The Pro-European Union Left is Delusional

I am getting sick of these people. I see them on Facebook and Twitter and their arguments are pathetic.

Some of them appear to be living in a quasi-Marxist internationalist fantasy world. The motto of the pro-EU left may as well be: “We want to destroy Europe in order to save it!”

The EU and Eurozone are outrageous, catastrophic neoliberal disasters. They have caused tremendous suffering. The EU is a corporate tyranny of unelected and incompetent neoliberal lunatics. They are basically destroying Europe as we speak.

If the people of Europe want a supra-national state, let them have it in the future by democracy after the present EU and the ideology of neoliberalism have been torn to shreds.

As far as I am concerned it’s time to make fun of the pro-EU left. Merciless ridicule, derision and scorn is what they deserve.

In that spirit, here is a quick effort:

If you agree, perhaps you would like to share this image on social media, etc.?

Bill Mitchell on how “Democracy in Europe requires Eurozone Breakup”

Bill Mitchell has written a great post here about the Eurozone’s threat to democracy:

Bill Mitchell, “Democracy in Europe requires Eurozone Breakup” Billy Blog, January 6, 2016.

It is a pity that more professional Post Keynesian economists do not take this view, for it is so obviously true.

Yanis Varoufakis on Europe and the Eurozone

An interesting interview here with Yanis Varoufakis.



Now although I do admire Varoufakis, especially for his excellent attack on Postmodernism described here, I see some very troubling points here about Marxism.

Varoufakis says that Marxism is libertarian in some sense, and it is true that Marxism’s ultimate aim was a stateless, utopian paradise. But (as far as I can see) that is not the sense in which Varoufakis calls himself a “libertarian.” For Varoufakis goes on to say that his “libertarian Marxism” is compatible with a belief in the state, which, he says, is “crucial.”

I find these views deeply confusing.

First, why even associate yourself with Marxism at all when all attempts to put Marxism into action lead to mass murder and authoritarian nightmare states? At some point, one has to face the truth that if this is all that real-world Marxists have been able to do, their system stands utterly discredited by the hard evidence of empirical reality. If you do not advocate the abolition of private property, the nationalisation of all industry and a command economy, then why even call yourself a “Marxist”?

Worse still, Varoufakis thinks that “social democracy” has been discredited by modern neoliberal parties like New Labour. I disagree profoundly. Unlike Marxism, post-WWII left-wing parties put their social democratic vision into practice in the West, and it was the most successful system we ever had. And social democracy essentially takes its economic platform from Keynes – not Marx. Radical Keynesian social democracy is the true democratic “socialism,” if one chooses to use that troublesome word.

New Labour and other neoliberal left-wing parties were a betrayal of a social democratic ideology, and there is no reason to regard such neoliberal parties as anything but recent interlopers, charlatans and impostors. And say what you like about them, their evil doesn’t even come close to the horrors of Stalinist Russia or Soviet communism.

The neoliberal left has not discredited social democracy but only demonstrated the need for remembering what its core economic principles should be: a strong heterodox Keynesian or Post Keynesian economic theory.

Also, as I have argued here, it is a profound mistake for people on the left to just smear Britain’s UKIP as “racist” instead of carefully analysing what their policies are and intelligently responding to them.

Bad News for the Eurozone

In two recent news stories here:

Richard Orange, “Denmark election: Right-wing Eurosceptics look set to form a new government,” Independent, 18 June 2015.

Ben Chu, “Desperate Greeks turn to Vladimir Putin for help as country teeters on edge of bankruptcy,” Independent, 18 June 2015.

Could there be a greater tribute to the incompetence and stupidity of the Eurozone leaders?

First, there is the mind-numbing neoliberal economic incompetence that has caused depressions on the periphery of Europe (e.g., Ireland, Spain, Greece, the Baltic states) and economic conditions in the centre that are hardly much to boast about (e.g., unnecessarily high unemployment, asset bubbles, insanely high housing prices, unsustainably high private debt levels, etc.).

Secondly, there has been a steady rise of anti-EU right-wing parties in Europe and now we may well be seeing signs that some nations like Greece will be driven into geo-political alliances with Russia – just to avoid the anti-democratic Eurozone political and economic system.

In the UK in the recent election, the surprise result (actually probably not that surprising) was that the vehemently anti-EU UKIP party became the third largest party in terms of percentage of the vote (but owing to the first-past-the-post system in the UK only obtained one seat in the House of Commons).

One major reason why the Labour party lost was that UKIP attracted a significant number of Labour voters or swing voters who would have voted for Labour, just as I predicted here.

All in all, I see no reason to doubt that the EU is rapidly heading into a political crisis, and it will be exacerbated by any new economic crisis in the future.

The BBC’s Great European Disaster Movie – A Weird Piece of Pro-EU Propaganda

The BBC recently broadcast its documentary (or perhaps mockumentary) called the Great European Disaster Movie, an alleged prophetic vision of what would happen if the Eurozone and European Union (EU) broke up. The executive producer was Bill Emmott, the English journalist and former editor of The Economist.

