>From: Louis Proyect <lnp3 at panix.com>
>Reply-To: marxism at lists.panix.com
>To: marxism at lists.panix.com, pen-l at galaxy.csuchico.edu
>Subject: A (hostile) review of Michael Perelman's latest
>Date: Thu, 15 Jun 2000 12:49:56 -0400
>
>H-NET BOOK REVIEW
>Published by EH.Net (May, 2000)
>
>Michael Perelman. _The Natural Instability of Markets:
>Expectations, Increasing Returns, and the Collapse of Capitalism_.
>New York: St. Martin's Press, 1999. xiv + 188 pp. $39.95 (cloth),
>ISBN 0-312-22121-5.
>
>Reviewed for EH.NET by Thomas E. Hall <HALLTE at muohio.edu>,
>Department of Economics, Miami University, Oxford, Ohio
>
>Economists have long known that competition has some ugly side
>effects. In competitive industries, firms go out of business. The
>competitive process exhibits Schumpeter's creative destruction as
>new technologies come along which displace existing industries.
>Workers lose their jobs, and firm owners lose wealth. This is all
>very unpleasant for the people who are adversely affected by these
>changes, but in the net society is better off by reaping the
>benefits of economic efficiency. At least, that is what economists
>generally believe about the competitive outcome. This is why most
>economists argue that (with the exceptions of a few cases such as
>public goods and natural monopolies) a policy of enhancing
>competition is desirable.
>
>Michael Perelman challenges this conventional economic orthodoxy by
>arguing that the economic instability caused by competition may be
>so large that it outweighs the beneficial effects of economic
>efficiency. In fact, competition is so awful that "the tendency of
>the competitive process is to lead to depressions" (p. 62). Perelman
>does not argue that monopolies are the solution, instead he contends
>that society's welfare is enhanced by having an industrial structure
>that is neither too competitive, nor too concentrated. The optimal
>structure lies somewhere in between, where the gain in economic
>stability resulting from a less than perfectly competitive structure
>exceeds the loss to society of lower economic efficiency.
>
>It's an interesting argument, but one that isn't well enough
>documented for most people to accept. Too much of Perlman's
>discussion focuses on what's wrong with competitive markets, and too
>little on the benefits they create. Yes, the competitive process
>can cause wrenching changes in society, but what about the lower
>prices we pay, the wider variety of goods and services we choose
>among, the improved quality of products...? These considerations
>are given short shrift compared to the evils of "instability."
>
>A serious weakness of the book is its lack of a discussion on the
>role of demand. For example, Perelman considers economic depressions
>to be the intensification of the competitive process. While most of
>us would agree that competition among firms is more intense during
>economic recessions, would we extend the argument by saying that
>competition caused the downturn? I don't think so. Economic
>recessions are typically caused by slowdowns in aggregate demand
>growth. As spending growth slows, firms have to compete more
>intensely for scarcer sales. Thus, we observe more competition
>during downturns, but competitive pressures hardly caused the
>recession.
>
>Perelman also argues that high wages during recessions are good
>since "high wages represent a healthy stimulant to the economy . . .
>because high wages will encourage productivity" (p. 121). This
>efficiency wage argument has merit, but taken to extremes it could
>cause major problems. After all, if promoting high wages is such a
>great idea, during the next recession let's be sure to raise the
>minimum wage to $1 million per hour and see how well that stimulates
>recovery!
>
>We often tell students not to get caught looking at the trees when
>they should be concentrating on the forest. I think the opposite
>applies to this book. Several of Perelman's trees, i.e., the
>specific cases he discusses to buttress his argument, are quite
>interesting. For example, there is an informative history of entry
>and exit in the automobile industry, an excellent discussion of
>x-efficiency, and a summary of estimates of the costs of
>unemployment in terms of numbers of suicides, homicides, and such
>that would be useful to instructors of macroeconomics principles
>classes. However, I am considerably less enamored with the forest,
>the idea that competition creates more problems than it solves.
>
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>
>
>Louis Proyect
>Marxism mailing list: http://www.marxmail.org/
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