Saturday, February 26, 2011

Why should students put up with textbook nonsense about labour unions?

The heating up of the class war in Wisconsin (nicely described by Paul Krugman in his recent NY Times commentaries and that generated this great spoof phone call from the Buffalo Beast that outed "Koch whore" Gov. Scott Walker) prompts a brief comment about the textbooks' treatment of labour unions.

 Protesters in Cairo Madison

[Photos from The Chicago Tribune]

   As we wrote in The Economics Anti-Textbook, "unions get a 'bad press' in mainstream economics textbooks" (p.173). This is partly because the default model of the labour market is the usual one of perfect competition, so employers have absolutely no market power over the wage. When a labour union is introduced into such a setting, it appears as a source of unopposed monopoly power and students have been already been persuaded of the evils of monopoly in their study of product markets.
   As Michael Parkin and Robin Bade write in their 2006 Canadian edition of Microeconomics, "Just as a monopoly producer can restrict output and raise price, so a monopoly resource owner can restrict supply and raise the price of the resource. Labour unions are the main source of market power in the labour market." (p.413). No evidence is provided for this assertion, naturally; I can't really imagine how this could be measured in any reliable way, but it clearly neglects the simple fact of pervasive employer power in actual labour markets. [For details, see the Anti-Textbook, p.187]
   Unlike some texts, Parkin and Bade do discuss a monopsony model, in which the employer has market power, although (as with almost all texts that mention this model), they marginalize it by defining it in a very narrow way: "a market in which there is a single buyer", a market type that "is unusual, but it does exist" (p.416). They go on to present a brief discussion of monopsony and unions. They write: "If the union (monopoly seller) faces a monopsony buyer, the situation is called bilateral monopoly. In bilateral monopoly, the wage rate is determined by bargaining." (p.417).
   But wait! Students who are alert and thinking for themselves could realize that wage determination by collective bargaining is not "unusual" at all. So employers' market power over the wage must not be unusual either. Perhaps, such students might conclude, unions are just exerting 'countervailing power' -- to use the term coined by the most famous Canadian-born economist, John Kenneth Galbraith, whose name does not appear in Parkin and Bade's book.

John Kenneth Galbraith, at home in Cambridge in 1995. (The Boston Globe/ File)

   Parkin and Bade's treatment of labour unions looks good in comparison to Mankiw, Kneebone, McKenzie and Rowe's Principles of Microeconomics (3rd Canadian edition, 2006) where labour unions get mentioned in only a single paragraph in a 500 page book. That explains only that unions can achieve "above-equilibrium" wages through the threat of a strike. Monopsony and employer power over the wage are concepts omitted from the book.
   I suspect that it will be the rare student who escapes the subtle (or not so subtle) indoctrination here that labour unions are not socially desirable. Not all books, however, are this bad.
   For example: Frank, Bernanke, Osberg, Cross and MacLean's Principles of Microeconomics (3rd Canadian Edition, 2009) has a detailed yet concise description of the actual effects of labour unions, concluding that "studies suggest that union productivity may be sufficiently high to compensate for the premium in union wages. So even though wages are higher in unionized firms, these firms may not have significantly higher labour costs per unit of output than their non-unionized counterparts." (p.373).
    In their Microeconomics in Context (First US Edition, 2005), Goodwin, Nelson, Ackerman and Weisskopf not only discuss monopsony and bilateral monopoly, but they write: "More common are cases of oligopoly and/or oligopsony (few buyers) in labor markets. In many labor markets the employers, employees, or both have some amount of market power, and their relative power is important in predicting outcomes." (p.314).
   These few examples suggest that there are significant differences in the textbooks' treatment of the nature of labour unions and their economic effects. Now how can the situation for students be improved?
   The simplistic story of consumer sovereignty -- where producers just produce what the consumer wants -- does not work here. The consumers are the students, not the professors who (believing themselves benevolent dictators) choose their texts. But the dictatorship of the professoriate is not necessarily a benevolent one.
   Dissenting students really have two choices: exit or voice. With exit, they give up on economics courses and study other subjects. With voice, they complain and try to make things better. Up until now, I suspect that 'exit' has been the option of choice. It's easier and requires no organization, but it does little to improve the situation and those students who exit miss out on the real benefits of studying economics.
   The process of much mainstream economics training from first year to PhD has too much in common with being drawn step by step into a strange cult. At first, it all seems innocuous enough, but then it gets progressively weirder (with more and more people dropping out) until those left at the end find themselves seeing the world in a way that seems like lunacy to those outside the cult. ("A dynamic stochastic general equilibrium model of the macroeconomy? Makes sense to me!")
   One of the reasons we wrote The Economics Anti-Textbook was to help students to see the kind of subtle indoctrination they were being subjected to by the typical mainstream introductory text and to protect themselves against it. But they can also use it for 'voice', to challenge their professors' choice of text.


