Economics in Two Lessons, Chapter 13

by John Quiggin on June 21, 2018

Thanks to everyone who commented on the first twelve chapters of my book-in-progress, Economics in Two Lessons.

Here’s a draft of Chapter 13 on Redistribution

Comments, criticism and praise are welcome.

Earlier draft chapters are available. These aren’t final versions, as I am now editing the entire manuscript, but you can read them to see where the book is coming from.

Table of Contents
Introduction.
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty
Chapter 4:Lesson 1: Applications.
Chapter 5: Lesson 1 and economic policy.
Chapter 6: The opportunity cost of destruction
Chapter 7: Property rights, and income distribution
Chapter 8:Unemployment
Chapter 9: Market Failure
Chapter 10: Market failure -Externalities and pollution.

Chapter 11: Market failure: Information, uncertainty and financial markets

Chapter 12 on Predistribution

Feel free to make further comments on these chapters if you wish.

{ 8 comments }

1

Mike Huben 06.21.18 at 12:08 pm

Did you omit the link to the draft? I can’t find it at this time.

2

luiz eduardo cruz 06.21.18 at 4:36 pm

where?

3

Cervantes 06.21.18 at 5:18 pm

Indeed, that is a very succinct chapter consisting of the empty set.

4

John Quiggin 06.22.18 at 2:05 am

Sorry about that, everyone. Fixed now I hope.

5

Anarcho 06.22.18 at 8:28 am

Would it be wise not to mention the transformation of “value” in economics? From labour to utility — to avoid notions of exploitation raised by socialists like Proudhon and Marx. Then people noted that the new cardinal utility justified taxation and redistribution (for a dollar taxed from the a millionaire and given to the worker whose labour produced it increased over-all utility). So the “science” saw utility shifted to ordinal utility, on order to ensure that option was closed — although it now meant simply you cannot predict whenever overall utility is increased or not, so the change does not help “prove” redistribution is scientificially wrong.

After all, “economics in one lesson” is all about justifying non-labour incomes and has changed overtime to do so.

Steve Keen has some good material on this in his Debunking Economics

6

ccc 06.22.18 at 11:06 am

Feedback on some parts of chapter 13

“Few mainstream economists would reject this analysis outright 4 . However, many prefer to duck the issue, relying on a distinction between ‘positive’ economics, concerned with factual predictions of the outcomes of particular economic policies and ‘normative’ economics, concerned with ‘value judgements’ like the one discussed above.”

That lets them off the hook way too easily! Any economic analysis that purports to give practical advice is non-positive. For example it is a value judgement to claim that preferences is the psychological item of relevance for the analysis rather than hedonistic states. The big problem lies in baselessly assuming that policy suggestions based on revealed preferences are somehow more “positive” than any other value metric.

“The answers most consistent with opportunity cost reasoning can be derived from the following ‘thought experiment’ developed explicitly by John Harsanyi and John Rawls”

What do you mean “most consistent”? Based on what reasoning?

“There’s no way of reaching a final resolution on questions like this.”

I’m curious how you reached this putative final resolution of the moral epistemic question “is there a way of reaching a final resolution to first order value questions?”

“One answer, which seems close to the views typically elicited when people are asked questions of this kind, is to treat equal proportional increases in income as being equally desirable.”

What is the empirical evidence for your claim about people’s views here?

I see no reason whatsoever for thinking the geometric mean has fundamental moral relevance. It seems really weird that you spend more space on that idea than on egalitarian or prioritarian ideas from the mainstream of the distributive justice literature.

7

eg 06.22.18 at 1:24 pm

I have been enjoying these chapters.

I am concerned that this chapter mischaracterizes the manner by which the sovereign provisions itself. Taxation does not fund a fiat currency regime. It serves to extinguish currency from circulation, which is necessary to prevent demand-pull inflation that would arise should the amount of currency exceed the goods and services available for purchase in the economy.

This doesn’t in any way affect your main thesis about opportunity costs. I recommend that you amend the statement that taxation is necessary to fund government programming. If you are uncomfortable with such an edit, then perhaps just remove the statement altogether, since you don’t need it for your central argument and this will remove an objection from people familiar with monetary operations.

This chapter also made me wonder whether or not there might be another avenue of investigation around opportunity costs and the problem of un-and-underemployment created by neoliberal policy arrangements focused on inflation. I often see this sort of thinking in the press: “the unemployment rate is getting low — we had better raise interest rates to keep inflation down.” My objections to this arrangement whereby un-and-underemployment is preferred to low inflation have always been rooted in social justice concerns. Your work on opportunity cost now has me thinking of objections also in terms of capacity wastage. Is this something that you have already dealt with elsewhere or are planning? If so, my apologies.

Thanks again for posting these — very thought provoking.

8

nastywoman 06.23.18 at 4:22 am

From the perspective of someone who accepts the general egalitarian position that the benefits of transfers from the rich to the poor are substantially greater than the opportunity costs, the suggested policy program for predistribution and redistribution might be missing a solution to the next ”self-destructing economical time bomb”?

As the Joint Center for Housing Studies at Harvard University found out that in America ”Since 1960, renters’ median earnings have gone up 5 percent while rents have spiked 61 percent; homeowners earn 50 percent more while home prices have gone up 112 percent.
AND so:
”By nearly every measure, the American housing sector is broken. For decades, city, state and federal policies have contributed to rising rents, falling subsidies and the systematic shift of homeownership to older, richer and whiter Americans and, despite some short-term progress since the recession, the long-term prognosis is grim.
The housing crisis is the ticking time bomb at the heart of the American economy, wiping out savings, increasing inequality and reducing the ability of workers to weather the next recession.

And to say it very simplistically: If housing prices and/or rents will keep on outnumbering any raises in wages or salaries by such past percentages – the ”absurd moment” is soon to come – where housing prices and rents will be at 100 percent of the average Americans income.

And as much as economists overlooked for such a long time the reality of the psychological crisis of depressed workers – they now seem to overlook that ”reverse anti-union policies – increasing the wage share of national income;* – Limit corporate monopoly power, Change corporate bankruptcy laws and (Re)introduce a progressive tax-welfare system in which high-income earners face the highest effective marginal tax rates – is all great – but no solution if US average Americans soon will have no money anymore for any other ”living expenses” than just the rent or housing expenses?

On the other hand IF my homeland finally has become too expensive for every average American to live there – and the only solution for such Americans will be to immigrate -(as in most European countries one still can find ”shelter” under 30 percent for ones yearly income) – America will be finally only left to the very wealthy and they will have to let all of these refugees from poorer countries IN – in order to ”service Richyland”.

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