Friday, September 06, 2013

What To Think Of This Alex Rosenberg Piece?

Alex Rosenberg writes on Free Markets and the Myth of Earned Inequalities.

What should we think of this essay? Philosophers of science, as I understand it, tend, these days, to take the consensus viewpoint in the sciences they examine as a given. They do not, in their professional role, advocate some overarching, context-free, scientific rationality and attempt to dictate to each specific science. Rather, they are engaged in trying to understand how scholars reason in specific disciplines. Furthermore, if one wants to be effective in practical policy advice, one might want, as a rhetorical strategy, to show how your policy conclusions follow from consensus views, no matter how mucked up that consensus may be. So I can understand how, sometimes, Rosenberg might be inclined to take neoclassical economics as given.

Furthermore, I accept some of the points of this essay. I can see how one might describe increased inequality in income distribution as part of a process of cumulative causation. Winners in competitive markets will tend to use their gains as a source of political power. And with that power, they will try to rewrite the rules of the game to gain even more. So competitive markets will lead, endogenously, to non-competitive markets. Is Rosenberg influenced by Dean Baker or Chris Hayes here?

In what sense do people born with better endowments deserve more because they earn more with those endowments? I think Rosenberg is correct to raise this question. (In agreement with Adam Smith, I question whether inborn talents have much to do with the distribution of income.)

I also agree with the general conclusion that government is violating no ethical norm when it institutes redistributive taxation. I would argue for the current need for such policy in the United States on the basis of the lack of sustainability of trends for the last third of a century.

But I think the following observations undermine much of the economics that Rosenberg draws on in his essay: Arrow and Debreu's proof of the Pareto efficiency of a static "competitive" General Equilibrium does not have much to do with the magnificent dynamics that Adam Smith and the classical economists were arguing about. Furthermore, price-taking in General Equilibrium Theory is a model of central planning (by the so-called auctioneer), not of competition. In actually existing capitalist economies, prices are formed in a range of institutions. Even when price-taking occurs, that occurrence depends on existence of certain algorithms for matching bids and offers, say, on the Chicago Mercantile Exchange. Marginal productivity, correctly understood, is not a theory of distribution; it is a theory of the choice of technique. Thus, marginal productivity cannot be correctly cited in an argument that, under competitive capitalism, agents earn what they get. Does Rosenberg know about reswitching examples, in which the same relative quantity flows in production are compatible with vastly different (functional) distributions of income? Besides, as Joan Robinson asked, in what sense is the ownership of capital productive?

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