Feb 25, 2009

Pareto-optimal exchange equilibria vs. inequality (incentives vs. kalashnikovs)

An intesresting note from Brad this morning:

"The standard mode of discourse in economics is positive-sum win-win Pareto-optimality. You provide people with the right incentives through property rights to invest and accumulate and they do so—and the benefits of their investment and accumulation spill over and produce higher incomes for everybody else as well [...]

But a look back at human history suggests that this focus is perhaps misplaced. Much of human economic and political history looks as though it is made up of thugs with spears (or kalishnikovs) taking stuff; or those who can for some reason command the services of thugs with spears taking stuff; or those who can for some reason command the services of thugs with spears threatening others so inducing them to enter into contracts on unfavorable terms. Slavery. Serfdom. Debt peonage. Latifundia. Land barons. Cattle barons. Capital barons. Perhaps economics should focus not on Pareto-optimal exchange equilibria and economic growth but instead on distribution: perhaps economics should be not a hymn to the win-win bounties of the division of labor but instead a discourse on the origins (and maintenance) of inequality."

1 comment:

Katya said...

i like one of the comments:
"If A creates a lot of stuff and B creates less stuff, they are inequal. If A uses his stuff to rob B of his stuff, they are more inequal, and A is a thug. If B uses his superiority in numbers (revolt, riot, or democracy) to rob A of his stuff, they will be more equal, but now B is a thug."

i am not sure where i stand on this inequality business. of course, some of it definitely comes from being born with unequal opportunities, but some of it also sterms from being smarter and working harder than others. russia tried to treat inequality a while back, but ended up killing off the smarter, more enterpreneurial and motivated part of the population, with everyone ending up equally poor. now, is that a good thing?