Festive thanks

599px-The_Blue_MarbleJust a short note to say a huge thank you to all the readers of this blog, whether frequent or occasional, for your interest during 2016. I have enjoyed taking my posting a bit more seriously this year, and have tried to vary the length and content from day to day. I hope to build on this in the months ahead.

In the meantime, Merry Christmas and a Happy New Year in 2017. Storm clouds may seem to be gathering across the world in some ways, so this is no time to be complacent, but I do keep a faith in humanity as a whole and in its ability to solve its problems, in the long run at least. Even if, as Keynes famously said: “in the long run we are all dead.” Yes, but not all at once.

Best books of 2016 — Michael Roberts Blog

I thought I would remind myself and blog readers of what seemed to me were the best books on economics published this year. The criteria for me were whether the book added any new idea or understanding of developments in modern capitalism or in Marxist economic theory. Yes, I know, very boring with no jokes […]

via Best books of 2016 — Michael Roberts Blog

National savings as a macroeconomic phenomenon

the-great-rebalancing-coverI am currently trying to integrate some of the key ideas of three economics professors whose work I greatly admire: Mushtaq Khan of SOAS, Anwar Shaikh of the New School, and Michael Pettis of Peking University.

Individually I have found their work to be enlightening and inspiring. On issues of the capitalist economy, development, industrial policy and the causes of the Global Financial Crisis, I feel that a degree of synthesis is possible. I hope to develop this in the New Year.

Following on from my last post, here is a slightly different take on the determination of national savings from Michael Pettis. Although savings are not identical with the ‘surplus’ of classical economics which is available for investment, there is clearly a substantial overlap. The key to economic prosperity is productive investment and this requires an economic surplus or savings to fund it. Here Pettis describes how national savings are not so much determined by individuals or culture but by policies and institutions at home and abroad. Thus they are more a macro than a micro phenomenon.

“A country’s savings level is not only or even primarily a function of domestic cultural and personal preferences. Savings rates, especially in countries with abnormally high or low levels of savings, are almost always determined by policies and institutional constraints that affect the relationship between consumption levels and GDP.

For relatively open economies, national savings rates are a function not just of domestic policies and institutional constraints but also, and very importantly, of foreign policies and institutional constraints. A low savings rate at home for an open economy is as likely to be caused by conditions that force up consumption at home as by conditions that force up savings abroad.”

Michael Pettis (2013), The Great Rebalancing, Ch.9, p.178

Classical economics, rents and the surplus under capitalism

rents-rent-seeking-coverAn extract from SOAS Professor Mushtaq Khan‘s illuminating chapter on ‘Rents, Efficiency and Growth’ which summarises the classical economists’ concern with the economic surplus. He discusses the relation of the surplus to economic rents, and how conflicts over their distribution can affect economic growth and development.

By drawing on ideas from classical economics in his discussion of rents and rent-seeking, it is possible to broaden the analysis of neo-classical economics, which dominates the modern mainstream, by bringing in the insights of Smith, Ricardo and Marx. The book that this quote comes from ‘radically’ extends the rent-seeking framework, ‘by incorporating insights developed by political scientists, institutional economists, and political economists’.

For me, an interdisciplinary political economy such as this can yield deeper insights into the nature of economic processes by considering notions such as power, conflict and the resultant distribution of resources and their effect on growth and development.

“Our analysis of rents can be substantially extended by introducing some insights from classical political economy. Classical economists were interested in the size and allocation of the economic surplus which constitutes the potential investment fund of a society. In particular, they were concerned with the allocation of the surplus since this determined growth. The surplus could be productively invested, or ‘wasted’ in luxury consumption, and, even when it was invested, its allocation across sectors could determine the rate of growth achieved. While there were differences between classical economists, they defined the surplus not as the excess income of any group but, rather, as the income accruing to property owners after paying the direct costs of production. In a capitalist economy, the principal property owners are capitalists, but landlords and some of the middle classes may also be recipients of parts of the economic surplus. What is interesting about the classical analysis is that distributive conflicts and the associated re-allocations of the ‘economic surplus’ can determine the rate of growth. Thus, like rents, surpluses can be associated with a wide range of economic outcomes, depending on the technological context, and the type of distributive conflict going on over the allocation of the surplus. Since rents too can be the subject of distributive conflicts, the classical analysis is of immediate relevance (my emphasis).”

Mushtaq Khan (2000), Rents, Rent-Seeking and Economic Development, Ch.1, p.23

The media and the effects of a weaker currency: missing the point

Contando_Dinheiro_(8228640)What are the likely impacts on the UK economy from the weaker pound? A recent report from the British Chambers of Commerce (BCC) has warned of sluggish growth in the UK during 2017 and beyond. It blames uncertainty over Brexit, along with higher imported inflation and weaker consumer spending due to the sharp fall in the value of the pound since the June referendum on EU membership.

