Pareto efficiency

66 results back to index


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

If Gates objected to taking even $100 of his wealth and redistributing it to somebody poorer, forcing through such a change would hurt at least one person, Gates, and it wouldn’t be a Pareto improvement.* Given the Pareto criterion’s failure to deal with issues of equity, many liberal thinkers are understandably skeptical about using it as a policy guide. An economy can be Pareto-efficient “even when some people are rolling in luxury and others are near starvation as long as the starvers cannot be made better off without cutting into the pleasures of the rich,” the noted Indian economist Amartya Sen, now of Harvard, has pointed out. “In short, a society or an economy can be Pareto optimal and still be perfectly disgusting.” Despite its shortcomings, however, Pareto efficiency remains a useful concept—if only to check on whether things are going wrong. If an economic outcome isn’t Pareto-efficient, something is preventing mutually beneficial transactions from taking place.

E is superior to D: I am better off, and you are no worse off. Modern economists refer to a shift from A to B, or from D to E, as a “Pareto improvement,” and they define an economic outcome in which all such moves have been exhausted as “Pareto-efficient.” If a situation is Pareto-efficient, it is impossible to make anybody better off without making somebody else worse off. Returning to the example involving wages, imagine there is another outcome, C, in which you get paid $800 a month, a $50 increase over your wage in B. But for that to happen, my wage has to fall from $1,000 to $975 a month. Moving from B to C would be good news from your perspective, but not from mine: it is not a Pareto improvement. One way to think about Pareto efficiency is as a minimum requirement for any satisfactory economic outcome. It’s obviously desirable because it means mutually advantageous options aren’t wasted, but in other ways it doesn’t take us very far.

It’s obviously desirable because it means mutually advantageous options aren’t wasted, but in other ways it doesn’t take us very far. For one thing, Pareto-efficient outcomes are rarely unique. Going back to our original example, in which you earn $500 a week and I earn $1,000, any alternative that raises both our salaries is a Pareto improvement, but how would we choose between an option in which you got a raise of a hundred dollars and I got a raise of ten dollars, and another option in which your raise was ten dollars and mine was a hundred dollars? Pareto efficiency doesn’t provide an answer. Its inability to weigh gains and losses also means it can’t rule out some very bad outcomes. If Bill Gates owned 99 percent of the world’s wealth and everybody else owned 1 percent, the allocation could well be Pareto-efficient. If Gates objected to taking even $100 of his wealth and redistributing it to somebody poorer, forcing through such a change would hurt at least one person, Gates, and it wouldn’t be a Pareto improvement.* Given the Pareto criterion’s failure to deal with issues of equity, many liberal thinkers are understandably skeptical about using it as a policy guide.


pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

"Robert Solow", Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, clean water, conceptual framework, constrained optimization, continuous double auction, creative destruction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, winner-take-all economy

Most memorably, though, he used his mathematical skills to extend Smith’s invisible hand arguments, introducing a particular criterion by which economists could assess social well-being.5 This welfare principle, named Pareto efficiency by British economist I. M. D. Little, suggests that we may judge an economic system by whether it’s possible, through some series of trades or exchanges, to make at least one individual better off without making anyone worse off. This is a fairly minimalist view on social welfare—for example, if a tax policy brought millions of people out of poverty but in the process left Donald Trump with ten fewer dollars in his bank account, it would fail to be a Pareto improvement because someone—even someone as rich and odious as Trump—is made worse off. But that also means that Pareto improvements should be changes that everyone can agree on because, by definition, everyone is better off. It is exactly this type of work that served as a bridge between Smith’s stories and the mathematical economists of the twentieth century who took Pareto’s work and showed, rigorously, that efficient markets are Pareto optimal (i.e., no two market participants can improve their lot through further exchange, once the economy is up and running).6 The worldly philosophers created a set of conjectures and principles.

But that also means that Pareto improvements should be changes that everyone can agree on because, by definition, everyone is better off. It is exactly this type of work that served as a bridge between Smith’s stories and the mathematical economists of the twentieth century who took Pareto’s work and showed, rigorously, that efficient markets are Pareto optimal (i.e., no two market participants can improve their lot through further exchange, once the economy is up and running).6 The worldly philosophers created a set of conjectures and principles. Their mathematical descendants gave these ideas precision, which allowed them to glean further insights and predictions from their models. Radford—with his mathless assessment of Stalag VII-A’s market—was engaged more in an economics that was soon (perhaps sadly) to become a thing of the past. His story about the value created by markets was intimately linked to the long-running debate among nineteenth-century economists (and still going on during Radford’s grad school days) on where value comes from.

In a mostly adoring profile in the Quarterly Journal of Economics in 1949, Joseph Schumpeter still called Pareto’s work “far from faultless,” before describing his theory of money as “inferior” and noting that Pareto’s “theory of monopoly cannot, I believe, be salvaged by even the most generous interpretation.” 6. Pareto, who in his earlier life often railed against antimarket policies like import tariffs, was far from a blind adherent to free-market ideology. In fact, in his Manuele di economia politica, Pareto presents underinvestment in railroads as a clear violation of Pareto optimality that would occur if infrastructure construction were left in the hands of private business. 7. Marx wasn’t implying that customer value or preferences were irrelevant. His was a model where price was an outcome that would, in market equilibrium, be defined by labor inputs. As Etsy sellers can attest, Marx’s model doesn’t seem to pan out in reality. 8. One notable exception who continues to have an outsized influence was Friedrich Hayek, an Austrian-born economist who took up a post at the London School of Economics in 1931.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

They found that in situations like Figure 9.3, the greater the addition to the income of the ‘rich’ person, the smaller the proportion of respondents who considered that the society as a whole was made better off (ibid.: 64).9 The ‘Pareto optimal’ outcomes available to society depend on the initial distribution of wealth and income. Each possible distribution leads to demands and supplies that result in a particular ‘Pareto efficient’ allocation of society’s resources. A highly unequal society might see a lot of resources devoted to security systems to protect the mansions of the rich; a society where wealth was initially distributed equally might devote resources to universal childcare and healthcare. Both outcomes could be ‘Pareto efficient’, but not equally desirable.10 In any case, given the distribution of income and wealth, the scope for Pareto gains is virtually non-existent.

That idea … is referred to as the Pareto principle,’ explains Harvard professor Martin Feldstein (1999: 34). 205 9  |  Government, taxation A different value judgement is possible. In the first words written in the Journal of Radical Political Economics, John Weeks wrote: A Income B Income figure 9.3 Income distribution and equality When it’s not possible to make anyone better off without making someone else worse off, we have a ‘Pareto optimal’ outcome. If ‘better off’ and ‘worse off’ refer to individuals’ utilities, determined as they see fit, at first glance this seems innocuous. As Colander et al. (2006: 356) put it, ‘It’s hard to object to the notion of Pareto optimal policies because, by definition, they improve life for some people while hurting no one.’ But, as Marglin (2008: 180) notes, ‘this appears to offer a way of talking about societal well-being without invoking value judgements’, yet ‘value judgements continue to be present, hidden in the foundational assumptions that social wellbeing consists of satisfying the rational, calculating individual’s self-interested pursuit of consumption’.

This is better than the perfect planner for two reasons: first, it doesn’t require an expensive planning bureaucracy; second, it doesn’t require that anyone be altruistically motivated. 12 1.7 Governments can sometimes improve market outcomes The central textbook message is this: if all markets were competitive (in­ cluding markets that don’t currently exist!), laissez-faire would produce an efficient outcome in three key aspects: it would produce the optimal quantity of each good; it would produce these quantities at the lowest possible cost; and it would distribute the output to those who ‘value’ it most. This ideal situation is called Pareto optimal, and it has the property that it is not possible to make anyone better off without making at least one person worse off – in other words, there would be no waste anywhere in the economy. The condition that all markets must be competitive can be violated in two ways, however. First, existing markets may be non-competitive, as in the case of monopoly (a single seller). Second, many markets required for efficiency may not exist, such as the market for unpolluted air.


pages: 153 words: 12,501

Mathematics for Economics and Finance by Michael Harrison, Patrick Waldron

Brownian motion, buy low sell high, capital asset pricing model, compound rate of return, discrete time, incomplete markets, law of one price, market clearing, Myron Scholes, Pareto efficiency, risk tolerance, riskless arbitrage, short selling, stochastic process

Finally, we confirm that utility is maximised by the given Pareto efficient allocation, X∗ , at these prices. As usual, the proof is by contradiction: the details are left as an exercise. Q.E.D. 4.8.6 Complete markets The First Welfare Theorem tells us that competitive equilibrium allocations are Pareto optimal if markets are complete. If there are missing markets, then competitive trading may not lead to a Pareto optimal allocation. We can use the Edgeworth Box diagram to illustrate the simplest possible version of this principle. 4.8.7 Other characterizations of Pareto efficient allocations There are a total of five equivalent characterisations of Pareto efficient allocations. Theorem 4.8.4 Each of the following is an equivalent description of the set of allocations which are Pareto efficient: 1. by definition, feasible allocations such that no other allocation strictly increases at least one individual’s utility without decreasing the utility of any other individual; 2. by the Welfare Theorems, equilibrium allocations for all possible distributions of the fixed initial aggregate endowment; 3. in two dimensions, allocations lying on the contract curve in the Edgeworth box; Revised: December 2, 1998 CHAPTER 4.

WLOG we can rank the states so that Yi < Yj if i < j. We now present some results, following ?, showing conditions under which trading in a state index portfolio and in options on the state index portfolio can lead to the Pareto optimal complete markets equilibrium allocation. Now consider completion of markets using options on aggregate consumption. In real-world markets, the number of linearly independent corporate securities is probably less than M . However, options on corporate securities may be sufficient to form complete markets, and thereby ensure allocational (Pareto) efficiency for arbitrary preferences. Further assume that ∃ M − 1 European call options on Y with exercise prices Y1 , Y2 , . . . , YM −1 . A European call option with exercise price K is an option to buy a security for K on a fixed date.

Revised: December 2, 1998 61 63 . . . . . . . . . . 63 . . . . . . . . . . 63 . . . . . . . . . . 66 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 . 69 . 70 . 71 . 72 . 73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 75 78 78 78 CONTENTS 4.8 4.9 iii 4.7.3 Existence of equilibrium . . . . . . . . . . . . . . . The Welfare Theorems . . . . . . . . . . . . . . . . . . . . 4.8.1 The Edgeworth box . . . . . . . . . . . . . . . . . . 4.8.2 Pareto efficiency . . . . . . . . . . . . . . . . . . . 4.8.3 The First Welfare Theorem . . . . . . . . . . . . . . 4.8.4 The Separating Hyperplane Theorem . . . . . . . . 4.8.5 The Second Welfare Theorem . . . . . . . . . . . . 4.8.6 Complete markets . . . . . . . . . . . . . . . . . . 4.8.7 Other characterizations of Pareto efficient allocations Multi-period General Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 78 78 78 79 80 80 82 82 84 5 CHOICE UNDER UNCERTAINTY 85 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 5.2 Review of Basic Probability . . . . . . . . . . . . . . . . . . . . 85 5.3 Taylor’s Theorem: Stochastic Version . . . . . . . . . . . . . . . 88 5.4 Pricing State-Contingent Claims . . . . . . . . . . . . . . . . . . 88 5.4.1 Completion of markets using options . . . . . . . . . . . 90 5.4.2 Restrictions on security values implied by allocational efficiency and covariance with aggregate consumption . . . 91 5.4.3 Completing markets with options on aggregate consumption 92 5.4.4 Replicating elementary claims with a butterfly spread . . . 93 5.5 The Expected Utility Paradigm . . . . . . . . . . . . . . . . . . . 93 5.5.1 Further axioms . . . . . . . . . . . . . . . . . . . . . . . 93 5.5.2 Existence of expected utility functions . . . . . . . . . . . 95 5.6 Jensen’s Inequality and Siegel’s Paradox . . . . . . . . . . . . . . 97 5.7 Risk Aversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5.8 The Mean-Variance Paradigm . . . . . . . . . . . . . . . . . . . 102 5.9 The Kelly Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.10 Alternative Non-Expected Utility Approaches . . . . . . . . . . . 104 6 PORTFOLIO THEORY 6.1 Introduction . . . . . . . . . . . . . . . . . . . 6.2 Notation and preliminaries . . . . . . . . . . . 6.2.1 Measuring rates of return . . . . . . . . 6.2.2 Notation . . . . . . . . . . . . . . . . 6.3 The Single-period Portfolio Choice Problem . . 6.3.1 The canonical portfolio problem . . . . 6.3.2 Risk aversion and portfolio composition 6.3.3 Mutual fund separation . . . . . . . . . 6.4 Mathematics of the Portfolio Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 105 105 105 108 110 110 112 114 116 Revised: December 2, 1998 iv CONTENTS The portfolio frontier in <N : risky assets only . . . . . . . . . . . . . . . 6.4.2 The portfolio frontier in mean-variance space: risky assets only . . . . . . . . . . . . . . . 6.4.3 The portfolio frontier in <N : riskfree and risky assets . . . . . . . . . . . 6.4.4 The portfolio frontier in mean-variance space: riskfree and risky assets . . . . . . . . . . .


The Ethical Algorithm: The Science of Socially Aware Algorithm Design by Michael Kearns, Aaron Roth

23andMe, affirmative action, algorithmic trading, Alvin Roth, Bayesian statistics, bitcoin, cloud computing, computer vision, crowdsourcing, Edward Snowden, Elon Musk, Filter Bubble, general-purpose programming language, Google Chrome, ImageNet competition, Lyft, medical residency, Nash equilibrium, Netflix Prize, p-value, Pareto efficiency, performance metric, personalized medicine, pre–internet, profit motive, quantitative trading / quantitative finance, RAND corporation, recommendation engine, replication crisis, ride hailing / ride sharing, Robert Bork, Ronald Coase, self-driving car, short selling, sorting algorithm, speech recognition, statistical model, Stephen Hawking, superintelligent machines, telemarketer, Turing machine, two-sided market, Vilfredo Pareto

It turns out that the model minimizing this weighted penalty must be one of the points on the Pareto frontier. If we then change the weightings—say, to 1/4 times error plus 3/4 times the unfairness score—we will find another point on the Pareto frontier. So by exploring different combinations of our two objectives, we “reduce” our problem to the single-objective case and can trace out the entire frontier. While the idea of considering cold, quantitative trade-offs between accuracy and fairness might make you uncomfortable, the point is that there is simply no escaping the Pareto frontier. Machine learning engineers and policymakers alike can be ignorant of it or refuse to look at it. But once we pick a decision-making model (which might in fact be a human decision-maker), there are only two possibilities. Either that model is not on the Pareto frontier, in which case it’s a “bad” model (since it could be improved in at least one measure without harm in the other), or it is on the frontier, in which case it implicitly commits to a numerical weighting of the relative importance of error and unfairness.

See also societal norms and values nuclear weapons, 180–81 online shopping algorithms, 116–21, 123–24 Open Science Foundation, 161 optimization and algorithmic violations of fairness and privacy, 96 and data collection bias, 90 and definitions of fairness, 70–72 and differential privacy, 44–45 and echo chamber equilibrium, 125 and equilibrium in game theory, 98–99 and “fairness gerrymandering,” 87 and fairness vs. accuracy, 75–83 and interpretability of model outputs, 174–75 “Maxwell solution,” 105–11 and navigation problems, 102–4, 112 and online shopping algorithms, 116, 122 Pareto optimal solutions, 128, 193 and product recommendation algorithms, 123–24 statistical parity vs. optimal decision-making, 72 threat of optimization gone awry, 179–88 and unintended results, 189–90 and unique challenges of algorithms, 10 outcome trees, 140 outliers, 122 overfitting data, 31, 136, 159, 167 pairwise correlations, 57–58 parable on machine learning pitfalls, 182–83 Pareto, Vilfredo, 81 Pareto frontier (Pareto curves), 63, 81–86, 89, 128, 193 parity, statistical, 84 Partnership on AI to Benefit People and Society, 15 patient records. See medical records and data Pentland, Sandy, 145–46 performance reporting, 140–41 personal data, 171 personalized medicine, 191–92 p-hacking, 144–46, 153–59, 161, 169–70.

The key thing to realize is that any model that is not on this boundary is a “bad” model that we should eliminate from consideration, because we can always improve on either its fairness score or its accuracy (or both) without hurting the other measure by moving to a point on this boundary. The technical name for this boundary is the Pareto frontier or Pareto curve, and it constitutes the set of “reasonable” choices for the trade-off between accuracy and fairness. Pareto frontiers, which are named after the 19th-century Italian economist Vilfredo Pareto, are actually more general than just accuracy-fairness trade-offs, and can be used to quantify the “good” solutions to any optimization problem in which there are multiple competing criteria. One of the most common examples is the “efficient frontier” in portfolio management, which quantifies the trade-off between returns and risk (or volatility) in stock investing. The Pareto frontier of accuracy and fairness is necessarily silent about which point we should choose along the frontier, because that is a matter of judgment about the relative importance of accuracy and fairness.


pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

And Pareto developed a further twist to this argument. If no Pareto improvement is possible-if it is not possible to make the ] oneses better off without making the Smiths worse off, or vice versa, then the outcome is described as Pareto efficient.6 An allocation of scarce resources between competing ends is Pareto efficient if it is impossible to make one household better off without making another household worse off It is hard not to be in favor of Pareto improvement. A Pareto improvement is the politician's dream-a policy from which there are only winners. If you could make someone better off without making anyone else worse off, wouldn't you do it? And yet you may already have a sense that Pareto is about to lead you somewhere you may not wish to go. A state of affairs might be Pareto efficient, and yet deplorable. A sadist is torturing his victims.

But this outcome could still be Pareto efficientwe can only stop the torture by making the sadist worse off The Fundamental Theorems of Welfare Economics Any exchange that benefits both parties and has no adverse effect on anyone else is a Pareto improvement. So an economic system can be efficient only if every possible mutually beneficial trade has occurred. This seems to link Pareto efficiency with free, competitive markets. Allowing the market economy to function freely will have the result that people will trade with each other until Pareto efficiency is achieved. For many supporters of the market economy, the argument is as simple as that. I've heard it often from practitioners of DIY economics. It isn't as simple as that. Voluntary trade between two individuals benefits both. But it will only be a Pareto improvement if it has no adverse consequences for other people. If my purchase, or your {194} John Kay production, affects others, it will not lead to a Pareto improvement. And it will often affect others because others want to buy the same goods as I do, or your output raises the costs of a third party.

When a plane is about to depart with an empty seat, it would be a Pareto improvement if the seat was filled by a passenger willing to pay anything at all. But the airline won't do this, because if seats were regularly available for next to nothing whenever one was empty, this would affect the behavior of full-fare-paying passengers. Airlines have the sophisticated yield management systems of chapter 12 to handle precisely this problem. Their aim is not to fill the plane, but to strike a balance between filling seats and obtaining good prices for seats. If they could read minds and gauge exactly how much each passenger would be willing to pay, they could engage in perfect price discrimination 7 and achieve Pareto efficiency. But of course they can't. So free trade leads to Pareto efficiency only in perfectly competitive markets because only perfectly competitive markets are free of these incentive compatibility problems.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, means of production, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

If a change (say, a regulatory intervention) would improve the well-being of at least one person without leaving anyone worse off, it is said to bring about a Pareto improvement. If, by contrast, any change would leave at least one person worse off (impaired well-being or welfare), the starting point is said to be Pareto efficient. This conception of efficiency is not especially rich and does not mean that a Pareto-efficient state of affairs is admirable in other senses. For example, if all the wealth in a society were in the hands of a single person, any change that gave everyone else (or, indeed, just one other person) some wealth but depleted the first person’s wealth (and well-being) would not be a Pareto improvement because the initially rich person would be worse off: the starting point, however unattractive, was a Pareto-efficient state. The idea of a Pareto improvement is, nevertheless, useful because it captures the thought that if we can make some people better off (improve their well-being) without making anyone worse off, we should.

In their famous “welfare theorems,” Kenneth Arrow, Gerard Debreu, and Lionel McKenzie uncovered the ideal or abstract conditions under which a market economy (the price mechanism) would deliver an efficient allocation of resources, with no gains from trade—no potential Pareto improvements—left unexploited and, therefore, with everyone left with their well-being as high as possible given the original distribution of resources. If those initial endowments were redistributed, perfect markets would generate a new Pareto-efficient state of affairs. An even more powerful result, known as the Second Welfare Theorem, was that under perfect competition any desired Pareto-efficient state could be obtained through an appropriate reshuffling of people’s initial endowments. This breakthrough in technical economics had a massive effect on twentieth-century debates about the functions and structure of the state, and thus on debates about delegation from politicians to technocrats. Delegating the Pursuit of Pareto Efficiency to the Regulatory State Most important, it suggested that questions of efficiency can be separated from questions of socioeconomic justice.

The Real World of Public Policy: Compensation Tests, Cost-Benefit Analysis, Money Incomes That is the theory, focused on obtaining and choosing among Pareto-efficient states of the world. It fits into an essentially liberal worldview, and in its analytical rigor risks obscuring some essentially normative assumptions about the organization of collective life (part II). Policy is another matter: a world where choices cannot be ducked, where doing nothing is doing something, where implementing any redistributive scheme can be costly, where there are disagreements about the optimum, and where individuals can lose out. On that last point, it is not obvious that the test of Pareto improvement should be taken literally. If public policy were constrained to pursuing only Pareto improvements, a single loser would have a veto. In the late 1930s, this prompted the British economists John Hicks and Nicholas Kaldor to propose that, instead of actual Pareto improvements, the test should be that, across the population, the net welfare benefits for the winners exceed the net costs for the losers.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

Mostly, when economists speak of efficiency it is a shorthand for Pareto efficiency. In engineering, there is an unambiguous increase in the efficiency of a system or process if output is maintained while reducing inputs, or output is increased using unchanged inputs. Either way, there is a costless improvement. Pareto the ex-engineer applied the idea to economic systems: a costless improvement occurs when at least one person gains and no one loses (economists now call this kind of improvement a Pareto improvement). And Pareto efficiency is achieved when no further Pareto improvements are possible: all costless gains have been taken, so any further gains for some will be unavoidably accompanied by losses for others. For economists from the 1930s onwards the idea of Pareto efficiency was transformative. It transformed awkward, politically charged debates about the distribution of the fruits of capitalism, about winners and losers, into scientific-sounding arguments about efficiency.

And it seems to be dated September, which does not match the December lunch described by Wanniski. 10: A Troubled Relationship: Modern Economics and Us 1 For example, most economists confidently recite the definition of Pareto efficiency they learned from the textbooks: ‘It’s impossible to make anyone better off without making someone else worse off.’ But this statement is inaccurate. Pareto efficiency focuses on giving people what they want (satisfying preferences) – which is not the same as making them better off. As psychologists have long known, people often make mistakes in pursuing their goals, or simply lack the information to know how best to achieve them. The textbook statement of Pareto efficiency implicitly assumes these problems don’t exist.

In other words, the effects on inequality were largely ignored. Economists simply identified the Pareto improvements and left it at that – ‘economics has nothing more to say’. This view has been passed down to the present via generations of economics textbooks. In contemporary debate the ghost of Pareto lies behind the idea that the goodness or badness of increased inequality is merely ‘a matter of opinion’ and that serious, politically impartial policy analysis done by advisers in government and business must focus on efficiency considerations, not equity, fairness or inequality. The bizarre, Pareto-inspired reluctance of orthodox economists to talk about inequality doesn’t just sideline other perspectives on inequality from Smith to Keynes. It ignores Pareto’s own work too. Textbooks refer to Pareto efficiency on every other page – but they make no mention of Pareto’s other big idea about inequality.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

If we swapped your bananas for my pears, then I’d be twice as well off and you’d be as well off as before. It’s called a ‘pareto improvement’. If we didn’t make the swap, the economy’s resources wouldn’t be being put to their best use: the bananas could be used to increase my happiness, but aren’t, and so in a sense are wasted. An economic outcome is ‘pareto efficient’ when all the swaps have been done. From that position it’s then impossible to make one person better off without making someone else worse off. The idea is that an economy shouldn’t contain ‘wasted’ resources like your bunch of bananas. Arrow and Debreu proved that if there’s a general equilibrium in the economy then it must be pareto efficient. It’s a cherished result in economics. Economists give it a special name: the First Welfare Theorem. It means that when an economy is in equilibrium there are no wasted resources like your bananas.

So Arrow and Debreu showed that even though no one organises it, an economy of markets is like a well-organised school. It leads to harmony: people’s desires are brought into balance and nothing gets wasted. Be careful not to get carried away with all of this, however. First, pareto efficiency is a minimal notion of what’s good for society. All it does is to rule out cases in which resources are wasted. But there are many pareto-efficient outcomes. One of them would be that in which one rich person owned everything and everyone else had nothing. A transfer of goods from the rich person to the rest would make the rest better off but would reduce the rich person’s welfare. It wouldn’t cause a pareto improvement even though we might think it very much desirable. The outcomes of markets, even if efficient, can be very unfair. Second, the assumptions on which Arrow and Debreu’s theory is based are far from the reality of how markets really work.

absolute poverty (i) acid rain (i) adaptive expectations (i) adverse selection (i) advertising (i) agriculture (i), (ii), (iii) aid (i) Akerlof, George (i) alienation (i) Ambrose, St (i) animal spirits (i), (ii), (iii) antitrust policies (i) Apple (i) Aquinas, St Thomas (i), (ii) Aristotle (i) Arrow, Kenneth (i) ascending auction (i) Asian Tigers (i), (ii) Atkinson, Anthony (i), (ii) auction theory (i) auctions (i) Augustine of Hippo, St (i) austerity (i) balance of trade (i) banks and entrepreneurs (i) and interest rates (i) and loans (i) and monopoly capitalism (i), (ii) and speculation (i) see also Britain, Bank of England; central banks; independent central banks; World Bank battle of the methods (i) Becker, Gary (i) behavioural economics (i) benevolent patriarch (i) Beveridge, William (i) big push (i) Black Wednesday (i) bonds (i) bourgeoisie (i), (ii), (iii) brand image (i) Britain Bank of England (i) inflation (i) pegged currency (i) Second World War (i) war with China (i) war with South Africa (i) bubbles (i), (ii) Buchanan, James (i) budget deficit (i) Burke, Edmund (i) capabilities (i) capital (i) and growth (i) Marx on (i) Capital (Marx) (i) Capital in the Twenty-First Century (Piketty) (i) capitalism (i), (ii), (iii) and entrepreneurs (i) and governments (i) and the Great Depression (i) and the Great Recession (i) historical law of (i) Marx on (i) world (i) see also communism Capitalism and Freedom (Friedman) (i) Capitalism, Socialism and Democracy (Schumpeter) (i) capitalists (i), (ii), (iii), (iv) and imperialism (i), (ii), (iii) Marx on (i), (ii), (iii), (iv), (v) carbon tax (i) carbon trading permits (i) Carlyle, Thomas (i), (ii) Castro, Fidel (i), (ii) central banks (i), (ii), (iii), (iv), (v) central planning (i), (ii) chaebols (i) chain of being (i), (ii) Chamberlin, Edward (i) Chaplin, Charlie (i) Chicago Boys (i) Chicago school (i), (ii), (iii), (iv) China, war with Britain (i) Christianity, views on money (i) Churchill, Winston (i) classical dichotomy (i) classical economics (i), (ii), (iii), (iv), (v) coins (i), (ii) Colbert, Jean-Baptiste (i) colonies/colonialism (i), (ii), (iii), (iv) American (i) Ghana (i), (ii) commerce (i), (ii), (iii), (iv) communism (i) and the Soviet Union (i) Communist Manifesto, The (Engels and Marx) (i), (ii) comparative advantage (i), (ii) competition (i), (ii), (iii), (iv) Condorcet, Marquis de (i) Confessions of an Economic Heretic (Hobson) (i) conspicuous consumption (i) constitution (rules) (i) consumers (i), (ii), (iii), (iv) contagion, economic (i) core (i) Corn Laws (i), (ii) Cortés, Hernan (i) cost (i) creative destruction (i) Credit Crunch (i) crime, economic theory of (i) Cuba (i) currency (i), (ii) see also coins currency markets (i), (ii) currency reserves (i) Debreu, Gérard (i) demand law of (i) see also supply and demand demand curve (i) democracy (i), (ii) Democratic Republic of the Congo (i) dependency theory (i) Depression (Great) (i), (ii), (iii), (iv), (v), (vi), (vii) and economic growth (i) and the US central bank (i) descending auction (i) developing/underdeveloped countries (i), (ii) development economics (i) Development of Underdevelopment, The (Frank) (i) diminishing marginal utility (i), (ii) diminishing return to capital (i) discretion (i) discrimination coefficient (i) distribution of income (i), (ii) diversification (i), (ii) dividends (i) division of labour (i) doomsday machines (i) Drake, Sir Francis (i) Drew, Daniel (i) dual economy (i) economic value (i), (ii), (iii), (iv) economics defined (i) normative (i) Economics of Imperfect Competition (Robinson) (i) economies of scale (i) economists (i), (ii), (iii) efficient markets hypothesis (i), (ii), (iii), (iv) efficient/inefficient economic outcome (i) see also pareto efficiency; pareto improvement Elizabeth I (i) Elizabeth II (i) employment, full (i) Engels, Friedrich (i) England’s Treasure by Forraign Trade (Mun) (i) entitlement (i), (ii) entrepreneurs (i), (ii) equilibrium (i), (ii), (iii), (iv), (v) exchange of goods (i), (ii) exchange rates (i) expectations, adaptive/rational (i), (ii), (iii), (iv) exploitation (i), (ii), (iii), (iv), (v) exports (i) and poor countries (i), (ii), (iii) externalities (i), (ii), (iii), (iv) Extraordinary Popular Delusions and the Madness of Crowds (MacKay) (i) failure, market (i), (ii), (iii), (iv) Fama, Eugene (i) famine (i), (ii), (iii), (iv) feminist economics (i) feudalism (i), (ii), (iii), (iv) financial systems (i), (ii) Finer, Herman (i) first price auction (i), (ii) First Welfare Theorem (i), (ii) First World War (i) fiscal policy (i), (ii) floating exchange rate (i) Florence (i) Folbre, Nancy (i) Fourier, Charles (i) framing (i), (ii) France agriculture (i) economic models (i), (ii) revolution (i), (ii), (iii), (iv) and taxation (i) Frank, Andre Gunder (i) free choice (i), (ii) free-market economics (i), (ii), (iii), (iv) free trade (i), (ii), (iii) Friedman, Milton (i), (ii), (iii) full employment (i) game theory (i), (ii), (iii) general equilibrium (i), (ii), (iii), (iv) General Theory of Employment, Interest and Money, The (Keynes) (i) Germany, infant industries (i) Ghana (i), (ii) Gilded Age (i) Global Financial Crisis (i), (ii) global warming (i) Goethe, Johann Wolfgang (i) gold (i), (ii) Golden Age (i) goods and services (i) government, and economies (i), (ii), (iii), (iv), (v), (vi), (vii) Great Moderation (i), (ii) Great Recession (i) Greece (i), (ii), (iii) gross domestic product (i) growth (i) and dependency theory (i) of government (i) and the Great Moderation (i) and Pakistan (i) and population (i) theory (i) Guevara, Ernesto ‘Che’ (i), (ii) guilds (i) Hamilton, Alexander (i) Hansen, Alvin (i) harmony, system of (i) Hayek, Friedrich (i), (ii) hedge funds (i) herds (i) Hicks, John (i) historical law of capitalism (i) HIV/AIDS (i) Hobson, John (i) Homobonus, St (i) human capital (i) human development (i), (ii) Human Development Index (i) imperfect competition (i), (ii) imperialism (i) Imperialism: The Highest Stage of Capitalism (Lenin) (i) imports (i), (ii), (iii) income (i), (ii) and bank loans (i) and capitalism (i) and communism (i) distribution of (i), (ii) and growth (i), (ii) national (i), (ii), (iii), (iv), (v) income per person (i), (ii) independent central banks (i) Industrial Revolution (i), (ii), (iii), (iv), (v) inequality (i), (ii) infant industries (i) inflation (i), (ii), (iii), (iv), (v) information economics (i), (ii), (iii) injection of spending (i) innovations (i), (ii) insurance (i), (ii) interest rates (i) British (i) and monetary policy (i) and recession (i) and usury (i) International Monetary Fund (i) investment (i) and the big push (i) and recession (i), (ii) invisible hand (i), (ii), (iii), (iv), (v) iron law of wages (i) Irrational Exuberance (Shiller) (i) Jefferson, Thomas (i) Jevons, William (i) just price (i) Kahneman, Daniel (i), (ii) Kennedy, John F.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

But other policy problems cannot be solved by even the most sophisticated application of purposeful choice and instead require tough, for-itself decisions. This discussion will not resolve intractable policy problems or moral dilemmas, but we can gain insight by assigning them to their proper realms. Pareto Efficiency and Purposeful Public Policy One simple rule, Pareto efficiency, can be used to determine whether a policy can be evaluated in terms of purposeful choice. In purposeful choice, one policy is superior to another if and only if it is Pareto efficient, that is, the superior policy helps someone and hurts no one, or at least makes the winners better off by a sufficiently large margin that they could theoretically compensate the losers and no one would be worse off. This approach assumes that policymakers can determine the preferences of all their constituents, including their constituents’ ethical principles and the weight given to those principles.

