[angela_zeleny]

I’m looking for your input in rebuttal regarding a recent article:
http://blogs.hbr.org/cs/2012/11/how_economists_got_income_ineq.html

[derosa8]

From what I can gather, these two states seem to make up his main thesis:

(1) “Markets may determine what cars sell for but cannot tell how much of that value each team member contributes.”

(2) “Since in the real world managers rarely have any sure idea how to use more capital and less labor, or vice versa, markets cannot determine how much workers earn.”

Here are some initial thoughts. His statement in (1) seems to presuppose some type of objective theory of value. He seems to be saying, “Wages ought to be based on the percentage employee X contributes to production.” What is the objectively right percentage? How do we objectively determine how much he contributed? He does not tell us. But apparently entrepreneurs are not good at this, so we need some type of social planning?

His statement in (2) is downright odd (or at least sounds that way to me). It implies that the reason markets do not determine wages is that managers have “no sure idea how to use more capital and less labor.” What? I honestly am confused. First, markets DO determine wages, so what does he mean by they can’t determine wages? I’m guessing he means that markets cannot determine FAIR wages. That gets right back into the objective theory of value he seems to be arguing from. Who decides what’s fair? Government? Experts? There is no better answer than the unhampered market.

Also, he possibly is assuming that prices are determined by the cost of production (though it may not be central to his argument). If so, professor Herbener explains why this view is false in the last 10 minutes of the 2nd lecture of prices of consumer goods.

[angela_zeleny]

Thank you! I’m heading straight for Herbener. I already asked for a definition of ‘markets’ since that was so open as to send me in illogical circles. I had to argue assuming three examples of what ‘markets’ could mean… I’m also a little bogged down on several quotes that were taken out of context to support the article’s premise. I’ll post here when I’m feeling impressive and concise on paper ;).

[porphyrogenitus]

It sounds like he’s basing it on the labour theory of value (JohnD might also be right with “objective theory of value”).

But voluntary exchange isn’t necessarily based on payment according to what each contributes to the final sale of the product.

People are paid for their time & effort on the basis of what they agree to. Now, in the example of the auto, the worker(s) could agree to be paid on-commission, receiving a percentage of the sales (minus expenses) – as many auto salesmen are (at least partially). But these aren’t the contracts they agreed to. Even the union auto-workers don’t always negotiate for contracts like that.

Now, some actually do: it’s called a “profit-sharing agreement,” and this is perfectly acceptable when mutually agreed to. But the post’s author seems to believe it would be better for an outside third-party to intervene and impose such an agreement even where the employees themselves aren’t pursuing it (when it comes to the American auto industry. . .you should tell him it’s perhaps a bad example, dude. Unless he’d also be happy if the workers were forced by outside intervention to accept a “profit-and-loss-sharing agreement” – so the workers have to kick in some dough if they lose money).

But, note, this is why many employees prefer wages: if they wanted the risk of entrepreneurship, they’d become entrepreneurs and expose their income directly to the fluctuations of the market*

*His rejoinder may very well be that their incomes are exposed to risk, in the sense that they could be laid off, or their hours cut. And there is a sense in which this is true. But there is a perception of – and to a significant degree a reality of – less fluctuation in working for a wage than working on commission or for yourself as an entrepreneur – noting that many people who start businesses don’t get a income from that business for years, if ever (many businesses fail).

What he really wants is for the employees to get the reward of risk, without sharing the full downside of it. I mean, run it by him whether he’d be willing to have outside parties intervene to force employees to work for nothing until a business (say, a restaurant) turns a profit. My bet is he’ll dance away from that.

[sukotsh2]

There’s a lot of discussion about the so called lack of progressivity of the tax code leading to more income inequality and its all BS.
Several left leaning acquaintances of mine have cited this NY times article and the congressional study here as more evidence that top marginal rates are not associated with lower economic growth. I insist that the burden of proof is on the left to prove that higher rates did NOT impeded growth. They consistently leave out the fact that the real effective rates in the 1950 were lower despite higher published marginal rates.

I found a discssion of Mitt Romney’s father : George’s Tax returns with ACtuall published rates of taxation. I think to really rest this case we have to produce actual tax returns from real people to prove this

See this discssion of George Romney’s taxes:

http://www.taxhistory.org/thp/readings.nsf/ArtWeb/AEEC9CAC8F773DD7852579C20073FD36?OpenDocument

and the NYtimes article:

http://www.nytimes.com/2012/11/02/business/questions-raised-on-withdrawal-of-congressional-research-services-report-on-tax-rates.html?emc=eta1

and the congressional study…check out the bottom of page nine for a ridiculous discussion of capital gains rates:

http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf
Michael fleischer

[maester_miller]

Something that I’ve often found helpful is to ask someone exactly what the perfect “distribution” of wealth would be. Do they *really* want everyone on Earth to have the exact same amount of wealth? Why or why not?

If you can get someone to admit that they don’t really know exactly what the right distribution is, then all of a sudden their complaints basically fall apart. “Well I don’t know what the right level is but this is too much” isn’t a well reasoned argument, and it shows.

