What To Think Of This Alex Rosenberg Piece?

Alex Rosenberg writes on Free Markets and the Myth of Earned Inequalities.

What should we think of this essay? Philosophers of science, as I understand it, tend, these days, to take the consensus viewpoint in the sciences they examine as a given. They do not, in their professional role, advocate some overarching, context-free, scientific rationality and attempt to dictate to each specific science. Rather, they are engaged in trying to understand how scholars reason in specific disciplines. Furthermore, if one wants to be effective in practical policy advice, one might want, as a rhetorical strategy, to show how your policy conclusions follow from consensus views, no matter how mucked up that consensus may be. So I can understand how, sometimes, Rosenberg might be inclined to take neoclassical economics as given.

Furthermore, I accept some of the points of this essay. I can see how one might describe increased inequality in income distribution as part of a process of cumulative causation. Winners in competitive markets will tend to use their gains as a source of political power. And with that power, they will try to rewrite the rules of the game to gain even more. So competitive markets will lead, endogenously, to non-competitive markets. Is Rosenberg influenced by Dean Baker or Chris Hayes here?

In what sense do people born with better endowments deserve more because they earn more with those endowments? I think Rosenberg is correct to raise this question. (In agreement with Adam Smith, I question whether inborn talents have much to do with the distribution of income.)

I also agree with the general conclusion that government is violating no ethical norm when it institutes redistributive taxation. I would argue for the current need for such policy in the United States on the basis of the lack of sustainability of trends for the last third of a century.

But I think the following observations undermine much of the economics that Rosenberg draws on in his essay: Arrow and Debreu's proof of the Pareto efficiency of a static "competitive" General Equilibrium does not have much to do with the magnificent dynamics that Adam Smith and the classical economists were arguing about. Furthermore, price-taking in General Equilibrium Theory is a model of central planning (by the so-called auctioneer), not of competition. In actually existing capitalist economies, prices are formed in a range of institutions. Even when price-taking occurs, that occurrence depends on existence of certain algorithms for matching bids and offers, say, on the Chicago Mercantile Exchange. Marginal productivity, correctly understood, is not a theory of distribution; it is a theory of the choice of technique. Thus, marginal productivity cannot be correctly cited in an argument that, under competitive capitalism, agents earn what they get. Does Rosenberg know about reswitching examples, in which the same relative quantity flows in production are compatible with vastly different (functional) distributions of income? Besides, as Joan Robinson asked, in what sense is the ownership of capital productive?

A Striking Labor Market Fact

John Lott points out the following: "So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs.... To put it differently, an incredible 96% of the jobs added this year were part-time jobs."

Update: Here is the CEA take on this general topic.  And this is from the San Francisco Fed.  I found the following chart of interest.

 Part-time employment as a share of total employment for selected groups

This shows that part-time work is notably higher than it has been historically for prime-age workers with little education (no more than a high school degree).  Whether this is just due to a weak labor market or other more structural changes is an open question.

How Canadians are Different from Americans, but similar to Germans

I don't always keep track of goings-on in the Old Country but this article tells us, if nothing else, that the Canadian Finance Minister, Jim Flaherty, is rather confused. Flaherty says he doesn't like QE (quantitative easing), which would be OK, as long as he could come up with some semi-coherent reasons. But, Flaherty says:

The Americans tend to emphasize creating more jobs and less concern about the accumulation of public debt and printing more money, with which I’ve never agreed. The Germans tend to be more prudent and frugal like Canadians tend to be.

First, Flaherty doesn't seem to understand that managing the size of the public debt is actually his job, and not the job of the central bank. Central banks may indeed be venturing into the traditional territory of the fiscal authority by engaging in QE, as QE looks more like debt management (altering the maturity structure of the outstanding government debt) than traditional monetary intervention. But QE cannot change the total quantity of consolidated government debt outstanding, only the composition of the debt, except perhaps indirectly. Further, in present circumstances in the U.S., QE is not "printing money." QE consists (in the QE3 operation currently underway) of swaps of interest-bearing reserves for long-maturity government debt and mortgage-backed securities. The reserves in question currently look more like short-maturity government debt than they look like anything we might want to call "money."

The really funny part of the quote above involves Flaherty's unflattering view of profligate Americans. Apparently he hasn't been talking to the Americans who think of their government as ridiculously austere. Somehow Flaherty thinks that Canadians are more like Germans. I just don't see it. This reminds me of a joke, which goes something like this: Canada could have had American technology, British government, and French culture. Instead it got French government, British technology, and American culture.

Ronald Coase, 1910 - 2013

Elsewhere, on Ronald Coase:

• An obituary in the New York Times.
• John Cassidy offers an appreciation.
• Mike Konczal explains that Coase's unintentionally undermines propertarianism (sometimes called "libertarianism").
• Discussion of Coase at Crooked Timber.
• An older piece, from Deidre McCloskey, arguing that the "Coase theorem" is misleadingly named.

Past posts from me:

• The Coase Theorem does not describe market transactions.
• Elodie Bertrand shows shows Coase was mistaken about lighthouses.
• Michael Albert argues that building a law and economics approach on the Coase theorem encourages bullying and nasty behavior.

Related past posts from me:

• Transactions costs make a nonsense out of the textbook theory of the firm under perfect competition.
• America institutionalists had combined law and economics before Coase's work was picked up.

Ronald Coase has died

Here is the news from the University of Chicago.

Marginal Tax Rates under Obamacare

Back in 2009, I pointed out in a NY Times column that President Obama's healthcare reform would involve substantial increases in implicit marginal tax rates.  I am delighted that Casey Mulligan is now giving the issue some serious attention in two new NBER working papers (here and here).  He reports:

This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect....Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform.

Don't 'Fight for Fifteen'

U Chicago's Allen Sanderson opines on the minimum wage.

Addendum: And here is an interesting new contribution to the empirical literature on minimum wages.