Sunday, March 31, 2013

Chronicle of a Death Foretold (IV)

Or, "it's in their DNA"

Paul Ryan (left, physical only); Tony Abbott (extreme right) [A],[B]

U.S. Representative Paul Ryan (Republican) and Australian MP Tony Abbott (Coalition) have many things in common, apart from their ears.

For instance, both are arch-conservative Roman Catholic; both of them share the same "core values":



(h/t David Ruccio)

But it would be mistaken to carry the comparison too far. For one, Ryan is younger than Abbott.

More importantly, Ryan did not become Vice-President of the U.S. of A. in 2013. Abbott, on the other hand...

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Aw, crap. We're so screwed.

Image Credits:
[A] "Opposition Leader Tony Abbott addresses a forum". File licensed under the Creative Commons Attribution-Share Alike 3.0 Unported licence. Wikipedia. Author: Djackmanson. My use of the file does not in any way suggests its author endorses me or my use of the work.
[B] "Congressman Paul Ryan after being introduced by Mitt Romney". File licensed under the Creative Commons Attribution 2.0 Generic. Wikipedia. Author: Tony Alter
(derivative work: Gobonobo). My use of the file does not in any way suggests its author(s) endorse(s) me or my use of the work.

Thursday, March 28, 2013

Oz/US: Mirror Images.

Washington Post columnist Matt Miller comments on the remarkable change of heart among American politicians about same sex marriage (h/t David Ruccio):
"I've been thinking about the amazing pace of change in public attitudes and political sentiment on gay marriage - and how every Tom, Dick and Harry (or at least every Hillary, Mark and Claire) seems to be rushing out a video or press release getting on the new right side of marriage equality."
In Miller's opinion, this is due to "plenty of reasons, but the one that gets little attention is class".

According to Miller, since same sex couples from all social classes decided to come out of the closet, politicians and decision-makers find it increasingly easy to empathyze with them: many of these couples belong to their own ranks, after all.

That's why Miller asks: "If only poor people were gay, does anyone think our political leaders would have 'evolved' at this pace?"

Don't get me wrong, I fully support same sex marriage, and, in my opinion, a working class movement can and should support other people's initiatives in this area.

But I equally think that a working class movement cannot make of same sex marriage its central issue, because identity issues, like same sex marriage, do not involve the class interests of the elites. They don't touch anybody's pockets. That's what makes possible the "amazing pace of change in public attitudes and political sentiment on gay marriage", as Miller correctly remarks.

Australians should look at themselves in the American mirror. What Miller says about his country applies as much to the U.S. as it does to Australia.

Miller concludes:
"As Martin Luther King Jr. learned near the end, securing legal equality turned out to be the easy part. Nobody had to write a check. Equal opportunity and economic justice are entirely different matters, requiring a nation to take even bigger leaps of empathy and imagination".

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Incidentally, American economics Prof. Mark Thoma, referring to the U.S., asks: "why don't politicians care about the working class?"

Unfortunately, very few Australian academics seem to wonder about that. If they did, they would ask why Labor MP Joel Fitzgibbon is so concerned about the remote possibility of raising taxes on the superannuation of people with a yearly income of AUD250K a year, but doesn't say anything about the certainty that Tony Abbott will charge AUD500 a year on the superannuation of people with incomes under AUD37K a year.

Would that be because he doesn't give a rat's ass about people with incomes under AUD37K a year?

Or they would ask why Tony Abbott, future Australian PM, promoter of the politics of greed and class-warrior on behalf of the local plutocracy, is so willing to come to the defence of Simon Crean and Martin Ferguson (two former union men):
"What we should never do is engage in the politics of envy. What we should never do is play the class war card. Now decent Labor people understand that Simon Crean and Martin Ferguson have pleaded with the Prime Minister to put this class war behind them". (See here)
Would it be because there is no difference between the interests Abbott represents and those represented by Crean and Ferguson?

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So, dear reader, in the next election your choice is among which representatives of the rich will squeeze you good. Keep voting for these people, no matter how much they despise you.


Tuesday, March 26, 2013

What are Natural Prices?

In a previous post I remarked that Adam Smith (1776) chose labour times as the appropriate measure for output, as Benjamin Franklin (1729) had done before him.

Subsequent political economists, including Marx, adopted and perfected Smith's ideas.

Although a common terminology was never adopted, Marx, the physiocrats and classical economists before him distinguished between two "kinds" of prices/values. [1]

Here, and to the best of my capabilities, I hope to show in terms applicable to all political economists, the relationship between these two kinds of prices/values.

