Here’s another excerpt from my book-in-progress, Economics in Two Lessons. Rather than work sequentially, I’m jumping between:
Lesson 1: Market prices reflect and determine opportunity costs faced by consumers and producers.
and
Lesson 2: Market prices don’t reflect all the opportunity costs we face as a society.
In the section over the fold, I’m looking at how opportunity cost reasoning applies to policies that change the distribution of income, wealth and other entitlements.
As usual, praise is welcome, useful criticism even more so. You can find a draft of the opening sections here.
Changes in the regulation of labor and capital markets and in taxation and expenditure policy since the 1970s have greatly enhanced the income and wealth of the best-off members of society (the so-called 1 per cent), and have yielded more modest, but still substantial, improvements in the position of those in the top 20 per cent of the income distribution (broadly speaking, professionals and business owners and managers).
On the other hand, incomes for the rest of the community have grown much more slowly than might have been expected based on the experience of the decades from 1945 to 1975. The substantial technological advances of recent decades have had little impact on the (inflation-adjusted) income of the median US household. For many below the median, incomes have actually fallen (real wages, welfare reform).
In the absence of the tax cuts of the 1980s, the associated cuts in public expenditure and financial and industrial relations policies that benefitted business, the incomes of the wealthy would not have increased as much as they have done. Those on median and lower incomes would have done substantially better[^1]. But how should we compare those gains and losses?
Economists and philosophers have been looking at this question for a long time and in many different ways. The answers most consistent with opportunity cost reasoning can be described by the following ‘thought’ experiment, developed explicitly by John Harsanyi and John Rawls in the mid-20th century, but implicit in the reasoning of earlier writers like Jeremy Bentham, John Stuart Mill and Friedrich von Wieser.
First consider yourself in the position of both the high income beneficiary and the low income loser from such a change. Next, imagine that you are setting rules for a society, of which you will be a member, without knowing which of these positions you might be in. One way to think of this is to imagine life as a lottery in which your life chances are determined by the ticket you draw.
Now consider a choice between increasing the income of the better off and the worse off person. Presumably, if the dollar increase were the same in both cases, you would prefer to receive it in the case where you are poor rather than in the case when you are rich.
The reasons for this preference are obvious enough. For a very poor person, an additional hundred dollars could mean the difference between eating and not eating. For someone slightly better off, it may mean the difference between paying the rent and being evicted. For a middle class family, it might allow an unexpected luxury purchase. For someone on a million dollars a year, it would barely be noticed.
Economists typically present this point in terms of the concept of marginal utility, a technical term for the benefits that are gained from additional income or consumption. As argued above, the marginal utility of additional income decreases as income rises. It follows that a policy that increases the income of the rich and decreases that of the poor by an equal amount will reduce the utility of the poor more than it increases the utility of the rich.
Few mainstream economists would reject this analysis outright[^2] . 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. The debate over the justifiability or otherwise of this distinction has been going on for decades and is unlikely to be resolved any time soon.
More importantly, constructs derived from economics are often used, implicitly or explicitly, in ways that imply that an additional dollar of income should be regarded as equally valuable, no matter to whom it accrues.
The most important of these constructs is GDP, the aggregate value of all production in the economy.GDP per person is the ordinary average (or arithmetic mean) income of the community. GDP per person treats additive changes in income equally no matter who receives them.
Used correctly, as a measure of economic activity, GDP can be a useful guide to the short-term management of the economy. In the short run, weak GDP growth is commonly an indicator of a recession, suggesting the need for expansionary monetary and fiscal policies.
Unfortunately, measures of GDP and GDP per person are commonly misused, as an indicator of living standards and economic welfare more generally. There are many reasons why this is inappropriate, but the failure to take account of the distribution of income is most important.
It is easy enough to see that, if the opportunity cost of a given increase the income of a better-off person is an equal increase in the income of a worse-off person, then the change is for the worse.
What about the case when we the choice is between a given increase for the worse off person and a larger increase for the better off person? How big does the opportunity cost have to be before it outweighs the benefit? This question, raising once again the thought experiment mentioned above, can be answered in many different ways
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. That is, an increase of $1000 in the income of a person on $10 000 a year is seen as yielding a benefit comparable to that of an increase of $10 000 in the income of a person earning $100 000 a year. Conversely, if the opportunity cost of the $10 000 benefit to the high income earner is a loss to the low income earner of more than $1000, the cost exceeds the benefit.
It’s surprisingly easy to turn this way of looking things into a measure of living standards over time. If, instead, we want a measure that treats proportional changes equally, all that is needed is to replace arithmetic mean measures such as GDP per person with the geometric mean we all learned about in high school (and most of us promptly forgot).
The geometric mean has the property that, if all incomes increase by the same proportion, so does the geometric mean. So, it’s a better measure of the growth rate of incomes across the community than the usual arithmetic mean. It can also be justified mathematically, in terms of the theory of expected utility. For those interested, the details are spelt out in an optional section.
The geometric mean is equal to the arithmetic mean when incomes are distributed exactly equally. But the more unequal is the income distribution, the greater the gap between the arithmetic and geometric means. For this reason, the ratio of the arithmetic to the geometric mean is often used as a measure of income inequality.
We can look at the changes in these measures using data from the US Census Office, and some simple computations (details available on request). From 1967 to 2013, arithmetic mean income per household (in 2013 dollars) rose from $66 500 to $104 000, an increase of 56 per cent. But the geometric mean rose by only 34 per cent, from 50 000 to 67,500. The ratio between the two rose from 1.32 to 1.54, indicating a substantial increase in inequality.
The idea that equal proportional increases are equally valuable, and therefore that the geometric mean is a good measure of economic welfare or wellbeing is not the only answer to the question posed above. Another, leading to a strong version of egalitarianism, is always to prefer the increase to the worse off person[^3] . In this case, welfare is measured by the minimum income.
There’s no way of reaching a final resolution on questions like this. But it’s worth observing that a policy aimed at maximising the geometric mean of income would be substantially more egalitarian than anything that has ever been seen in a market economy.
For example, calculations by Peter Diamond and Emmanuel Saez, using a method equivalent to the geometric mean approach, suggest that the top marginal tax rate, after taking account of disincentive effects should be between 70 and 80 per cent.
These rates are far above those found in any country today. And while the top marginal rate was at or above this level in the 1950s, generous exemptions and other loopholes meant that the effective rate was much lower.
It’s not surprising that political outcomes are less egalitarian than an opportunity cost estimate would suggest. The thought experiment leading to the geometric mean gives everyone equal weight, as in an ideal democracy. In practice, however, the well off have more weight in democratic systems than do the poor; and of course the disparity is even greater in undemocratic and partly democratic systems. The disparity of political weight has increased with the growth of inequality over the past decades. So, while there are good arguments for more strongly egalitarian approaches, policies aimed at maximizing geometric mean income will inevitably be found well to the left of centre in any feasible political system.
[^1]: claim that tax cuts for the rich will ultimately make people better off is discussed briefly in Section … and, at greater length, as one of the ‘zombie ideas’ in my book Zombie Economics
[^2]: The most notable exceptions, somewhat outside the mainstream, are members of the ‘Austrian School’, who have dismissed interpersonal comparisons as ‘unscientific’ and offered a variety of more or less spurious justifications for inequality. As discussed above, von Wieser, the originator of the opportunity cost analysis, was an exception to this exception.
[^3]: The ‘difference principle’ espoused by philosopher John Rawls is often interpreted to imply this view. However, scholars of Rawls work disagree on this, and much more.
{ 185 comments }
reason 09.07.15 at 7:47 am
“In the absence of the tax cuts of the 1980s, the associated cuts in public expenditure and financial and industrial relations policies that benefitted business, the incomes of the wealthy would not have increased as much as they have done. Those on median and lower incomes would have done substantially better[^1]. But how should we compare those gains and losses?”
Trade policy?
reason 09.07.15 at 7:53 am
“The most important of these constructs is GDP, the aggregate value of all production in the economy.”
Well no – it doesn’t measure the aggregate value of all production – it measures the exchange value of a subset of production (basically that production that is classified as “final” and is traded, or is owner occupied dwellings or is direct government services, or is exported). It has some inherent biases in it, that has meant historically that GDP grows faster than the real value of all production.
Gareth Wilson 09.07.15 at 9:26 am
Sounds fine to me. Of course, the first thing you’d do to put this idea into practice is to abolish Social Security.
david 09.07.15 at 9:31 am
This is a morass of confusions – it’s not wrong if intended as a glib summary for a disinterested audience, but it’s inappropriate as a pedagogical attempt at a central argument.
First – use NPV of lifetime wealth, not instantaneous income, especially if you want to springboard onto contemporary policy issues (which involve a lot of generational welfare issues) or to trace the history of modern macro (which centrally involve Friedman’s permanent income theory).
Second – you need to pick either a thick definition of utility, or a thin definition of utility, and remain consistent with it throughout. The Rawlsian SWF is thin. But a thin SWF won’t generate IPCU. There’s a sleight of hand here, but explaining the trick is the whole point.
Third – this is not the law of diminishing marginal utility. DMU applies to homogeneous commodities for a single individual, holding income effects as zero. It says nothing about different individuals.
Fourth – this is not how contemporary gen-eq micro would typically define DMU, which is instead summarized in the concept of convex preferences – DMRS, not partial-eq DMU. This is important to acknowledge because with convex preferences, there is no coherent idea of diminishing intensity of utility from wealth, even for a single individual. There is DMU of individual goods in the bundle, but not of the consumption basket itself. This is what ordinal utility means.
Fifth – cardinal utility (and hence IPCU) is not restored through utilitarianism but through arbitrarily stylizing a numéraire (leisure hours, or NPV lifetime income, or whatnot) or assuming homogeneous, representative agents, or both (e.g., a typical sentence that I just pulled from the latest AEJ Macro: “Infinitely-lived households derive utility from the consumption of a unique final good, and supply labor inelastically. Preferences are identical across countries and workers.”, i.e., NPV lifetime real wage). In extreme cases one may simply specify the social planner with certain goals. That is, IPCU is not derived but asserted out of hand; nonetheless this is fine.
Sixth – in large part Austrians are cranks because their valid insights have been co-opted, leaving only the nonsense. Their objections to deriving IPCU are valid. But we don’t – we just assume it.
Seventh – the theoretical predisposition toward geometric-mean-SWF-egalitarianism relies subtly upon a theoretical predisposition toward analytically-convenient quasilinear utility forms, which implies certain forms of the marginal utility function, which (in the case of homogeneous representative agents) implies certain amusing things about the weight of individuals as assigned by the social welfare function, which when combined with an egalitarian ethic desiring to equalize marginal utilities from wealth, imply certain ideal wealth distributions.
That is, it’s an argument that is applicable to those who already buy into quasilinear utility, homogeneous representative agents, social welfare functions, and egalitarianism for other reasons. Drop any of these planks and the argument looks like irrelevant and abstruse mysticism (and, to be fair, it is – it’s entirely driven by what constitutes a tractable utility function. It doesn’t just happen to be convenient when modelling risk, it’s used because it’s convenient when modelling risk). This is a “if you believe this, why not that” assault that is good for attacking certain kinds of economists, but it is more-or-less irrelevant to an unengaged reader.
Brett Dunbar 09.07.15 at 9:36 am
Even the geometric mean probably overestimates the marginal utility at the top end. For many people the marginal utility would at some point reach zero. If you can already afford to buy anything you want to buy then any additional income is simply going to be saved. It really depends on how modest your tastes are.
John Quiggin 09.07.15 at 10:24 am
@4 I tried to follow this, but I got stuck at “disinterested audience”. Do you mean “impartial” or “uninterested”? Either way I couldn’t make sense of it, and therefore couldn’t work out why the audience needed the kind of material you seemed to imply was appropriate. I honestly don’t think my intended readers (roughly, liberal/progressive non-economists) need to worry about this stuff. As I hinted, there will be an optional section where I talk about how the geometric mean is derived from log utility, and I’ll discuss more general social welfare functions there.
david 09.07.15 at 10:53 am
“Disinterested” in the sense of a reader who is unmotivated to either side in a opportunity-cost-reading-as-applied-to-income-distribution argument, and is therefore not inclined to understand or attack one’s presentation of the argument (someone who is reading it for the aura of being assured that all of one’s political enemies are stupid doodieheads, say – not uncommon!).
Which is nice if the summary of the argument is a combination of non-sequiturs and actively wrong claims. But I was assuming you had some pedagogical intent, which implies a duty to accuracy when staking large, general claims.
Barry 09.07.15 at 1:16 pm
Gareth Wilson
“Sounds fine to me. Of course, the first thing you’d do to put this idea into practice is to abolish Social Security.”
Perhaps some support for this would be in order?
Alex 09.07.15 at 1:18 pm
The geometric mean is equal to the arithmetic mean when incomes are distributed exactly unequally. But the more unequal is the income distribution, the greater the gap between the arithmetic and geometric means. For this reason, the ratio of the arithmetic to the geometric mean is often used as a measure of income inequality.