The BCC focuses on a squeeze on consumer spending in the months ahead. This is one effect of a weaker currency: higher prices of imported goods and services will tend to push up overall inflation, meaning consumers will be worse off in real terms if real wages do not rise. Put simply, the pound in our pockets will not go as far. Continue reading

Robert Anton Wilson on the source of wealth

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Robert Anton Wilson

A quote from a book which is, for once, not about economics. The book that is, not the quote! Prometheus Rising is an eclectic look at how the human mind works and is both entertaining and enlightening.

“Where does this wealth come from? According to orthodox economics it comes from land, labor and capital. According to Marxists, it comes from land and labor alone, and the capitalist is a thief who has inserted an artificial book-keeping system into the process. Both are wrong. Land and labor alone, and land, labor and capital together, can’t produce new wealth if they are all organised by a fallacious idea, such as searching for oil where oil is not. The real source of wealth is correct ideas: workable ideas: that is, negative entropy – Information.

The origin of these coherent (workable) ideas is the human nervous system. All wealth is created by human beings using their neurons intelligently.

Robert Anton Wilson (1983), Prometheus Rising

I have plenty of time for Marxist thought, not so much for socialism. But the labour theory of value (LTV) is, for me, perhaps not as scientific as Marx and many Marxists make out. The above quote sums it up nicely, suggesting that the LTV is misleading or at best incomplete, and designed to make social injustice and exploitation into something scientific.

If one wishes to fight injustice, including exploitation, that is all to the good. However I am not convinced that surplus value, a key concept in classical political economy and Marx, necessarily originates solely in the efforts of the workers. Management by the capitalists or their representatives is probably necessary for a productive and profitable workplace and can take many forms, coercive or otherwise.

To draw once more on the quote above: in the right political, social and economic environment, capitalists and workers, sometimes in conflict, sometimes cooperating, can be collectively productive if they work (and use their neurons) intelligently.

Ha-Joon Chang: beyond the self-interested individual

A short talk with Cambridge economist Ha-Joon Chang, who explains how mainstream economics tends to assume that individuals are entirely (and rationally) self-interested and why this is wrong and damaging to society. He illustrates how our broader motivations in the workplace and elsewhere are beneficial and should not be ignored in economic theory.

I think that modern behavioural economics has begun to address this, but it still begins with the idea of the individual, to the neglect of larger social structures and institutions, from class to society as a whole.

Capital, profit and asset prices – a brief digression

9780199390632A nice description of the basis of financial profits under capitalism:

“In a capitalist economy, the prices of most assets are derived from the potential gains to be made from them. Thus, the price of land is based on the rent which it might afford, and as Ricardo long ago showed, this rent is itself based on the profit which might be made through the use of the land. Similarly, the price of equity is tied to the future profits of the issuing company. In this sense, assets such as these are the first derivatives of real capital, bets made by the buyer on its future outcomes. From this point of view, so-called “financial derivatives” are the second derivatives of capital. They are instruments whose value is based on the expected future price of some underlying asset or future outcome (such as the future price of some commodity or currency). These can take the form of insurance against undesired risk, or bets on future gains or losses. They can also be pyramided by making derivatives based on derivatives (ie., third and fourth derivatives of capital, and so on). The calculus of finance has many moments. The end result is an inverted pyramid, with real profits at its base and a rapidly widening volume of financial assets stacked upon it.”

Anwar Shaikh (2016), Capitalism – Competition, Conflict, Crises, Chapter 6, p.231

 

Michael Pettis on the global economic outlook, negative interest rates and Charles Dickens

A short interview with Michael Pettis, an economist I greatly admire for his insights on the evolution of the world economy, economic history and especially China. He predicted that the Chinese economy, having boomed for most of the 30 years since Deng began reform in the late 1970s, would slow dramatically, and may even experience a ‘lost decade’ of slow growth due to its structural imbalances: excessive and poorly allocated investment, and now increasing financial fragility due to rising private sector debt. His work covers a broad range of issues, while his blog is mainly on China, and can be found here.

‘For he that hath, to him shall be given’: the problem of regional inequality

DSC00234Success breeds success, and failure breeds failure. This seems to be the trend in the UK’s regional inequalities, as pointed out last week by Andy Haldane, chief economist at the Bank of England. The division in growth rates and income levels between London and the South East, and the North, are particularly stark. Only in the former are income levels now above those before the Great Recession, which began more than eight years ago, while the latter has fallen further behind.

This regional divide is not a new phenomenon. It has been the result of decades of uneven economic development in the regions of the UK. The almost relentless decline in the share of manufacturing output and jobs for the UK as a whole, particularly since the 1980s, hit the North of England and parts of Wales hard. Private sector dynamism has tended to be concentrated in London and the South East, particularly in the service sector, which makes up the majority of GDP and employment.

Successive governments have responded in different ways to regional inequality. Continue reading