Wednesday, November 23, 2011

Assault of Thoughts - 11/23/2011

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Mark Blaug, perhaps the best known historian of economic thought, passed away on the 18th (HT Tyler Cowen). This is a paper of his on how nobody does history of economic thought anymore. I've been lucky enough to have had a class offered in the subject both in undergrad and now in grad school, by two great professors who also have a deep interest in history of thought (Robert Blecker and Clyder Haulman). And of course readers know that this blog is practically a "history of Keynesian thought" a lot of the time.

- Speaking of this blog's work on Keynes - the moment I've been dreading has happened! One of my professors has become aware of the existence of F&OST! Not so terrifying as I imagined it - my math econ professor emailed to say my German preface post has been discussed favorably on an economic history listserv, and he offered some other literature. I can deal with one of the more intimidating professors we have reading what I think is one of my better posts :)

- Krugman and Thoma point us to Diamond and Saez offering a new rendition of Edgeworth's old argument for a progressive tax. This - I should add for people entranced by flat tax schemes - is pretty widely accepted by economists. Dan Klein of GMU accepts the logic of it (if not the policy... I'm not sure what his exact views on taxes are). Bob Murphy will give you counterarguments here (I should also note that most economists agree with Bob on interpersonal utility comparisons, but would not draw all the conclusions from that that he does).

- I got this book in the mail yesterday: Beyond Stock Stories and Folktales: African Americans' Paths to STEM [science, technology, engineering, and mathematics] Fields. I'll be reviewing it for the Journal of Negro Education once I get a break from classes this December. Part of my continuing effort to build a foundation (and a chunk of a CV) on science and engineering labor market research.


  1. Daniel,

    I say this to a lot of mainstream econ bloggers and they all ignore me, but as you express some sympathy with heterodox economists rather than asserting they are ignorant, I was wondering if you have read/plan to read any of the various books - such as Steve Keens - that offer a detailed critique of neoclassical economics.

  2. I get this a lot - I'll try to post on it later... gotta finish up an assignment now. Short answer is - perhaps, but probably never to an extent that will satisfy my heterodox readers. I get more of the critique then readers probably realize at AU - it's quite a heterodox department.

  3. That's NOT because I think the critique is worthless or ignorant. It is because I have some doubts about it and I also have competing interests.

  4. Daniel_Kuehn, are you sure you understand Bob's position? He wasn't saying that arguments for wealth redistribution are always incoherent, he was saying that you have to make non-economic (but not necessarily *wrong*) assumptions to justify them -- if your case, that we "should" maximize a specific social welfare function with a specific aggregating method. There is no contradiction between believing that IUCs are nonsensical and that e.g. there should be social spending on the poor.

    Your seamless jump from "Diminishing marginal utility justifies redistribution" would likewise "prove" that all wealth should be leveled across all people, because DMU ensure that it maximizes social welfare through simple aggregating methods.

  5. re: "There is no contradiction between believing that IUCs are nonsensical and that e.g. there should be social spending on the poor."

    I agree. After all I think IUCs are nonsensical and I think there should be social spending on the poor.

  6. Hey Daniel, did you get my e-mail from my other account? What did you think of it?

  7. With respect to the tax literature, I'm not exactly sure what you mean by "pretty widely held by economists". If that simply means that a substantial number of economists agree with the analysis presented by Diamond & Saez, then I would agree, but if you mean that it's "generally agreed upon", then I would not. I'm assuming you meant the former.

    I actually just finished a section of the semester that was spent reviewing a chunk of the tax literature - we ended with several papers from the "new dynamic public finance". Pretty dense stuff. It was interesting that Diamond essentially relegated it's importance to an interesting but impractical diversion.

    In any case, I've been highly dissatisfied with the literature in general. And from just skimming Diamond's paper there didn't seem to be anything that addresses some of the important aspects that I think need to be considered.

