Category Archives: antitrust policy

Ways to push back on inequality

From a column in the Washington Post, “baby bonds”: a relatively inexpensive approach involving individual accounts (of perhaps $20,000) for each baby born in this country.

From Matt Bruenig in the New York Times a couple of months back, the idea of a Norwegian-style social wealth fund that pays a dividend each year to all.

These approaches preserve the outcomes ground out by the market–and presumed to be efficient by those who see a perfect system of setting prices and the like, given the distribution of wealth–a doctrine of economic optimism.

A heterodox approach sees the problem as ramifying in all of these micro-outcomes somewhat while avoiding petty and over-frequent meddling in the economy. How are such beliefs justified from the point of view of an economist who sees this possibility?

The presumption that the market is perfect when it comes to setting prices–or even only imperfect here and there–can be countered with an alternative logic that sees the need for compensation that works out to a standard of living given that people work to the extent they are able to–a moral valuation of labor along with the economic as described by Jeffrey D. Jones in The Unaffordable Nation: Searching for a Decent Life in America. The latter is an interesting used book I’ve been reading recently and of course only one formulation of the argument for a broader policy concern with inequality.

Without some concern for the package of benefits for full work effort, we have a system where many subsist by running up debts and often looking for gambles that might somehow make up for a system that does not pay–a situation documented in Joness’ book.

Hence, it is not out of bounds to be concerned with the package of benefits and the like one gets given one does what one can to be in education or working.  It is no surprise that more than 10 states see increased minimum wages go into effect, even as Congress finished with its pro-rich tax reform bill.

Congress will now seek dangerous cuts in health care programs that will either increase illness or merely shift costs to last-resort programs for indigent patients. The key from the modern monetary theory (MMT) perspective on public finances is to note that these actions merely require waiver of caps also put in place by decisions of Congress–as long as the resulting deficits will not make the economy perform less well by standards such as inflation and unemployment. Fiscal choices are an instrument; concerns about the size of deficits or the debt per se are not justified for a government with its own currency and no debt in another currency. And plans about redistributing financial wealth do not substitute for concern with medical coverage for all.

Finally, there is a concern with protecting small players in the market place who contribute to the diversity of goods available; witness the net neutrality debate. And a level playing field without harassment in the workplace. As reported by a favorable review in The Nation, philosopher Liz Anderson raises the alarm over the at-will employment contract as a major power imbalance contributing to widely reported harassment issues. We first mentioned Anderson’s book in this previous post.

Institutionalists in economics (the heterodox school by this name–John K. Galbraith and Thorstein Veblen, for example) have long been concerned with imbalances of power posed by big and powerful players, rendering market outcomes involving consenting “agents” suspect despite a veneer of free choice. And of course, there is also a great benefit to a shift the balance of financial resources a child has  the start of life.

 

 

 

More big market power to follow tech innovations?

When markets are dominated by a few competitors, the market power they enjoy is likely to increase, resulting in a more lopsided distribution of the economy’s bounty. There is a great deal of talk that our economy are pointed in that direction.

On NPR’s Fresh Air with Terry Gross last night, “How 5 Tech Giants Have Become More Like Governments than Companies,” with New York Times tech columnist Farhad Manjoo. What, if anything, makes what he calls “the frightful five” a big anti-competitive threat, when, say, Amazon, accounts for a modest percentage of total retail sales? (Gross also elicits from Manjoo a story about the fun of videorecording his children systematically as they grew up–an interesting twist about apparent benefits of the new internet-related technologies.)

Also, mainstream economist and pro-equality stalwart Joseph Stiglitz opines on historic trends in market power in a piece for The Nation, a progressive weekly journal that  has been around since the 19th century. A sample of his view:

There has been an increase in the market power and concentration of a few firms in industry after industry, leading to an increase in prices relative to costs (in mark-ups). This lowers the standard of living every bit as much as it lowers workers’ wages.

Stiglitz goes on later in the article,

We used to think that high profits were a sign of the successful working of the American economy, a better product, a better service. But now we know that higher profits can arise from a better way of exploiting consumers, a better way of price discrimination, extracting consumer surplus, the main effect of which is to redistribute income from consumers to our new super-wealthy.

The October 23 piece appears to be free to read online, and of course the NPR story is free. Great analysis of recent trends!

One hope against the trend is to build small-scale alternatives to the behemoths in various industries; another lies in the endless struggle to regulate the large companies in the interest of the relevant publics.

Our post-Keynesian model: Support a populist economic agenda

Discussion of macro models at a recent event occasions a somewhat self-critical look at the model that I have worked on since about 2011 and with the help of academic colleague Tai Young-Taft since late 2014—as well as a look at what to expect as the U.S. economy approaches full employment. I will warn readers here that some of the following discussion of economic models may be overly technical for some.

