The ABCs of Political Economy , livre ebook

The ABCs of Political Economy
The ABCs of Political Economy
A Modern Approach
Revised and Expanded Edition
Robin Hahnel
First published 2002; revised and expanded edition 2014 by Pluto Press
345 Archway Road, London N6 5AA
www.plutobooks.com
Copyright © Robin Hahnel 2002, 2014
The right of Robin Hahnel to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.
British Library Cataloging in Publication Data
A catalogue record for this book is available from the British Library
ISBN 978 0 7453 3498 1 Hardback
ISBN 978 0 7453 3497 4 Paperback
ISBN 978 1 7837 1206 9 PDF eBook
ISBN 978 1 7837 1208 3 Kindle eBook
ISBN 978 1 7837 1207 6 EPUB eBook
Library of Congress Cataloging in Publication Data applied for
This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental standards of the country of origin.
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Typeset in Minion by Swales & Willis, Exeter, Devon
Text design by Melanie Patrick Simultaneously printed digitally by CPI Antony Rowe, Chippenham, UK and Edwards Bros in the United States of America
Contents
List of Illustrations
Preface to the Revised and Expanded Edition
1
Economics and Liberating Theory  
People and Society  
The Human Center    
Natural, Species, and Derived Needs and Potentials    
Human Consciousness    
Human Sociability    
Human Character Structures    
The Relation of Consciousness to Activity    
The Possibility of Detrimental Character Structures  
The Institutional Boundary    
Why Must There Be Social Institutions?  
Complementary Holism    
Four Spheres of Social Life    
Relations between Center, Boundary, and Spheres    
Social Stability and Social Change    
Agents of History    
Applications
2
What Should We Demand from Our Economy?  
Economic Justice    
Increasing Inequality of Wealth and Income    
Different Conceptions of Economic Justice  
Efficiency    
The Pareto Principle    
The Efficiency Criterion    
Seven Deadly Sins of Inefficiency    
Endogenous Preferences  
Self-management  
Solidarity  
Variety  
Sustainability    
Weak versus Strong versus Environmental Sustainability    
A Workable Definition of Sustainable Development    
Growth  
Conclusion
3
Efficiency and Economic Justice: A Simple Corn Model  
Model 3.1: A Domestic Corn Economy  
Situation 1: Inegalitarian Distribution of Scarce Seed Corn    
Autarky    
Labor Market    
Credit Market  
Situation 2: Egalitarian Distribution of Scarce Seed Corn    
Autarky    
Labor Market    
Credit Market  
Conclusions from the Domestic Corn Model  
Generalizing Conclusions  
Economic Justice in the Corn Model    
Economic Justice, Exploitation, and Alienation    
Occupy Wall Street  
Model 3.2: A Global Corn Economy
4
Markets: Guided by an Invisible Hand or Foot?  
How Do Markets Work?    
What Is a Market?    
The “Law” of Supply    
The “Law” of Demand    
The “Law” of Uniform Price    
The Micro “Law” of Supply and Demand    
Elasticity of Supply and Demand  
The Dream of a Beneficent Invisible Hand  
The Nightmare of a Malevolent Invisible Foot    
Externalities: The Auto Industry    
Public Goods: Pollution Reduction    
Green Consumerism    
The Prevalence of External Effects    
Snowballing Inefficiency    
Market Disequilibria    
Conclusion: Market Failure Is Significant  
Markets Undermine the Ties That Bind Us
5
Microeconomic Models  
Model 5.1: The Public Good Game  
Model 5.2: The Price of Power Game    
The Price of Patriarchy    
Conflict Theory of the Firm  
Model 5.3: Climate Control Treaties  
Model 5.4: The Sraffa Model of Income Distribution and Prices    
The Sraffa Model    
Technical Change in the Sraffa Model    
Technical Change and the Rate of Profit    
A Note of Caution    
Producers and Parasites
6
Macroeconomics: Aggregate Demand as Leading Lady  
The Macro “Law” of Supply and Demand  
Aggregate Demand    
Consumption Demand    
Investment Demand    
Government Spending  
The Pie Principle  
The Simple Keynesian Closed Economy Macro Model  
Fiscal Policy  
The Fallacy of Say’s Law  
Income Expenditure Multipliers  
Other Causes of Unemployment and Inflation  
Myths about Inflation  
Myths about Deficits and the National Debt  
The Balanced Budget Ploy  
Wage-Led Growth
7
Money, Banks, and Finance  
Money: A Problematic Convenience  
Banks: Bigamy Not a Proper Marriage  
Monetary Policy: Another Way to Skin the Cat  
The Relationship between the Financial and “Real” Economies  
The Financial Crisis of 2008: A Perfect Storm
8
International Economics: Mutual Benefit or Imperialism?  
