Why Do Economists Ignore þe Greatest of All Market Failures?; & BRIEFLY NOTED: 2021-02-06
In which I pose myself a rhetorical question, and then answer it...
First, a rhetorical question:
Why Do Economists Ignore the Greatest of All Market Failures?
Trevon D Logan: ’This is actually a deep point DeLong is making: we have not recognized the single largest market failure in the economy. And we rarely talk about it as a market failure at all. The answer: that’s how they wanted it when they sold it to you! Anyone who has seriously thought about equilibrium theory knows that the lack of attention to endowments is pretty shameful. DeLong extends that here to thinking of the weights we apply and why it should encourage, not discourage, redistribution. But we never quite get there…
Ben Boehlert: ’I’m consistently shocked in my undergrad Econ classes how inequality of opportunity almost never comes up. In a world where everyone is perfectly rational, it seems like pretty big deal!…
Brad DeLong: I remember back in the… spring of 1981, I think it was. I asked my professor, William Thomson, visiting from Rochester, roughly this:
The utilitarian social welfare function is Ωu = U(1) + U(2) + U(3)… The competitive market economy maximizes a market social welfare function Ωm = ω(1)U(1) + ω(2)U(2) + ω(3)U(3)…, where the ω(i)s are Negishi weights that are increasing functions of your lifetime wealth W(i)—indeed, if lifetime utility is log wealth, then ω(i)=W(i). Market failures drive wedges between what the economy achieves and what it could achieve. There are massive, massive differences between the Ωu that is the true social welfare function and the function Ωm that the well-working market maximizes.
Why isn’t the unequal distribution of ex ante expected lifetime income—inequality of opportunity—conceptualized by us economists as the greatest of all market failures? And why isn’t the distribution of political power that creates & preserves a property order of unequal wealth seen as the greatest of all “regulatory capture by a special interest group” flaws in the working of society, economy, and the state?"
Thomson did not have a good answer. My other teacher Joe Kalt, however, did. “These Chicago Boys are all right-wing Marxists,” he said:
They buy the Marxian proposition that the state is an executive committee for rigging the economy in the interest of the ruling class. But they think that that is a good thing as long as the ruling class is based on wealth, however previously acquired. All their objections are to those who use some form of societal power other than wealth to try to rig the economy in their interest. And while there is an argument that a wealth-based ruling class is in general best, it is a weak argument.
And do remember that I learned much of my political economy from Richard Musgrave and his TA Manuel Trajtenberg, who explicitly conceptualized public finance as having 3 branches: (1) repairing Pigovian externalities, (2) fiscal policy for full employment, (3) redistribution to shrink all the Negishi weights in the market’s SWF toward one.
The Chicago School underwent an enormous change between the Midwestern Populist days of Henry Simons, for whom private monopoly was the big foe and large inequalities an enormous menace, & the monopoly-tolerant fundraising paradise that Stigler & co. created. This transformation from Simons to Stigler was possible only by “othering” the non-rich by every means possible, so that their low weight in the market’s Negishi-weighted SWF could be dismissed as deserved.
I put it to you that taking the Murray Rothbard Road in race relations—trying to bring to life their anti-New Deal monopoly-tolerant union-busting economic policy agenda by white racism and supremacy, as Frankenstein’s monster was brought to life by the lightning—was a very important part and remains a very important part of that shift away from economics understood as a policy science that attempts to implement a Benthamite or a Millian utilitiarianism that seeks the greatest good of the greatest number.
Brad DeLong: 'Live long, & prosper!' @delong@Undercoverhist @Econ_Marshall I remember back in the... spring of 1981, I think it was. I asked my professor, William Thomson, visiting from Rochester, roughly this: "The utilitarian social welfare function is Ω = U(1) + U(2) + U(3)... The competitive market economy maximizes a market social welfare 1/
(This has been a rhetorical question: I think we all know why almost all neoliberal and further-right economists ignore the greatest of all market failures. I think we know that well.)
Next: A Video Well Worth Your Watching:
Substack honcho Chris Best:
Very Briefly Noted:
Well, Paul Krugman now has a SubStack too. Resistance is futile. We have been assimilated: Paul Krugman: Stagflation Revisited LINK: https://paulkrugman.substack.com/p/stagflation-revisited
What I am using to keep track myself of the macroeconomic course of the coronavirus plague depression. Useful for keeping the entire thing in perspective: FRED: DeLong’s COVID Dashboard LINK: https://research.stlouisfed.org/dashboard/56322
Jeff Horwitz: Facebook Knew Calls for Violence Plagued ‘Groups,’ Now Plans Overhaul: ‘The giant struggled to balance Mark Zuckerberg’s free-expression mantra against findings that rabid partisanship had overrun a feature central to its future… LINK: https://www.wsj.com/articles/facebook-knew-calls-for-violence-plagued-groups-now-plans-overhaul-11612131374?mod=djemalertNEWS
Noah Smith: Innovation: It Takes a Village: ‘Agarwal, Ganguli, Gaule and Smith… how powerful that communal production process is…. Conditional on teenage math test performance… people are six times as productive when they immigrate to the U.S…. Six times!! For scientific publications, immigrants to America are four times as productive as stayers, and twice as productive as immigrants to the U.K. and other rich countries. That means, first of all, that there is something very special about the U.S… LINK: https://noahpinion.substack.com/p/innovation-it-takes-a-village
Well worth watching, and it is probably a sign that I am a shallow person that I did not switch this out with the video of SubStack honcho Chris Best: Gareth Branwen: Rashida Tlaib’s Emotional Speech about the Jan 6th Attack LINK: https://boingboing.net/2021/02/06/rashida-tlaibs-emotional-speech-about-the-jan-6th-attack.html
Something I did not know that I wanted, but am now very, very happy to have: Historical Dictionary of Science Fiction LINK: https://sfdictionary.com/
I confess I still do not know what to really think about SubStack. It is a weblog. It is a weblog constrained in format. And it is a weblog that is not bashful but rather very aggressive about tipjars and paid-subscription-only content. And it is a weblog that doesn’t wait passively for you to surf to it or give you a little RSS ping, but instead opens the basement window, climbs into the house, and perches itself at your dining room table eating potato chips via its arrival in your grand todo list that is your email inbox. Is this social engineering to try to counter the Twitterization of the world? I have to think more about this.
Meanwhile, some SubStacks: Noah Smith https://noahpinion.substack.com/p/larry-summers-misplaced-stimulus | Matt Yglesias https://www.slowboring.com/p/biden-popularity | Joshua Gans https://joshuagans.substack.com/p/new-book-the-pandemic-information | Hamish McKenzie https://blog.substack.com/p/welcome-facebook-and-twitter-seriously | John Ganz https://johnganz.substack.com/p/from-republic-to-reaction | Emily Atkin https://heated.world/p/bring-in-the-climate-clowns | Scott Alexander https://astralcodexten.substack.com/p/ontology-of-psychiatric-conditions-34e
Wendy Edelberg & Louise Sheiner: A Macroeconomic Analysis of a Senate Republican COVID Relief Package: ‘Ten Senate Republicans recently proposed a $618-billion COVID relief package. In this piece, we provide an analysis of that package and update our analysis of the Biden Administration’s $1.9 trillion fiscal package, using the current-law GDP projections that the Congressional Budget Office (CBO) released on Monday. We estimate that the Republican plan would raise the level of real (inflation adjusted) gross domestic product (GDP) by 1.6 percent in the fourth quarter of 2021 and 0.8 percent in the fourth quarter of 2022, above the baseline level that CBO projects under current law (which assumes no additional fiscal support). This would leave GDP about 0.8 percent below its pre-pandemic trajectory at the end of both and 2021 and 2022, but a touch above CBO’s estimate of potential GDP—the maximum sustainable level of output… LINK: https://www.hamiltonproject.org/blog/a_macroeconomic_analysis_of_a_senate_republican_covid_relief_package
Wikipedia: Trimalchio: ‘His full name is “Gaius Pompeius Trimalchio Maecenatianus”; the references to Pompey and Maecenas in his name serve to enhance his ostentatious character. His wife’s name is Fortunata, a former slave and chorus girl. Trimalchio is known for throwing lavish dinner parties, where his numerous servants bring course after course of exotic delicacies, such as live birds sewn up inside a pig, live birds inside fake eggs which the guests have to “collect” themselves, and a dish to represent every sign of the zodiac. The Satyricon has a lengthy description of Trimalchio’s proposed tomb (71–72), which is ostentatious and lavish. This tomb is to be designed by a well-known tomb-builder called Habinnas, who is among the revellers present at Trimalchio’s feast. He seeks to impress his guests—the Roman nouveau riche, mostly freedmen—with the ubiquitous excesses seen throughout his dwelling. By the end of the banquet, Trimalchio’s drunken showiness leads to the entire household acting out his funeral, all for his own amusement and egotism… LINK: https://en.wikipedia.org/wiki/Trimalchio
Simon Kuper: How to Save the World from Long Covid: ‘Where we might be a year from now, two main scenarios…. Good: Covid–19 keeps circulating but loses its sting. Most people in rich countries, and the most vulnerable in developing countries, get vaccinated in 2021. The vaccines prevent disease caused by all strains. Covid–19 weakens: once it finds potential victims protected either by vaccination or past infection, it becomes at worst a nasty cold…. But there’s another scenario, less likely yet… momentous…. Vaccine-resistant mutations cause years of mass death, repeated lockdowns, economic disaster and political dysfunction. What determines which one comes true? Precedent favours the benign outcome…. Even as mutations emerge, previous vaccines and infections should confer enough immunity to protect us at least from severe disease…. Yet the malign scenario remains plausible…. New variants have appeared fast…. Imagine a pandemic that lasts years, killing millions. Whole sectors… could collapse. So might democracies, as isolated people mainline conspiracy theories in their bedrooms…. A few countries—New Zealand, Australia, Taiwan, Vietnam — would become oases besieged by would-be immigrants. To avoid global long Covid, states need to hurry. The quicker humanity achieves herd immunity, the less time the virus has to mutate beyond control… LINK: https://www.ft.com/content/92eb314b-bc51-4356-b873-ed58ad26d25c
Wikipedia: List of Saga Characters: ‘Lying Cat: First appearance: Chapter 1: Lying Cat is a large, female talking feline companion to The Will who aids him in his work. Green in color with yellow stripes, she has the ability to detect when a verbal statement is a lie, which she indicates by saying, “Lying”. Her power is limited to the state of the mind of the person speaking: She can detect deliberate deception…. Lying Cats always play by the rules, an allusion to the fact that a Lying Cat must also admit ethical truths as well as factual ones…. A line of T-shirts featuring Lying Cat have been produced, and have become visible in popular media. In “Pac-Man Fever”, the April 24, 2013 episode of the American TV series Supernatural, the character Charlie Bradbury (played by Felicia Day) is seen wearing a Lying Cat T-shirt. Day, who has referred to Saga as the “best comic EVER”, indicated that show writer Robbie Thompson picked out the shirt. Skybound Entertainment has also produced an 8“ tall resin statue of the character, and a posable, 19-inch tall plushy doll of it that says, ”Lying" when its collar is pressed… LINK: https://en.wikipedia.org/wiki/List_of_Saga_characters
Heather Cox Richardson: February 5, 2021—Letters from an American: ‘This idea—that the U.S. must reform its own society in order to extend the principles of democracy overseas—was precisely the argument Theodore Roosevelt and other reformers made in the late 1890s when they launched the Progressive Era. When Roosevelt became president in 1901, he used this rationale to take the government out of the hands of business interests and use it to protect ordinary Americans. Roosevelt argued that the government must clean up the cities, educate children, protect workers and consumers, support farmers, and make business pay its fair share. Biden shared his own list on Thursday: ending the so-called Muslim ban, reversing the ban on transgender troops, defending the free press, respecting science, addressing systemic racism and white supremacy, and rebuilding the economy. “All this matters to foreign policy,” he said, “because when we… rally the nations of the world to defend democracy globally, to push back… authoritarianism’s advance, we’ll be a much more credible partner because of these efforts to shore up our own foundations”… LINK: https://heathercoxrichardson.substack.com/p/february-5-2021
Scott Lemieux: Anatomy of a Sedition: ‘As Isaac Chotiner observes, the game here seems to be for McConnell to pretend to be a complete moron and for the [New York Times] reporters [Jim Rutenberg, Jo Becker, Eric Lipton, Maggie Haberman, Jonathan Martin, Matthew Rosenberg and Michael S. Schmidt] to pretend to believe him, because he thinks the babe-in-the-woods-routine will play better than his cynical nihilism. Still, they end up twisting the knife in him pretty well by the end…. “McConnell moved to bring the curtain down. He called the president’s chief of staff, Mr. Meadows, to say that he would be acknowledging Mr. Biden as president-elect…. McConnell had been holding off in part because of the earlier assurances from Mr. Meadows and Mr. Kushner…. Yet even now, the president was refusing to concede…. Perhaps most important in Mr. McConnell’s evolving calculus, internal polls were showing that the Republicans’ strongest argument in the Georgia runoffs was that a Republican-led Senate would be a necessary check on a new—and inevitable—Democratic administration…” Amazing coincidence that Mitch would suddenly realize that Jared Kushner would not, in fact, have a Moderating Influence on his father-in-law at the exact time that polls suggested that Trump’s ongoing election theft efforts were making winning the Georgia runoffs less rather than more likely! We also shouldn’t forget the other elite and elitish Republicans who were in on it from the beginning.… Newt Gingrich…. Kevin McCarthy… LINK: https://www.lawyersgunsmoneyblog.com/2021/02/anatomy-of-a-sedition
Charlie Sykes: In Praise of Secret Ballots: ‘House Republicans voted overwhelmingly (145–61) to keep Liz Cheney in her leadership position; later… overwhelmingly to support the bigoted conspiracy theorist, Marjorie Taylor Greene. The difference, of course, is that one vote was secret; the other one… in the eyes of God, Trump, and the GOP base. The result is incoherent and unsustainable, but it’s also a stark reminder of the gap between what Republicans say in private versus what they do in public. The good news is that there is still a residue of conscience and rationality in the GOP. The bad news is that their courage depends on anonymity, which means that it is not courage at all. (And it raises the question: what would the vote to impeach have been if it had been a secret ballot?)… [The Cheney vote] was a surprising and, in many ways, staggering defeat for TrumpWorld and the Sedition Caucus. Trump himself had reportedly been making calls, and the drumbeat to dump Cheney had been picked up by Fox News hosts, and members of the disgraced ex-president’s family. In the end, they were able to muster less than a third of the GOP caucus…. During the closed door meeting, Cheney herself refused to back down or apologize for voting to impeach Trump. According to the Dispatch, she said: “Several members have asked me to apologize for the vote, they’ve asked my colleagues who also voted to impeach to apologize for the vote. I owe you honesty, I owe you the truth, I cannot do that. It was a vote of conscience. It was a vote of principle—a principle on which I stand and still believe. Some people have said I should apologize for my statement or for the timing or for the content of it, and I tell you again, I cannot do that. I believe that my oath, I believe that all of our oaths, is more important than politics or partisanship or political pressure”…. GOP voters are still far more comfortable with Q than Cheney. By a lot. Via Axios: "Republican respondents are three times as likely to say their views align with Greene than with Cheney, but nearly one-third say they don’t align with either, and half say they don’t know enough to say… LINK: https://morningshots.thebulwark.com/p/in-praise-of-secret-ballots