Posts Tagged ‘market’

theinvisiblehand

We’ve all heard it at one time or another.

Why is the price of gasoline so high? Mainstream economists respond, “it’s the market.” Or if you think you deserve a pay raise, the answer again is, “go get another offer and we’ll see if you’re worth it according to ‘the market’.”

CEOpay

And then there’s CEO pay, which last year was 271 times the average pay of workers. Ah, it’s what “the market” has determined the appropriate compensation to be.

“The market” explains everything—and, of course nothing.

Chris Dillow argues that invoking “the market” (e.g., to explain the gender disparities in pay for BBC broadcasters) serves to hide from view the role of power.

Talk of the “market” is therefore what Georg Lukacs called reification – the process whereby “a relation between people takes on the character of a thing and thus acquires a ‘phantom objectivity.’” It obfuscates the fact that wages are set by the power of one person over another. Such obfuscation serves a profoundly ideological function; it effaces the fact that the capitalist economy is based upon power relationships.

Not even neoclassical economists stop with references to the “the market.” That’s just the first step of the explanation. The next step is to analyze “the market” in terms of its ultimate—given or exogenous—factors determining supply and demand. Their story is that “the market” can finally be reduced to and explained by preferences, resource endowments, and technology. In other words, according to neoclassical economists, market prices—whether for gasoline, workers’ pay, and CEO compensation—reflect consumer preferences, households’ endowments, and human know-how, all of which are considered to be prior to and independent of the economy.

That’s the way formal neoclassical economics works. But mainstream economists are also content to let the myth of “the market” persist in the minds of their students and the proverbial person in the street because it protects markets from what they consider to be unwarranted regulation and intervention. “The market” is turned into an abstract entity that merely reflects human nature. And if anyone wants to change the results—to change, for example, the price of gasoline, workers’ wages, or CEO compensation—they face the daunting task of changing human nature.

But there’s another side to the myth of “the market.” It becomes symbolic of an entire system gone awry—and which therefore can be criticized and replaced.

Instead of “the market,” we might refer to individual markets—not just to markets for gasoline, workers’ ability to labor, or CEOs’ skills but to markets for different kinds of gasoline, different groups of workers, or CEOs in different industries. Or, alternatively, we might invoke the different roles producers, consumers, workers, corporate executives, government officials, and so on play in determining market outcomes. All of those individual markets and market participants might then be regulated to produce different outcomes.

But if it’s “the market” that is to blame, then it’s the entire system—not one or another market or market participant—that needs to be radically transformed.

If mainstream economists defend and celebrate “the market,” critics of market outcomes—of which there are many—can then move to a more systemic assessment, to become critics of the economy as a whole.

And once that happens, critics can then imagine and begin to create a different economic system, one that is not governed by “the market.” Such an alternative system might have markets, lots of different kinds of markets. But it would have a different logic, a different way of operating, with very different outcomes.

Such an alternative economy exists on the other side, beyond the myth of “the market.”

Good for Manhola Dargis [ht: bn]. She certainly does a much job reviewing La Loi du Marché (bizarrely rendered into the English-language version as The Measure of a Man) than Jordan Hoffman.

I especially appreciated her conclusion:

It’s too bad that the movie’s blunt original title — “La Loi du Marché,” or “Market Law” — was traded in for something prettier and blander. “The Measure of a Man” suggests stirring possibilities (“Of all things the measure is man,” as the philosopher once put it), but it doesn’t convey the ordinary cold brutality of what it means to be defined by the unpaid and the radically underpaid hour. Mr. Brizé, who wrote the script with Olivier Gorce, doesn’t break ground here. Yet, with Mr. Lindon’s help and in several extraordinary scenes in the market’s back office — a white hell in which people are pushed to sell out one another — Mr. Brizé transforms one individual’s story into a social tragedy.

That final comment on the movie is actually a perfect characterization of capitalism: it turns individual stories (whether of an unemployed worker or capitalists who make rational decisions not to reinvest the surplus they appropriate) into social tragedies.

