Product Differentiation and Drunken Livestock

Shelves in our stores are filled with examples of commodities that exchange above their value.

Without delving into a long exposition of value theory, it is sufficient for my purposes here to state that a price above value is often the goal of advertising a commodity, and clearly a desirable situation for the producer. Gaining an additional payment on top of the realization of value and surplus value when a commodity is sold, in a nut shell is something every producer wants. That is, more money, what capitalist wouldn't want that?

What is interesting, or at very least fascinating, is the creativity people show in an attempt to command a price in the market over and above the value of their product.

American capitalism has given us 200 brands of toothpaste and enough different breakfast cereals to eat a different one every morning for two months. This is all well and good, but some day we will look back on the dark ages before 2010 and ask: "How did we every survive without wine finished beef?"

I am only being slightly sarcastic in this post. The array of goods available in this society can be as wonderful as it is unnecessary. And wine drinking cows? So much for the argument that feedlots are inhumane.

Taxation and Employment

Two well known economists have written short posts in the past 24 hours commenting on the expiring tax cuts, as well as the Obama administration's tax policy in general.

Greg Mankiw posted a summary of the effective tax rate on the richest Americans, concluding that it will be about 50% by 2013.
This post is presented as a stating of "facts", however Mankiw's use of language such as "stealth provision" suggest that he believes himself to be illuminating some sinister attempt to steal the hard earned, or unfairly appropriated, your choice, surplus of our wealthiest citizens.

Paul Krugman's post "It's Demand Stupid" argues that an effective tax increase on "small business (earning over $250 000 a year) will not not affect firms ability to hire more workers in a meaningful way. Rather, to hire more workers companies need to see an increase in demand for their commodities, regardless of tax rate.

I decided to write on this tonight when Krugman's Keynesian perspective was backed up anecdotaly in conversation with a republican small business owning friend of mine. My friend mentioned that he needed to hire two new helpers because business has been steadily increasing this year. When I asked him if his effective tax rate influenced his decision to hire new workers he looked at me like I was crazy. Justin's* response was "I need to hire more workers because I have more work to do". Makes sense to me, even if Krugman did frame it with a title that makes him seem like a pretentious jackass.

I realize that Mankiw's post was not directly about employment, but my current opinion is that the greatest challenge facing the US economy during this Great Recession is the suffering being heaped on lower income Americans by sustained high unemployment rates.

The important question that I wish to ask and provide a part of an answer for here is, "what is the most effective way to allocate surplus to create the largest amount of (good) jobs?" Should we let the very wealthy in our society (and the not so wealthy small business owners, who are the new "Joe the Plumber" in the republican campaign this fall) keep more of the surplus they have gained through exploitation of their workers in the hope that they will distribute it to expansion, thus bringing more workers into the production process? Or should the government demand a higher share of the surplus from the wealthy so that it can be redistributed in such a way as to increase demand for commodities (transfer payments, reconstruction programs, cash for shitty cars, etc.)?

Neither of these options has been particularly successful in lowering the national unemployment rate over the last couple of years. I believe proponents of both sides would argue that the unemployment rate would be higher without their weapon of choice being in place, tax cuts and "stimulus" respectively. In reality neither strategy has been nearly effective enough, and the pain and suffering of the unemployed continues to be our country's most pressing economic issue. Perhaps neither strategy has worked because of an inability to implement policy to the extent necessary because of pressure from the other perspective? Perhaps because these theories just do not result in effective policy? Perhaps for a large and complex number of reasons not listed here?

The short and long term consequences, economic, social, and otherwise, of massive unemployment are a topic for another time. Suffice to say that more needs to be done soon to get more people into full time jobs. The damage to individuals and to working Americans in general grows more drastic by the day as unemployment stays high and meager benefits begin to run out.

I would like to propose a third alternative. It is time to change things so that instead of extracting surplus from workers, and then distributing more or less of it to the government in the form of taxes, depending on how effective you think the government can be in creating effective demand, and/or how much you believe a business will hire people because of the relative amount of their surplus that they have to distribute to the government via taxes, or not distribute to taxes, we should allow more workers to be the first appropriators and distributors of the surplus that they create in the production process in our economy.

Perhaps the distribution decisions of workers will be more effective at creating jobs for fellow workers than the decisions of a very small number of our wealthy citizens have been. And perhaps the distribution decisions of workers will be more effective than those of committees of professional politicians, who as a general rule are also among our wealthiest citizens. The current system run by and for capitalists is failing the working people of this country in epic proportion in terms of employment.

Is it not time that workers at least consider trying to run things themselves? Even if worker appropriation and distribution does not solve the unemployment problem would we not be better off having tried to help ourselves and failed than waiting for those who exploit us to "fix" the unemployment problem while our lives and families are destroyed by being out of work? Before the US can become the land of the free for the working class we need to be free to distribute the surplus we have created in an attempt to fix our own problems.

Engaging with the Mainstream, but not Engaged to it: A Response to Dan MacDonald.

This post is a response to a recent post on the blog Imagining History by Dan MacDonald.

I need to start by mentioning the title. Engaged AGAINST the Mainstream would be far more impressive. "Engaging with the mainstream" only really refers to those that have it wrong (implicit in Dan's post from my reading). That is, those people who use mainstream methods to ask leftist questions. Those who build alternative frameworks to attack the mainstream are engaged against the mainstream in my opinion. These posts are concerned with both types of people.

Moving on:
I cannot dispute Dan's conclusion that of those around us in the UMass Amherst Economics department, as a general rule the younger the person the more they seem to engage in what I consider to be mainstream methodology AND IDEOLOGY. Certainly mainstream methods have not become more "correct" in the last 40 years, is it fair to imply as Dan does that these methods and ideas have become more hegemonic (even in our department)? Certainly it is well documented that social sciences have become more empirical in methodology over this period. The question then becomes; does the perception of younger heterodox economists engaging with more mainstream methods really hold water, or are they just becoming more cough* "analytically rigorous" than their predecessors?

What is more interesting to me is what actually makes an economist heterodox?
I don't view people using mainstream methodology to answer "leftist" questions as radical economists, just liberal mainstream people and our department is full of them.

Why then do I give primacy to methodology? I view people using non-traditional methods because of a philosophical problem with empirical analysis as far more radical (heterodox) than those using hegemonic methodology to ask socially progressive questions. My reasons for this are too complex to address here and will be addressed further at a later date.

MacDonald's conclusion suggests that thinks along a similar line. The suggestion that people who are not engaged to the mainstream will receive better jobs (historically) than self styled heterodox people who use mainstream methods certainly is true in the history of our department. Does this hold in a wider sample? I think those who are engaged with the mainstream as opposed to against it never were and never will be heterodox and thus we have no evidence of them in heterodox positions.

As soon as they do get a job, these "heterodox economists" will apply their mainstream models to questions that are not the socially progressive ones they pretended to care about in grad school, but rather the traditional questions that are published in mainstream economics journals, that will result in tenure and a meaningless existence as another second rate economist. (Prove me wrong people.)

Should we engage with the mainstream? No. Should we use mainstream methods to engage against the mainstream? Historically people seem to fail at this and end up just as fringe members of said mainstream when they try. Should we bother with the mainstream at all? No? Should we spend our time making what is now radical more widely accepted? I would say yes, it is all we can do.

Thanks Dan, great post.