Exactly unequally s/b exactly equally? (I mean, as a copy edit, not necessarily a normative statement of abstract good.)
david 09.07.15 at 1:32 pm
US Social Security gives incrementally higher payouts to higher contributors, and the taxable earnings are capped. This has been the case since its inception. If you always prefer to increase the welfare of the worse-off person – in a kind of Parfitian prioritarianism rather than Rawlsianism per se – then the design of Social Security has gone badly wrong.
if you instead conceive of it as a bourgeois-liberal-democratic-welfare-state “politics of the possible” giveaway to an aspirational middle class, etc etc, then you could sustain Social Security as an ideal. Otherwise it’s a little tricky.
more generally, many welfare states face philosophical problems justifying the generosity of subsidies disproportionately consumed by the middle class rather than the Rawlsian/Parfitian worst-off.
steven johnson 09.07.15 at 1:55 pm
“In practice, however, the well off have more weight in democratic systems than do the poor; and of course the disparity is even greater in undemocratic and partly democratic systems.”
It seems to me that the “well off” should be written “well off minority” and the “poor” should be “poor majority.” Then, as so often happens, the “of course” in the next clause is not a matter of course at all. It is well nigh universally agreed that a government where there is less disparity between the weight of the well off minority and the majority poor, that is, where the government distributes more benefits to the majority than the minority, is either only partly democratic or is even democratic. That is why popular media universally agree that Venezuela is more of a tyranny than Colombia. Or that Cuba is undemocratic while Honduras is. Or that a military regime is more democratic than Thaksin Shinawatra. Or that China is undemocratic while India, a country where a campaign to give women toilets is cutting edge, is.
steven johnson 09.07.15 at 1:56 pm
Typo correction: “…only partly democratic or UNdemocratic…”
steven johnson 09.07.15 at 1:58 pm
Again, typo correction: “…Honduras is democratic…”
William C 09.07.15 at 2:04 pm
David
Your comments are very interesting and clearly well informed but would benefit from a little explanation on some of the acronyms for lay readers like me.
I googled IPCU and found intensive psychiatric care unit and iphone configuration utility. I am confident neither of these is what you had in mind here!
Brett Dunbar 09.07.15 at 2:18 pm
I don’t think anyone would dispute that the UK is a democracy. The UK has consistently had more households getting more from the state than they pay in taxes.
http://www.ons.gov.uk/ons/about-ons/business-transparency/freedom-of-information/what-can-i-request/previous-foi-requests/economy/timeseries-of-disposable-income-and-measures-of-income-before-and-after-tax/income–tax-and-benefit-data.xls
Year Lowest decile paying net tax
1977 5th
1978 5th
1979 5th
1980 5th
1981 5th
1982 5th
1983 6th
1984 6th
1985 6th
1986 6th
1987 6th
1988 5th
1989 5th
1990 5th
1991 6th
1992 6th
1993 6th
1994/95 6th [stats change from calender year to financial year starting 6th April]
1995/96 6th
1996/97 6th
1997/98 6th
1998/99 6th
1999/00 6th
2000/01 6th
2001/02 6th
2002/03 6th
2003/04 6th
2004/05 7th
2005/06 7th
2006/07 6th
2007/08 7th
2008/09 7th
2009/10 7th
2010/11 7th
2011/12 7th
2012/13 7th
2013/14 7th
steven johnson 09.07.15 at 2:36 pm
Brett Dunbar@15 Sorry if egotism misleads me into thinking this is supposed to be a refutation of my comment.
As to the substantive issue raised, how strongly the UK government responds to the needs of the majority? I can’t get the link to load for my computer. But in my experience it is exceedingly common for such tables to look only at national income taxes and omit all other taxes. Which in my view is pretty much falsifying the data. Also, these things appear to limit benefits solely to direct income transfers. There are difficulties with this approach. For instance, how do you account for the benefit to employers from fiscal and central banking policies that favor unemployment? Disciplining the labor force and moderating its wages, then limiting any crises in the political and social spheres by a palliative welfare state distribution could be in the long run more profitable.
As to the political issue, I’m very much under the impression that most UK parties and politicians deems socialism of this kind antithetical to democracy and campaign against it quite vigorously. And like the US the dominant conservative movement has sought for decades to eradicate such nefarious subversions of democracy?
david 09.07.15 at 3:22 pm
@14
Sorry – IPCU refers to interpersonal comparisons of utility, which Quiggin mentions in his essay
Brett Dunbar 09.07.15 at 3:48 pm
Funny it started loading when I clicked on it. It was everything. All taxes indirect, intermediate and direct local and national. All benefits both cash and kind (e.g. education, NHS). The proportion of households getting more than they pay has tended to rise over time
Actually that was an old version up to 2012 the one I had used was bhttp://www.ons.gov.uk/ons/rel/household-income/the-effects-of-taxes-and-benefits-on-household-income/historical-data–1977-2013-14/ref–table-14-oecd.xls
You can find a link to the search rseults where I found the data here http://www.ons.gov.uk/ons/search/index.html?newquery=household+income+by+decile&newoffset=&pageSize=50&sortBy=&sortDirection=DESCENDING&applyFilters=true It is table 14
The categories are
Original income
Wages and salaries
Imputed income from benefits in kind
Self-employment income
Private pensions, annuities2
Investment income
Other income
Direct benefits in cash
Job seeker’s allowance (Contribution based)
Job seeker’s allowance (Income based)
Employment and support allowance
Incapacity Benefit
Income Support
Statutory Maternity Pay/Allowance
Child benefit
Tax credits
Housing benefit
State pension
Pension Credit
Widows’ benefits
War pensions/War widows’ pensions
Carer’s allowance
Attendance allowance
Disability living allowance
Severe disablement allowance
Industrial injury disablement benefit
Student support
Other non-contributory benefits
Direct taxes and Employees’ NIC
Income Tax
less:Tax credits
Employees’ NI contributions
Council tax and Northern Ireland rates
less: Council Tax Support/Rates rebates
Indirect taxes (Taxes on final goods and services)
VAT
Duty on tobacco
Duty on beer and cider
Duty on wines & spirits
Duty on hydrocarbon oils
Vehicle Excise Duty
Television licences
Stamp Duty on house purchase
Customs duties
Betting taxes
Insurance Premium Tax
Air Passenger Duty
Camelot National Lottery Fund
Intermediate taxes
Commercial and industrial rates
Employers’ NI contributions
Duty on hydrocarbon oils
Vehicle Excise Duty
Benefits in kind
Education
National Health Service
Housing subsidy
Rail travel subsidy
Bus travel subsidy
School meals and Healthy Start Vouchers
This seems to be fairly comprehensive. Since FY 2003/4 more than 60% of households have been net recipients.
Brett Dunbar 09.07.15 at 4:05 pm
It isn’t controversial. In fact it doesn’t get mentioned at all. 49% of the cash benefit is the state pension or widows pension, pensioners vote and mostly think its far too small already. Over 60% of the benefit in kind is the NHS, reducing that would be political suicide and all parties are committed to real terms increases. 36% is education, which while less untouchable than the NHS is still not something anyone really wants to touch. Propose radical cuts and the opposition will immediately put in terms of closed schools and sacked nurses.
engels 09.07.15 at 4:16 pm
I don’t think anyone would dispute that the UK is a democracy.
I don’t understand why anyone would think that the UK _is_ a democracy (= government by the people). Can you sketch a justification for this remarkable view?
The proportion of households getting more than they pay has tended to rise over time
What proportion of households are the net beneficiaries from the central function of the British State (protection of private property rights by police, army, legal system, etc)? Can you link to CBA?
steven johnson 09.07.15 at 4:24 pm
Still getting a box saying Windows can’t load the tables.
However, it is clear that the taxes are properly counted. (I’m serious, you really cannot count on a US source to not “forget” about state and local taxes when discussing relative tax burdens on rich and poor.) The benefits are also complete. Perhaps a little too much so? Some of the benefits in kind such as education and NHS are complex calculations where it would be easy to go astray. Some portion of school expenditures are benefits to business, specifically subsidies for preliminary processing of labor. The large majority of expenditures on standardized testing is more or less quality control for employers, I should say. (In the US this is not a negligible expenditure.) The necessarily uneven distribution of medical expenditures would make it very hard to calculate meaningful average distributions.
I did miss a title for a table showing the different benefits to household from anti-inflationary policies.
But I’m not quite sure how you demonstrating the probable soundness of your claim that a majority of households in UK get more benefits of some kind than they pay out in taxes of all kinds. It just explains why the herculean labors of such political Titans as Baroness Thatcher have had so little effect in rolling back the socialist menace to freedom. Maybe the SNP is still largely committed to calling this state of affairs a healthy democracy. I rather doubt the Labor Party does. And I’m pretty sure that the Tories and the Lib Dems and UKIP and EDL/BNF/etc. most definitely do not.
Robert 09.07.15 at 4:24 pm
The USA is not a democracy. See Martin Gilens’ work, e.g., “Inequality and Democratic Responsiveness”.
Robert 09.07.15 at 4:30 pm
The claim of economists to be doing positive, value-free, science is archaic and laughable nonsense. See, for example, Hillary Putnam’s 2002 book, The collapse of the fact/value dichotomy. He has other work that doesn’t so directly address economics.
John might mention other indices that attempt to correct GDP, as well as Sen’s capabilities approach.
steven johnson 09.07.15 at 4:35 pm
Robert@22 As they love to say, the Founding Fathers created a Republic, not a democracy. One man, one vote is not a Constitutional principle. Democracy is where people get to vote in free and fair elections (Rupert Murdoch, the State Department, etc. get to decide when elections are free and fair,) that do not give governments tyrannical powers to redistribute income or socialize businesses or such. By that standard the US is democratic. And it is precisely the inability of lower class majorities to oppress the upper classes. Madison fixated on paper money but of course national finance in semiprivate hands like the Second Bank or the Federal Reserve might do things in a properly responsible way.
Harold 09.07.15 at 4:45 pm
Democracy?
Jimmy Carter: “The US is an oligarchy with unlimited political bribery.” https://theintercept.com/2015/07/30/jimmy-carter-u-s-oligarchy-unlimited-political-bribery/
Chris Woolley 09.07.15 at 5:11 pm
“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.”
I think of a common “standard of living” that we expect all to share in a decent society. Such a standard can be thought of as an amount of capital, which people earn at different rates. Given income inequality, the harmonic mean for income captures this.
It also reflects the limitation of total earning time (one period * working population for that period).
Of course, the harmonic mean is lower than the geometric, showing that the socially-acceptable standard of living does not improve in quality as fast as higher averages.
Bruce Wilder 09.07.15 at 5:21 pm
I found JQ’s OP much easier to follow than david @ 4, but david does seem to have a point in that the abstraction of the OP seems oddly distant and disengaged.
Wouldn’t the underlying argument of Lesson 1 be that the distribution of income is inextricably linked to motivating production? It isn’t Rawls imagining rules from behind a veil of ignorance that drives the effort to produce, but ambition and knowledge and risk-taking. So, aid to those who are unable to produce for themselves and theirs is likely to blunt the incentives of the able, and handicap the engine of production.
There’s nothing wrong with the OP, but geometric means v arithmetic means does seem mightily indirect, and I am not seeing the bridge from the blithe declaration,
There seems to be a argument about what technologically-determined income distribution would have been lurking in the shadows, but the reader isn’t shown what that is — given that it is a common-place to attribute the drivers of changing income distribution to technological change and globalization and like amorphous “forces” beyond policy control, it does seem presumptive to simply attribute change to policy, without any engagement.
The opportunity cost frame of lesson 1 makes the reflexivity of production and income, cost and benefit, impossible to abstract away from.
Brett Dunbar 09.07.15 at 5:23 pm
The claim I was disputing was the assertion that it was widely agreed that a state which gave the majority of citizens more in benefit than they pay in taxes wasn’t democratic. Britain is a democracy and has a fairly redistributive state. The FPTP electoral system is pretty poor and tends to produce artificial majorities in parliament the Commons is freely elected and is in pretty much total control of the state. While it could do with improvement it is a democracy.
steven johnson 09.07.15 at 5:41 pm
Brett Dunbar@27 Maybe this is a national difference, but it is pretty widely agreed here in the US that the US is more democratic than socialist countries. And it is pretty widely agreed that this is the triumph of the Founding Fathers’ provisions against majority rule tyrannizing over the minority. (And the minority’s property.)
But your post leads me to realize the OP is not a US national. So maybe in Australia?
Layman 09.07.15 at 5:56 pm
“US Social Security gives incrementally higher payouts to higher contributors, and the taxable earnings are capped.”
This is a problem statement which suggests its own solution. That solution is not ‘abolish it’.
engels 09.07.15 at 6:05 pm
Maybe you should say what you mean by “democracy”. Again, it seems obvious to me that the UK isn’t one. Political power isn’t held by the citizenry but by an elite. (I’m pretty sure most people in UK know this and as Robert points out above there’s plenty of academic research going back years which confirms it.)
Barry 09.07.15 at 6:31 pm
David: “If you always prefer to increase the welfare of the worse-off person – in a kind of Parfitian prioritarianism rather than Rawlsianism per se – then the design of Social Security has gone badly wrong.”
Which doesn’t imply the conclusion that it should be destroyed.
Brett Dunbar 09.07.15 at 6:45 pm
Democracy is the system where political power is held by a popularly elected representative body. While the electoral system is fairly defective the commons is freely elected and the party winning was usually the party with most votes. (Jan 1910, Dec 1910, 1951 and Feb 1974 being exceptions). The political class is fairly open to outsiders. One of my dad’s former teachers (in a state comprehensive) ended up in the shadow cabinet (Barry Jones now Lord Jones was shadow Secretary of State for Wales 1983-87). Like a lot of Labour MPs he was a trade union official.