Cantillon (1755):
"It often happens that many things which have actually this intrinsic value are not sold in the market according to that value". [2]

Smith (1776):
"There is in every society or neighbourhood an ordinary or average rate, both of wages and profit, in every different employment of labour and stock. (...) These ordinary or average rates may be called the natural rates of wages, profit and rent". [3]

Compare both quotes to Marx (1865):
"So far as it is but the monetary expression of value, price has been called natural price by Adam Smith, 'prix necessaire' by the French physiocrats" [4]
As Cantillon's quote shows, and against common belief, these authors were well aware of everyday price fluctuations: market prices.

Let's adopt Smith's convention: natural (Cantillon's intrinsic value) and market prices and rates.

But, what is the natural price?

Smith:
"When the price of any commodity is neither more nor less than what is sufficient to pay (...) the wages of the labour, and the profits of the stock (...) the commodity is then sold for what may be called its natural price".
The following figure illustrates these authors' views of natural and market prices:

(Right-click to enlarge in a separate tab)

Let the red and blue dashed lines be the natural prices of brand new made-in-China digital radios and of newly built identical apartments in the same building in downtown Sydney. These prices are relatively stable ("ordinary or average"), and, as seen in the previous post, somehow reflect labour times/costs. [5]

The crosses are the market prices and are much more volatile, which led Smith, for instance, to consider them unsuitable for long-term output measurement.

On d1 both market prices exceeded their respective natural prices. The sellers had a good day: they achieved a super-profit (i.e. the positive distances between the respective crosses and dots).

Markets, however, are volatile. On d2 only the apartment seller got a super-profit. The gadget store owner lost money

Neither situation can last long: if capitals are free to enter or abandon a market, then permanent profits or losses are ephemeral situations. The argument to ensure this is exactly the same used ever since to justify price/quantity adjustments in the longer run: super-profits attract new entrants to the industry, output grows, market prices fall, etc.

Smith:
"The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating".
That is, natural prices act as, well, natural centres of attraction for market prices: in the normal course of affairs, market prices should tend to stick near natural prices. That's the relationship between natural and market prices.

In other words, the classical "natural prices" are the homologous of the equilibrium prices of modern economists.

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Let's add a few parting comments.

The first thing to note is that while the overall theory presented so far is expressed in different words and to an extent is different to what modern economics considers reasonable, it's not like there aren't any points in common.

It's in the determination of natural prices that the differences will become meaningful, both among the classical authors, and in their relation to modern economics.

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So, I'll admit it, I may be seriously biased and there may well be something outrageously wrong and absurd in the way old economists thought. But it certainly is not obvious to me.


NOTES:
[1] Wilhelm G.F. Roscher offers a partial list:
"the amount of the cost of production is called by Adam Smith and Ricardo, 'natural price,' by J. B. Say, prix naturel, also 'prix originaire', because the commodity at its first entrance into the world costs so much. Sismondi and Storch call it 'prix nécessaire', and Lotz, 'Kostenpreis'. P. Cantillon, "Nature de Commerce", 33 ff., understands by the 'prix intrinsique' of a commodity, the amount of land and labor, taking the quality of both also into consideration, necessary to its production" ("Principles of Political Economy", Vol. 1. 1878; footnote 630).
[2] As quoted in "Cantillon's Land Theory of Value". HET Website.
[3] All quotes from "Wealth of Nations", book I, section vii, "Of the Natural and Market Price of Commodities", 1776.
[4] "Value, Price and Profit", chapter 2, section vi, "Value and Labour", 1865.
[5] Incidentally, although possible, I am yet to see a mass-produced trinket equal or exceed the price of a standard, run-of-the-mill Sydney town apartment. A cost approach to pricing explains this naturally ("At all times and places, that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour" here).
At the other hand, a pure preferences model of demand (as proposed by some marginalists, as Jevons), in my opinion, has difficulty explaining this, if it explains it at all.

Monday, March 18, 2013

Power is not What it Used to Be.

Moisés Naím (¿Qué le está pasando a los poderosos? El País, March 17; Corporate Power is Decaying, get Used to it, February 21) finds that traditional power structures are shifting.

Political, military, technocratic and religious leaders, Naím observes, have seen their power curtailed:
"In his first speech before the Congress, in 2009, president Obama proposed an ambitious budget with energy, health and education investment.
" 'This is America', Obama proclaimed. 'Here we don't go for what's easy'.
"Four years later, even what was easy has become impossible.
" 'Let's agree, here and now, to keep the Government operating, paying its bills on time, and to protect the US credit', begged Obama to the Congress a few weeks ago. Evidently, the president of a superpower must not feel very powerful"
. (My translation, from Spanish)
Naím should know. The former Venezuelan economics professor ("IESA, Venezuela's main business school"), minister (1989 to 1990), and Venezuelan Central Bank director; currently El País columnist, author, founder and chairman of the board of the Group of 50 and senior associate in the International Economics Program of the Carnegie Endowment for International Peace, was one of the minds behind Carlos Andrés Pérez's 1989 "Gran Viraje" (great turnaround) Washington Consensus inspired package of shock economic measures, negotiated with the IMF. (See here, here and here)

Coming after years of repeated, painful and ultimately fruitless macroeconomic adjustments instigated by the IMF, plus an apparently endless stream of corruption scandals and the odd massacre, the newly elected Acción Democrática party (social democrat) government, headed by Pérez, was never going to have an easy job.

