Thursday, June 27, 2013

candid LARRY candid PAUL

first paul

I started out in professional life as
a maker of shrubberiesan economic modeler, specializing — like my mentor Rudi Dornbusch — in cute little models that one hoped yielded surprising insights. And although these days I’m an ink-stained wretch, writing large amounts for a broader public, I still don’t feel comfortable pontificating on an issue unless I have a little model tucked away in my back pocket.
So there’s a model — or, actually, a sketch of a model, because I haven’t ground through all the algebra — lurking behind today’s column. That sketch may be found after the jump. Warning: while this will look trivial to anyone who’s been through grad school, it may read like gibberish to anyone else.

OK, imagine an economy in which two factors of production, labor and capital, are combined via a Cobb-Douglas production function to produce a general input that, in turn, can be used to produce a large variety of differentiated products. We let a be the labor share in that production function.
The differentiated products, in turn, enter into utility symmetrically with a constant elasticity of substitution function, a la Dixit-Stiglitz (pdf); however, I assume that there are constant returns, with no set-up cost. Let e be the elasticity of substitution; it’s a familiar result that in that case, and once again assuming that the number of differentiated products is large, e is the elasticity of demand for any individual product.
Now consider two possible market structures. In one, there is perfect competition. In the other, each differentiated product is produced by a single monopolist. It’s possible, but annoying, to consider intermediate cases in which some but not all of the differentiated products are monopolized; I haven’t done the algebra, but it’s obvious that as the fraction of monopolized products rises, the overall result will move away from the first case and toward the second.
So, with perfect competition, labor receives a share a of income, capital a share 1-a, end of story.
If products are monopolized, however, each monopolist will charge a price that is a markup on marginal cost that depends on the elasticity of demand. A bit of crunching, and you’ll find that the labor share falls to a(1-1/e).
But who gains the income diverted from labor? Not capital — not really. Instead, it’s monopoly rents. In fact, the rental rate on capital — the amount someone who is trying to lease the use of capital to one of those monopolists receives — actually falls, by the same proportion as the real wage rate.
In national income accounts, of course, we don’t get to see pure capital rentals; we see profits, which combine capital rents and monopoly rents. So what we would see is rising profits and falling wages. However, the rental rate on capital, and presumably the rate of return on investment, would actually fall.
What you have to imagine, then, is that some factor or combination of factors — a change in the intellectual property regime, the rise of too-big-to-fail financial institutions, a general shift toward winner-take-all markets in which network externalities give first movers a big advantage, etc. — has moved us from something like version I to version II, raising the profit share while actually reducing returns to both capital and labor.
Am I sure that this is the right story? No, of course not. But something is clearly going on, and I don’t think simple capital bias in technology is enough."

brad on larry S

"In Larry's setup, IIRC, there was an (a) low-skilled competitive sector with constant returns to scale and undifferentiated products, and (b) a sector with monopolistic competition and increasing returns to scale, half of which (b1) could employ unskilled labor (finance, marketing, brands, etc.) and in which the owners of the intellectual property reaped the surplus, and half of which (b2) needed to employ skilled, unionized labor, which reaped the surplus. The coming of globalization then eliminated the market power of (b2) and shifted that sector of the economy into (a), leaving us with our more unequal, globalized economy of today…
Although related to Paul Samuelson's 2004 JEP paper: Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization, it was different in that Samuelson just had EME development of the technology to make manufactured exports lower the equilibrium real wage in America, while the idea was to capture not just that but a host of other phenomena as well."

As Paul points out, such a setup holds the possibility of explaining not just (c ) a rise in inequality, (d) an extraordinary growth in the share of firms that have no visible support in production, (e) falling unionization, and (f) falling median wages, but also (g) high average Q but also (h) low marginal Q, hence depressed investment."

breaking thew si;ence with a pk quote on MM mummers

"reminder to the “market monetarists”, who think that they can be good conservatives while advocating aggressive monetary expansion to fight a depressed economy: sorry, but you have no political home. In fact, not only aren’t you making any headway with the politicians, even mainstream conservative economists like Taylor and Feldstein are finding ways to advocate tighter money despite low inflation and high unemployment. And if reality hasn’t dented this dingbat orthodoxy yet, it never will."

Thursday, June 13, 2013

Firmacidal maniacs

"For structural reform, Japan would need a huge blast of "creative destruction". Zombies and family businesses would need to die en masse, and healthy, independently run companies would need to emerge. The U.S. got that kind of blast in the 1980s, but Japan is unlikely to slash regulation, open up trade, and let the corporate raiders into the henhouse. The equilibrium of entrenched political interests is too strong. "

kill!!! kill!!!! kill !!!!

"Only a big external shock is likely to be able to cause the kind of destruction needed to clear away Japan's economic ancien regime"
." A default would do the trick. Banks would go bamkrupt and be nationalized, and they would be forced to cut off zombies, which would then die en masse. If Japan's history is any guide, a huge burst of entrepreneurship would probably follow this die-off; witness the emergence of Sony and Honda after the shock of WW2."
noah opinion
the rule of red and black 
get into the red too far or  ..too long
and "the system"  must kill you
really noah ?
as in
why  not
  pull a simple change of suits in the executive suite ?
default and bankrupcy as license to kill .....hmmmm

More sublating the debt standard ...the P/R poser

Systemically necessary but non productive activity .....think about arbitrage could we fully socialize it's " rewards" ?

Tuesday, June 4, 2013

Rawls veil of ignorance and eternal damnation

Just stating that " poser" Suggests the bleed out of utilitarianism Sin and punishment system ? Design it before knowing your self and your future actions And then platonic forgetfulness System of bluffing by the system ? Only after death do you discover salvation is universal During life several speculations contend

Sublating the debt standard

We have sublated the gold standard in our credit systems Let us push on self consciously toward the system of risk baring by the whole people Why use existing firm debt as the standard for future credit lines ? Imagine a firm defaults all it's officers are fired and replaced What more can be expected by retaining the existing debt saddle ? Yes the fired management team needs to get clobbered Blood from a stone ? Recall escrowed compensation system What about the creditors ? Again if this is players with other peoples money once removed They get clawed too Direct creditor hu caps ? Prolly a insignificant fragment Debt is part of keeping score Once incentives of agents reflect the score 'nough said and done