John Quiggin 09.07.15 at 7:01 pm
To restate: in actually existing democracies, the tax-welfare system reduces the inequality generated by the rest of the system of property rights somewhat, but
(a) not nearly as much as would happen in an ideal democracy following the ideas sketched out in the OP
(b) far less than if the majority with little or no property oppressed the property owning minority in the way feared by the US Founding Fathers (at least if you don’t count the liberation of slaves as oppression of slaveholders).
Harold 09.07.15 at 7:06 pm
The US and UK are nominally democratic republics (democracies inaccurately for short) and actually undemocratic oligarchies tightly controlled by small elites.
John Quiggin 09.07.15 at 7:10 pm
David, I think nearly everything you’ve written is either too detailed for this section (eg the distinction between lifetime and current income) or wrong. But since you’ve bolded it, I’ll respond to
On the contrary, choice under uncertainty gives you just such an idea. If your preferences over risky prospects are convex then the utility function that explains them (in an expected utility model or any plausible generalization) has diminishing marginal utility of wealth (that is, is concave).
It’s true that lots of economists, frightened by the bogeyman claim that interpersonal comparisons of utility are “unscientific” have tried to pretend that the need for a concave utility function here has no real significance. Von Neumann and Morgenstern themselves did so. But they were wrong.
engels 09.07.15 at 7:15 pm
“Democracy is the system where political power is held by a popularty elected representative body”
Mmkay. And Goldman Sachs is a bank based in Shenzhen
http://money.cnn.com/2015/08/28/investing/china-fake-goldman-sachs/
Brett Dunbar 09.07.15 at 8:06 pm
The assertion that Britain isn’t a democracy is fundamentally absurd.
engels 09.07.15 at 8:41 pm
“fundamentally absurd” Oh sorry I wasn’t expecting such an emotional reaction: I’ll keep quiet about Father Christmas and the tooth fairy for now.
Brett Dunbar 09.07.15 at 9:16 pm
You made an obviously absurd claim. It’s difficult to come up with a rational argument against what appears to be conspiricist lunacy.
There is one that occurs, the idea that there is no real difference between the political parties and therefore that elections display no real choice. Britain’s political system displays the clustering at the centre that is a fairly normal result of Hotelling’s theorem in a democracy. FPTP has a bias in favour of such a result. It’s not a conspiracy it’s just the result of rational behaviour under FPTP. If voters vote for the candidate closest to their own views then the optimal position in a two candidate election is between your opponent and the median voter. Both will end up right next to each other wherever the median voter is.
Gareth Wilson 09.07.15 at 9:17 pm
The more basic problem with Social Security is that it’s not means-tested. It’s based on age, not poverty. There’s an obvious political reason for this, universality builds general support in the electorate. Even the craziest Republican doesn’t try to abolish it. But it’s completely incompatible with the marginal utility of money argument. You’d need to strictly income-test and asset-test the benefit, as well as uncapping the taxable income.
The same goes for most of the welfare state, outside the US. Go into a public hospital, school, or library, and they should ask for proof of your poverty before you get any service. Anything else is just the same political tactic, not actual redistribution.
engels 09.07.15 at 9:30 pm
To be clear, I’m not saying there’s a conspiracy or anything underhand (or that there isn’t!) I’m just saying that a system wherein ordinary people periodically get to choose which group of elite members are to govern them (and can very occasionally join the elite themselves) is not ‘democracy’ on any understanding of the term other than a highly twisted one.
Layman 09.07.15 at 10:11 pm
“There’s an obvious political reason for this, universality builds general support in the electorate.”
Again, you object to social security because it’s imperfect, a political compromise resulting in imperfect downward redistribution. Without the compromise, there’d be no redistribution at all, which, in your view, would be…better?
Brett Dunbar 09.07.15 at 10:21 pm
It’s how a democracy is normally defined. The government is accountable to the population and must submit to the popular vote in broadly free and fair elections. It isn’t exactly surprising that parliament is full of career politicians. It is true that about 10% of the Commons read Politics, Philosophy and Economics at Oxford (including both Ed Miliband and David Cameron). That’s due to it essentially being a vocational course for politicians.
Gareth Wilson 09.07.15 at 10:33 pm
You probably want more redistribution, which might mean a less effective political compromise. It could even backfire and destroy the whole consensus around universality.
William Berry 09.07.15 at 10:49 pm
@engels:
Don’t waste your time. You are arguing with clueless, un-selfconscious neo-liberals; beings who, miraculously, manage the trick of never being wrong– while always being wrong.
William Berry 09.07.15 at 10:56 pm
To be clear, I am guessing that for engels, as for me (and for, presumably most people on the left), democracy means the rule of the demos, which condition cannot possibly obtain in any nation in which the political apparatus is virtually a wholly owned subsidiary of kleptocratic elites, a situation that describes nearly every “democracy” in the world today, and one to which neo-liberals and neo-cons of every stripe are completely oblivious.
Bruce Wilder 09.07.15 at 11:08 pm
Gareth Wilson @ 41:
.
I suppose this is a problem with being too abstract in a discussion of inequality and redistribution. If you accept the conventions followed by some conservative economists, which place the distribution of income arrived at by a so-called market economy in a sacred and ideal a priori category and all policy interventions into an a posteriori category of redistribution (including especially taxes and transfer payments), corrupting the sacred outcomes, then I suppose, yes, we ought to means-test. The original pre-tax, pre-transfer distribution is a sacred standard against which we can measure the degree of redistribution.
Professor Quiggin can answer for himself, of course, but I do not think of income distribution in these terms.
Income distribution is itself a product of the distribution of property rights and the rules governing economic cooperation. Whether workers can participate in an effective trade union, whether a company can make intellectual property claims, whether property claims are protected by law and police, and so on — these determine the distribution of income. Idealistically, we hope the police do not means-test your 911 call (but your ideals would not be well-grounded in fact).
Means-testing is the political tactic, and it is often an effective political tactic, but I don’t know that it has any merit — it doesn’t improve social welfare or make administration more efficient. It is just another manifestation of the capture of public institutions by the oligarchic few, aka democracy as we know it in the 21st century.
Bruce Wilder 09.07.15 at 11:11 pm
engels @ 42
Elites — can’t live with ’em, can’t live without ’em. What are you going to do?
If you can manage a complex society without hierarchy, then you can probably manage a great many other miracles.
Bruce Wilder 09.07.15 at 11:16 pm
William Berry @ 47: the political apparatus is virtually a wholly owned subsidiary of kleptocratic elites [in] nearly every “democracy†in the world today, [a situation to] which neo-liberals and neo-cons of every stripe are completely oblivious.
Oblivious or complicit?
It seems to me that neoliberals and conservative libertarians have worked very hard, and cooperatively with each other, to promote kleptocracy and protect kleptocracy from effective criticism. I wouldn’t call that “oblivious”.
Robert 09.07.15 at 11:28 pm
When a small elite governs, they make sure to continually rewrite the sort of rules that Bruce writes about. And that rewriting is sure to favor them. See Jacob Hacker and Paul Pierson, Winner-Take-All Politics. I could have cited Adam Smith, but he obviously does not have the empirical evidence for today to be found in more recent scholarly work.
mbw 09.08.15 at 12:02 am
@David #4. You lost me at point 1. Haven’t you read studies about how poorly the Friedman idea does at accounting for actual human behavior?
Or Robert Frank about how well a positional-good description works? To the extent that goods are positional, the conclusion is more radical than the marginal utility ideas of the OP. Extra goods to the rich have major psychological negative externalities.
Brett Dunbar 09.08.15 at 12:05 am
So you criticise Britain for not being a democracy by re-defining democracy in a way that is impossible to meet and doesn’t match general usage.
Democracy requires free and fair elections that actually pick the government. Most, in order to limit the influence of money, impose strict spending limits.
UserGoogol 09.08.15 at 12:08 am
Gareth Johnson @ 41: Acknowledging marginally decreasing utility doesn’t mean that all transfers of wealth have to be from the person who derives least utility from it to the person who derives most utility from it. That would be in a certain sense optimal, but you have to look at the big picture when making decisions.
If you really push the marginally decreasing utility argument to its limit, the conclusion isn’t just wealth redistribution, it’s radical egalitarianism. Have as flat a distribution of wealth as possible as long as such policies don’t sacrifice the total wealth too much. And from that perspective, unconditional welfare programs are a big step in the direction of egalitarianism, even if narrowly looked at as a one-off wealth transfer, they are suboptimal.
John Quiggin 09.08.15 at 12:13 am
BW @48 I will answer for myself and agree entirely with
I’ll post an extract along these lines soon.
John Quiggin 09.08.15 at 12:18 am
I’m not convinced by this, but happy to look again at the evidence. To the extent that the conspicuous consumption of others has negative externalities, is the relevant comparator someone like Trump or a wealthier neighbor/colleague?
As I mentioned in the OP, there are certainly political externalities as well as social externalities like positional goods.
engels 09.08.15 at 12:35 am
If you can manage a complex society without hierarchy, then you can probably manage a great many other miracles.
A complex society without hierarchy (eg. in the civil service or the medical profession) may or may not be possible but it’s a separate question whether such a society can be governed by all of its citizens, rather than members of an elite.
(In any case, I didn’t say it necessarily is possible for a ‘complex society’ to be governed in a democratic way. Perhaps complexity [meaning size or economic development?] and democracy aren’t compatible, in which case it’s not obvious to me democracy would be the one to ditch.)
Harold 09.08.15 at 12:46 am
The United States does not impose strict spending limits and does not have majority rule. In addition thousands are disenfranchised by virtue of having been felons, despite having served their sentence. How is that a democracy?
mbw 09.08.15 at 12:54 am
@56- I think that it was in Kahneman, maybe Frank, that I read that a remark by (IIRC) Mencken happen to be exactly right: it’s the wealthier brother-in-law. But I suppose neighbors, former classmates, tv characters, etc. also count.
Bruce Wilder 09.08.15 at 12:57 am
engels @ 57A complex society without hierarchy . . . may or may not be possible but it’s a separate question whether such a society can be governed by all of its citizens, rather than members of an elite.
I don’t see how those are separable questions. A hierarchical society is governed by its hierarchy — the hierarchy is the governing structure, and so it follows that those with superior positions in the hierarchy constitute an elite.
Representative democracy in a constitutional republic merely seeks to check elites by harnessing elite rivalries and channelling popular dependency and protest.
Perhaps complexity [meaning size or economic development?] and democracy aren’t compatible, in which case it’s not obvious to me democracy would be the one to ditch.)
Perhaps. There is the deathtoll to consider.
Bruce Wilder 09.08.15 at 12:59 am
Just to clarify: there would be a considerable deathtoll in ditching democracy and in ditching complexity.
Brett Dunbar 09.08.15 at 1:12 am
It seems that you are rather bizarrely limiting democracy to direct democracy. That only works on a very very small scale, it is entirely non-viable as a political system for a state in the modern world. Representative democracy is what is normally meant. That is what I would assume was intended.
Bruce Wilder 09.08.15 at 1:18 am
Magic, Brett, magic. You have to believe . . .
Brett Dunbar 09.08.15 at 1:29 am
The US functions pretty badly. However the fetishising of the constitution makes meaningful reform extremely difficult as does the excessively convoluted amendment procedure. On the whole presidential and semi-presidential systems work worse than parliamentary systems. In a parliamentary system only parliament has a democratic mandate so other institutions ultimately lack a moral basis for opposing popular will represented by parliament so have to give way. Presidential and semi-presidential systems give the head of state an independent mandate and that gives them the moral authority to oppose the legislature. This can lead to gridlock as neither feel obliged to give way leading to political paralysis.
Harold 09.08.15 at 1:33 am
Abolishing the electoral college would be a start.
mpowell 09.08.15 at 2:07 am
Gareth Wilson@41
The more basic problem with Social Security is that it’s not means-tested.
Bullshit. SS redistributes on the basis of lifetime average earnings corrected by COLA. Maybe not as much as you’d like since it’s capped, but it’s pretty severe in the range it covers, with contributions on income above about 30K/year up to the cap earning 10% on the dollar compared to 90% on the dollar for the first bracket which earns the bulk of total possible benefits. Given that basic structure, all means-testing in retirement results in is extra taxation for people who have deferred consumption through savings. I can imagine a person arguing in favor of the concept that given two people with equivalent lifetime earnings and with retirement income 2x the poverty line, we should redistribute away from the person who deferred consumption towards the person who did not, but it’s hard to see the principle at work there and it certainly doesn’t flow directly from egalitarianism.
Peter T 09.08.15 at 2:37 am
I think JQ is here trying to turn the sow’s ear of contemporary orthodox economics (ably represented by david @ 4) into the silk purse of social democracy. It part succeeds, but there’s a distinct pork sheen to it. If it persuades some that fairness has a place in the social discourse, good luck to it.
I remain confused by the the grounding of the argument in opportunity cost. This seems to me an insubstantial concept: what counts as an “opportunity” and how do you measure it? Whose opportunity? How perceived? The villain thinks the heroine has only one choice (“I expect you to die, Ms Bond”), but she is smarter and makes another. Some options are clear, some discernible only in outline, some ruled out politically or socially. Much of social life revolves around shaping other people’s perceptions of opportunity (Overton windows and the rest). In short, it’s nice in the abstract, and obvious that people make choices in the light of their perceived opportunities, but I remain to be convinced that it tells us much.