Why Trade Can Increase Global Efficiency    
Comparative, Not Absolute, Advantage Drives Trade  
Why Trade Can Decrease Global Efficiency    
Inaccurate Prices Can Misidentify Comparative Advantage    
Unstable International Markets Can Cause Macro Inefficiencies    
Adjustment Costs Are Not Always Insignificant    
Dynamic Inefficiency  
Why Trade Usually Aggravates Global Inequality    
Unfair Distribution of the Benefits of Trade between Countries    
Unfair Distribution of the Costs and Benefits of Trade within Countries  
Why International Investment Could Increase Global Efficiency  
Why International Investment Often Decreases Global Efficiency  
Why International Investment Usually Aggravates Global Inequality  
Open Economy Macroeconomics    
International Currency Markets    
Aggregate Supply and Demand in the Open Economy Model    
Income Expenditure Multipliers in the Open Economy Model    
Capital Flows in the Open Economy Model  
Monetary Unions and the Eurozone
9
Macroeconomic Models  
Model 9.1: Finance    
Bank Runs    
International Financial Crises    
Conclusion  
Model 9.2: Finance in Real Corn Economies    
Banks in a Domestic Corn Model    
Autarky    
Imperfect Lending without Banks    
Lending with Banks When All Goes Well    
Lending with Banks When All Does Not Go Well    
International Finance in a Global Corn Economy Revisited  
Model 9.3: Macroeconomic Policy in a Closed Economy  
Model 9.4: Macroeconomic Policy in an Open Economy    
An IMF Conditionality Agreement with Brazil    
EC Austerity Policy and Greece  
Model 9.5: A Political Economy Growth Model    
The General Framework    
A Keynesian Theory of Investment    
A Marxian Theory of Wage Determination    
Solving the Model    
An Increase in Capitalists’ Propensity to Save    
An Increase in Capitalists’ Propensity to Invest    
An Increase in Workers’ Bargaining Power    
Wage-Led Growth
10
What Is to Be Undone? The Economics of Competition and Greed  
Myth 1: Free Enterprise Equals Economic Freedom  
Myth 2: Free Enterprise Promotes Political Freedom  
Myth 3: Free Enterprise Is Efficient    
Biased Price Signals    
Conflict Theory of the Firm  
Myth 4: Free Enterprise Reduces Discrimination  
Myth 5: Free Enterprise Is Fair  
Myth 6: Markets Equal Economic Freedom  
Myth 7: Markets Are Fair  
Myth 8: Markets Are Efficient  
What Went Wrong?  
Neoliberal Capitalism in Crisis
11
What Is to Be Done? The Economics of Equitable Cooperation  
Not All Capitalisms Are Created Equal    
Keynesian Reforms    
Taming Finance    
Reducing Economic Injustice  
Beyond Capitalism    
Worker and Consumer Empowerment    
Worker-Owned Cooperatives    
Market Socialism    
Democratic Planning    
Participatory Economics    
From Here to There    
The Future Economy    
Conclusion  
A Green New Deal  
Index
List of Illustrations 1.1 Human Center and Institutional Boundary 1.2 Four Spheres of Social Life 2.1 Gini Coefficients for US Household Income 1947–2012 2.2 Real Average Hourly Compensation and Productivity Growth 2000–2013 2.3 The Efficiency Criterion 2.4 Human Society as Part of a Natural Ecosystem 4.1 Supply and Demand 4.2 Inefficiencies in the Automobile Market 5.1 Price of Power Game 5.2 Transformed Price of Power Game
Preface to the Revised and Expanded Edition
This revised and expanded edition of The ABCs of Political Economy: A Modern Approach is dedicated to the memory of Pete Seeger who died at the age of 94 on January 27, 2014 when I was finalizing the new edition. Through song and good cheer Pete Seeger helped five generations of Americans use the goodness within us to fight against injustice in all its forms – from the labor movement of the 1930s and 1940s, to the civil rights, anti-war, and women’s movements of the 1960s and 1970s, to the environmental and global justice movements of the 1980s, and beyond. Pete Seeger, Presente! You are already missed by me and my children.
The ABCs of Political Economy was first published in 2002. Since then we have experienced the most tumultuous economic events in four generations. Whereas the spread of neoliberal globalization that took off after 1980 created severe crises in many less developed economies, the more advanced economies were relatively immune from crisis until 2008. However, the financial crisis of 2008, which triggered the Great Recession and continuing stagnation, has shaken the developed economies more than any events since the Great Depression of the 1930s. So there is much new for this new edition of a political economy primer to address.
Fortunately, The ABCs of Political Economy was intended to provide readers with analytical tools they can use to evaluate important economic issues for themselves, rather than provide my own critical analysis of current events. And fortunately, many of the tools developed turn out