That unemployed worker not only loses the ability to sell their ability to labor, in order to receive a wage that allows them to purchase the commodities they need to survive; their situation also imperils their psychological and physical health as all as that of their family, not to mention the economic and social health of the community in which they live. All are placed on a shakier footing because one worker who loses their job is often accompanied by many others in a similar situation within capitalism—whether because enterprises reorganize, industries collapse, or entire economies enter into recessions and depressions.

The same is true of capitalists: they often make individually rational decisions not to invest (because, for example, future expected profits are low, since wages might be rising or other businesses are slowing down). But, when they do, the workers they let go and the contractors from whom they were making purchases now can’t make their own purchases from still others and so on, thus multiplying the effects of the original decision. That’s how individually rational decisions can become social disasters.

In both cases, under capitalism, one individual’s story is transformed into a social tragedy.

market income

The new Congressional Budget Office report (pdf) on household incomes and taxes is out (the report was published this month but with data only through 2011) and a few observations are in order.

First, as we can see in the chart above, market income (that is, income from wages and salaries, business, capital gains, and retirement, before taxes and transfers) continues to be remarkably unequally distributed. It is highly skewed toward households at the top of the income distribution. For example, while households in the lowest quintile took home about $7,900 on average (or 2.2 percent of total market income), the approximately 1.1 million households in the top 1 percent had about $1.4 million on average (or 16.9 percent of total market income).

income growth

Second, over the entire period from 1979 to 2011, the growth in market income varied significantly across the income scale. Thus, for example, while cumulative growth in real (inflation-adjusted) income was 16 percent for household in the bottom quintile, it was 174 percent for those in the top 1 percent.

income shares

Third, the composition of market income changed markedly over time for the top 1 percent: the share of their income that came from capital income (excluding capital gains) fell by half (from about 40 percent to about 20 percent), while the share of their market income that came from business income surged from 14 percent in 1979 to about 27 percent in 2011. As the CBO explains,

That shift in the composition of market income for households in the top 1 percent of the income distribution probably reflects, at least in part, significant changes in the organizational structure of businesses that have occurred over the past few decades. Following the Tax Reform Act of 1986, which lowered the top statutory tax rate on individual income below the top statutory tax rate on corporate income, many C corporations (which are taxed under the corporate income tax) were converted to S corporations (which pass corporate income through to their shareholders, where it is taxed under the individual income tax) or other types of entities not subject to the corporate income tax.21 As a result, some income previously reported as capital gains and dividends (from C corporations) was instead reported as business income (from S corporations or other pass-through entities). That conversion also accelerated the realization of income, because profits of S corporations are required to be fully distributed to shareholders every year, whereas C corporations can retain their earnings.

after-tax income

Fourth, because of the decline in income-tax rates over the 1979-2011 period, the cumulative increase in real after-tax income was higher for all income groups, especially for those at the very top: the after-tax incomes of the richest 1 percent increased by 200 percent (much higher than the 174-percent increase in market income).

average before-after

Finally, while over the 1979-2011 period the cumulative growth in after-tax income was larger than the cumulative growth in market income for all income groups, the results were most dramatic for those at the top: among households in the highest income quintile, market income rose by 77 percent while after-tax income rose by 87 percent over the period.

The bottom line: income inequality in the United States is highly unequal now and has become increasingly more unequal over time, both before and after government transfers and taxes.

1979-2010

A second front has opened up in the attempt to deny the significance of inequality in the United States.

The first was to focus on earnings inequality within the bottom 99 percent, instead of the growing gap between the top 1 percent and everyone else.  We’ve seen the insignificance of that one, when we consider earnings at the top are themselves distributions of the surplus appropriated by capital.

Now, in a second attempt to criticize the idea of growing inequality, it’s the role of nonmarket income (basically healthcare premia paid by employers plus government transfers). That’s what Robert Samuelson invokes, in sending us to Gary Burtless, who in turn sends us to the Congressional Budget Office.