Enlightenment gratefully received.
Martinned 09.08.15 at 2:41 am
While David has set out the main problem with the OP in some detail, I’d just add – in plain English – that it misses the key tradeoff that all economists, from Piketty and Krugman to as far right as you would like, acknowledge: there is a tradeoff between reducing inequality and maintaining incentives to innovate and invest. This is something the Diamond & Saez calculation attempts to correct for. The OP completely ignores this point, turning a complex policy question into a facile question of arithmetic (while in the process handwaivingly ignoring the problem of saying anything about optimality based on a time series with no counterfactual).
Collin Street 09.08.15 at 2:51 am
On the whole presidential and semi-presidential systems work worse than parliamentary systems.
The more people involved the closer the result’s pulled to the average. If your politicians are by-and-large Good, then having numbers of them involved in each decision will maximise the chances of getting an average — that is, Good — result, which points to parliamentarianism; if your politicians are by-and-large Terrible, then the fewer involved the better your odds of getting a non-terrible result.
This is why Strong Leaders are a rational response to oligarchy [and also to your group / status being under threat], and why “presidential system” can’t be regarded as causing bad/worse governance.
Chicken-and-egg, as always.
Collin Street 09.08.15 at 2:52 am
Where “good” means “responsive to the population”.
greg 09.08.15 at 9:50 am
The inability of economists to come up with coherent macro implicitly justifies the status quo. Or rather, perhaps the dynamic quo, given the economy is evolving to higher inequality.
The poor buy food. The rich buy economists. So rather than inability, perhaps disinclination is more correct.
Disinclination because, given macroeconomic’s contention and spotty record, its most basic assumptions need to be examined, and I do not see this happening. In any ‘science,’ given the record, they would be.
JC’s lesson two touches on it. It does not reach one cause: Economist’s understanding of the nature of money is only accurate for micro. If they dared examine money’s macro nature, they would understand what a fraud the system is, and what a cheat for the working man, and the people in general.
This is, in fact, a matter of some urgency, because the same quality which results in value being assigned to what has no value, also devalues real investment, with negative consequences even for the paymasters.
engels 09.08.15 at 10:40 am
A hierarchical society is governed by its hierarchy
I said you can have a society with some hierarchies (eg. in the permanent civil service or military) but with a democratic government (ie. both are governed by the executive, which is genuinely under the control of and responsive to the preferences of the citizenry).
Perhaps. There is the deathtoll to consider
Scary stuff, Bruce, but I’m unclear what particular Gulag someone who thinks that a more democratic state the size of Switzerland, say, would be preferable to a less democratic one the size of US would have implicated themselves in.
It seems that you are rather bizarrely limiting democracy to direct democracy.
Nope, as I said I understand democracy to mean popular rule.
Brett Dunbar 09.08.15 at 11:16 am
The specific problem in presidential and semi-presidential systems is the existence of multiple independent mandates. When both the president and parliament are elected it allows both to claim a democratic mandate so when they oppose each other it isn’t obvious which has priority. This leads to paralysis where the president vetoes everything the legislature passes and the legislature will not pass anything the president suggests. that can create an opportunity for a coup by frustrated army officers. South America had a lot of presidential democracies and a lot of coups. Parliamentary states at a similar level of development had fewer coups as that was far less likely to happen. The US state department now tends to advise new democracies to go for a parliamentary system, as that is more likely to succeed. Basically presidential systems have an additional failure mode and it’s one that happens fairly frequently.
Britain’s executive is accountable to the people. The Commons is democratically elected and controls everything. The government has control of the Commons because whoever being control of the Commons is what makes you the government.
engels 09.08.15 at 11:41 am
Britain’s executive is accountable to the people.
Off the top of my head, some questions you could start with:
1 To what extent is Brit pop involved in political decision making?
2 If the answer for majority is ‘very little,’ then are decision makers drawn from general population or a separate class?
3 To what extent are political decisions responsive to preferences of population?
4 What power do people have over decisions that affect them directly (eg. in workplace)?
5 Is political debate in the national media free and open or is it controlled by a self-interested minority?
6 Are the rights to protest and to strike strong and healthy?
Or you could just repeat ‘electtions every four years and they’re not rigged! over and over like a religious mantra – whatever floats your boat.
Layman 09.08.15 at 11:47 am
“However the fetishising of the constitution makes meaningful reform extremely difficult as does the excessively convoluted amendment procedure.”
I’m sympathetic to this, but on the other hand the constitution has been successfully amended 10 times in the last 100 years. That’s not infrequent, for a constitution.
Barry 09.08.15 at 12:34 pm
“While David has set out the main problem with the OP in some detail, I’d just add – in plain English – that it misses the key tradeoff that all economists, from Piketty and Krugman to as far right as you would like, acknowledge: there is a tradeoff between reducing inequality and maintaining incentives to innovate and invest. ”
Laffer Curve – where are we on that tradeoff curve? I assert that we are far from a point where those disincentives matter. I’d further assert that thr primay disincentives right now arise from our bought and paid for politics and legal system.
Brett Dunbar 09.08.15 at 1:03 pm
10 amendments in a century is pretty low, Germany amended the 1959 basic law 50 times by 2003. Ireland has amended its 1937 constitution 29 times.
Brett Dunbar 09.08.15 at 1:19 pm
Quite a lot. We are a democracy.
Politicians tend to be professionals but that is due to it being of necessity a full time career.
The politicians are accountable to the public.
Depends on which decision. That’s a separate issue though.
Free and open. There are for example a number of national newspapers holding a wide range of views.
Pretty strong. Pickets are restricted but that is rather different.
Layman 09.08.15 at 1:37 pm
“10 amendments in a century is pretty low, Germany amended the 1959 basic law 50 times by 2003. Ireland has amended its 1937 constitution 29 times.”
They should try aiming.
Plume 09.08.15 at 2:09 pm
It’s not useful at all to compare “household” income then and now. Individual income should always be the measure.
Why? Because until the 1970s, most “households” had just one income, and now most have two. It’s apples and oranges, obviously.
As David Cay Johnson points out here, the median wage for individual Americans is roughly $520 a week. When we compare household income across time, that fact is obscured, because today it often means two or more incomes per “household.”. A “household,” in fact, can even include the incomes of young adult children, roommates and so on. We should only compare apples with apples.
It is also important to note that when the poor and the middle have more to spend, they send that money upward in the economic food chain. The rich will end up with the vast majority of whatever the poor and middle make — if not 100% of it. The reverse is obviously not true. And this adds yet another factor that is NEVER included when talk turns to some sort of “equal” re-redistribution of income. This includes “welfare.” All welfare payments end up in the hands of far richer people, and most of it ends up with the 1%. Again, it is never the case that an equivalent flows down from the top . . . . otherwise we wouldn’t have so much grotesque inequality. For instance, by 2016 in America, the richest 1% will hold as much wealth as the “bottom” 99%.
Think about it. Just 1% of the population will hold roughly half of all wealth, leaving the other half for the “bottom” 99%. The 18th century denizens of Versailles would blush at such extremes.
Any discussion regarding income distribution that doesn’t account for the already obscene levels of inequality is, frankly, complicit in the manufacturing of that inequality.
Plume 09.08.15 at 2:13 pm
Brett @33,
Your definition of “democracy” is incredibly narrow. It’s never been limited to just the representational. Hence the use of “representative” in front of democracy for our current version.
And any form of democracy which does not also include the workplace in particular, and the greater economy in general, can’t possibly be an actual democracy. Its absence in economic matters guarantees its impotence everywhere else, at least in the modern world.
casmilus 09.08.15 at 3:33 pm
@35 the claim that Britain is a “republic” is definitely wrong.
casmilus 09.08.15 at 3:36 pm
@74
” what extent are political decisions responsive to preferences of population?”
It’s terrible – they abolished capital punishment and wouldn’t bring it back despite all the opinion polls.
Harold 09.08.15 at 4:10 pm
@82 — Quite right! UK a parliamentary democracy I should have said. Not sure it can be described as a monarchy, though. I guess that would go for other states that have figurehead monarchs. Sometimes these countries are called “Liberal democracies”, meaning that the citizens have the right of representation.
Harold 09.08.15 at 6:07 pm
@82. I suppose you could call UK a constitutional monarchy. But wait — Dutch Republic (i.e., the Netherlands) still has a monarch, how can that be? Maybe a political scientist/historian can straighten it out.
Brett Dunbar 09.08.15 at 6:44 pm
The current Dutch state is the Kingdom of the Netherlands, quite explicitly a monarchy. Since independence from Spain in has been:
United Netherlands (republic) 26 July 1581 (Declared)/30 January 1648(Recognised)
Batavian Republic (republic) 19 January 1795
Kingdom of Holland (monarchy) 5 June 1806
Annexation by the French Empire (monarchy) 1 July 1810
Kingdom of the Netherlands (monarchy) 16 March 1815
Brett Dunbar 09.08.15 at 6:45 pm
German Basic law, typo in my message that was 1949 not 1959, sorry.
Brett Dunbar 09.08.15 at 6:50 pm
Democracy is not an economic system it is a political and constitutional term.
While in theory you could have any economic system in a democracy in practise democracy only seems to exist in capitalist market economies.
engels 09.08.15 at 7:51 pm
“Quite a lot. We’re a democracy.”
Iow UK is democracy because it’s a democracy. Thanks for the conversation – I’m off to bang my head against a different brick wall.
Bruce Wilder 09.08.15 at 8:22 pm
The historical evolution of the British state has been an important model for constitutional democracy, with the Westminster system taken as a kind of template. So, no it is not a meaningless tautology to say that the British government denotes what is meant by a reference to modern representative democracy. It is actually a sensible way to have a discourse, superior certainly to groundless and formless, if soi disant, idealism.
Plucky Underdog 09.08.15 at 8:24 pm
Style nitpick: incomes are distributed exactly equally reads better as all incomes are equal
Harold 09.08.15 at 9:04 pm
I do think it is reasonable to qualify the word democracy, since it can have so many meanings. I think what Brett means is the rule of law (constitutionalism); and British constitutionalism existed long, long before the franchise became general. Didn’t you have to own property in order to cast a vote throughout much of the 19th century?
Bruce Wilder 09.08.15 at 9:17 pm
Harold, you have offered the opinion that a good reform of the U.S. electoral system would be to abolish the Electoral College, which mediates the popular election of the U.S. President.
You have not elaborated on your rationale, but, if I may ask, what is it? What shape would your proposed reform take? What problem would the shape of your particular, favored reform proposal solve?
Harold 09.08.15 at 9:38 pm
If the College were abolished then the president and vice president would be chosen by simple plurality, rather than giving what may be considered undue influence to some less populated states, as now. I understand a proposal to do this was almost passed, having obtained the support of Richard Nixon and a majority of Congress in 1970 but was filibustered to death by Strom Thurmond and some other Southern Senators, who felt it would diminish their influence. Perhaps it is unwise of me to go along with this, since, I have been used to frequently finding myself in the minority in many of my opinions, and therefore have a vested interest in upholding protections for minority views. But, be that as it may, since you have asked me a question that I am somewhat embarrassed to confess rather puts me on the spot, I will turn around and ask you, Bruce Wilder, if you would defend the existence of the Electoral College and if so, on what grounds?
Brett Dunbar 09.08.15 at 10:45 pm
Abolishing the electoral college (if you are going to stick with a presidential system you should probably go for something like AV or a run-off rather than FPTP) is one of those things that while good in principal isn’t going to make much difference in practice. There just aren’t that many cases of the electoral college not going with the most popular candidate. It happened in 1824, 1876, 1888 and 2000.
Run off has the problem that the French found in 2002. A far right candidate (Le Pen) came very slightly ahead of the main centre-left candidate (Jospin) due to him losing votes to various slightly m0re left wing candidates. So the second round was pretty much a coronation of the centre-right president (Chirac) who got over 82% of the vote. If Jospin had done a little better the second round would have been competitive
hix 09.08.15 at 10:57 pm
This looks complicated enough as written in the op, im also not quite sure if Davids suggestions, written less complicated would really add all that much. Economics is id say just fuzzy and not physics, there just are always base assumptions about humans. Or in other words the problem is not a lack of academic rigor, its just the subject which allows atacks that are not wrong against just everything written about it. More jargon does not make it less so and the op ones at least to this hopless strong prior lefty dont look all that revolutionary. Personally id think that the utility of extra money decreases even more with increasing income than the geometric mean approach suggests.
John Quiggin 09.08.15 at 11:24 pm
Martinned @68 Some hints on reading comprehension
1. “Here’s another excerpt” Readers should take this as an indication that the post is not a complete document, and that issues not mentioned in the excerpt have not necessarily been “completely ignored” in the book.
2 The OP asks “What about the case when we the choice is between a given increase for the worse off person and a larger increase for the better off person? ” Bearing in mind that this is a book about opportunity cost, a careful reader might infer that this is going to be linked to a discussion about the tradeoff between reducing inequality and maintaining incentives to innovate and invest. The relevant excerpt is already in draft and will be posted in due course.
