Friday, 29 December 2017

Whither Inequality?

Inequality (size and functional: labour shares) has been a matter of increasing interest for a while. The work of Thomas Piketty and associates, popularised in the aftermath of the Occupy Wall Street global movement, only added impetus to that trend.

Incidentally, living in a capitalist world, one would have thought that concern not only reasonable, but obviously so. After all, the question of who gets what seems clearly vital.

Apparently, however, that's not so obvious. Without a "scientific" explanation, for this scientist, concern over inequality is just dogmatic.

As an explanation of its importance, then, let's just say that the subject of inequality and distribution -- more generally -- has fundamental practical implications well beyond science. Nor is inequality an abstract concern: it can be a matter of life and death, literally. It affects the political stability of our societies. If that's not enough to justify inequality to the eyes of the scientist, then what the hell is his "science" good for?

Back to our subject. From the start, Piketty's "Capital in the Twenty-First Century" received a mixed reception: high-brow non-economist pundits often produced glowing reviews, while economists -- heterodox and neoclassical alike -- ranged from indifference, passing through some more or less favorable reviews (usually with reservations), to a surprisingly large number of dismissively hostile comments, often verging on obsession and plain thuggery.

No surprise in the mainstreamers' reaction: the empirical facts of inequality cast doubts on their own politically sensitive theory of distribution. Understandably, warnings about increasing inequality coming from one of their own may have been too much. Therefore, either one re-defines the numbers so as to deny their message or one shoots the messenger.

Much harder to understand was the reaction of the anti-neoclassical insurgents. Whatever the merits (or lack thereof) in their criticisms they seem wildly exaggerated. In my opinion, they were being short-sighted.

David Ruccio (from a Marxist perspective) is one of a relatively small number of non-neoclassical economists to engage the subject. Recently he noticed Marshall Steinbaum's article "Why Are Economists Giving Piketty the Cold Shoulder?" for the Boston Review (May 12, 2017).

That article is a survey of research inspired by criticism of Piketty's book. As far as I can tell, it's a neoclassical-only affair. Steinbaum links to a series of related academic research papers. To be sure, he addresses himself to the layman. Unfortunately, the truth is his article is wonkish … to the max, dude (as kids would add). It's not an easy read by any means, and fairly long, to boot.

That's sad: the discussions Steinbaum surveys are getting very interesting, particularly for old-fashioned Marxists. Frankly, I doubt many among the internet post Keynesians (perhaps with the exception of Sraffians) are able to follow that discussion. It's worth the effort, though.

Personally, among the bloggers I follow I'd recommend it to two persons. Chris Dillow, whom I believe is an Analytical Marxist and is on holidays, is one.


"Rents" is how neoclassicals try to make sense of these distributional "anomalies". Robert Solow: due to monopolistic power, for example, firms are getting a positive economic profit in the long-run. The question, then, is how to make sure capital gives labour its fair share of it. Presumably, through regulations. (It wouldn't work, but I won't say why here).

Ruccio has explained the relationship between rents, market imperfections and Marxist economics endlessly. There's no point repeating him here: go there and check by yourself.

The funny thing is that anti-neoclassical insurgents, critical of everything neoclassical without exception, are rushing to embrace "rent". Lacking a theory of value of their own and with characteristic opportunism, post Keynesians have no choice but to adopt the modified neoclassical theory of value Solow et al offer.

To explain the problem for them and their new-found neoclassical allies I can't do better than point to Angus Deaton's recent "How Inequality Works", for Project Syndicate.

The 2015 winner of the Sveriges Riksbank Prize in Economic Sciences for his research on consumption, poverty and inequality touches briefly a huge variety of topics, without going into details, but probably ruffling lots of feathers in the process.

A couple of scattered quotes to whet your appetite:
"In this account, the rich are getting richer at the expense of everyone else. Recent research suggests that there is some truth to the second story, at least in the US."
"It's hard to believe that low-skilled Americans' wages would have remained as low as they did in the absence of inflows of unskilled immigrants."
And, what's his solution? Well, if the problem is monopolistic power, imperfect competition and all that then obviously, the solution is … drums roll, please … the free market! Laissez-faire, baby!
"But we do need to put the power of competition back in the service of the middle and working classes".
And the thing is, Deaton is right. Don't blame him: it's your argument that sucks, dumbass.

God knows I dislike everything related to the alt-right … with just one single exception. The word cuck fits the interventionist, reformist Kensian left to a T.

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