Showing posts with label rate of return. Show all posts
Showing posts with label rate of return. Show all posts

Friday, May 2, 2014

Dean Baker — Thomas Piketty and the Ghost of Joan Robinson


Mostly about the Cambridge capital controversy.
This relates to the Cambridge controversies since the Cambridge U.K. preople argued that the idea of an aggregate production function did not make sense. They pointed out that there was no way to aggregate different types of capital independent of the rate of return. The equilibirum price of any capital good depended on the rate of return. Therefore we can't tell a simple story about how the rate of return will change as we get more capital, since we can't even say what is more capital independent of the rate of return.

The takeaway from this, or at least my takeaway, is that we don't have a theoretical construct that we can hope more or less approximates how the economy actually works. The theoretical construct doesn't make sense. This means if we want to determine the rate of return to capital we should not be looking to elasticities of substitution, but rather the institutional and political factors that determine the rate of profit.
Like Marx said.

Finishes strong.
I will say that I am a bit at loss to understand the meaning of Simon Wren-Lewis's comment that:

"As I said in my original post, I would like to make students aware of heterodox critiques, but I want to point out where in my mainstream account that critique would enter. (I think what I teach is pretty close to how many central bankers think, if not the rest of 'my tribe'!)"

It certainly is worthwhile to know what central bankers think, but is this supposed to be a source of legitimation? After all, even by the I.M.F.'s measures the wealthy countries are losing well over $2 trillion a year due to economies operating below potential GDP. The cumulative losses to the rich countries from the Great Recession are virtually certain to exceed $20 trillion and could well top $30 trillion. Is it supposed to be some sort of validation that the folks who got us here share your view of the world?
CEPR
Thomas Piketty and the Ghost of Joan Robinson
Dean Bake

Sunday, March 30, 2014

Sandwichman — Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)


Veblen and Kalecki explain Piketty a century ago (Veblen) and a half century ago (Kalecki). Great quotes.

EconoSpeak
Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)
Sandwichman

For some reason, the page is now not available. Here are the quotes.

UPDATE: link is now working. I'll leave the quotes up anyway.

Veblen in The Engineers and the Price System:
The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear — that is to say,what will yield the largest net return in terms of price to the business men who manage the country's industrial system. Otherwise there will be “overproduction,” business depression, and consequent hard times all around. Overproduction means production in excess of what the market will carry off at a sufficiently profitable price. So it appears that the continued prosperity of the country from day to day hangs on a “conscientious withdrawal of efficiency” by the business men who control the country's industrial output. They control it all for their own use, of course, and their own use means always a profitable price. In any community that is organized on the price system, with investment and business enterprise, habitual unemployment of the available industrial plant and workmen, in whole or in part, appears to be the indispensable condition without which tolerable conditions of life cannot be maintained. That is to say, in no such community can the industrial system be allowed to work at full capacity for any appreciable interval of time, on pain of business stagnation and consequent privation for all classes and conditions of men. The requirements of profitable business will not tolerate it. So the rate and volume of output must be adjusted to the needs of the market, not to the working capacity of the available resources, equipment and man power, nor to the community's need of consumable goods. Therefore there must always be a certain variable margin of unemployment of plant and man power. Rate and volume of output can, of course, not be adjusted by exceeding the productive capacity of the industrial system. So it has to be regulated by keeping short of maximum production by more or less as the condition of the market may require. It is always a question of more or less unemployment of plant and man power, and a shrewd moderation in the unemployment of these available resources, a “conscientious withdrawal of efficiency,” therefore, is the beginning of wisdom in all sound workday business enterprise that has to do with industry. [emphasis added]

********
Should the business men in charge, by any chance aberration, stray from this straight and narrow path of business integrity, and allow the community's needs unduly to influence their management of the community's industry, they would presently find themselves discredited and would probably face insolvency. Their only salvation is a conscientious withdrawal of efficiency.
Kalecki in "The Political Aspects of Full Employment":
Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?
****************
Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.

Monday, July 22, 2013

Dirk Ehnts — The equity premium puzzle and the default of Detroit

Did the profession of actuaries by using the equity premium puzzle arrive at a “wrong” rate of return? If so, should not all plans be redesigned? How to do that, without causing an earthquake on financial markets? These must be unnerving questions for pension funds and financial sector firms in general. However, these should be questions to be discussed in the open, in newspapers and journal articles. The manipulation of the US stock market by the Fed might be legal, but as a result it should be clear to everybody that stock market prices are heavily influenced by the central bank and financial market regulation. Should the Fed have a goal for the Dow Jones? Should it just watch it slip down again after quantitative easing failed to increase economic growth and only succeeded in redistributing wealth?

Detroit’s financial problems leave us with urgent questions about the design of pension plans and the role of financial markets.
econoblog 101
The equity premium puzzle and the default of Detroit
Dirk Ehnts | Berlin School for Economics and Law