I reported in this recent post on my visit to Amherst, Massachusetts for an economics conference in honor of a new building for the economics department at the university in that small town. At an interesting session on heterodox macroeconomics and its future, professor and dynamic modeling pro Peter Skott expressed concern about models that leave out processes in labor markets that inherently limit growth in a capitalist economy. He argues that such economies are labor-constrained over the long run; pressures on labor markets that in Skott’s view have a tendency to raise wages—a phenomenon being waited for in the current US recovery by observers such as reporters at the New York Times—a development that squeezes profits, choking off growth in the model favored by the “UMass” school across many studies and eras, as noted by several speakers. In contrast, in a Keynesian and Kaleckian model like ours, the latter forces tend to spur growth with higher wages spurring needed product demand, even in a “growth” model that looks at long time windows. Limiting factors that bring cyclical economic contraction come in the form of imposed fiscal austerity, financial instability, threshold effects of short-term weakness, changes in the psychology of markets and entrepreneurs, and more.
Considered as a mechanism, how does the Hannsgen-Young-Taft model work? Our assumptions about aggregate demand imply that near equilibrium, self-reinforcing cycles of goods demand and income push the economy outward. The intensity of these forces decreases as the economy gets further away from equilibrium. Moreover, the countercyclical policy rule (as opposed to a rule with a deficit target) acts to stabilize output around equilibrium. Since public and private production targets are expressed relative to capital stock, the policy rule implies that public wage spending grows as capital accumulates, insuring rough balance between sectors and a steadily rising impetus to demand. The factors that keep the economy from growing faster than it does include the fiscal policy targets, which allow for resource slack (less-than-full employment of capital) and the appearance of a capacity utilization target in the investment function. Policymakers choose subpar output targets because policymakers believe inflation would increase, a belief that is to some extent true in versions of our model with nonfixed nominal wages and prices. Given these forces based on utilization of the capital stock, labor supply poses no additional impediment to growth in our basic model. In the largest version of the model, the labor force is added as an additional state variable and policymakers use an unemployment rate target rather than a capacity utilization target. Moreover, the forces potentially generating inflation in the model include markup inflation from changes in monopoly power, not just wage pressures. The growth-restraining effects of the capacity utilization target prevent the model from generating implausible pathways in which producers perpetually add new machines and equipment in the face of ever-rising excess productive capacity—a problem illuminated in the writings of early British Keynesian Roy Harrod and hammered in the literature by Skott, UMass Ph.D. graduate Soon Ryoo, and others.

These properties of the model should help it survive critiques that apply to the basic Kaleckian model based on allegations of unaccounted-for destabilizing forces. What advantages does it have relative to basic models that in some cases might share this strength in withstanding common critiques? Here is a partial list:

(1) It has the stock-flow-consistent property of accounting for all stocks and flows in a leak-proof set of accounting relations (though the most basic version has only government liabilities)
(2) Given that it models the markup and nominal wage rather than the wage and price level, it offers a possibility of a Keynesian closure in which fixed proportions between wages and prices prevail, barring changes in market power that cause the markup to change. In other words, in the usual situation in which unemployment exists, efforts to reduce the real wage fail because changes in the markup are determined by goods-market power and real-wage norms, rather than as the joint and incidental byproduct of demand pressures in labor and goods markets. Recent analytical advances based on nonlinear 2D Goodwin framework (capacity utilization and the wage share) are an example of the latter “wage-price module” approach.
(3) Two papers introduce shifting profitability, default, and financial market expectations as emphasized in G. L. S. Shackle’s “Keynesian kaleidics” and Minsky’s Financial Fragility Hypothesis. In our simplest “Shackle model,” the driving process allows for long-range dependence and infinite variance in the increments—properties common in financial data and some macro time series. In our simplest “Minsky model,” the probabilities of shifts are endogenous to economic variables that indicate financial fragility. Shifting expectational terms formalize procedures widely used in stock-flow consistent economics of observing impacts of exogenously imposed one-time shocks, a less satisfactory approach for generating a typical solution pathway for a growth-and-distribution model. Most basic models in the growth-and-distribution genre lack any role whatsoever for financial dynamics.
(4) In contrast to econometric “models that work” for nonstationary economic time series, ours is an analytical model that represents causal forces and allows one to imagine counterfactual situations, rather than to fit the data. Our simulation approach allows us to be more realistic about obstacles to estimation posed by the properties of the data, including nonlinearity and fat-tailedness. Moreover, in addition to illuminating actual forces moving the economy, we are able to think about counterfactual policy scenarios. Finally, in contrast to time series econometric approaches in general, our model has endogenous disequilibrating forces; hence it does not attribute instability strictly to bad luck.