3. . If the OP cites estimates from Diamond and Saez, and those estimates take account of incentive effects, then a logical reader might infer that the OP does take account of incentive effects
4. (Extra credit) Footnotes are a device used to cover side issues that would distract from the flow of the argument. If you read the chapter mentioned in footnote 1, you will find an extensive discussion of the counterfactual claim that low income earners would have done even worse in the absence of tax cuts for the rich etc.
If readers could bear these points in mind when reading future excerpts, the discussion will be improved, I hope.
Brett Dunbar 09.08.15 at 11:42 pm
The Gini coefficient of ancien regime France in the late 18th century has been estimated at 0.59.
Morrison and Snyder 2000 European Review of Economic History
http://www.piketty.pse.ens.fr/files/MorrissonSnyder2000.pdf
This is substantially higher than the USA 0.486 (pre tax) 0.378 (after tax) or the UK 0.456 (pre tax) 0.345 (after tax). As can be seen taxation and spending in modern advanced democracies has a fairly large redistributive effect cutting the Gini coefficient by about 0.11 in both. In contrast the Ancien regime had very little redistribution.
OECD figures for late 2000s tabulated on wikipedia.
https://en.wikipedia.org/wiki/List_of_countries_by_income_equality
Brett Dunbar 09.09.15 at 12:01 am
A difference between pre and post tax Gini of 0.11 is at the low end for the OECD. The only lower figures in the table are Iceland at 0.08, South Korea at 0.03, Mexico at 0.02, Turkey at 0.06 and Chile at 0.03. The highest are Austria Finland, Belgium and Germany all at 0.21.
Harold 09.09.15 at 12:06 am
@ 95. If it doesn’t make too much difference then that is probably not a bad thing. However, the elections of 1876 and 2000 arguably had some far-reaching consequences that made a distinct difference and not for the better.
greg 09.09.15 at 1:21 am
Is John Quiggin trying to apply a corrective to economics with his two lessons? Or am I missing the thread?
Bruce Wilder 09.09.15 at 2:51 am
Harold @ 94: “. . . if you would defend the existence of the Electoral College and if so, on what grounds?”
As Brett points out, the Electoral College has done a fairly decent job of providing a constitutional majority for the Presidential candidate commanding plurality support.
On the whole, I think you’d have to say the Founding Fathers were not having a good week, when they took up electoral procedures for the Presidency. They made a mess of it, creating a lame-duck Congress as well as a lame-duck President. They almost made Aaron Burr, President by accident of a tally that threw Jefferson’s first election into the House of Representatives.
The electoral college system as we know it is the result of patching up some of the most glaring defects, so now the electors are, in practice, committed partisans and they vote separately for P and V-P. Most people voting in Presidential elections are only vaguely aware that they are voting for a slate of electors, since the candidate for high office has his or her name on the ballot now. Political parties with articulated parts aimed at Congressional and State politics organize the election of the President.
The patched up system does have some virtues, that are sometimes overlooked, but may be very important in shaping the country’s politics. First, the electoral college handicaps purely regional parties. To have a reasonably good chance of winning, the Party supporting a viable Presidential candidate has to assemble a national coalition, with broad support, which usually dictates a rhetoric of compromise and moderation. It doesn’t do any good to run up huge majorities in one region of the country, and do without support in some others. That’s a really important feature for a large, continental country, where the President and Vice-President are the only national, elective offices. In practice, this has also meant that the same national parties organize Congress and the State Houses and, often, local government.
That it is not a plausible strategy to win by running up large majorities in a few States also means that the incentives for corrupting the vote count are limited. There’s a famous myth that Mayor Daley delivered the 1960 election to Kennedy, by outwaiting his equally corrupt Republican counterparts downstate and stuffing the Cook County ballot boxes to custom order. He may have stuffed the ballot boxes, but his support was not critical to Kennedy’s election nationally, and were not decisive to the outcome.
Corrupt vote counting and regional demagoguery are just examples of centripetal tendencies that the electoral college’s procedures (post-patching and post Party organizing) usefully dampen.
Politics is about resolving conflict, and the prime motive of a liberal constitution ought to be to channel politics toward rational deliberation as a means of resolving conflict, and to prevent the establishment of permanent tyranny, over the inevitable course of political cycles, when authoritarian figures, philosophies and coalitions may rise and fall and as the political economy centralizes and decentralizes. It is not possible for the “good guys” (however we might determine that at any one moment) to win every election; the most important task is to keep the game going, to keep the system open to rationally adaptive reform.
I see two serious problems with political understanding. One is a desire that politics should be automatic, combined with a naive kind of process idealism, that doesn’t have a real agenda for either policy or process.
Politics really does present a case, where the medium is the message, the process is the desired outcome. We want political institutions to channel competitive, strategic behavior into a political culture that gets better at resolving conflict and arriving at creative, adaptive reform. It is not enough to enact Policy X one time with 50% + 1 vote. All the big changes require repeated struggles and enactments through a long evolution. People complain that the American political system stalemates too easily, but that’s not the problem at all. The American political system requires large-scale organization to bring about concerted efforts, and it yields magnificently to that kind of politics. We’ve seen that with GLBT rights over my lifetime. It isn’t enough to win a ruling or enact a law; the process of political struggle and argument changes the political culture.
The major problem I see in American politics is the social atomization that makes sustained mass political organization around economic issues very difficult to achieve. Thank you, neoliberalism for destroying the institutional reservoirs of such political organization and then supplying distracting narrative analyses about racism and globalization and all kinds of other nonsense.
Bruce Wilder 09.09.15 at 2:55 am
changes the political culture and with it the small-c constitution.
Very important addendum.
Brett Dunbar 09.09.15 at 3:24 am
The electoral college is a truly stupid method of electing the president. It does however normally get the right result. It has a several failure modes that direct election lacks, they just tend not to come up that often.
It is actually quite vulnerable to a regional party. FPTP elections are. If you narrowly win enough states to get just over half of the college, you have won no matter what the rest of the electorate does. In 1860 Lincoln got 40% of the vote he won nearly every state that he won by an absolute majority and wasn’t even on the ballot in most of the states he didn’t win. Even if the other 60% of the electorate had voted for a single candidate Lincoln would still have won.
Harold 09.09.15 at 3:37 am
Thank you, Bruce Wilder, for your very interesting reply. I agree with your assessment of what politics is about — resolving conflicts through deliberation and also with much else that you say. Not sure I agree with your defense of Electoral College, however, but it is something for me to consider. I guess I will have to go back to my history books.
Harold 09.09.15 at 3:39 am
addendum — do we really have such great regional divisions in the United States? Isn’t it more a question of rural versus urban preferences and values even within states?
Bruce Wilder 09.09.15 at 4:02 am
Radical and centripetal politics backfired in the Election of 1860, but the radical and centripetal politics were not Lincoln’s politics. Lincoln’s election is an exception that proves the rule, as it was his conservative moderation and broad appeal as a champion of a popular consensus, in reaction to the devisive politics of the Slavepower, that secured his election.
Lincoln’s percentage of the popular vote is the least of any winning candidate in history. And, he did win solidly across quite a wide swath of the country — everywhere except in one, peculiarly obdurate region where an increasingly radical politics had been in play for a decade. Lincoln wasn’t a radical candidate; he was one of the most conservative leaders in his Party, with personal ties to the Southern state where he was born and where his wife’s slave-owning family lived. He quite deliberately positioned himself very, very close to his chief rival, the Illinois Senator and Democratic candidate for President, Stephen Douglas, on every issue save one, and on that issue, the difference was a subtle albeit crucial distinction.
Lincoln won largely because the Democratic Party self-destructed, as its Southern Slavepower elements refused to support the National Democratic Party and its popular candidate, Stephen Douglas, a nationalist champion of railroads and western development and expansion, while Lincoln did his best to leave only one difference between himself and his more distinguished Illinois rival, whose credibility as a national leader had been subverted by his fellow Democrats to the South.
Bruce Wilder 09.09.15 at 4:08 am
Harold @ 106: do we really have such great regional divisions in the United States?
Well, not now. But, I think that’s an outcome attributable in large part to the success of FDR’s Democratic Party, a political chimera of a coalition that wouldn’t have been put together, except that it was the only way to elect a President, who wasn’t a Republican. It was the Electoral College, in combination with the two-Party system, that put Southern segregationists into a coalition with liberals and trade-unionists and Catholic machine politicians and made them work together in Congress, to make reform in response to the Great Depression and to win a global war.
Bruce Wilder 09.09.15 at 4:13 am
William W. Freehling is a bit tedious and repetitive in his writing, but lays out the dynamics of Southern antebellum radicalism and how it created a conservative reaction.
Harold 09.09.15 at 4:40 am
But didn’t FDR also win the popular vote? He spent a great deal of time and had connections in Warm Springs, Georgia. And also, if we no longer have such great divisions, is there still a need for an Electoral College to mitigate them?-
I realize we are straying far from the OP — but I can sort of bring it back, in a round-about manner, I mean, aren’t some of the terrible inequalities we now have in the USA due to the awful compromises FDR had to make to appease the white Southern Democrats and specifically Agribusiness, which depended on debt peonage.
Brett Dunbar 09.09.15 at 4:59 am
Lincoln had demonstrated that a purely regional candidate could assemble a support base that was unbeatable. He wasn’t even a candidate in substantial parts of the south. He didn’t need and couldn’t win those states so little effort was required.
FPTP doesn’t punish simply writing off large areas an unwinnable and either not standing there or putting very little effort in. It concentrates the campaign in a few marginals the rest are either so safe that if you are looking at them changing hands then it’s over already.
john c. halasz 09.09.15 at 5:13 am
Deleted – JQ
Harold 09.09.15 at 5:20 am
It is not only rationality but input and exchange of information that people seek during what is called deliberation.
LFC 09.09.15 at 6:05 am
From the OP:
I could be wrong, but I think the second sentence in the above passage should read: “How big does the benefit [to the better-off person] have to be before it outweighs the opportunity cost?” Because as I understand it the question being raised, phrased in terms of utilities, is: How much additional utility to the better-off person is enough to ‘outweigh’ the cost of not (directly) increasing the worse-off person’s income/utility? Put that way, it seems a matter of empirical psychology. But if, as you say @97, “this is going to be linked to a discussion about the tradeoff between reducing inequality and maintaining incentives to innovate and invest,” then it gets into the broader question of whether the worse-off person might actually benefit more in the long run from a large increase in the better-off person’s income. (I’m v. skeptical about that whole line of reasoning, but anyway that seems to be what is being raised for consideration.)
LFC 09.09.15 at 12:54 pm
Re my comment @114:
I guess that sentence could be glossed in a different way than I did. Perhaps the passage could use some clarification, or maybe I was just reading it too late in the evening.
engels 09.09.15 at 1:44 pm
Bruce, no, the word democracy does not mean ‘the British system of government’ – that’s one of the silliest things I’ve read in some time – I’m fairly confident that pointing out that it does have a meaning and attempting to explore it critically does not make someone a ‘groundless and formless, if soi disant idealis[t]’ (although admittedly I’m not entirely sure what that means…)
Plume 09.09.15 at 2:29 pm
Regional differences: It’s far more than just rural versus urban, though that’s big.
I think Colin Woodard’s thesis of 11 American nations makes a ton of sense.
NPR interview
Plume 09.09.15 at 2:42 pm
The way America’s system is currently set up gives the GOP a huge advantage in local and state elections, while the Dems have demographics on their side for the presidential.
The GOP’s voters tend to be far more spread out, which makes it far more likely they’ll win more House seats. Dem voters tend to concentrate in cities, where individual Dem votes become overkill and total numbers of reps are reduced. In the aggregate, the Dems could receive millions more votes, while losing a majority of elections.
When feasible, we should be creating voter districts primarily according to population size, not geography. The way we do things now can result in this: One rep for a million voters in the city; ten reps for that same number, spread across a rural part of a state.
The other major problem is, of course, gerrymandering, where politicians pick their voters, instead of the reverse. We should draw things up using neutral computer programs, completely separate from, and out of the hands of, any political party.
Harold 09.09.15 at 2:49 pm
Perhaps Bruce Wilder was thinking of Churchill’s famous quote about democracy being the worst form of government, etc., etc. and the little man ( until 1918 he would have to have met a property qualification) who fights for his country and puts his mark on the ballot without fear, and so on.
I don’t think I am being an “idealist” when I say that on hearing the word democracy what immediately comes to mind my mind is not the little man and his property, etc., but rather recent studies that say that American voters today have very little, or perhaps no influence on our country’s policies.
Plume 09.09.15 at 3:05 pm
Harold,
True. Most studies say our political system ignores pretty much everyone outside the 1%. As in, literally ignores them when it comes to policy. Which makes sense. When “money equals speech,” more money equals more speech and more power, and politicians owe their donors corresponding favors. The bigger the donor, the more they owe.
To me, the idea that money equals speech is one of the most odious concepts in all of politics, and obviously anti-democratic. It’s a pure fiction invented by the rich to cover legal bribery, graft, influence peddling and endless quid pro quo.
JW Mason 09.09.15 at 3:27 pm
So here’s an interesting implication of the oP analysis.
From the point of view of social utility, we want everyone’s consumption to be equal — that follows directly from the declining marginal utility. But incentives require that people’s incomes be linked to their contribution to the social product. Given a variety of innate abilities and relative preferences for leisure over work, this implies that there should be variation in people’s realized incomes.