Though it has some good aspects, the documentary still presents a utopian and one-sided view of the EU. The documentary predicts disaster, catastrophe, and horrors if the EU were to be disbanded. It is so bizarrely unrealistic and paranoid it is comical.

The opening scenes imagine Europe around 2017 to 2020: Greece is defaulting on debt, the abolition of the Euro has occurred, the far-right National Front under Marine Le Pen has taken power in France, national tensions are rising, mass rioting is in progress and the EU is formally disbanded. Some years later two people on a plane discuss the history of the EU, but Europe has collapsed into chaos at that future date – apparently all because the EU doesn’t exist. You can get a feel for the documentary in the trailer below.



It is also proclaimed that the fall of the EU would trigger a world economic collapse. That might well be true, but it would probably be no worse than the financial collapse of 2008 to 2009, and could easily be contained and dealt with by the right policy interventions.

In fact, in the event of EU breakup, newly independent, national European governments would have the space for fiscal stimulus, so that recovery could in theory be much faster than the one after 2009. There would be disaster only if grossly incompetent national governments pursued what the EU has already pursued all these years: austerity, budget balancing and neoliberalism.

But don’t get me wrong: the documentary does have praiseworthy aspects and good points to make. The documentary quickly shifts to focussing on some of the economic and social problems in the Eurozone and EU today, including the crisis of mass mortgage foreclosures in Spain, tax evasion by the wealthy, the failure of bank reform, and the dangers of austerity.

At one point, Martin Wolf appears and gives a Keynesian warning against austerity in the EU, and even Bill Emmott seems to propose a German-led Keynesian stimulus program throughout Europe.

But the documentary never addresses the question: what if a radical change in fiscal policy never happens? Why not break up the EU? Why should people continue to suffer under such a rotten system?

Totally missing is the understanding that the EU’s extremely anti-democratic nature makes it highly unlikely that elected governments can do anything to change it. Moreover, there is no central, democratically-elected EU government that can implement fiscal policy anyway, so how can anybody directly vote to change EU policies?

At this point, the Great European Disaster Movie just turns to scaremongering and fear-mongering about why the EU should not be broken up. The arguments presented are feeble, laughably irrelevant or plainly untrue.

Fortunately, the BBC had a decent discussion on Newsnight about the documentary in which some decent critics of the EU were allowed to speak and point to its faults, as we can see in the video below.



Sadly, it was mostly left to the conservative Peter Hitchens and the UKIP MP Mark Reckless to point out the serious flaws in many of the pro-EU arguments.

Where on earth is the anti-EU Left in this debate? Most recently, we just learned that Greece has fallen back into recession and I do not see any signs that Syriza has done anything but fold in its conflict with the Eurozone. When is the Left going to wake up?

Bill Mitchell on Greece versus the Troika and Eurozone

Bill Mitchell has a great post here analysing the recent events in Greece’s confrontation with the Troika and Eurozone:

Bill Mitchell, “Don’t mention the war! er the Troika …,” Billyblog, February 26, 2015
http://bilbo.economicoutlook.net/blog/?p=30293

Bill Mitchell’s scathing assessment of recent events is rather difficult to disagree with, despite the brave face put on the agreement by many left-wing people. Yes, Greece may have “bought time” but, as Bill Mitchell says, if the Germans are unwilling to allow any substantive changes in economic policy in Greece now, why would they concede anything important four months from now?

UPDATE
I cannot resist adding my additional thoughts on this. James Galbraith’s essay defends Syriza here.

He says:

“There is no money in Greece; the government is bankrupt. Large-scale Keynesian policies were never on the table as they would necessarily imply exit – an expansionary policy in a new currency, with all the usual dangers.”
http://www.socialeurope.eu/2015/02/greek-deal/

If that was so, then shouldn’t Syriza have been honest with the Greek public? Should they not have said: “there is no way to deliver on substantive promises to end austerity in Greece unless the Greek public is willing to accept the short-term pain of withdrawing from the Eurozone.”

Galbraith also tells us that now there is a new “spirit and dignity in Athens.” Well, that sounds nice, but I suspect it will not last very long without real action. Critics see the obvious here: the current agreement appears to mean nothing but more “austerity with a human face” for the Greeks. What substantive measures can Greece take to end the misery? What has been agreed seems to mean a weak or feeble recovery at best and at worst means more destruction of Greek businesses and, even worse, more grotesque destruction of the fabric of society. More women robbed of human dignity and forced to prostitute themselves to survive or support their families.

If Syriza basically allows all this to continue, how long before voters desert the left in Greece and move to the socially conservative, but economically interventionist right, perhaps even the ugly right?

Frankly, it may be that this bizarre, utopian commitment to the Eurozone amongst the mainstream European left will be the undoing of Europe. When the extremely ugly, vicious right or far right start winning in the polls, the left will have only itself to blame for the bloody mess.

