Note: I want you all to be highly critical of my posts on factor shares – and where you can throw literature at me. I wrote a bunch of posts in a single day based on one book (and some prior knowledge), I have no appeal to authority here and would love to have your ideas thrown in there 🙂
Last time out we discussed some points on classical factor shares. The next essay in this book is on Marx’s theory of income distribution – so what are some of the points here.
Note: I want you all to be highly critical of my posts on factor shares – and where you can throw literature at me. I wrote a bunch of posts in a single day based on one book (and some prior knowledge), I have no appeal to authority here and would love to have your ideas thrown in there 🙂
As I have pointed out in the past factor shares are not an area of special interest for me, even though I’m spending a bit of time looking into the income distribution field. This field is the child of Ricardo and his functional distribution of income over factors of production, my interest lies more in the field started by Pareto which involves starting from individual household units – these “macro” and “micro” fields inform each other but I had hoped not to go too far down the “rabbit hole” of what is essentially a different discipline.
However, (I’m assuming) the Piketty book is about factor shares, and as a result anyone talking about income distribution needs to at least be able to answer questions on this – hence why I’ve been doing some reading.
As a sidenote, this isn’t completely new stuff for me – given that factor share work is a large part of both macro and international economics, and given that as an employee I have spent a bit of time with GDP and household earning data. So if I skip over ideas a bit quickly my apologies, these are sort of just reading notes I’ve written for myself that I hope you will also enjoy 🙂 Read more
In a recent interview with Piketty about his book Capital, the interviewer had some questions I found … strange:
Your book fits oddly into the canon of contemporary economics. It focuses not on growth and its determinants, but on how the spoils of growth are divided.
…
For much of the last century, economists told us that we didn’t have to worry about income inequality. The market economy would naturally spread riches fairly, lifting all boats.
Now Piketty does not suggest that economists haven’t been looking at the issue, his answers pretty clear and on point. My problem is with the myth being pushed by the interviewer.
I had trouble getting out of bed this morning, so to help get me going I decided to read an essay about economics. And I ran back into a treat of an essay I think we should all read. This is Modern Economics and its Critics, 1: by Partha Dasgupta.
His focus is explicitly on what economists actually “do”, noting that economists tend to focus on small questions we can actually go someway to answering – and that economists through economics, in no way, try to derive sweeping universal rules for society. Furthermore, the focus of economists, and the assumptions economists make, are a product of their times and the questions that “matter”.
My favourite quote though:
I said earlier that modern economics treats people with respect; it does not regard them as mere dupes and foils of Business and Government.
Brad Delong on the upcoming translation of the Piketty book (and the recent presentations about it). This is interesting stuff, and is very “economic historyesque” in its description.
I’d note that the general idea that we could have significant wealth accumulation leading to “impatient” groups being poorer in the long-run is accepted, and directly taught, in economics. However, when it is down to a “preference for patience” the normative implications are not quite as clear.
Understanding these heterogeneous “preferences”, what they represent, and what they contribute within the data, is pretty exciting stuff!
Golden passage from Brad Delong. For once I’m going to put up a quote and not add my thoughts – as they’d just get in the way:
The focus on real GDP growth and its possible–or likely–slowing is a setup to panic us into making policy decisions we really do not want to make. The “great stagnation” literature as it is currently constituted seems to me at least to guide our attention in the wrong direction–and to quite possibly stampede us into making policy decisions we really would not want to make if we thought more deeply and calmly. The chain of logic is that measures to reduce inequality have a cost in terms of reducing the growth rate of the economy–that the bucket of redistribution is, in the terms of Arthur Okun’s Equality and Efficiency: The Big Tradeoff, a leaky bucket–and that when growth is slower we can no longer afford to engage in redistribution. This seems to me to be the wrong way to conceptualize it: the evidence that the bucket is leaky is weak–or, rather, there are many buckets, some very leaky, some not leaky at all, some anti-leaky–and in any event whether we should tradeoff potential growth for other objectives is not something the depends on how fast growth is. Policies that make sense if underlying GDP per worker growth is 3% probably still make sense if underlying GDP per worker growth is 1%. Policies that don’t make sense if underlying GDP per worker growth is 1% probably still don’t make sense if underlying GDP per worker growth is 3%.
But my aim here is simply to lay down a marker as far as point is concerned: to enjoin you not to get stampeded into going someplace you really do not want to go.