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June 28, 2017

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Martinned

It sounds suspiciously like you're saying that the merit of Marx is that you can interpret many of his writings as sensible based on the work done by subsequent scholars. In that case, why not read them instead? We're economists, not sociologists. We don't worship at the feet of a select few 19th century authors.

If you want to learn about Keynesian economics, you don't read Keynes but the current scholars working on Keynesian models. Why would it be different for Marx?

Anarcho

These people are NOT libertarians. The term "libertarian" was first used in 1857 by a communist-anarchist to describe a position further than Proudhon's "property is theft."

It was then increasingly used and by the turn of the 20th century was accepted as an alternative to "anarchist." This remained the case until the 1950s when Murray Rothbard and his followers decided to just steal the word from the left.

I discuss the whole thing (with appropriate references) here:

http://anarchism.pageabode.com/afaq/160-years-libertarian

As for Marx, yes, he did write very little about central planning -- but he was in favour of it. If he had thought a bit more about it, then perhaps he would have questioning about it. Thus he alternative to Proudhon's market socialism (which he shamefully distorts) amounts to about two or three sentences:

http://anarchism.pageabode.com/anarcho/review-poverty-philosophy-karl-marx

There is much of interest in Marx -- but much of it was already said by anarchists. What wasn't is a mixed bag but suffice to say, anarchists have seen our critique of Marx proven right time and time again.

So in terms of the propertarian-right, they may gain from reading Marx but I doubt they will -- as they are not really interested in freedom. They are interested in property and defending the power over others that goes with it.

Egmont Kakarot-Handtke

Marx, the moron
Comment on Chris Dillow on ‘Why libertarians should read Marx’

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

Theoretical economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong.

Marx, clearly, was NOT a scientist but a political agenda pusher. However, after the scientific triumphs of Copernicus, Kepler, Galileo, Newton, Laplace, Leibniz etcetera agenda pushing had to be dressed as science. This gave rise to what Feynman famously called cargo cult sciences.

What Marx did was sociology, history, storytelling, prophesy and agenda pushing. He had NO idea how the monetary economy works because he never figured out what profit is.* That is rather bad for an economist but what is worse is that After-Marxians did not spot and rectify Marx’s blunders in the past 130+ years.

What we actually have is the pluralism of provable false theories. Walrasianism, Keynesianism, Marxianism, Austrianism look antagonistic on the surface but have one essential thing in common: they are all fake science.

Egmont Kakarot-Handtke

* See ‘Profit for Marxists’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301

TickyW

I suppose it's true to say that Marxism is to Libertarianism as the Theory of Evolution is to Creationism.

Marxism and Evolution take account of the past to explain today's state of affairs.

Libertarianism and Creationism take little notice of the past and how the current social and natural worlds have evolved.

Boursin

"In that case, why not read them instead? We're economists, not sociologists."

1) It's partly because Marx is so old as to predate the whole division into economics and sociology (and political science, and political philosophy) that his writings do offer the seeds of an alternative approach such as our blogger is recommending for economists.

2) In any case, I didn't see anything anywhere in the post that would advise against reading contemporary authors building on Marx. On the contrary, it seems to use the name Marx not just to refer to Marx himself, but also as shorthand for such contemporary authors, one of whom is our blogger himself.

Keith

Arguing that one should read more contemporary authors assumes they are more useful. But I am not sure that is true. The tendency of the world financial system to collapse seems to be inconsistent with all the theories invented relatively recently. Those theories seem deficient technically and clearly a kind of agenda pushing ideology. Economic authors in the 1940s explained why banking systems and capital markets can crash from fragility inherent in the system, but no one seems to have bothered to follow the advice they gave. If you have the time it is always interesting to read the great thinkers of the past even if their ideas are not all correct. According to David Hume books composed of mere Superstition should be thrown on a bonfire.That still leaves a large number to fill your spare time.

Ahmed

re: What Marx got wrong

In the following quote, Don Boudreaux argues that monopsony power in labor markets is not sufficient to exploit workers, they must also have monopoly power in output markets:

[Quote]
"By depressing workers’ pay, monopsony power enables firms to produce outputs at costs lower than would prevail in the absence of such power. Yet because monopsony power in labor markets does not give firms monopoly power in output markets, competition in output markets leads employers with monopsony power to pass along these lower costs to consumers in the form of lower output prices." —Don Boudreaux

So while Marx's reserve army of the unemployed causes nominal wages to fall, real wages remain unchanged as prices fall also.