It’s not practical, but that’s a technical issue which doesn’t affect whether a policy problem is purposeful or for-itself.1 Suppose a factory emits pollution that imposes health costs of $1 million on people who live nearby. It would be Pareto efficient to force the factory to pay $300,000 to install equipment that would reduce the impact of the pollution to $100,000. The factory owner would then be $300,000 worse off, but if those who most benefited from the reduced pollution chipped in to compensate him, everyone would win. If profits before installing the equipment were less than $300,000, another Pareto improvement could be achieved by shutting down the factory. To measure the health costs ($1 million in this example), we’d estimate the total amount that each person afflicted would be willing to pay to reduce the factory’s pollution to zero, assuming everyone had perfect information.

SEVEN Public Policy 1. This is not the textbook normative versus positive distinction. I assume the policymaker knows everyone’s preferences, including values—e.g., environmental standards, income equality, equality of opportunity, and so forth. With all this information, the policymaker can factor values into the pursuit of Pareto efficiency. 2. Taylor, Rationality, 20. Taylor’s aim is to “overthrow” economic theory by identifying examples with no Pareto-efficient solution. He starts his book with several such stories of people refusing to give something up for money. Taylor, however, is launching his assault on a straw man. He has not proven that the rational choice model is useless—simply that it does not apply to every decision. 3. Cicero, De Officiis, 319–325; Foot, “Problem of Abortion,” 23. 4.


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

"Robert Solow", barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, price discrimination, profit maximization, rent-seeking, Sam Peltzman, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

When there are only a few members in the group, there is also the possibility that they will bargain with one another and agree on collective action-then the action of each can have a perceptible effect on the interests and the expedient courses of action of others, so that each has an incentive to act strategically, that is, in ways that take into account the effect of the individual's choices on the choices of others. This interdependence of individual firms or persons in the group can give them an incentive to bargain with one another for their mutual advantage. Indeed, if bargaining costs were negligible, they would have an incentive to continue bargaining with one another until group gains were maximized, that is, until what we shall term a group-optimal outcome (or what economists sometimes call a "Pareto-optimal" outcome for the group) is achieved. One way the two firms mentioned in the previous paragraph could obtain such an outcome is by agreeing that each will bear half the costs of any collective action; each firm would then bear half the cost of its action in the common interest and receive half the benefits. It therefore would have an incentive to continue action in the collective interest until the aggregate gains of collective action were maximized.

In claiming that international product and factor markets unobstructed by either cartelization or governmental intervention will bring irrepressible and rapid growth to any poor country, I am not arguing that laissez-faire leads to perfect efficiency. As I pointed out in chapter 3, 1 do not assume perfect competition anywhere in this book. As it happens, most of my own writing in economics is about externalities and public goods, which normally keep a laissez-faire economy from achieving Pareto-optimality and which I believe are quite important.26 An economy can be dynamic and rapidly growing without at the same time being optimal or perfectly efficient. An economy with free markets and no government or cartel intervention is like a teen-aged youth; it makes a lot of mistakes but nonetheless grows rapidly without special effort or encouragement. If poor institutions that prevent or repress growth are the norm in much of the world, it may not help to say that "only" institutional problems stand in the way of rapid growth in poor countries.

It would be in the interest of those groups that are organized to increase their own gains by whatever means possible. This would include choosing policies that, though inefficient for the society as a whole, were advantageous for the organized groups because the costs of the policies fell disproportionately on the unorganized. (In the language of the game theorist, the society would not achieve a "core" or Pareto-efficient allocation because some of the groups were by virtue of their lack of organization unable to block changes detrimental to them or to work out mutually advantageous bargains with others.) With some groups left out of the bargaining, there is also no reason to suppose that the results have any appeal on grounds of fairness. On top of this there is the likelihood that the costs of bargaining and slow decision-making would make a society that made decisions by group bargaining inefficient in any case.


pages: 543 words: 153,550

Model Thinker: What You Need to Know to Make Data Work for You by Scott E. Page

"Robert Solow", Airbnb, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Alvin Roth, assortative mating, Bernie Madoff, bitcoin, Black Swan, blockchain, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Checklist Manifesto, computer age, corporate governance, correlation does not imply causation, cuban missile crisis, deliberate practice, discrete time, distributed ledger, en.wikipedia.org, Estimating the Reproducibility of Psychological Science, Everything should be made as simple as possible, experimental economics, first-price auction, Flash crash, Geoffrey West, Santa Fe Institute, germ theory of disease, Gini coefficient, High speed trading, impulse control, income inequality, Isaac Newton, John von Neumann, Kenneth Rogoff, knowledge economy, knowledge worker, Long Term Capital Management, loss aversion, low skilled workers, Mark Zuckerberg, market design, meta analysis, meta-analysis, money market fund, Nash equilibrium, natural language processing, Network effects, p-value, Pareto efficiency, pattern recognition, Paul Erdős, Paul Samuelson, phenotype, pre–internet, prisoner's dilemma, race to the bottom, random walk, randomized controlled trial, Richard Feynman, Richard Thaler, school choice, sealed-bid auction, second-price auction, selection bias, six sigma, social graph, spectrum auction, statistical model, Stephen Hawking, Supply of New York City Cabdrivers, The Bell Curve by Richard Herrnstein and Charles Murray, The Great Moderation, The Rise and Fall of American Growth, the rule of 72, the scientific method, The Spirit Level, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, urban sprawl, value at risk, web application, winner-take-all economy, zero-sum game

The Mount-Reiter Diagram A mechanism consists of six parts: an environment (the relevant features of the world), a set of outcomes, a set of actions (called the message space), a behavioral rule that people follow to produce actions, an outcome function that maps the actions into outcomes, and a social choice correspondence that maps the environment into a set of hoped-for outcomes. The social choice correspondence commonly consists of either the outcome that maximizes the sum of the participants’ utilities or of the set of Pareto efficient allocations. An outcome is Pareto efficient if and only if no other outcome exists that everyone prefers. Pareto efficiency is a low bar. Pareto Efficiency Within a set of outcomes, an outcome is Pareto dominated if there exists an alternative that everyone prefers. All other outcomes are Pareto efficient.2 The Mount-Reiter diagram captures these essential parts of a mechanism graphically (figure 24.1). The diagram juxtaposes what we desire and what exists. Across the top, the social choice correspondence describes the outcomes that we normatively desire.

The three votes constitute a Nash equilibrium. No person has any incentive to change his or her vote. In this case, majority rule does not always implement a Pareto efficient outcome. We next consider the kingmaker mechanism.3 In this mechanism, one person is randomly selected to be the kingmaker. The kingmaker then selects a “king,” who determines the group’s choice. If Will is the kingmaker, he must pick between Uma and Vera. Whomever he chooses becomes king, and that person then selects the movie. If the person selected as king acts rationally, she will select her favorite movie. Therefore, the outcome will be Pareto efficient. For this reason, the kingmaker mechanism implements Pareto efficient outcomes. The mechanism has the added advantage that if any two people have the same favorite movie, the mechanism selects that outcome.

We write preferences using orderings. The ordering action comedy drama corresponds to the action movie being most preferred, followed by the comedy and then the drama. We assume the following preference orderings: Uma: action comedy drama Vera: comedy drama action Will: comedy drama action In this example, we take the social choice correspondence to be the set of Pareto efficient choices. Given the assumed preferences, the comedy and the action movie are Pareto efficient. The drama is Pareto dominated by the comedy. We first evaluate majority rule as a mechanism. In the case of a tie, we assume the choice is made randomly. If people vote sincerely, the comedy receives two votes. However, suppose that Vera and Will both believe that the other two people will be split between the drama and the action movie and each votes for the drama.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

"Robert Solow", agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

Ultimately, these dynamics may be a key explanation of the ‘secular stagnation’ and ‘productivity puzzle’ that has cast a shadow over advanced economies in the last few decades. In the next and final chapter, we propose some solutions that could help reverse the damaging role land has come to play in modern economies. 1 In economics, Pareto efficiency, or Pareto optimality, is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. Pareto efficiency is the state where resources are allocated in the most efficient manner. 2 For further discussion on the flaws of marginal productivity theory see Keen (2011) and Stiglitz (2012). 3 These studies may underestimate the increase in net wealth, particularly at the higher end of the distribution, as they do not consider the effect of equity withdrawal. 4 According to the ONS Wealth and Assets Survey, the Gini coefficient of net property wealth increased from 0.62 to 0.66 between 2006–8 and 2012–14. 5 The National Equality Panel found that the median wages of those who own their property (whether bought outright or with a loan or mortgage) are significantly higher than the earnings of people who rent (whether privately or in social housing).

The rationale for this is that if wages were below productivity, firms would find it profitable to hire more workers. This would put upward pressure on wages. Conversely, if wages were above productivity, firms would find it profitable to shed labour, putting downward pressure on wages. In a competitive market an equilibrium is reached whereby wages equal what each worker can produce, resulting in a Pareto efficient outcome.1 Under this framework differences in individuals’ incomes are therefore said to be related to differences in productivity, skills and effort. Highly paid workers deserve the high wages they receive compared to the less highly paid because they are more productive than members of the latter. Changes in the distribution of income are attributed to changes in technology and to investments in human and physical capital, which have the effect of increasing the skills and productivity of certain individuals.

Act (1919) (the Addison Act), 78 housing quality, 97 housing supply, effect of residual valuation methodology, 98 housing tenure: European regulations, 32; housing costs by tenure, 179; leasehold-freehold, 213; reform proposals, 212–15; restricted sale tenures, 213–14; reversionary tenures, 214; trends, 82, 83, 106–7, 107; see also private rented sector housing wealth: age distribution, 181–2, 181; consumption-to-income ratio trends, 143–4, 144; increase, 158–9, 170; and increase in wealth-to-income ratio, 172–3; net property wealth distribution, 174–5, 174, 175, 176; and wealth inequality, 174–9 Howard, Sir Ebenezer, 75–6 human rights, 23 imputed rental income: Switzerland, 157; UK tax-exemption, 85, 104–5 income: consumption-to-income ratio trends, 143–4, 144; disposable income to house price ratio, 112–14, 114; effects of increased income, 9, 64 income inequality, 162–3 income tax, 69, 168–9 Industrial Revolution, 68–9 inequality: causes and consequences, 165–9; and excessive economic rent, 43; and financial instability, 185–7; Gini coefficient measures, 163, 177, 178; health and social problems, 185; and homeownership, 92; and house prices, 177–8; and housing costs, 179–80; income inequality, 162–3; and inheritance, 182; and land value, 46, 173, 190; and landownership, 26–7; and mortgage debt, 116; property and the state, 17–18; regional inequality, 165, 182–3; and taxation, 168–9; wealth inequality, 163–4, 174–9 infrastructure projects: compulsory land purchase, 31, 73, 196–7, 222; and land value, 6, 42, 194–5 inheritance, 19, 127, 182 inheritance tax (IHT), 104–5, 169, 202 Institute of New Economic Thinking, 218n11 iron and steel industry, 69 James II, King, 66, 80 Japan: credit window guidance, 207; credit-driven bubbles, 111; financial crash, 151–3; house price to income ratio, 112, 114; land prices, 32; mortgage market structure, 157; size of new-builds, 97 Jefferson, Thomas, 22, 26 Jubilee Line, 194–5 Keynes, John Maynard, 84 Keynesianism, 83, 84, 152 King, Mervyn, 154 Korean Land Corporation, 196 labour markets, and homeownership, 27–8 labour productivity, 165–7 land: changing economic role, 190; as collateral, 7, 20–1, 55, 127–8, 160; conflated with capital, 48–52; definition, 38; differences between land and capital, 52–7; and economic rent, 39–44, 56–7; factor of production, 37–8; financialisation, 14, 110–12; historical uses, 3–4; immobile and fixed nature, 55; limited supply, 4, 63; permanent and timeless space, 52–4; state acquisition, 30–1 Land Bank of Britain proposal, 196 land development taxes, 35 land pooling, 197–8 land prices: agricultural, 122–3; effect of financial crisis, 101; land banks (current and strategic), 96–7, 101; and planning regulations, 32; volatility, 8, 8; see also land value Land Registry, 63 land rights, US native population, 26 land taxes: and economic rent, 34–5, 45–8, 76–7, 199, 222; opposition, 57–8, 60, 77; political barriers, 35; theoretical advantages, 34–5; see also land value tax (LVT) land title, 21, 31, 36 land value: asset for the future, 6–7; determined by current use, 6; effect on capital of rising costs, 56; factors outside owner’s control, 55–6; increase over time, 53–4; and inequality, 46, 173, 190; lack of reliable public dataset, 63–4, 219; location and infrastructure, 6; residual valuation methodology, 98–9; site value vs market value, 202; state interventions, 30; uplift created by planning permission, 79–80, 216; use value vs market value, 110; see also land prices land value tax (LVT): Australia, 204–5; Denmark, 204; economic case for reform, 199–201; Henry George’s single tax movement, 46–8, 57–8; Mirlees Review recommendation, 199–200; People’s Budget proposal (1909), 48n9, 76–7; practical and political challenges, 201–5; split rate taxation, 204–5 land-credit feedback cycle, 8, 114–19, 190–1, 222 landlords: taxation, 85; see also buy-to-let (BTL); private rented sector ‘The Landlord’s Game’, 47 landownership: benefits of public ownership, 193–6; and economic rent, 10–13; ‘high income-elasticity of demand’, 9; and inequality, 26–7; land pooling, 197–8; modern economic theories, 16–18; moral qualities, 22; multiple forms, 18–20; and political power, 22–3; and social status, 20; as theft, 22–5, 43, 189; see also property ownership Lassalle, Ferdinand, 43 leasehold-freehold tenure, 213 leases, lifetime leases, 74 legacy landowners, 197–8 Lenin, Vladimir, 43 Letchworth Garden City, 75 Letchworth Heritage Foundation, 75 leverage, 184 liberal economics see classical economics lifecycle model, 124–8, 159 living conditions, 70–1 Lloyd George, David, 48, 76, 78 Lloyds TSB, 139 loan-to-value (LTV) ratios, 139, 156, 157 location, 6, 40–3 Locke, John, 16–18, 26 London: Bishops’ Avenue, 109; Boundary Estate, 73; Jubilee Line, 194–5; Old Nichol, 73; private rented sector, 223; St Clements Community Land Trust, 214 mainstream economics see neoclassical economics Malthus, Thomas, 40 manufacturing industry, 168 marginal productivity theory, 49–50, 51, 56, 57–9, 165–7 Marshall, Alfred, 55 Marx, Karl, 18, 43, 59, 61 mercantilism, 38, 70 microeconomics, 34, 51, 53 Mill, John Stuart, 25, 45, 199 Milton Keynes, 88 Minsky, Hyman, 152–3, 155 MIRAS (mortgage interest relief at source), 86 Mirrlees Review, 199–200 monetarism, 86, 87 Monopoly, 47 mortgage lending: affordability pressures, 100; bad debt, 140; bank funding arrangements, 131; as credit creation, 114; debt-to-income ratio, 115–16, 116, 139, 159, 186; default rates, 141; deregulation, 88, 132–5, 178; financial crisis collapse, 139–40; full recourse vs non-recourse loans, 141–2; house price-credit feedback cycle, 119–24; importance in banks’ lending portfolios, 61, 119; interest rates for landlords, 77; lifecycle model, 124–8, 159; loan-to-income limits, 155; loan-to-value (LTV) ratios, 139, 156, 157; mortgage debt-to-GDP ratio, 156–8, 156; mortgage interest relief at source (MIRAS), 86; reform proposals, 211–12; residential mortgage-backed securities (RMBS), 137–9, 140, 160; tax relief, 133; trends, 107; see also buy-to-let (BTL) Muellbauer, John, 110 mutual co-ownership, 86 Napoleonic Wars, 69 national accounts, lack of land value information, 63–4, 219 national income: wealth to national income ratio, 171–4, 171, 172; see also GDP nationalisation, 43 natural law, 25–6 natural property rights theory, 16–18 negative equity, 123, 133–4 neoclassical economics, 5, 17, 27, 48–9, 50, 52, 57, 111, 192 Netherlands, land pooling, 198 New Keynesianism, 125n6 New Towns programme, 66, 71, 80–1, 88, 184, 197 new-build homes, 97 NIMBYism, 24 Northern Rock, 136–7 Nozick, Robert, 26 OECD, 64, 219, 220 Office for National Statistics, Blue Book, 219 oil sector, 44 OPEC (Organization of the Petroleum Exporting Countries), 44 orthodox economics see neoclassical economics Oswald, Andrew J., 27 overseas investment, 100, 122, 149, 160, 183 Owen, Robert, 71 Paine, Thomas, 25 Pareto efficiency, 166n1 patents, 44 Peabody, George, 71 Peel, Robert, 43 Pennsylvania, split rate taxation, 205 Phillips, Elizabeth J. Magie, 47 Physiocrats, 38 Pickett, Kate, 185 Piketty, Thomas, 9, 27; Capital in the Twenty-first Century, 170–3 planning applications: basements, 57n16; local resistance, 27, 97 planning permission: conditionalities, 33, 93–6, 216; and uplift in land value, 79–80, 216 planning regulations: and house prices, 113; and land price, 32; and land supply restrictions, 12; reform proposals, 215–17, 221 ‘plotlands’ movement, 72 Poland, serfdom, 23–4 Ponzi financing, 152, 153 population growth, 68 Primitive Accumulation concept, 18 private rented sector, 103–6, 107, 134, 179, 215, 223 production factors, 37–8 productivity: and homeownership, 27, 28; and incomes, 165–7; see also marginal productivity theory property ownership: freedom and theft, 25–6, 43, 189; non-bank investment, 112; and social status, 9; see also landownership property rights, and the state, 16, 17–18 property taxes, salience, 201, 203 property wealth see housing wealth Proudhon, Pierre-Joseph, 26, 43, 61 public health: land regulations, 32; slum areas, 70–1 Public Health Acts, 73 public sector debt, 219–21 Pufendorf, Samuel, 16 quantitative easing, 149 regional inequality, 165, 182–3 rent: imputed rental income tax exemption, 85–6, 104–5; percentage paid, 74 rent controls, 77 rent trap, 106 rent-seeking, 12–13 rented housing: Assured Shorthold Tenancy, 89; housing costs, 179; nineteenth century, 74; rent extraction, 46n6; social renting, 78, 107; see also affordable housing; buy-to-let (BTL); housing tenure; private rented sector; social housing rentier economy, 107 rentiers, 39 residential mortgage-backed securities (RMBS), 137–9, 140, 160 residential property wealth, 9, 10 retirement, and housing equity, 103 return on capital investment, 56 Ricardo, David, 12, 25, 39–40, 49, 60–1, 199 Right to Buy policy, 89, 90–1, 103 Rousseau, Jean-Jacques, 15 Rowntree, Joseph, 71 Royal Commission on the Housing of the Working Classes (1885), 74 Russian oligarchs, 184 St Clements Community Land Trust, 214 Salt, Titus, 71 Santander, 139 Second World War, 79, 207 Section 106 planning conditionalities, 93–6, 216 securitisation, 135–42, 156–7, 156 self-builders, 82; ‘plotlands’ movement, 72 serfdom, 23–4 services sector, 168 sewers, 73 Singapore, state ownership of land, 194 ‘Single-taxers’ movement, 47 slums, 70–1, 73 small and medium sized enterprises (SMEs), 148, 208–9 Smith, Adam, 17–18, 37, 40, 45, 161, 199 social care, and housing equity, 103 social democratic regimes, 59, 61 social housing: Boundary Estate, 73–4; early philanthropic efforts, 71–2; interwar rise, 78–9; provided by local councils, 30; residualisation, 90; reversionary tenures, 214; trends, 83, 107, 179; see also affordable housing social problems, and inequality, 185 social status, 20 socialism, 59–62 South Korea: credit window guidance, 207; Korean Land Corporation, 196 South-East Asia, credit-driven bubbles, 111 Spain, mortgage market structure, 157 spatial inequality, 165, 182–3 squatting, 72 stamp duty land tax (SDLT), 104 state: benefits of public landownership, 193–6; land acquisition, 30–1; and landownership, 22–3; policy interventions, 29–30, 192–3; and property rights, 16, 17–18 Stiglitz, Joseph, 12–13, 110, 161 subsidies, 33–4, 89, 91, 213–14 suburbanisation, 78–9 superstar effect, 167–8 Switzerland: economic success and low homeownership, 215; mortgage market structure and homeownership, 157–8, 157 Taiwan, credit window guidance, 207 tax relief: buy-to-let mortgages, 62, 160; second homes, 160 taxation: agricultural land, 69; council tax, 104, 201, 202; domestic commodities, 69; imputed rental income, 85, 104–5, 157; and inequality, 168–9; land development taxes, 35; property tax salience, 201, 203; property transactions, 35, 200–1; reform proposals, 199–205; residential property taxes, 104–5; Swiss imputed rent tax, 157; see also capital gains tax; land value tax (LVT) technological change, 168, 169 tenant co-partnership, 72 tenure see housing tenure textile industry, 69 Thatcher government, 88–91, 132 Thatcher, Margaret, 86, 155 time, 53 Town and Country Planning Act (1932), 80 Town and Country Planning Act (1990), 93–6 town planning, 71 trade unions, 169 Turner, Adair, 110, 120–2 unemployment, 27, 215 United States: anti-trust legislation, 60; house price to income ratio, 113, 114; mortgage market structure, 157; National Parks Service, 30; native population and land rights, 26; non-recourse mortgage loans, 141–2; Pennsylvania split rate taxation, 205; public investment, 60; residential property wealth, 9, 10; slavery, 24 urban regeneration, 88 urbanisation, 41, 68–9, 70 US Federal Reserve, credit controls, 207 Valuation Office Agency, 63, 202 Veblen, Thorsten, 9 wages: declining share in national income, 169; economic theories, 39–40; and labour productivity, 165–7; ratio to house prices, 99, 100 war, and property redistribution, 27 waste collection, 73 wealth: differing forms, 143; UK distribution of net worth, 164; wealth to national income ratio, 171–4, 171, 172; see also housing wealth wealth inequality, 163–4, 174–9 Welwyn Garden City, 75 Wheatley Housing Act (1924), 78 wholesale money markets, 131, 139 Wicksteed, Philip, 50 Wilkinson, Richard, 185 World War I, 77 World War II, 79, 207


pages: 339 words: 105,938

The Skeptical Economist: Revealing the Ethics Inside Economics by Jonathan Aldred

airport security, Berlin Wall, carbon footprint, citizen journalism, clean water, cognitive dissonance, congestion charging, correlation does not imply causation, Diane Coyle, endogenous growth, experimental subject, Fall of the Berlin Wall, first-past-the-post, framing effect, greed is good, happiness index / gross national happiness, hedonic treadmill, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, labour market flexibility, laissez-faire capitalism, libertarian paternalism, longitudinal study, new economy, Pareto efficiency, pension reform, positional goods, Ralph Waldo Emerson, RAND corporation, risk tolerance, school choice, spectrum auction, Thomas Bayes, trade liberalization, ultimatum game

Notes Chapter 1 1 ‘Perhaps’ because (i) the total sales of some economics classics may be greater, simply because they have been around for so long; and (ii) Freakonomics may not count as an economics book. 2 I borrow this apt term from Paul Krugman, an influential American economist. 3 Coyle (2002), p226. 4 See especially Kasser (2002), James (2007). 5 Technical note. In the language of economics, I have argued that Pareto improvements are not necessarily good things because inequality may increase. A standard objection to this argument is that, when relative position matters, then absolute gains for all do not imply everyone is better off, if inequality has increased. So there is no Pareto improvement after all. My reply to this objection: this refinement of Pareto efficiency is rarely taught or mentioned in textbooks, and hardly ever discussed by applied economists. They talk of absolute gains for everyone as bringing about Pareto improvements, and Pareto improvements are almost universally regarded as unambiguously good. There is an understandable reason for this omission: everyone gaining in absolute terms is rare enough, without demanding that inequality does not rise too.

There is an understandable reason for this omission: everyone gaining in absolute terms is rare enough, without demanding that inequality does not rise too. Interpreting Pareto improvements as incorporating this extra condition would render them almost extinct — and much harder to measure. So in practice, the solution is not to refine the meaning of Pareto improvement, but to abandon the idea that it always represents a change to be welcomed. 6 Smith (1976 [1759]), p183. 7 Keynes (1931), p371. 8 On current trends, income per head in 2030 looks set to be right in the middle of the range predicted by Keynes in 1930. See Samuel Brittain, Financial Times, 3 January 2002. 9 See for example the UK Government’s 2003 White Paper, The Future of Air Transport (available at www.dft.gov.uk/about/strategy/whitepapers/air/); MacLean and Jennings (2006). 10 Nobel Prize-winning economist, Milton Friedman, in Friedman (1953), p5.


pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Erdős number, experimental subject, first-price auction, fudge factor, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, Simon Singh, slashdot, social web, Steve Jobs, stochastic process, Ted Nelson, The Market for Lemons, The Wisdom of Crowds, trade route, transaction costs, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

In order to reason about this latter issue, we first need a way of making it precise. There are two useful candidates for such a definition, as we now discuss. Pareto-Optimality. The first definition is Pareto-optimality, named after the Italian economist Vilfredo Pareto who worked in the late 1800’s and early 1900’s. A choice of strategies — one by each player — is Pareto-optimal if there is no other choice of strategies in which all players receive payoffs at least as high, and at least one player receives a strictly higher payoff. 6.9. PARETO-OPTIMALITY AND SOCIAL OPTIMALITY 195 To see the intuitive appeal of Pareto-optimality, let’s consider a choice of strategies that is not Pareto-optimal. In this case, there’s an alternate choice of strategies that makes at least one player better off without harming any player.

The outcome in which you and your partner both study for the exam is not Pareto-optimal, since the outcome in which you both prepare for the presentation is strictly better for both of you. This is the central difficulty at the heart of this example, now phrased in terms of Pareto-optimality. It shows that even though you and your partner realize there is a superior solution, there is no way to maintain it without a binding agreement between the two of you. In this example, the two outcomes in which exactly one of you prepares for the presentation are also Pareto-optimal. In this case, although one of you is doing badly, there is no alternate choice of strategies in which everyone is doing at least as well. So in fact, the Exam-or-Presentation Game – and the Prisoner’s Dilemma — are examples of games in which the only outcome that is not Pareto-optimal is the one corresponding to the unique Nash equilibrium.

Of course, this definition is only appropriate to the extent that it makes sense to add the payoffs of different players together — it’s not always clear that we can meaningfully combine my satisfaction with an outcome and your satisfaction by simply adding them up. Outcomes that are socially optimal must also be Pareto-optimal: if such an outcome weren’t Pareto-optimal, there would be a different outcome in which all payoffs were at least as large, and one was larger — and this would be an outcome with a larger sum of payoffs. On the other hand, a Pareto-optimal outcome need not be socially optimal. For example, the Exam-or-Presentation Game has three outcomes that are Pareto-optimal, but only one of these is the social optimum. 196 CHAPTER 6. GAMES Finally, of course, it’s not the case that Nash equilibria are at odds with goal of social optimality in every game. For example, in the version of the Exam-or-Presentation Game with an easier exam, yielding the payoff matrix that we saw earlier in Figure 6.4, the unique Nash equilibrium is also the unique social optimum. 6.10 Advanced Material: Dominated Strategies and Dynamic Games In this final section, we consider two further issues that arise in the analysis of games.


pages: 410 words: 119,823

Radical Technologies: The Design of Everyday Life by Adam Greenfield

3D printing, Airbnb, augmented reality, autonomous vehicles, bank run, barriers to entry, basic income, bitcoin, blockchain, business intelligence, business process, call centre, cellular automata, centralized clearinghouse, centre right, Chuck Templeton: OpenTable:, cloud computing, collective bargaining, combinatorial explosion, Computer Numeric Control, computer vision, Conway's Game of Life, cryptocurrency, David Graeber, dematerialisation, digital map, disruptive innovation, distributed ledger, drone strike, Elon Musk, Ethereum, ethereum blockchain, facts on the ground, fiat currency, global supply chain, global village, Google Glasses, IBM and the Holocaust, industrial robot, informal economy, information retrieval, Internet of things, James Watt: steam engine, Jane Jacobs, Jeff Bezos, job automation, John Conway, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Kevin Kelly, Kickstarter, late capitalism, license plate recognition, lifelogging, M-Pesa, Mark Zuckerberg, means of production, megacity, megastructure, minimum viable product, money: store of value / unit of account / medium of exchange, natural language processing, Network effects, New Urbanism, Occupy movement, Oculus Rift, Pareto efficiency, pattern recognition, Pearl River Delta, performance metric, Peter Eisenman, Peter Thiel, planetary scale, Ponzi scheme, post scarcity, post-work, RAND corporation, recommendation engine, RFID, rolodex, Satoshi Nakamoto, self-driving car, sentiment analysis, shareholder value, sharing economy, Silicon Valley, smart cities, smart contracts, social intelligence, sorting algorithm, special economic zone, speech recognition, stakhanovite, statistical model, stem cell, technoutopianism, Tesla Model S, the built environment, The Death and Life of Great American Cities, The Future of Employment, transaction costs, Uber for X, undersea cable, universal basic income, urban planning, urban sprawl, Whole Earth Review, WikiLeaks, women in the workforce

An increased police presence on the streets of a district reassures some residents, but makes others uneasy, and puts yet others at definable risk. Even something as seemingly straightforward and honorable as an anticorruption initiative can undo a fabric of relations that offered the otherwise voiceless at least some access to local power. We should know by now that there are and can be no Pareto-optimal solutions for any system as complex as a city.39 That such a solution, if it even existed, could be arrived at algorithmically is also subject to the starkest doubt. Assume, for the sake of argument, that there did exist a master formula capable of resolving all resource allocation conflicts and balancing the needs of all of a city’s competing constituencies. It certainly would be convenient if this golden mean could be determined automatically and consistently, via the application of a set procedure—in a word, algorithmically.

idxno=2013071614443771298. 37.Jim Fletcher, IBM Distinguished Engineer, and Guruduth Banavar, Vice President and Chief Technology Officer for Global Public Sector, personal communication, June 8, 2011. 38.Michal Migurski, “Visualizing Urban Data,” in Toby Segaran and Jeff Hammerbacher, Beautiful Data: The Stories Behind Elegant Data Solutions, Sebastopol CA: O’Reilly Media, 2012. See also Michal Migurski, “Oakland Crime Maps X,” tecznotes, March 3, 2008, mike.teczno.com. 39.See, as well, Sen’s dissection of the inherent conflict between even mildly liberal values and Pareto optimality. Amartya Kumar Sen, “The impossibility of a Paretian liberal,” Journal of Political Economy Volume 78 Number 1, Jan–Feb 1970. 40.Jay Forrester, Urban Dynamics, Cambridge, MA: The MIT Press, 1969; Joe Flood, The Fires: How a Computer Formula Burned Down New York City—And Determined the Future Of American Cities, New York: Riverhead Books, 2010. 41.See, e.g., Luís M.A. Bettencourt et al., “Growth, Innovation, Scaling, and the Pace of Life in Cities,” Proceedings of the National Academy of Sciences, Volume 104, Number 17, April 24, 2007, pp. 7301–6. 42.Flood, ibid. 43.See Amazon’s interview with Fires author Joe Flood: amazon.com/Fires-Computer-Intentions-City---Determined/dp/1594485062/ref=sr_1_1?