    As an example - let's suppose you think that one of the primary drivers in wealth generation is variety and experimentation with projects that could yield huge payouts (but also tend to be riskier). What I have in mind is investors who take a shot with guys like Jobs, Gates, etc. I haven't drawn up a model yet, but it seems pretty plausible that under a progressive tax system you would get less experimentation with these kinds of projects. And depending on how you model growth as a function of experimentation (e.g. increasing or constant returns?), you could easily get that, on the margin, the gain in welfare from equalizing incomes would be offset by how much the pie shrinks (even with identical preferences). This is all just going on intuition, so it would obviously need to be flushed out in an actual model - but it's something that is of first-order importance (that is, how we model growth). In fact, I imagine stuff like this is already out there, it's just a matter of finding it.

    Another minor quibble I have with basically assuming the same cardinal preferences is that in a lot of cases it seems to me that greater income is actually an indicator of a greater desire for consumption relative to leisure. I'm not saying this always the case, but I'd be interested to see some of the empirical literature on the topic. Anyways, there's a lot more reading to do! In conclusion, I would say the topic is anything but closed.

  8. I meant agree on the logic of a progressive tax burden (whether through an income tax or through a progressive outcome from a combination of consumption tax and transfers) as a result of the Edgeworth logic of the marginal value of a dollar. HOW progressive it should be is obviously more disputed and I'd probably disagree with D&S if Krugman has his numbers right. But I think the logic of progressive burdens is a majority held view, don't you?

    That's a great point on the innovation. My only thought would be that windfalls like that are not likely to be one-off. When you're a Steve Jobs you tend to make money regularly after the fact, right?

    We had a question on our micro midterm on risk averse investors and a capital gains tax, and what you saw was an increase in the likelihood of investing... I'm not sure it will have all the perversities that you might expect at first... I'll dig that up.

    As for your last paragraph - there's always a question of standing, too. Maybe people get more welfare out of consumption, but is simply enjoying consumption more than everyone else a reason to get a break on the tax code? What if a criminal atypically does not like being in jail? Might utilitarianism dictate we limit any sentences? There's a point where this utilitarian standard gets problematic. Perhaps what we should do is assert that all have equal standing and the people who are going to enjoy life less anyway cause they're low-utility people shouldn't bear an extra burden because taxing them more is less welfare-reducing.

  9. @Daniel_Kuehn: I agree. After all I think IUCs are nonsensical and I think there should be social spending on the poor.

    So ... why do you bring up Bob's uncontroversial writeup of utility in economics as some kind of contrary point? Just low on coffee today?

  10. As I've said, Silas - because Bob draws conclusions from IUC that are more extreme than most economists.

    Go bother someone else.

  11. I'm truly confused now, Daniel. I thought before you were saying we could do IUC, if we held other things equal.

    And now here, you seem to be saying:

    (1) Most economists agree with D&S that a dollar gives more utility to a poor man than to a rich man.

    (2) Most economists agree with Bob that it makes no sense to compare utilities across different people.

    Really, isn't that what you're saying? I'm telling you, the masses are going to string up the economists about 13 days into the revolution. You should consider a new career path, DK, while you still can.

  12. Most economists agree that you cannot make interpersonal utility comparisons.

    Most economists think that holding all else equal, you can say that a marginal dollar is worth less to a rich person than a poor person.

    In other words, most economists agree on your IUC point, but don't draw the same conclusions from it that you do. Certainly I think most people agree that people who just like money more shouldn't be taxed less simply because they enjoy their money more. "Welfare maximization" in that sense is a strange word for what we're doing - it's not what we're doing at all. If Hitler got 1,000,000 times more utils than anyone else got from anything else, we wouldn't just say "OK, it's welfare maximizing to let you take Europe" (to say nothing about any Pareto optimality concerns). As a society we don't like welfare-maximizing planners. What we like is to hold all else equal - assume everyone is on roughly the same footing, and then equalize the tax burden with respect to income. And since holding all else equal a marginal dollar is worth less to a rich person, that comes to a progressive tax system.


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