Some have
assured me that mainstream economics is valid because this is not valid neoclassical economics (and mainstream economists know the invalidity of these claims):
"The neoclassical theory of distribution teaches us that a person's earnings depend on his or her productivity." -- Greg Mankiw, "How to Become Rich"
Of course, I am aware of mainstream economists who don't believe what Mankiw says:
"All optima imply marginal conditions in some form. These conditions are part of an overall solution. Neither they nor the quantities involved in them are prior to the overall solution. It reflects badly on economists and their keenness of intellect that this was not always obvious to everyone." -- Christopher Bliss, "Introduction, The Theory of Capital: A Personal Overview", in Capital Theory (edited by C. Bliss, A. Cohen, and G. C. Harcourt), Edward Elgar
"The neoclassical theory of distribution teaches us that a person's earnings depend on his or her productivity."
ReplyDeleteAre you saying that this is a false statement?
Anyway, this was just a throw away sentence essentially unrelated to the broader point.
Marginal productivity theory was debunked in the 1950s. Even leading neoclassical economists admitted that was the case.
ReplyDeleteSo in terms of theory, it has been shown to be circular in nature and admitted as such. Not to mention having such impossible assumptions that it would never apply in practice.
In terms of reality, wages and productivity used to track each other between 1945 and 1980. Since the 1980s, productivity has risen while wages have remained pretty flat. So the notion that earnings depend on productivity has not been true in the USA for over two decades.
The 1980s saw the destruction of the US labour movement. Coincidence?
Iain
It's quite an interesting question whether that is a false statement or not. I think it is false because "teaches" (like "knows") is a success-word - neoclassical distribution theory can *say* that a person's earnings depend on his or her productivity, but it can't *teach* us this, because you can't *teach* (in the relevant sense) something that isn't true.
ReplyDelete(I suppose one could claim that "a person" is meant to be an existential claim that there is at least one person in the world, probably Robinson Crusoe, whose earnings depend on his or her productivity, rather than a universal claim about a generic person, but I would say that anyone who tried this was pushing it).
Nit picking. Anyway, my understanding is that wages didn't become decoupled from productivity until late 1990's, if not the early 2000's. And if you have a single good which can be used for investment or consumption there's no circularity involved. The first statement concerns a much more relevant of a debate to have.
ReplyDeleteI must have been unclear.
ReplyDeleteMainstream economists' understanding of neoclassical theory has evolved. I take it one cannot competently and honestly teach the theory without the corrections developed in the Cambridge Capital Controversy.
I take Christopher Bliss to be an authoritative source of the post-CCC mainstream theory of value and distribution, as seen from the perspective of defenders of neoclassical theory and opponents of Cambridge, UK.
And Bliss is saying that those who think neoclassical theory say what Mankiw says it "teaches" lack "keenness of intellect". (Alex, one of my commentators in a link from the post, uses the word "incompetent" to describe the view that Mankiw is pushing.)
Mankiw's is being stupid not about the macroeconomic trends Iain correctly describes, but about the explanation of individual incomes.
Furthermore, I am not at all sure that even Radek's simplified one-good model would justify Mankiw's stupidity. Mankiw could always ask his colleague Stephen Marglin to explain marginal productivity theory to him, as slowly as Mankiw needs.