., 269 Machii, Isao, 266–7 machine learning, 8, 16, 60, 185, 192, 194, 209–57, 308 maker spaces, 93 MakerBot, 85, 88, 101, 104–5, 107 mapping, 22–5, 275, 278 Mann, Steve, 77–8 Marx, Karl, 70, 305 MasterCard, 120 Mason, Paul, 88 Mauthausen, 61 McDonald’s restaurant chain, 194–5 McDonough, William, 96 McNamara, Robert, 57 Merkle roots, 123 Metropolitan Police Service, London, 231 Microsoft, 38–9, 262, 275 minimal techno (music genre), 221 Minority Report (movie), 227, 230 MIT Technology Review (journal), 243 Mitte, Berlin neighborhood, 71–2 Monobloc chair, 106 Monroe, Rodney, 230 Moore’s Law, 88, 93 Morris, David, 256–7 Mountain View, California, 284 M–Pesa digital currency, 117 Music Genome Project, 220 Musk, Elon, 222 National Institute of Justice, 233 National Public Radio, 41, 192 National September 11th Memorial, 65 National Technical University of Athens, 173 NAVSTAR Global Positioning System, 21 NBC Universal, 220 neural networks, 214–16, 219, 264, 266 Nevada, 192 New York City, 51, 56–8, 136, 238 New York Times (newspaper), 177 Next Rembrandt project, 262–3, 265 near-field communication standard (NFC), 17, 117 Niantic Labs, 65 Niemeyer, Oscar, 261 Nieuwenhuys, Constant, 190 Niigata, Japan, 301–2 niqab, 295 Nixon Administration, 204 nonvolatile memory, 15 North Dakota, 192 Norwegian black metal (music genre), 221 Nuit Debout protests, 3 Occupy movement, 167, 169 Oculus Rift virtual reality headset, 82 O’Neil, Cathy, 249 open source hardware, 102 OpenTable, 39–40, 46 Osborne, Michael A., 195 Ostrom, Elinor, 171 output neuron, 215 overtransparency, 240–1, 243 Pai, Sidhant, 98 Pandora music service, 220 Panmunjom Truce Village, 65 Pareto optimality, 55, 59 Paris, 1–6, 292 Pasquale, Frank, 244, 253 path dependence, 232, 299 PayPal, 120, 136, 220 PCWorld, 45 People Analytics, 198, 226, 232 perceptron, 214 Père Lachaise cemetery, 2, 5, 26 persoonskaart, Dutch identity card, 60 Pew Research Center, 41, 193 Pinellas County, Florida, 256 Placemeter, 51 polylactic acid plastic filament (PLA), 94, 98, 101 Pokémon Go, 63–5, 76, 79 Polari, 311 policy network, 264 Pollock, Jackson, 261 Pony Express, 256 porosity, 28, 173 POSIWID, 155, 302 Postcapitalism (Paul Mason), 88 power/knowledge, 62 predictive policing, 227, 230, 232, 235 PredPol, 229, 231, 236, 244, 254 proof-of-work, 128–30, 140–1, 143, 290 prosopagnosia.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

But first let us consider distribution in its microeconomic aspect. I I. T h e M ic roe conom ics of Dis t r i bu t ion The key concept here is Pareto-efficiency. This is a state of optimal equilibrium, in which no one can be made better off without someone being made worse off. Pareto-efficiency is supposed to be the outcome of perfectly competitive markets. But students are also taught that there can be a range of Pareto-efficient allocations – it is Paretoefficient, for example, for me to have 99 per cent of the income of the economy, because no one else can be made better off without me being made worse off. But there would then be no economy. Otherwise put, Pareto-efficiency leaves open the question of distribution: which distribution to have is a political or ethical judgement. Economists would readily agree that redistributive policies could improve welfare if one or more of the conditions of a competitive market are not satisfied.

., 15 distribution class character of, 288, 295–6 and classical economists, 288 Kaldor–Hicks criterion, 291 and Keynes/Keynesians, 127, 149, 297 lack of theoretical basis for redistribution, 291–2 as macroeconomic question, 293–305 and marginal productivity theory, 295 and marginalist economics, 288, 290–91, 295 microeconomics of, 290–92 and monetary policy, 32 in neo-classical perfect markets, 292 Pareto-efficiency, 290, 291 and quantitative easing (QE), 248, 271–3, 272, 279, 284, 305 and quantity theory, 61 redistributive policies and total utility, 290–91 rekindled interest in issues of, 299 and ‘secular stagnation’ theorists, 370, 370 and social democratic consensus, 149, 293 standard of value as political question, 41, 43–4 theoretical case against redistribution, 292 see also inequality Disyatat, P., 342–3 Dodd–Frank Act, 362, 365 dot.com bubble collapse (2001), 202, 284, 304 Draghi, Mario, 248, 257, 265, 266, 364 Dynamic Stochastic General Equilibrium (DSGE) models, 196, 211–12 East Asia, 139, 202, 253, 319, 333, 337, 339, 371, 382 Eccles, Marriner, 298 Econometrica (journal), 173 economic cycles, 14–17, 74, 350 economic forecasting, 5, 138, 162, 194–5, 197, 228, 229–33, 310–11 economic theory, ‘scientific’ Adam Smith’s claim to be founder of, 79 ‘anti-state’ view as deception, 93 the classical dichotomy, 21–3, 24–5, 36, 66, 121, 183, 201 and Congdon, 185, 281, 286, 287 and cycle theories, 14–17, 74, 350 Dasgupta’s ‘epochs’, 12–13 fiscal policy in Victorian age, 76, 85–8, 86 interest as a justified payment, 31 lack of paradigm shifts, 10, 12, 201 ‘real’ analysis of Smith and Ricardo, 22, 24, 37, 45, 84–5, 121 and redistribution, 290–91 and rise of capitalism, 10 and scarcity, 19 as synthesizing discipline, 201–2 468 i n de x theory of value, 21–3, 25–7, 28–30, 36–9, 41–4 see also entries for individual theories, schools and economists ‘economics of politics’ theory, 198–9 economists, professional, xvii, 13, 344 and greatness, 390 Hicks’ ‘concentrations of attention’, 7–8 language from physical sciences, 388 policymaking in hands of, 6 see also entries for individuals Edgeworth, Francis, 291 Egypyt, ancient, 26 Eichengreen, Barry, 55, 56, 58, 95 Einaudi, Luigi, 192 Eisenhower administrations (1950s), 151 Elliott, Larry, 225 empires, European, 57, 58, 80, 294–5 equilibrium, theory of, 1, 14, 132, 278 and Congdon, 282 disequilibrium theories, 350 and DSGE modelling, 211–12 Friedman’s reassertion of, 177, 181 and Hayek, 350 Keynes’ modification of, 118–21, 123, 124, 128, 129, 138, 172, 174 limitations of, 387, 388 and neo-classical synthesis, 174 and New Consensus, 201, 211–12, 232–3 and New Keynesianism, 195–6 and pre-Keynesian orthodoxy, 347, 348 and price of labour, 107, 108, 115, 121–2, 123, 128, 130, 132, 138, 172 short-run and long-run distinction, 38, 49, 385 Walras’ general equilibrium theory (1874), 10, 173, 181, 385 Erhard, Ludwig, 153 Ericsson, N.

., 171, 208 Napoleonic wars, 43, 45–8, 80, 81, 84 national debt and 2007–8 crash, 76, 217–18, 219–20, 223–4, 224, 225–36, 237 British experience (1692–2012), 77 British long-term securities, 43 ‘burden on future generations’ fallacy, 236 bust at end of Lawson boom, 193 in eighteenth-century Britain, 80–81 four big spikes (since 1815), 84 and ‘Geddes Axe’ (1920s), 108 Alexander Hamilton on, 92 international bond markets, 90–92, 235 in Keynesian era, 156, 159–60, 161 Merkel’s ‘Swabian housewife’, 236 and modern tax systems, 32 monetary financing of deficits, 246–7, 285 during Napoleonic wars, 45–8 nineteenth-century money lenders, 90–91, 332 ‘off-budget’ accounting, 108–9 and PFI, 222–3 post-crash deficit, 226–33, 229, 237–9, 328, 352 public sector net borrowing (PSNB), 185, 227–8, 237, 238 Reagan’s budget deficits, 186, 190–91 recession of early 1980s, 186–7, 191 sinking fund, 83, 84, 85, 106, 108, 112, 114, 355 Sinking Fund Act (1875), 114 Smith and Ricardo’s view, 81–2, 83–4, 109, 110 ‘structural’ or ‘cyclically-adjusted’ deficit, 237–41, 238 US in 1950s/60s, 159–60, 161 Victorian fiscal constitution, 85–8, 86 and warfare, 83 483 i n de x nationalism, 17, 92, 95, 351, 371–3, 375 nationalization, 15–16, 142, 158 during 2008 crisis, 217 Labour’s renationalization proposals, 356 naval power, 78, 79–80, 87 Navigation Acts, British, 78 neo-classical economics tradition, xviii and 2008 collapse, 310–16, 328 comparisons with Keynesian view, 204, 204 and deregulation of banking, 310–11 distribution in perfect markets of, 292 formula for multiplier, 134–6 and Friedman, 177–83 and growth in inequality, 245–6 in Hutchison’s continua, 349 and Keynes, 122–3, 128 Keynesian synthesis, 172, 173–4, 201–2 microeconomics of Walras, 10, 173, 181, 385 model of rationality, 120 ‘natural’ rate of unemployment, 2, 163, 195, 197, 208, 232–3 and New Consensus, 199 and ‘optimal’ rate of investment, 368 pivotal role of banks ignored, 311 Solow growth model, 293 theoretical abolition of Keynesianism, 201 wage-adjustment story, 107, 108, 115, 121–2, 123, 128, 130, 132, 172 see also classical economics tradition; New Classical economics neo-liberal ideology ‘anti-state’ deception of, 93 capture of politics by, 6, 16–17, 292 and Eurozone constitution, 274 and Eurozone design flaw, 376, 377 implosion of growth model, 305 need for jettisoning of, 351, 367 term coined by Rustow (1938), 175 totalitarianism as original target, 175–6 as unchallenged since Cold War, 374 Netherlands, 78 New Classical economics and 2008 collapse, 2–3, 5 DSGE modelling, 196, 211–12 and erroneous austerity arguments, 232–4 and growth in inequality, 4 inflation targeting, 2 and microeconomics of Walras, 10 ‘natural’ rate of unemployment, 2, 195, 197, 208, 232–3 New Classical economics – (c0nt.) and neo-liberal capture of politics, 6, 16–17 and policies of austerity, 3 pre-crash models/mindset of 2000s, 212–13, 221, 229–35, 310–16 REH as analytic core of, 194–7, 385–6 synthesis with New Keynesians, 195–7, 199–201, 202 and unimpeded financial markets, 5, 6–7 unrealism of assumptions, 200, 310–16, 321–2 victory of in 1970s, 16–17 New Consensus, 9, 196–8, 202 based on supply not demand, 200 Brown constitution, 221–3 main features of, 199–201 primacy of monetary policy, 200–201, 212 ‘Washington consensus’, 198 484 i n de x New Keynesianism, 195–7, 199, 200, 201, 202, 212, 358 Brown constitution, 221–3, 227 and inflation targeting, 196, 251 ‘new stagnation’ theorists, 151 New Zealand, 188 Newton, Isaac, 42, 43, 47–8 Nielsen, Robert, 389 Niemeyer, Sir Otto, 108 Nixon, Richard, 153, 162 Norman, George, 49 Norman, Montagu, 115 North, Douglass, 198–9 Northern Rock, 317, 319*, 362 Obama, Barack, 225, 241–2, 274 O’Brien, Denis, 78 Office for Budgetary Responsibility (OBR), 228, 229–30, 237 oil prices, 271, 272 oil price shock (1973–4), 166–7, 189, 190 price spike (1980–82), 189, 190 OPEC surpluses, 308, 332 Orbán, Viktor, 373 Osborne, George, 114, 227–8, 229, 231, 233 and cost of austerity, 243–4, 244, 245 crucial mistake in austerity policy, 229–30 ‘deficit’ obsession of, 237 and Reinhart-Rogoff work, 232 and ‘structural’ deficit, 237–9 output gaps, 144, 197, 212–13, 229, 235, 237, 258, 286 ‘over-consumption’ theory, Austrian, 296 Overstone, Lord, 49 Palley, Thomas, 302–3, 304, 305 Papandreou (Greek Prime Minister), 324 Pareto-efficiency, 290, 291 Paulson, Henry, 217 Peel, Robert, 47–8, 86 Péreire brothers, 91 Pettifor, Ann, 246, 309 Pettis, Michael, 339 Petty, William, 28 Phillips, A. V., 144–5, 147 Phillips Curve, 144–5, 147, 162, 163, 205, 205–6 collapse of in 1970s, 169, 180 Friedman’s expectations-augmented, 180–81, 206–8, 207 New-Keynesian, 212 Sargent-Lucas (rational expectations), 208–11, 210 short-run, 38, 194, 206–8 see also inflation: Phillips Curve; interest rates: and Phillips curve; unemployment: Phillips Curve Pigou, Arthur, 109, 290–91 Piketty, Thomas, Capital in the Twenty-First Century (2013), 289, 298–9, 301–3 Pitt, William (the younger), 45 Polanyi, Karl, xviii, xix, 373–4, 387 political ideology assault on Piketty’s framework, 302–3 and economic theory, 1, 3, 6, 12, 93, 176–84, 202–3, 245–6, 258, 286–7, 292, 354 and hostility to government, 1, 3, 6, 10, 93, 202–3, 258, 286–7, 292, 347, 354, 385–6 nationalist–globalist split, 371–3 and research agenda, 12 rise of identity politics, 372–3, 384 and structure of power, 6–7, 12, 13–14 Portugal, 78, 242, 341, 365 485 i n de x prices and incomes’ policies, 16, 147, 150, 151, 164, 167, 169 Heath’s statutory policy, 167–8 Samuelson on, 171 Prisoner’s Dilemma (game), 389 Private Finance Initiative (PFI), 222–3 privatizing of state assets, 193 protectionism, xviii, 13, 79 Bismarck’s Germany, 89 Compensated Free Trade (CFT) strategy, 381 cultural diversity argument, 379 definition of, 377 Alexander Hamilton, 88, 90 health and safety standards, 380 Import Duties Act (1932), 113 in late nineteenth-century, 59 List’s ‘infant industry’ argument, 88–9, 90, 378 New or Strategic Trade Theory, 378 nineteenth-century USA, 89–90 Nixon’s import controls (1971), 153, 165 pressure for as growing, 380 seven main arguments for, 378–9 ‘strategic industry’ argument, 379 Trump’s tariffs, 373–2, 379, 381 Prussia, 90–91, 92 psychology, 24, 27, 117, 119–21, 199, 286–7, 292, 297, 355, 388–90 ‘public choice’ theory, 198–9 public investment in ancient Egypt, 26, 127 Brown constitution, 221–2 and classical economics, 172, 175 Conservative cuts in 1980s, 192, 193 and constraints of gold standard, 103 efficiency issues at full employment, 236 growth after W W1, 106–7 independent state investment banks, 354, 355–6 Keynes as advocate of, 109, 111, 116–17, 126–7, 130, 297, 352–3 in Keynesian ‘golden age’, 140, 142, 143, 144, 149–50, 153, 156, 157 Krugman on, 370 Lloyd George as advocate of, 107–8, 109–11, 113, 116–17 market mechanisms introduced, 197 minority Labour government (1929–31), 111–12 in new macroeconomic constitution, 352–7 in nineteenth-century Prussia, 92 Osborne’s cuts, 227–8, 231, 245 PFI, 222–3 programmes in 1930s US and Germany, 129–30 public works during recessions, 355 QE seen as preferable to, 258 share of total investment in U K, 354, 354 Smith’s public goods argument, 82, 93, 123, 352, 353, 356 U K spending (1950–2000), 157 U K spending (1997–2010), 223 U K spending as proportion of GDP (1692–2012), 77 in Victorian Britain, 86–7 quantitative easing (QE), 10–11, 116, 179, 226, 233, 242, 248–9, 254–8 assessment of, 263–77, 264, 267, 270 bank lending channel, 259–60, 260, 265–6, 266 by Bank of England, 254, 257, 259–62, 263–73, 267, 274, 275–7, 276 486 i n de x distributional effects, 248, 271–3, 272, 279, 284, 305 effect on output and unemployment, 269–70, 270 in the Eurozone, 273–4 as failure judged by its own |aims, 277–9 and inflation, 254, 258, 261, 262–3, 270–71, 271, 272, 277 portfolio-rebalancing concept, 260, 260–62, 263–5 signalling channel, 261–3, 267–8 theoretical basis of, 254–6, 258–9 transmission channels, 259–68, 260, 267, 283–4 in USA, 256–7, 273–4 Quantity Theory of Money (QTM) and 2008 crash, 256, 311 and the business cycle, 65–6, 67–70 ‘Cambridge’ equation, 63, 64, 65 and Congdon, 279–80, 282, 283 control of narrowly defined monetary base, 46 equation of exchange, 62–4, 71–2, 283, 284, 287 Fisher’s model, 61, 62–7, 71–2, 258, 278–9 Friedman’s restatement of, 178–9, 182, 183, 194 in Keynesian economics, 102–3, 125, 177 and monetarism, 178–9, 182, 183, 185, 192, 282 monetary reformers (first third of twentieth-century), 37, 44, 60–72, 99–106, 116, 124, 125, 129, 177–8, 200, 277, 280 muddled nature of, 60–61 no ‘demand for money’ in, 35 origins of, 32–3 as palpably untrue in short-run, 71, 282 role of central banks, 61 short-run and long-run effects, 64, 282 as ‘supply of money’ story, 34 transmission mechanism, 64, 146, 277–9, 283–4 two main versions of, 61–72 and uncertainty, 65 Wicksell’s credit money version, 67–70, 102–3, 278 Quarterly Journal of Economics, 120 Queen Elizabeth II, 4 Radcliffe Report (1959), 146 Raghuram, Rajan, 340 railway speculation, 49, 91 ‘rational expectations hypothesis’ (REH), 194–7, 202, 208, 385–6 anticipated by Fisher, 66 and behavioural economics, 389 conceit of, 387 ‘Efficient Market Hypothesis’ (EMH), 311–13, 321–2, 328, 388 and erroneous austerity arguments, 230–31, 232–3 and Friedman’s adaptive expectations, 208–9, 210 and heuristics, 196 Lucasian Phillips Curve, 208–11, 210 and monetarism, 186, 194 ‘public choice’ theory, 198–9 Volcker on, 307 Rawlsian political theory, 292 Reagan, Ronald, 6, 181, 186, 190–91, 292 Real Business Cycle (RBC) theory, 195, 196, 197, 211, 350 real estate, urban, 301 Reinhart, Carmen, 232 religion, 30, 31, 74 rent-seeking, 16, 30–31, 288 ‘Representative Agent’ device, 292 487 i n de x ResPublica, 365–6 revolutionary period in Europe (1848–9), 48 Ricardo, David, xviii, 28, 38, 40, 47, 74, 85, 114, 177 comparative advantage doctrine, 79, 88, 378, 379, 379 The High Price of Bullion (1810), 45–6, 47–8 and ‘limits of nature’, 369 and ‘nativist’ tradition, 379 and real bills doctrine, 46–7 and state expenditure, 73, 83–4, 109, 110, 286, 352 theory of rent, 288, 295 vice of abstraction from reality, 48–9, 385 Roberts, Katie, 239 Robertson, Dennis, 71 Rodrik, Dani, 375 Rogoff, Kenneth, 232 Roosevelt’s New Deal, 16, 129–30 Rostow, Walt, 199 Rothschilds, 90–91, 332, 342 Roubini, Nouriel, 225 Rougier, Louis, 174–5 Royal Bank of Scotland (RBS), 223, 319*, 364 Russia, 217 Rustow, Alexander, 175 Samuelson, Paul, 14, 24, 143–4, 148, 173–4, 202, 292 Sargent, Thomas, 208, 210, 211 Saul, John Ralston, 17 Say, J.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

Quimby, “Comparing Compensation: State-Local versus Private Sector Workers,” Center for Retirement Research at Boston College, no. 20, September 2011. 15. Traditionally many economists have been uncomfortable in dealing with these distributive changes, because of the difficulties of making interpersonal comparisons. Economists often focus on “Pareto efficient” equilibria—where no one can be made better-off without making someone else worse-off; or on “Pareto improvements,” where someone is made better-off, but no one is harmed. But few policy changes are of that sort. Generally, some gain and some lose. A Pareto efficient equilibrium, as is learned in elementary economics courses (and then perhaps forgotten), might be very undesirable because it left many people at bare subsistence. 16. Several hundred years ago, in England and Scotland, the large landowners enclosed the common land.

Some earlier, idealized economic models suggested that it was optimal not to tax interest income (income from capital), but subsequent research showed that this result was not robust: capital taxation is desirable. See, e.g., Thomas Piketty and Emmanuel Saez, “A Theory of Optimal Capital Taxation,” working paper, 2011, Paris School of Economics and University of California at Berkeley, available at http://elsa.berkeley.edu/~saez/piketty-saez1_1_11optKtax.pdf (accessed February 27, 2012); and J. E. Stiglitz, “Pareto Efficient Taxation and Expenditure Policies, with Applications to the Taxation of Capital, Public Investment, and Externalities,” presented at conference in honor of Agnar Sandmo, Bergen, Norway, January 1998. 69. Which allowed those in private equity firms and hedge funds to be taxed on their returns—including what they received from managing other people’s money—at the favorable capital gains tax rate. 70.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

The elevation of the individual by the Neoclassical school goes beyond the labelling of economic actors as individuals, rather than classes. Most members of the school believe in methodological individualism as well – namely, the view that a scientific explanation of any collective entity, such as the economy, should be based on its decomposition to the smallest possible unit – that is, the individual. 6. Another way to put it is to say that a society is in a state of Pareto optimality if no one can be made better off without making someone worse off. 7. In Akerlof’s classic example of ‘the market for lemons’, given the difficulty of ascertaining the quality of used cars before purchase, prospective buyers will not be willing to stump up good money even for what is a truly good second-hand car. Given this, owners of good used cars will shun the market, lowering the average quality of cars further, leading, in the extreme case, to the disappearance of the market itself.

 * Despite the fact that it was going to hurt US workers in industries like automobile and textiles, many Neoclassical economists advocated the NAFTA, the free-trade agreement with Mexico and Canada, on the ground that the national gains from increased trade are more than enough to compensate those (and other) losers. Unfortunately, the losers have not been fully compensated, so the outcome could not be called a Pareto improvement. * Before the Russian Revolution, the leading Marxist economists were Karl Kautsky (1854–1938), Rosa Luxemburg (1871–1919) and Rudolf Hilferding (1877–1941). The key Soviet Marxist theorists were Vladimir Lenin (1870–1924), Yevgeni Preobrazhensky (1886–1937) and Nikolai Bukharin (1888–1938). * In some formulations, communism is divided into two phases. The first phase is also called socialism and is run through central planning.


pages: 524 words: 146,798

Anarchy State and Utopia by Robert Nozick

distributed generation, invisible hand, Jane Jacobs, Kenneth Arrow, laissez-faire capitalism, Machinery of Freedom by David Friedman, means of production, Menlo Park, moral hazard, night-watchman state, Norman Mailer, Pareto efficiency, price discrimination, prisoner's dilemma, rent control, risk tolerance, Ronald Coase, school vouchers, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Yogi Berra

ap Is the patterned principle stable that requires merely that a distribution be Pareto-optimal? One person might give another a gift or bequest that the second could exchange with a third to their mutual benefit. Before the second makes this exchange, there is not Pareto-optimality. Is a stable pattern presented by a principle choosing that among the Pareto-optimal positions that satisfies some further condition C? It may seem that there cannot be a counterexample, for won’t any voluntary exchange made away from a situation show that the first situation wasn’t Pareto-optimal? (Ignore the implausibility of this last claim for the case of bequests.) But principles are to be satisfied over time, during which new possibilities arise. A distribution that at one time satisfies the criterion of Pareto-optimality might not do so when some new possibilities arise (Wilt Chamberlain grows up and starts playing basketball); and though people’s activities will tend to move then to a new Pareto-optimal position, this new one need not satisfy the contentful condition C.

This statement uses a notion of conditional utility, on which see my unpublished doctoral dissertation, “The Normative Theory of Individual Choice” (Princeton University, 1963, chap. 4, sect. 4); and R. Duncan Luce and David Krantz, “Conditional Expected Utility,” Econometrica, March 1971, pp. 253-271. 21 As one might have thought the earlier cases to be. See H. M. Hockman and James D. Rodgers, “Pareto Optimal Redistribution,” American Economic Review, September 1969, pp. 542-556. See also Robert Goldfarb, “Pareto Optimal Redistribution: Comment,” American Economic Review. December 1970, pp. 994—996, whose argument that compulsory redistribution is in some circumstances more efficient is complicated by our imagined scheme of direct interpersonal transfers. 22 Why not those that unimportantly affect their lives as well, with some scheme of weighted voting used (with the number of votes not necessarily being proportional to the degree of effect)?

Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962. Gierke, Otto. Natural Law and the Theory of Society, 1500-1800. Cambridge: Cambridge University Press, 1934. Ginsburg, Louis. Legends of the Bible. Philadelphia: The Jewish Publication Society of America, 1956. Goffman, Erving. Relations in Public. New York: Basic Books, 1971. Goldfarb, Robert. “Pareto Optimal Redistribution: Comment.” American Economic Review (December 1970):994-96. Gray, Alexander. The Socialist Tradition. New York: Harper Torchbooks, 1968. Hamowy, Ronald. “Hayek’s Concept of Freedom: A Critique.” New Individualist Review (April 1961):28-31. Hanson, Norwood Russell. Patterns of Discovery. Cambridge: Cambridge University Press, 1958. Harcourt, G. C. “Some Cambridge Controversies in the Theory of Capital.”


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Both Walras and Pareto, after years of laying the foundation of welfare economics, found themselves moving away from the Smithian vision. For example, the problem with Pareto optimality is that it ignores the omnipresent trade-offs in economic life. Seldom is one policy un-dertaken that improves some people's lives without injuring others in the short run. Opening trade, eliminating subsidies, and deregulating industries could help some groups and hurt others. Eliminating tariffs between the United States and Mexico will create many new jobs, but it will also destroy many traditional jobs. This is an inevitable feature of the mixed economy. The net effect is undoubtedly beneficial, but the transition might not fit Pareto optimality. Americans Solve the Distribution Problem in Economics The European schools of economics—followers of Menger, Marshall, and Walras, among others—had made a major breakthrough with the discovery of the subjective marginality principle.

In a broader perspective, Arrow and Hahn declare that Smith's vision "is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes" (Arrow and Hahn 1971, v, vii, l).Not only does welfare economics (Walras's law, 8. In welfare economics, "welfare" refers to the general well-being or common good of the people, not to people on welfare or government assistance. Pareto's optimality, Edgeworth's box) confirm mathematically and graphically the validity of Adam Smith's principal thesis, but it shows how, in most cases, government-induced monopolies, subsidies, and other forms of noncompetitive behavior lead inevitably to inefficiency and waste (Ingrao and Israel 1990). Smith's References to the Invisible Hand Surprisingly, Adam Smith uses the expression "invisible hand" only three times in his writings.

In Elements of Pure Economics (195 A [1874,1877]), Walras extended his analysis to multiparty, multicommodity exchanges under the assumptions of free competition, perfect mobility of factors of production, and price flexibility. By simulating a market auctioneering process, Walras showed that prices change according to supply and demand, and grope toward equilibrium. Thus, he was able to demonstrate that, without central authority, a trial-and-error market system could still achieve maximum social satisfaction or general equilibrium (GE). Pareto is best known for the concept of Pareto optimality. Like Walras, he attempted to show that a perfectly competitive economy achieves an optimal level of economic justice, where the allocation of resources cannot be changed to make anyone better off without hurting someone else. Edgeworth, like Marshall, was atoolmaker, and developed indifference curves, utility functions, and fundamentals of the Edgeworth box, a way of expressing various trading relationships between two individuals or countries.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

"Robert Solow", Andrei Shleifer, asset-backed security, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, Silicon Valley, the new new thing, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Most economists therefore feel they can be comfortable with thinking that people’s choices do reflect what they really want, with the further view that the number and consequences of dysfunctional decisions is small. This view is consistent with the observation that at least in developed countries most people purposefully manage to obtain their basic needs. Such purposefulness may lead us to believe that the difference between Pareto optimality in our true welfare and Pareto optimality in our monkey-on-the-shoulder welfare is inconsequential. That difference may arise in our contract at a health club, or in our purchase of ink cartridges. But these are exceptions, and so revealed preference is right: most of the time. But thinking about phishing generally, as we do, has cued us, on the contrary, to see that phishing for phools is not some occasional nuisance.

Back in 1776, the father of the field, Adam Smith, in The Wealth of Nations, wrote that, with free markets, as if “by an invisible hand … [each person] pursuing his own interest” also promotes the general good.16 It took a bit more than a century for Smith’s statement to be precisely understood. According to the modern version, commonly taught even in introductory economics, a competitive free-market equilibrium is “Pareto optimal.”17 That means that once such an economy is in equilibrium, it is impossible to improve the economic welfare of everyone. Any interference will make someone worse off. For graduate students, this conclusion is presented as a mathematical theorem of some elegance—elevating the notion of free-market optimality into a high scientific achievement.18 The theory, of course, recognizes some factors that might blemish such an equilibrium of free markets.

It is worth noting that although he had done many positive things in the Senate (closing inappropriate personal income-tax loopholes, and battling sex slavery, for example) the ad itself conveys nothing about the candidate’s policies, or even about his character. On the contrary, if anything, the ad should leave the voters asking the source of the money to pay for it; but, with a successful ad, the thought does not occur to them. The effects of phishing in politics parallel the effects of phishing in economics. Basic economic theory says that, in the absence of phishing, economic competition generates a good equilibrium (which is “Pareto optimal,” as we discussed in the introduction, on phishing equilibrium); similarly, basic political science says that competitive democratic elections generate good outcomes. This result is usually attributed to political scientist Anthony Downs.10 If voters are fully informed and vote their preferences, which can be represented on a scale from left to right, the platforms of the two opposing candidates will reach an equilibrium.


pages: 165 words: 45,129

The Economics of Inequality by Thomas Piketty, Arthur Goldhammer

"Robert Solow", affirmative action, basic income, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, conceptual framework, deindustrialization, endogenous growth, Gini coefficient, income inequality, low skilled workers, means of production, moral hazard, Pareto efficiency, purchasing power parity, Simon Kuznets, The Bell Curve by Richard Herrnstein and Charles Murray, very high income, working-age population

Should the market and its price system be allowed to operate freely, with redistribution effected solely by means of taxes and transfers, or should one attempt to alter the structure of the market forces that generate inequality? In the jargon of economics, this contrast corresponds to the distinction between pure redistribution and efficient redistribution. Pure redistribution occurs when the market equilibrium is “Pareto efficient,” meaning that it is impossible to alter the allocation of resources and output in such a way that everyone gains, yet social justice nevertheless calls for redistribution from the better-off to the worse-off. Efficient redistribution occurs when the existence of market imperfections allows for direct intervention in the production process to achieve Pareto-efficient improvements in the allocation and equitable distribution of resources. In contemporary political conflict, the distinction between pure and efficient redistribution is often conflated with the distinction between redistribution on a modest scale and redistribution on a large scale.