In fact during the Great Depression, while wages fell, prices fell faster than wages, which meant that real wages were rising.

Marx also argued that unions would give workers the power to raise wages. But that just results in a wage-price spiral as businesses pass along the higher wages in the form of higher prices. We saw that in the inflation of the 1970's.

Workers don't end up with a larger slice of the pie. What happens is that the pie expands and the workers have to pay more for that larger pie. Higher wages simply means higher prices.

The only way to get higher real wages is increases in productivity. Everything else is an illusion.

Anglo-Saxon

Real Wages fell in the depression. 15% real, 40% nominal.

Ahmed

@Anglo-Saxon,

From: Essays on the Great Depression by Ben Bernanke

[Quote]
"The tendency of real wages to rise despite high unemployment was especially striking during the major depression cycle (1929-37): real wages rose during the initial downturn (1930-31). They rose sharply again in 1933-34 and 1937, despite unemployment rates of 20.9 percent in 1933, 16.2 percent in 1934, and 9.2 percent in 1937"
—Ben Bernanke

From Arse To Elbow

So, in brief ...

Thesis: Read Marx (but start at chapter 10)

Antithesis: Read something else. Anything else.

Synthesis: Libertarians are, like, bogus, dude.

B.L. Zebub

@Ahmed


"In the following quote, Don Boudreaux argues that monopsony power in labor markets is not sufficient to exploit workers, they must also have monopoly power in output markets:

(...)

"So while Marx's reserve army of the unemployed causes nominal wages to fall, real wages remain unchanged as prices fall also."

Not so fast, Ahmed. Let's assume Don Boudreaux's argument is correct. For real wages to remain unchanged prices must fall as much as wages did: wages fall X%, prices must fall X%. Boudreaux's argument -- again, assuming it is correct -- is that all prices fall Y%. If Y% https://anticap.files.wordpress.com/2016/11/12065.png

Productivity did grow, but wages remained stagnant. That's what Marx called exploitation.

Lifting your own words: everything else is an illusion.

Cheers

Almar

@anglo-saxon @ahmed

In the UK, most studies show that real wages rose through the onset of the Great Depression, possibly going steady or slightly falling in the mid-1930s. A useful summary is in pages 71-73 of the book "Themes in Macroeconomic History: the UK Economy 1919-39" by Solomos Solomou (C.U.P. 1996)
Note that in the UK, the unemployment rate fell after 1933, although still remaining very high.

B.L. Zebub

Something happened to me previous comment and a few bits went missing.

Let's try again (and apologies for the repetition).


"In the following quote, Don Boudreaux argues that monopsony power in labor markets is not sufficient to exploit workers, they must also have monopoly power in output markets:

(...)

"So while Marx's reserve army of the unemployed causes nominal wages to fall, real wages remain unchanged as prices fall also."

Not so fast, Ahmed. Let's assume Don Boudreaux's argument is correct. For real wages to remain unchanged prices must fall as much as wages did: wages fall X%, prices must fall X%. Boudreaux's argument -- again, assuming it is correct -- is that all prices fall Y%. If Y% < X% real wages fall. Say, my wages fell 20% but food prices fell by 10%. Makes sense?

You need to prove that Y% = X%.

B.L. Zebub

@Ahmed

This is the second bit of my comment.

"The only way to get higher real wages is increases in productivity. Everything else is an illusion."

I am sure you have already seen the chart below, because I myself pointed it out to you in a previous opportunity:

https://anticap.files.wordpress.com/2016/11/12065.png

Productivity did grow, but wages remained stagnant. That's what Marx called exploitation.

Lifting your own words: everything else is an illusion.

Cheers

Dodgy Geezer

...I’d argue that one such basis is greater equality, as this would diminish demands for statist regulation....

Demands for statist intervention do not come because there is an actual need for state powers to increase. They come because the bureaucracy expands of its own volition. Parkinson's Law estimates between 5%-8% each year.

Ahmed

@ B.L. Zebub

Your graph, like so many others, contains an error in measurement, i.e., it compares averages to medians.