Greece versus the Eurozone

Some of the latest news can be read here:

Ben Chu, “Fears of a Greek exit from the euro rise as olive branch to creditors gets short shrift,” Independent, 19 February 2015.

Rose Troup Buchanan, “Greek bailout: Germany shatters hopes of deal after rejecting proposal for six-month loan extension,” Independent, 19 February, 2015.

Lamiat Sabin, “George Osborne warns of ‘full-blown crisis’ as Greece standoff with eurozone continues,” Independent, 20 February, 2015.

Bill Mitchell, “Friday lay day – Cave in or Trojan Horse?,” Billy Blog, February 20, 2015.

I recommend Bill Mitchell’s analysis in particular, who argues that even though Greece’s latest letter was a prima facie “cave in” the German Ministry of Finance still rejected it, apparently because they think it is a sly “Trojan horse.”

In essence, the Germans rejected Greece’s demand for a six-month loan extension. It remains to be seen what the formal EU reaction will be, as a meeting of the 19 Eurozone finance ministers is to be held today.

Without some kind of deal by 28 February, Greece’s government and its banking system could be thrown into chaos, and some think that this could be the trigger for a Greek withdrawal from the Eurozone. Already there are signs of an emerging general bank run on Greek banks.

Of course, the future is uncertain, and maybe things will be worked out. Behind the scenes, it sounds like some kind of deal will be hammered out by next week. But what kind of deal? Will it just be an end to extreme austerity and some type of mild stimulus for Greece? That will not be enough to repair the damage in Greece. It will just mean a mild recovery but mass unemployment for years on end. What is needed in Greece is a radical stimulus with large-scale public investment and social spending, all supported by the EU and with measures to prevent any balance of payments crisis (and, frankly, that is also needed throughout virtually the whole EU). The chances of the EU agreeing to this are so low as to be laughable.

And the fact is that even some mild sop to Greece won’t be enough to stem the rise of Euroskeptic, anti-Eurozone and even anti-EU parties across Europe. If Greece ends up (1) agreeing to accept austerity (with perhaps some cosmetic concessions by the EU) or (2) wins some concessions with a mildly expansionary policy, just imagine how this will look to European parties like the Spanish left-wing Podemos party. In case (1), they will conclude that no government that promises to remain within the EU can expect any real end to austerity unless they threaten to leave the EU and really mean it. Unless you are really prepared to accept the short-term pain of leaving and also seriously threaten to default on loans, expect no mercy. In case (2), is that good enough? Will parties like Podemos fold and accept nothing but mildly expansionary policy?

Some on the left think that the current developments in Greece might be the beginning of a movement to reform the EU and turn it into a “United States of Europe” with a central fiscal policy and Keynesian stimulus throughout the union. I fear this is an unrealistic and utopian fantasy.

More likely, the current Eurozone needs to collapse before something like a “United States of Europe” can be constructed.

Update
James Galbraith is interviewed in the video below on Greek television on Varoufakis’ negotiations with the EU.



The European Central Bank (ECB) is reportedly making contingency plans for a Greek withdrawal from the Eurozone, which, they think, will be manageable. But the real question is: how probable does the ECB think an exit will be?

You can also get live updates on the Eurozone finance ministers’ meeting scheduled for today here.

Wynne Godley’s Prediction of the Failure of the Eurozone

It was made in The Observer, on 31 August, 1997 (Godley 1997), and you can see the crucial passage in the video below (the resolution/quality of the video may need to be increased).



This is actually what we see throughout much of Europe today (though admittedly many parties actively embrace neoliberal austerity too), and what I suspect Greece will discover as it attempts to end austerity and implement some kind of stimulus.

You can read Wynne Godley’s article here, and a good analysis of MMT predictions about the Eurozone here.

We are seeing the failure of the Eurozone not only in the anti-austerity Leftish parties like Syriza and Podemos, but also in right-wing parties like UKIP, the Danish People’s Party (DPP), and the French Front National (FN).

In a recent byelection for the French parliament, the Front National (FN) won the first round, and the French Socialist party only narrowly won the second round, with the National Front candidate taking about 49% per cent of the vote.

The real question: why do mindless left-wing parties continue to support the Eurozone and EU? Why not dismantle both and reconstruct a real progressive EU at some time in the future? Most of the new anti-austerity leftish parties like Syriza and Podemos are only somewhat Eurosceptic, and not clearly anti-EU.

BIBLIOGRAPHY
Godley, Wynne. 1997. “Curried EMU – the Meal that Fails to Nourish,” The Observer, 31 August.

Mark-up Pricing in 11 Nations and the Eurozone: the Empirical Evidence

There is a mountain of empirical evidence available for many years now that shows that administered prices are the majority of prices in most modern market economies. These prices are also sometimes called “mark-up prices,” “average cost prices,” “full cost prices,” “normal cost prices,” or “cost-plus prices.”

This post lays out what administered prices/mark-up prices/full cost prices are, and the empirical evidence for them from 11 nations and the Eurozone.

