The rise of Donald Trump and Bernie Sanders in the US reflect the same economic and social trends. The two of them seem to be rather different politically, coming from the right and the left respectively. But they both reflect a new populism, drawing on disaffection with political and business elites alongside a failure of the economy to deliver widely shared prosperity. Continue reading
Power and its distribution matter in society, not least in economic processes and outcomes. Neo-classical theory, with its starting point of perfect competition in the theory of the firm, only really addresses power as departures from this point. Oligopoly and monopoly power are examples of this. In these two cases, firms have a greater degree of power to set market prices and sustain ‘excess’ profits than is desirable for the maximum social welfare.
In contrast to the theory of perfect competition and its ‘imperfection’ offshoots, Marx proposed that competition under capitalism would lead to larger and larger firms engaged in production. The prospect of increased profitability is a major incentive to firm expansion. Continue reading
The free to access journal of the World Economics Association, the Real World Economics Review (RWER), has a very useful special issue on Thomas Piketty’s Capital in the Twenty-First Century, published in October 2014. It can be found here.
The issue contains a variety of papers, broadly supportive of the attention Piketty’s work has given to inequality across the world, but also critical of the theory and evidence contained in the book, as well as the policy implications.
A number of papers in the RWER draw attention to something already noted on this blog: that asset-price inflation in the rich world, particularly of real estate, has increased wealth inequality in recent decades. At the same time, growth in GDP has slowed since the 1970s when compared with performance in the 1950s and 60s, the so-called ‘Golden Age of Capitalism’. Continue reading
Productivity and wage growth are flagging across the world, particularly in many rich countries such as the US and UK. Trends in output per worker hour (a common measure of productivity) have generally become weaker since the beginning of the Global Financial Crisis (GFC). An interesting article in this week’s Economist magazine discusses several academic papers which try to pinpoint the reasons for this. Given the strong link between productivity and wages, this issue is vital for policymakers trying to improve national prosperity.
The authors cited in the article suggest fairly mainstream solutions such as deregulation or boosting support for research. But one paper offers evidence that, rather than the commonly understood direction of causation running from productivity growth to wage rises, that the reverse process has been in operation: low wages have led to low productivity. Continue reading
This post continues an occasional series discussing excerpts from Cambridge economist Ha-Joon Chang’s excellent and very readable book 23 Things They Don’t Tell You About Capitalism. Here I consider his ‘Thing 1’: there is no such thing as a free market. This statement seems iconoclastic, but then so is much of the book. To remind readers, Chang supports a reformed capitalism which delivers more widespread prosperity than in many countries, both rich and poor; he is no socialist. I think it would be fair to say that he is heterodox and moderately left-wing, favouring state intervention in many areas of the economy. In my view there is little wrong with that, since he is an engaging and often amusing thinker and writer. Continue reading
Job losses in the European steel industry made headline news recently. Unions in the UK and elsewhere have been rendered deeply unhappy. The basic problem is huge overcapacity in Chinese state-owned enterprises (SOEs) producing steel, which has caused global prices for the commodity to drop. Some have called for the EU to impose tariffs on Chinese steel imports, in order to protect Europe’s steel producers. There are tariffs already, but at the relatively low level of 16%. By contrast, tariffs in the US have reached 266% on coiled steel imports from China.
The economics of steel have thus become highly political. As ever, the UK government is reluctant to support the imposition of higher tariffs, wedded as it is to a free-market position. It is therefore somewhat strange to see the US policy response in what is held to be the leader of the free (market) world. Continue reading
Many governments around the world shifted to a policy of austerity after the financial crisis led to large rises in public deficits. There is often much talk about its necessity in restoring ‘confidence’ and ‘living within our means’, as well as its potentially damaging effects on growth. But there has been less comment on the problems of cutting spending in particular areas, only to see it rise in others, thus making significant reductions in the deficit harder. Continue reading
Evidence from the Economist magazine this week that the UK’s infrastructure is getting worse. Spending is “projected to fall from 3.2% of GDP in 2010 to 1.4% in 2020”. The chancellor’s dogmatic failure to separate borrowing for productive investment (the capital budget) from borrowing for spending (the current budget) will only harm the economy in the longer term.
This is an area in which his radical opposition Labour Party’s plans make a great deal more sense, although the Economist does not mention this. Plans for a national investment bank seem like a step in the right direction, and a way of making necessary public borrowing seem far more rational than what is proving to be a plan for austerity at any cost.