This is usually presented as a tradeoff, where we somehow equate the extra effort elicited by an incremental increase in income inequality with the diminished marginal utility from an incremental increase in consumption inequality. (John Q. only discusses the second half of the equation here; presumably he discusses the first half in the book.) The problem is exacerbated by the fact that the high incomes of the most productive reduce the marginal utility of additional income, so higher leisure will be chosen by those whose work would contribute most to social welfare.
But there is actually a solution in which we get both optimally equal consumption and optimally unequal income. The trick is to remember that consumption depends on wealth (or lifetime income), not on current income So all we have to do is to have the initial distribution of wealth be inversely related to expected market income. Then we can have a situation n which income perfectly reflects marginal product without any resulting consumption inequality. This not only achieves optimal consumption inequality without any sacrifice of output, ti actually results in higher output than the pure market case, since the most productive members of society are no longer discouraged from working by the low marginal utility of additional income. In fact, for this reason the lump-sum tax should be large enough to result in lower consumption by the most productive, so that their marginal utility of income will be higher and they will contribute more labor than less productive individuals.
I proposed this a while back as <a href="http://jwmason.org/slackwire/bergerson-solution/"the Bergeron Solution, after the Vonnegut story. It seems to me that a lump-sum tax on innate ability, ideally levied at birth, is the logically unassailable under the premises of the OP.
Now presumably John Q. doesn’t want to follow his premises in that particular direction. But you could use the same kind of reasoning to reach the more palatable conclusion that, if successful parents pass on abilities in some form — genetic or otherwise — to their children, that strengthens the case for steep inheritance taxes. Because the people whose labor is expected to increase the social product the most, are the ones we want to contribute the most labor, which means the ones we would like to have the highest marginal utility of market income and therefore the lowest wealth.
Bruce Wilder 09.09.15 at 3:42 pm
Perhaps I was thinking.
Today, in the NY Times, there is an article about the Democratic candidate for Governor in Mississippi. Interesting.
Democracy is something people do, or fail to do, something they do well or fail to do well. It is not a “system” running on auto-pilot, or a restaurant where the sovereign electorate orders off a menu.
If billionaires and corporations are the only ones playing, that is definitely democracy failing. Or, being failed by our neglect of the effort the democratic process requires.
I would never say the rules do not matter. I am fascinated by the rules and how rules, and the possibility of making rules, shapes political behavior. But, politics is the effort to play by the rules, overcome the rules, change the rules — politics is not the rules; politics is the effort — organizing the effort changes things, cultures, peoples, etc.
That democracy — actual workable, working states with complex institutions evolving historically — is institutionally complex ought to be more interesting than a simple-minded critique derived from idle fantasy.
LFC 09.09.15 at 3:47 pm
@JW Mason 121
This assumes that “the most productive members of society” are in fact those who earn the highest incomes, which I realize is the ‘classical’ or conventional view among a lot of economists, but seems at odd with some real-world evidence, such as the huge incomes of some people whose ‘labor’ consists of doing often unproductive things with complicated financial instruments or going to a lot of meetings about corporate marketing strategy. Having “the initial distribution of wealth be inversely related to expected market income” may well be a good idea, but perhaps there are more persuasive ways to defend it than yours here (?).
steven johnson 09.09.15 at 3:51 pm
Nine Nations of North America (1981) or Colin Woodard’s eleven?
If you get a different count on the regional cultures, maybe they don’t really exist?
Bruce Wilder is quite correct that in many respects Lincoln was a conservative candidate, in the sense of being extremely legalistic. But his adamantine commitment to restricting the spread of slavery was equally an adamantine commitment to ending the South’s regional domination of the federal government, which everyone knew, including himself, meant the eventual emergence of a majority that could amend the constitution and abolish slavery. This was highly divisive.
May I suggest Stephen Douglas was rejected by the southern democracy because he was soft on this threat. Further, Douglas’ policy was put to the test in Kansas. The violence there and its sequel written by Osawatomie Brown played I think an overlooked role. It is a time honored tradition to minimize the importance of those events but I don’t think long popularity is no guarantee of truth.
Further, Lincoln’s Whiggish commitment to commercial/industrial society in itself threatened slave society in a different, more diffuse or global way, just as Alexander Hamilton’s did. We could view Hamilton as the inventor of the Cotton Whig, with his efforts to promote assorted Pinckneys. And his failed political career displayed the long term impossibility of that project. If I remember correctly in Hamilton’s last project as party leader, elections in New York, it was his opposition that had all the big names. Hamilton only had new men, accomplished enough in their way, but nobodies in the old order. The thing is, new men are never going to be the rock upon which a slaver aristocracy can be built.
Plume 09.09.15 at 3:54 pm
Bruce @122,
I agree with much of what you say. I use “system” far more than I should, but mostly as a shortcut to save time and bandwidth. In reality, I think Yuval Harari is far closer to the truth. After watching and thinking about his fantastic TED talk, regarding his recent book, I’m convinced he’s found a kind of Rosetta Stone for our culture, our times.
Humans survived and thrived primarily because they cooperated with one another. And the main galvanizing force behind that cooperation was our ability and desire to create fictions. Agreeing on those fictions enables cooperation. Widespread agreement enables widespread cooperation.
Democracy is a fiction, as are capitalism, all religions, nation-states, etc. etc. It’s all fiction. The key is whether or not they’re good, useful, uplifting fictions or the reverse. The key is if they benefit humanity, the earth, etc. etc. or not. It’s vital that we recognize what we’re dealing with, that it isn’t “reality,” and go from there.
This recognition frees us from so many chains. Knowing these are all fictions, handed down to us, usually by the powers that be for their benefit, not ours, emancipates us from the idea we must continue to agree to these things, especially those which harm us and nature. If we agreed to new fictions tomorrow, we could get rid of all that ails us. It just takes widespread agreement to change our fictions for new ones.
Perhaps someday we won’t even need those. Reality will be enough.
Harold 09.09.15 at 3:56 pm
I keep thinking of my friend’s neighbor in rural Maryland who drove a tractor for 25 years for a large tree nursery, was laid off with five days notice, whose cataract operation was not a success, and who is too young, in his mid fifties, to qualify for any assistance. Certainly an extra four percent on his small savings would have utility for him, but the banks charge high fees pay hardly any interest to low income people. This came up in a discussion we were having — he listens to Rush Limbaugh — and it haunts me when people talk about economics.
Barry 09.09.15 at 3:59 pm
steven johnson
“Nine Nations of North America (1981) or Colin Woodard’s eleven?
If you get a different count on the regional cultures, maybe they don’t really exist?”
No.
engels 09.09.15 at 4:13 pm
That democracy — actual workable, working states with complex institutions evolving historically — is institutionally complex ought to be more interesting than a simple-minded critique derived from idle fantasy.
We’ll have to agree to disagree on this. Liberal-splaining that the real world is complex and class rule is inevitable interspersed with implausible lexicographical pronouncements (democracy _means_ British parliamentarianism) and empty name-calling of opponents (‘idle’, ‘simple-minded’, etc) is actually pretty boring in my opinion.
Harold 09.09.15 at 4:21 pm
@127 or David Hackett Fischer’s four British folkways (really three plus miscellaneous)!
steven johnson 09.09.15 at 4:56 pm
Barry @127 How many are there, and how did you prove either nine or eleven is correct?
Maybe we should just compromise on ten, to be selected as convenient for discussion?
Harold 09.09.15 at 5:10 pm
Well, reading things over, perhaps Bruce Wilder is simply saying that we have a democracy (in the common use of the term, meaning ‘liberal democracy’) but one that may not be/is not working as it’s supposed to, because the ultra-wealthy have been able to acquire too much influence. To simplify horribly. Not sure that this is the whole explanation.
engels 09.09.15 at 6:48 pm
Democracy doesn’t mean ‘liberal democracy’. That’s only ‘commun usage’ in the same way that eg. calling US and its allies ‘the free world’ is common usage: ie. it’s propaganda. And if liberal democracy was ‘supposed to’ do anything (by its inventors), it was to protect property-owners from democracy (as Steven Johnson pointed out).
As for democracy (in the original and literal, not the liberal BS, sense, ie. a society where the people, not an elite, make political decisions) being an ‘idle fantasy’ that’s not just patronising but ignorant: there are plenty of historical examples from classical Athens onwards and today there are states such as Switzerland which are far more democratic than UK.
But as I said, this is getting unbelievably boring….
Harold 09.09.15 at 7:57 pm
@132. That’s the technical term when used for countries like the US., France, and UK, Engels. Or was until recently. In fact those are not Direct Democracies (to distinguish), we all know that. Finland was the first (in the twentieth c.) to extend universal suffrage to its citizens — in 1906. Before that the Corsican Republic (constitution supported, if not designed, by JJ Rousseau) and the Paris Commune, both considered rather radical experiments at the time. So radical they were rather quickly suppressed. One might say the same for the the Commonwealth of Poland’s liberal government of 1791, which lasted nine months before the country was swallowed up by its neighboring (soi-disant enlightened) absolute monarchies.
Finland, which from the first allowed women to hold office, is still remarkably egalitarian, I think not least because women had a large part in designing its constitution.
It was only after ww2 that it became commonplace to speak of Liberal Democracy as a sort of desirable default, pace Churchill, Tocqueville, and Wilson.
TM 09.09.15 at 8:22 pm
The biggest issue with the Electoral College, apart from the rare but significant possibility that a minority candidate wins the presidency, is the fact that most states don’t matter at all for the outcome. Candidates for president don’t have to even try convincing most people in most places, their job is to pander to a narrow slice of the electorate in a small number of battle ground states. In the reliably blue or red states, the minority party just demobilizes – it’s waste of money to even campaign. That is not a good outcome by any standard of democracy.
As to BW’s argument about regionalism, I don’t see how a purely regional candidate could plausibly win the popular vote. Also, the US is a de facto 2-party state.
JW Mason 09.09.15 at 9:03 pm
This assumes that “the most productive members of society†are in fact those who earn the highest incomes, which I realize is the ‘classical’ or conventional view among a lot of economists, but seems at odd with some real-world evidence
Oh for sure. I was just adopting the premises of the OP. If there is no relationship between income and productivity, then the question is much easier. Income and consumption should be equal for everyone, or more precisely, to each according to their needs. Distribution only raises interesting questions in this framework if there is some correlation — it doesn’t have to be exact — between one’s reward and one’s contribution to the social product.
Barry 09.09.15 at 9:22 pm
steven johnson 09.09.15 at 4:56 pm
“Barry @127 How many are there, and how did you prove either nine or eleven is correct?
Maybe we should just compromise on ten, to be selected as convenient for discussion?”
What’s your background?
engels 09.09.15 at 10:01 pm
Harold, the technical term is ‘liberal democracy’.
engels 09.09.15 at 10:21 pm
Btw technical term for North Korea is ‘Democratic People’s Republic of Korea’ I’d hope it’s possible to express scepticism about it being all that democratic or much of a people’s republic without becoming a head-in-the-clouds idealist who prefers idle utopian fantasies to the complexity of the real world…
John Quiggin 09.09.15 at 10:54 pm
@JWM I like your argument, but I’m not going to be doing ideal theory of this kind. Rather, I’m working from the final para OP, and from estimates like those of Diamond and Saez, to make the point that more progressive tax-welfare policies will always be in the direction of improved social welfare. And of course, I’ll be restating my favorite point that the more equal are lifetime outcomes in one generation, the more equal are opportunities in the next.
Martinned 09.09.15 at 11:38 pm
@John Quiggin 97:
Thank you for your concern with my reading comprehension. As your feedback to my feedback was so constructive and not at all condescending, allow me the honour of a further riposte:
1. Omitting a relevant consideration isn’t any less misleading if that consideration is discussed somewhere else. Usual best practice is to at least mention them all at the top, before discussing each in turn. If the full text actually does that, you have my congratulations. I was asked to give feedback to the text in the OP, not an entire book in pdf. If you want me to help you edit an entire book, I’m sure there’s an hourly rate we could agree.
2. My comments reflected my understanding that you intended a book for a lay audience, so I assumed you weren’t assuming a “careful reader”.
3. This logical reader inferred that that was what Diamond & Saez did. Given the entirety of the text in the OP, I didn’t exactly feel confident that you understood what that line meant, much less that you were addressing it somewhere. (I’m sorry if that makes me a less than logical reader. Given that your economic analysis, here and in other posts, has a funny way of always concluding that we need more socialism, I logically inferred that you might miss an argument that points in the opposite direction.)
4. Like I said, if you want me to edit your entire book for you, you should probably pay me.
John Quiggin 09.10.15 at 4:26 am
Martinned @140 As you can see from this and previous threads, I have plenty of of careful and logical readers willing to offer sympathetic and constructive comment and criticism. I also have a fine professional editor. So, I’ll have to decline your offer of providing editorial services for pay. However, I thank you for providing a negative example of the kind of approach I want others to avoid.
Martinned 09.10.15 at 11:00 am
OK, shorter still then: if someone goes to the trouble of giving you free feedback after you’ve solicited it, complaining that the feedback isn’t good enough is, to put it mildly, poor form.
Barry 09.10.15 at 12:25 pm
Martinned 09.10.15 at 11:00 am
“OK, shorter still then: if someone goes to the trouble of giving you free feedback after you’ve solicited it, complaining that the feedback isn’t good enough is, to put it mildly, poor form.”