See also Income, share of capital in Capitalism: capital-labor substitution, 39; Cobb-Douglas production function, 48; critics of and credit rationing, 61–62, 64; increases in inequality and, 17–18, 98 Capital-labor inequality, 26–27; capital-labor substitution, 27–40; classic and marginalist theories, 40–55; dynamics of distribution of capital, 55–65 Capital-labor substitution, 27–30; elasticity of, 32–35, 37–39, 48–49, 51–54, 75–76; elasticity of capital supply, 35–37, 39; fiscal and direct redistribution, 30–32; market economy and price system, 37–40 Card, David, 95–96 Classical and marginalist theories, of capital-labor split, 29–30, 39–40, 41t; Cobb-Douglas production function and, 48–49; economic value added and, 42–43; household income distribution, 41, 44–45; political and historical time and, 41t, 49–53, 50t; profit share constancy and, 41t, 45–46; profit share in United Kingdom and United States, 41t, 53–55; share of social charges, 46–48 Clinton, Bill, 96 Cobb-Douglas production function, 33–34, 48–49 Coleman, James, and report by, 82, 83–84 Collectivization, of means of production, 39, 62, 63–64 Competition: credit markets and, 57, 61; social insurance and, 115; taxes and, 37, 65 Compulsory education, human capital and, 80–81 Conditional convergence, 59 Convergence, between rich and poor countries, 57–60 C ratios, labor inequality and, 76–77 Credit markets: convergence between rich and poor countries, 57–60; imperfection of, 58–65, 69, 80–81, 114; perfect credit market theory and, 56–57, 78 Credit rationing, 61–62, 64 Deferred income, social insurance and, 116 Demand management, redistribution and, 114, 119–121 Denmark: social protection, 47–48; wage inequality, 10 Development banks, as possible intervention in credit market, 62–63 Direct redistribution: agriculture and, 63–64; elasticity of substitution between capital and labor, 30–35, 48–49; fiscal redistribution and, 28, 31, 98; inequality of labor income and, 75–76; unions and, 90–91 Disadvantaged communities, human capital and, 82–83 Discrimination, in labor market, 85–88, 113–114, 121 Distribution of capital, dynamics of, 55–56; capital market imperfections, 60–65; perfect credit and convergence, 56–60 D ratios: sources of household income, 6t; wage inequality, 8–10, 9t Earned Income Tax Credit (EITC), in US, 108–109, 112 Economic efficiency: distribution of capital, 55, 57, 61, 65; human capital, 86; unions and, 92–94 Economic value added: capital income and labor income, 41t, 42; capital share of (1979–1995), 50t; complications of calculating, 43 Education: human capital and, 67, 69–70, 79–84, 92–93; redistribution and, 59–60, 117; wage inequality and, 72–73, 99 Efficiency wages, 97–99 Efficient redistribution, 35, 62–63, 67, 113–114; demand management and, 119–121; egalitarian education policy and, 59, 80; minimum wage and, 94–95; Pareto efficiency and, 2–3, 79; social insurance, 114–119. See also Human capital entries Elasticity of substitution between capital and labor, 32–35, 37–39, 48–49, 51–54, 75–76 Elasticity of supply of capital, 35–37, 39 Elasticity of supply of human capital, 78–79, 82–83, 87, 107 Employment: inequality with respect to, 23–25; job creation and elasticity of substitution between capital and labor, 51, 53–55.

See Price system Marx, Karl, 26, 30, 39; proletarianization thesis of, 17–18 Maximin principle, of Rawls, 2, 35, 106 McGovern, George, 112 Means of production, collectivizing of, 39, 62, 63–64 Minimum wage: EITC and, 109; health insurance and, 103; monopsony power of employers, 96; raising of, and effect on level of employment, 95–96; redistribution and, 75, 94; unions and, 91; in US and France, 50, 110–111, 117; wage distribution and, 8 Monopoly power, of unions, 89, 94 Monopsony power, of employers, 94–96, 113–114, 121 Moral hazard, credit markets and, 60–61 Murray, Charles, 82, 87 Negative income tax, 1, 3, 112–113 Nonwage compensation, 6t, 8, 12, 13. See also Self-employment compensation Norway: historical evolution of inequality, 22; income inequality, 14; wage inequality, 10 OECD countries: evolution of shares of profits and wages, 49–53, 50t; historical evolution of inequality, 21; income inequality, 14–15, 15t; wage inequality, 10–11, 11t Panel Study of Income Dynamics (PSID), 83 Pareto efficiency, 2–3, 57, 79 Part-time work, income inequality and, 25 Pay-as-you-go (PAYGO) pension systems, 117–118 Payroll taxes. See Social charges Pension plans: private, 118; public, 115–119 Phelps, Edmund, 85 Poverty traps, human capital and, 108, 110, 113 P ratios: income inequality, 12–14, 12t, 15t, 16–17, 23–25, 76–77; inequality’s historical evolution, 20–23, 21t; minimum wage, 91; P defined, 7; sources of household income and, 6t; wage inequality, 8–11, 77 Price system: allocative role of, 30–33, 37–40, 100; elasticity of substitution and, 32–40; housing and educational outcomes, 84; role in capital-labor share of total income, 27–30, 32; social justice and, 106 Primary distribution, 28 Prison population, underemployment and, 24 Private sector jobs, unemployment and fiscal redistribution, 111–112 Profit share: constancy of, 41t, 45–46; historical and political time and, 49–53; in US and UK, 53–55 Progressive estate tax, 19, 64 Progressive income tax, 19, 48, 64, 102–103, 106 Public investment banks, as possible intervention in credit market, 62–63 Public-sector jobs: pensions and, 115–119; unemployment and fiscal redistribution, 111–112; wages, 10 Purchasing power, of workers: changes in twentieth century, 45, 50–51, 68–69, 91, 96, 111; inequality in time and space, 16–17, 16t; redistribution of, 120–121 Pure redistribution, 32, 55, 67; absence of redistribution between workers, 102–104; average and marginal rates of redistribution, 100–102, 102f; Earned Income Tax Credit, in US, 108–109; fiscal redistribution to reduce unemployment and, 109–112; fundamental purposes of, 105–106; high taxes and revenue, 106–108; negative income tax and basic income, 112–113; Pareto efficiency and, 2–3; U-shaped curve of marginal rates, 104–105, 109 Rawls, John, 2, 35, 106 Redistributive policy, left-right conflict about, 1–3.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

Richard Freeman has shown that more highly regulated labor market environments produce less dispersion in earnings but not necessarily higher rates of unemployment.19 There is an interesting analogy here to the second fundamental theorem of welfare economics. The theorem states that any Pareto-efficient equilibrium can be obtained as the outcome of a competitive equilibrium with an appropriate distribution of endowments. Institutional arrangements are, in effect, the rules that determine the allocation of rights to a society’s resources; they shape the distribution of endowments in the broadest term. Each Pareto-efficient outcome can be sustained by a different set of rules. And conversely, each set of rules has the potential to generate a different Pareto-efficient outcome. (I say potential because “bad” rules will clearly result in Pareto-inferior outcomes.) It is not clear how we can choose ex ante among Pareto-efficient equilibria. It is precisely this indeterminacy that makes the choice among alternative institutions a difficult one, best left to political communities themselves.

See NME North American Free Trade Agreement (NAFTA), xi; wage growth and, 275n1; “welfare” statistics, 275n2 Nye, Joe, 248 Obama, Barack (President), 139, 205 Ober, Josiah, 42 OBOR (One Belt, One Road) plan, 250 Ocampo, José Antonio, 270 OECD. See Organisation for Economic Co-operation and Development Okun, Arthur, 148 One Belt, One Road (OBOR) plan, 250 O’Neill, Jim, 247 Organisation for Economic Co-operation and Development (OECD), 248, 269; “best practices,” 31; regulations of, 213 Page, Benjamin, 170–171 Pareto-efficient equilibrium, 32–33 Perkins, Tom, 177 Petri, Peter, 123–124 Petri-Plummer study, 124–126 Piketty, Thomas, 73, 270 Plummer, Michael, 123–124 Poland: structural reform in, 61, 72 policy: adoption of, 206; “beggar-thy-neighbor” policies, 208, 220; “beggar thyself,” 220; conventional models of, 198; economics as innovation to, 181–201; in Ethiopia, 191–192; for global governance, 206–210; green industrial policies, 257–260; historical crises and, 196–197; origin of ideas for, 192–193; practices of, 197–198; transparency of, 233; unplanned experimentation of, 195–196 policy makers: choices for, 179–180; domestic, 219, 221; economic development policies, 173; ideas and, 164; monetary, 64–65; work and, 92 political economy.


pages: 193 words: 47,808

The Flat White Economy by Douglas McWilliams

"Robert Solow", access to a mobile phone, banking crisis, Big bang: deregulation of the City of London, bonus culture, Boris Johnson, Chuck Templeton: OpenTable:, cleantech, cloud computing, computer age, correlation coefficient, Edward Glaeser, en.wikipedia.org, Erik Brynjolfsson, eurozone crisis, George Gilder, hiring and firing, income inequality, informal economy, Kickstarter, knowledge economy, loadsamoney, low skilled workers, mass immigration, Metcalfe’s law, Network effects, new economy, offshore financial centre, Pareto efficiency, Peter Thiel, Productivity paradox, Robert Metcalfe, Silicon Valley, smart cities, special economic zone, Steve Jobs, working-age population, zero-sum game

One reason for this is that some of those concerned with the gap between London and the rest of the UK are not especially concerned with whether the London economy is beneficial for the rest of the country as such, but are simply concerned about the inequality between the two. This is out of line with the teachings of traditional welfare economics which have adopted the Pareto principle. The Pareto principle is that a change that makes no one worse off and some people better off is a change for the better (a Pareto efficient improvement). But if inequality is the concern, so-called ‘Pareto-efficient’ changes may or may not be an improvement depending on the initial positions of those made better off.10 Many modern commentators seem to think that inequality in itself is the evil to be avoided, regardless of its cause11 despite the inconsistency of this approach with a fairly long tradition of welfare economics. One reason why some of the modern theorists of inequality think that it is a problem in itself is the concept of relative poverty.

Crafts Working Paper No. 03/04, Department of Economic History London School of Economics, March 2004. 8. www.zerohedge.com/news/2014–02-20/uks-2-tier-economy-london-and-everyone-else 9. ‘The London Problem’, Danny Dorling, New Statesman 29 August – 04 September 2014, pp27-31. 10. This concept is described in most economics textbooks. See for example: www.princeton.edu/~achaney/tmve/wiki100k/docs/Pareto_efficiency.xhtml 11. See for example the website: Inequality.org. 12. www.economist.com/news/britain/21637420-green-party-growing-force-british-politics-if-only-it-was-more-world-green (3 January 2015) 13. www.economist.com/news/britain/21637420-green-party-growing-force-british-politics-if-only-it-was-more-world-green (3 January 2015) 14. www.independent.co.uk/news/uk/politics/green-party-leader-i-didnt-say-being-on-benefits-in-britain-was-worse-than-being-poor-in-india-9950573.xhtml 15 See for example ‘Measuring Government in the Twenty First Century’ by Livio de Matteo, 2013 from the Fraser Institute in Canada.


State-Building: Governance and World Order in the 21st Century by Francis Fukuyama

Asian financial crisis, Berlin Wall, Bretton Woods, centre right, corporate governance, demand response, Doha Development Round, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, George Akerlof, Hernando de Soto, information asymmetry, liberal world order, Live Aid, Nick Leeson, Pareto efficiency, Potemkin village, price stability, principal–agent problem, rent-seeking, road to serfdom, Ronald Coase, structural adjustment programs, technology bubble, The Market for Lemons, The Nature of the Firm, transaction costs, Washington Consensus, Westphalian system

The three sources of organizational ambiguity discussed above—limited rationality in setting organizational goals, alternative approaches to the control of agent behavior, and uncertainty as to how much discretion to delegate—are all related to this issue. Ambiguity implies that there are no theoretically optimal ways of specifying decision rights within an organization. Everything depends on context, past history, the identity of organizational players, and a host of other independent variables. Instead of equilibria or Pareto optimal solutions to organizational problems, there are continuous tradeoffs along a series of design dimensions. The discipline of economics is characterized by a large body of abstract theory that postulates universal rules of human behavior. When applied to markets, that theory is robust enough to specify conditions of both equilibrium and optimality. It is also rigorously empirical and has clear standards for hypothesis testing and the use of data.

In the words of Levitt and March (1990, 13), The Barnard strategy . . . include[s] conscious attention to the transformation of preferences. Changing motives is seen to be an important part of management, as is the creation of new moral codes. In modern terms, Barnard proposed that an executive create and sustain a culture of beliefs and values that would support cooperation. The appeal is not to exchanges, Pareto optimality, or the search for incentive schemes; it is to the construction of a moral order in which individual participants act in the name of the institution—not because it is in their self-interest to do so, but because they identify with the institution and are prepared to sacrifice some aspect of themselves for it. Barnard also anticipated Simon’s observations about limited rationality in organizations.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

It all depends on the “price elasticities” of demand and supply. With the addition of a longish list of extra assumptions—on which, more later—this model also generates rather strong implications about how well markets work. In particular, a competitive market economy is efficient in the sense that it is impossible to improve one person’s well-being without reducing somebody else’s. (This is what economists call “Pareto efficiency.”) Consider now a very different model, called the “prisoners’ dilemma.” It has its origins in research by mathematicians, but it is a cornerstone of much contemporary work in economics. The way it is typically presented, two individuals face punishment if either of them makes a confession. Let’s frame it as an economics problem. Assume that two competing firms must decide whether to have a big advertising budget.

It says, in brief, that a competitive market economy is efficient. More precisely, under the stated assumptions of the theorem, the market economy delivers as much economic output as any economic system possibly could. There is no way to improve on this outcome, in the sense that no reshuffling of resources could possibly leave someone better off without making some others worse off.* Note that this definition of efficiency—Pareto efficiency, named after the Italian polymath Vilfredo Pareto—pays no attention to equity or other possible social values: a market outcome in which one person receives 99 percent of total income would be “efficient” as long as his losses from any reshuffle exceeded the gains that would accrue to the rest of society. Distributional complications aside, this is a powerful result—one that is not obvious.

.: CCT program in, 4 congestion pricing and, 2–3 New York Times, 136 Nobel Prize, 31, 32, 33, 49n, 50, 69, 131, 136, 154, 157, 203, 208 North, Douglass, 98 Obama, Barack, 135, 152 offshoring, 141 Ohlin, Bertil, 139 oil industry: OPEC and, 130–31 price controls in, 94–97 supply and demand in, 14, 99 value theory and, 119–20 Ollion, Etienne, 79n, 200n “On Exactitude in Science” (Borges), 43–44 Oportunidades, 4, 105 opportunity costs, 70 Organization for Economic Co-operation and Development (OECD), 109, 164 Organization of Petroleum Exporting Countries (OPEC), 130 Ostrom, Elinor, 203n output, economic, business cycles and, 126 outsourcing, 149, 194 Oxford University, 197n, 198 Pakistan, 106 panics, financial, 155 parables, models and, 20 Pareto, Vilfredo, 48 Pareto efficiency, xiii, 14, 48 partial-equilibrium (single market) analysis, 56, 58, 91 Passions and the Interest, The (Hirschman), 195 patents, 151 path dependence, 42, 43 Pauli, Wolfgang, 80 perfectly competitive market models, 21, 27, 28, 47, 69n, 71, 122, 180 personal distribution of income, 121 Peterson Institute, 159 Pfleiderer, Paul, 26 “Physicist Experiments with Cultural Studies, A” (Sokal), 79n physics, theories and, 113 pluralism, economics and, 196–208 political science, mathematics and, 30–31, 34 Pollin, Robert, 77 pollution, carbon emissions and, 188–90, 191–92 Portugal, 207 comparative advantage principle and, 52–53 positive spillovers, 100 positivism, 81 Posner, Richard, 152 possibilism, 210n–11n “Possibilism: An Approach to Problem-Solving Derived from the Life and Work of Albert O.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Proposed by the Italian statistician Vilfredo Pareto, who later became an inadvertent hero of the Italian fascist movement, this concept stated merely that no one in society could be made better off without someone else suffering a loss. Pareto Optimality2 deliberately and consciously ignored the critical questions of interpersonal comparisons: Could the world be improved in some sense by taking a crust of bread from Rockefeller and giving it to a starving child? Might it be better for society to offer such a child a free education if this meant imposing a modest tax on Rockefeller’s wealth? Pareto Optimality, which also came to be described as efficiency, avoided all such issues of interpersonal comparisons and distribution. That was the ideological beauty of this concept. It allowed economists to relegate all questions of justice, social solidarity, and so on to what they considered the junior league of unscientific academic disciplines, such as sociology, politics, and moral philosophy. Thus was economics transformed from the radical social program for attacking feudalism, slavery, and aristocratic privileges initiated by Smith and Ricardo into a conservative ideology for justifying the status quo.

Rational Expectations, along with the Policy Ineffectiveness Proposition and the concepts of Ricardian Equivalence and the “natural” rate of unemployment, all “proved” that government efforts to manage economic cycles and unemployment were futile and counterproductive. General equilibrium “proved” that a capitalist economy would always achieve full employment if only governments would leave it alone. Pareto Optimality “proved” that a market economy would always allocate resources in the most productive possible manner. Efficient markets “proved” that the only constructive role of government in the economy was to deregulate and privatize. These were exactly the conclusions that politicians and business leaders wanted to hear from economists to validate the Thatcher and Reagan reforms. Better still, the rational, efficient, natural, and mathematically irrefutable outcomes of market forces seemed to legitimize the distribution of income, wealth, and power decreed by whatever happened to be the economic and political status quo.

Or suppose that rational expectations had been renamed internally consistent expectations, as some of its proponents originally suggested. An adequate refutation might then have been Ralph Waldo Emerson’s acerbic comment that “a foolish consistency is the hobgoblin of little minds.” To continue this thought experiment, try replacing perfect competition with ruthless exploitation, general equilibrium with timeless stasis, Pareto Optimality with Entrenched Privilege, Ricardian Equivalence with Barro’s False Assumption, natural rate of unemployment with deliberate job destruction, and so on. Like President Bush’s Clear Skies Act, which freed polluting industries to increase emissions, the Healthy Forests Initiative, which promoted logging, and the Homeland Security Act, which encouraged paranoia, the market fundamentalist economic orthodoxy achieved its dominance partly through a clever choice of adjectives.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

Indeed, not only did the operation of self-interest cause chaos to yield to order, it did so in a way that created both the greatest efficiency and, in a certain sense, the greatest public welfare, for it was later shown that such an economy maximizes the utility or benefit of the people in it. In particular, no one can be made better off without someone else being made worse off—a phenomenon known as Pareto optimality, after the Italian economist Vilfredo Pareto. On this view, Adam Smith’s invisible hand thus creates not merely the greatest aggregate efficiency, but the greatest overall utility as well. This discovery gave heart to those of a laissez-faire bent, who argued that it made the case for non-intervention in markets, at least—a crucial caveat—under ideal conditions. But paradoxically Arrow and Debreu’s proof also inspired potential interventionists, because it was discovered that Pareto optimality was compatible in principle with widely varying distributional outcomes, and that the relevant equilibria could be reached by making lump-sum transfers between individuals and then allowing them to trade freely.

In Friedmanite fashion, it has long been overly preoccupied with its own models rather than with the real-world phenomena they are supposed to represent. It is still struggling to tackle even such basic theoretical issues as how human preferences should be modelled or aggregated. It encourages politicians to persist in the responsibility-abrogating technocratic fantasy that economics trumps politics and can itself solve issues of justice, fairness and social welfare. The North Korean economy could in principle be in a Pareto-optimal position, incapable of improving the position of anyone without worsening the position of someone else—but few would regard it as worthy of imitation. What is to be done? How can the benefits of markets be safeguarded and extended, and their ill-effects contained? How can public trust be regained for markets and the market system? How can we protect this qualified but still priceless inheritance?

., on, 43 Principia Mathematica by, 28, 46, 165, 167 scientific worldview of, 45–46 Newtonianism, 43 No Free Lunch, 225, 251 the noble savage, 65 norm-formation, 309–311 norms anti-social, 308 ethical, 298 in justice, 222–223, 236 of markets, 223, 237 moral, 147, 170, 308 social, 146–147 in social contract, 296 theory of, 295–300 values and, 230 North (Lord), 138–139 Oakeshott, Michael, 26 “Of Rhetoric” (Hume), 41 “Of the Protestant Succession” (Hume), 90–91 Offer, Avner, 305–306 On the Definition of Political Economy (Mill), 200 On the Duty of Man and Citizen (Pufendorf), 74–75 On the Spirit of Laws (Montesquieu), 74, 292 Ostrom, Elinor, 215 Oswald, James, 6–7, 9–10, 81 Oxford, 22–26, 30, 98–99 Oyster Club, 136–137 Pareto, Vilfredo, 194 Pareto optimality, 194 Peel, Robert, 122 personal morality, 318 Phaedo (Plato), 131 philosopher, Smith, A., as, 190 philosophy. See Bacon, Francis; Hume, David; moral philosophy; natural philosophy Physiocrats, 85–86, 151, 178, 187, 229 Piketty, Thomas, 259 Pitt, William, 70, 121–122, 135, 139, 141–142 Plato, 131 Playfair, John, 137 Polanyi, Karl, 320–321, 325 polarization, 330 political economics, mainstream economics and, 215 political economy, 112, 149, 174–176, 190–191, 325 British, 200 on markets, 243 mathematics in, 201, 204 Mill on, 208 rationality in, 203 Stewart on, 162 The Wealth of Nations on, 104, 119, 192 See also Illustrations of Political Economy (Martineau); On the Definition of Political Economy (Mill); Principles of Political Economy (Ricardo) political leadership, 147–148 political renewal, 332 the poor, 117, 172–173, 185–186, 272 poverty, 274 power, asymmetries of, 282–283, 285 Pownall, Thomas, 137–138, 161 Presbyterians, 12–14, 47 price bubble, 226 The Price is Right, 225, 251 prices, 226–227 principal-agent problem, 270–271 Principia Mathematica (Newton), 28, 46, 165, 167 principle of diminishing marginal utility, 201–202 Principles of Economics (Marshall), 201, 215 Principles of Political Economy (Ricardo), 199 Principles of Political Economy (Steuart), 176 Pringle, John, 126–127 private property, 77, 231, 293 private value, of markets, 242–243 producers, consumers and, 109–110 product markets, 248 productivity, 105 profits, 109, 250, 272 property, 325 in financial crash, of 2008, 251 government and, 78, 80–81 identity, language and, 301–304 private, 77, 231, 293 propriety and, 77 rights, 78, 80–81, 238–239 proprietors, 112 propriety, 41, 77 pro-rich, Smith, A., as, 184–186 protectionism, 279 Protestantism, 19 Protestants, of Scotland, 12–13, 47 public choice theory, 271 public finance, 117 public policy, 109–112 public value, of markets, 242–243 Pufendorf, Samuel von, 20, 74–75 Pulteney, William, 93, 176 Quesnay, François, 85–87, 178, 187, 229 Rae, John, 3–4, 26, 50, 134, 142 Ramsay, Allan, 159–160 rational economic man, 196–201, 203–206, 213–214, 217 rationality, in political economy, 203 Rawls, John, 299 recession, of 2008, 251 reciprocity, 64 Reformation, English, 164 regard.


pages: 221 words: 55,901

The Globalization of Inequality by François Bourguignon

Berlin Wall, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Credit Default Swap, deglobalization, deindustrialization, Doha Development Round, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, financial intermediation, gender pay gap, Gini coefficient, income inequality, income per capita, labor-force participation, liberal capitalism, minimum wage unemployment, offshore financial centre, open economy, Pareto efficiency, purchasing power parity, race to the bottom, Robert Gordon, Simon Kuznets, structural adjustment programs, The Spirit Level, too big to fail, very high income, Washington Consensus

It does seem that some policies that aim to redistribute income to the underprivileged also reduce the total income of the population as a whole and are therefore economically inefficient. Imposing a marginal tax rate of 90% on all income above a certain threshold would, if this threshold was set low enough, end up stifling an economy’s ability to 5 Note that the concept of efficiency used here is that of “aggregate” efficiency rather than the Pareto efficiency familiar to economists, according to which a situation is efficient if no agent can be made better off without another one being made worse off. In the absence of lump-­sum transfers, there also is a trade-­off between equality and Pareto efficiency. As the argument is a bit more technical, however, we stick to the simpler concept of aggregate efficiency in what follows. Globalization and Costly Inequality131 grow. Similarly, guaranteeing every citizen a relatively high minimum income without any counterbalances would inevitably reduce the total supply of labor in the economy.

See also emerging economies development aid, 148–53, 157 development gap, 34–35, 83 Di Bao program, 166 discrimination: ghettos and, 66– 67; immigrants and, 64, 66, 127; labor and, 64–66, 69, 132, 142, 180–81; non-­material inequalites and, 64–66, 69; racial, 65; women and, 64–65, 103 disinflation, 95, 102, 110 distribution, 10n1, 186; capital-­ labor split and, 55–58, 60; efficiency and, 142–45; evolution of inequality and, 41, 42t, 44t, 45, 46t, 48–59, 64, 71–72; fairer globalization and, 148, 153, 156–73, 175, 178; geographical disequilibria and, 83; Gini coefficient and, 18 (see also Gini coefficient); global, 18–19, 25, 29, 39, 41, 46t, 121, 124–38, 141– 45, 156; growth and, 49–50, 188; international, 17–18, 30, 148; median of, 31; OECD countries and, 10–11, 12n3; policy and, 26, 72, 135, 188; range of, 16; real earnings loss and, 78; redistribution and, 4, 7, 37 (see also redistribution); rise in inequality and, 74, 77–79, 82, 85, 90–92, 94–96, 99, 103–4, 106–7, 112, 114–15; Southern perspective on, 82–85; standard of living and, 16, 18 (see also standard of living); taxes and, 37, 92–94 (see also taxes); Theil coefficient and, 18–19, 37–38, 194 distribution (cont.) 52; transfers and, 4, 14, 48, 105, 110, 130, 135–36, 142, 148, 153, 158–67, 170, 175, 181, 183, 187; wage, 3, 78–79, 107 Divided We Stand report, 52 Doha negotiations, 154 drugs, 66, 133 Dubai, 127 Economic Partnership Agreements (EPAs), 156 education, 34, 187; college, 132; evolution of inequality and, 61, 65–68; fairer globalization and, 149, 152, 167–73, 180–81; globalization and, 132, 140, 143; labor and, 168, 180; Millennium Development Goals and, 149– 50; national inequality and, 167–73; poverty and, 24; preschool, 169–70; redistribution and, 149, 152, 167–73; rise in inequality and, 111; taxes and, 167–73; tuition and, 170 efficiency: data transfer technology and, 78; deregulation and, 94, 96, 105, 108; economic, 1, 4, 6, 111, 116, 119, 129–33, 135, 140–45, 158, 164, 167, 171, 181; emerging economies and, 78; equality and, 116, 129–31; fairness and, 8, 129– 31; globalization and, 1, 4, 6, 8, 36, 78, 94, 96, 105, 108, 111, 116, 118–19, 129–35, 140–45, 157–58, 164, 167, 170–71, 175, 180–81, 188; human capital and, 175; import substitution and, 34, 180; inefficiency and, 105, 129–30, 132–33, 135, 140, 170–71, 180, 188; labor Index and, 175; loss of, 142, 164; opportunity and, 142–45; Pareto, 130n5; privatization and, 94, 96, 105, 108; redistribution and, 142–45; rents and, 180; social tensions and, 188; spontaneous redistribution and, 133; taxes and, 170; technology and, 78; weak institutions and, 36; wealth of nations and, 1 elitism, 182; fairer globalization and, 151, 165; globalization and, 127n4, 136, 138; rise in inequality and, 4, 6–7 emerging economies: Africa and, 122–23 (see also Africa); competition and, 178, 187–88; conditional cash transfers and, 165– 66; credit cards and, 165; domestic markets and, 120, 125; efficient data transfer and, 78; evolution of inequality and, 57; fairer globalization and, 147, 154, 158, 165–66, 177–78, 182; global inequality and, 40, 77– 80, 82, 109, 113, 115, 188–89; globalization and, 117, 119–22, 125–27; institutions and, 109– 12; Kuznets curve and, 113; labor and, 77; natural resources and, 127; profits and, 117; rise in inequality and, 109–12; structural adjustment and, 109– 12; taxes and, 165; trends in, 57; Washington consensus and, 109–10, 153 entrepreneurs, 83, 92, 96, 131–32, 135, 143, 170–71, 188 equality: efficiency and, 116, 129– 31; policy for, 184–89; relative gap and, 18, 28, 30, 31–32, 36 Ethiopia, 21–22, 46t, 155 Index195 European Union (EU), 24, 156, 174, 177 Everything But Arms (EBA) initiative, 155 evolution of inequality: Africa and, 46t, 54–55; Brazil and, 46t, 55, 59, 70; capital and, 55–58, 60, 73; China and, 47, 53, 57–60; consumption and, 42t, 44t; convergence and, 65, 69; credit and, 61; crises and, 48, 50, 54, 57, 73–74; developed countries and, 47, 52–53, 56, 59–64, 66; developing countries and, 47, 53–55, 57, 63, 68; distribution and, 41, 42t, 44t, 45, 46t, 48–59, 64, 71– 72; education and, 61, 65–68; elitism and, 4, 6–7, 46t; emerging economies and, 57; exceptions and, 52–53; France and, 46t, 51f, 52–53, 55, 58, 59n8, 62–63, 66, 70–71; ghettos and, 66–67; Gini coefficient and, 39, 42t, 44t, 48, 50, 51f, 53, 58–59; Great Depression and, 48; growth and, 33, 49–50, 54; India and, 54, 57, 59–60; institutions and, 55, 69; investment and, 56; labor and, 55–58, 60; markets and, 48–50, 53–54, 64, 69; national income inequality and, 48–52; non-­monetary inequalities and, 49, 60–70; normalization and, 41, 43–44; opportunity and, 61–62, 68, 70–71; perceptions of inequality and, 69–73; policy and, 55, 72; primary income and, 48–50, 58; production and, 57; productivity and, 63; profit and, 56; reform and, 54, 72; rise in inequality in, 48–52, 73, 77–80, 91–95, 97–98, 102–8; risk and, 63, 66; standard of living and, 41, 43– 45, 46t, 53–55, 58, 60–62, 67, 69, 73; surveys and, 42t, 43–45, 56, 68n17, 69–71; taxes and, 12–14, 37, 48, 50, 56n5; Theil coefficient and, 42; United Kingdom and, 46t, 50, 51f, 59, 67, 68n17; United States and, 2, 4–6, 9, 11, 21, 33, 46t, 47–50, 51f, 58, 59n9, 66–70, 73; wealth and, 58–60 executives, 73, 88–89, 97, 174 expenditure per capita, 13, 15, 42t, 44t exports: deindustrialization and, 76, 82; fairer globalization and, 147, 154–55, 176, 178; globalization and, 124, 128; rise in inequality and, 76, 82–84 fairer globalization: Africa and, 147, 151, 154–56, 179, 183; African Growth Opportunity Act (AGOA) and, 155; Bolsa Familia and, 166; Brazil and, 150, 154, 166–68, 173; capital and, 158–62, 167, 171, 175, 182; China and, 150, 154, 165–66, 172, 178; competition and, 155, 169, 173, 176–79, 182; consumers and, 177–78; consumption and, 159, 177; convergence and, 146–47, 157; correcting national inequalities and, 158–80; credit and, 164–65, 172, 180; crises and, 163, 176; deregulation and, 173; developed countries and, 150, 154–57, 160, 162, 164, 168–72, 176, 178–79, 181; developing countries and, 154, 166; development aid and, 196 fairer globalization (cont.) 148–53, 157; Di Bao program and, 166; distribution and, 148, 153, 156–73, 175, 178; Economic Partnership Agreements (EPAs) and, 156; education and, 149, 152, 167–73; 180–81; elitism and, 151, 165; emerging economies and, 147, 154, 158, 165–66, 177–78, 182; Everything But Arms (EBA) initiative and, 155; exports and, 147, 154–55, 176, 178; France and, 147, 159–61, 164, 169, 175, 177; Gini coefficient and, 156, 166; goods and services sector and, 180; growth and, 147–52, 155, 162, 167–68, 171, 177, 180, 183; health issues and, 152, 166; imports and, 154, 177–78, 180; India and, 150, 154, 165– 66, 172; inheritance and, 170– 73; institutions and, 151, 168, 174–75; international trade and, 176–77; investment and, 150, 155, 157, 160, 170, 174, 179; liberalization and, 156, 179; markets and, 147–48, 154–58, 168, 173–75, 178–81; Millennium Development Goals and, 149–50; national inequality and, 147, 158; opportunity and, 155, 167, 170, 172; policy and, 147–53, 157, 167–73, 175, 177, 179–83; poverty and, 147–52, 164, 166, 175; prices and, 147– 48, 176, 178, 182; primary income and, 158, 163n10, 167, 173; production and, 155–57, 167, 176, 178–79; productivity and, 155, 177–78; profit and, 173, 176; Progresa program and, Index 166; protectionism and, 7, 147, 154, 157, 176–79; redistribution and, 148, 153, 156–73, 175, 178; reform and, 151, 161, 163, 168–69; regulation and, 152, 173–76, 181–82; risk and, 148, 154, 156, 159, 164, 171, 174–75, 178; standard of living and, 146–48, 154, 156–58, 160, 165, 168–69; surveys and, 169; taxes and, 148, 158–73, 175, 181–83; technology and, 156, 173; TRIPS and, 156; United Kingdom and, 163, 169; United States and, 155, 159–61, 163– 64, 169, 174–75, 182; wealth and, 162, 164, 167, 170–73 Fitoussi, Jean-­Paul, 14 France: evolution of inequality and, 46t, 51f, 52–53, 55, 58, 59n8, 62–63, 66, 70–71; fairer globalization and, 147, 159–61, 164, 169, 175, 177; Gini coefficient of, 20; global inequality and, 2, 9, 11, 20–21; offshoring and, 81; rise in inequality and, 80, 88, 92–93, 95, 97, 99, 103; soccer and, 87; wage deductions and, 159 G7 countries, 56 G20 countries, 182 Garcia-­Panalosa, Cecilia, 107 Gates, Bill, 5–6, 70, 150 Germany, 2, 21, 46t, 50, 51f, 80, 88, 92 Ghana, 46t, 54 ghettos, 66–67 Giertz, Seth, 160–61 Gini coefficient: Brazil and, 22; Current Population Survey and, 21; evolution of inequality and, Index197 39, 42t, 44t, 48, 50, 51f, 53, 58– 59; fairer globalization and, 156, 166; France and, 20; historical perspective on, 27–28; meaning of, 18–19; purchasing power parity and, 28; rise in inequality and, 110; United States and, 21; wealth inequality and, 58–60 Glass-­Steagall Act, 174n15 global distribution, 18–19, 25, 29, 39, 41, 46t, 121, 156 global inequality: Africa and, 16, 21, 23, 30–31, 34, 36; between countries, 2–3, 5, 7, 9, 16–19, 23, 33, 36, 38–39, 42–45, 47, 53, 58, 68, 90–91, 107, 117–19, 123, 128, 153; Brazil and, 21– 23; crises and, 20, 38–41; cross-­ country heterogeneity and, 13; definition of, 3–4, 9–10, 25–26, 30–32, 39; developed countries and, 10–11, 21, 34–39; developing countries and, 10–11, 13, 21, 32, 34–39; effects of, 38–40; emerging economies and, 40, 77–80, 82, 109, 113, 115, 188– 89; at the end of the 2000s, 20– 25; evolution of inequality and, 41 (see also evolution of inequality); expenditure per capita and, 13, 15, 42t, 44t; France and, 2, 9, 11, 20–21; globalization and, 117–18, 121–23, 128; great gap and, 33–36; historic turning point for, 25–32; Human Development Report and, 25; institutions and, 36; measuring, 10– 20; Millennium Development Goals and, 149–50, 185; normalization and, 13, 15, 22–23, 26, 29; OECD Database on Household Income Distribution and Poverty and, 11–12; policy and, 185–89; Povcal database and, 10, 12, 42t, 43, 44t; prices and, 27–28, 74, 80, 84, 91–92, 94, 97, 110; profit and, 13; reduction of, 2, 185–86; relative gap and, 18, 28, 30–32, 36; rise of, 2–4, 7; risk and, 20; standard of living and, 10–26, 29, 31–33, 36, 39; surveys on, 10, 12–15, 20n10, 21–22, 29, 42t, 43–45; technology and, 3–4, 34–35; trend reversal in, 37–38; within countries, 2, 5–7, 9, 16, 30, 33, 35–45, 47, 113–14, 118, 124– 29, 184–85, 189 globalization: Africa and, 122–23, 126–27; Asian dragons and, 34, 82; Brazil and, 127, 133; capital and, 117, 125–26, 132, 137; China and, 120–22, 128; competition and, 117–18, 130, 186 (see also competition); as complex historical phenomenon, 1–2; consumption and, 137–39; convergence and, 120–22, 125; credit and, 131–32, 137–40; crises and, 119–22, 125, 135–39, 142; debate over, 1; deindustrialization in developed countries and, 75–82; democratic societies and, 135–36; deregulation and, 95–99; developed countries and, 117, 119, 121, 127n4, 128, 133, 143; developing countries and, 121, 127n4, 128, 132, 143; education and, 132, 140, 143; efficiency and, 1, 4, 6, 8, 36, 78, 94, 96, 105, 108, 111, 116, 118–19, 129–35, 140–45, 157–58, 164, 167, 170–71, 175, 180–81, 188; elitism and, 127n4, 136, 138; 198 globalization (cont.) emerging economies and, 117, 119–22, 125–27; exports and, 124, 128; fairer, 146–83 (see also fairer globalization); future of inequality between countries and, 119–22; global inequality and, 117–18, 121–23, 128; goods and services sector and, 127, 130; growth and, 118–29, 134–39; health issues and, 140– 41, 144; Heckscher-­Ohlin model and, 76; imports and, 119, 124; inequality within countries and, 124–29; inheritance and, 144–45; institutions and, 124; as instrument for modernization, 1; international trade and, 3, 75–76, 78–79, 83, 112, 114, 176–77; investment and, 119, 130, 134–35, 143; laissez-­faire approach and, 118, 129; markets and, 118, 120–21, 124–37, 140, 143–44; as moral threat, 1; national inequality and, 119; negative consequences of inequality and, 131–42; opportunity and, 133–34, 139, 142–44; as panacea, 1; policy and, 118–19, 124, 126, 128–31, 139, 143–44; poverty and, 117, 123, 126–27, 134, 144; prices and, 118, 122, 126, 136–38; primary income and, 135, 143–44; production and, 119, 124, 126, 129, 131, 133, 137; productivity and, 120, 125, 127, 144; profit and, 117; redistribution and, 121, 124–38, 141–45; reform and, 124, 126–27, 138; regulation and, 136; rise in inequality and, 117–18; risk and, 127–28, Index 137–39, 144; shocks and, 38, 55, 91–92, 175; Southern perspective on, 82–85; standard of living and, 120–23, 126, 138, 143; surveys and, 127n4, 141n15; taxes and, 74, 89n10, 91–94, 104, 114–15, 129–30, 135–36, 142–45; technology and, 86–91, 118–20, 125; trends and, 118; United States and, 135–39; wealth and, 74, 95, 98, 125, 127, 129, 131–32, 139, 143–45 Great Depression, 48 Greece, 46t, 135 gross domestic product (GDP) measurement: Current Population Survey and, 21; evolution of inequality and, 41–45, 56–57; fairer globalization and, 123, 127, 165–66, 176; global inequality and, 13–15, 20–21, 23, 26, 27f, 29–30, 39; normalization and, 29, 41, 43–45; rise in inequality and, 94; Sen-­Stiglitz-­ Fitoussi report and, 14 Gross National Income (GNI), 148–49 Growing Unequal report, 52 growth, 4; African Growth Opportunity Act (AGOA) and, 155; constraints and, 35; consumption and, 13–15, 42t, 44t, 80, 137–39, 159, 177; convergence and, 16; determinants of, 34; distribution and, 49–50, 188; emerging economies and, 125 (see also emerging economies); evolution of inequality and, 33, 49–50, 54; fairer globalization and, 147–52, 155, 162, 167–68, 171, 177, 180, 183; GDP mea- Index199 surement of, 30, 39 (see also gross domestic product (GDP) measurement); globalization and, 118–29, 134–39; great gap in, 33–36; import substitution and, 34, 180; inflation and, 50, 95, 102, 110; negative, 31; political reversals and, 36; poverty and, 28–29; production and, 3, 34–35, 57, 74, 76–81, 84–86, 119, 124, 126, 129, 131, 133, 137, 155–57, 167, 176, 178–79; rate of, 15, 29–35, 79, 125, 185; recession and, 6, 31, 99, 120; relative gap and, 18, 20, 30–32, 36; rise in inequality and, 75, 79, 82, 84, 109–12; trends in, 40, 121 health issues, 24, 187; fairer globalization and, 152, 166; globalization and, 140–41, 144; public healthcare and, 37, 111, 140 Heckscher-­Ohlin model, 76 Hong Kong, 34, 82, 174 housing, 12, 61, 137 human capital, 74, 167, 175 Human Development Report, 25 Ibrahimovich, Zlata, 87 IKEA, 172 immigrants, 64, 66, 127 imports: fairer globalization and, 154, 177–78, 180; globalization and, 119, 124; import substitution and, 34, 180; rise in inequality and, 80 income: average, 9, 18, 21, 29–30, 43, 72; bonuses and, 87, 174; convergence and, 16; currency conversion and, 11; definition of, 45; deindustrialization and, 75–82; developed/developing countries and, 5, 36; disposable, 20, 22, 24, 48, 50, 51f, 74, 91, 163; distribution of, 3 (see also distribution); executives and, 73, 88–89, 97, 174; family, 10; financial operators and, 87–88, 90–91; gap in, 3, 5–6, 27f, 33– 36, 42t, 44t, 149; GDP measurement and, 13–15, 20–21, 23, 26, 27f, 29–30, 39, 41–45, 56–57, 94, 123, 127, 165–66, 176; high, 50, 52, 56, 85–93, 97–99, 140, 143, 158–62, 164, 189; household, 10–12, 43, 45, 50, 58, 105, 107, 137, 163, 177; inequality in, 2, 4, 41, 48–50, 56–64, 68, 70, 72–73, 83, 98, 102–3, 107–8, 114, 125, 132– 34, 137, 140–41, 143–44, 163; inflation and, 50, 95, 102, 110; international scale for, 17–18, 23, 30; lawyers and, 89–90; mean, 17, 20n10, 27f, 42t, 44t; median, 6, 49, 71, 102–3, 106; minimum wage and, 52–53, 100, 102–8, 175, 177; national, 7, 16–19, 30, 43, 48–52, 60, 73, 84n6, 125, 149, 153, 172; OECD Database on Household Income Distribution and Poverty and, 11; opportunity and, 5; payroll and, 53, 93, 100, 104, 107, 175; pension systems and, 167; per capita, 20, 25, 29–30, 42t, 45, 48, 55–56, 120; portfolios and, 88; poverty and, 1, 11, 15n6, 19–20, 22–25, 28–29, 32, 44t, 109, 117, 123, 126–27, 134, 144, 147–52, 164, 166, 175; primary, 48–50, 58, 135, 143–44, 158, 163n10, 167, 173; 200 income (cont.) purchasing power and, 11, 13, 19–24, 27f, 28, 50, 80, 144, 158, 178; real earnings loss and, 78; relative gap and, 18, 28, 30, 31– 32, 36; superstars and, 85–87, 89–90; taxes and, 37, 89n10, 92–93, 145, 159, 161–65, 170 (see also taxes); technology and, 34, 180; virtual, 12; wage inequality and, 51–53, 79, 101–3, 106, 108; wage ladder effects and, 78–79; wealth inequality and, 58–60; women and, 64– 65, 103 India: evolution of inequality and, 54, 57, 59–60; fairer globalization and, 150, 154, 165– 66, 172; household consumption and, 15; international trade and, 75; Kuznets hypothesis and, 113; rise in inequality and, 2, 15–16, 19, 30, 34, 46t, 75, 83, 90, 112–13; taxes and, 165 Indonesia, 30, 46t, 54, 111, 127 industrialization: deindustrialization and, 1, 75–82, 102, 120, 188; labor and, 1, 26, 29, 33, 35, 54, 82, 84, 102, 113, 120, 127, 179, 188 Industrial Revolution, 26, 29, 33, 35 inequality: between countries, 2–3, 5, 7, 9, 16–19, 23, 33, 36, 38– 39, 42–45, 47, 53, 58, 68, 90– 91, 107, 117–19, 123, 128, 153; efficiency and, 1, 4, 6, 8, 36, 78, 94, 96, 105, 108, 111, 116, 118– 19, 129–35, 140–45, 157–58, 164, 167, 170–71, 175, 180–81, 188; Gini coefficient and, 18 (see Index also Gini coefficient); income, 2, 4, 41, 48–50, 56–64, 68, 70, 72–73, 83, 98, 102–3, 107–8, 114, 125, 132–34, 137, 140–41, 143–44, 163; international, 17; inverted U curve and, 54, 113; measurement of, 18; negative consequences of, 131–42; non-­ monetary, 49, 60–70; perceptions of, 69–73; social tensions and, 188; standard of living and, 18 (see also standard of living); Theil coefficient and, 18–19, 37–38, 42; wealth, 58–60; within countries, 2, 5–7, 9, 16, 30, 33, 37–45, 47, 113–14, 118, 124–29, 184–85, 189 infant mortality, 150 inflation, 50, 95, 102, 110 inheritance: fairer globalization and, 170–73; globalization and, 144–45; rise in inequality and, 93 institutions: deregulation and, 91– 112 (see also deregulation); disinflation and, 95, 102, 110; emerging economies and, 109– 12; evolution of inequality and, 55, 69; fairer globalization and, 151, 168, 174–75; global inequality and, 36; globalization and, 124; markets and, 91–92; privatization and, 94–109; reform and, 91–112; rise in inequality and, 91–112, 114; structural adjustment and, 109– 12; taxes and, 92–94; “too big to fail” concept and, 174–75; Washington consensus and, 109–10, 153 International Development Association, 149 Index201 international income scale, 17–18, 23, 30 International Labor Organization, 51 International Monetary Fund (IMF), 54, 57, 84, 90, 109–10 international trade: capital mobility and, 74; China and, 75; de­ industrialization and, 75–76, 78–79; effect of new players, 75–76; Heckscher-­Ohlin model and, 76; India and, 75; offshoring and, 81–82; rise in inequality and, 75–76, 78–79, 83, 112, 114; Soviet Union and, 75; theory of, 76; wage ladder effects and, 78–79 inverted U curve, 54, 113 investment: direct, 76, 79; evolution of inequality and, 56; fairer globalization and, 150, 155, 157, 160, 170, 174, 179; foreign, 83, 85, 112, 155, 157, 160, 179; globalization and, 119, 130, 134– 35, 143; production and, 119; public services and, 143; re-­ investment and, 56; rise in inequality and, 76, 79, 82–83, 85, 92, 97–98, 112; taxes and, 92 Ivory Coast, 54 Japan, 34, 46t, 51f, 103 job training, 34, 181, 187 Kenya, 46t, 54 kidnapping, 133 Kuznets, Simon, 113, 126 labor: agriculture and, 12, 82, 84, 122–23, 127–28, 132, 155; artists and, 86–87; bonuses and, 87, 174; capital and, 3–4, 55– 58, 60, 158, 161n7, 185; capital mobility and, 3; cheap, 77, 117; costs of, 81, 100, 104–5, 117, 176, 187; decline in share of national income and, 73; deindustrialization and, 75–82; demand for, 168; deregulation and, 99– 109; discrimination and, 64–66, 69, 132, 142, 180–81; distribution of income and, 175 (see also distribution); education and, 168, 180; efficiency and, 96–97, 175; emerging economies and, 77; entrepreneurs and, 83, 92, 96, 131–32, 135, 143, 170–71, 188; evolution of inequality and, 55–58, 60; excess, 81, 83; executives and, 73, 88–89, 97, 174; goods and services sector and, 13, 73, 80, 85, 91, 102, 127, 130, 180; growth and, 154, 179; immigrant, 64, 66, 127; increased mobility and, 90–91; industrialization and, 1, 26, 29, 33, 35, 54, 80, 82, 84, 102, 113, 120, 127, 179, 188; inflation and, 50, 95, 102, 110; International Labor Organization and, 51; job training and, 34, 181, 187; manufacturing and, 57, 80–82, 84, 123, 154–55, 157; median wage and, 49, 71, 102– 3, 106; minimum wage and, 52– 53, 100, 102–8, 175, 177; mobility of, 185; offshoring and, 81–82; payroll and, 53, 93, 100, 104, 107, 175; pension systems and, 167; portfolios and, 88; poverty and, 1, 11, 15n6, 19– 20, 22–25, 28–29, 32, 44t, 109, 117, 123, 126–27, 134, 144, 147–52, 164, 166, 175; 202 labor (cont.) privatization and, 99–109; productivity and, 63, 79, 81–82, 89, 100, 102, 104, 114, 120, 125, 127, 144, 155, 177–78; protectionism and, 7, 147, 154, 157, 176–79; real earnings loss and, 78; reserve, 84; security and, 133; skilled, 76–78, 82–83, 86, 90, 114, 117, 126, 176; standard of living and, 69 (see also standard of living); superstars and, 85, 87, 89–90; supply of, 130– 31, 164; taxes and, 159–60, 171; technology and, 85–91 (see also technology); unemployment and, 37, 39, 53, 62–63, 66, 69, 77, 94, 100–108, 164, 175–76; unions and, 100–106, 108, 156, 179; unskilled, 3, 76–77, 79, 83, 105, 117, 154; wage inequality and, 51–53, 79, 101–3, 106, 108; wage ladder effects and, 78–79; women and, 64–65, 103, 114; writers and, 86–87 Lady Gaga, 5–6 laissez-­faire approach, 118, 129 Latin America, 9, 34, 36, 54–55, 58, 109–11, 155, 165–66, 168, 180 lawyers, 89–90 liberalization: capital and, 96; customs, 156; deregulation and, 96–99, 108–9, 112 (see also deregulation); fairer globalization and, 156, 179; mobility of capital and, 115; policy effects of, 97–99; Reagan administration and, 91; recession and, 6, 31, 99, 120; rise in inequality and, 76, 91, 93, 96–99, 108–9, 112, 115; tax rates and, 93 Luxembourg, 16, 19 Index Madonna, 71 Malaysia, 127 manufacturing: deindustrialization and, 75–82, 84, 123; emerging economies and, 57, 84; fairer globalization and, 154–55, 157; France and, 81; offshoring and, 81–82; United Kingdom and, 80; United States and, 80 markets: competition and, 76–77, 79–82, 84, 86, 94–98, 102, 104, 115–18, 130, 155, 169, 173, 176–79, 182, 186–88; credit, 131; deindustrialization and, 1, 75–82, 102, 120, 188; deregulation and, 91–92, 99–109 (see also deregulation); development gap and, 34–35, 83; Economic Partnership Agreements (EPAs) and, 156; effect of new players, 75–76; emerging economies and, 120 (see also emerging economies); entrepreneurs and, 83, 92, 96, 131–32, 135, 143, 170–71, 188; evolution of inequality and, 48–50, 53–54, 64, 69; exports and, 76, 82–84, 124, 128, 147, 154–55, 176, 178; fairer globalization and, 147–48, 154–58, 168, 173–75, 178–81; GDP measurement and, 13–15, 20–21, 23, 26, 27f, 29–30, 39, 41–45, 56–57, 94, 123, 127, 165–66, 176; globalization and, 35, 118, 120–21, 124–37, 140, 143–44; Heckscher-­Ohlin model and, 76; housing, 12, 61, 137; imports and, 1, 34, 80, 119, 124, 154, 177–78, 180; institutions and, 91–112; international trade and, 3, 75–76, 78–79, 83, 112, 114, 176–77; labor and, Index203 144 (see also labor); liberalization and, 112 (see also liberalization); monopolies and, 94, 111, 127, 136; offshoring and, 81– 82; protectionism and, 7, 147, 154, 157, 176–79; purchasing power and, 11, 13, 19–24, 27f, 28, 50, 80, 144, 158, 178; reform and, 54 (see also reform); regulation and, 74 (see also regulation); rise in inequality and, 74, 76– 79, 83, 86, 90–112, 114; shocks and, 38, 55, 91–92, 175; single market and, 76; South-­South exchange and, 35; TRIPS and, 156 median wage, 49, 71, 102–3, 106 Mexico, 46t, 57, 59, 109–10, 133, 166, 172 middle class, 51, 71, 93, 109, 133– 34, 136, 140 Milanovic, Branko, 4–5, 17n8, 29n16 Millennium Development Goals, 149–50, 185 minerals, 84, 127 minimum wage, 52–53, 100, 102– 8, 175, 177 monopolies, 94, 111, 127, 136 Morocco, 173 Morrisson, Christian, 28 movies, 87 Murtin, Fabrice, 28 national inequality, 2–4; correcting, 158–80; education and, 167–73; fairer globalization and, 147, 158; Gini coefficient and, 27 (see also Gini coefficient); globalization and, 119; market regulation and, 173–75; protectionism and, 147, 157, 176–79; redistribution and, 158–73, 175, 178; rise in, 6, 48– 52, 115, 204; taxes and, 158–73, 175, 181–83 natural resources, 84–85, 92, 122, 126–28, 127, 151 Netherlands, 46t, 50, 66, 70, 102 Nigeria, 9, 46t, 54, 127, 151 non-­monetary inequalities: access and, 61, 67–68; capability and, 61; differences in environment and, 66–68; discrimination and, 64–66, 69; employment precariousness and, 63–64; evolution of inequality and, 49, 60–70; intergenerational mobility and, 68; opportunities and, 49, 60– 70; social justice and, 60, 70; unemployment and, 62–63 normalization: evolution of inequality and, 41, 43–44; GDP measurement and, 29, 41, 43– 45; global inequality and, 13, 15, 22–23, 26, 29 Occupy Wall Street movement, 6, 135 OECD countries, 27t; evolution of inequality and, 42t, 43, 44t, 50– 52, 64, 65n13; fairer globalization and, 149, 159, 162, 164– 65; Gini coefficient and, 51; income distribution and, 51; relaxation of regulation and, 99; restrictive, 64; rise in inequality and, 50–51, 94, 99, 102, 106n18, 107; social programs and, 94; standard of living and, 11–12, 43, 50–52, 64, 94, 99, 102, 107, 120, 149, 159, 162, 164–65; U-­shaped curve on income and, 50 OECD Database on Household 204 Income Distribution and Poverty, 11–12 offshoring, 81–82 oil, 92, 127 opportunity, 5; African Growth Opportunity Act (AGOA) and, 155; as capability, 61; efficiency and, 142–45; evolution of inequality and, 61–62, 68, 70–71; fairer globalization and, 155, 167, 170, 172; globalization and, 133–34, 139, 142–44; redistribution and, 142–45; rise in inequality and, 102 Pakistan, 46t, 111 Pareto efficiency, 130n5 Pavarotti, Luciano, 86–87 payroll, 53, 93, 100, 104, 107, 175 Pearson Commission, 149 pension systems, 167 Perotti, Roberto, 134 Philippines, 46t, 111 Pickett, Kate, 140 Piketty, Thomas, 4, 48, 59n8, 60, 89n10, 125, 160n4 PISA survey, 169–70 policy, 4; adjustment, 109, 153; Cold War and, 149, 153; convergence and, 147–48; development aid and, 148–53; distributive, 26, 72, 135, 188; educational, 149, 152, 167–73; evolution of inequality and, 55, 72; fairer globalization and, 147–53, 157–58, 167–73, 175–83; Glass-­Steagall Act and, 174n15; global inequality and, 185–89; globalization and, 118–19, 124, 126, 128–31, 139, 143–44; globalizing equality and, 184–89; import substi- Index tution and, 34; Millennium Development Goals and, 149– 50, 185; poverty reduction and, 147–48; protectionist, 7, 99– 100, 107–8, 147, 154, 157, 176–79; reform and, 74 (see also reform); rise in inequality and, 34, 74–75, 85, 94, 97, 99– 100, 104, 106–11, 114–16; social, 7; standard of living and, 147–48 population growth, 28–29, 110, 183 portfolios, 88 Povcal database, 10, 12, 42t, 43, 44t poverty, 1, 44t, 109; Collier on, 23; convergence and, 147–48; criminal activity and, 133–34; definition of, 24; development aid and, 147–52; fairer globalization and, 147–52, 164, 166, 175; ghettos and, 66–67; global inequality and, 11, 15n6, 19–20, 22–25, 28–29, 32; globalization and, 117, 123, 126–27, 134, 144; growth and, 28–29; measurement of, 23–24; Millennium Development Goals and, 149– 50, 185; OECD Database on Household Income Distribution and Poverty and, 11–12; reduction policies for, 147–48; traps of, 144, 150, 164 prices: commodity, 84, 182; exports and, 178; factor, 74, 126; fairer globalization and, 147–48, 176, 178, 182; global inequality and, 27–28, 74, 80, 84, 91–92, 94, 97, 110; globalization and, 118, 122, 126, 136–38; imports and, 80; international compari- Index205 sons of, 11; lower, 94, 137; oil, 92; rise in inequality and, 74, 80, 84, 91–92, 94, 97, 110; rising, 110, 122, 178; shocks and, 38, 55, 91–92, 175; statistics on, 11, 27; subsidies and, 109–10, 175 primary income: evolution of inequality and, 48–50, 58; fairer globalization and, 158, 163n10, 167, 173; globalization and, 135, 143–44 privatization: deregulation and, 94–112; efficiency and, 94, 96, 105, 108; globalization of finance and, 95–99; institutions and, 94–109; labor market and, 99–109; reform and, 94–109; telecommunications and, 111 production: deindustrialization and, 75–82; evolution of inequality and, 57; fairer globalization and, 155–57, 167, 176, 178–79; globalization and, 119, 124, 126, 129, 131, 133, 137; growth and, 3, 34–35, 57, 74, 76–81, 84–86, 119, 124, 126, 129, 131, 133, 137, 155–57, 167, 176, 178–79; material investment and, 119; North vs.


pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, Plutocrats, pre–internet, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Rory Sutherland, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, women in the workforce, Zipcar

This brings us to a fundamental problem: how can we measure “the greatest happiness for the greatest number”? How is it possible to compare the happiness of one individual to that of another? Many economists have argued that this task is impractical. They suggest that all we can hope to do is ensure that no one’s happiness can be increased without decreasing anyone else’s, a condition called Pareto efficiency, and that the total happiness is distributed fairly. Just like markets, QV (approximately) ensures Pareto efficiency. A natural notion of fairness is to divide influence over public goods equally: give every individual an equal endowment of influence or voice measured in units of that voice.39 If markets with equal incomes are a natural model of a just distribution of private goods, we hold that QV with equal voice is a natural model of just choices about collective decisions.40 QV addresses the problem of varying intensities of preferences by allowing those with stronger preferences a way to influence the outcome in proportion to the strength of their preferences.