Mark-up prices are set by businesses through their cost accounting conventions in an ex ante manner before transactions take place, on the basis of (1) total average unit costs plus (2) a profit mark-up, at a given, estimated, projected or target quantity of output or level of sales (from which of course the ex post or actual quantity of output produced or sold in a given time period might differ).

Empirical evidence shows us that mark-up prices are generally inflexible with respect to demand, but tend to change – though it is by no means a necessary or universal process – when total average unit costs change or when the business wants to change its profit mark-up.

The early empirical work and theory development on administered prices/mark-up prices was done by Gardiner C. Means (1935, 1936, 1939–1940, 1962, 1992 [1933], and 1972, which are discussed here and here), Hall and Hitch (1939) (discussed here and here), P. W. S. Andrews (1949, 1949a, 1964), Kalecki (1954, 1971), A. D. H. Kaplan (Kaplan et el. 1958), and others.

But much more empirical evidence has been done over the past 50 years too (much of it listed here or in Appendix 1 below, including literature from the related “marginalist” controversy), and especially by central bank surveys on price setting over the past 10 years that were inspired by Blinder’s influential direct surveys on US business price setting (Blinder 1998).

The standard Post Keynesian works on mark-up pricing are Lee (1998) and Downward (1999).

The most recent empirical evidence on mark-up pricing in many nations can be seen below, with longer analysis given in separate posts I link to at the end of each “literature” section:

(1) The United States

Literature:
Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Lanzillotti, R. F. 1964. Pricing Production and the Marketing Policies of Small Manufacturers. Washington State University Press, Pullman, Washington.

Gordon, L. A., Cooper, R., Falk, H., and D. Miller. 1981. The Pricing Decision. National Association of Accountants, New York.

Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.

Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.

Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.

Downward, Paul and Frederic Lee. 2001. “Post Keynesian Pricing Theory ‘Reconfirmed’? A Critical Review of Asking about Prices,” Journal of Post Keynesian Economics 23.3: 465–483.

“Two Marketing Studies on US Administered Prices,” November 16, 2013.

Govindarajan and Anthony (1986) and Shim and Sudit (1995) are two marketing surveys that found that from the 1980s to the 1990s mark-up pricing accounted for roughly 70% to 85% of US industrial prices.

In a much broader and more representative survey for the US economy as a whole, Blinder et al. (1998: 200–201) found that 56.8% of the firms they surveyed said that the idea that prices and price changes depend mainly on costs of production ranked as “very important” (38.8%) or moderately important (18%).

(2) Canada

Literature:
Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” Bank of Canada Review 2004/2005: 29–40.
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/

“Mark-up Pricing in Canada,” January 7, 2014.

Amirault, Kwan, and Wilkinson (2004) examine price setting in Canada, and report the results of a survey of 170 private, unregulated, non-primary sector firms in the sectors of construction (10%), manufacturing (26%), trade (14%), and services (49%), in a sample which should give representative results for about 70% of Canada’s output in 2002 (Amirault, Kwan, and Wilkinson 2004: 3–4).

An impressive 67.1% of firms surveyed attributed price inflexibility to “cost-based pricing” – that is, to mark-up pricing (Amirault, Kwan, and Wilkinson 2004: 21).

(3) Eurozone

Literature:
Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York.

“Administered Prices in the Eurozone: Some Empirical Data,” October 16, 2013.

The wide-ranging survey of Fabiani et al. (2006) and (2007) on prices in the Eurozone from many central bank studies finds that the average for mark-up pricing throughout the Eurozone is 54%, a majority of firm prices.

In goods markets in Germany, the largest economy in Europe, a strikingly high 73% of firms have administered prices (Fabiani et al. 2006: 18, Table 4).

(4) the UK

Literature:
Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

“Mark-up Pricing in the UK,” February 15, 2014.

“Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 8,” January 23, 2014.

Hall, Walsh, and Yates (2000) report the results of a survey of 654 UK companies in 1995 carried out by the Bank of England, and mostly of large companies in manufacturing (68% of the survey), as well as some in services (13%), retailing (13%), and construction (6%) (Hall, Walsh, and Yates 2000: 426–428).

The survey also asked firms if they recognised a specific “pricing theory as being important” for explaining their pricing behaviour. It was found that 47.1% of firms chose cost-based pricing as the second most important theory (the theory of constant marginal costs came first at 53.8%).

Greenslade and Parker (2012) report the results of a new survey of 693 UK firms (conducted in December 2007 and February 2008) chosen to be representative of the private sector economy of the UK as a whole, including manufacturing, electricity and gas supply, construction, services, and retail trade, but excluding public sector firms or those under regulatory price control (Greenslade and Parker 2012: F13–F14).

When asked how prices for their main product were determined, 68% of firms said that competitors’ prices were “very important” or “important” in determining price (Greenslade and Parker 2012: F9).

The second most important explanation was mark-up pricing, with variable mark-ups (58%) and constant mark-ups (44%) both being important (Greenslade and Parker 2012: F10).