[Quote]
"Average productivity is best compared with average real wages. If you see average productivity compared with median wages or with the wages of only production workers, you should be concerned that the comparison is, from the standpoint of economic theory, the wrong one."
—Greg Mankiw

Averages should be compared to averages, medians should be compared to medians. There's no reason to expect that all the recent productivity gains of highly skilled workers should find their way down to the median worker's wage.

Apples and oranges.

Ahmed

@ B.L. Zebub

"You need to prove that Y% = X%."

My argument is based on a Cobb-Douglas production function, which says that both labor and capital enter into the production process and earn their respective factor returns.

Suppose I make $10/hr to produce a product in one hour. Assume capital used up is $2. Total cost of product is $12 ($10 in labor, $2 in capital). It costs me 1.2 hours of labor to buy this product.

Now suppose my wages drop by 20%. I now make $8/hr. Because capital is stored labor, the cost of NEW capital is lower by that same 20%, i.e., it is now $1.60. The product now costs $9.60 ( $8 in labor, $1.60 in capital). It takes me 1.2 hours of labor to buy this product, the same as before.

In both cases, it costs me 1.2 hours to buy this product, so real wages are unchanged.

Note who does lose however is owners of old capital. They have to accept a lower return on capital as they have to compete with new investment, i.e., new capital formation. It's also true that in a period of rising wages, the owners of OLD capital come out ahead because they formed their capital when labor was cheap. Sometimes they win, sometimes they lose.

Anglo-Saxon

During the great contraction, real wages fell, pure and simple. During the expansion of 33-37 real wages rose, then fell again in the late 30's.

Anglo-Saxon

Sorry Geezer, state power expands because of expansion of plutocratic power. Sorry, but you represent the glibertard and their question for international slave states.

B.L. Zebub

@Ahmed.

"Averages should be compared to averages, medians should be compared to medians. There's no reason to expect that all the recent productivity gains of highly skilled workers should find their way down to the median worker's wage.

"Apples and oranges. "

I, too, like quotes Ahmed. :-)

So here's mine

[Quote]

"An argumentum ad verecundiam is an argument based on authority. The Latin means 'appeal to reverence'."

Why should average productivity be compared to average wages? Prof. Mankiw doesn't explain and neither do you. Is that some kind of Mankiw's Iron Law of Legitimate Comparisons which cannot be disputed? There's no "because" in his quote. Funny that, isn't?

But the 50% of all oranges whose wages have been stagnating may consider that their situation also merits discussion, particularly when the apples are getting a whole lot of extra mulah.

Me, I find that a good question, even if you or Mankiw don't find that matter interesting.

B.L. Zebub

@Ahmed,

"My argument is based on a Cobb-Douglas production function, which says that both labor and capital enter into the production process and earn their respective factor returns.

(...)

"Because capital is STORED LABOUR, the cost of NEW capital is lower by that same 20%, i.e., it is now $1.60."

Very ingenious. Let's see if I got the gist of your argument.

(1) You start with a garden variety Cobb-Douglas PF, which one can find in any neoclassical introduction to microeconomic theory textbook.

The profit function is something like this:

Profit(K,L) = Price*Q(K,L)-Wages*L-Return*K

K and L are capital and labour, respectively. Those textbooks also explain that labour is measured in, for instance, hours-men; capital are inputs like raw materials, energy, machines, buildings, land, imported or locally produced, new or old. Because we are considering one single capital variable, one adds up their monetary values; capital, therefore, is measured in, say, dollars or pounds.

Q(K,L) is our production function. Wages, Price and Return (to capital) are, well, what those names suggest and measured in convenient units.

(2) To accomodate for Marx's labour theory of value, however, you write "capital is stored labor".

Because in our economy Wages fell, say 20%, you conclude that capital (raw materials, energy, machines, buildings, land, imported or locally produced, new or old), also fall exactly 20% as required.

I believe that's a faithful rendition of your procedure, as you sketched it.

What I cannot fathom is why should imported inputs fall by exactly 20%? Couldn't they experience a price hike?

Land is a non-produced input (at least, that's what realtors never cease to remind us: they don't make more of it). Why should falling production costs affect the price of a non-produced input like land?

You accept that "owners of old capital" and owners of new capital are affected differently. Why should their combined output be valued at the cheapest 20%-less price?