Steel and, 174 Monopoly (game), 43 monopsony, 190, 199–201, 223, 234, 238–41, 255 Moore’s Law, 286–87 mortgages, 65–66, 70, 74–75, 130, 157 Morton, Fiona Scott, 191 Mullainathan, Sendhil, 114 Musk, Elon, 30 Muslims, 129, 131 mutual funds, 181–82, 193 Myerson, Roger, 50–51, 66, 69 Naidu, Suresh, 240 Napster, 212 National Health Service, 291 Nationalist revolution, 46 Nazis, 93–94 neoliberalism, 5, 9, 11, 24, 255 Nepal, 151–53, 157 Netflix, 221, 289–91, 314n17 network effects, 211, 236, 238, 243 neural networks, 214–19 New Deal, 176, 200 New World, 136 New Zealand, 10, 159 Nielsen, Jakob, 212 Nielsen ratings, 230 Niemöller, Martin, 94 Nobel Prize, xxi, 40, 49–50, 57, 66–68, 92, 97, 236, 278 Obamacare, 114–15, 116 Occupy Wall Street, 3 oligopsony, 234 Oman, 158 one-person-one-vote (1p1v) system, 82–84, 94, 109, 119, 122–24, 304n36, 306n51 open markets, 21–22, 24 OpenTrac, 30–31, 30–32 opt-out rules, 194, 274 Orange Is the New Black (TV series), 221 Organisation for Economic Cooperation and Development (OECD), 141, 147–49, 159–61, 171 ownership: banking industry and, 183, 184; capitalism and, 34–36, 39, 45–49, 75, 78–79; common, 31, 41–42, 49, 52, 54–55, 61, 147, 187–88, 253 (see also common ownership self-assessed tax [COST]); competition and, 20–21, 41, 49–55, 79; control and, 178–81, 183–85, 193; democracy and, 81–82, 89, 101, 105, 118, 124; developers and, 26, 30–33, 105; efficiency and, 34–38, 43, 48–52, 55, 58–60, 67, 69, 73; entrepreneurs and, xiv, 35, 39, 129, 144–45, 159, 173, 177, 203, 209–12, 224, 226, 256; feudalism and, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239; holdout risk and, 33, 62, 71–72, 88, 299n28; homeowners and, 17, 26, 33, 42, 56–57, 65; inequality and, 42, 45, 75, 79, 253; intellectual property and, 26, 38, 48, 72, 210, 212, 239; labor and, 146–47, 245, 247; land, 31–33, 38–39, 41, 68, 105, 173; landlords and, 37, 43, 70, 136, 201–2; liberalism and, 17–19, 26–27; liquidity and, 31, 69, 177–79, 194, 301n49; partial common, 52, 298n7; partnerships and, 52–54, 57, 174; peasants and, 35–37, 61, 136; property as monopoly and, 30–34, 37–44, 48–62, 65, 68, 72, 77, 79; public goods and, 253 (see also public goods); Quadratic Voting (QV) and, 105; Radical Markets and, 170, 173, 177–90, 193, 195, 199–200; self-assessment and, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63; shareholders and, 118, 170, 178–84, 189, 193–95; Smith on, 17–18; state, 19, 39, 42, 48 Page, Larry, 211 Pandora, 289, 292 Pareto efficiency, 110 partnerships, 52–54, 57, 174 PayPal, 212 Peloponnesian War, 83 pencils, 278–79 pensions, 157, 181 phalanx system, 83 Philosophical Radicals, 4, 16, 20, 22–23, 95 Pierson, Paul, 191 PNC Bank, 183, 184 Poland, 47 polls: elections and, 13, 111; Likert surveys and, 111–16, 120, 306n53; market research and, 111–16; Quadratic Voting (QV) and, 111–16, 118, 303n17; Trump and, 296n20 pollution, 44, 65, 98–105, 137, 299n28 populism, 3, 12–14, 146, 261, 265, 296n16 portfolio theory, 180 poverty, xv; COST and, 259; extreme, 164; Galbraith on, 125; George on, 36–37, 43, 250; migrants and, 166; peasants and, 35–37, 61, 136; serfs and, 35, 48, 231–32, 236, 255; slavery and, xiv, 1, 19, 23, 37, 96, 136, 255, 260; slums and, xiii, xviii, 17; prices: auctions and, xv–xix, 49–51, 70–71, 97, 99, 147–49, 156–57, 300n34; common ownership self-assessed tax (COST) and, 62–63, 67–77, 256, 258, 263, 275, 300n43, 317n18; competition and, 20–22, 25, 173, 175, 180, 185–90, 193, 201, 204, 244; computers and, 21; controls for, 132; democracy and, 92, 97–102; indexing and, 185–91, 302n63; Internet and, 21; labor and, 132, 156, 207, 212, 221, 235, 243–44; liberalism and, 7, 8, 17–22, 25–27; markets and, 278–80, 284–85; markup, 7, 8, 60; monopoly, 58–59, 179, 258, 300n43; property and, 31–42, 47–64, 67–77; public leases and, 69–72; Quadratic Voting (QV) and, 263, 275; Radical Markets and, 170–75, 179–80, 185–90, 193, 201, 204; resale price maintenance and, 200–201 private goods, 97, 99, 110, 122–24, 253, 262, 264, 271–72, 303n17 privatization, xiv, 9 “Problem of Social Cost, The” (Coase), 48 productivity, 9–10, 16, 38, 57, 73, 123, 240–41, 247, 254–55, 258, 278 profits: common ownership self-assessed tax (COST) and, 275, 300n43; democracy and, 99; human capital and, 258; inequality and, 6–7; labor and, 163, 208–9, 234, 258, 260; liberalism and, 6–7, 17–18; lobbyists and, 262; moral values and, 271; ownership and, 33, 59–60, 68, 78, 299n28; Radical Markets and, 171, 178–79, 185–89, 193, 199, 201 programmers, 163, 208–9, 214, 217, 219, 224 Progress and Poverty (George), 36–37, 43, 250 Progressive movement, 45, 137, 174–75, 200, 203, 262 property, xiv; capitalism and, 34–36, 39, 45–49, 75, 78–79; central planning and, 39–42, 46–48, 62; common ownership self-assessed tax (COST) and, 31, 61–79, 271–74, 300n43, 301n47; competition and, 41, 49–55, 79; democracy and, 83, 88, 96, 99; developers and, 26, 30–33, 105; efficiency and, 34–38, 43, 48–52, 55, 58–60, 67, 69, 73; eminent domain and, 33, 62, 89; feudalism and, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239; freedom and, 34–39; George on, 36–37, 42–46, 49, 51, 59, 66; gift of nature and, 40; hoarding of, 255; holdout risk and, 33, 62, 71–72, 88, 299n28; homeowners and, 17, 26, 33, 42, 56–57, 65; inequality and, 42, 45, 75, 79, 253; investment in, 33, 35, 37, 43, 49–54, 58–61, 66–67, 71, 73, 76–78, 255, 299n28; labor and, 34–39, 45, 67, 73–79, 136, 147, 210, 212, 239; laissez-faire and, 253; landlords and, 37, 43, 70, 136, 201–2; landowners and, 31–33, 38–39, 41, 68, 105, 173; liberalism and, 17–18, 25–28; liquidity and, 31, 69, 177–79, 194, 301n49; markets and, 40–45, 282; monopolies and, 34–39; ownership and, 30–34, 37–44, 48–62, 65, 68, 72, 77, 79; partnerships and, 52–54, 57, 174; peasants and, 35–37, 61, 136; prices and, 31–42, 47–64, 67–77; private, 25, 28, 34–42, 48–52, 61–62, 68, 76, 78, 99, 177, 253, 271–72, 299n28, 301n46; public goods and, 41, 73, 253; public leases and, 69–72; Quadratic Voting (QV) and, 273; Radical Markets and, 173, 177, 272; reform and, 35, 37, 39, 46; regulations and, 46–48, 299n27; right of way and, 32–33; rights of, 35, 48–49, 51–52, 88, 173, 210; self-assessment and, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63; socialism and, 37–42, 45–49; taxes and, 28, 31, 42–44, 51, 55–70, 73–76, 301n36; turnover rate and, 58–61, 64, 76; United States and, 36, 38, 45, 47–48, 51; wealth and, 36, 38, 40, 45, 55, 61, 73–79 Proposition 8, 89 “Protection and Real Wages” (Stolper and Samuelson), 142 psychology, 67, 78, 111, 114, 233, 238, 248, 290 public goods: collective decisions and, 98; common ownership self-assessed tax (COST) and, 256; democracy and, 28, 97–100, 107, 110, 120, 123, 126; globalization and, 265; labor and, 147; markets and, 271; property and, 41, 73, 253; Quadratic Voting (QV) and, 110, 120, 123–26, 256, 264, 272; selfishness and, 270; Smith on, 16 public leases, 69–72 “Pure Theory of Public Expenditure, The” (Samuelson), 97 Qatar, 158 Qin dynasty, 46 Quadratic Voting (QV): 1p1v and, 82–84, 94, 109, 119, 122–24, 304n36, 306n51; Arrow’s Theorem and, 303n17; auctions and, xvii–xix; broader application of, 118–19, 273–74; collective decisions and, 110–11, 118–20, 122, 124, 273, 303n17, 304n36; common ownership self-assessed tax (COST) and, 123–25, 194, 261–63, 273, 275, 286; competition and, 304n36; corporate governance and, 194; cryptocurrencies and, 117–18; democracy and, 105–22; efficiency and, 110, 126, 256; elections and, 115, 119–21, 268, 306n52; equality and, 264; free-rider problem and, 107–8; globalization and, 266–69; governance and, 117, 122, 266–69; growth and, 123; happiness and, 108–10, 306n52; immigrants and, 261, 266–69, 273; inequality and, 264; legal issues and, 267, 275; liberalism and, 268; Likert surveys and, 111–16, 120, 306n53; markets and, 122–23, 256, 272, 286, 304n36; methodology of, 105–10; monetizing, 263–64; monopolies and, 272; nature of currency and, 122–23; optimality and, 108–9, 120, 286; ownership and, 105; Pareto efficiency and, 110; political effects of, 261–64; polls and, 111–16, 118, 303n17; prices and, 263, 275; property and, 273; proportional, 106–7; public goods and, 110, 120, 123–26, 256, 264, 272; Radical Markets and, 82–126, 194, 272; rating and, 117–18; reform and, 95, 105–6; scope of trade and, 122–23; social aggregation and, 117–18; society and, 272–73; software flaw and, 305n44; square root function and, 82; taxes and, 263, 275; technology and, 264; testing of, 111, 114–18; voice credits and, 80–82, 105, 113, 117, 119, 121–23, 251, 263–64, 267, 269; wealth and, 256–57, 261–64, 267–68, 272–73, 275, 286 Quarfoot, David, 114 reCAPTCHA, 235–36 Reddit, 117 Red Queen phenomenon, 176–77, 184 Red Terror, 93 reform: academics and, 2–3; antitrust policies and, 23, 48, 174–77, 180, 184–86, 191, 197–203, 242, 255, 262, 286; auctions and, xv–xvii, 49–51, 70–71, 97, 99, 147–49, 156–57; common ownership self-assessed tax (COST) and, 298n7; George and, 23; globalization and, 255; immigrants and, 129, 153; labor and, 129, 153, 240, 247, 255; liberalism and, 2–4, 23–25, 255; property and, 35, 37, 39, 46; Quadratic Voting (QV) and, 105 (see also Quadratic Voting [QV]); Radical Markets and, 95, 105–6, 181, 191; regulations and, 239–45 (see also regulations); taxes and, 274–75; United Kingdom and, 95–96 Reform Act of 1832, 95 refugees, 130, 140, 145 regulations: banking, 98–99; capitalism and, 262; Coase on, 299n27; competition and, 262; democracy and, 98–100, 123; deregulation and, 3, 9, 24; discrimination and, 272; elitism and, 3; environmental, 265, 291; labor and, 138, 155–56, 165, 239–45, 266; liberalism and, 3, 9, 18, 24; property and, 46–48, 299n27; Radical Markets and, 176, 180, 189, 191, 194, 197, 203 religion, 15, 17, 19, 55, 78, 81, 85–90, 94, 129, 145, 272 resale price maintenance, 200–201 revolutions, 36, 41, 46, 86, 88, 90–92, 95, 224, 255, 273, 277 Ricardo, David, 133 Rio de Janeiro, xiii–xiv, 105 robber barons, 175, 199–200 Robinson Crusoe (DeFoe), 132 robots, 222, 248, 251, 254, 287 Rockefeller, John D., 174–75 Roemer, John, 240 Roman Catholic Church, 85, 94 Roman Republic, 84 Roosevelt, Franklin D., 176 Roosevelt, Theodore, 175 Rousseau, Jean-Jacques, 86 Russia, 12, 13, 46 same-sex marriage, 89 sample complexity, 218 Samuelson, Paul, 97–98, 106–7, 142–43 Sanders, Bernie, 12 Satterthwaite, Mark, 50–51, 66, 69 Saudia Arabia, 158–59 savings: growth and, 6; labor and, 150–51; mercantilism and, 132; Radical Markets and, 169, 172, 181; retirement, 171–72, 260, 274; squandering, 123 Schmalz, Martin, 189 Schumpter, Joseph, 47 Segal, Ilya, 52 self-assessment, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63 self-driving cars, 230 serfs, 35, 48, 231–32, 236, 255 Shafir, Eldar, 114 Shalizi, Cosma, 281 shallow nets, 216–19 shareholders, 118, 170, 178–84, 189, 193–95 Sherman Antitrust Act, 174, 262 Show Boat (film), 209 Silicon Valley, 211 Silk Road, 131 Singapore, 160 siren servers, 220–24, 230–41, 243 Siri, 219, 248 Skype, 155, 202 slavery, xiv, 1, 19, 23, 37, 96, 136, 255, 260 slums, xiii, xviii, 17 Smith, Adam, xix–xx, 4; capitalism and, 34–35; competition and, 17; diamond-water paradox and, 224–25; efficiency and, 37; immigrants and, 132–33; inequality and, 22; markets and, 16–17, 21–22; monopolies and, 173; Wealth of Nations and, 22 social aggregation, 117–18 Social Democratic Party, 45 social dividend, 41, 43, 49, 73–75, 147, 256–59, 263, 269, 298n13, 302n63 socialism: central planning and, 39–42, 47, 277, 281; George and, 37, 45, 137, 250, 253; German right and, 94; industry and, 45; irrationality of capitalism and, 39 (see also capitalism); labor and, 137, 299n24; laissez-faire and, 250, 253; markets and, 277–78, 281; Marx and, 137, 277; property and, 37–42, 45–49; radical democracy and, 94; Radical Markets and, 293; Sanders and, 12; Schumpeter on, 47; von Mises and, 278; workers’ cooperatives and, 299n24 social media, 251–52; data and, 202, 212, 231, 233–36; democracy and, 117, 126; Facebook, xxi, 28, 50, 117, 202, 205–9, 212–13, 220–21, 231–48, 289; Instagram, 117, 202, 207; Reddit, 117; Twitter, 117, 221; WhatsApp, 202; Yelp, 63, 117 Social Security, 274 Southwest, 191 sovereignty, 1, 16, 86, 131–32 Soviet Union, 1, 19, 46–47, 277–78, 281–82, 288 spam, 210, 245 special interest groups, 25, 98, 256 Spense, A.

Steel and, 174 Monopoly (game), 43 monopsony, 190, 199–201, 223, 234, 238–41, 255 Moore’s Law, 286–87 mortgages, 65–66, 70, 74–75, 130, 157 Morton, Fiona Scott, 191 Mullainathan, Sendhil, 114 Musk, Elon, 30 Muslims, 129, 131 mutual funds, 181–82, 193 Myerson, Roger, 50–51, 66, 69 Naidu, Suresh, 240 Napster, 212 National Health Service, 291 Nationalist revolution, 46 Nazis, 93–94 neoliberalism, 5, 9, 11, 24, 255 Nepal, 151–53, 157 Netflix, 221, 289–91, 314n17 network effects, 211, 236, 238, 243 neural networks, 214–19 New Deal, 176, 200 New World, 136 New Zealand, 10, 159 Nielsen, Jakob, 212 Nielsen ratings, 230 Niemöller, Martin, 94 Nobel Prize, xxi, 40, 49–50, 57, 66–68, 92, 97, 236, 278 Obamacare, 114–15, 116 Occupy Wall Street, 3 oligopsony, 234 Oman, 158 one-person-one-vote (1p1v) system, 82–84, 94, 109, 119, 122–24, 304n36, 306n51 open markets, 21–22, 24 OpenTrac, 30–31, 30–32 opt-out rules, 194, 274 Orange Is the New Black (TV series), 221 Organisation for Economic Cooperation and Development (OECD), 141, 147–49, 159–61, 171 ownership: banking industry and, 183, 184; capitalism and, 34–36, 39, 45–49, 75, 78–79; common, 31, 41–42, 49, 52, 54–55, 61, 147, 187–88, 253 (see also common ownership self-assessed tax [COST]); competition and, 20–21, 41, 49–55, 79; control and, 178–81, 183–85, 193; democracy and, 81–82, 89, 101, 105, 118, 124; developers and, 26, 30–33, 105; efficiency and, 34–38, 43, 48–52, 55, 58–60, 67, 69, 73; entrepreneurs and, xiv, 35, 39, 129, 144–45, 159, 173, 177, 203, 209–12, 224, 226, 256; feudalism and, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239; holdout risk and, 33, 62, 71–72, 88, 299n28; homeowners and, 17, 26, 33, 42, 56–57, 65; inequality and, 42, 45, 75, 79, 253; intellectual property and, 26, 38, 48, 72, 210, 212, 239; labor and, 146–47, 245, 247; land, 31–33, 38–39, 41, 68, 105, 173; landlords and, 37, 43, 70, 136, 201–2; liberalism and, 17–19, 26–27; liquidity and, 31, 69, 177–79, 194, 301n49; partial common, 52, 298n7; partnerships and, 52–54, 57, 174; peasants and, 35–37, 61, 136; property as monopoly and, 30–34, 37–44, 48–62, 65, 68, 72, 77, 79; public goods and, 253 (see also public goods); Quadratic Voting (QV) and, 105; Radical Markets and, 170, 173, 177–90, 193, 195, 199–200; self-assessment and, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63; shareholders and, 118, 170, 178–84, 189, 193–95; Smith on, 17–18; state, 19, 39, 42, 48 Page, Larry, 211 Pandora, 289, 292 Pareto efficiency, 110 partnerships, 52–54, 57, 174 PayPal, 212 Peloponnesian War, 83 pencils, 278–79 pensions, 157, 181 phalanx system, 83 Philosophical Radicals, 4, 16, 20, 22–23, 95 Pierson, Paul, 191 PNC Bank, 183, 184 Poland, 47 polls: elections and, 13, 111; Likert surveys and, 111–16, 120, 306n53; market research and, 111–16; Quadratic Voting (QV) and, 111–16, 118, 303n17; Trump and, 296n20 pollution, 44, 65, 98–105, 137, 299n28 populism, 3, 12–14, 146, 261, 265, 296n16 portfolio theory, 180 poverty, xv; COST and, 259; extreme, 164; Galbraith on, 125; George on, 36–37, 43, 250; migrants and, 166; peasants and, 35–37, 61, 136; serfs and, 35, 48, 231–32, 236, 255; slavery and, xiv, 1, 19, 23, 37, 96, 136, 255, 260; slums and, xiii, xviii, 17; prices: auctions and, xv–xix, 49–51, 70–71, 97, 99, 147–49, 156–57, 300n34; common ownership self-assessed tax (COST) and, 62–63, 67–77, 256, 258, 263, 275, 300n43, 317n18; competition and, 20–22, 25, 173, 175, 180, 185–90, 193, 201, 204, 244; computers and, 21; controls for, 132; democracy and, 92, 97–102; indexing and, 185–91, 302n63; Internet and, 21; labor and, 132, 156, 207, 212, 221, 235, 243–44; liberalism and, 7, 8, 17–22, 25–27; markets and, 278–80, 284–85; markup, 7, 8, 60; monopoly, 58–59, 179, 258, 300n43; property and, 31–42, 47–64, 67–77; public leases and, 69–72; Quadratic Voting (QV) and, 263, 275; Radical Markets and, 170–75, 179–80, 185–90, 193, 201, 204; resale price maintenance and, 200–201 private goods, 97, 99, 110, 122–24, 253, 262, 264, 271–72, 303n17 privatization, xiv, 9 “Problem of Social Cost, The” (Coase), 48 productivity, 9–10, 16, 38, 57, 73, 123, 240–41, 247, 254–55, 258, 278 profits: common ownership self-assessed tax (COST) and, 275, 300n43; democracy and, 99; human capital and, 258; inequality and, 6–7; labor and, 163, 208–9, 234, 258, 260; liberalism and, 6–7, 17–18; lobbyists and, 262; moral values and, 271; ownership and, 33, 59–60, 68, 78, 299n28; Radical Markets and, 171, 178–79, 185–89, 193, 199, 201 programmers, 163, 208–9, 214, 217, 219, 224 Progress and Poverty (George), 36–37, 43, 250 Progressive movement, 45, 137, 174–75, 200, 203, 262 property, xiv; capitalism and, 34–36, 39, 45–49, 75, 78–79; central planning and, 39–42, 46–48, 62; common ownership self-assessed tax (COST) and, 31, 61–79, 271–74, 300n43, 301n47; competition and, 41, 49–55, 79; democracy and, 83, 88, 96, 99; developers and, 26, 30–33, 105; efficiency and, 34–38, 43, 48–52, 55, 58–60, 67, 69, 73; eminent domain and, 33, 62, 89; feudalism and, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239; freedom and, 34–39; George on, 36–37, 42–46, 49, 51, 59, 66; gift of nature and, 40; hoarding of, 255; holdout risk and, 33, 62, 71–72, 88, 299n28; homeowners and, 17, 26, 33, 42, 56–57, 65; inequality and, 42, 45, 75, 79, 253; investment in, 33, 35, 37, 43, 49–54, 58–61, 66–67, 71, 73, 76–78, 255, 299n28; labor and, 34–39, 45, 67, 73–79, 136, 147, 210, 212, 239; laissez-faire and, 253; landlords and, 37, 43, 70, 136, 201–2; landowners and, 31–33, 38–39, 41, 68, 105, 173; liberalism and, 17–18, 25–28; liquidity and, 31, 69, 177–79, 194, 301n49; markets and, 40–45, 282; monopolies and, 34–39; ownership and, 30–34, 37–44, 48–62, 65, 68, 72, 77, 79; partnerships and, 52–54, 57, 174; peasants and, 35–37, 61, 136; prices and, 31–42, 47–64, 67–77; private, 25, 28, 34–42, 48–52, 61–62, 68, 76, 78, 99, 177, 253, 271–72, 299n28, 301n46; public goods and, 41, 73, 253; public leases and, 69–72; Quadratic Voting (QV) and, 273; Radical Markets and, 173, 177, 272; reform and, 35, 37, 39, 46; regulations and, 46–48, 299n27; right of way and, 32–33; rights of, 35, 48–49, 51–52, 88, 173, 210; self-assessment and, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63; socialism and, 37–42, 45–49; taxes and, 28, 31, 42–44, 51, 55–70, 73–76, 301n36; turnover rate and, 58–61, 64, 76; United States and, 36, 38, 45, 47–48, 51; wealth and, 36, 38, 40, 45, 55, 61, 73–79 Proposition 8, 89 “Protection and Real Wages” (Stolper and Samuelson), 142 psychology, 67, 78, 111, 114, 233, 238, 248, 290 public goods: collective decisions and, 98; common ownership self-assessed tax (COST) and, 256; democracy and, 28, 97–100, 107, 110, 120, 123, 126; globalization and, 265; labor and, 147; markets and, 271; property and, 41, 73, 253; Quadratic Voting (QV) and, 110, 120, 123–26, 256, 264, 272; selfishness and, 270; Smith on, 16 public leases, 69–72 “Pure Theory of Public Expenditure, The” (Samuelson), 97 Qatar, 158 Qin dynasty, 46 Quadratic Voting (QV): 1p1v and, 82–84, 94, 109, 119, 122–24, 304n36, 306n51; Arrow’s Theorem and, 303n17; auctions and, xvii–xix; broader application of, 118–19, 273–74; collective decisions and, 110–11, 118–20, 122, 124, 273, 303n17, 304n36; common ownership self-assessed tax (COST) and, 123–25, 194, 261–63, 273, 275, 286; competition and, 304n36; corporate governance and, 194; cryptocurrencies and, 117–18; democracy and, 105–22; efficiency and, 110, 126, 256; elections and, 115, 119–21, 268, 306n52; equality and, 264; free-rider problem and, 107–8; globalization and, 266–69; governance and, 117, 122, 266–69; growth and, 123; happiness and, 108–10, 306n52; immigrants and, 261, 266–69, 273; inequality and, 264; legal issues and, 267, 275; liberalism and, 268; Likert surveys and, 111–16, 120, 306n53; markets and, 122–23, 256, 272, 286, 304n36; methodology of, 105–10; monetizing, 263–64; monopolies and, 272; nature of currency and, 122–23; optimality and, 108–9, 120, 286; ownership and, 105; Pareto efficiency and, 110; political effects of, 261–64; polls and, 111–16, 118, 303n17; prices and, 263, 275; property and, 273; proportional, 106–7; public goods and, 110, 120, 123–26, 256, 264, 272; Radical Markets and, 82–126, 194, 272; rating and, 117–18; reform and, 95, 105–6; scope of trade and, 122–23; social aggregation and, 117–18; society and, 272–73; software flaw and, 305n44; square root function and, 82; taxes and, 263, 275; technology and, 264; testing of, 111, 114–18; voice credits and, 80–82, 105, 113, 117, 119, 121–23, 251, 263–64, 267, 269; wealth and, 256–57, 261–64, 267–68, 272–73, 275, 286 Quarfoot, David, 114 reCAPTCHA, 235–36 Reddit, 117 Red Queen phenomenon, 176–77, 184 Red Terror, 93 reform: academics and, 2–3; antitrust policies and, 23, 48, 174–77, 180, 184–86, 191, 197–203, 242, 255, 262, 286; auctions and, xv–xvii, 49–51, 70–71, 97, 99, 147–49, 156–57; common ownership self-assessed tax (COST) and, 298n7; George and, 23; globalization and, 255; immigrants and, 129, 153; labor and, 129, 153, 240, 247, 255; liberalism and, 2–4, 23–25, 255; property and, 35, 37, 39, 46; Quadratic Voting (QV) and, 105 (see also Quadratic Voting [QV]); Radical Markets and, 95, 105–6, 181, 191; regulations and, 239–45 (see also regulations); taxes and, 274–75; United Kingdom and, 95–96 Reform Act of 1832, 95 refugees, 130, 140, 145 regulations: banking, 98–99; capitalism and, 262; Coase on, 299n27; competition and, 262; democracy and, 98–100, 123; deregulation and, 3, 9, 24; discrimination and, 272; elitism and, 3; environmental, 265, 291; labor and, 138, 155–56, 165, 239–45, 266; liberalism and, 3, 9, 18, 24; property and, 46–48, 299n27; Radical Markets and, 176, 180, 189, 191, 194, 197, 203 religion, 15, 17, 19, 55, 78, 81, 85–90, 94, 129, 145, 272 resale price maintenance, 200–201 revolutions, 36, 41, 46, 86, 88, 90–92, 95, 224, 255, 273, 277 Ricardo, David, 133 Rio de Janeiro, xiii–xiv, 105 robber barons, 175, 199–200 Robinson Crusoe (DeFoe), 132 robots, 222, 248, 251, 254, 287 Rockefeller, John D., 174–75 Roemer, John, 240 Roman Catholic Church, 85, 94 Roman Republic, 84 Roosevelt, Franklin D., 176 Roosevelt, Theodore, 175 Rousseau, Jean-Jacques, 86 Russia, 12, 13, 46 same-sex marriage, 89 sample complexity, 218 Samuelson, Paul, 97–98, 106–7, 142–43 Sanders, Bernie, 12 Satterthwaite, Mark, 50–51, 66, 69 Saudia Arabia, 158–59 savings: growth and, 6; labor and, 150–51; mercantilism and, 132; Radical Markets and, 169, 172, 181; retirement, 171–72, 260, 274; squandering, 123 Schmalz, Martin, 189 Schumpter, Joseph, 47 Segal, Ilya, 52 self-assessment, 31, 55–56, 61–62, 70, 72, 258, 260, 270, 302n63 self-driving cars, 230 serfs, 35, 48, 231–32, 236, 255 Shafir, Eldar, 114 Shalizi, Cosma, 281 shallow nets, 216–19 shareholders, 118, 170, 178–84, 189, 193–95 Sherman Antitrust Act, 174, 262 Show Boat (film), 209 Silicon Valley, 211 Silk Road, 131 Singapore, 160 siren servers, 220–24, 230–41, 243 Siri, 219, 248 Skype, 155, 202 slavery, xiv, 1, 19, 23, 37, 96, 136, 255, 260 slums, xiii, xviii, 17 Smith, Adam, xix–xx, 4; capitalism and, 34–35; competition and, 17; diamond-water paradox and, 224–25; efficiency and, 37; immigrants and, 132–33; inequality and, 22; markets and, 16–17, 21–22; monopolies and, 173; Wealth of Nations and, 22 social aggregation, 117–18 Social Democratic Party, 45 social dividend, 41, 43, 49, 73–75, 147, 256–59, 263, 269, 298n13, 302n63 socialism: central planning and, 39–42, 47, 277, 281; George and, 37, 45, 137, 250, 253; German right and, 94; industry and, 45; irrationality of capitalism and, 39 (see also capitalism); labor and, 137, 299n24; laissez-faire and, 250, 253; markets and, 277–78, 281; Marx and, 137, 277; property and, 37–42, 45–49; radical democracy and, 94; Radical Markets and, 293; Sanders and, 12; Schumpeter on, 47; von Mises and, 278; workers’ cooperatives and, 299n24 social media, 251–52; data and, 202, 212, 231, 233–36; democracy and, 117, 126; Facebook, xxi, 28, 50, 117, 202, 205–9, 212–13, 220–21, 231–48, 289; Instagram, 117, 202, 207; Reddit, 117; Twitter, 117, 221; WhatsApp, 202; Yelp, 63, 117 Social Security, 274 Southwest, 191 sovereignty, 1, 16, 86, 131–32 Soviet Union, 1, 19, 46–47, 277–78, 281–82, 288 spam, 210, 245 special interest groups, 25, 98, 256 Spense, A.


pages: 251 words: 69,245

The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality by Branko Milanovic

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Pareto efficiency, plutocrats, Plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game

This disposition was reinforced rather than mitigated by his classic education that made the ancient world as familiar to him as were his own Italy and France—the rest of the world just [barely] existed for him.8 Pareto wrote two influential (text)books of economics and is today, in the economics profession, remembered essentially for two contributions: Pareto improvement (or Pareto optimum) and Pareto’s “law” of income distribution. The first term is used by economists almost daily; it has become part of the indispensable economic tool kit. It simply indicates that a certain change will be socially acceptable only if the welfare of each person is thereby either improved or left as it was. Basically, somebody has to gain and nobody must lose. Finding economic policies (changes) of this kind is all but impossible because almost invariably somebody loses. Thus, the Pareto improvement requirement is a tough one; it is in reality a plea for the status quo (see Essay I). Pareto’s “law” of income distribution was generated from empirical observations.

Obama, Hussein Onyango Oblonsky, Stepan Oceania Octavian, Augustus (Emperor) OECD. See Organization for Economic Cooperation and Development One Thousand and One Nights Oregon Organization for Economic Cooperation and Development (OECD) Orwell, George Overcoat (Gogol) Pakistan Pallas, Marcus Antonius Panama Pan-European revolution (1848) Papua New Guinea Pareto, Vilfredo background of income distribution and “law” of income distribution of Pareto improvement (Pareto optimum) and Paris, France income distribution in wealth distribution in Parisian arrondissements Persian Gulf Peru Pharmaceutical companies Philippines Piketty, Thomas Pinçon, Michel Pinçon-Charlot, Monique Place of birth. See Citizenship Plato Poland Political parties Poor education and global inequality and government spending and investment and redistribution and social arrangements and taxation and Poor countries globalization and migration from technology and trade and Portugal Poverty alleviation of PPP.


Economic Origins of Dictatorship and Democracy by Daron Acemoğlu, James A. Robinson

Andrei Shleifer, British Empire, business cycle, colonial rule, conceptual framework, constrained optimization, Corn Laws, declining real wages, Edward Glaeser, European colonialism, Gunnar Myrdal, income inequality, income per capita, invisible hand, Jean Tirole, John Markoff, Kenneth Rogoff, land reform, minimum wage unemployment, Nash equilibrium, Nelson Mandela, oil shock, open economy, Pareto efficiency, rent-seeking, strikebreaker, total factor productivity, transaction costs, Washington Consensus, William of Occam, women in the workforce

Finally, it is useful to conclude this subsection with a brief discussion of efficiency. In this model, taxes are purely redistributive and create distortionary costs as captured by the function C (τ p ). Whether democracy is efficient depends on the criterion that one applies. If we adopted the Pareto criterion (Green, Mas-Colell, and Whinston 1995, p. 313), the political equilibrium allocation would be Pareto optimal because it is impossible to change the tax policy to make any individual better off without making the median voter worse off – because the democratic tax rate maximizes the utility of the median voter, any other tax rate must lower his utility. However, in many cases, the Pareto criterion might be thought of as unsatisfactory because it implies that many possible situations cannot be distinguished from an efficiency point of view.

Another stream in the political economy literature – including both nonformal work by Kiser and Barzel (1991) and Barzel (2001) and theoretical models by Green (1993), Weingast (1997), Gradstein (2002), Bueno de Mesquita, Morrow, Siverson, and Smith (2003) and Lizzeri and Persico (2004) – builds on the idea that democracy is voluntarily granted by political elites because it solves some sort of market failure or contractual incompleteness. For instance, Green (1993) argues that the creation of legislative institutions was a way for rulers to credibly signal information. The other research, though differing in details, is based on the idea that rulers face a severe commitment problem because they cannot use third parties to enforce their contracts. Creating democracy, therefore, can be Pareto-improving because, by giving away power, a ruler can gain credibility. An alternative formal approach to democratization was proposed by Ades (1995), Ades and Verdier (1996), and Bourguignon and Verdier (2000). These papers assume that only wealthy citizens can vote and they study how, for a fixedwealth threshold, changes in income distribution and economic development influence the extent of the franchise and, hence, the equilibrium policy.


pages: 371 words: 36,271

Libertarian Idea by Jan Narveson

centre right, invisible hand, means of production, Menlo Park, night-watchman state, Pareto efficiency, Peter Singer: altruism, prisoner's dilemma, psychological pricing, rent-seeking, zero-sum game

In such a situation each agent simply aims to maximize her utility from her own production and exchange activities, and the result will be terrific for everybody: the Invisible Hand lives! Several very nicesounding things are provable3 about a market so characterized, notably, that the society thus blessed maximizes its utility—a result not to be confused, however, with what utilitarians mean by that expression. Given this ideal market, all changes are Pareto-optimal. What is meant by “the market society maximizes its utility” is that at any particular time no one can do better than has been done without someone else‟s doing worse. I agree with Gauthier that the theoretical demonstration of optimality under these conditions is of real importance. But its practical importance is obviously a function of the degree to which these conditions are realized or realizable in the real world, and it is here that morality must enter the picture.

John Harsanyi points out that when demand exceeds supply, prices rise, giving people an incentive to increase supply and thus to decrease the demand. “As a result equilibrium . . . will be reestablished at a new higher level of supply, at or close to what its Paretooptimal level would be under the new conditions. . . . Yet, if factor rents were taxed away, these forces in the economy would be very seriously impaired, and the economy would move away further and further from Pareto optimality.”30 This important observation is related to the complaint I have just been making. The entire fabric of supply and demand is predicated on the freedom of individuals to make and accept or reject such offers as they may. If we are going to claim that they are not entitled to those whenever, and simply because, they might be willing to settle for the amount they would be left with after confiscating some portion, we do not have a nation of free participants in the economy, whatever else we have.

The existence of the latter option, at least in principle, is important. James Buchanan, discussing the problems raised by the use of unanimity rules in large public-goods contexts, points out that “if those persons who do not choose to join in collective arrangements under which all cost-sharing decisions are to be made unanimously . . . can be excluded from any enjoyment of the subsequent benefits of public-goods provision, Pareto optimality or efficiency will tend to be attained voluntarily even in the pure public-goods cases.”5 This would not be terribly difficult to do for a scheme like OHIP, and in fact an opt-out scheme would be quite practical. If we 260 suppose that almost nobody would opt out, then it is reasonable to argue that the whole scheme fits the requirements of liberty. Consider now the difference between the 4 percent administrative overhead in Ontario and the 15 percent overhead in, say, California.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

.: a proactive decision; (iv) basing the decision on personal experience or hard-wired knowledge (Russell and Norvig, 2009). Different agents will embody different nomenclatures of these trade-offs. The First Welfare Theorem: Every Walrasian equilibrium allocation is Pareto efficient. The Second Welfare Theorem: Every Pareto efficient allocation can be supported as a Walrasian equilibrium. 26 The First and Second Welfare Theorems are the fundamental theorems of Welfare Economics. The first theorem states that any competitive equilibrium, or Walrasian equilibrium, leads to a Pareto efficient allocation of resources. The second theorem states the converse, that any efficient allocation can be sustainable by a competitive equilibrium. 193 Chapter 4 ■ Complexity Economics: A New Way to Witness Capitalism In the neoclassical economy agents are said to have perfect information and can cheaply decide what is the best (i.e.: rational) decision.


pages: 88 words: 25,047

The Mathematics of Love: Patterns, Proofs, and the Search for the Ultimate Equation by Hannah Fry

Brownian motion, John Nash: game theory, linear programming, Nash equilibrium, Pareto efficiency, recommendation engine, Skype, statistical model

Instead, they just want to end up with the highest scores, or ‘pay-offs’, from their relationship. These pay-offs are determined for each partner by the different strategies they choose to follow, and can be displayed in a table like that below – what’s known in mathematics as a ‘Pay-off Matrix’. The best outcome for everyone is when Don and Betty manage to maintain a faithful relationship. In that scenario (which is ‘Pareto optimal’), both parties will get something positive from the relationship. For the purpose of illustration, let’s imagine they both gain 10 pay-off points in this scenario. Remember, Don and Betty both want to end up with the most points possible from their relationship. In this game, though, as in reality, there will always be some temptation to cheat on your partner. If Don decides to cheat, he might be able to maintain his relationship with Betty while keeping his bit on the side and increase his own pay-off points to 20.


pages: 303 words: 75,192

10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

Wagner noted decades ago in the Polish Review, “Certainly, there was no other institution of old Poland which has been more sharply criticized in more recent times than this one.”¹² Some political thinkers, however, have had a soft spot for unanimity rule; even Wagner himself did. Unanimity is a way to guarantee that no government decision knowingly hurts any voter. If our primary concern in creating a government is to ensure that nobody is made worse off by a government decision—to ensure the decision is “Pareto efficient,” as an economist would say—then one way to be sure nobody is hurt by a policy is to ask everybody if they agree to it. This was Swedish economist Knut Wicksell’s thought, and he made just this point in his Finanztheoretische Untersuchungen (Inquiries into Finance Theory).¹³ If government makes exploitation possible in principle, then let’s get everyone’s consent in practice to make sure that no one is being exploited.

