Harvard, economists, and inequality
from David Ruccio
Just the other day, I explained to students that, until quite recently, mainstream economists mostly ignored the grotesque levels of economic inequality that have emerged in the United States. Now, the problem of inequality is so glaring, it’s even gotten recognition at Harvard!*
According to Jonathan Schlefer [ht: sb], while mainstream economists are finally paying attention to the trend of increasing inequality that has characterized the United States for the past three decades, they still don’t understand it. They continue to teach and write on the assumption that “markets determine wages, and any social or political tampering just creates inefficiency.” His own alternative view is that
Somehow, minimum wages, personnel departments, union bargaining — social custom, in other words — decide earnings.
Somehow, indeed. For Schlefer, the problem can only be solved by “negotiating more equitable wage structures.” Why? Because, for him, production is simply the place where managers use the existing technology (since “real world managers rarely have any sure idea how to use more capital and less labor, or vice versa”) to produce outputs to be sold on markets.
What Schlefer doesn’t understand, or doesn’t want to understand, is that production is where value is created—and, when one group that produces no value is able to appropriate the extra value created by others, the distribution of income turns out to be unequal. Not because the wage structure is unequal but because, after the wage bargain is struck, a profit is generated that flows to groups other than those who produce it in the first place.
What this means is that abolishing the wages system, not “negotiating more equitable wage structures,” is the only way of effectively solving the problem of inequality in the United States.
*In the Harvard Business Review, mind you, not the Harvard Economics Department.