This post is part 2 of a discussion of the potential of the high wage economy to overcome conflicts between the progressive goals of achieving social justice and economic efficiency, or what could be called a widely-shared prosperity. It is inspired by Morris Altman’s book Economic Growth and the High Wage Economy. In part 1, I described his idea that even with perfect competition in product markets, firms can find themselves producing at a low-wage-low productivity equilibrium with little incentive to change this situation. Similarly, other firms may be producing at a high wage-high productivity equilibrium, with the two types of firms able to produce at the same output price, but with the second type operating at a greater level of X-efficiency. This is due to the incentives provided by higher labour costs for workers, managers and owners to combine their efforts in the organisation of the workplace in order to work “smarter”. Increased worker effort is incentivised by labour market institutions which prevent cost-cutting, or more accurately labour cost-cutting, as a path to competitiveness. This is a supply-side theory of economic change.
Altman spends much of his book applying his theory to a variety of economic situations. Here is a brief account of some of them. Continue reading →
A persistent goal of many progressive economists and policymakers is to enable a widely-shared prosperity, thus bringing together social justice and economic efficiency, while sustaining individual freedoms. Some economists argue that low labour costs in the form of wages and, more broadly, minimal labour market regulations and taxes which fund the welfare state, are necessary to achieve “competitiveness” among firms so that the price of output can be kept low in order to encourage sales, while sustaining profits. This is especially so for developing countries with relatively low levels of productivity, which simply can’t compete with higher wage, higher productivity countries in the rich world. Continue reading →
For those wedded to economics or political economy as ways to help explain the world, we live in interesting times. By this I certainly do not mean that things are going well. There is plenty that is not. But humanity’s problems of necessity call forth potential solutions, even if they prove at times to be the wrong ones. Sometimes we can get it right, and that is cause for hope.
This post takes the form of a list of the current issues that call for economics to address them. The ten reasons are ones that I feel are particularly pressing. I hope you agree. Continue reading →
A brief review of prominent heterodox economist Steve Keen’s latest book, in which he lays out his vision for the future of economics, arguing that the neoclassical approach has been highly damaging to humanity, and needs to be replaced.
Steve Keen has a new book out, entitled The New Economics – A Manifesto. It is the latest chapter in the author’s tireless efforts to replace neoclassical economics and its damaging dominance of mainstream thinking with what he argues is a more scientific and explanatorily powerful body of thought drawing on post-Keynesian and, more recently, Biophysical economics.
Keen, who has been a heterodox or non-mainstream economist since his student days, has been critiquing neoclassical economics for many years. Post-Keynesianism takes its main inspiration from arguably the twentieth century’s greatest and most influential economist, John Maynard Keynes. It draws on the work of Keynes’ followers at Cambridge University, and those who studied under or have been influenced by them, though post-Keynesians remain a radical minority in the grand scheme of things.
Keen was one of the few economists to correctly predict a major financial and economic crisis in the years leading up to 2008. Not one of these iconoclastic souls was a neoclassical. In the 2011 edition of his book Debunking Economics, he painstakingly deconstructed much of neoclassical theory, and began the task of laying out the monetary economics he felt should replace it. Continue reading →