John Quiggin is my second favorite liberal. He's writing a book about opportunity cost! How cool is that? Over at Crooked Timber he's been sharing excerpts from his book so that people can share their feedback. This is also really cool.
Here's his latest excerpt... Income redistribution: Where should we start?
Even though I love the general topic... his treatment is missing something. The word "lackluster" comes to mind. So does "drab". But what, exactly, is it missing? It's one thing to taste some soup and realize that there's something missing. It's another thing entirely to be able to specify the missing ingredient. Actually, nearly every dish could use more garlic!
As I was quickly scrolling through the comments... I noticed quite a few from a reader named Plume. This is nothing new. He is a very frequent commenter. His comments boil down to "socialism good, capitalism bad".
What was new though was that Plume received some significant pushback from another commenter...
I know that I, at least, would be very glad if every thread even remotely related to economics didn’t devolve into an extended discussion of Plumism, or Pluminomics, or whatever it is we keep getting long dissertations on. There are lots of good topics here to be discussed, but I don’t see this as one of them. I’m almost certain that I’m not alone. I believe that it’s still free to start a blog, and perhaps starting a new one devoted just to Plumism would be a good choice for those interested in the subject. - Matt
Somewhat surprisingly... a few comments later... Quiggin wrote...
Plume, I agree with other commenters here. From now on, for my post, can you limit yourself to one comment per post per day.
This is the missing ingredient! In fact, it's not just one ingredient... it's two ingredients...
Missing ingredient #1: People do different things with society's limited resources... and different people value different things differently. This fundamentally basic but incredibly important concept is largely, or entirely, missing from Quiggin's analysis. But there it is plain to see in the comments section! How can any conclusion regarding the distribution/redistribution of society's limited resources possibly be correct when it doesn't take into account this essential economic truism?
Missing ingredient #2: Accessible scenarios that help convey the relevant economic concepts! I'm pretty sure that I've read every excerpt that Quiggin has shared... and I don't think that he's ever offered an accessible scenario. Then again... my memory isn't that great. Then again... a really good scenario is really hard to forget!
Following a three-hour time-off-for-personal-exploration period, an excited Sylvia returns to the campsite and announces: "I've stumbled upon a huge apple tree, full of perfect apples." "Great," others exclaim, "now we can all have apple sauce, and apple pie, and apple strudel!" "Provided, of course," so Sylvia rejoins, "that you reduce my labour burden, and/or furnish me with more room in the tent, and/or with more bacon at breakfast." Her claim to (a kind of) ownership of the tree revolts the others. - G.A. Cohen, The Socialist’s Guide to Camping
It's a very simple and accessible story that wonderfully illustrates Cohen's point. Of course I don't agree with his point... but I really admire how well he conveyed it.
Quiggin's book is the liberal sequel to Hazlitt's book... Economics In One Lesson... which was all about Bastiat's beautiful essay... What Is Seen and What Is Not Seen. When it comes to accessible economic scenarios... nobody holds a candle to Bastiat. He really set the standard that every economist should strive to meet.
When James Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even. But when James Goodfellow hands over a hundred sous to a government official to receive no service for it or even to be subjected to inconveniences, it is as if he were to give his money to a thief. It serves no purpose to say that the official will spend these hundred sous for the great profit of our national industry; the more the thief can do with them, the more James Goodfellow could have done with them if he had not met on his way either the extralegal or the legal parasite. - Frédéric Bastiat, What Is Seen and What Is Not Seen
A few other people have shared some noteworthy scenarios...
Now suppose that Wilt Chamberlain is greatly in demand by basketball teams, being a great gate attraction. (Also suppose contracts run only for a year, with players being free agents.) He signs the following sort of contract with a team: In each home game, twenty-five cents from the price of each ticket of admission goes to him. (We ignore the question of whether he is "gouging" the owners, letting them look out for themselves.) The season starts, and people cheerfully attend his team’s games; they buy their tickets, each time dropping a separate twenty-five cents of their admission price into a special box with Chamberlain’s name on it. They are excited about seeing him play; it is worth the total admission price to them. Let us suppose that in one season one million persons attend his home games, and Wilt Chamberlain winds up with $250,000, a much larger sum than the average income and larger even than anyone else has. Is he entitled to this income? Is this new distribution D2 unjust? If so, why? There is no question about whether each of the people was entitled to the control over the resources they held in D1; because that was the distribution (your favorite) that (for the purposes of argument) we assumed was acceptable. Each of these persons chose to give twenty-five cents of their money to Chamberlain. They could have spent it on going to the movies, or on candy bars, or on copies of Dissent magazine, or of Monthly Review. But they all, at least one million of them, converged on giving it to Wilt Chamberlain in exchange for watching him play basketball. If D1 was a just distribution, and people voluntarily moved from it to D2, transferring parts of their shares they were given under D1 (what was it for if not to do something with?), isn’t D2 also just? If the people were entitled to dispose of the resources to which they were entitled (under D1), didn’t this include their being entitled to give it to, or exchange it with, Wilt Chamberlain? Can anyone else complain on grounds of justice? - Robert Nozick, Anarchy, State, and Utopia
Quiggin will probably disagree with Nozick's point like I disagree with Cohen's point... but perhaps Quiggin will appreciate how well this scenario conveys Nozick's point. And if Quiggin wants to argue in favor of redistribution... it would behoove him to explain, preferably by using an equally accessible scenario, how doing so does not subvert the true will of the people as revealed by the decisions that they make as consumers.