Perhaps more interesting is this question: is your production function a neoclassical concept or is it a Marxist one? Wouldn't the "oranges and apples" thing apply here? :-)

Ahmed

@ B.L. Zebub,

In a globalized economy skilled labor being relatively scarce earns a higher return while unskilled labor, now abundant, earns a lower return.

That means that the average wage rises while the median wage falls. You see that in graphs of wage dispersion.

You have not given any particular reason why the unskilled labor should share in those gains. Perhaps in the past, due to scarcity, they did. But in globalized economy, unskilled labor is not scarce.

If computer programmers become more productive and burger flippers do not, then average productivity rises but you may not see that trickle down to the burger flippers who earn the median wage. In this case, showing average productivity against average wages would actually show that some workers are benefiting from the increased productivity.

Otherwise, it implies that the increased returns from productivity are accruing to capital.

Incidentally, automation works the same way, increasing the output of skilled workers while destroying the jobs of unskilled workers. That also leads to wage dispersion between skilled and unskilled labor.

B.L. Zebub

@ Ahmed,

Trust me, Ahmed, I understand the general lines of the productivity argument.

You say:

(1) Wages_S > Wages_U because Skilled workers are more productive than Unskilled workers.

(2) That difference in productivity is enough to explain that gap in wages: Wages_S - Wages_U.

Unless I'm badly mistaken, you offer no evidence in support of that.

Let me put an example of my own: the pay of CEOs (Skilled) vs median male worker (Unskilled). Unlike you, I can offer counter-evidence:

"The total earnings for the top-paid director at BAE Systems have increased by more than 8,000 per cent since 1978 when the company was called British Aerospace. That compares to a rise of 556 per cent in median male income over the period.

"Many factors have driven up pay at the top, but one of the most important when it comes to directors’ pay has been the mantra that rewards must be linked to company performance.
'It’s a factor,' said John Cridland, director general of the CBI employers’ group in April. 'Business has to show high levels of remuneration are payment for results. It’s not payment
separate from the achievement of senior executives.' Since the 1980s, corporate governance reforms have all tried to align directors and shareholders’ interests by linking pay to performance.

"However, as we show in this latest report prepared for the High Pay Commission by Incomes Data Services, there is rarely a link between directors’ incentives and the way a company performs. In the past 10 years, the average annual bonus for FTSE 350 directors went up by 187 per cent and the average year-end share price declined by 71 per cent."

http://mbsportal.bl.uk/secure/subjareas/accfinecon/highpaycommission/126842whatarewepayingfor11.pdf

This, btw, is a topic about which Chris himself has repeatedly written.

Egmont Kakarot-Handtke

Why libertarians should NOT read Marx ― and vice versa ― and why both should get out of economics and switch on TV and look sitcoms instead:

Profit and stupidity
http://axecorg.blogspot.de/2017/06/profit-and-stupidity.html

Economists: scientists or political clowns?
http://axecorg.blogspot.de/2017/06/economists-scientists-or-political.html

Egmont Kakarot-Handtke

B.L. Zebub

We don't need sitcoms to have a good laugh, Egmont. You do a fine job at that. :-)

Ahmed

@ B.L. Zebub,

I offered evidence in my previous comment.

The idea is that in a globalized economy, skilled workers are relatively scarcer and can leverage their skills over a much larger global market, capturing extra income.

Unskilled workers on the other hand, lose leverage because the products they produce can now be imported from overseas from an ocean of unskilled labor, i.e., the Walmart effect.

I also noted that increased automation has the same effect, improving the productivity of skilled workers while destroying the jobs of unskilled workers, the latter having to take menial jobs at low pay.

A quick search on the internet can provide you with graphs showing the dispersion of wages between skilled and unskilled labor. It also explains why Middle America elected Donald Trump, precisely because they see themselves as losers to globalization.

Your example of CEO compensation is a good one however incorrect. This is because CEO wages are not set in a free market. There is definitely a failure here. By the same token, neither are union wages, especially when unions use their power to block competition in order to obtain higher wages.

Incidentally, in the latter case, the union members ended up unemployed when companies chose to set up in right-to-work states. Think Michigan versus the Southern US states here.

Ahmed

@ B.L. Zebub,

Further to my comment and about averages versus medians is the following point:

In statistics, and in a right-skewed distribution, both the average and the median skew to the right, the average being further to the right than the median. This is what we see in a wage graph and why we use the median instead of the average as it is more representative of the typical worker.

