Francesco retweeted
West German children interact with East German border guards after the fall of the Berlin Wall, 1989.
Francesco retweeted
Value is what I say it is …
(careful that labor does not work … there’s a guy who made that mistake already)
Economist @MazzucatoM: "If bankers, estate agents and bookmakers claim to create value rather than extract it, mainstream economics offers no basis on which to challenge them, even though the public might view their claims with scepticism. Who can deny Lloyd Blankfein when he declares that Goldman Sachs employees are among the most productive in the world? Or when pharmaceutical companies argue that the exorbitantly high price of one of their drugs is due to the value it produces? Government officials can become convinced (or ‘captured’) by stories about wealth creation, as was recently evidenced by the US government’s approval of a leukemia drug treatment at half a million dollars, precisely using the ‘ value- based pricing’ model pitched by the industry – even when the taxpayer contributed $200 million dollars towards its discovery."
Read more: evonomics.com/value-of-every…
Francesco retweeted
Or put more simply, as Ricardo taught us, "scarce factors get the rent". That's labor!
A simple point that many economists miss (and nearly all non-economists) is that a falling labor share and rising wages are not in tension. In fact, it is what we should expect when the capital share rises, and capital is free to accumulate.
The reason is intuitive. In the long run, the supply of capital is perfectly elastic at a gross return determined by depreciation and the discount rate: households accumulate or run down capital until its return is back there. In comparison, the supply of labor is much more inelastic.
That means the gains from a technological change that makes capital more important in production (short of making it the only factor) end up with the inelastic factor, not the elastic one. In the long run, capital owners cannot get a rent from a higher capital share of output, only a compensation for their patience. We learned that from David Ricardo over two hundred years ago!
To see this, consider the textbook neoclassical growth model with log utility (not needed, but it makes things easy).
In the table below, I compute the steady-state wage for different values of the capital share. Increasing the capital share from 0.33 to 0.6 multiplies wages by nearly five. Capital owners receive a much larger slice of output, but the net rate of return stays at 4.7%: all the extra income has gone into more capital. Now, you might not want capital owners to have so much capital for political reasons (rich people have a curious habit of buying newspapers), but that has nothing to do with wages being lower. They are higher.
I learned this lesson the hard way many years ago with my paper “Bargaining Shocks and Aggregate Fluctuations” with Thorsten Drautzburg and @pablo_guerron in the JEDC. We gave more bargaining power to capital owners (in our model, wages were not set competitively but through Nash bargaining), and workers ended up with higher wages! The logic is the same: give capital owners more power, and they compete it away. Karl Marx, by the way, already understood this. He was a much better economist than 99.99% of his followers and admirers.
Like all results, this one has exceptions: I can think of environments where a technological change that makes capital more important in production does not raise wages. And the transitional dynamics can get tricky. But the basic logic is hard to escape.
Francesco retweeted
È troppo chiedere che sull'Ucraina la sinistra italiana si esprima come @zdizoro?
Mi sono sinceramente stancato delle ambiguità, del "basta armi", della retorica su pace e diplomazia, del veder svuotata di significato la parola "Resistenza".
Grazie Diego. GRAZIE.
Francesco retweeted
The Hidden Lesson in the History of the Lucas Critique anderseninstitute.org/the-hi…
Francesco retweeted
Questa figura dell’Economist misura quanti hamburger Big Mac si possono acquistare con il salario medio in ciascun paese. Sono 32 paesi dell’Ocse.
Ecco. L’Italia é al 26mo posto. Direi che é un ottimo risultato, no? Meno hamburger mangiamo meglio é: giusto?
O forse no? 🤔
Francesco retweeted
The worst thing about GenZ is that they literally don't read. If you get all your information from Instagram infographics and 30 second TikTok clips don't be surprised if you fall for slopulism.
More complex arguments need more space to be explained in long-form text.
Francesco retweeted
is that the—
the peter singer’s a very short introduction to hegel kleenex box? yeah, it is
Francesco retweeted
I promised you a reading list.
I recommend the old classics, such as The Wealth of Nations, first published a few months before the U.S. Declaration of Independence, or anything by Frédéric Bastiat (1801–1850), originally in French, or Carl Menger’s Grundsätze der Volkswirtschaftslehre (1871), or Philip Wicksteed’s The Common Sense of Political Economy (1910), or Joan Robinson’s Exercises in Economic Analysis (1960) (brilliant, but a strange one; she devolved into a Maoist Marxist).
Also, study the modern classics in what we called at the University of Chicago “price theory.” Below, I list them from most elementary to most advanced.
A somewhat different route to becoming a real economist is to read what is called “Austrian” economics, descended from Carl Menger.
The Chicagoans tend to be more mathematical, the Austrians more philosophical.
Taken together, they teach what is right about a liberal economy.
My latest column for @folha