Smith Goes to Washington: James Stewart in, 159–60 Mundell, Robert, 61; on the eurozone, 164; on shared currency, 163–64 Mussolini, Benito, 107 Neely, Richard, 66 Netherlands: belief in conspiracy theories in, 98–100, 102 New England town meeting, 14 New York City: Tammany Hall, 105, 137–38, 141, 143; taxi medallions in, 113 New Zealand: central bank in, 46, 47, 60; inflation in, 46, 47, 60 Nolan, Christopher: truth in The Dark Night, 145 North, Douglass: on Glorious Revolution, 129 Norton, Ben, 2 oligarchy: Aristotle on democracy and, 183; in democracies, 183, 186; in EU, 148, 149, 153, 154–55; in U.S. Constitution, 180–81 Olken, Benjamin: on democracies vs. autocracies regarding economic performance, 25–26; “Do Leaders Matter?”, 25–26 Olson, Mancur: on selective benefits, 141 Orange County, California: bankruptcy of, 77, 79–80 Pareto efficiency, 160 Paris Club conditions on loans, 125–26 Parkin, Michael: on central bank independence (CBI), 44–45 peace: and democracy, 15–17, 186; and liberal institutions, 16–17; relationship to trade, 16–17 Plosser, Charles: on real business cycle (RBC) theory, 55 Plunkitt, George Washington: Plunkitt of Tammany Hall, 105, 137–38, 141, 175; on reelection, 137–38 Poland: EU membership, 158; unanimity rule in, 160, 162 political culture and central banks, 47, 58–59 political donors, 31 political machines, 137, 142–43, 175–76, 179 Polity IV index: Autocracy index, 18–19; Democracy index, 18–19, 171 Polybius: on mixed form of government, 181, 183–84 Pop-Eleches, Cristian: on judicial independence and economic freedom, 73–76 pork projects, 29–30 Posso, Alberto: on inflation and central banks, 47–48 Prescott, Ed: on real business cycle (RBC) theory, 55 prices, 87–88, 89; price controls, 84, 100 Pritchett, Lant: on “Getting to Denmark”, 169 productivity, 35 property rights, 73, 74, 75, 76 proportional representation, 151 public choice theory, 28–29 Putnam, Robert: research on trust in one’s neighbors, 159 Quarterly Journal of Economics, 50 Quek, Kai: on peace and democracy, 15–16 racially integrated schools, 65 Rauch, Jonathan: on crisis of followership, 144; on democracy, 143; influence of, 142; on party insiders, 142–43, 179; on political machines, 137, 142–43, 179; Political Realism, 142–43 Read, Carveth, 187 real business cycle (RBC) theory, 54, 55–56 real per capita GDP, 30 reciprocal altruism, 139 reform proposals: bondholders with explicit, advisory role in governance, 11, 119, 126–27, 133, 134–36; continued restrictions on voting by felons, 108–9; costs of, 20, 23, 25, 93; education requirements for voters, 96–98, 105–6, 107–8, 114–17, 188; impact on socioeconomic development, 17; longer terms for politicians, 39–40, 178, 188; and microfoundations, 25; national tax board, 61, 92–94, 143; as nonutopian, 8, 20–21, 60–61; relationship to personal morality, 187–88; risks of, 25, 94, 179; six-year term for U.S. president, 188; staggered elections, 146–47, 179; and transitional gains trap, 112–14; upper house as Sapientum, 110–12, 127 regression discontinuity design (RDD), 78–79 religious liberty, 65 rent control, 100 Republican Party, 140–41 reputation with lenders, 128–32 Rickard, Stephanie, 34–35 right to competent government, 103, 104, 109 right to health care, 103–4 Riordan, William, 137 Rocher, François, 107 Rogers, Will: on Democratic Party, 159 Rogoff, Kenneth: conservative central banker theory, 53–55, 56, 60, 86 Roosevelt, Franklin, 125 Root, Hilton: on corporations in Old Regime, 129–30; “Tying the King’s Hands”, 129–30 Rossi, Martin: on term lengths of politicians in Argentina, 37–38 Rousseau, Jean-Jacques, 102 rule of law, 14, 16 Samuelson, Paul: on inflation and unemployment, 43 Sargent, Thomas: on monetary policies, 44, 46 Schelker, Mark: on short terms, 31 Schulhof, Natalie: article in Fourth Estate, 1–3 Sen, Amartya: on democracies and famines, 9–11, 12, 171; Development as Freedom, 9; on minimal requirements for democracy, 11, 171 Shanmugaratnam, Tharman, 175 Shepsle, Kenneth: on voters’ short memories, 29–30 Shleifer, Andrei: on judicial independence and economic freedom, 73–76 Sims, Christopher: “Paper Money” lecture, 122 Singapore: buffet syndrome in, 20; democracy in, 170–72, 173, 174, 175–76; vs.


Social Capital and Civil Society by Francis Fukuyama

Berlin Wall, blue-collar work, Fall of the Berlin Wall, feminist movement, Francis Fukuyama: the end of history, George Akerlof, German hyperinflation, Jane Jacobs, Joseph Schumpeter, Kevin Kelly, labor-force participation, low skilled workers, p-value, Pareto efficiency, postindustrial economy, principal–agent problem, RAND corporation, Silicon Valley, The Death and Life of Great American Cities, transaction costs, World Values Survey

The very origins of life are seen to be the result of this kind of process, where the random combinations of various proteins in a primordial soup suddenly produced higher-order, self-replicating molecules. Studies in complex adaptive systems have led to formal models and attempts to apply the theory beyond its origins in biology to social and economic systems. A market, for example, can be described as a complex adaptive system in which individual agents collectively achieve Pareto-optimal resource allocation through the pursuit of their own narrow maximizing strategies. Social good is not deliberately sought by anyone and yet arises spontaneously out of activities on the part of individual agents at a lower level of organization. 3 . Exogenous construction. By exogenous construction, I mean that the norms originate somewhere else than in the community in which they come to be applied, or else through the interaction of that community with its external environment.


pages: 306 words: 85,836

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants by Steven D. Levitt, Stephen J. Dubner

Affordable Care Act / Obamacare, Airbus A320, airport security, augmented reality, barriers to entry, Bernie Madoff, Black Swan, Broken windows theory, Captain Sullenberger Hudson, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, feminist movement, food miles, George Akerlof, global pandemic, information asymmetry, invisible hand, loss aversion, mental accounting, Netflix Prize, obamacare, oil shale / tar sands, Pareto efficiency, peak oil, pre–internet, price anchoring, price discrimination, principal–agent problem, profit maximization, Richard Thaler, Sam Peltzman, security theater, Ted Kaczynski, the built environment, The Chicago School, the High Line, Thorstein Veblen, transaction costs, US Airways Flight 1549

One hundred votes would cost you $10,000. So eventually, no matter how much you like a candidate, you choose to vote a finite number of times. What is so special about this voting scheme? People end up voting in proportion to how much they care about the election outcome. The system captures not just which candidate you prefer, but how strong your preferences are. Given Glen’s assumptions, this turns out to be Pareto efficient—i.e., no person in society can be made better off without making someone else worse off. The first criticism you’ll likely make against this sort of scheme is that it favors the rich. At one level that is true relative to our current system. It might not be a popular argument, but one thing an economist might say is that the rich consume more of everything—why shouldn’t they consume more political influence?

.), 26–29 National Highway Traffic Safety Administration (NHTSA), 249–50 National Violent Death Reporting System, 250 natural field experiment, 322 Neckermann, Susanne, 338 negative externality, 87 Newark-Liberty airport, 21–22 New York state senate, 233–36 New York Times, The, 3, 8, 11, 41, 96, 109–16, 167, 276 Nielsen ratings, TV viewing, 322–24 “No Gas Day,” 311–14 Noll, Chuck, 218 Noll, Thomas, 228–29 Nostradamus, 109 Obama, Barack, 33, 214, 278–80 obesity, 116–19 oil, “peak,” 109–16 Oliver, Eric, 118 online dating, 268–69 OPEC, 111–12 Oportunidades, 138–39 opportunity cost, 349–50 orange juice, 174–75 Osgood, Daniel, 165 packaging, 175–78 Pacquiao, Manny, 72–3 Pakistan earthquake, 325–27 panhandlers, 328–37 Pape, Robert, 10 paper vs. plastic bags, 167 Pardo, Bruce, 130–32 Pareto efficiency, 30 Pariah (TV show), 253–55 Parker, Susan W., 138–40 Pataki, George, 119 Paulos, John Allen, 286 Paulson, Henry, 236 Peltzman, Sam, 166 penny, 61–65 penny floor, 65 Pepsico, 59–60 perfect substitutes, 60 petroleum extraction, 109–16 Pettitte, Andy, 149–50 Pham, David “the Dragon,” 193 pilots, 83–86 pirates, 314–19 Pittsburgh Steelers, 212–19 Plack, Les, 47 Planned Parenthood, 65–67 Pledge-a-Picket, 66 poker: cheating, 154–58 how not to cheat, 153–55 Internet, 127–30, 157 one card away from final table, 192–95 record that can never be broken, 192 shootout tournament, 193 World Series of Poker, 187–88, 192–95 Polamalu, Troy, 216 Poland Spring bottled water, 3–4 Pollan, Michael, 169 postage, exemption from, 141–43 practice, ten thousand hours, 199, 201–2 praise, 351 Pre-Implantation Genetic Diagnosis (PGD), 280–82 prices: anchoring, 309 of autographed baseballs, 80–81 bounty on bin Laden, 57–59 of cars, 54–57 of chicken wings, 75–77 and corporate sponsorships, 81 discrimination in, 173 of food, 116 of gas, 86–90 for hate mail, 49–51 housing, 67–69 of kiwifruits, 77–80 peak oil, 109–16 of a penny, 61–65 of prescription drugs, 52–54 rising, 110, 111 of shrimp, 344 of songs, 69–71 and substitutes, 113 supply and demand, 78–80, 110, 112, 115, 128, 341–44 of voices in animated films, 306 priming, 228–29 principal-agent problem, 209 Prius Effect, 185 procrastination, 121 profits, going green for, 172–74 pro-life movement, 65 prostitution: Berlin brothel, 173 escort service, 261–67 legalization of, 255–56, 265–67 race: in the marketplace, 315–22 TV viewing habits, 322–24 rain forest, saving, 174–75 randomization, 322 rational addictions, 92–94 Reeve, Christopher, 102 Reilly, Barry, 225–26 Rickman, Neil, 225–26 RICO (federal racketeering statutes), 232 Rios, Brandon, 72 risk-aversion, 125–27 risk-taking, 121 Rochambeau (Rock, Paper, Scissors), 188–89 Rodriguez, Alex, 149 Roethlisberger, Ben, 103 Roe v.


pages: 344 words: 104,077

Superminds: The Surprising Power of People and Computers Thinking Together by Thomas W. Malone

agricultural Revolution, Airbnb, Albert Einstein, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, Asperger Syndrome, Baxter: Rethink Robotics, bitcoin, blockchain, business process, call centre, clean water, creative destruction, crowdsourcing, Donald Trump, Douglas Engelbart, Douglas Engelbart, drone strike, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, experimental economics, Exxon Valdez, future of work, Galaxy Zoo, gig economy, happiness index / gross national happiness, industrial robot, Internet of things, invention of the telegraph, inventory management, invisible hand, Jeff Rulifson, jimmy wales, job automation, John Markoff, Joi Ito, Joseph Schumpeter, Kenneth Arrow, knowledge worker, longitudinal study, Lyft, Marshall McLuhan, Occupy movement, Pareto efficiency, pattern recognition, prediction markets, price mechanism, Ray Kurzweil, Rodney Brooks, Ronald Coase, Second Machine Age, self-driving car, Silicon Valley, slashdot, social intelligence, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, technological singularity, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Tim Cook: Apple, transaction costs, Travis Kalanick, Uber for X, uber lyft, Vernor Vinge, Vilfredo Pareto, Watson beat the top human players on Jeopardy!

Also imagine that Mary hasn’t eaten anything for a week and that John has just had a meal but is still hungry. If you hold the viewpoint that individual preferences can’t be compared, you couldn’t say which way of distributing the food was better, because both John and Mary want the meat. Economists say that a distribution in which no one can be made better off without making someone else worse off is Pareto optimal, after the late 19th and early 20th century Italian economist Vilfredo Pareto. So if John and Mary are both hungry, giving the meat to either one of them is Pareto optimal. But in the real world, we often assume that preferences are, at least to some extent, comparable across individuals. For instance, we would almost certainly agree that it would be better for Mary to get the deer meat instead of John. In modern times, we believe that—at least up to a point—taking $100 from Bill Gates and using it to pay Medicare expenses for someone who has no money at all is better for society as a whole, even if that means Bill ends up with a little less money.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

More tellingly, he admits that the mere fact that prices for the “same” goods might be set in structurally different market formats would by itself account for destabilizing price dynamics; but passes over in silence the fact that this would delegitimize the entire neoclassical approach to pricing and risk, including his own work.78 And worse, the “market failure” that he repeatedly diagnoses has nothing to do with what people mean by “failure” in the vernacular. Stiglitz (and Krugman and Solow and other guest stars in the New York Review of Books) identify “market failure” with not realizing the full measure of utility that might have occurred in the standard neoclassical model—this is called Pareto optimality in the trade—and exists in an imaginary universe utterly devoid of markets freezing up and the implosion of the assignment of credible prices across the board. Likewise, the Stiglitz-Greenwald paper has nothing whatsoever to do with the collapse of the financial sector in 2008. Using their own words, “we showed that there were essentially always simple government interventions that could make some individuals better off without making anyone worse off.

The intuition behind our result was that whenever information was imperfect, actions generated externality-like effects.”79 Stiglitz persistently conflates “welfare loss” with system-wide economic failure and market breakdown: this travesty stands in stark contrast to the model-free occasions wherein Stiglitz perceptively analyzes the inconsistencies of concrete practices in real world institutions, linking them to palpable dire outcomes. Pareto optimality was the last thing one needed to consult in trying to understand the utter confusion and disarray accompanying the mad improvisations at the Fed and the congressional TARP appropriation in the depths of the crisis; it certainly would be impotent to clarify the types of “government intervention” required to stem the collapse. Incredibly, the Greenwald-Stiglitz model doesn’t even explicitly have any money in it, even though one core phenomenon of the 2008 meltdown was a financial credit crisis.

., chapter 5; Moreton, To Serve God and Wal-Mart, p. 94. 41 Some of the better ethnographies exploring these issues are Turkle, Life on the Screen and Alone Together; Gershon, “Un-friend My Heart.” 42 Gershon, “Un-friend My Heart.” 43 Turkle, Alone Together, p. 273. 44 Frank, One Market Under God, p. 244. 45 Bowmaker, Economics Uncut; Lipman, “Why Is Language Vague?” 46 This argument is made with great perspicuity by John Davis in his The Theory of the Individual in Economics and Individuals and Identity in Economics. 47 It seems to have escaped most economists that these resorts to tautology in economic theory have leached the Prime Imperative of Pareto Optimality of any meaning whatsoever. In any event, the supposedly fixed repertoire of roles and types to be emulated by the agent has also been eroded by the neoliberal ascendancy. This is yet another example of the Zombie Neoclassical Economist lurching aimlessly across the landscape. 48 Davis, Individuals and Identity in Economics; Mirowski, Machine Dreams, pp. 443–52. 49 There are a fair number of books written by MPS members denying any salience to class.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cleantech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, margin call, Mark Zuckerberg, market bubble, means of production, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, profit maximization, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, zero-sum game

In the 1940s the Russian-born British economist Abba Lerner (1903-82) formulated what he called the ‘first fundamental welfare theorem',13 which basically states that competitive markets lead to ‘optimal' outcomes for all. Once market exchange at equilibrium prices has taken place, no one can be made better off, or, in economic parlance, have their ‘welfare' increased (for example, by accepting more work) without making someone else worse off. Today, competitive markets where no one can be made better off without someone being made worse off are known as ‘Pareto-optimal' -named after Walras's successor in Lausanne, Vilfredo Pareto (1848-1923), who was the first to introduce the term ‘welfare maximization'. In his Manual of Political Economy (1906), Pareto studied economic equilibrium in terms of solutions to individual problems of ‘objectives and constraints', and was the first economist to argue that utility maximization did not need to be cardinal (i.e., the exact amount that someone wanted something) just the ordinal amount (how much they wanted it more than something else -X versus Y).

Violations of any of these three assumptions leads to the inefficient allocation of resources by markets, or what marginalists term ‘market failures'. Market failures might arise when there are ‘positive externalities', benefits to society such as basic science research from which it is hard for individual firms to profit; or ‘negative externalities', bad things like pollution, which harm society but are not included in firms' costs. If markets are not ‘Pareto-optimal', then everyone could be better off as a result of public policies that correct the market failure in question.14 However, as we will see in Chapter 8, a body of economics referred to as Public Choice theory, advocated by Nobel Prize winner James Buchanan (1919-2013), later argued that as government failures are even worse than market failures (due to corruption and capture), so the correction of market failures by bureaucrats might make things even worse.


pages: 401 words: 109,892

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, bitcoin, blockchain, business cycle, business process, buy and hold, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, gig economy, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, Vilfredo Pareto, zero-sum game

The simplest example is that of a fixed cost: when output increases, the fixed cost is spread among more units and the average unit cost falls. See also network externalities. economies of scope: Economies of scale applied to the diversity of goods and services. A simple example is a retail location offering more than one product, such as a gas station that also sells coffee. efficiency (Pareto): A situation is Pareto-efficient (named for the Italian economist Vilfredo Pareto) when no single person or business can be made better off without decreasing the welfare of another. When an equilibrium is not Pareto-efficient, economists typically get agitated and try to fix it. elasticity: The change in one variable in response to a unit increase in another variable. For instance, the elasticity of tax revenues is the percent increase in tax collections for a one percent increase in GDP. elasticity of demand: The percent decline in the quantity of a good demanded in response to a one percent increase in the price of the good.


Governing the Commons: The Evolution of Institutions for Collective Action by Elinor Ostrom

agricultural Revolution, clean water, Gödel, Escher, Bach, land tenure, Pareto efficiency, principal–agent problem, prisoner's dilemma, profit maximization, RAND corporation, The Nature of the Firm, transaction costs

., 218n4 opportunism, 36 243n7 209, 242n5 optimality, 223-4n1 Orange County, California, 110, 230n4, 236n40 see also California groundwater basins Orange County Water District, 230n4 Orihuela, Spain huerta of, 76-8, 80-2, 92, 180,205 see also Spanish huertas Orr, D. S., 218n3 Ostrom, E., 47, 50-1, 54-5, 104, 112, 139-40, 220n20,n1, 221n4,222-3n25,231-2n15, 235n30, 236n41, 237n50,n52, 244n20 Ostrom, v., 31, 55, 221n4, 222n15, 244n21 outcome Pareto-inferior, 5 Pareto-optimal,S patterns of, 23 Palos Verdes Peninsula, California, 114 Palos Verdes Water Company, 116-17 Panayoutou, T., 23 Parker, D. E., 228n27 Pasadena, California, 111-14, 116, 124, 230n6,232n18 see also California groundwater basins Peregrin, D., 225nl0 Perera, J., 167, 170-1 Philip II of Spain, 81, 227n21 Philippine Water Code, 85 Philippine zanjeras, 59-61, 82-9, 102, 194-5, 228n27,n29,n31, 228-9n32,241n26 Phyne, J., 205, 218n6, 241n27 Picardi, A.


pages: 167 words: 50,652

Alternatives to Capitalism by Robin Hahnel, Erik Olin Wright

affirmative action, basic income, crowdsourcing, inventory management, iterative process, Kickstarter, loose coupling, means of production, Pareto efficiency, profit maximization, race to the bottom, transaction costs

The Dispassionate Case Against Markets Efficiency: It is well known among professional economists that markets allocate resources inefficiently when they are out of equilibrium, when they are non-competitive, and when there are external effects. When the fundamental theorem of welfare economics is read critically, it says as much: Only if there are no external effects, only if all markets are competitive, and only when all markets are in equilibrium is it true that a market economy will yield a Pareto optimal outcome. But despite these clear warnings, market enthusiasts insist that if left alone markets generally allocate resources very efficiently. This can only be true if: (1) disequilibrating forces are weak, (2) noncompetitive market structures are uncommon, and (3) externalities are the exception, rather than the rule. There are good theoretical and empirical reasons to believe exactly the opposite in all three cases.


pages: 137 words: 36,231

Information: A Very Short Introduction by Luciano Floridi

agricultural Revolution, Albert Einstein, bioinformatics, carbon footprint, Claude Shannon: information theory, conceptual framework, double helix, Douglas Engelbart, Douglas Engelbart, George Akerlof, Gordon Gekko, industrial robot, information asymmetry, intangible asset, Internet of things, invention of writing, John Nash: game theory, John von Neumann, Laplace demon, moral hazard, Nash equilibrium, Nelson Mandela, Norbert Wiener, Pareto efficiency, phenotype, Pierre-Simon Laplace, prisoner's dilemma, RAND corporation, RFID, Thomas Bayes, Turing machine, Vilfredo Pareto

This may seem strange but, no matter what the other prisoner decides to do, each of them always gains a greater payoff by defecting. Since cooperating is strictly dominated by defecting, that is, since in any situation defecting is more beneficial than cooperating, defecting is the rational decision to take (Table 7). This sort of equilibrium qualifies as a Pareto-suboptimal solution (named after the economist Vilfredo Pareto, 1848-1923) because there could be a feasible change (known as Pareto improvement) to a situation in which no player would be worse off and at least one player would be better off. Unlike the other three outcomes, the case in which both prisoners defect can also be described as a Nash equilibrium: it is the only outcome in which each player is doing the best he can, given the available information about the other player's actions. Nash equilibria are crucial features in game theory, as they represent situations in which no player's position can be improved by selecting any other available strategy while all the other players are also playing their best option and not changing their strategies.


pages: 637 words: 199,158

The Tragedy of Great Power Politics by John J. Mearsheimer

active measures, Berlin Wall, Bretton Woods, British Empire, colonial rule, continuation of politics by other means, deindustrialization, discrete time, Dissolution of the Soviet Union, Francis Fukuyama: the end of history, illegal immigration, long peace, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, oil shock, Pareto efficiency, RAND corporation, Ronald Reagan, Simon Kuznets, South China Sea, The Wealth of Nations by Adam Smith, Thomas L Friedman, Yom Kippur War

Although Dickinson did not use the term “security dilemma,” its logic is clearly articulated in European Anarchy, pp. 20, 88. 18. Herz, “Idealist Internationalism,” p. 157. 19. See Joseph M. Grieco, “Anarchy and the Limits of Cooperation: A Realist Critique of the Newest Liberal Institutionalism,” International Organization 42, No. 3 (Summer 1988), pp. 485–507; Stephen D. Krasner, “Global Communications and National Power: Life on the Pareto Frontier,” World Politics 43, No. 3 (April 1991), pp. 336–66; and Robert Powell, “Absolute and Relative Gains in International Relations Theory,” American Political Science Review 85, No. 4 (December 1991), pp. 1303–20. 20. See Michael Mastanduno, “Do Relative Gains Matter? America’s Response to Japanese Industrial Policy,” International Security 16, No. 1 (Summer 1991), pp. 73–113. 21. Waltz maintains that in Hans Morgenthau’s theory, states seek power as an end in itself; thus, they are concerned with absolute power, not relative power.

Walt, “Two Cheers for Clinton’s Foreign Policy,” Foreign Affairs 79, No. 2 (March–April 2000), pp. 63–79. 2. See the sources cited in Chapter 1, note 25. 3. See Joseph Grieco, “Anarchy and the Limits of Cooperation: A Realist Critique of the Newest Liberal Institutionalism,” International Organization 42, No. 3 (Summer 1988), pp. 485–507; Stephen D. Krasner, “Global Communications and National Power: Life on the Pareto Frontier,” World Politics 43, No. 3 (April 1991), pp. 336–66; John J. Mearsheimer, “The False Promise of International Institutions,” International Security 19, No. 3 (Winter 1994–95), pp. 5–49; John J. Mearsheimer, “A Realist Reply,” International Security 20, No. 1 (Summer 1995), pp. 82–93; and Baldev Raj Nayer, “Regimes, Power, and International Aviation,” International Organization 49, No. 1 (Winter 1995), pp. 139–70.


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

The implication is that markets can be expected to function well only in an economy that is largely under private ownership. Of course, ‘largely’ does not mean ‘exclusively’ or even ‘predominantly’. There can be more or less state ownership of the means of production in an economy that is largely privately owned. Note that a quite separate argument for private property is its connection with individual freedom. 6. This outcome is called ‘Pareto efficiency’ in the jargon of economics. Pareto efficiency is ensured by the ‘invisible hand’ of competition, if there are no ‘market failures’. 7. See Hayek (1940, 1945). Though better than central planning, the coordinating mechanism of the market is by no means perfect (see below). 8. Moreover, even if planning could somehow mimic a market system, the incentives of managers would not be such as to evoke efficient responses from them (see n. 5 above). 9.


pages: 195 words: 52,701

Better Buses, Better Cities by Steven Higashide

Affordable Care Act / Obamacare, autonomous vehicles, business process, congestion charging, decarbonisation, Elon Musk, Hyperloop, income inequality, intermodal, jitney, Lyft, mass incarceration, Pareto efficiency, performance metric, place-making, self-driving car, Silicon Valley, six sigma, smart cities, transportation-network company, Uber and Lyft, Uber for X, uber lyft, urban planning, urban sprawl, walkable city, white flight, young professional

They spent the most time figuring out the coverage routes, because those posed the hardest questions. “You spend 90 percent of your time dealing with those lowest performing routes, and you don’t spend as much time promoting and thinking about the routes . . . that carry the bulk of your service.” There’s no denying that on the edges of the network, people will have their trips disrupted. Some will not have good options. The so-called Pareto improvement—a policy change that betters some people’s welfare without making a single person worse off in any way—is elusive when it comes to service planning. The most ineffective, outdated bus network still serves people who have built their routines around it, routines that may no longer be tenable after a change. This is not a call to freeze bus networks in amber, a policy choice that can only result in continued decline.


pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"Robert Solow", Andrei Shleifer, availability heuristic, bank run, Black Swan, business cycle, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

What if we had an institution in Crete, Cyprus, or Malta, where researchers from the Middle East could come together to think inventively about how they might collaborate and cooperate to overcome certain problems? Today’s resolutions of international disputes will determine how and when future problems will be negotiated. The lure of potential joint gains from future negotiations should be reflected in the Pareto frontiers of the negotiation problems of today. If some countries are having difficulties resolving their current differences, perhaps they should speculate about the gains coming from future negotiations, if only today’s disputes could be collaboratively resolved. So much in the world needs fixing that it is incumbent on today’s negotiators to keep in mind that present negotiators are often the gatekeepers for later collaborative negotiations.


pages: 626 words: 167,836

The Technology Trap: Capital, Labor, and Power in the Age of Automation by Carl Benedikt Frey

"Robert Solow", 3D printing, autonomous vehicles, basic income, Bernie Sanders, Branko Milanovic, British Empire, business cycle, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, collective bargaining, computer age, computer vision, Corn Laws, creative destruction, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, desegregation, deskilling, Donald Trump, easy for humans, difficult for computers, Edward Glaeser, Elon Musk, Erik Brynjolfsson, everywhere but in the productivity statistics, factory automation, falling living standards, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Frank Levy and Richard Murnane: The New Division of Labor, full employment, future of work, game design, Gini coefficient, Hyperloop, income inequality, income per capita, industrial cluster, industrial robot, intangible asset, interchangeable parts, Internet of things, invention of agriculture, invention of movable type, invention of the steam engine, invention of the wheel, Isaac Newton, James Hargreaves, James Watt: steam engine, job automation, job satisfaction, job-hopping, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kickstarter, knowledge economy, knowledge worker, labor-force participation, labour mobility, Loebner Prize, low skilled workers, Malcom McLean invented shipping containers, manufacturing employment, mass immigration, means of production, Menlo Park, minimum wage unemployment, natural language processing, new economy, New Urbanism, Norbert Wiener, oil shock, On the Economy of Machinery and Manufactures, Pareto efficiency, pattern recognition, pink-collar, Productivity paradox, profit maximization, Renaissance Technologies, rent-seeking, rising living standards, Robert Gordon, robot derives from the Czech word robota Czech, meaning slave, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, social intelligence, speech recognition, spinning jenny, Stephen Hawking, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade route, Triangle Shirtwaist Factory, Turing test, union organizing, universal basic income, washing machines reduced drudgery, wealth creators, women in the workforce, working poor, zero-sum game

The notion that the product of an hour of work can double in just about half of a working lifetime is surely sufficient justification for the disruptive force of technology, which has shrunk that timescale visibly. But while productivity is a prerequisite for growing incomes for the commoner, it is not a guarantee of such growth. And, if machines replace workers in existing functions, some people may be left worse off as technology progresses. Despite this fact, textbook economics treats technological progress as a Pareto improvement: in other words, the assumption is that when machines take workers’ jobs, new and better-paying jobs become available for everyone at the same time. As evidenced by the historical record, such models are utterly irrelevant for understanding episodes when technological progress is labor replacing. These technologies have brought higher material standards but also worker dislocation. The extent to which labor-saving technologies will cause dislocation depends on whether they are enabling or replacing.

