Friday, January 1, 2021

Schumpeterian competition in wind turbine production

 Good riddance to 2020. An article in today's New York Times stood out for me as a hopeful story to start out the new year: "A Monster Wind Turbine is Upending an Industry". 

The monster in question is General Electric's, produced in a bid to challenge the dominance of Siemens Gamesa Renewable Energy in offshore wind turbines. It is 260m high and the blades are 220m in diameter. Some test versions, pictured below, are on land along the harbour at Rotterdam.

Joseph Schumpeter claimed that understanding the importance of such dynamic competition was critical in understanding how the capitalist system generates new processes and products, something about which the traditional static models have nothing to say. With rare exceptions, the introductory textbooks' discussion of oligopoly focuses on price competition.

While the tone of Schumpeter's discussion was optimistic understandable given that he was writing in the 1940s – it's now by no means clear that monopolies will be relatively short lived in a process of 'creative destruction', as the Big Tech monopolies of today look quite well entrenched. As well, it's now also abundantly clear that oligopolies can compete to produce better useful processes and products as well as harmful ones. (We could have done without the technology to extract bitumen from Alberta's tar sands – excuse me, "oil sands" is the politically correct terminology. The same goes with the development of 'forever chemicals' like PFOA, PFOS that contaminate the bodies of virtually everyone on the planet. And so on.)

But for today, I'm focusing on the positive. At last, it seems that the tide is turning against the fossil fuel industry.

The Microeconomics Anti-Textbook and The Macroeconomics Anti-Textbook: updates

 I delivered the (extensively) revised edition of the Microeconomics Anti-Textbook to the editors at Zed/Bloomsbury in late November. I'm hoping that it will be in print by about the middle of the year, but the editors have not yet given me a timeline.

Tony Myatt, who has been working on the Macroeconomics companion tells me that he is now working on the last chapter so, all going well, it will appear in 2021 too.

Tuesday, September 29, 2020

The Microeconomics Anti-Textbook: a brief update

 I will be submitting the manuscript for the second edition of The Economics Anti-Textbook within a couple of months. As a more accurate reflection of the subject matter, the new book will have the title The Microeconomics Anti-Textbook. The content has been quite extensively revised and updated. The book will have a new postscript examining the (rather dismal) textbook treatment of climate disruption.

Thursday, April 23, 2020

Greed in the Disney boardroom denounced by Ms. Disney

A recent article in The Guardian caught my eye because I am in the midst of revising and updating the part of Chapter 7 in the Anti-Textbook that deals with CEO pay and whether that can be explained by the conventional supply and demand story. It describes the sharply critical views of Abigail Disney (pictured here) who is unimpressed by Disney employees facing mass layoffs while the company shovels $1.5 billion to senior executives and stockholders. (A web search will uncover many more articles about her critique of the "insane" pay given to the current chief executive.)

The article details some of the payments to senior executives. The outgoing CEO was paid 900 times the amount paid to an average Disney employee. The new CEO, according to the report, could receive a bonus of "not less than 300 percent of salary" and a long-term incentive payment of "not less than $15 million". A nice floor to have put under one's earnings no matter how the company performs.

As part of my background work for the book, I have surveyed 10 representative North American introductory microeconomics textbooks on many topics. On this particular topic, eight of the 10 books mentioned the issue of CEO/senior management "compensation". Remarkably, not a single one directly connects issues of corporate governance with CEO pay, despite the prominence of this theme in the academic literature. Not a single one describes how CEO pay is actually determined.

In public corporations, it is typically the job of a compensation committee of the Board of Directors to determine this. As you know, Boards of Directors are there to look out for shareholders interests, at least on paper. For fun, I am going to quote Warren Buffett's views on compensation committees:

"The typical large company has a compensation committee," said Buffett. They don't look for Dobermans on that committee, they look for Chihuahuas." He paused, amid laughter, then added: "Chihuahuas that have been sedated."

I decided that space limitations prevented me from extending the quote further, but the report from Money magazine continued, quoting Buffett's business partner Charlie Munger who added: "I'd rather throw of viper down my shirt front than hire a compensation consultant." (Compensation consultants or people who make their living advising compensation committees about how much the CEO is worth.)

Obviously Buffett and Munger have not read the introductory textbooks that could explain to them the error of their ways.

Or perhaps they have read the nonmainstream introductory textbooks, every one of which discusses the actual issue. I will be quoting from Understanding Capitalism by Samuel Bowles and his co-authors who explain quite clearly the influence that the CEO has over the whole process. (If you are interested in the details, you can still do no better than the 2006 book Pay Without Performance by Lucian Bebchuk and Jesse Fried. Despite some tinkering with the regulations and attempts to improve shareholder say over senior executive pay, the book remains sadly relevant.


Sunday, August 4, 2019

Yet another deadly global externality

Many people are quite rightly worked up these days about what Nicholas Stern called the biggest market failure ever – namely the human decisions that are leading to climate change. Not nearly as many people are worked up about the human decisions that are contributing to another global externality – namely the creation of antibiotic resistant bacteria. I am putting a section about this in the chapter on Externalities in the second edition of the Anti-Textbook.

There is a very nice article on the subject in today's New York Times. It's a case study of the difficulty of dealing with this problem because, at its root, is the usual suspect: profit maximization combined with the hamstringing of governmental regulation by corporate power, in this case the power of the livestock and poultry industries. Yes, I know, relative to the size of the economy as a whole they are a drop in the bucket, and yet (to mix metaphors) the tail wags the dog.

The Times has produced an excellent video that tells the story in just a few minutes. Have a look: