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Very few economists even realise that every economic problem with public age pensions is also a problem with self-funded pensions through individual savings. My views on the matter here, though looking in reverse at Australia's appetite for compulsory private retirement accounts (superannuation)
The same is true of all borders, including private property within countries. If you are born without a large estate, you have radically lower outcomes given the same set of human skills at birth.
What are your thoughts on whether a code of ethics for economists might address this problem? For example, if economists who were members of a professional body (e.g. AEA, EEA) had to disclose their financial interests when commenting publicly, and were obliged to disclose assumptions in their analysis that would not be apparent to a lay person.
Toggle Commented Aug 5, 2014 on Economists & the public at Stumbling and Mumbling
I'd have to argue that your thought experiment makes only a structural argument. Here's why. People born into this structure don't get to choose their relative level of laziness, intelligence or other character the dictator sees fit to choose as a metric upon which to determine the distribution of wealth. To make the claim that poverty is an individual phenomena, you have to argue that individuals are choosing their character. Not only that, but choosing their relative character. That somehow there is an incentive to display characters which make you poor rather than rich in this dictator's world. Seems a little odd doesn't it? Further, you then invoke a moral argument that the characters rewarded by monetary incentives are 'better' than others. You then define character failings based on outcomes under this regime, not by an 'objective' assessment of preferable character traits. After all, nothing about these characteristics in aggregate change the wealth of this society. Lastly, if poverty was an individual phenomena in your example, it should be solvable by individual choices. Which it is not. At all. Ever. No matter what the individual choices are the distribution is the same, though maybe different people are in poverty at any point in time. Whereas if poverty is structural, which is it fully in your example, it can be solved with a structural solution. Which it can be - by the dictator allocating wealth more evenly. Here's my take on how to better distinguish these two arguments.
The big lesson from Easterlin, and happiness economics generally, is that humans make relative comparisons. No one really cares about absolute levels - as Tim Worstall says, it is recent changes that are key. Hence, if you've been on bread and clothes rations for seven years, which are then dropped, you'd rank your happiness quite high to highlight the massive relative increase. Also, there are equality factors to consider, again related to ranking. If everyone has very close levels of consumption, which I imagine was the case during wartime (and soon after), then exactly what upside comparison can I make? I'm actually quite well off in relative terms (as in I feel not too far from the top of the wealth/income hierarchy). And of course, how is one in 1949 supposed to know the path of future wealth? They can only compare backwards. In retrospect people seemed poor in the late 1940s, but at they time they didn't have the benefit of hindsight. They were as rich as they had been for quite a long time. So when the author says "a third say that they have no particular wants beyond those thay they can afford", you have to think about where wants come from. They come from relative comparisons. Since at the time people where just finishing rations, their consumption increased. Their previous wants were being satisfied. These days, we have a high inequality world where comparisons can be easily made. Rich lifestyles are a feature of film and tv, so the poor know what they are missing, and know high and imposing the social ladder is. These days we can easily rank ourselves quite low - perhaps even if that is distorted perception. But we certainly are better than ever before at stimulating wants across the social spectrum.
Toggle Commented Jul 7, 2014 on Incomes & satisfaction at Stumbling and Mumbling
What about the war? Weren't there rations in the UK till at least 1943? Surely the end of the war and the beginnings of a recovery/normality would make anyone self-assess their happiness as being particularly high.
Toggle Commented Jul 6, 2014 on Incomes & satisfaction at Stumbling and Mumbling
"Statistics Canada must be the only statistical agency in the world where the average length of a data series gets shorter with the passage of time." Actually, in my experience this is the norm just about everywhere. I'm Australian and out data is much the same - after all, most of the new definitions are agreed by international statistical bodies, and national statistical agencies want to 'keep up' with modern techniques. It's just that users of the data are often happy to ignore it, or don't spend the time finding out about how the data is collected etc.
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If you want ever to have a military when it matters - during wartime - you need well developed domestic manufacturing to procure for military purposes. Or you could just outsource your military manufacturing to China who would be more than happy to help. Or we could just go on ignoring geo-political realities.
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Nick, I'm glad you liked my comment. I prefer not to get caught up in the maths, because the maths is either right or wrong. It's the assumptions of human behaviour and the interpretation of the maths that is important. So let me respond to your response. “It's that "...until they all get back to the monopoly level of output" I don't buy.” Well, where would they stop? Somewhere in between. Probably. But closer to a monopoly level. “each individual farmer will produce where individual mr=mc. How do you get to them reducing output from that point to where market MR=mc? At mr=mc, each farmer is maximising his profit given the output of every other farmer.” Individual mr=mc is where MR=mc. If a monopolist increases output by one unit, it’s the same as any of the many firms increasing output by one. So they don’t. In fact, if they reduce by one they make a fraction more profit. “why do Canadian dairy farmers care whether the government abolishes milk quotas? “ Because their cost structure must be higher that in the US. A monopoly with higher costs would produce less than a monopoly with lower costs. Just as a competitive market of high cost producers will produce less than a competitive market of low cost producers. Merging the two markets, which is essentially what removing the quota will do, is a simple redistribution from Canadian farmers and US milk consumers, to US farmers and Canadian milk consumers. Essentially Canadian dairy farmers are being protected from low cost competitors that would not reduce their profits to ‘normal’ levels, but drive them out of business completely. The question is, why are costs lower in the US - is a because of natural advantage, or because they have protected their industry in the past until it reached a point where it is internationally competitive? No one wants to be gamed. “And if the producers can always coordinate between themselves to maximise their joint producer surplus, why can't they also coordinate with consumers to maximise the joint producer plus consumer surplus?” Well, this only applies if you still believe in the model that we (at least I) no longer believe is correct, or even useful. Because Keen’s model doesn’t have a concept of consumer surplus, we can’t know whether it is or isn’t maximised at his optimal level of output. And we definitely can’t say that the point you believe is optimal maximised surpluses, because at that price and output no one will produce anything!
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I've read your post, Auld's critique, Keen's article and book. The basic story is that if the firm doesn't face a perfectly flat demand curve, and if there is any price change with their output, then the outcome of perfect competition is infeasible because all firms will simply reduce output (ever so slightly) to increase profits, until they all get back to the monopoly level of output. While you say there are one million farmers, that means that each individual farmer only needs to reduce output by some fraction of one-millionth to get to the monopoly output. If you take a look at it from a market-wide perspective, we have a bunch of producers essentially giving away surpluses to consumers because they can't coordinate. Yet so many repeated games show that cooperative strategies evolve and work with large groups. They are stable in the long term. Another point (that hasn't really been addressed) is that firms don't maximise profits, but returns. You know, the % profit per unit of cost. Where there is a flat demand curve, this is at the point of minimum average total cost. Why go past this point? Since the demand curve is flat, you could build two factories/farms producing at this point and make greater returns than expanding production to MR (demand) = MC.
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With conundrums like this it is always good to think more simply. There are obviously many factors at play, and I would include the following - 1. As a starting point, we continue to enjoy weekends because we like to have a coincidence of leisure and coincidence of work hours. After all, most leisure and work activities are more enjoyable or productive with others. 2. Considering the idea of a coincidence of leisure, we have the same type of problem at a broader level. If our friends are all busy working long and hard trying to get ahead in their 20s and 30s, we may as well do it too. So why not enjoy more leisure with your friends when they are older. 3. People are opting to wind down into retirement much more these days - so the optimising is happening. 4. Government pensions have a lot to do with it. Many people are pretty bad at saving, and get stuck in the working grind for decades. 5. Supporting children can be competitive/costly, or at least appear to be. Hence, we parents feel the need to work almost as much as possibly. Anyway, my view is that things are changing slowly and people are doing the rational thing of spreading leisure time now that workplaces are more flexible and we are wealthier in general.
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