Recently, we have been shown graphs that show a wage dispersion between the average wage and the median wage. That means the wage graph is becoming more skewed, i.e., the gap between the average wage and the median wage is growing larger. (See graph at bottom of following link).

https://www.ssa.gov/oact/cola/central.html

Now economists say that average wages are determined by average productivity. There is no mention of medians here. Had their not been a growing gap between the average and the median wage, then we would have seen the median wage track upwards along with the average wage. Which is why we need to ignore medians when discussing productivity.

As I indicated in a previous comment, if we ignore the above, we might be led to the conclusion that all the productivity gains ended up with capital. While its true that capital, also being relatively scarcer in a globalized economy, skilled labor has also picked up an increase in the profit share.

So you have to think not only of labor and capital but rather unskilled labor, skilled labor, and capital.

Then again, economists called the skills that skilled labor has as 'human capital'. So there's that to consider also. So capital, both physical and human, benefits from globalization and automation.

B.L. Zebub

@Ahmed,

This discussion reached negative marginal returns:

"I offered evidence in my previous comment."

No, Ahmed, you did not. Not in any previous comment, nor in your two latest. Let's not pretend otherwise. To put it bluntly: it's disingenuous. I am no fool and I'm not going to accept what's evidently false. More to the point: neither will anyone following this exchange.

These were your comments to date:

June 28, 2017 at 11:39 PM
June 29, 2017 at 07:14 AM (1)
June 29, 2017 at 06:57 PM
June 29, 2017 at 07:29 PM
June 30, 2017 at 06:37 PM
June 30, 2017 at 06:50 PM (2)

All of them, with the exception of (1) and (2), are exclusively a priori arguments.

In the two where you present some data, however sparse, it has absolutely nothing to do with our discussion.

(1) is not even directed to me. In it you reply to Anglo-Saxon's claim that wages fell in the Great Depression. Whether you are right or wrong on that is immaterial to our discussion on the link between productivity and wages. It has no bearing whatsoever to your claim that skilled workers' higher wages are explained by their higher productivity.

In (2) you are illustrating your point that income distributions are skewed, so that averages exceed medians. I have not disputed that. What I dispute is precisely your (and Prof. Mankiw's) equally skewed choice of the higher average wages instead of the lower median as the representative measure of central tendency. Moreovor, the skewness of the income distribution has no relevance to your claim that skilled workers' higher wages are explained by their higher productivity: it does not explain that, it only reflects it.

What you have done is a reiteration of your a priori argument WITHOUT ANY empirical corroborating evidence. I repeat myself: trust me, Ahmed, I understand your reasoning. Repetition does not add anything to it and does not aid your case.

-------

I have also noticed that you have not defended your Cobb-Douglas neoclassical-Marxist hybrid.

Frankly, I cannot but conclude that you have no case at all. I'll leave anyone else following this exchange to judge by themselves.

Cheers.

Ahmed

@ B.L. Zebub,

"I have also noticed that you have not defended your Cobb-Douglas neoclassical-Marxist hybrid."

I had an argument as to why land rents would also fall but I didn't want to go off on too many tangents. Import prices would have been another tangent.

Having said that, let's switch roles here. You tell my why you think that median wages have not kept up with productivity and I'll challenge your explanations.

I notice in your comments, apart from the CEO example, a poor one for the reason I mentioned, that you haven't presented any explanations of your own.

Perhaps you don't have any.

Egmont Kakarot-Handtke

B. L. Zebub

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists do NOT have the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal economic concept profit wrong.#1

Economics is scientifically worthless. Marx and Smith and the rest are storytellers: “… in fact he [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter). Same with Marx.

Economics claims to be a science but is NOT. Economists claim to know how the economy works but do NOT. Neither Libertarian nor Marxian economic policy guidance ever had sound scientific foundations. From the Wealth and the Capital up to the present economic texts have less scientific content than the Beatles’ Songbook.#2

Egmont Kakarot-Handtke

#1 See also ‘Economists: scientists or political clowns?’
http://axecorg.blogspot.de/2017/06/economists-scientists-or-political.html

#2 For the details of the bigger picture see cross-references Political economics
http://axecorg.blogspot.de/2015/11/political-economics-cross-references.html

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