Wrong, of course, for obvious reasons.
steven johnson 09.10.15 at 1:04 pm
Barry @136 “What’s your background?”
I went to grade school. That’s where I learned that nine does not equal eleven. The later stuff is irrelevant.
Barry 09.10.15 at 5:49 pm
steven johnson 09.10.15 at 1:04 pm
Barry @136 “What’s your background?â€
“I went to grade school. That’s where I learned that nine does not equal eleven. The later stuff is irrelevant.”
Well, wrong again.
Let me be explicit: When two different people study a complex phenomenon at different times, likely using different methods, they frequently end up with different counts. That does not mean that the phenomenon doesn’t exist.
They’d have covered this in college, along with many other useful things.
JW Mason 09.11.15 at 4:11 am
I’m not going to be doing ideal theory of this kind. Rather, I’m working from the final para OP, and from estimates like those of Diamond and Saez, to make the point that more progressive tax-welfare policies will always be in the direction of improved social welfare.
I’m on board with the goal, but I’m afraid in the context of this post it feels like a bit of a non sequitur. I don’t think there is any strong logical connection between preferring the geometric to the arithmetic mean of income as a measure of social welfare, and favoring a more equal distribution of income.
If we believe in declining marginal utility of (market) income, then the welfare-maximizing distribution of a given total income is perfect equality; this is true regardless of the specific form you give the decline. The case for any other distribution is going to depend on your beliefs about the importance of incentives for contribution to the social product, and about the degree of variation across individuals in their capacity (and willingness) to contribute. It’s perfectly possible to be a strict Rawlsian on the utility side (a stronger position than you take0 but also to believe that our current policies are excessively egalitarian. There is no shortage of people who will tell you that egalitarian policies have, on balance, reduced incomes at the bottom of the distribution, by reducing growth. I bet if the Booth School did one of their polls of economists on that statement, you’d find at least 25% of the respondents would agree with it.
As a matter of logic, something like the Saez and diamond estimate depends just as much on the assumptions about the incentive effects of higher taxes, as on the assumptions about utility from income. And in practice it seems to me that the debate is mostly over the first set of assumptions. But in this post you write as though the policy conclusions followed directly from the utility function, with the incentive effects — where the real action is — barely mentioned in passing. It simply is not true in general that
a policy aimed at maximising the geometric mean of income would be substantially more egalitarian than anything that has ever been seen in a market economy.
It might be, it might not. It all depends on how a more egalitarian policy would affect output.
Again, I’m not saying you’re wrong, just that if you want to convince people who are not already on board, you need to give more weight to the other side of the equation. I think very few people disagree that an additional dollar of income brings more benefit to a poor person to a rich person; what they doubt is that a policy of taking dollars from the rich will actually raise the income of the poor in the long run.
steven johnson 09.11.15 at 4:43 am
Barry@145 “Let me be explicit: When two different people study a complex phenomenon at different times, likely using different methods, they frequently end up with different counts. That does not mean that the phenomenon doesn’t exist.”
Of course it means the phenomenon might not exist and failing to recognize the possibility is absurd. And refusing to address which count is better concedes everything. Let me be explicit: Insolence may play well to the gallery, but you still have played the fool.
Collin Street 09.11.15 at 4:45 am
I went to grade school. That’s where I learned that nine does not equal eleven. The later stuff is irrelevant.
Incomprehension is a pretty good sign that the error is on your part.
Your own errors are harder to see than those of others, for reasons I won’t go into. Which means that if you can articulate the reasons that you and someone else are coming to different conclusions, it’s probably because you can see the mistake being made and thus it’s more likely to be a mistake on the other person’s part.
… and thus conversely if you can’t articulate the reasons that you and someone else are coming to different conclusions, it means you can’t see the mistake, which means that odds are it’s one you’re making rather than the other guy.
It’s not 100%. There’s two separate conditionals, so there’s plenty of scope for it not to be that reliable. But since it’s just so trivially simple to run it’s a magnificent heuristic.
steven johnson 09.11.15 at 4:53 am
^^^Since you’re the one who didn’t comprehend, this elaborate makes you look really bad.
For the record, I wrote “Nine Nations of North America (1981) or Colin Woodard’s eleven?
If you get a different count on the regional cultures, maybe they don’t really exist?”
The deep comprehension and fluid articulation of reason, the heights to which you vainly aspires, was “No.”
Your admiration of that says it all.
Timothy Scriven 09.11.15 at 4:55 am
Hey John, you’re probably not reading the comments still at this point, but I believe that there is some research suggesting that taking the log of income is insufficiently egalitarian EVEN FROM a utilitarian perspective, because the marginal utility diminishes faster than the natural logarithm. Dunno if it’s true, but worth investigating.
Peter T 09.11.15 at 5:37 am
I think the assumption that individuals are rewarded in proportion to their effort (perhaps not totally, but fairly closely) needs challenging. The whole point of complex production systems is that the individual contribution of any given type is unmeasurable. What’s the bit of your car that contributes the most to its functioning – the expensive air conditioner or the few cents of rotor arm? Who makes the greater contribution to a hospital – the nurses or the personnel officer? We can pay Susan the file clerk a bit more because she is a better file clerk than Joe (that is, we can measure comparative performance in the same job). But file clerks vs delivery drivers? No clue, except for custom, union power and so on. Distribution in complex systems is political. So the case for fairer distribution is also political. That it can make the system run better (up to a point) is an economic bonus, but one that recurves to the old question: better for who?
Collin Street 09.11.15 at 6:09 am
Since you’re the one who didn’t comprehend, this elaborate makes you look really bad.
On the top line of each comment is a label. There’s a wide variety of labels, and it’s been my experience that comments with the same labels tend to repeat themes and comments: it’s almost as if each different label represented an entirely different view on the world.
That’s not possible, of course: there exist only two things, “me” and the protean, multifaceted “other”.
John Quiggin 09.11.15 at 8:33 am
Indeed, as I’ve argued , Rawls himself can be seen as an exemplar, given his hostility to progressive taxation
But, I’ll restate more politely the point I made to martinned. This is an excerpt, and you should read on the assumption that obvious gaps will be filled in a way that makes sense. Of course, the Diamond and Saez stuff depends on empirically-based claims about incentives. The fact that I endorse DS here implies that I broadly agree with those claims.
More soon.
John Quiggin 09.11.15 at 8:35 am
@150 I’ll talk about this in the optional section, but I’ll be coming back to the final para of the OP. Since maximizing log utility would be far more egalitarian than we are likely to get any time soon, the question of whether it’s egalitarian enough is in the realm of ideal theory.
ZM 09.11.15 at 10:54 am
Yesterday uni held a public talk at the new theatre in Bendigo on how Federation and Taxation/Revenue are working at the moment, and what changes could improve things.
The speaker from PWC said that he thought the main impediment to reform is the lack of trust, for instance people are against a rise in the GST because it is regressive and they don’t believe low-middle income groups will be adequately compensated. Most of the speakers wanted a higher GST, some wanted the Commonwealth to move out of areas like education, and John Brumby wanted COAG to be improved and new rules of conduct brought in so politicians have to be more polite like businesses.
It was quite disappointing that no one mentioned any reforms about sustainability and climate change. I couldn’t ask a question so I couldn’t bring them up. Of the whole panel only John Hewson brought up climate change right at the end in an answer to a high school student’s question, saying young people were ahead of people in power in wanting action on climate change.
How this is connected to the OP is that the distribution of income/goods is of necessity related to the total pool of income/goods.
Income is a poor measurement, as money and prices are not grounded in anything, as you can see from things like the Dutch Tulip Craze and the South Sea Bubble.
Which leaves us with the total pool of goods.
The speakers who didn’t mention sustainability and climate change when they spoke about taxation revenue streams did not consider, for instance, that increasing the GST as well as being regressive means the government has in interest in increasing the consumption of goods so it can raise more GST.
But as the total pool of goods consumed in Australia is too high now, the consumption of goods should decrease, and government policy should be about encouraging this decrease to a point where the total pool of goods consumed is ecologically sustainable.
So the panelists that supported implementing micro policy reform that would rely on the GST being a greater contributor to revenue is a poor idea, as the macro policy agenda should be to decrease the consumption of goods in Australia.
(I suppose they could increase the GST as a lever to decrease consumption, but that would be a regressive lever like it is a regressive tax)
If we are looking at decreasing consumption to be ecologically sustainable, there is not much of a reason to want to increase total income, but in this scenario of a reform package that decreases the total pool of goods, the question of distribution remains.
I think it is a flaw that distribution is always linked to growth in income, and thus growth in consumption and growth in the total pool of goods.
The question of the proper amount of the total pool of goods should be disentangled from the question of the proper distribution of goods.
This is a problem with using money as an indicator, because although money is alright to indicate the pattern of distribution, it is poor at indicating the amount and qualities of the goods.
Thus, due to being such a de-materialised indicator, using money as an indicator encourages policy makers to always recommend that the problem of proper distribution should be solved by economic growth — without enough consideration of the material impacts of economic growth.
So I think the geometric mean technique is the better one, as you can keep the geometric mean the same while decreasing income and consumption.
But it would be better still if there was a more material measurement of the total pool of goods and the distribution of goods instead of money.
Barry 09.11.15 at 11:52 am
149
steven johnson 09.11.15 at 4:53 am
“^^^Since you’re the one who didn’t comprehend, this elaborate makes you look really bad.
For the record, I wrote “Nine Nations of North America (1981) or Colin Woodard’s eleven?
If you get a different count on the regional cultures, maybe they don’t really exist?â€
The deep comprehension and fluid articulation of reason, the heights to which you vainly aspires, was “No.â€
Your admiration of that says it all.”
Gawd. Aside from the fact that you’ve left coherent English behind, your ignorance is stunning.
Plume 09.11.15 at 1:31 pm
Peter T @151,
Compensation per job is entirely arbitrary, and I really like Yuval Harari’s thesis on the rise of humans via created fictions. It explains so much. That humans rose to dominance largely because they developed the ability to cooperate with a far wider set of their fellows, and that our ongoing invention of fictions was/is the main galvanizing force.
To me, it’s patently immoral that we have a system that allows a tiny fraction of humanity the power to decide how our time is measured and valued. It’s a fiction, with thousands of fictional conventions within it. It’s not anything approaching any recognizable reality. For instance, how or why on earth would some CEO of a fast food company be valued a thousand times more than a nurse, a teacher, an EMT worker, a carpenter, a mechanic, etc. etc.? It’s solely because the class “CEO” decides these values. There is no “reality” to measure this against and come up with an empirically based distribution, etc. . . .
But we don’t even utilize common sense measures available to us for these things . . . . like, social good, social utility, etc. etc. If we did, people who helped us expand our intellectual and physical horizons would be paid far more than anyone who makes money by radically suppressing the wages of their workforce.
Collin Street 09.11.15 at 9:15 pm
Gawd. Aside from the fact that you’ve left coherent English behind, your ignorance is stunning.
Empathy problems have really distinctive linguistic effects above the sentence level.
https://en.wikipedia.org/wiki/Cooperative_principle
Bernard Yomtov 09.11.15 at 10:15 pm
Compensation per job is entirely arbitrary,
If so, why do some employees get paid more than others. I’m not talking about CEO’s or other top-level managers, just, say, engineers vs. janitors.
engels 09.11.15 at 10:32 pm
Market power, I assume: if you have a rare skill you can hold out for more money. That doesn’t mean you’re making a greater contribution.
Peter T 09.11.15 at 11:51 pm
“why do some employees get paid more than others?”
It’s not entirely arbitrary. But it’s not personal, it’s social. Take two truck-drivers: Joe drives his truck from one computer-directed destination to another, over good roads; Ahmed drives his truck over bad roads, can fix breakdowns, routinely negotiates past officials and bandits, has map in his head, finds alternate routes…Ahmed has more skills, a more difficult job, is paid much less. Or the US factory that is shipped to China: same jobs, different pay. What counts is the degree of social productivity; how that is divided up has no simple economic answer.
Plume 09.12.15 at 12:06 am
Bernard @159,
Engels at 160 basically nails it.
Of course it’s entirely arbitrary. First off, it’s obscenely immoral (IMO) to value human beings in such radically disparate ways. The effect of this arbitrary valuing is that we’re treated like different species, with a very tiny fraction at the top of the heap considered fully human, and then other, “lesser” forms down the hierarchical chain of being. And people are used to this. They’ve grown accustomed to it. So accustomed to it, most people likely never give it a second thought. Which, of course, is just what the powers that be want. They want compliance. They don’t want anyone questioning the order they’ve created, which is all based upon fiction. Fiction. Absolutely nothing but fiction.
Eli Manning, for example, just signed a contract extension for 84 million dollars, for four years of his time. While I am a diehard football fan, especially the NFL, there is simply no way to justify that kind of money in relative terms. No way to justify what his bosses make, either, of course. But someone who plays football doesn’t actually contribute to the health and well-being of society anywhere near as much as, again, a nurse, a teacher, an EMT worker and so on.
(It is also the case that if he had played in the 1970s or earlier, he’d be lucky to make in the 25K – 35K range. Salaries for sports stars in most of the major sports leagues have skyrocketed in recent times, dramatically outpacing 99% of the rest of the populace.)