Tuesday, February 22, 2011

Another glimpse into the system of global plunder

As an addendum to my earlier post on the Mubarak billions, here's a report in today's Guardian on the possible billions squirreled away by Libyan tyrant Muammar Gaddafi and his hideous spawn. 

Fellow billionaires?
[Photo from a Guardian photo retrospective on Gaddafi's career]

  For me, this was just another reminder of the true nature of the system of global finance and banking that helps to facilitate the plunder of countries, whether by dictators like Gaddafi, Mubarak, Suharto, Mobutu, Somoza, Marcos, the Sultan of Brunei, the Saudi kings (and so on), or the corrupt elites in countries like Kenya or Nigeria, or indeed the corrupt elites in the 'developed' countries who use the system of 'offshore' banking and tax havens to escape taxes.


Saturday, February 19, 2011

How is Climate Change Treated in the Economics Textbooks?

In The Economics Anti-Textbook, we wrote that "even by the mid-2000s, almost twenty years after the issue rose to prominence, many textbooks barely mentioned the subject [of climate change] and those that did tucked it away at the back of the book." (p.155) We surveyed nine texts published between 2005 and 2008. It was discouraging to see that only three of the texts contained some factual evidence about climate change.
   To try to kill the market for used texts, textbook publishers crank out new editions every three years or so. The changes are often superficial, but regular reviews are required to see what the texts are currently saying about important topics. I intend to use this blog to do that sort of thing myself, but I'll also report on the work of others if I can.
  So I was interested to see that Yoram Bauman, famous as the first economist to try standup comedy with an economics theme, has recently written a review of the most recent editions of leading American introductory texts called Grading Economics Textbooks on Climate Change. (You can see his notice about it on his blog here and the full document here. For a video of his standup routine on the principles of economics, see this on his YouTube channel.)

[This simulation from NASA.]

    The texts' treatment of climate change is no laughing matter. The topic is an important one and, according to Dr. Bauman, some of the books do a good job, and some are bad to downright awful. It would be interesting to see if those failing to make the grade on this topic also show consistent failings on other hot-button ideologically-sensitive topics as well. For example, do they feature one-sided discussions of minimum wages or labour unions or trade liberalization, for instance?


Saturday, February 12, 2011

Time out for a salute to the people of Egypt

As the Revolution of 25 January unfolded in Egypt, the Canadian government's statements failed to reflect what most Canadians surely felt. On 11 February, just before the dictator gave up, Prime Minister Harper had this to say according to a citytv report:
"We are all seeing what's happening," Harper told a news conference in St. John's, N.L., moments before it was confirmed that Mubarak had handed power to the military. "Transition is taking place in Egypt.
"I think the old expression is: 'They're not going to put the toothpaste back in the tube on this one.'"
Harper said Canada would like those in power in Egypt to lead change.
"Get in front of it," he added. "Be part of it, and make a bright future happen for the people of Egypt."
As a former Canadian Ambassador to Egypt said this morning on CBC Radio, Harper's toothpaste comment clearly reflected his regret that the Mubarak regime had been squirted out of the tube and couldn't be put back in its old form. The second-best outcome, then, as expressed above, is that the old dictator "lead change" and "get in front of it". Laughable, if it were not so embarrassing. 
  Then, hours later, after Mubarak resigned, the statement from Harper's office began:  "Canada respects President Mubarak’s decision to step down in order to promote peace and stability in the country" -- as if Mubarak were motivated by noble intentions. A truly pathetic performance, but hardly surprising from a Prime Minister for whom the reactionaries in charge of the Israeli government can do no wrong.

The view from a satellite: Tahrir Square, 11 February 2011

and that evening, after the collapse of the regime:


Here is a link to Egypt Remembers, a site being assembled with with the names and photos of those killed during the revolution based on the on-going work of Human Rights Watch. The victims include some of Cairo's 50,000 street children, as my favourite reporter, Robert Fisk, documents in The Independent on Sunday.

Talks Posted by The Institute for New Economic Thinking

Thanks to the blog Memoirs of an Economics Student for posting a talk by Duncan Foley given at a conference organized by The Institute for New Economic Thinking (INET). That led me to their YouTube channel and a rich collection of high-quality talks from the INET's first conference at King's College, Cambridge. Some of them are quite technical, but here is an accessible talk by Joseph Stiglitz on "An Agenda for Reforming Economic Theory".

With another conference coming up in April in Bretton Woods, New Hampshire, there will be more to watch soon.


Tuesday, February 8, 2011

"...injustice ... is no perversion of the system, it is the system."

My nominee for quote of the day is from George Monbiot's column in today's Guardian that exposes the UK government's plan for a very big corporate income tax reduction at the same time as it plans big budget cuts:
Reading Treasure Islands, I have realised that injustice of the kind described in this column is no perversion of the system; it is the system.
Monbiot's columns are a great combination of facts, analysis, and what Ralph Nader calls the state of "controlled indignation" in the face of injustice that everyone should have. 

