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You have ignored what I have said. Like I said, policy analysis – which requires subjective assumption. However, that is not what I did. I used an objective framework to discuss what direction things will move in – I believe it is objective because I take it as a fact that people toss up costs and benefits when making a decision (this includes the transaction costs of making a decision in the first place). Now ultimately we run into the problem that you can make everything a subjective assumption, however I am confident that this framework is appropriate given its wide use in society and the fact it is a virtual tautology 😉

If you had read this post regularily (you would be the only one 😉 ) you would see I talk about the difference between this and normative value judgments quite a bit. So far you have only provided me with conjecture and opinion and that is why I termed what you said normative musings – if you could describe how these tradeoffs work in more detail we could have a discussion about it.

“how can they be distortionary when they are a product of the market themselves”

Well this is the whole reason for government intervention. Individual incentives in this case cause a market failure (prisoners dilemma for example), and as a result they are a distortonary in the sense that they drive us away from what the government (and as a proxy society) views as optimal.

“what I really, really complain about is when that subjective analysis is taken as an essential truth and used to cause real objective financial pain to people ”

We are not in the 80’s anymore, economists have moved on. As I said earlier we tend to work with a much wider group of disciplines (psychologists, sociologists) in order to define costs and benefits. A cost is not just monetary, but the loss of welfare to people – that is why policy analysis is subjective. An economist is good at objectively defining the monetary cost, but we work with people from other disciplines to get a feeling for the subjective social costs.

“Specifically, I take issue with the fact that your analytical framework has an unwarranted hegemony that allows it to (as I have previously stated) effect significant change on people’s live without good reason. ”

Like I have been saying, when applying policy analysis these subjectively defined costs and benefits are included. The point of what I wrote was to show that saying employment and capital expenditure will increase if we increase income taxes was as crazy as saying that a cut in taxes will increase tax revenue.

That’s semantics. I could rephrase the question as: “how can they be distortionary when they are a product of the market themselves”. If you would prefer to answer that question please do.

I’ll think I’ll leave quantifiying that to them.
I note you have a masters student who “loves industrial economics” on board. Perhaps they would like to attempt to quantify this particular power relationship?

You complain about subjective definitions, but any policy analysis requires them.

No, actually, I don’t complain about subjective definitions. What I complain about is folk who adopt a subjective analysis and then claim (or imply) it is objective. What I really complain about is when that subjective analysis is taken as essential truth because it is backed up with [dismal] “science” . And what I really, really complain about is when that subjective analysis is taken as an essential truth and used to cause real objective financial pain to people in the name of some free market Valhalla.

When criticising economists it is important to remember the difference between someone giving you a direction that things will move in and giving you a full blown set of co-ordinates from policy

That’s a back down. You are more than happy to accept the mantle of “all knowing” when your analysis (or rather, the analysis you subscribe to) is unchallenged but to then default when challenged to the claim that it’s “all subjective” is ontologically dishonest. The precepts you subscribe to are used again and again to make real material changes that seriously affect people’s lives. You should stand by them as truths or qualify them properly from the get go.

Matt. I’ve enjoyed our discussion tonight but I will draw your attention to the fact that you earlier described my argument as “normative musings”. So far you have failed to show me that your “musings” are any less “normative” and you have in fact reverted a fallback position of subjectivity, if you (or one of your fellow bloggers) have some proof of the essentially non-factitious nature of your logic that I have missed in my reading of economics then I would appreciate you putting me straight. I just don’t think you can.

I agree with you that empirical work is required for policy to be set but I have real issues with your analysis (and thus the analytical parameters such empirical analysis would be conducted and read within). Specifically, I take issue with the fact that your analytical framework has an unwarranted hegemony that allows it to (as I have previously stated) effect significant change on people’s live without good reason. And I mean reason in every sense of the word.

I wouldn’t call them ‘a distorton’ I would be more likely to say that they are distortionary. In this sense all i’m saying is that the behaviour of this group takes us away from what we would deem efficient.