Downward (1999, Chapter 8) presents a survey of 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). A further 17.3% said “sometimes.” Only 7% said “rarely,” and only 8.1% said “not at all” (Downward 1999: 160).

(5) Norway

Literature:
Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

“Mark-up Pricing in Norway,” November 23, 2013.

Langbraaten et al. (2008) cite a well-sampled survey of 725 firms throughout many sectors of the Norwegian economy that found that 69% of Norwegian businesses use mark-up pricing.

(6) Ireland

Literature:
Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

“Mark-up Pricing in Ireland,” November 22, 2013.

Keeney et al. (2010) report the results of a survey of 1000 Irish firms and finds that the largest type of pricing is mark-up pricing at 44% of firms. Other evidence from their paper, presented in my post here, suggests that the real percentage is higher than this, since when firms were asked how likely it was that they would adjust prices downwards in response to a negative demand shock, 66.5% of firms said that negative demand shocks were of little or no relevance to pricing decisions.

(7) Iceland

Literature:
Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

“Mark-up Prices in Iceland,” November 25, 2013.

Ólafsson et al. (2011) cite a survey of 580 Icelandic firms and finds that mark-up pricing is the largest type of pricing at 45%. Evidence suggests that more mark-up prices are concealed in the other categories in the survey, so that the real percentage is higher than this.

(8) Sweden

Literature:
Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

“Mark-up Pricing in Sweden,” January 9, 2014.

Apel et al. (2005) provide data on price setting behaviour in Sweden, from a survey of about 600 private sector firms (Apel et al. 2005: 314) weighted to create a more representative sample of the Swedish economy (Apel et al. 2005: 316), but their study fails to directly ask firms how they set price.

Interestingly, when asked why they leave prices unchanged in response to small changes in demand, many firms said “it is better to leave the price unchanged as long as the costs do not change” (Apel et al. 2005: 323), which gives some support to the view that mark-up pricing is important.

(9) Japan

Literature:
Hsu, Robert. 1999. “Pricing Practices in Japan,” Global Business and Economics Review 1.2: 164–171.

Nakagawa, S., R. Hattori and I. Takagawa, 2000. “Price-Setting Behaviour of Japanese Companies,” Bank of Japan Research Paper
http://www.boj.or.jp/en/research/brp/ron_2000/ron0009b.htm/

“Mark-up Pricing in Japan,” November 29, 2013.

Nakagawa and Takagawa (2000) cite a survey of 630 Japanese companies. As interpreted by Fabiani et al. (2007: 190), the data suggest that least 54% of Japanese firms use mark-up pricing.

(10) New Zealand

Literature:
Parker, Miles. “Price-Setting Behaviour in New Zealand”
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf

“Mark-up Pricing in New Zealand,” November 30, 2013.

Parker cites a survey of around 5,300 New Zealand firms that finds that mark-up prices account for about 54% of business prices.

(11) Australia

Literature:
Park, Anna, Rayner, Vanessa and Patrick D’Arcy. 2010. “Price-Setting Behaviour – Insights from Australian Firms,” Reserve Bank of Australia Bulletin (June Quarter): 7–14.
http://www.rba.gov.au/publications/bulletin/2010/jun/bu-0610-2a.html

“Mark-up Pricing in Australia,” November 30, 2013.

Park, Rayner, and D’Arcy (2010) cite a survey of around 700 Australian firms that finds that mark-up prices account for at least 49% of firm prices. Once we add likely mark-up prices concealed in the other categories in the survey, the percentage will be higher than this.

(12) Pakistan

Literature:
Malik, W. S., ul HaqSatti, A. and G. Saghir. 2010. “Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab,” PIDE Working Papers
http://www.eaber.org/node/23069

Malik et al. (2010) provides some interesting evidence on mark-up pricing in Pakistan, and reports the results of a 2008 survey of 343 manufacturing firms in four industrial cities of the Punjab Province (Malik et al. 2010: 2–4).

About 75% of these firms reported that they had more than 20 competitor firms (Malik et al. 2010: 2).

Furthermore, of the 57% of the firms that reported that they set their own prices, 62% reported that they set prices as a mark-up over costs (Malik et al. 2010: 7–8). A further 30% reported that the price of their main competitor was used to set price, and, as in other surveys, it is likely that this category also conceals mark-up pricing.

So even in developing nations, mark-up pricing is significant.

BIBLIOGRAPHY
Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” Bank of Canada Review 2004/2005: 29–40.
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/

Andrews, P. W. S. 1949. “A Reconsideration of the Theory of the Individual Business,” Oxford Economic Papers n.s. 1.1: 54–89.

Andrews, P. W. S. 1949a. Manufacturing Business. Macmillan, London.

Andrews, P.W.S. 1964. On Competition in Economic Theory. Macmillan, London.

Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

Berle, Adolf A. and Gardner C. Means. 1932. The Modern Corporation and Private Property. Macmillan, New York.

Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.

Davidson, P. 1992. “Would Keynes be a New Keynesian?,” Eastern Economic Journal 18.4: 449–463.

Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Downward, Paul and Frederic Lee. 2001. “Post Keynesian Pricing Theory ‘Reconfirmed’? A Critical Review of Asking about Prices,” Journal of Post Keynesian Economics 23.3: 465–483.

Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York.

Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.

Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, R. L. and C. J. Hitch. 1939. “Price Theory and Business Behaviour,” Oxford Economic Papers 2: 12–45.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

Hill, Greg. 1996. “Capitalism, Coordination, and Keynes: Rejoinder to Horwitz,” Critical Review 10: 373–387.

Kalecki, M. 1954. Theory of Economic Dynamics. Allen and Unwin, London.

Kalecki, M. 1971. Selected Essays on the Dynamics of the Capitalist Economy. Cambridge University Press, Cambridge.

Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

Malik, W. S., ul HaqSatti, A. and G. Saghir. 2010. “Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab,” PIDE Working Papers
http://www.eaber.org/node/23069

Means, G. C. 1992 [1933]. “The Corporate Revolution,” in Frederic S. Lee and Warren J. Samuels (eds.), The Heterodox Economics of Gardiner C. Means: A Collection. M.E. Sharpe, Armonk, N.Y.

Means, G. C. 1935. Industrial Prices and their Relative Inflexibility. US Senate Document no. 13, 74th Congress, 1st Session, Government Printing Office, Washington DC.

Means, G. C. 1936. “Notes on Inflexible Prices,” American Economic Review 26 (Supplement): 23–35.

Means, G. C. 1939–1940. “Big Business, Administered Prices, and the Problem of Full Employment,” Journal of Marketing 4: 370–381.

Means, G. C. 1962. Pricing Power and the Public Interest. Harper and Brothers. New York.

Nakagawa, S., R. Hattori and I. Takagawa, 2000. “Price-Setting Behaviour of Japanese Companies,” Bank of Japan Research Paper
http://www.boj.or.jp/en/research/brp/ron_2000/ron0009b.htm/

Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

Park, Anna, Rayner, Vanessa and Patrick D’Arcy. 2010. “Price-Setting Behaviour – Insights from Australian Firms,” Reserve Bank of Australia Bulletin (June Quarter): 7–14.
http://www.rba.gov.au/publications/bulletin/2010/jun/bu-0610-2a.html

Parker, Miles. “Price-Setting Behaviour in New Zealand”
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf

Pittman, Russell. 2009. “Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms,” Economic Analysis Group Discussion Paper 09-3
http://www.justice.gov/atr/public/eag/248394.htm

Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.

Appendix 1
Below are the main surveys and articles in the “full cost” and marginalist pricing debate of the 1940s to 1970s

Against Marginalism
Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Lanzillotti, Robert F. 1958. “Pricing Objectives in Large Companies,” American Economic Review 48.5: 921–940.

Kahn, Alfred E. 1959. “Pricing Objectives in Large Companies: Comment,” American Economic Review 49.4: 670–678.

Lanzillotti, Robert F. 1959. “Pricing Objectives in Large Companies: Reply,” American Economic Review 49.4: 679-687.

Barback, R. H. 1964. Pricing of Manufactures. Macmillan and Co Ltd., London.

Wentz, Theodore E. 1966. “Realism in Pricing Analyses,” Journal of Marketing 30.2: 19–26.

Skinner, R. C. 1970. “The Determination of Selling Prices,” Journal of Industrial Economics 18.3: 201–217.

Sizer, John. 1971. “Note on ‘the Determination of Selling Prices,’” The Journal of Industrial Economics 20.1: 85–89.

Hague, D. C. 1971. Pricing in Business. George Allen and Unwin, London.

Burck, G. 1972. “The Myths and Realities of Corporate Pricing,” Fortune 85.4: 85–89, 125–126.

Atkin, B. and Skinner, R. 1975. How British Industry Prices. Industrial Market Research Limited, London.

Shipley, David D. 1981. “Pricing Objectives in British Manufacturing Industry,” The Journal of Industrial Economics 29.4: 429–443.

Gordon, L. A., Cooper, R., Falk, H., and D. Miller. 1981. The Pricing Decision. National Association of Accountants, New York.

Hankinson, A. 1985. A Study of Pricing Behaviour of Dorset-Hampshire Small Engineering Firms. Dorset Institute of Higher Education, Poole, Dorset.

Bruegelman, T., Haessly, G., Wolfangel, C. P. and Schiff, M. 1985. “How Variable Costing is used in Pricing Decisions,” Management Accounting 66: 58–61, 65.

Samiee, S. 1987. “Pricing in Marketing Strategies of US- and Foreign-based Firms,” Journal of Business Research 15: 17–30.

Defending Marginalism
Gordon, R. A. 1948. “Short Period Price Determination in Theory and Practice,” American Economic Review 38: 265–288.

Hague, D. C. 1949–1950. “Economic Theory and Business Behaviour,” Review of Economic Studies 16: 144–157.