., 79 North Africa, 77 nursery cities, 261 Nye, David, 155 Obama, Barack, 238, 277, 290, 322 occupational licensing, 358 occupational statistics, 219 OECD, 243, 321 Offenbach, Jacques, 53 Ogilvie, Sheilagh, 56–57 Old Poor Law, 344 OpenAI, 313 opportunity gap, societal costs of, 351 Osborne, Michael, 315 Otto, Nikolaus, 166 Ottoman Empire, 17, 66 overproduction, crisis of, 266 Owenism, 137 ownership, concept of, 34 Papin, Denis, 52, 86 Pareto improvement, 13 Paris Universal Exposition of 1867, 147 Park Avenue, 1 Paul, Lewis, 101 Pax Romana, 41 Pearl Harbor, attack on, 180 Pennsylvania Railroad, 208 Percy, Hiram, 165 personal computer (PC), 231 Peter the Great, Tsar, 58 Piketty, Thomas, 210, 217, 277, 361 “pink-collar” workforce, 241 plant downsizings, 255 Pliny the Elder, 36, 40 Polanyi’s paradox, 234, 304 polarization, politics of, 272–77; American dream, 280; Blue Wall, 284; civil rights legislation, 280; clientelism, 271; democracy and the middle class, 265–69; “disciplined self” identity, 279; economic inequality, 274, 277; Engels’ pause, 266, 287; feudal order, political participation in, 265; globalization, automation, and populism, 277–85; housing bubble, 282; identity politics, 278; inflation, 294; Labor Party, rise of, 268; labor unions, bargaining power of, 277; laissez-faire regime, 267; legitimacy of democracy, undermining of, 274; liberal democracy, components of, 267; lobbying, corporate spending on, 275; Luddite uprisings, 265; machinery riots, 265, 289; majority-rule voting system, 270; median voter theories, 270; middle class, rise of, 292; New Deal, 272; new Luddites, 286–92; political elites, 288; populist backlash, 293; Progressive Era, reform agenda of, 271; redistributive taxing and spending, 271; Rust Belt, 279, 283, 291; social class, Marx’s theory of, 265; socialism in America, 272; social media, 285; strikes, protection of car companies from, 276; technology types, distinguishing between, 287; unemployment, American social expenditure on, 274; United Auto Workers union, 276; universal white male suffrage, 270; vulnerability to populist revolutions, 264; welfare state, rise of, 272; welfare system, tax-financed, 267; working class, 278, 279 Polhem, Christopher, 149 political elites, 288 poor laws, 344 Pope, Albert A., 165 population curse, 64–67 populism, rise of, 277–85, 365 populist backlash, 293 populist renaissance, 21 populist revolutions, vulnerability to, 264 Port Clinton, Ohio, 250–51 Portuguese caravel ship, 51 power loom, arrival of, 15 prefabrication, 311 Price, Derek, 39 printing press, Gutenberg’s, 17 Procter and Gamble, 199 productivity, populations and, 64 Progressive Era, reform agenda of, 271 property rights: in American culture, 200; concept of, 62, 91; importance of, 20; in preindustrial societies, 33 Protestant Huguenots, 80 Protestant movement, 46 “proto-industrialization,” 68 prototypes: adoption of, 323; Amazon Go store, 312; developed, 261; imperfect, 298, 314; inventions turned into, 73 public clocks, 45 public infrastructure projects, 363 public schooling, 214 purchasing power, 191 Putnam, Robert, 250–51, 272, 276 railroads: arrival of, 108; declining importance of, 170; as enabling technology for revolutions, 85; network, expansion in Britain, 110; revenues (America), 208 Ramey, Valerie, 159, 332 redistributive taxing and spending, 271 Reform Acts of 1832 and 1867, 83 Reich, Robert, 235 relocation, 359–60 Renaissance, 51; as “age of instruments,” 59; beginnings of modern capitalism during, 70; great inventors of, 38; origin of, 51; productivity-enhancing technological improvements of, 54; technological advances of, 51 rent-seeking monarchs, 79 Restrepo, Pascual, 15, 144, 227, 242, 346 retraining, 353–54 Reuther, Walter, 191, 276, 356 Ricardo, David, 4, 116, 206, 345 right-to-work states, 257 robber barons, 208 Robinson, James, 19, 80 robots, 14; automobile assembly, 18; autonomous, 307; creation of new jobs for engineers, 15; flying, 312; human perception and, 318; jobs of machine operators taken over by, 14; middle-income jobs cut out by, 26; multipurpose, 242, 261, 327; of preindustrial times, 74; routine tasks performed by, 229 Rockefeller, John D., 208 Rodrik, Dani, 286–87 Roman alphabet, 47 Roman Empire: fall of, 41; most famous invention of, 38; slavery in, 74 Roosevelt, Franklin D., 157, 179, 211 Rousseau, Jean-Jacques, 62 royal trading monopolies, 80 Rural Electrification Administration, 157 Russell, Bertrand, 33, 78 Rust Belt, 279, 283, 291 Sanders, Bernie, 286 Savery, Thomas, 106, 317 Scheidel, Walter, 211 Schumpeter, Joseph, 73, 294 Schumpeterian growth, absence of, 72 Schumpeterian transformation, 49 scribes, 49, 50 Second Industrial Revolution, 22, 25, 148–73; agriculture, mechanization of, 189; American inequality during, 217; automotive industry, 202; child labor, as opportunity cost to education, 21; elimination of jobs created for machine operators during, 228; greatest virtue of, 155; mechanization following arrival of, 142; new tasks for labor spawned by, 202; skill-biased technological change, 213; skill demand raised by, 209; technological leadership of, 25; tractor use, expansion of, 196; urban-rural wage gap self-employment, 71 serfdom, 41 Shannon, Claude, 302 Sigismund I of Poland, King, 29 Silicon Valley, 257, 359 silk industry, beginnings of, 99 silk-throwing machine, 52 Simon, Herbert, 316, 336 Singer, Isaac, 149 Skill-biased technological change, 213 slavery, 39, 74 smartphone, spread of, 328 Smiles, Samuel, 110 Smith, Adam, 67, 69–70, 83, 228 Smithian growth, Schumpeterian vs., 58, 72 smokestack cities, 263 social class, Marx’s theory of, 265 socialism in America, 272 social media, 285 socioeconomic segregation, 26 Solow, Robert, 4, 180, 206, 325 speech recognition technology, 306 Spence, Michael, 292 spinning jenny, 102 spousal employment, 240 Sprague, Frank J., 152 steam engine: development of, 73; economic virtuosity of, 107; impact of on aggregate growth, 136; universal application of, 249 steel production, changed nature of, 13 Stephenson, George, 109 Stevenson, Betsey, 336 stocking-frame knitting machine, 10, 54, 76 strikes, protection of car companies from, 276 “stylized facts of growth,” 205 subjective well-being, 255 Summers, Lawrence, 261, 349 supercomputers, 290 supply of technology, obstacles to, 77 “symbolic analysts,” 235 task simplification, example of, 311 tax credits, 355–58 taxing and spending, redistributive, 271 tax revenue, 133 technological gap (1500–1700), 51 technology companies, location decisions of, 260 telephone operator, vanishing of, 201 telescope, 59 Tennessee Valley Authority (TVA) Act of 1933, 363 Tesla, Nikola, 152 textile industry, 38, 55, 95 Thirty Years’ War, 58 Thompson, E.


pages: 241 words: 75,516

The Paradox of Choice: Why More Is Less by Barry Schwartz

accounting loophole / creative accounting, attribution theory, Atul Gawande, availability heuristic, Cass Sunstein, Daniel Kahneman / Amos Tversky, endowment effect, framing effect, hedonic treadmill, income per capita, job satisfaction, loss aversion, medical residency, mental accounting, Own Your Own Home, Pareto efficiency, positional goods, price anchoring, psychological pricing, RAND corporation, Richard Thaler, science of happiness, The Wealth of Nations by Adam Smith

You may not always be conscious of this, but your effort to get the best car will interfere with your desire to be a good friend. Your effort to get the best job will intrude on your duty to be the best parent. And so, if the time you save by following some of my suggestions is redirected to the improvement of your relationships with other people in your life, you will not only make your life happier, you will improve theirs. It’s what economists call “Pareto efficient,” a change that benefits everybody. “You may not always be conscious of this, but your effort to get the best car will interfere with your desire to be a good friend.” Read on Further Reading THE PARADOX OF CHOICE is hardly the last word on the topic of choice and its relation to freedom, autonomy, and well-being. Indeed, in some respects it is the “first word,” and I hope others will scrutinize and evaluate the effects that continued increases in choice have on well-being and on freedom in greater detail than I have been able to do in my book.


pages: 290 words: 76,216

What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

The analytic language itself neutralises the enquiry: the costs of progress are segregated into a corner called ‘the short run’ or ‘transition’; efficient markets and technological progress will ensure they are temporary. Economists with a more generous social imagination have argued that the ‘compensation principle’ was invented precisely to reduce the cost of progress. Provided the gainers can compensate the losers, markets will be ‘Pareto efficient’. This assumes, wrongly, that gains and losses can be measured on a single money scale. It also abstracts from the problem of the politics needed to bring about the compensation in practice. With rare exceptions, all those who concede that economic progress has a price tag beg the question of what economic growth is for. Is it to make us or our descendants richer, happier, or better? And what is the connection between these?


pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

"Robert Solow", affirmative action, banking crisis, Berlin Wall, Bretton Woods, business cycle, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Ponzi scheme, price stability, rent control, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

[I]f he winds up talking with someone he thinks is worthwhile he has immense patience, and a willingness to engage and argue. Milton is a great arguer, and we used to say that everyone loved to argue with Milton—when he wasn’t there!”38 Ronald Coase was among the leading economists of the twentieth century, and his influence continues to grow. His best-known contribution is the Coase theorem, essentially the idea that freedom of exchange is the ultimate requirement to reach Pareto optimality, whereby no exchange will increase any party’s welfare. In particular, the initial allocation of legal rights will not affect ultimate economic outcome as long as freedom of exchange is uninhibited. Friedman and Coase have had good relations over the years, although they have never been especially close personally or professionally. Coase went to Chicago in 1964 and received the Nobel Prize in Economics in 1991.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

“Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund.” Review of Financial Studies 22: 3093–3129. Becker, Gary S. 1957/1971. The Economics of Discrimination. 2nd ed. Chicago: University of Chicago Press. . 1976. The Economic Approach to Human Behavior. Chicago: University of Chicago Press. Bellante, Don. 2004. “Edward Chamberlin: Monopolisitic Competition and Pareto Optimality.” Journal of Business and Economics Research 2: 17–28. Benabou, Roland and Jean Tirole. 2006. “Belief in a Just World and Redistributive Politics.” Quarterly Journal of Economics 121: 699–746. Benmelech, Efraim, Eugene Kandel and Pietro Veronesi. 2010. “Stock-Based Compensation and CEO (Dis)Incentives.” Quarterly Journal of Economics 125: 1769–1820. Benmelech, Efraim and Toby Moskowitz. Forthcoming.


pages: 416 words: 112,268

Human Compatible: Artificial Intelligence and the Problem of Control by Stuart Russell

3D printing, Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Alfred Russel Wallace, Andrew Wiles, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, augmented reality, autonomous vehicles, basic income, blockchain, brain emulation, Cass Sunstein, Claude Shannon: information theory, complexity theory, computer vision, connected car, crowdsourcing, Daniel Kahneman / Amos Tversky, delayed gratification, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ernest Rutherford, Flash crash, full employment, future of work, Gerolamo Cardano, ImageNet competition, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the wheel, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, Law of Accelerating Returns, Mark Zuckerberg, Nash equilibrium, Norbert Wiener, NP-complete, openstreetmap, P = NP, Pareto efficiency, Paul Samuelson, Pierre-Simon Laplace, positional goods, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, RAND corporation, random walk, Ray Kurzweil, recommendation engine, RFID, Richard Thaler, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Rodney Brooks, Second Machine Age, self-driving car, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, social intelligence, speech recognition, Stephen Hawking, Steven Pinker, superintelligent machines, Thales of Miletus, The Future of Employment, Thomas Bayes, Thorstein Veblen, transport as a service, Turing machine, Turing test, universal basic income, uranium enrichment, Von Neumann architecture, Wall-E, Watson beat the top human players on Jeopardy!, web application, zero-sum game

An argument for social aggregation via weighted sums of utilities when deciding on behalf of multiple individuals: John Harsanyi, “Cardinal welfare, individualistic ethics, and interpersonal comparisons of utility,” Journal of Political Economy 63 (1955): 309–21. 8. A generalization of Harsanyi’s social aggregation theorem to the case of unequal prior beliefs: Andrew Critch, Nishant Desai, and Stuart Russell, “Negotiable reinforcement learning for Pareto optimal sequential decision-making,” in Advances in Neural Information Processing Systems 31, ed. Samy Bengio et al. (2018). 9. The sourcebook for ideal utilitarianism: G. E. Moore, Ethics (Williams & Norgate, 1912). 10. News article citing Stuart Armstrong’s colorful example of misguided utility maximization: Chris Matyszczyk, “Professor warns robots could keep us in coffins on heroin drips,” CNET, June 29, 2015. 11.


pages: 518 words: 107,836

How Not to Network a Nation: The Uneasy History of the Soviet Internet (Information Policy) by Benjamin Peters

Albert Einstein, American ideology, Andrei Shleifer, Benoit Mandelbrot, bitcoin, Brownian motion, Claude Shannon: information theory, cloud computing, cognitive dissonance, computer age, conceptual framework, continuation of politics by other means, crony capitalism, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, Dissolution of the Soviet Union, Donald Davies, double helix, Drosophila, Francis Fukuyama: the end of history, From Mathematics to the Technologies of Life and Death, hive mind, index card, informal economy, information asymmetry, invisible hand, Jacquard loom, John von Neumann, Kevin Kelly, knowledge economy, knowledge worker, linear programming, mandelbrot fractal, Marshall McLuhan, means of production, Menlo Park, Mikhail Gorbachev, mutually assured destruction, Network effects, Norbert Wiener, packet switching, Pareto efficiency, pattern recognition, Paul Erdős, Peter Thiel, Philip Mirowski, RAND corporation, rent-seeking, road to serfdom, Ronald Coase, scientific mainstream, Steve Jobs, Stewart Brand, stochastic process, technoutopianism, The Structural Transformation of the Public Sphere, transaction costs, Turing machine

Etymologically, the English market is by far the newcomer of the two and can be traced back to the mid-thirteenth-century Italian term for a “public building or space for trading, buying, and selling.” The term market economy is first noted in English only in 1948, centuries after the early modern capitalist revolution that gave it fame and that has since enjoyed a privileged if often misunderstood position in the Western vocabulary of modern politics, economics, and society. One reason for justifying the Pareto efficiency of the market rests on the transitivity of human preferences. For the market to be the ideal organizational mode, some economists assume that rational actors will rank the order of their preferences linearly: if rational actors prefer option A over B as well as option B over C, they also will prefer option A over C. Yet this view of the market has been challenged in recent decades. Markets hide transaction costs and information asymmetries.


Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah

Asian financial crisis, asset allocation, backtesting, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Pareto efficiency, Ponzi scheme, quantitative trading / quantitative finance, random walk, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, stochastic process, survivorship bias, systematic trading, technology bubble, transaction costs, value at risk, zero-sum game

In the next section we discuss the different DEA methodologies. Then we describe the data, discuss the empirical results, and summarize our conclusions. METHODOLOGY In its most rudimentary form, DEA calculates an efficiency score that describes the relative efficiency of a CTA when compared to other CTAs in the sample. The first step in DEA is to obtain an efficient frontier from the inputs and outputs identified by Pareto optimality.2 DEA then calculates the efficiency score of each DMU relative to the efficiency frontier. In this chapter, the DMUs are CTAs. The efficiency frontier consists of the “best-performing” CTAs—the most efficient at transforming the inputs into outputs (Charnes, Cooper, and Rhodes, 1981). Any CTA not on the frontier would have an efficiency score less than 100 and would be labeled inefficient.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

Instead, I want to describe more carefully what it means to improve social welfare, where the standard approach of welfare economics has a lot to offer. Because, as argued earlier, neither happiness alone nor GDP alone is enough to define social welfare. Economists typically use what is on the face of it a limited definition of welfare. A policy or change improves welfare if it improves the potential welfare of one person without diminishing that of anybody else—this is known in the jargon as a Pareto improvement. But although this seems oddly limited, what it means in practice is that economics defines welfare in terms of increasing people’s range of choices. A welfare improvement is something that expands the options of one person while reducing no others. This approach also makes it very clear that while there is no inherent conflict between wealth and happiness, welfare is inextricably tied to free choice.


pages: 1,073 words: 314,528

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, Black Swan, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, shareholder value, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

In his 1885 book Elements of Pure Economics, Walras proved this mathematically, thereby setting a precedent for economic theory that would be picked up enthusiastically in the middle of the next century, particularly in the United States. Pareto gave his name to two contributions. The Pareto principle suggested that 80 percent of effects came from 20 percent of the causes. This rough rule of thumb indicated that a minority of inputs could be responsible for a disproportionate share of outputs, in itself a challenge to notions of equality. Secondly, and more substantively, he gave his name to the concept of Pareto efficiency, which also influenced later economic thought. In 1902 he published a critique of Marxism, which marked his move away from economics toward sociology. Pareto appreciated Marx’s idea of class conflict and his hard-edged approach to the analysis of human behavior, but parted company on the belief that class conflict would be transcended through proletarian victory. The people might well believe that they were fighting for a great cause, and maybe the leaders did too.

See also nonviolent direct action First World War and, 346–347 Gandhi and, 347, 352 Gregg on, 352 Pankhurst, Christabel and Emmeline, 345–346 paradigms, Kuhn’s notion of, 419–424 Paradise Lost (Milton) Adam and Eve in, 54–56, 58, 61–63 Beelzebub in, 61 Belial in, 60 free will questions in, 55–58 God in, 54–60, 62–64, 617 guile in, 64 Jesus (The Son) in, 58–59, 62 Machiavellian aspects of, 54, 57–58, 63, 617 Mammon in, 60–61 Moloch in, 60–61 Pandemonium in, 60–61 Satan in, 54, 56–64, 617 Paret, Peter, 86, 204 Pareto, Vilfredo circulation of elites and, 325 legacy of, 335, 471–472, 515 lion and fox analogies of, 324–325 logical conduct and, 324 Pareto efficiency and, 323 residues and, 324 social equilibrium and, 323, 471–472 Paris Commune, 106, 269, 271, 474 Park, Robert, 336–337, 378 Parks, Rosa, 357 Parris, Matthew, x Parsons, Talcott, 471 Pascale, Richard, 545, 566 Patton, George S., 506 Peloponnesian War, The (Thucydides) Athens in, 31–38 Attica in, 35 coalitions in, 32–35 Corcyra and, 32, 34, 38 Corinth in, 32–34 Diodotus in, 37–38 Megara and, 32 Megarian Decree and, 32–35 Melians in, 31 Peloponnesian League, 30, 32, 35 Pericles in, 32–37, 39 Sparta and, 31–35, 38 Penrose, Edith, 496, 570 Pericles, 23, 32–37, 39, 244, 614 Perroni, Amadeo, 463 Perry, James, 438 Person, Harlow, 462 Peters, Ralph, 227 Peters, Tom emphasis on storytelling by, 564, 617 management theories of, 545–548, 556, 564 McKinsey & Company and, 544–545, 547 Petraeus, David, 224 Petrograd Soviet, 296 Pfeffer, Jeffrey, 558 Phelan, Jim, 433 Phillips, Kevin, 440–441 Philoctetes (Sophocles) Herakles in, 27–28 Neoptolemus, 27–28 Odysseus in, 27–28 Pierce, Charles, 317 Pinker, Stephen, 435 Pirates of Penzanze, The (Gilbert and Sullivan), 69 Plague, The (Camus), 371 Plan 1919 (Fuller), 130 Plato, 22–23, 36, 38–41, 602, 617 plot connotations of, 65 scripts and, 623–624, 626–627 Plouffe, David, 453–454 Poetics (Aristotle), 623 poker, 151–152 political strategy campaign consultants and, 437–439, 445 communication and, 433–439 demographic analysis and, 440 framing of issues and, 422, 434–436, 454, 461, 593, 615 limits to, 456 media elements of, 438–439, 450–451 negative campaigning and, 451 permanent campaign and, 449 polling and, 437 primary elections and, 438–439 television and, 438–439 voter emotions and, 434–435, 448 “Politics as a Vocation” (Weber), 303–307, 413 “Politics of 1948” (Clifford), 447 Politics of Nonviolent Action, The (Sharp), 412 Polletta, Francesca, 377–378 Popper, Karl, 415 Port Huron Statement, 367, 374–375, 378 Porter, Michael industrial organization theory and, 520, 538 on Japanese firms, 536 management ideas of, 521–524, 539 National Football League and, 522 Potter, Paul, 396–397 Power Elite, The (Mills), 372 Power of Nonviolence, The (Gregg), 344, 358 Practical Guide to Strategy (von Bulow), 75 Practice of Management, The (Drucker), 493, 496 pragmatism, 316–319 Prahalad, C.


pages: 538 words: 121,670

Republic, Lost: How Money Corrupts Congress--And a Plan to Stop It by Lawrence Lessig

asset-backed security, banking crisis, carried interest, circulation of elites, cognitive dissonance, corporate personhood, correlation does not imply causation, crony capitalism, David Brooks, Edward Glaeser, Filter Bubble, financial deregulation, financial innovation, financial intermediation, invisible hand, jimmy wales, Martin Wolf, meta analysis, meta-analysis, Mikhail Gorbachev, moral hazard, Pareto efficiency, place-making, profit maximization, Ralph Nader, regulatory arbitrage, rent-seeking, Ronald Reagan, Sam Peltzman, Silicon Valley, single-payer health, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, WikiLeaks, Zipcar

Law Review 84 (1996): 1; Daniel Hays Lowenstein, “On Campaign Finance Reform: The Root of All Evil Is Deeply Rooted,” Hofstra Law Review 18 (1989): 301; Fred Wertheimer and Susan Weiss Manes, “Campaign Finance Reform: A Key to Restoring the Health of Our Democracy,” Columbia Law Review 94 (1994): 1126; Andrea Prat, “Campaign Spending with Office-Seeking Politicians, Rational Voters, and Multiple Lobbies,” Journal of Economic Theory 103 (Mar. 2002): 162; Stephen Coate, “Pareto-Improving Campaign Finance Policy,” American Economic Review 94 (June 2004): 628; Lillian R. BeVier, “Campaign Finance Reform: Specious Arguments, Intractable Dilemmas,” Columbia Law Review 94 (1994): 1258; Bradley A. Smith, “Money Talks: Speech, Corruption, Equality, and Campaign Finance,” Georgetown Law Journal 86 (1997): 45; Daniel R. Ortiz, “The Democratic Paradox of Campaign Finance Reform,” Stanford Law Review 50 (1997): 893; Kathleen M.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

If they could, the Great Enrichment would have happened earlier and elsewhere, since thrift and exploitation and investment, and for that matter occasional outbreaks of democratic demands for higher wages, are routine in human history. The uplifting since 1800, in other words, was distinctly positive-sum, a free lunch, the sort of event the management theorist Mary Parker Follett dubbed in 1925 a win-win. She elsewhere said that the best democracy is not the rule of the majority but a search for agreement.5 The easiest way of finding agreement is to find a win-win deal, which economists call “Pareto improving.” The deals were possible because of radically new ideas, such as the betterments of steam and steel or of fertilizer and antibiotics or of voting and education—betterments, and voting and education, not encouraged in an old world long in the grip of an anxious and arrogant elite able to enforce its self-protectionisms. The economic and political betterments, and the intellectual children and grandchildren and great-grandchildren of the betterments, were imagined, produced, financed, tested, and sold by the middle class.

See also Defoe, Daniel; Watt, Ian Novgorod, Russia: republic, 336 Nozick, Robert: liberalism, 558; trade, 429; Wilt Chamberlain example, 50 nuclear fission: model of change, 473 nuclear power: opposition to, 69 Nunziata, Luca: share of population exhibiting entrepreneurship, 472–473 Nussbaum, Martha: contractarian ethics, 26, 668n3; enough, 46; having a go, xxii; number of virtues, 194; prudence-dominant ethics, xxv; virtue ethics, 668n4 Nuvolari, Alessandro: acknowledged, xxxix; causes of betterment, 662n12; patents, 133; steam, 694n1 Nye, John: acknowledged, xxxviii; commercial rhetoric, 272; neo-institutionalism, 122, 652n18; rationality, 164; Smithian policy, 523 Nygren, Bishop Anders: on love, 382, 669n18 Oakeshott, Michael: on Hobbes, 680n7 O’Brien, Patrick: effect of war on economy, 86; European export share, 642; human punishing, 652n19; power and plenty, 661n18 Occidentalism, 600 Occupy movement: and old left, 55 OECD: average income, 7; Oslo Manual on innovation, 95 Ofer, Bar-Yosef, 663n20 Ogilvie, Sheilagh: efficiency in neoinstitutionalism, 415; guilds, 535, 536, 698n1; institutions, 696n1 Ó Gráda, Cormac: on Allen, 652n26; British human capital, 473; on disease and nutrition, 655n13; early growth, 695n4; Irish famine, 655n8; Little Ice Age, 516, 653n44; potatoes in Ireland, 16; psychology vs. sociology, 473; social origins of inventors, 39; technical elite as cause, xxviii; world famines, 23 oil: Dutch disease and, 92, 140; limits, 66, 68–69, 629–630; resource diplomacy and, 91 Oli, Gian-Carlo: Italian dictionary, 673n29 Olson, Mancur: collective action problem, 338; stationary bandits, 656n20; vested interests, 465 ORDO liberals: new social ethic, 40 Orientalism, 420 Origo, Iris: The Merchant of Prato, 689n7 O’Rourke, Kevin: power and plenty, 99; use of Mantoux, 99 Ortega y Gasset, José: ethics and betterment, 25 Orwell, George: descendants of miners, 45 Ōsaka, Japan: bourgeois, 221, 640 Osborn, Jan, 666n26; humanomics, xli Oschinky, Dorothea: editor of Walter of Henley, 676n20 Oslington, Paul: natural theology, 385 Oslo Manual: innovation, 95 Ostrom, Elinor, 652n22; humanomics and free riding, xxiv ozone layer, 67 Pacioli, Luca: double-entry, 322 Packer, George, 42 Pagano, Patrizio: stagnationism, 64 Paine, Tom: liberal, xvii Palliser, Lady Glencora, 46 Palma, Nuño, 477 Palmer, Tom, 686n12; acknowledged, xxxvii; Macaulay, 657n5; quotes Bright, 661n17 Palmgren, Ingela: acknowledged, xxxix Papin, Denis, 174 Papua New Guinea: justice in, 583–585 Pareto improving. See win-win Park, Robert: alienation in big cities, 396 Parker, Charlie “Bird”: creative destruction, 205; Larkin on, 334 Parker, Geoffrey: Chinese and Japanese military, 397; poor relief in Low Countries, 342 Parker, R. A. C.: German army’s quality, 168; quotes Tojo, 661n19 Parkin, Tim G., 655n21 Parks, Tim: Florentine gifts to church, 455; private vs. public in Italy, 138; rules in Italy, 113 Pasolini, Pier Paolo: anti-bourgeois, 337, 642 pastoral: and the bourgeoisie, 158; in The Shoemaker’s Holiday, 310; and trade, 440; and urban sociology, 396 patents: airplane, 419; Boldrin and Levine on, 465–466; Edison’s, 39; labor-saving, 471; significance, 415; Venice and, 460; Wedgwood’s, 39; zero opportunity cost, 559.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

Asperger Syndrome, bank run, Basel III, call centre, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Exxon Valdez, factory automation, fixed income, full employment, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, income inequality, jimmy wales, job automation, John Markoff, Kickstarter, late fees, London Whale, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, Parag Khanna, Pareto efficiency, price stability, Ray Kurzweil, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Stanford prison experiment, Steve Jobs, Stuxnet, the payments system, too big to fail, Vanguard fund, wage slave, Y2K, zero-sum game

From the perspective of those near the top of the pecking order, it is better and it is fairer that potential abundance be withheld than that old claims be destroyed or devalued. Even schemes that preserve the wealth ordering (like Steve Keen’s “modern jubilee”) are unfair, because they would collapse the relative distance between competitors and devalue the insurance embedded in some people’s lead over others. The zero-sum, positional nature of wealth-as-insurance is one of many reasons why there is no such thing as a “Pareto improvement.” Macroeconomic interventions that would increase real output while condensing wealth dispersion undo the hard-won, “hard-earned” insurance advantage of the wealthy. As polities, we have to trade off extra consumption by the poor against a loss of insurance for the rich. There are costs and benefits, winners and losers. We face trade-offs between unequal distribution and full employment. If we want to maximize total output, we have to compress the wealth distribution.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

Tan Lin Mei and Greg Tower, 1992, “Readability of Tax Laws: An Empirical Study in New Zealand,” Australian Tax Forum 9 (3), pp. 355–372. Tanner, Michael D., 2007, Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution (Washington, DC: Cato Institute). Tanzi, Vito, 1968, “Governments’ Approaches to Income Redistribution,” National Tax Journal 21 (4) (December), pp. 483–486. 1972, “Exclusion, Pure Public Goods and Pareto Optimality,” Public Finance 27 (1), pp. 75–78. 1974, “Redistributing Income through the Budget in Latin America” Banca Nazionale del Lavoro Quarterly Review, March. 1980a, “The Underground Economy in the United States: Estimates and Implications,” Banca Nazionale del Lavoro Quarterly Review 135 (December), pp. 427–453. 1980b, Inflation and the Personal Income Tax (Cambridge, UK and New York: Cambridge University Press). 1987a, “The Response of Other Countries to the U.S.


pages: 685 words: 203,949

The Organized Mind: Thinking Straight in the Age of Information Overload by Daniel J. Levitin

airport security, Albert Einstein, Amazon Mechanical Turk, Anton Chekhov, Bayesian statistics, big-box store, business process, call centre, Claude Shannon: information theory, cloud computing, cognitive bias, complexity theory, computer vision, conceptual framework, correlation does not imply causation, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, en.wikipedia.org, epigenetics, Eratosthenes, Exxon Valdez, framing effect, friendly fire, fundamental attribution error, Golden Gate Park, Google Glasses, haute cuisine, impulse control, index card, indoor plumbing, information retrieval, invention of writing, iterative process, jimmy wales, job satisfaction, Kickstarter, life extension, longitudinal study, meta analysis, meta-analysis, more computing power than Apollo, Network effects, new economy, Nicholas Carr, optical character recognition, Pareto efficiency, pattern recognition, phenotype, placebo effect, pre–internet, profit motive, randomized controlled trial, Rubik’s Cube, shared worldview, Skype, Snapchat, social intelligence, statistical model, Steve Jobs, supply-chain management, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Turing test, ultimatum game, zero-sum game

See brain physiology news media, 338–40 Newton, Isaac, 162 New Yorker, 120, 336 New York Times, 6, 339, 365 Nietzsche, Friedrich, 375 Nixon, Richard, 201 NMDA receptor, 167 nonlinear thinking and perception, 38, 215, 217–18, 262, 380 Norman, Don, 35 number needed to treat metric, 236, 240, 247, 264, 264 Obama, Barack, 219, 303 object permanence, 24 Office of Presidential Correspondence, 303 Olds, James, 101 Old Testament, 151 O’Neal, Shaquille, 352–53 One Hundred Names for Love (Ackerman), 364–65 online dating, 130–34, 422n130, 423n132 optical character recognition (OCR), 93, 119, 119 optimal information, 308–10 orders of magnitude, 354–55, 358–59, 361, 363, 400n7 organizational structure, 271–76, 315–18, 470n315, 471n317 Otellini, Paul, 380–81 Overbye, Dennis, 6, 19 Oxford English Dictionary, 114 Oxford Filing Supply Company, 93–94 Page, Jimmy, 174 pair-bonding, 128, 142 paperwork, 293–306 Pareto optimality, 269 parking tickets, 237, 451n237 Parkinson’s disease, 167–68 passwords, xx, 103–5 Patel, Shreena, 258 paternalism, medical, 245, 257 pattern recognition, 28, 249 Patton, George S., 73–74 peak performance, 167, 189, 191–92, 203, 206 Peer Instruction (Mazur), 367 perfectionism, 174, 199–200 periodic table of elements, 372–73, 373, 480n372 Perry, Bruce, 56 Peterson, Jennifer, 368 pharmaceuticals, 256–57, 343, 345–46 Picasso, Pablo, 283 Pierce, John R., 73 Pirsig, Robert, 69–73, 89, 295–97, 300 placebo effect, 253, 255 place memory, 82–83, 106, 293–94 planning, 43, 161, 174–75, 319–26 Plato, 14, 58, 65–66 plausibility, 350, 352, 478n352 Plimpton, George, 200 Plutarch, 340 Poldrack, Russ, 97 Polya, George, 357 Ponzo illusion, 21, 22 positron emission tomography (PET), 40 prediction, 344–45 prefrontal cortex, 161 Area 47, 287 and attention, 16–17, 43, 45–46 and changing behaviors, 176 and children’s television, 368 and creative time, 202, 210 and decision-making, 277, 282 and flow state, 203, 207 and information overload, 8 and literary fiction, 367 and manager/worker distinction, 176 and multitasking, 96, 98, 307 and procrastination, 197, 198, 200–201 and sleep, 187 and task switching, 171–72 and time organization, 161, 165–66, 174, 180 See also brain physiology preselection effect, 331, 343 Presidential Committee on Information Literacy, 365 primacy effect, 55, 408n56 primates, 17–18, 125–26, 135 Prince, 174 Princeton Theological Seminary, 145–46 prior distributions, 249 prioritization, 5–7, 33–35, 379–80 probability.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

I will leave exploration of these newer strands to the interested reader to pursue. 5 This reference to physics is now seriously dated, since this empirical observation has now been corroborated – see the Wikipedia item on the ‘Accelerating Universe’ for a brief discussion. 6 Ironically, Austrian economics, an alternative school of thought that is very closely related to neoclassical economics, differs by singing the praises of capitalism as a disequilibrium system (see Chapter 18). 7 Equilibrium in turn has been endowed with essential welfare properties, with a ‘Pareto optimal equilibrium’ being a situation in which no one can be made any better off without making someone else worse off. Chapter 9 1 If you have ever taught a child to ride a bike, you would know that this lesson is the most difficult one to grasp – that a moving bike balances itself, without the need for training wheels or other props which would keep it upright when it was stationary. 2 This analogy is apt in more ways than one.