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July 28, 2011

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Leigh Caldwell

Breaking news: economist discovers many things are governed by supply and demand

Paolo Siciliani

I have been reading your blog for a while, because I kind of share your view of the world, but you seem to repeat yourself periodically. Yes there is a problem of market power in the labour market, with seniority commanding unfair premiums at the expense of lower ranks, regardless of professional skill sets (Krugman argued back in 94 that wage inequality has a fractal pattern in that it repeats itself even within the same profession).
Great diagnosis, dude, let's now work out how to address this market failure, shall we?

Andrew

Well I thought it was a very interesting post.

Could the concept of monetizability not be subsumed into "market value". Value at a given price is increased if the supplier can exclude alternative offerings, or if there is a natural dearth of such offerings.

Andrew

I'm new to this Marxist thing, but find your theme of power relations (and the neglect of their consideration by conventional economics) very attractive; they have been my intuitive criticism of the simplistic libertarianism so rife on the web.

However, could not power relations also be implicit in market value? Can't we simply regard power as an economic asset (and economic assets as power)? This would then reduce your critique of mainstream economics to an insufficient accounting of intangible (social) assets.

Andrew

To follow this line of thought, you could then reduce an increase in the power of capital relative to workers to an increase in value of capital relative to wages.

And isn't that just what's happened? Doesn't it just boil down to an increase in the supply of labour due to globalisation?

And can't it be argued that this is merely the breaking up of a Western labour cartel by allowing access to the labour market of non-Western workers?

Tom Addison

The first part of your article seems to be inline with what I've just read in The Undercover Economist, scarcity and unique selling points and all that. I'd say that The Guardian's USP is Jonathan Wilson, just as at The Times it is Gab Marcotti.

Regarding globalisation though, hasn't the increased competition that this has brought about meant that workers have gained via the price reductions on products that they buy? I know this doesn't apply to all products, but we must have gained a bit from this.

I'm with you on point 3 though, Dan Ariely explains it well in his book, although it seems that it doesn't apply to footballers (there seems to be a positive relationship between ability and pay, as Rooney proved in the second half of the season), although I guess that this is because their contribution is there for all to see and measure.

Leigh Caldwell

(to Andrew) I suppose the missing link in that approach is to understand from where the change comes. If you simply say that the value of capital has changed, it implies it's exogenous and random. But in fact you can develop a model in which the power relation is endogenous. I am not sure if Chris has an explicit model for this but in principle it could be developed.

And despite my rather-too-snarky comment earlier, I do believe there is a bit more to the power relationship than just supply and demand. The ability to shape preferences (through control of media or other routes) is one source of power which transcends normal supply and demand models; others are available.

Paolo Siciliani

Guys, cartels are good sometimes, in particular, when they are needed to rebalance bargaining power.
The best solution to this debacle where states are competing to the bottom to reduce corporate taxes under the threat that capital is fickle and can relocate would be to set up a nice international cartel between states where the "international community" uniformly increase corporation taxes and squeeze out all the record profits at the expense of salary (ever heard about the prisoners' dilemma?) .... I would propose a UN resolution to compel every member state to line up and stop competiting on bribing corporations with juicy low corporate taxe rates.
Unions were cartels basically, they were immune from antitrust law, now this is all a thing of the past I know, but there must be an institutional solution that compensate for this loss of bargaining power. In this respect, supply and demand is more complex than macro economists like to think. There are info asymmetries and many other micro sources of market failures. Chris is great at this, in that he knows all about biases and all the rest.
But please let's stop with this rant about the marxist "value" of whatever.... it's quite simple, power must be met with .... let's see, power? No moral/ethical/cultural change or whatever,but power, precisely, MARKET power.

chris

@ Leigh - thanks. My point was precisely that things such as power and ideology lie behind supply and demand; power is both cause and effect of S&D.
@ Paolo - some possible solutions might include: a maximum wage, eg for any business receiving government money; promotion of coops (eg by being preferred bidders for govt work); policies (eg tax breaks) to encourage cintracts in which bosses are fined for poor performance); or outright nationalization with compulsory wage cuts.

