Posts Tagged ‘mainstream economics’

A funny thing happened on the way to the recovery from the Pandemic Depression: class conflict is back at the core of economics.

At least, that’s what Martin Sandau (ht: bn) thinks. I beg to differ. But more on that anon. First, let us give Sandau his due. His argument is that the current labor shortages have shifted the balance of power toward workers (an issue I discussed a couple of weeks ago). As a result, economic analysis is starting to change:

What this looks like is the return of something that was exiled from centrist policy debate and mainstream economic analysis for decades: class conflict and its economic consequences. To be precise, we may be witnessing the manifestation of two outmoded ideas: that the relative power of economic classes alters macroeconomic outcomes; and that macroeconomic policy tilts that relative power.

For Sandau, that means a return to the work of Michal Kalecki, especially his theory of the “political aspects of full employment.” Kalecki was a contemporary of John Maynard Keynes but, in contrast to Keynes, Kalecki was well versed in Marxian theory and spent considerable time investigating the relationship between macroeconomics and class conflict. As I explained back in 2010, Kalecki developed a cogent analysis of business opposition to measures designed to achieve full employment:

The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. . .

Under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

As readers can clearly see, not much has changed since Kalecki published that analysis back in 1943. Employers and their financial backers are still adamantly opposed to government measures designed to move capitalist economies toward full employment.

Sandau is correct in arguing that “conventional economic thinking has little room” for the possibilities outlined by Kalecki. Mainstream economists assume that, when the labor market is in equilibrium (at A), workers are paid a wage (W) equal to their contribution to production. If workers manage to receive wages higher than the equilibrium rate, the result will be unemployment—that is, the improvement in the situation of some workers will come at the expense of other workers. So, there can’t be class conflict within conventional economic thinking.

And there isn’t any class conflict in Sandau’s analysis. That’s because, if workers’ wages rise, capital can respond by raising productivity. Therefore, in his view, “productivity incentives from greater worker power can boost profits as well.”

Problem solved! Except. . .

What Sandau fails to see is that, as productivity increases, the prices of wage goods fall, and capital therefore needs to advance less money to purchase workers’ ability to labor. Capitalist profits rise precisely because the value of labor power falls. Within the confines of capitalism, that’s precisely the option capitalists have, to extract more surplus-value from the workers they employ.

That’s the class conflict that remains missing in Sandau’s analysis as in the rest of conventional economics.

NYT-economists-and-recession-cartoon

Right now, mainstream economists are both congratulating themselves and bemoaning their fate.

Mainstream economists (such as Justin Wolfers and Paul Krugman) are congratulating themselves for having achieved a virtual consensus on the positive effects of fiscal stimulus. But they’re also complaining about the fact that the rest of the world (such as politicians, central bankers, and others) doesn’t seem to be listening to their expert advice.

Just two quick comments on this approach to consensual economics:

First, of course there’s a consensus among mainstream economics! That’s what their theories and models are supposed to do: produce and reproduce a consensus in terms of the basic analysis of macroeconomic events (although, of course, there can still be disagreements about particular aspects, such as the exact size of the fiscal multiplier and so on). And anyone who doesn’t use those models, and therefore reaches a different set of conclusions, is declared to be outside the mainstream, and therefore not worth reading or being listened to.

Second, how is it possible to declare—in the midst of the Second Great Depression—that mainstream economics has been an unqualified success? To arrive at such a conclusion would mean to overlook, at a minimum, the role that mainstream economics played in creating the conditions for the crash of 2007-08, in failing to include even the possibility of such a crash in their models, and in confining themselves to a package of monetary and fiscal policy measures—and not to even consider the possibility of larger, structural changes—as tens of millions of people lost their jobs, were stripped of their wealth, and were pushed further and further down the economic ladder.

Those engaged in consensual economics are, it seems, too busy congratulating themselves and bemoaning their fate to want to recognize the gorilla in the room.

iwdrm_modern_times_1935

One way of dealing with the problem of growing inequality is to establish a maximum wage. That’s what Franklin Delano Roosevelt proposed back in the early 1940s—a 100 percent marginal tax rate on incomes over$25,000 a year (roughly $350,000 in today’s dollars)—in order to “provide for greater equality in contributing to the war effort.”

Infuriated conservatives saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.”

Simon Wren-Lewis reports his own recent suggestion for a maximum wage was greeted in much the same manner.

Well, if mainstream economists are going to howl about tinkering with tax rates, why not make them howl about a real change in the system whereby incomes are distributed? Like Filip Spagnoli’s suggestion to get rid of wage-labor entirely.

Spagnoli’s proposal is to combine a universal basic income (“to cover the costs of the necessities of life”) with an outright prohibition on wage-labor (in order to promote more cooperative, democratic forms of economic organization).

Would a UBI not be sufficient to allow people to pursue their goals? Why also prohibit wage labor? A UBI indeed loosens us from the system of wage labor – it provides a financial cushion that removes the risks inherent in abandoning a job and pursuing our “true destiny” – but it doesn’t go far enough. It gives us the freedom to turn down unattractive work but the pursuit of life’s goals often requires cooperation. Only the prohibition on wage labor makes cooperative ventures more common. A UBI by itself only pushes us towards more satisfying jobs and leaves some of the drawbacks of wage labor intact.

Makes sense to me. Guarantee a basic income for everyone and then, on top of that, encourage the formation of new kinds of enterprises, based on the idea that those who work in the enterprises decide how they should be organized (including, of course, how much they should be paid, what should be done with the surplus, and so on).

One of Spagnoli’s concerns is, “If people can’t work for a wage, many of the ‘dirty jobs’ may not get done anymore.” The fact is, we already have Cooperative Home Care Associates in New York City, which is the largest worker-owned cooperative in the country. It’s relatively easy then to imagine a system of such cooperatives, in which democratically organized workers do everything from toilet cleaning, waste disposal, and mining to teaching, healthcare, and software design.

The time is ripe to open up the debate about proposals like establishing a maximum wage, guaranteeing a basic income, and prohibiting any and all forms of wage-labor. The only price of admission is to listen to the howling of mainstream economists.