[Review] Flassbeck, Heiner - Fundamentals of Relevant Economics

Siehe auch:
[Rezension] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - Nieder mit der Neoklassik

Heiner Flassbeck is an economist from Germany. The economist born on December 12, 1950 was among other things State Secretary in the Federal Ministry of Finance under Oskar Lafontaine (SPD) from 1998 to 1999. And from January 2003 to the end of 2012 he was Chief Economist (Chief of Macroeconomics and Development) at the United Nations Conference on Trade and Development (UNCTAD). Flassbeck publishes among other things on Makroskop and Relevante Ökonomik in German and on Flassbeck Economic in English.

The book "Fundamentals of Relevant Economics (Grundlagen einer relevanten Ökonomik)" was written together with co-authors Friederike Spiecker, Patrick Kaczmarczyk and Alexander Mosca Spatz. The book is clearly specialist literature in nature but not a pure textbook. Although connections are discussed in detail at the level of specialist articles no absolute fundamentals are conveyed. The quality of the derivations is very high as the arguments are based on empiricism and logic rather than made in a vacuum. This sets the author apart from any ideology despite the topic. The book gains additional importance due to the current recession.

Flassbeck is already a major critic of neoclassical theory or neoclassicism. This time his criticism of neoclassicism runs parallel to his derivations. Various derivations also include a refutation of the corresponding neoclassical theory.

In fact neoclassical economics is an unrealistic doctrine. It applies microeconomic principles to macroeconomics in a virtually permanent and systematic way. Added to this is an unshakable faith in the supposed infallibility of markets.

Examples

The labor market ist not a potato market. Flassbeck establishes that there is no labor market. There is a lack of adherence to the classic rules of supply and demand. For example rising or increased unemployment thus a lack of demand for labor cannot be eliminated with lower wages thus a lower price for labor. Wages are the largest cost for companies and at the same time the largest source of income for other companies. Unemployment is not simply a result of excessively high wages thus excessively high prices for labor. [1, p.224-232]

There is no wage-driven substitution between labor and capital. While higher wages also drive the need for investment to increase productivity this dynamic does not work the other way around. Low wages cannot reduce unemployment because existing technology-/capital-intensive production cannot simply be replaced by low-technology/labor-intensive production. Companies do not simply eliminate machinery and equipment when wages fall in order to increase the demand for employers. Companies would thereby deprive themselves of a competitive advantage and make their previous investments obsolete. There is no substitution of capital for labor driven by wage levels. [1, p.224-232]

International trade is determined by absolute advantages and disadvantages and free trade is not free. According to Flassbeck countries with high costs and low productivity fall behind in free trade and have no advantage. The division of labor between countries which the theory of comparative advantage assumes only occurs under conditions of full employment or when there is no more free production capacity. If full employment prevails or when there is no more free production capacity then, according to Flassbeck companies with absolute advantages could further expand their capacities abroad and further undermine a perceived comparative advantage of competitors. If this condition is not met imbalances in foreign trade arise since the country with the absolute advantage produces both goods. According to Flassbeck the theory of comparative advantage is a suitable excuse for free trade and deliberate mercantilism thus deliberate foreign trade surpluses. [1, p332-343]

Capital markets including cross-border financial markets are never efficient but destabilising. Rising prices are confirmed and driven further by further purchases and falling prices are confirmed and driven further by further sales. Thus these markets function in exactly the opposite way to traditional market dynamics. Just as herding can lead to distortions in capital and financial markets the same can happen with speculation on commodities. Buyers and sellers can protect themselves against excessive price movements to their detriment through hedging. Here commodity buyers buy futures contracts that offer them protection against potentially rising prices. Commodity sellers in turn sell futures contracts that offer them protection against potentially falling prices. Thus both sides simultaneously run the risk of missing out on excessive profits if prices develop to their advantage beyond their hedged prices. [1, p370-376]

Down with the Neoclassical Economics

For Flassbeck neoclassicism is a doomed attempt to combine formal elegance with scientific rigor. Neoclassicism rejects the complexity of an imperfect world. Instead it provides a supposed balancing mechanism for market problems and failures.

In the world of neoclassical economics every problem and every market failure is supposedly counteracted by a compensatory mechanism that fully corrects the problems or market failures. This is therefore a collection of explanations designed to immunize itself against empirical evidence. Neoclassical economics can thus be described as an ideology but it falls short of the claim of being a science. [1, p.373]

Ein Fach, wir müssen es auch an dieser Stelle sagen, das derart selektiv vorgeht, wenn es um die Auseinandersetzung mit der Wirklichkeit geht, kann nicht als Wissenschaft bezeichnet werden.

We must also say at this point that a subject that is so selective when it comes to dealing with reality cannot be called a science. [1, p.373]

On the relevance of criticism

The criticism and especially the arguments against neoclassical economics are highly relevant. Neoclassical economics was the dominant doctrine until the advances in Keynesian economics replaced it. However Keynesian economics was replaced by neoclassical economics in the wake of the oil price shocks of the 1970s and the end of the Bretton Woods system. The advances in knowledge brought about by Keynesian economics are ignored or even denied.

But one can't simply choose to be a supply theorist or a demand theorist. Findings don't simply disappear or become invalid. Nor can one simply deny the findings and effectiveness of Keynesianism from its heydays from 1950 to 1973. Yet this is exactly what is happening. But that's absurd since no one in the natural sciences would think of simply forgetting or repressing Newton's explanation of gravity or the periodic table of elements.

Src:
[1] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - ISBN 978-3-86489-414-5
[2] Makroskop
https://makroskop.eu/
[3] Relevante Ökonomik
https://www.relevante-oekonomik.com/
[4] Flassbeck Economics
https://www.flassbeck-economics.com/

Einfache Standards

Dieses Blog durchsuchen