Let’s grant the point: the distribution of income today is not directly comparable to that of the 1920s (if, that is, we include nonmarket income). It’s the same point I made when I argued we can’t compare Gini coefficients across countries—precisely because economic structures, including nonmarket incomes (plus, of course, in-kind services), are different.

Still, if we limit ourselves to the period since 1979 (as in the chart above), we can see that there was a growing gap between the tiny group at the top and everyone else: by 2007, the real incomes of the top 1 percent had grown by over 300 percent, while the incomes of everyone else by much else.

CBO-incomes

The result (as we can see in this table above) is that, by 2010, the percentage of income (both market and nonmarket) of the top 1 percent was much higher than that of any other group: 14.9 percent of before-tax incomes, 12.8 after-tax.

It may not be the symmetric 20-plus percent (of the Piketty and Saez estimates for market incomes) of 1928 and 2007. But these numbers do demonstrate that, even if we expand the sources of income, those at the very top—today just as at the end of the 1920s—are still pulling away from everyone else.

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[ht: cwc]

A tale of two art markets

Posted: 7 October 2013 in Uncategorized
Tags: , , ,

enjoy-detroit-graffiti-alanna-pfeffer China Christie's

This month, we’re witnessing a tale of two art markets that are moving in opposite directions.

It is certainly the worst of times in Detroit, which is preparing to sell off the multi-billion-dollar collection of the Detroit Institute of Art to pay that city’s debts. And, of course, we’re being forced to listen not to howls about the bankruptcy of a once-great American city, but to the usual complaints about how “tragic” the sale is of a collection of art that is “literally irreplaceable.”

But it’s the best of times in Shanghai [ht: ja], where the same auction house that was brought in to price the DIA collection has now set up shop.

“China in the 21st Century will be what the US was in the 20th and Europe in the 19th,” Christie’s owner François Pinault told me just before the auction: “It’s terribly important for our future to be here.”

I wonder how many of the pieces from Detroit’s collection will end up being sold in Shanghai. And, when Chinese billionaires start bidding on the Rembrandts, Picassos, Degas, and van Goghs from Detroit, will critics in the West start worrying about how “their” cultural patrimony is being “robbed” and secreted away by the new collectors in the East?

image

Special mention

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source*

I’ve had my criticisms of Adam Davidson’s reporting (such as here and here) but I do think he gets this one just about right:

Art is often valuable precisely because it isn’t a sensible way to make money. And perhaps as a result, it has become even more valuable of late. Benjamin Mandel, an economist at the Federal Reserve Bank of New York, has been studying the art market because, he says, “it’s a great way to study asset price valuations.” Mandel read reports suggesting that the market was growing at an unsustainable clip. For one thing, prices have gone up far faster than global G.D.P.

But then Mandel realized that we had been looking at the market incorrectly. Fine art, he said, is not really part of the overall global economy. Instead, it’s part of the economy of a small subset of the super-superrich, whom some economists call Ultra High Net Worth Individuals, or U.H.N.W.I.’s. And their economy, unlike ours, is booming. In that alternate world, fine art as a percentage of the economy has stayed stable over the last decade, in part because a flood of new U.H.N.W.I.’s in China, India and other developing nations has entered the art-buying market with great enthusiasm. In 2003, the sales at Christie’s Hong Kong totaled $98 million. Last year, they were $836 million.

The art market, in other words, is a proxy for the fate of the superrich themselves. Investors who believe that incomes and wealth will return to a more equitable state should ignore art and put their money into investments that grow alongside the overall economy, like telecoms and steel. For those who believe that the very, very rich will continue to grow at a pace that outstrips the rest of us, it seems like there’s no better investment than art.

In other words, the art market has grown precisely because of the rise in inequality. And, for the super rich, art turns out to be a very good form of—to coin a term—conspicuous investment.

*The chart above is just silly, since—given changing fads and fashions, artists’ whose work is in and out, not to mention the pieces that are bought and then taken off the market (placed in museums or private collections)—there simply can’t be any measure of the value of “investing in art” over such a long period of time.