Crisis and Inequality. Mattias Vermeiren

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СКАЧАТЬ increase in medium wages reflects the growth rate of output (GDP), the relationship r > g basically means that the annual growth of the capital income of the medium capital owner will be higher than the annual growth of the wage income of the medium worker. However, the relationship r > g is not a natural or deterministic feature of the capitalist economy but is deeply influenced by public policies, institutions and regulations. As we will see in the next section, a political economy perspective deviates fundamentally from a neoclassical interpretation by making the analysis of these policies, institutions and regulations central to the explanation of past and future patterns of income and wealth inequality.

Neoclassical interpretations of rising inequality in advanced capitalism

      Two interlinked explanations are usually put forward by neoclassical economists to explain the re-widening of income gaps. The prevailing interpretation is SBTC: innovation in technology, especially the increasing use of computers, has increased demand for skilled labour relative to that for unskilled labour, and hence pushed up the wages of highly educated employees with university degrees relative to those of poorly educated workers who merely have high school diplomas (or less). This explanation is first and foremost based on the neoclassical view that a worker’s wage should be equal to the marginal product of labour – that is, his or her individual contribution to the output and profitability of the firm he or she works for. In this regard, high-skilled workers are believed to be more productive than low-skilled workers, who have a lower marginal product of labour and therefore should be paid less by their firm.

The other dimension of the SBTC interpretation is that a worker’s marginal product of labour depends not only on his or her skills but also on the supply and demand for these skills in the labour market – that is, the market where employers and workers interact as, respectively, buyers and sellers of labour. Although SBTC created more demand for high-skilled labour like engineers and software developers, the educational system failed to generate enough ‘supply’ of high-skilled labour. In some countries, like the United States, ‘educational progress’ – that is, the degree to which children attain levels of education higher than those of their parents – has even come to a standstill since the 1980s. Claudia Goldin and Lawrence Katz’s book The Race Between Technology and Education (2008) is the key reference text for this interpretation of rising income inequality in the advanced capitalist world:

      During the first three-quarters of the twentieth century, the rising supply of educated workers outstripped the increased demand caused by technological advances. Higher real incomes were accompanied by lower inequality. But during the last two decades of the century the reverse was the case and there was sharply rising inequality. Put another way, in the first half of the century, education raced ahead of technology, but later in the century, technology raced ahead of educational gains.⁸

      The neoclassical theory of SBTC is a clear attempt to explain the rise in income inequality by way of ‘market forces’ that are regulated by the ‘law of supply and demand’: if demand for a specific good (in this case, skilled labour) increases for any given supply of that good, the price of that good (in this case, the wage of skilled workers) will increase. The alleged efficiency of the ‘price mechanism’ to balance supply and demand in markets for goods and services (in this case, labour markets) is one of the key principles of neoclassical economics (box 1.2).

Box 1.2 The market price mechanism

      Figure 1.8 presents a simple illustration of how the market price of a good or service is determined by the relationship between supply and demand. Demand is indicated by the downward-sloping curve, representing the phenomenon whereby a falling price of a good or service leads to a greater willingness among consumers to buy more of that good or service: if the price of a good increases, consumers will buy less of the good and purchase alternatives; if the price of a good drops, they will consume more of it. Supply is indicated by the upward-sloping curve, reflecting the phenomenon whereby rising prices make it more attractive and profitable for firms to increase their production: if the price of a good increases, producers of the good will produce and try to sell more (not because they like the consumers, but because they can make more profit); lower prices discourage supply because firms will make less profit. In a free market there will be a single price which brings demand and supply into balance, called the equilibrium price. The equilibrium price is also called the market clearing price, because it is the price at which the exact quantity that producers supply to market will be bought by consumers. This is efficient because there is neither an excess of supply and wasted output, nor a shortage – the market clears efficiently.

Figure 1.8 The market price mechanism

In figure 1.8 the market will be in equilibrium at a price of 60. At this price the demand equals the supply, and the market will clear: a quantity of 500 units will be offered for sale at 60 and 500 units will be bought – there will be no excess demand or supply at this price. Market prices have a key signalling function, as changes in prices provide information to producers and consumers about changes in market conditions. If prices are rising because of high demand from consumers, this is a signal to suppliers to expand production to meet the higher demand; if there is excess supply in the market, the price mechanism will help to eliminate a surplus of a good by allowing the market price to fall.⁹

      In order to allow markets to clear efficiently, one important condition needs to be in place: free competition. According to neoclassical economists, the most effective ‘regulator’ of firms is competition in the free market system, which forces firms to produce goods and services that are demanded by consumers and sell these goods and services only at the price that consumers are willing to pay for them. Suppose in the above example that a producer wants to make an excess profit by asking a higher price than the equilibrium price of 60. If there is free competition, the producer will be unable to sell his goods as consumers can always buy the same good from another producer at the lower equilibrium price: if a producer raises his price above the equilibrium price to gain extra profits, competitors will step in and undersell him. Even if many producers unite and agree to charge an unduly high price, the collusive coalition will be broken by new firms entering the market: if there is free competition, the excessively high price will be a signal to entrepreneurs that it will be highly profitable to manufacture the good and steal the market from the colluding firms by underselling their price. Due to the entry of new competitors in the market, the price will return to the equilibrium price.

      Another presumed benefit of free markets and the price mechanism, according to neoclassical economists, is that demand and supply adjust to external shocks until a new market equilibrium has been reached. Because free markets are believed to be self-adjusting, they work best without excessive government intervention. As Robert Heilbroner summarizes the self-adjusting and self-regulating nature of markets in his widely acclaimed book The Worldly Philosophers (1953):¹⁰

The beautiful consequence of the market is that it is its own guardian. If output or prices stray away from their socially ordained levels, forces are set into motion to bring them back to the fold. It is a curious paradox that thus ensues: the market, which is the acme of individual economic freedom, is the strictest taskmaster of all. One may appeal the ruling of a planning board or win the dispensation of a minister; but there is no appeal, no dispensation, from the anonymous pressures of the market mechanism.

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