Edwards, R. S. 1952. “The Pricing of Manufactured Products,” Economica 19: 298–307.

Simon, H. A. 1952. “A Behavioural Model of Rational Choice,” Quarterly Journal of Economics 69: 99–118.

Simon, H. A. 1959. “Theories of Decision Making in Economies,” American Economic Review 49: 253–283.

Shackle, G. L. S. 1955. “Businessmen on Business Decisions,” Scottish Journal of Political Economy 2: 32–46.

Earley, James S. 1956. “Marginal Policies of ‘Excellently Managed’ Companies,” American Economic Review 46.1: 44–70.

Cook, A. C., Dufty, N. F. and Jones, E. H. 1956. “Full Cost Pricing in the Multiproduct Firm,” The Economic Record 32: 142–147.

Pearce, I. F. 1956. “A Study in Price Policy,” Economica n.s. 23.90: 114–127.

Pearce, I. F. and Amey, L. R. 1956–1957. “Price Policy with a Branded Product,” The Review of Economic Studies 24: 49–60.

Fog, B. 1960. Industrial Pricing Policies: An Analysis of Pricing Policies of Danish Manufacturers. North Holland Publishing, Amsterdam.

Knox, R. L. 1966. “Competitive Oligopolistic Pricing,” Journal of Marketing 30: 47–51.

Neutral Studies
Alt, R. M. 1949. “The Internal Organisation of the Firm and Price Formation: An Illustrative Case,” Quarterly Journal of Economics 63: 92–110.

Woodruff, W. 1953. “Early Entrepreneurial Behaviour in Relation to Costs and Prices,” Oxford Economic Papers 5: 41–64.

Blackwell, R. 1953–1954. “The Pricing of Books,” Journal of Industrial Economics 2: 174–183.

Cook, A. and Jones, F. 1954. “Full Cost Pricing in Western Australia,” The Economic Record 30: 272–274.

Balkin, N. 1956. “Prices in the Clothing Industry,” Journal of Industrial Economics 5.1: 1–15.

Lazer, W. 1956–1957. “Price Determination in the Western Canadian Garment Industry,” Journal of Industrial Economics 5: 124–136.

Pool, A. G. and Llewellyn, G. 1957. The British Hosiery Industry: A Study in Competition. Leicester University Press, Leicester.

Lydall, H. F. 1958. “Aspects of Competition in Manufacturing Industry,” Institute of Economics and Statistics Bulletin 20: 319–337.

Haynes, W. W. 1962. Pricing Decisions in Small Business. University of Kentucky Press, Lexington, KY.

Haynes, W. W. 1964. “Pricing Practices in Small Firms,” The Southern Economic Journal 30: 315–324.

Lanzillotti, R. F. 1964. Pricing Production and the Marketing Policies of Small Manufacturers. Washington State University Press, Pullman, Washington.

Rosendale, R. B. 1973. “The Short Run Pricing Policies of Some British Engineering Exporters,” National Institute Economic Review 65: 44–51.

Nowotny, Ewald and Herbert Walther. 1978. “The Kinked Demand Curve—Some Empirical Observations,” Kyklos 31: 53–67.

Forgionne, G. A. 1984. “Economic Tools used by Management in Large American Operated Corporations,” Business Economics 19: 5–17.

Jobber, D. and Hooley, G. 1987. “Price Behaviour in the UK Manufacturing Service Industries,” Managerial and Decision Economics 8.2: 167–171.

Smiley, Robert. 1988. “Empirical Evidence on Strategic Entry Deterrence,” International Journal of Industrial Organization 6.2: 167—180.

Blinder, Alan S. 1991. “Why are Prices Sticky? Preliminary Results from an Interview Study,” American Economic Review 81.2: 89–96.

Additional Studies
Alchian, A. A. 1950. “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy 58: 211–221.

Robinson, A. 1950. “The Pricing of Manufactured Products,” Economic Journal 60: 771–780.

Machlup, F. 1946. “Marginal Analysis and Empirical Research,” American Economic Review 36: 519–554.

Heflebower, R. F. 1955. “Full Costs, Cost Changes, and Prices,” in National Bureau of Economic Research, Business Concentration and Price Policy. Princeton University Press, Princeton. 361–392.

Coase, R. 1955. “Full Cost, Cost Changes, and Prices: Comment,” in National Bureau of Economic Research, Business Concentration and Public Policy. Princeton University Press, Princeton. 392–394.

Wiles, P. 1950. “Empirical Research and the Marginal Analysis,” Economic Journal 60: 515–530.

Robinson, J. V. 1953. “Imperfect Competition Revisited,” Economic Journal 63: 579–593.

Administered Prices in the Eurozone: Some Empirical Data

Fabiani et al. (2006) provide empirical evidence of the extent of administered prices in Eurozone nations from a number of surveys and studies.