[porphyrogenitus]

“There’s a lot of discussion about the so called lack of progressivity of the tax code leading to more income inequality and its all BS.”

One aspect of it being all BS is that America’s tax structure happens to be either at the top or near the top in “progressivity” in the OECD.

I don’t have any links for this handy at the moment – I’ve come across them in the past. Perhaps our professors do. I do know that Tom recently re-linked to several pieces on the halcyon ’50s.

Though I myself am not entirely able to step outside our present circumstances, and thus lead life with a sense of deep and profound tragedy, from time to time I do manage to adopt a detached perspective. . .and when that nirvana is achieved, I recognize that what we are in, from that perspective, is A New Era of Lulz: the left is always going on and on about how the right is trying to “drag people back to the ’50s” and “wants to turn the clock back,” but in reality no one is more reactionary, no one is more opposed to changing the status quo, than the “progressive” left.

Meanwhile, for people like us, there is nothing we hope for so much as change.

[porphyrogenitus]

Btw, here’s a pretty good post on tax progressivity & income inequality by the last-surving Atari Democrat living in the wild, doing his best impression of Bob Murphy: ripping apart Krugman’s mendacity.

You kids really should follow the link, if only because, well, “Atari Democrats”/”New Democrats” are historical artifacts of a bygone era, and this might be your only chance to see one in action before he goes entirely extinct.

[ksrugis]

So the author states that the market doesn’t determine wages, but rather we as a society determine what is suitable for people to earn. But doesn’t that fly in the face of the logic? If 99,000 people out of 100,000 are capable of sweeping a floor, while 1 out of 100,000 is capable of performing brain surgery, doesn’t it stand to reason that the wage for a brain surgeon would be higher than that of a janitor? Isn’t that basic supply and demand?

[porphyrogenitus]

Well I didn’t suggest he was good on everything – I mean, he’s good for a liberal – an “Atari Democrat” was someone who was less-bad. And Kaus is a bright, thoughtful guy. But I doubt he’s read much if any Austrian economics, ever.

Probably he’s more influenced by what’s called “Welfare Economics” and “Social Choice” theory – and while the “Welfare” in that doesn’t explicitly mean “welfare” in the public-policy sense, it often leads to that, plus has certain features/premises which, while grounded in the mainstream economic theory from which is derived – and which accepts supply & demand curves – often leads to conclusions that an Austrian would find bizzaro.

And if you were to send him a mail asking what he meant by that, and how he reached that conclusion, he would be able to explain it logically – and he would almost certainly concede that the market plays some role, and that markets are very important (but his definition of “market” would be very different from that of, say Mises – the definition used by people of his sort tends to *include* certain “rules-of-the-game” interventions by government as *part* of the market), but he would also say that social attitudes (such as disapproval of conspicuous consumption) and public policy incentives shape what it is suitable for people to earn.

So he shares a lot of interventionist premises with, say, Krugman. And he has no principled objection to the kind of policies Krugman advocates. He just thinks Krugman is wrong historically and wrong about what the policy effects of implementing Krugman’s solution would be.

He does make a lot of good arguments in that post, so it can be used for those arguments. But he isn’t operating from the same foundations as an Austrian would. Which in a way may make Kaus’ post useful; one doesn’t have to be an Austrian to point out that Krugman just has his facts wrong and incomplete to the point of mendacity.

[porphyrogenitus]

Ok I thought of an example Kaus might use to illustrate that it isn’t just the market that determines wage levels, public policies and other such – and one that perhaps Austrian-inclined people would not really have any disagreement with. In the U.S. we implemented various tax policies that incentivize (or disincentivize) certain kinds of renumeration, and we’ve also implemented certain laws and regulations – such as 401K savings plans (which I think Kaus likes) and rules restricting “hostile takeovers” of corporations (which I think Kaus would think are bad policies on *prudential* grounds), which have the effect of insulating corporate management (CEOs &tc) from the discipline of the market, and give the employees (at least at upper levels) more control over the company than the shareholders, and thus they choose the boards of directors, the shareholders are often “absentee landowners,” and you have a situation where the firm is being run for the benefit of the employees.

Now, an Austrian would say “this is why intervention of any kind distorts the market, and we shouldn’t have such things at all.” But Kaus’s point would be “the way to fix this would be to change policy, not tax rates. Krugman is focusing on the wrong thing, and his policy prescription is thus bad.”

Like any “Atari Democrat”/”New Democrat,” Kaus never crossed the line into non-interventionism; he never even crossed the line into becoming a Republican. He’s just for “better public policy, one that understands incentives and incorporates them into social/public policy.” Kaus also shares with Krugman a concern with income inequality, he just thinks Krugman is wrong about the sorts of policies that would work to address it, and on how far to go.

Allowing for where he’s coming from, for someone with that perspective, Kaus is very good – indeed, as I said, IMO we can find a lot of good arguments in that article. But he’s coming at it from a non-Austrian/non-Libertarian perspective, so you’re not going to find yourself agreeing with everything he says.

[ksrugis]

very interesting

[porphyrogenitus]

Via Tom’s webpage there’s this article by Peter Schiff.

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