George Monbiot

To see an assessment of the analysis, see tax expert Richard Murphy's comments on Monbiot's column in his interesting blog at Tax Research UK.


PS: For a footnoted version of Monbiot's column, see his blog, also linked on this page.

Monday, February 7, 2011

Thought-provoking books about economics

Global Foresight Books provides an interesting list of books about economics and economic issues. Some are modern classics, some are obscure. I found some things for my 'to read' list and perhaps you will too.


Saturday, February 5, 2011

Why doesn't Forbes publish the real list of the world's richest people?

  A report in The Guardian yesterday entitled "Mubarak family fortune could reach $70 bn, say experts" should not have been surprising -- after all, decades spent looting a big country like Egypt could plausibly produce sums like the $40-70bn mentioned in the article. Apparently dictators in the nearby Gulf states have amassed similar sums for themselves and their families while 'serving' as heads of state.
  Still, I did experience some surprise as I saw the astronomical figure in print. If true, it would make Mubarak and his two sons likely richer than Carlos Slim Helu, officially crowned last year as the "World's Richest Man" by Forbes Magazine with about $54 bn.
  The Forbes list, widely reported by a fawning corporate media, purports to offer a list of the world's richest people, but it does no such thing. You will look in vain in the list for Mubarak and his spawn. Thea list is offered for public consumption for propaganda purposes. The names selected are clearly intended to give the impression that the vast fortunes accumulated by these people are legitimate, largely the products of hard work, inventions, entrepreneurship and clever decisions. (For many of the names on the list, such an impression would not survive a few minutes of research given the extent of crony capitalism and corruption, but I won't digress...)
  Absent from the phony Forbes list are the names of the looting 'kings', 'princes', 'sultans' and other dictators (and ex-dictators) with their billions. Once, I vaguely remember, the Forbes list at least contained a footnote mentioning that heads of state and suchlike were omitted, but I can't even find that fine print now. (Here is a brief statement of their 'methodology'.) The only exception I can see is Prince Alwaleed Bin Talal Al Saud, of Saudi Arabia, nephew of the current king, whose billions are laughably described as "self-made".
   The reason for the self-censored list is obvious. It's not just that the amount they've stolen or otherwise acquired through their kleptocratic rule is hard to estimate with any precision. Putting a crowd of these unsavory types at the head of the list and sprinkling them down through it would seriously undermine the cult of Wealth Worship that is supported by the Forbes list and the echo chamber that surrounds it.
   Worse still, it might prompt questions about the role of American, British, Swiss and other banks in the thievery and corporate corruption that feeds these fortunes as well as the policies of 'Western' governments that (at best) turn a blind eye to it all, and, at worst, connive in it. That wouldn't do at all.


Postscript (24 Feb.)
When Mubarak finally was shown the door I saw a report in The Telegraph in which anonymous "Western intelligence sources" were quoted as claiming that he used his final days in office to "place his assets beyond the reach of potential investigators". "If he had real money in Zurich, it may be gone by now", says their source. When the Swiss government moved to freeze his assets, it was merely closing the barn door after the horse had departed, as they surely knew. Now they've just done the same for Gaddafi's funds.
  It's clear that governments turn a blind eye when it suits them (that is, most of the time). But reports like this in The Telegraph also suggest that governments also know fairly well what's going on in the supposedly secret world of banking services being supplied to looters like the Mubaraks.

Friday, February 4, 2011

"... we have to democratise our own societies..."

While everyone watches to see whether Egyptians will be able to achieve some real democratic opening in the face of the U.S. and 'Western'-backed military regime, this excellent column in The Independent by Johann Hari ("We all helped suppress the Egyptians. So how do we change?", 4 Feb.) points out that we need more democracy at home. It's an easy point to miss if you've been properly indoctrinated by our education system.

In happier days

  The power of business and elite interests in shaping foreign and domestic policy is systematically swept under the rug in the training of economics students. So it should come as a shock to read Mr Hari's quote of a former Labour MP saying (approvingly!) that "public opinion does not influence foreign policy in Britain. Foreign policy is an elite issue." (I think the same thing could be said about the United States and Canada and many other places.) As Mr Hari puts it, foreign policy "is formulated in the interests of big business and their demand for access to resources, and influential sectional interest groups." He concludes
It doesn't have to be like this. We could make our governments as moral as we, the British people, are in our everyday lives. We could stop them trampling on the weak, and fattening thugs. But to achieve it, we have to democratise our own societies and claim control of our foreign policy. 
   It would not only be control of foreign policy, either. As we write in The Economics Anti-Textbook, "How governments behave depends on the strength of the country's democracy. Where democracy is weak and the power of big business is strong, governments can be expected often to act against the interests of the vast majority of the population."