Thursday, January 5, 2017
David Glasner — Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be
Short version: It's the rent, stupid.
Most people feel (rightly) that there's something wrong with capitalism distribution that violates the principle of just deserts. It's unlikely that many understand the argument behind just deserts being the result of marginal productivity, but they get the gist of the explanation and find it fishy. But they can't really say why and how.
They need to be introduced to the concept of economic rent and rent extraction through asymmetrical power in the kind of political system that prevails in the liberal countries. It's not government of the people, by the people and for the people but rather government on the principle that those who own the country should govern the country, assuming trickle down.
In other words, its about the interaction of class, power, and wealth, giving rise to privilege; whereas just deserts depends on equal opportunity. The issue really boils down to the key social fundamentals of fairness and free riding that are found even in the insect world among ants and bees.
Uneasy Money
Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be
David Glasner | Economist at the Federal Trade Commission
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Income distribution: Market failure, moral failure, or theory failure?
Comment on David Glasner on ‘Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be’
Every economist can know from the Palgrave Dictionary that the profit theory is false (Desai, 2008). Or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” In other words: the confused confusers of economics have NO idea what the pivot of their subject matter is.
It is pretty obvious that without the true profit theory there is no true distribution theory.#1 So everybody can know for sure, without bothering much about the insane behavioral assumptions of utility and profit maximization, that the marginal theory of income distribution must be dead wrong.
The trouble with distribution theory started with Ricardo who got the distinction between wage, profit, and rent wrong.#2 Then Marx got the class theory of profit wrong.#3 Neoclassical marginal distribution theory, of course, is unsurpassable idiocy, but Keynesianism did not perform much better, and Heterodoxy has actually multiple profit theories that do not fit together.#4
Distribution theory has always been the deepest point in the swamp of economics. Do not expect that orthodox or heterodox economists who spent their clueless lives there will find a way out any time soon. The profit theory is false since Adam Smith#5 and Glasner still moralizes and politicizes about just deserts. These folks simply don’t get it.
Egmont Kakarot-Handtke
#1 See ‘Essentials of Constructive Heterodoxy: Profit’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575110
#2 See ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
#3 See ‘Profit for Marxists’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301
#4 See ‘Heterodoxy, too, is scientific junk’
http://axecorg.blogspot.de/2015/09/heterodoxy-too-is-scientific-junk_85.html
#5 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741
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