Admittedly, some might say my valuation is arbitrary as well. So the obvious way around that is to fully democratize this process, which would lead to a dramatic flattening of the pyramid. If everyone has a say, and all voices are equal, we’re very likely to end the fictions invented and promulgated by a fraction of society, and we can all be full human again.
Plume 09.12.15 at 12:18 am
Peter T,
You hint at one of the truly despicable pay divisions. If we use your rationale for superior skills and/or more dangerous work . . . . that’s obliterated when it comes to the someone working in the US, or Germany, or New Zealand, say, as opposed to Foxconn in China. It’s quite possible that a worker there is far more highly skilled, works in more dangerous conditions, but makes literally 70 cents an hour. His or her peers in the “developed” world likely make 25 times as much, whether they’re as “skilled” or not.
Workers are paid as little as ownership can get away with. That’s what all of this really boils down to. They pay themselves from the suppression of workers’ wages, so they have every incentive in the world to do this. It’s baked into the system.
One big fiction that capitalists and their shills have managed to foist on the world is that everything they do has some sort of virtuous logic to it, can’t be otherwise, and always goes according to “natural laws” of some sort.
Not on their best day ever. It’s nothing but a highly developed and successful fiction, with nothing but fiction to support it. They pay the least amount to workers they can get away with and nothing more. As Engels mentioned, in those rare cases when someone is seen to have a kind of temporary monopoly on something ownership wants — star power, for instance — they’ll pay more for a time. But none of this goes according to any kind of virtuous logic or natural law necessity, and it’s always just temporary. It also almost never makes sense from the point of view of positive contribution to society. Exceptions, of course. But that’s rare.
Bernard Yomtov 09.12.15 at 2:05 am
Plume,
“Engels at 160 basically nails it.”
What Engels wrote is:
Market power, I assume: if you have a rare skill you can hold out for more money. That doesn’t mean you’re making a greater contribution.”
This sounds right to me.
But then you say:
Of course it’s entirely arbitrary.
Well, is it market power or is it entirely arbitrary? As usual, you seem to want it both ways. If I, as a worker, have market power due to my skills then what I make is not, in fact, arbitrary.
Plume 09.12.15 at 3:31 am
“Market power” is arbitrary. Again, the kinds of skills sought are arbitrarily chosen by a tiny few. To suit their immediate greed. To suit their immediate interests. That makes it arbitrary overall for society.
One could say it’s not arbitrary for the CEO. But for society as a whole, for humanity, etc. etc. and the earth, for our history on this planet . . . zooming out, it’s completely arbitrary and absolute nonsense.
And, as mentioned, this is always only temporary. The desire for these skills comes and goes, depending on a host of factors, none of which makes any lasting sense.
Again, why should a QB make 25K in the 1970s and 20 million today? Eli Manning isn’t more skilled than the best QBs from that era.
Why should a banker make millions today, when prior to the neoliberal era, he or she likely made mid-five-figures? And why should jobs that paid solid middle class wages in the 1950s and 1960s now pay minimum wage? Many so-called “blue collar” jobs are that way now. An autoworker in the Detroit of the 1950s made much more than his peers now in Tennessee. Not just adjusted for inflation. But in real terms. And his peers today likely have to learn more complex technologies and work at a far faster pace.
It’s fiction. Capitalism is fiction. All the so-called “rules” about it are fiction. It only works through agreement about that fiction. Agreement at the top and acquiescence elsewhere — unconscious and conscious.
Collin Street 09.12.15 at 3:33 am
> Well, is it market power or is it entirely arbitrary?
See, “market power” is the net result of what it’s selected to spend the money on, and “income distribution” is what it’s spent on. I mean, this isn’t a metaphor or an oversimplification, it’s the actual physical 100% reality: there’s not a feather’s thickness of difference between the two concepts.
Because it’s a feedback relationship, the actual shape that market power / income distribution takes can ultimately be pretty much anything, and exactly which one you wind up with is a contingent fact of history[1]. And thus “arbitrary”, in the sense that it’s not constrained by any important-to-the-analysis factors.
[1] Actually feedback means there’s a strong tendency for the distribution to be highly uneven, but exactly what jobs gets the “favoured by market power” is not constrained.
Plume 09.12.15 at 3:49 am
Another obvious aspect is that the particular skills sought are going to be limited to what makes money for ownership. Obviously. Duh, as the young kids used to say. So someone with amazing skills in healing the sick, teaching, writing poetry, painting, music and so on . . . . if it can’t be cashed out, it’s not going to be in demand.
Business is extremely narrow in this way. What it values is incredibly narrow. Though capitalism has colonized most aspects of life, and is nearly impossible to escape, tragically, there are still things that humans do, and do really, really well, that can’t be monetized. So the capitalist economic system radically devalues them. They don’t count. People who can do a host of amazing things . . . . if these aren’t seen as adding to the bottom line of business owners, business owners won’t pay much if anything for them.
But they’re still highly skilled, and a case can be made that their contribution to society is a thousand fold more important than any businessperson. A case can be made that they make life infinitely better for the vast majority than any CEO.
It’s entirely “arbitrary,” when we zoom out Big Picture. And it’s tragic that we allow a fraction of society to define our value, control it, control our wages and dramatically limit what is considered worth paying.
Bernard Yomtov 09.12.15 at 1:18 pm
Again, why should a QB make 25K in the 1970s and 20 million today? Eli Manning isn’t more skilled than the best QBs from that era.
What a remarkable question from someone who claims workers are always exploited, etc.
The reason professional athletes in team sports make so much more money today than 40-50 years ago is free agency. In the earlier era they were tied to their teams and could not sign with others. So any revenue they generated went to the team owner, who only had to pay some moderate amount. It didn’t matter how much fans were willing to pay to watch Johnny Unitas, or how much advertisers would pay to promote products on televised Colts games.
Today, by contrast, the players can share in that revenue, precisely because they are free to switch teams. What are you complaining about? Do you think the teams would take in less money without free agency? No. They wouldn’t. But the owners would keep it all.
Bernard Yomtov 09.12.15 at 1:20 pm
Another obvious aspect is that the particular skills sought are going to be limited to what makes money for ownership. Obviously. Duh, as the young kids used to say. So someone with amazing skills in healing the sick, teaching, writing poetry, painting, music and so on . . . . if it can’t be cashed out, it’s not going to be in demand.
Rather, what people are willing to pay for. How much money have you spent on poetry this year, Plume? Don’t blame capitalism.
Bernard Yomtov 09.12.15 at 1:51 pm
Collin Street,
No need for the patronizing tone of your first paragraph.
But really? There’s no such thing as skills that are inherently more useful to society than others, except as arbitrarily determined by a secret cabal of billionaires or by completely random factors?
engels 09.12.15 at 1:59 pm
Bernard, see Peter’s example above. What contributes more to the running of a car (which part is “inherently more useful’ to it): the axel, the wheels or the fuel tank?
engels 09.12.15 at 2:26 pm
There’s no way of valuing individual contributions to a cooperative production process. It’s certainly possible to argue that some activities (caring for old people) are more valuable than others (marketing cigarettes).
Plume 09.12.15 at 2:27 pm
Bernard,
In the capitalist system, a worker is only “valued” to the degree he or she makes money for ownership. That’s it. That’s the extent of it. People are truly delusional if they think this is a meritocracy, or that they’re paid more because of some inherent superiority to other workers. It’s not your skills. It’s all about how much money you can make for your boss. If your skills don’t translate to more money for ownership, ownership isn’t going to even begin to consider paying you more.
And, again, zoom out Big Picture. Nothing could be more arbitrary or more irrational than that. That a society would allow this extreme narrowness for valuations. It boils down to the ability to please less than 1% of the population.
As for the QB example. I agree that free agency played a huge role in that. But if that were the main factor, why didn’t the vast majority of workers see a similar rise? As conservatives like to tell us, workers are “free agents” too. We can all quit our jobs and go elsewhere if we choose, right? So, why didn’t teachers see an equivalent raise in pay over that period of time? Nurses? Carpenters? etc. And, as mentioned, service workers and many “blue collar” jobs actually saw a bit of a decline. In the first case, when adjusted for inflation. In the second, numerical declines, adjusted or not.
It is arbitrary.
engels 09.12.15 at 2:27 pm
‘no objective way’
engels 09.12.15 at 2:45 pm
Sorry, #172 is clearly too strong. There are cases where individual contributions can be objectively compared (A and B work at the same subtask with the same skill for different periods of time) but they’re far too rare to justify pay differentials in a complex economy like US. (Peter T originally made the point better.)
Plume 09.12.15 at 2:47 pm
As for buying poetry. I don’t have the means to purchase the all the books I’d like to, but I do buy a lot of literature, when I can. My last set of purchases was a mix: a new short story collection, a novel, a reissue of German folks stories, a study of the origins of capitalism, and an extremely important, extended letter by a black man to his teenage son.
Harold 09.12.15 at 4:35 pm
Very interesting article on democracy by Ira Katznelson. http://bostonreview.net/forum/ira-katznelson-anxieties-democracy
Bernard Yomtov 09.12.15 at 8:59 pm
But if that were the main factor, why didn’t the vast majority of workers see a similar rise?
Because they were already free agents? Are you contending that when professional athletes managed to attain free agent status that should have led to a big increase in pay for nurses?
And of course you don’t have the means to buy everything you’d like. That’s not the point of my question. Rather, it’s how you value poetry relative to other things you spend your money on. Not much, apparently. How much time do you spend reading poetry compared to watching pro football?
Bernard Yomtov 09.12.15 at 9:09 pm
There’s no way of valuing individual contributions to a cooperative production process. It’s certainly possible to argue that some activities (caring for old people) are more valuable than others (marketing cigarettes).
Of course there is, as you would soon discover if you started an organization, business or other, that engaged in some sort of cooperative production process.
engels 09.12.15 at 10:05 pm
Bernard
1 I qualified that sentence (I said there’s ‘no objective way’ and that you sometimes can make comparisons but only rarely)
2 As it happens, I have run a business of that kind
But please do share with us your objective method for valuing your employees’ contributions to production
Plume 09.12.15 at 11:25 pm
Bernard,
“Not much, apparently”? How on earth do you deduce that? Because in the one and only set of book buys I described, poetry wasn’t included — this time?
Come on.
I’ve already said I absolutely reject the capitalist idea that these things are given their proper “value.” I reject their arbitrary notions of what IS important in life. It’s one of the million and two arrogant, immoral, irrational and patently offensive aspects of capitalism, in my view. That a tiny fraction of society gets to decide this, price things, dictate wages, etc. etc. for everyone else.
I’m a poet and novelist. I value literature and the arts pretty much at the top of the heap. I don’t automatically connect money with these things and I wish we had a society that didn’t try to monetize and cash in on virtually every aspect of our lives.
Just guessing, but it appears you and I are clearly operating from a completely different set of assumptions regarding what is important in this world. I’m also guessing that’s going to prevent useful dialogue.
. . .
Enjoy the weekend, CTers.
Collin Street 09.12.15 at 11:54 pm
> No need for the patronizing tone of your first paragraph.
You thought that incomes and expenditures could be treated separately and as distinct things.
This is a stupid mistake to make. Once you realise that that’s the mistake to make, of course you’ll feel stupid: there is no way I can convey your mistake to you that doesn’t make you feel stupid. Because the stupid-feeling you feel comes from the stupidity of your mistake and your understanding of your error, not how I’ve pointed it out to you.
[and, no, there’s no skills that are inherently more useful to society than any other, because utility depends on shape and there’s no inherent shape that society has to take. Different societies have different problems and find utility in different things. Beyond this, of course, market-power is a measure of utility not to society but to those parts of society that have money: this isn’t a distinction you should brush over.]
Bernard Yomtov 09.13.15 at 2:03 am
Collin,
You thought that incomes and expenditures could be treated separately and as distinct things.
1. I thought no such thing.
2. I don’t feel at all stupid, despite your earnest wishes. In fact, I consider myself quite clever. By and large, if we’re talking about stupidity, I consider you and Plume and the like to be complete fools. If that violates some code of conduct for this site, then too bad. I am rather weary of enduring insults for expressing quite ordinary and sensible views about economic systems, because they don’t comport with the fantasies some other commenters cling to.
Bernard Yomtov 09.13.15 at 2:08 am
Plume,
Not much, apparently� How on earth do you deduce that? Because in the one and only set of book buys I described, poetry wasn’t included — this time?
I deduce it from your own descripition of your behavior. I notice, by the way, that you declined to tell us how much time you spend actually reading poetry, as opposed to watching football. And how does it compare with the time you spend promoting your ludicrous economic theories on the Internet?
Tell us, how are we to judge how much you value poetry? Are we just to take your assertions at face value? It’s not a question of capitalism or Marxism or any other ism. It’s just that I expect that someone who thinks poetry is incredibly valuable would devote some of their resources, whether financial or other, to reading it. Apparently you disagree.
Plume 09.13.15 at 3:00 am
Bernard,
If you actually believe I need to prove to you how I value literature, poetry and the arts, you’re even dumber than I already believed, and I saw you as an idiot before you posted @183 and 184.
I couldn’t care less what you think of me, and I’m not going to give you a breakdown of my investment in the arts, how often I’ve been published, or how many poets, writers and artists I’ve published, etc. etc.. Seriously, who the fuck do you think you are?
And please don’t bother responding to this. You’re a mental midget and an asshole. I have no desire to continue discussing anything with you ever again.
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