Post-Keynesians who find our model amenable hope for wider coalitions in favor of pro-growth fiscal and monetary policies—an end to austerity, monetary suicide pacts, etc.—in spite of the fact that spending priorities are often warped. They expect wages to rise with strong demand, but are optimistic that demand-inflation does not set in until excess demand is very high. They support the processes that they believe are favorable for growth, confident that benefits will be widespread and popular. These pro-growth measures include antitrust enforcement and increases in the minimum wage that are known to ripple throughout the wage distribution and even increase the profit rate in all but the most export-oriented economies. Here, they find themselves in agreement with many mainstream (neoclassical) Keynesians. Environmental concerns bring policy imperatives of their own but do not change this message. We post-Keynesians and adherents to modern money theory (MMT)–another theoretical influence–worry about levels of private-sector debt but find current warnings about rising public debt as a growth-reducer to be crackpot, rather than merely alarmist or overblown.

It was a great chance to learn more about this department and its approach and meet more of its faculty, staff, and graduates.

For the curious:

working papers about the model: Hannsgen (2012); Hannsgen  and  Young-Taft (2015)

published version of Hannsgen (2012) (Metroeconomica 2014) (abstract; paper available on request from me; my address: mail at greghannsgen dot org)

Further thoughts: I  should note that some details of the models mentioned above  remain to be worked out; things are by no means set in stone about all model versions mentioned above, and Tai and I always welcome comments and ideas; also, the comments by Skott mentioned above came during an exciting conference session on the state of heterodox economics featuring fellow-Kaleckian and SFC partisan Michalis Nikiforos of the Levy Economics Institute and others.

Re-emergent in the campaign discourse—an anti-bigness theme

The New Yorker notes that anti-trust law (which concentrates on combating the ills of monopoly power) has been a theme in the presidential campaigns of both Democrats and Republicans this primary season. The article notes that this theme was large for economic republicans, whose ideas were important in the early (19th century) politics of the Democratic party. A big republican theme was the tendency of bigness to lead to excessive concentration of economic and political power.

The article argues that “Hostility toward bigness has been cutting across party lines.” Bernie Sanders, in the campaign for the democratic nomination has pushed for a renewal of the Glass-Steagall protections, which imposed a wall of separation between parts of banks engaged in activities that might cause a conflict of interest. The new law he proposed would be called the Too Big To Fail, Too Big To Exist Act. With the New York primary over, it looks as if Sanders’s chances of winning the nomination have diminished. But the article points out that “the Clinton-Sanders argument is anything but a momentary campaign blip; it’s not even specific to those two candidates.” In sum, he argues, “concentrated economic power has emerged as a principal villain of our day.” Among the Republican presidential candidates to attack big business in one way or another in this presidential primary season have been Ted Cruz, Mike Huckabee, and Donald Trump. It seems that the financial crisis and alarming trends in the concentration of wealth have changed the U.S. political landscape.

The topic of economic bigness is not a perennial campaign theme in the U.S., even on the part of progressives, who tend to be the bloc most in favor of anti-trust regulation and the like. “Liberals, who think of themselves as the countervailing force to business, have over the long term only intermittently embraced [Supreme Court Justice Louis] Brandeis’s view that government should deal with a concentration of economic power by breaking big businesses into smaller units.”

The Democratic Party embraced the anti-bigness view early on, but in the 1930s for example, antitrust did not become a centerpiece of FDR’s New Deal. Among other things, the early anti-big-business view in the U.S. jurisprudence and politics encompassed concerns about developing an economy that would allow democracy to flourish, preventing the development of highly concentrated or imbalanced political power.

Moreover, while “liberal reformers of the early 20th century usually counterpoised big business and small business…as the United States became more affluent, critics of the corporation began focusing on protecting its consumers rather than its smaller competitors.” Under the Sherman Act, the main U.S. antitrust law, bigness itself is not illegal. In any event, in modern times there has been little thought in economics or the field of antitrust law about the impact of concentrated industrial power on the strength of democratic institutions.

The article came to mind two weekends ago when  I was reading the New York Times, which reported on the front page that recent regulatory efforts—combined with stockholder concerns about room for growth—were having the effect of shrinking Citigroup, the holding company of Citibank. The company has been spinning off various businesses in a downsizing effort. The article also observes that nonetheless some of the other huge U.S. banks are bigger than they were before the financial crisis.

So here you have another policy issue–other than the usual fiscal policy, Fed rate changes, etc. The “bigness” variable in macroeconomics is sometimes called the “degree of monopoly” and is a key determinant of the size of the pricing markup–and hence of income distribution. Alan Krueger is one Democratic policy wonk who has decried the role of the goods-market market-power factor (among others) in heightening economic inequality. And I still mean to get back to the distributional variable in an economic model that I discuss in this space occasionally. A chapter of a book by philosopher Michael Sandel covers some of the republican issues in U.S. jurisprudence on antitrust law. We hope to see Hillary Clinton take on these issues if she becomes the Democratic candidate, incorporating some of the concerns articulated most clearly by the Sanders campaign. But the New Yorker article (which appears in the “books” section, no less) makes for a fascinating read, as its coverage frequently does.