — And what makes you think that stealing other country’s skills is appropriate?

Neil Wilson on importing labor

Medium
And what makes you think that stealing other country’s skills is appropriate?

Neil Wilson

Blake Smith — Slavery as free trade

For nearly four centuries, the Atlantic slave trade brought millions of people into bondage. Scholars estimate that around 1.5 million people perished in the brutal middle passage across the Atlantic. The slave trade linked Africa, Europe and the Americas in a horrific enterprise of death and torture and profit. Yet, in the middle of the 18th century, as the slave trade boomed like never before, some notable European observers saw it as a model of free enterprise and indeed of ‘liberty’ itself. They were not slave traders or slave-ship captains but economic thinkers, and very influential ones. They were a pioneering group of economic thinkers committed to the principle of laissez-faire: a term they themselves coined. United around the French official Vincent de Gournay (1712-1759), they were among the first European intellectuals to argue for limitations on government intervention in the economy. They organised campaigns for the deregulation of domestic and international trade, and they made the slave trade a key piece of evidence in their arguments.

For a generation, the relationship between slavery and capitalism has preoccupied historians. The publication of several major pieces of scholarship on the matter has won attention from the media. Scholars demonstrate that the Industrial Revolution, centred on the mass production of cotton textiles in the factories of England and New England, depended on raw cotton grown by slaves on plantations in the American South.

Capitalists often touted the superiority of the industrial economies and their supposedly ‘free labour’. ‘Free labour’ means the system in which workers are not enslaved but free to contract with any manufacturer they chose, free to sell their labour. It means that there is a labour market, not a slave market.

But because ‘free labour’ was working with and dependent on raw materials produced by slaves, the simple distinction between an industrial economy of free labour on the one hand and a slave-based plantation system on the other falls apart. So too does the boundary between the southern ‘slave states’ and northern ‘free states’ in America.

While the South grew rich from plantation agriculture that depended on slave labour, New England also grew rich off the slave trade, investing in the shipping and maritime insurance that made the transport of slaves from Africa to the United States possible and profitable. The sale of enslaved Africans brought together agriculture and industry, north and south, forming a global commercial network from which the modern world emerged.

It is only in the past few decades that scholars have come to grips with how slavery and capitalism intertwined. But for the 18th-century French thinkers who laid the foundations of laissez-faire capitalism, it made perfect sense to associate the slave trade with free enterprise. Their writings, which inspired the Scottish philosopher Adam Smith’s Wealth of Nations (1776), aimed to convince the French monarchy to deregulate key businesses such as the sale of grain and trade with Asia. Only a few specialists read them today. Yet these pamphlets, letters and manuscripts clearly proclaim a powerful message: the birth of modern capitalism depended not only on the labour of enslaved people and the profits of the slave trade, but also on the example of slavery as a deregulated global enterprise.…

Powerful article.
AEON
Slavery as free trade
Blake Smith | PhD candidate in history at Northwestern University in Illinois and the School for Advanced Studies in the Social Sciences in Paris

Mark Thoma — Adjusting to Economic Shocks Tougher than Thought

Labors market not as resilient as assumed. And it's not just "sticky" wages (wage inelasticity).

You know, like real Keynesians have been saying. 

Wage stickiness is "bastard Keynesian."

Economist’s View
Adjusting to Economic Shocks Tougher than Thought
Mark Thoma | Professor of Economics, University of Oregon

Bill Mitchell — US labour market weakening

The Federal Reserve Bank of America has been publishing a new indicator – the Labor Market Conditions Index (LMCI) – which is derived from a statistical analysis of 19 individual labour market measures since October 2014. It is now being watched by those who want to be the first to predict a rise in US official interest rates. If the latest data from the LMCI is a guide to potential interest rate movements then they won’t be rising any time soon. I updated my gross flows database today and also the job openings and quits database. The gross flows analysis suggests that while there has been improvement in the US labour market in the last year, in recent months that improvement is slowing.

Bill Mitchell – billy blog
US labour market weakening
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Mike Konczal — Did Ending Unemployment Insurance Extensions Really Create 1.8 Million Jobs?

Model problems, technique problems, and data problems.

Rortybomb
Did Ending Unemployment Insurance Extensions Really Create 1.8 Million Jobs?

Mike Konczal

Tim Bending on productivity, labor, Keynes, effective demand, fairness, and equality

A couple of older posts worth visiting in present context.

Open Democracy — Open Economy
Productivity does not explain wage differentials
Tim Bending 7 July 2010

A close look at labour markets, Keynes and effective demand shows that low demand is very bad for equality
Tim Bending 10 January 201

 

Lord Keynes — James Galbraith on the Essence of Keynes’ View of Labour Demand

In the view of J. M. Keynes, there is no labor market.

Social Democracy For The 21St Century: A Post Keynesian Perspective
James Galbraith on the Essence of Keynes’ View of Labour Demand
Lord Keynes

Janet Yellen — What the Federal Reserve is Doing to Promote a Stronger Job Market

I am here today to talk about what the Federal Reserve is doing to help our nation recover from the financial crisis and the Great Recession, the effects of which were particularly severe for the people and the communities you serve....

What the Federal Reserve is Doing to Promote a Stronger Job Market
Chair Janet L. Yellen
At the 2014 National Interagency Community Reinvestment Conference, Chicago, Illinois. March 31, 2014