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The Triumph of Pareto (Does Equity Matter?)

The Triumph of Pareto (Does Equity Matter?). Gary Flomenhoft VT Law School Class 4. Growth Factors.  Theological belief in growth  Biotic potential  Fixation on GDP  Bank interest  Discounting  Interest charged on money creation

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The Triumph of Pareto (Does Equity Matter?)

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  1. The Triumph of Pareto(Does Equity Matter?) Gary Flomenhoft VT Law School Class 4

  2. Growth Factors •  Theological belief in growth •  Biotic potential •  Fixation on GDP •  Bank interest •  Discounting •  Interest charged on money creation •  To provide jobs for labor displaced by productivity improvements •  Welfare economics is defined by consumption •  Profit motive •  Materialism •  Pareto optimality

  3. Pillars of Neo-classical welfare economics (Erickson/Gowdy) • 1. Homo-economicus-utility maximization. crumbling • 2. Perfect competition (independent actions of firms, no market power, constant returns to scale, perfect information, no uncertainty) - crumbling:Stiglitz: Nobel for assymmetrical info. • 3. Pareto Optimality-still alive

  4. Pareto efficiency • Any policy alternative which makes anyone worse off in their own estimation, while making other people better off in their own estimation is not “Pareto efficient.” “Value-free scientific principle”

  5. Assumptions of P.O. • Current distribution of wealth is a given. • No distinction between earned or unearned income, or any question about the legitimacy of the source of wealth. • No comparison of utility between people. (Each person can only decide how well off they are “in their own estimation.”) • No one can be made worse off.

  6. Problems • Ethical: Ending Slavery failed Pareto criteria. • Growth bias-If no one can be made worse off, the only choice to improve welfare is growth. “grow the pie higher” - “Grow our way out of poverty”. • No Interpersonal Utility is self-contradictory. • No one worse off?

  7. Grow out of poverty?

  8. Grow out of poverty?

  9. Why no Interpersonal utility?

  10. No one worse off 1979-2000?

  11. Pareto’s Other Principles • “…no social class can for long hold its property or its power if it does not have the strength and vigor necessary to defend them. In the long run only power determines the social forms; the great error of the 19th century will be to have forgotten this principle (1906:361).”

  12. Top 1% Share of wealth 1922-1998

  13. “Circulation of the Elites” • the dominant class A has an alpha part that “still has enough strength and energy to defend its share of authority; and a beta part “made up of degenerated individuals, with feeble intelligence and will, humanitarians, as is said today… • Objectively the struggle consists solely in the B-alpha trying to take the place of the A-alpha; everything else is subordinate and incidental.” (Pareto 1927:91)

  14. 47-79 Real Family Income Growth

  15. 79-98 Real family income Growth

  16. NET WORTH

  17. Pareto on Genetic Selection • “The struggle to appropriate the goods of others may be favorable to (genetic) selection” (Pareto p. 341).

  18. US CEO Pay ratio to average worker

  19. International CEO Pay ratio

  20. Real Wages and productivity 1948-2002

  21. Reasons for wage stagnation • The decline in unionization from 35% in 1948 to 14% in 1999. • Globalization led to export of jobs resulting in a “race to the bottom” for wages. (Free-trade zones, NAFTA, WTO, etc.) • Increased temp and contract workers with no benefits, corporate downsizing, mergers.

  22. Pareto on Suffrage • “When suffrage has been given to all men, including madmen and criminals, when it has been extended to women, and if you like, to children, it will have to stop. One cannot go any lower, unless the suffrage is extended to animals” (Pareto p. 100).

  23. 55% single mothers with children <6 are poor • http://www.nccp.org/99uptext.html

  24. Pareto on equality • “Equality before the law is a dogma for many people…it is not at all evident a priori that such equality is advantageous to society;…the contrary appears more probable.” (Pareto p.95).

  25. Gini Coefficient=

  26. Inequality good for society? Source: Collins, Economic Apartheid in America

  27. Does Equity matter?

  28. Redistribute what? • UN Resolution 1803(XVII) of 14 December 1962/ • Declaration of Permanent Sovereignty over Natural Resources: • “Violation of the rights of peoples and nations to sovereignty over their natural wealth and resources is contrary to the spirit and principles of the Charter of the UN, and hinders the development of international co-operation and the maintenance of peace.” • Another view: • “The meek shall inherit the earth… • Except for the mineral rights.” -J. Paul Getty

  29. Natural Capital Wealth(NOT THE PRODUCTS OF LABOR OR CAPITAL) • Sub-soil assets-oil, coal, minerals, etc • Urban land • Cropland • Pastures • Forests • Non-timber Benefits • Protected areas • etc

  30. CASE STUDY • Alaska has the smallest gap between rich and poor of any state, according to figures released Wednesday by the U.S. Census Bureau. • ALASKA Dividend checks help make for more equal distribution. • By Maureen Clark • The Associated Press • (Published: September 25, 2002)

  31. Alaska Model: Alaska Permanent Fund Proposed Iraq Fund, Niger Delta Fund

  32. COMMON ASSETS(NOT FROM LABOR AND CAPITAL) Government R&D: internet, patents Seignorage (money creation) Airwaves/broadcast spectrum Aircraft landing rights Satellite slots Fishing Rights Cap and trade pollution permits Green taxes Land values Stock market liquidity Collectively produced assets Collectively produced assets Etc.

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