Paolo Siciliani

Policy, enforce transparency on salaries paid at all the levels of the corporate structure (with obvious caveats to protect privacy). This would solve the info asymmetry that affects employees in their salary negotiations vis-a-vis the employer, with the problem that the less expercenced one is and the clueless you are regarding the surplus of the employee/employer match value; it will also allow the development of trading marks (similar to the Fair Trade mark) that could provide a credible signal to consumers who could then buy from those firms who adopt the fairer employment terms (against corporate profits) across their corporate structure. I can see plenty of application developers salivating on the idea of what could be done with those raw data..... and then let's play the market game on a level playing field ....

gastro george

Paolo. IIRC, tax returns are publicly viewable in Sweden and maybe other parts of Scandinavia. That would be an interesting step for the UK. I can just see the first few weeks when the papers reveal just how much tax is (not) being paid.

Jim

@gastro george: I'd be all in favour of making tax returns public if the converse was also publicly available - ie all government spending (including who gets what benefits) was open for viewing as well. Sauce for the goose etc. If you can see how much income I have and tax I pay, I want to be able to see how much you are taking out of the system too.

Andrew

@Chris and Leigh - I don't find it very elegant to think about power as a cause of supply and demand, but perhaps you could explain it to me.

My objection stems from what I take to be the sense of "power" here - the ability (for a given personal cost) to intentionally change value as perceived by other market participants. This would encompass the ability to control supply and demand, the ability to control life and movement, the ability to wreck a company, and so on.

This implies that power has value (which it obviously does given your discussion of monetizing it). If power has value, then why not just regard power and value as synonymous.

From the opposite perspective, the possession of market value is always dependent on power and always confers power. Isn't the possession of a million dollars merely the practical and legal power to control those funds? In which case why say economics ignores power when it deals almost exclusively with it? Surely the criticism is merely that it take insufficient account of some power relations/intangible values?

I don't see how you can separate the two concepts to the degree you seem to wish.

Andrew

To link up with my earlier comments, to say that the value of capital has gone up relative to labour is to say the same thing as the power of capital has increased relative to labour.

If capital has the power to extract more labour per unit cost then by definition it has become more valuable relative to labour, surely? What element of capital power is not taken account of in a proper consideration of value?

gastro george

@Jim. Couldn't agree more.

Big Fez

@Jim/gastro ("I'd be all in favour of making tax returns public if the converse was also publicly available - ie all government spending (including who gets what benefits) was open for viewing as well. ")

In case you are not simply being mischievous -

The poster was clear that people's anonymity should be protected, and all the information on benefits (up to this necessary limit) is already publicly available. See the item 'Benefit and Pension Rates' here:
http://www.dwp.gov.uk/publications/catalogue-of-information/a-to-z-of-all-dwp-information/#b

There are parts of government whose spending is a little opaque, certainly, but the data (if not the information) is yours for the asking these days: http://data.gov.uk/dataset/coins
Have fun!

Jim

@BigFez: gastro george was suggesting that tax returns be publicly available (as in Sweden, with no anonymity, as what would be the use of that?).

Paolo Siciliani was suggesting corporate pay rates/structures be made public (subject to anonymity).

Two totally different ideas.

David Friedman

"And the common factor is that their profitability is founded upon a power to exclude rivals"

Perhaps I'm misreading you, but it sounds as though you are confusing two rather different things. One is the ability to exclude competitors, whether by economic or political barriers to entry, and thus maintain a profit rate above the market return on capital. The other is the ability to exclude consumers, and thus not let them consume what you produce unless they pay you for it.

Isn't it the latter that is the main problem for the media at this point--the fact that information is something close to a public good given very good technology for sharing it?

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