Transcript The Triumph of Pareto (Does Equity Matter?)

The Triumph of Pareto
(Does Equity Matter?)
Gary Flomenhoft
VT Law School
Class 4
Growth Factors






















Theological belief in growth
Biotic potential
Fixation on GDP
Bank interest
Discounting
Interest charged on money creation
To provide jobs for labor displaced by productivity
improvements
Welfare economics is defined by consumption
Profit motive
Materialism
Pareto optimality
Pillars of Neo-classical welfare
economics (Erickson/Gowdy)

1. Homo-economicus-utility maximization.
crumbling

2. Perfect competition (independent actions of
firms, no market power, constant returns to
scale, perfect information, no uncertainty) crumbling: Stiglitz: Nobel for assymmetrical info.

3. Pareto Optimality-still alive
Pareto efficiency

Any policy alternative which makes
anyone worse off in their own estimation,
while making other people better off in
their own estimation is not “Pareto
efficient.”
“Value-free scientific principle”
Assumptions of P.O.

Current distribution of wealth is a given.

No distinction between earned or unearned
income, or any question about the legitimacy of
the source of wealth.

No comparison of utility between people. (Each
person can only decide how well off they are “in
their own estimation.”)

No one can be made worse off.
Problems

Ethical: Ending Slavery failed Pareto criteria.

Growth bias-If no one can be made worse off,
the only choice to improve welfare is growth.
“grow the pie higher” - “Grow our way out of
poverty”.

No Interpersonal Utility is self-contradictory.

No one worse off?
Grow out of poverty?
Grow out of poverty?
Poverty rate vs. GDP per Capita (1996$)
$35,000
20%
18%
$30,000
16%
$25,000
14%
$20,000
12%
$15,000
10%
poverty rate
01
2
0
99
1
9
97
1
9
95
1
9
93
1
9
91
1
9
89
1
9
87
9
85
1
9
83
per capita GDP (1996$)
1
1
9
81
1
9
79
1
9
77
1
9
75
1
9
73
1
9
71
1
9
69
9
67
1
9
65
1
9
63
1
9
1
9
1
9
1
61
8%
59
$10,000
Why no Interpersonal utility?
No one worse off 1979-2000?
Pareto’s Other Principles

“…no social class can for long hold its
property or its power if it does not have the
strength and vigor necessary to defend
them. In the long run only power
determines the social forms; the great
error of the 19th century will be to have
forgotten this principle (1906:361).”
Top 1% Share of wealth 1922-1998
Top 1% Share of Household Wealth 1922-1998
44.2
36.7
36.4
35.7
34.4
33.3
31.2
29.8
31.8
31.1
30.9
37.2
38.5
40.1
38.1
31.9
29.1
27.1
24.8
8
9
7
9
9
9
1
5
1
9
9
2
9
1
9
8
9
1
8
6
9
1
9
8
3
1
8
1
9
1
7
9
9
1
6
9
1
7
2
7
9
9
1
9
1
6
5
6
9
9
1
2
1
6
5
3
9
1
9
4
9
1
4
5
9
1
3
9
9
1
3
9
1
3
2
9
9
1
9
1
1
9
2
2
19.9 20.5
“Circulation of the Elites”

the dominant class A has an alpha part that “still
has enough strength and energy to defend its
share of authority; and a beta part “made up of
degenerated individuals, with feeble intelligence
and will, humanitarians, as is said today…

Objectively the struggle consists solely in the Balpha trying to take the place of the A-alpha;
everything else is subordinate and incidental.”
(Pareto 1927:91)
47-79 Real Family Income
Growth
79-98 Real family income Growth
NET WORTH
Pareto on Genetic Selection

“The struggle to appropriate the goods of
others may be favorable to (genetic)
selection” (Pareto p. 341).
US CEO Pay ratio to average worker
International CEO Pay ratio
Real Wages and productivity 1948-2002
Reasons for wage stagnation
The decline in unionization from 35%
in 1948 to 14% in 1999.
 Globalization led to export of jobs
resulting in a “race to the bottom” for
wages. (Free-trade zones, NAFTA,
WTO, etc.)
 Increased temp and contract workers
with no benefits, corporate downsizing,
mergers.

Pareto on Suffrage

“When suffrage has been given to all men,
including madmen and criminals, when it
has been extended to women, and if you
like, to children, it will have to stop. One
cannot go any lower, unless the suffrage is
extended to animals” (Pareto p. 100).
55% single mothers with
children <6 are poor

http://www.nccp.org/99uptext.html
Pareto on equality

“Equality before the law is a dogma for
many people…it is not at all evident a
priori that such equality is advantageous to
society;…the contrary appears more
probable.” (Pareto p.95).
Gini Coefficient=
Inequality good for society?
Population Ratio of top 10% Incarceration
income to
bottom 20%
California 30 Million 12:1 (US)
200,000
Kerala
30 Million
3.5:1
Source: Collins, Economic Apartheid in America
5,000
Does Equity matter?
Redistribute what?
UN Resolution 1803(XVII) of 14 December 1962/
Declaration of Permanent Sovereignty over Natural Resources:
“Violation of the rights of peoples and nations to sovereignty
over their natural wealth and resources is contrary to the spirit
and principles of the Charter of the UN, and hinders the
development of international co-operation and the
maintenance of peace.”
Another view:
“The meek shall inherit the earth…
Except for the mineral rights.” -J. Paul Getty
Natural Capital Wealth
(NOT THE PRODUCTS OF LABOR OR CAPITAL)
•Sub-soil assets-oil,
coal, minerals, etc
•Urban land
•Cropland
•Pastures
•Forests
•Non-timber Benefits
•Protected areas
•etc
CASE STUDY

Alaska has the smallest gap between rich and
poor of any state, according to figures released
Wednesday by the U.S. Census Bureau.

ALASKA Dividend checks help make for more
equal distribution.

By Maureen Clark
The Associated Press
(Published: September 25, 2002)


Alaska Model: Alaska Permanent Fund
Proposed Iraq Fund, Niger Delta Fund
COMMON ASSETS
(NOT FROM LABOR AND CAPITAL)
Government R&D: internet, patents
Seignorage (money creation)
Airwaves/broadcast spectrum
Aircraft landing rights
Satellite slots
Fishing Rights
Cap and trade pollution permits
Green taxes
Land values
Stock market liquidity
Collectively produced assets
Collectively produced assets
Etc.