Tuesday, January 5, 2016

Re: The Closed Marketplace of Economic Ideas - Federico Fubi

 " ... you might wonder what to make of Robert Lucas’s view that rational expectations enable perfectly calculating “agents” to maximize economic utility."

Not totally on topic but, the rational expectations thing triggers this response from me: Economists as a whole (including too many progressives?) fail to appreciate what can truly be likened (explanation below) to a "black hole" of monopsony that the vast majority of American "economic agents" (a.k.a., employees) are (doubly) sucked into, unable to escape.

A black holes works on a vicious circle of increasing mass which in turn increases gravitational acceleration which in turn increases mass -- it all starts when a neutron star creates gravitational acceleration at a fraction of the speed of light that is able to increases its mass.

Simpler labor market explanation: one buyer (an employer) unopposed by one monopoly (a collective bargaining unit) pays subsistence-plus wages: subsistence plus an increment or increments more depending on added increments of value to be gained from labor -- to be sold as cheaply as possible to the (ultimate) consumer. Unorganized labor for its part cannot escape whatever such wage scale employers lay out without LITERALLY starving to death. Wheels within wheels of monopsony.

To round out the picture: the check on the balance of monopoly v. monopsony should be the (ultimate) consumer of the mutually produced product. First balance off the power to trap and hold labor (which accounts for the vast majority of "economic agents") -- then rational expectations theory might better represent reality.

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