Their task was made all the more difficult by Pérez himself, who, during the 1988 election campaign adopted an unusually strident populist rhetoric, appealing to the impoverished urban proletariat, largely non-white.

Pérez, well-known for his personal links to the so-called "12 Apostles" group of businessmen, promised to reverse the "stabilization" reforms already adopted. Further, Pérez denounced the IMF as the "neutron bomb that kills people but leaves buildings standing".

Pérez's main opponent, Eduardo Fernández (Partido Social Cristiano Copei, Christian democrat) stuck to the conservative IMF mantra. While appealing openly to the business elites, the Fernández package was sold to the relatively sheltered middle-income sections of the population, mostly Caucasian, as the "responsible", solution to the by then already chronic crisis.

It was predictable, then, that Pérez's surprising announcement, in January 23, 1989 of his ironically titled "Great Turnaround", in agreement with the IMF after being elected (53% of the valid votes, against Fernández's 40%), on a radically anti-IMF platform, would cause, let's say some "discomfort" among Pérez's constituents, leading to a chain-reaction: indignation about the "turnaround" led to nation-wide rioting (known as the Sacudón of February, 27, 1989, about which I've written), the breach of the public order led to bloody, brutal repression, which further fueled anger and generated generalized discontent shown in continuous public manifestations; the loss of public legitimacy led to two failed military putsch attempts, followed by Pérez's impeachment (August 31, 1993) and eventual conviction on corruption charges, to the eventual collapse of the political status quo and to Hugo Chávez's election.

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While Naím shows insight in noticing this shift in political power, it's not clear, however, that he understands the ultimate causes of the shift he describes.

It's not clear, for instance, that this shift is due to "Twitter and Facebook", as Naím suggests; or that "an impatient, better informed middle-class, with more aspirations, is making the exercise of power more difficult", as he claims.

To me, it looks more like the arrogant and greedy elites sometimes push their luck beyond the breaking point. That, of course, is too plain an explanation to justify a book.

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Another day I'll have to address Naím's twin claim: that the corporate boardroom has also lost power.

By those extraordinary coincidences, the ABC's Four Corners is broadcasting tonight the PBS Frontline's "The Untouchables":
"In this investigation we hear from industry whistleblowers who were forced to approve loans they felt would almost certainly fail.
"It's over four years since the global financial crisis began. We now know the crisis that took the world to the brink of financial meltdown - throwing millions of people out of work and devastating entire communities - began on Wall Street.
"In the wake of the crisis, the newly elected President Barack Obama promised to make greedy bankers pay for their crimes. Four years on, not a single senior Wall Street executive has faced criminal prosecution. The question is why? Are they simply too big to jail?"
Hopefully, that could give me some argument to reply to Naím's "boardroom" claim.

Saturday, March 16, 2013

...We Won't let You Sleep.




Paul Mason on alcopops, racism and financial dystopia: Anders Lutsgarten's play "If You Don't let us Dream, we Won't let You Sleep".

From the Royal Court Theatre's webpage:
"I believe that open markets and free enterprise are the best imaginable force for improving human wealth and happiness. And I would go further: where they work properly, they can actually promote morality". David Cameron, January 2012.


Thursday, March 14, 2013

Lest we Forget...

Yanis Varoufakis:
"Europe is being torn apart by a titanic clash between (a) the unstoppable popular rage against misanthropic austerity policies and (b) our elites’ immovable commitment to more austerity. Precisely how this clash will play out no one knows, except of course that the odds do not seem to be on the side of the good. While at the mercies of this crushing uncertainty, it is perhaps useful to take a… short quiz. So, dear reader, will you please read the following ten quotations and, while so doing, try to imagine who uttered or wrote these words?" (See here)
Take Varoufakis' quiz. It's chilling.

Wednesday, March 13, 2013

Welfare State? What's That?

The "welfare state" is in everybody's mouth. Some say wonders of it, others blame it for everything under the sun.

Implicit in these discussions is that we all know what the welfare state is.

But, do we? Were all welfare states created equal? What implications different welfare states (note the words: in plural) could have?

A fascinating summary of Gosta Esping-Andersen's book "The Three Worlds of Welfare Capitalism" (Cambridge: Polity Press, 1990).

See also "Esping-Andersen's Welfare-State Typology, Social Stratification, and Unintended Consequences", at Naked Keynesianism.