“My question to you Matt, is at what point does a union (or a cartel, etc) satisfy your ideal of balance and move on to become a distortion and how do you personally tell when this tipping point has been reached?”

I wouldn’t be able to quantify when this has happened because i’m not a professional industrial economist, I’ll think I’ll leave quantifiying that to them. The appropriate type of economist would compare the natural bargaining position of the employer and employee in order to match some subjective definition of what is fair, as fairness in itself is a subjective concept.

You complain about subjective definitions, but any policy analysis requires them. I think we can objectively state that there will be some point where the market power of employees is too strong, however quantifying it is inherently subjective. I’m happy to talk about directions and possibilities, but I’d rather let someone with the data define a test of excess market power in the labour market.

When criticising economists it is important to remember the difference between someone giving you a direction that things will move in and giving you a full blown set of co-ordinates from policy. Economists are good at picking directions, but it requires a much wider team of skills in order to try to quantify the output of policy. That is why everything I’ve written here has been talking about increases or decreases, but I have recognised that empirical work would be required before an appropriate set of policies could be established. I think that is fair enough,

My question to you Matt, is at what point does a union (or a cartel, etc) satisfy your ideal of balance and move on to become a distortion and how do you personally tell when this tipping point has been reached?

MN – I guess this is the crux of my issue with a market analysis. I can’t see how a product of a market (such as a union or a cartel or a monosopy, etc) can also be considered a distortion of it. It seems to assume some ideal marketplace and then predicate its analysis on that ideal. I note your comment:

However, I am pro-unions in the case where employees have less bargaining power than firms – in these cases a union is required to counter-balance the force of the firm.

The issue I have with this is that whether something is a “distortion” or not becomes an arbitrary call based on your subjective intuition of the power (im)balance. Which kinda sounds like a “‘cos I think so” argument to me.

My question is at what point does a union (or a cartel, etc) satisfy your ideal of balance and become a distortion and how do you tell?

I wish I could agree with you on this but you’re heading into the inexact art of psychology here and the truth is that some employers will see such a statement as a signal you need higher pay but others will see your unwillingness to shift jobs as an opportunity. While some can do quite well by playing this poker game a lack of forthrightness can lead to longer term difficulties in the employment relationship (uncertainty is not a good basis for such a relationship).

It shouldn’t be the firms’ aim to maximise the wage of employees, it is their aim to come up with the most productive firm structure. The more productive the firm structure, the more they will end up paying their staff, especially in a tight labour market

“cultural obstacles to negotiating (I include many middle-class white people in this group) there is also the issue of “stickiness” which is to say many people are unwilling to undergo the upheaval and stress of changing jobs that one inevitable needs to be willing to go through for the “higher wage down the road” argument to have any teeth”

Yes I agree that there is stickiness in wages etc, almost all economists do. When we talk about these incentives we are talking at the ‘margin’. There will be firms that are only just surviving – higher costs will stop them producing, there are employees who are on the verge of looking for a new job a slight increase in information will convince them to go and look. A change in policy might not affect most peoples behaviour, but that doesn’t matter as the changes we are discussing are at the margin – we are interested in what those people will do.

Why does this matter? We are interested in what impact a policy will have on how many people do a certain thing, by focusing at the margin we can tell whether a certain policy will increase or decrease the amount of people consuming/producing/working/eating etc.

If we were trying to come up with full on general equilibrium numbers we would need more, however, as we just want to say what direction change will occur in we look at the margin.

“I noticed earlier that Matt referred to unions as if they are a third party in the employment relationship ”

I meant to say an increase in union power, rather than unions per see, as I was talking about government policy specifically. Unions are definitely just a cooperative group looking to increase their market power (i’m not sure consolodate is quite the right word)

“I find it hard to believe that they can then be considered a market distortion”

Unions give market power to employees in the same way that a cartel gives market power to firms – ergo both are distortonary. However, I am pro-unions in the case where employees have less bargaining power than firms – in these cases a union is required to counter-balance the force of the firm.

The problem with many union structures though is that unions are strong where employees are already strong while they are often weak where employees are weak – this could be a good reason for government intervention in some way.