The data are below:

Nation | Total Percentage of Markup Prices
Belgium | 46%

Spain | 52%

Italy | 42%

Netherlands | 56%

Portugal | 65%

Euro Area | 54% (average for whole Euro Area)

(Fabiani et al. 2006: 18, Table 4).

It is very striking indeed that for the Eurozone as a whole the average is 54% – a majority of prices.

It is also very telling that the number of prices affected by government regulation or controls is far lower than the percentage of prices directly administered and made relatively inflexible by private sector businesses themselves.

This can be seen here in the category Fabiani et al. call “other” price-setting rules:

Nation | Total Percentage of “Other” Prices*
Belgium | 18%

Spain | 21%

Italy | 26%

Netherlands | 21%

Portugal | 23%

Euro Area | 18% (average for whole Euro Area)

* N.B. This category also seems to refer to other types of price setting apart from government regulation.
(Fabiani et al. 2006: 18, Table 4).

Furthermore, Fabiani et al. have a second category of prices called “competitors’ prices,” which describe prices influenced by pricing of competitors. This does refer to many types of flexprices, but may possibly conceal some administered prices too, so that the first percentages given above may be underestimates.

Unfortunately, total percentages for Germany and France are not given, but data for goods (as opposed to services) markets are:

Nation | Percentage of Markup Prices for Goods
Germany | 73%

France | 40%
(Fabiani et al. 2006: 18, Table 4).

It is striking how high the percentage of administered prices is for goods markets in Germany: it stands at 73%.

BIBLIOGRAPHY
Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

Miscellaneous Links

Some recent links of interest:

(1) Steve Keen, “The Euro as the SDR of Europe?,” Debtdeflation.com, July 26th, 2012.
A nice analysis form Steve Keen on why the Eurozone is such a disaster. Keen makes the point the point that economists “as widely apart ideologically as Wynne Godley and Milton Friedman observed long before the Euro began that it would fail (a) because it imagined that a market economy would reach a harmonious equilibrium on its own without government intervention—which Godley correctly characterized as a deluded neoclassical fantasy; and (b) because it pushed together widely disparate nations which Friedman noted were utterly unsuited to a currency union.

(2) Thomas Palley, “More on the Spurious Victory Claims of MMT,” Thomaspalley.com, July 25th, 2012.
Thomas Palley criticises MMT with reference to the Eurozone crisis (and is also reprinted over at the Naked Keynesianism blog). Palley charges that “MMT lacks a convincing theory of interest rates, over-simplifies the economy by assuming an L-shaped supply schedule that ignores the effects of sectoral bottlenecks and imbalances, lacks an adequate theory of inflation, and ignores expectations and exchange rates,” which seems a bit unfair to me, given that MMT take ups previous Post Keynesian theories of both interest rates and inflation. L. Randall Wray now has a good response to Palley here.

(3) Paul Davidson, “Is Economics a Science? Should Economics Be Rigorous?,” Real World Economic Review 59.
An article from Paul Davidson on the nature of economics and methodology.

(4) Ann Pettifor Interview on the Eurozone Crisis and Integration

Robert Skidelsky on the Eurozone Disaster

Two videos below of an interview with Robert Skidelsky on the current Eurozone problems, by Social Europe Journal.

Steve Keen on the Eurozone

A nice interview with Steve Keen below while he was in Ireland on the 18 April, 2012.

He covers a few issues related to the Eurozone, including the Maastricht Treaty, debt deflation, and the neoliberal shambles that is the Eurozone.

Matías Vernengo on the Disaster of the Eurozone

Matías Vernengo (University of Utah) gives a nice summary here on the origins and nature of the Eurozone debt and economic crisis. The absence of federal fiscal policy in the Eurozone and its flawed monetary system have always been the underlying problem in Euroland. Some interesting comparisons between the Eurozone debt crisis and that of Argentina.

Marshall Auerback on Greece and the Eurozone

Marshall Auerback is interviewed here on RT, about the latest developments in the Eurozone and Greece.

Thomas Palley on the Structural Problems of Neoliberalism and the Eurozone

Thomas I. Palley is a well published, but underrated, Post Keynesian economist. He is the author of Post Keynesian Economics: Debt, Distribution, and the Macro Economy (New York, 1996), which is a useful textbook for Post Keynesian economics.

There are two videos below. In the first interview, Thomas Palley talks about the structural problems of neoliberalism: how the stagnation of real wages has been a severe underlying cause of neoliberal bubble economics, where people are driven into private debt. We need a fundamental reform of macroeconomic policy, not merely effective financial regulation (although the latter is, of course, important).




In the second video, Thomas Palley talks about the problems of the Eurozone - the flawed design of the euro system (introduced in 1999), which robs Eurozone countries of their monetary and fiscal indepedence. The Eurozone is a grave threat to social democracy. The role of central banks in the neoliberal Eurozone (where they have become “detached,” as Palley says) is even worse than the old neoliberal idea of central bank “independence.”

Marshall Auerback on Eurozone Crisis

Marshall Auerback is interviewed here, with some other commentators, on the recent Eurozone troubles.