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Louis was kind enough to post a link to the article by John Foster and me in the November Monthly Review. We are proud of this piece. We think it avoids the dismissal of Piketty by some on the left because he is not a Marxist. And it also avoids the adulation others gave Piketty, as if he invented the study of inequality. We would love to get comments on the article. Here is an excerpt: "The second main justification of the system provided by neoclassical economics—the notion that capitalism promotes a kind of equality, at least in terms of the determination of earnings by the marginal productivity of factors (and individuals)—has shown itself to be just as false. As this has become more apparent neoclassical economists have sought to declare the whole issue out of bounds. Martin Feldstein, chairman of the Council of Economic Advisors under President Reagan, replied to critics of the Robin Hood-in-reverse policies of Reaganomics by stating, “Why there has been increasing inequality in this country is one of the big puzzles in our field and has absorbed a lot of intellectual effort. But if you ask me whether we should worry about the fact that some people on Wall Street and basketball players are making a lot of money, I say no.”15 Likewise Robert Lucas, Jr. of the University of Chicago, the most influential macroeconomist of his day, was merely stating the dominant view of the profession and of the establishment as a whole when he opined in 2004, “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of [income] distribution.”16 Feldstein’s and Lucas’s sharp dismissals of any concern over income and wealth distribution reflected the mainstream economic view that inequality is benign precisely because it can be attributed to different levels of marginal productivity and the corresponding different education and skill sets. In this accounting, a person’s income is simply a function of his or her productivity and willingness to work. People are poor because they are not very productive or because they have a weak attachment to the labor force as a result of their own choices. Productivity is driven in the main by the willingness of individuals to invest in their “human capital,” and the most important type of such investment is education. Attachment to the labor force depends on “leisure preferences” of individuals. This refers to the relative weight potential workers place upon the utility they will gain by buying the goods and services that an increase in income makes possible—while factoring in, through a benefit and cost calculus, the happiness they could have by not working, by choosing more free time. Thus those with high incomes are presumed to have invested in their human capital and have low leisure preferences, while for the poor the opposite is true. Modern technology, in this view, has only made human capital more important. Many people have been left behind in the race to the top of the income distribution because they do not possess the knowledge that modern technology requires. Most mainstream economists do say that appropriate public policies could help reduce inequality, by, for example, making it easier for those without means to attend college. However, it would be dangerous, we are told, to reduce inequality too much—for example, through free higher education for all—because then individuals would not have an incentive to work hard and be productive. This would be to the detriment of the capacity of the economy to grow and thus to provide the extra income needed to distribute to those at the bottom. Equality is therefore self-defeating. The Mad Hatter logic of neoclassical economics can actually be used to demonstrate that in perfectly competitive markets there can be no wage and salary inequality at all!17 Consider a woman making a career decision. Assume, as does the neoclassical economist, that she has complete knowledge of the wages and benefits associated with every occupation she is considering entering. She also knows the costs of the education and training necessary for employment in each occupation, as well as the income she will lose by not working while she is getting this schooling and training. Any particular negative aspects of an occupation, such as physical danger, are also known, as are their costs. What should she do? She will weigh the benefits against the costs of each occupation and pick the one for which the net benefits are highest. Implicit in this scenario is a wage for each occupation that at least covers the cost of entering it. Competition in the marketplace will, in fact, make the wage just equal to the entry cost. An occupation with a wage higher than the entry cost will attract new applicants; this will put downward pressure on the wage and upward pressure on the costs (as more people demand schooling and training); and eventually, the above average wage-cost difference will disappear. Remarkably, this theory shows that, while some workers earn higher wages than others, these higher wages simply reflect higher entry costs. A doctor is therefore not really better off than a motel room cleaner; in terms of wages minus costs, they are in exactly the same position. Voilà! At least as far as labor income is concerned, there can be no inequality." Full at http://monthlyreview.org/2014/11/01/piketty-and-the-crisis-of-neoclassical-economics/ _________________________________________________________ Full posting guidelines at: http://www.marxmail.org/sub.htm Set your options at: http://lists.csbs.utah.edu/options/marxism/archive%40mail-archive.com
