Saturday, August 31, 2013

Keen on Collusion (2)

In my previous post on monopoly vs perfect competition (Keen on Collusion) I discussed the findings of  Steve Keen's paper Emergent Effective Collusion in an Economy of Perfectly Rational Competitors [PDF] that computer simulations of the so-called Cournot-Nash solution of perfect competition fail to show the results that the theory predicts. Instead of price equaling marginal cost, output and price appear to converge to monopoly-levels even for hundreds of firms. I thought that this result was devastating. After all, the tale of monopoly vs perfect competition is one of the basic tenets of basic economic knowledge that appears in literally every single economics textbook on this planet. That a simple computer simulation disproves it must have hit the economics profession like a bomb shell. Or so I thought.

What I see instead is yawns, bored bloggers writing that this is old stuff, and anyway, so what? The blogger writing at Unlearning Economics says it best: "economic theory is disturbingly aware of its own flaws", which as a consequence turns what they teach into lies. If they know (as they claim they do) that the models they use to rationalize a certain preference (of competition over monopolies) don't actually produce the result they claim, and then even nonchalantly dismiss this fact, how can they not be liars if they continue to preach the very same gospel?

Tuesday, August 27, 2013

Keen on Collusion

I'm reading Steve Keen's Debunking Economics for the second time, and I'm stuck in the chapter where he debunks the notion that — compared to a monopoly — under perfect competition you get higher quantities at lower prices. I've checked various texts on the subject on the Internet, and this appears to be the gospel taught to countless students of economics. I'm a bit set back after several people (Paul Anglin, Minseong Louis Kim, Christopher Auld, among them) had found errors in the math and thus appear to have debunked Keen on this matter. While I can (just about) follow the math and their arguments in favour of the Holy Gospel, there remains a significant problem: Keen wrote a computer simulation of the "mechanics" of competition, and he found that even with thousands of firms output and price appear to converge to monopoly levels. Not that economists (of all people...) are incapable of committing rather stupid and embarrassing programming mistakes, but the rules of competition are simple enough that a simple program can be written in about an hour or so (I did).

What I found interesting is that I had to search for several hours until I found an explanation of competition that didn't appear to offer separate rules for a monopolist and for perfect competition. Of course, you can win any argument if you get to massage the rules such that one of them says "I'm right, whatever I say". I wanted a smooth function of N (the number of firms) that yields a monopoly situation if N=1, and perfect competition if N→∞. The function exists and is the one that Prof. Auld uses to debunk Keen. It's the Cournot-Nash solution of the equilibrium output under perfect competition. Except, it isn't: when simulated in software the so called equilibrium output is the same for any N > 0, with quantity and price being at monopoly-level.

The problem with this solution and also the Marshallian equilibrium (or whatever it's called) is the claim that firms have total knowledge about the quantities produced by all firms (and consequently the price they can expect when selling their warez):
Each firm takes the quantity set by its competitors as a given, evaluates its residual demand, and then behaves as a monopoly. [Wikipedia page on Cournot competition]
Keen states that this assumption is unrealistic (and his computer simulation doesn't rely on it), and, indeed, this is a strange requirement. Where would this information come from? The firms certainly don't tell one another — this would constitute collusion, wouldn't it, and the whole point of perfect competition is  the absence of collusion after all. Indeed so much so that a situation with monopoly-level prices under competition is routinely called "collusion" (see the title of Keen's paper: Emergent Effective Collusion in an Economy of Perfectly Rational Competitors [PDF]). But expecting them to share this private information about their production quota is even more absurd, when you consider that firms are profit maximizers, and by not-telling they can achieve higher i.e. monopoly-level profit margins as shown by Keen's computer simulation.

So it appears that to rationalize a certain desired result, namely that perfect competition is preferable to a monopoly, economic theory assumes a condition which is not only absurd on the surface (firms telling each other about their production plans) but also inconsistent with their being profit-maximizers (because sharing this information actually reduces profits in the simulation). That such simulations can lead to the "collusive" rather than the Cournot-Nash equilibrium happens to be a known fact (see this comment on the Worthwhile Canadian Initiative post on Keen), but I doubt that students of economics will ever get to hear of it. Incidentally, calling the undesired outcome with the loaded term "collusive", when its cause is actually the opposite: the removal the collusive assumption in the simulation, is rather brazen. But then, "Hitler-pricing" would presumably be over the top even for economists.

Sunday, August 4, 2013

Geheimplan zum Verkauf der Demokratie an Wirtschaftsinteressen

Der Titel scheint vielleicht etwas reisserisch, aber tatsächlich täuscht er nur in einem Punkt: die Demokratie wird nicht verkauft sondern verschenkt. Der Geheimplan ist das Trans-Pacific Partnership Agreement (TPP), das gerade unter absoluter Geheimhaltung zwischen den USA und 11 Pazifik-Anliegerstaaten verhandelt wird, und von dem die Öffentlichkeit erst erfahren hat, nachdem einzelne Kapitel der Vereinbarung durch Lecks ans Licht gekommen sind. Sogar der US-Senator Ron Wyden, Vorsitzender der Handelskommission im US-Senat, jenes Gremium also, das Rechtssprechung über diese Art Verträge hat, hat keinen Zugang zum Text der Vereinbarung. Ron Wyden sitzt in der Sicherheitskommission des US-Senats und darf Baupläne von Nuklearsprengkörpern einsehen, aber nicht den Text der TPP-Vereinbarung!

Hier ein kurzes Video, in welchem Lori Wallach, Direktorin des Public Citizen's Global Trade Watch die Vereinbarung auf Democracy Now! erklärt:

Weitere Informationen und Kapitel der Vereinbarung: Newly Leaked TPP Investment Chapter Contains Special Rights for Corporations.

Vielleicht erinnern sich einzelne Leser an das 1998 nach heftigen Protesten der Öffentlichkeit abgebrochene Multilateral Agreement on Investment (MAI). Es scheint, dass unsere Corporate Overlords nicht aufgeben und immer neue solche Vereinbarungen lancieren werden, bis sie eine Welt erschaffen haben, in der die 1% uns alle bis auf die bleichen Knochen ausbeuten können. Man soll sich auch nicht von der Tatsache einlullen lassen, dass es sich um eine "Trans-Pazifische" Vereinbarung handelt. Solche Verträge gelten erfahrungsgemäss als Blaupausen für Handelsabkommen, unter die am Ende alle Länder, also auch die Schweiz, fallen werden.

Als Ron Kirk, der US-Handelsrepräsentant in den TTP-Verhalndlungen, gefragt worden war, weshalb dieses Abkommen unter solch totaler, in dieser Form einmaliger Geheimhaltung verhandelt würde, hat er effektiv zugegeben, dass die Völker den Abbruch der Verhandlungen erzwingen würden, wenn sie erführen, worum es im Abkommen geht ("in the past, when the text was revealed, we couldn't finish it", 7:02 im Video).

PS: An der Position 13:25 in obigem Video offeriert ein "Vertreter" der "Texas Corporate Power Partnership" den US-Unterhändlern bei den TPP-Verhandlungen ein "Corporate Power Tool" Award, und meint unter Beifall und "Yeah!"-Rufen des Publikums "the TPP agreement is shaping up to be a great way to maximize our profits, regardless of what the public of this nation or any other nation thinks is right." Ich sehe ein, dass diese Leute keinen Sinn für Sarkasmus haben, aber dass sie ehrlich glauben, ein Anrecht auf solche Geschäftsbedingungen zum Schaden der 99% zu haben, ist schon ziemlich dreist.