Here's another one...
Consider the following analog to Block's gardening problem. Let there be an island that contains all the known stock of Austrian Pure Snow trees. The island is inhabited by a religious sect, the first to mix their sweat and blood with the island's soil, thus satisfying Rothbard's principle of "original ownership." They worship these trees as if they were God. Never would they let them be tampered with in any way. Unknown to anyone, these trees contain an ingredient that is a sure cure for cancer, and when this is discovered a question of the ownership of this ingredient, unavailable elsewhere, arises. The religious sect will in no way, for any compensation, allow that ingredient to be extracted. Is it "evil and vicious" to believe that it would be preferable for someone else to own the right to this ingredient, requiring instead that the religious sect purchase the inviolability of this ingredient? Might not "our most cherished and precious property rights" be still more cherished and precious if the private ownership of this new resource was not confined to those who own the rest of the island? Would the answer be much different if this ingredient not only was known to the island dwellers, but was precisely that part of the trees that they worshiped? Would the answer be different if the islanders were very poor? - Harold Demsetz, Ethics and Efficiency in Property Rights Systems
As a nature lover... I appreciate all the trees in this scenario. And, as an economics lover... I appreciate the ownership dilemma. Although... the scenario falls apart a bit when we consider the fact that trees have seeds. It's hard to imagine that some group wouldn't be willing to sell one seed for any price.
Here's the most recent noteworthy scenario that I've run across...
If Robinson Crusoe and Friday are on an island, and Crusoe grows seven pumpkins and Friday grows three pumpkins, Crusoe hasn’t grabbed a bigger piece of (pumpkin?) pie. He has simply created more wealth than Friday, leaving Friday no worse off. It is dishonest to say Crusoe has “taken” 70 percent of “the island’s” wealth. - Don Watkins, Turning the Tables on the Inequality Alarmists
Short and sweet. It's unfortunate that Watkins can't keep his story straight... Limit Socialism To California.
My favorite recently-dead economist James Buchanan wasn't exactly known for his scenarios... and perhaps this is part of the reason that he is so incredibly under-appreciated. Consider this scenario...
At some basic psychological level of choice, the demand of the citizen for more police protection by the municipality reflects the same drive as his demand for additional door locks from the local hardware store.
Even with such a simple analogy, however, care must be taken lest the similarities be pushed too far. The person who wants to purchase a new lock goes to the local hardware store, or to several stores, surveys the array of alternatives offered for sale, along with the corresponding array of prices, makes his purchase, and is done with it. It should be evident that the person’s act of implementing his demand for additional police protection is quite different. The citizen must communicate his desires to his elected political representative, his city councilman, who may or may not listen. If he does listen, the councilman must then take the lead in trying to convince a majority of his colleagues in the representative assembly to support a budgetary adjustment. But what about quality and price? Almost anyone would desire more police protection of high quality if this should be available to him at a zero price. At one level of reaction, the citizen must understand that additional public services can be secured only at the price of either reductions in other services or increases in taxes. How can he indicate to his political representative just what quantity-quality-price mix is most preferred? And how can his political representative, in trying to please his constituents, determine this mix? - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes
The scenario works... but it doesn't exactly stick. Buchanan didn't even give the person a name!
Ok, so what is Quiggin's book missing? Based on the drafts that Quiggin has shared... his book is missing two things. First, it doesn't really address the fact that people value things differently. Second, it doesn't have any accessible scenarios/stories. My dollar vote is for a scenario involving Australia's wonderful epiphytic orchids.
While I'm at it... I should point out that the solution to the comment problem really isn't to limit Plume's comments. The solution is to create a market in the comment section! Quiggin could spend his pennies on whichever comments he values most. Everybody else could do the same. Then, if people wanted to, they could sort the comments by their value. The most valuable comments would be at the top of the comment section and the least valuable comments would be at the bottom of the comment section.
If we think of Quiggin's blog entry as a home... then the comment section would be the garden. Plume is a weed that grows everywhere in the garden. He takes up way too much space in the garden. The thing is... it's a really big garden... and not all the space is equally valuable. The most valuable space is closest to the house. So the problem really isn't that Plume is taking up too much space... the problem is that he's taking up too much valuable space. All the valuable space that Plume takes up could be used for far more valuable plants. Sure, Quiggin could manually limit the amount of valuable space that Plume occupies... but a far more effective approach would be for Quiggin to give more water, food and love to the plants that he values most. They would grow more vigorously and, as a result, they would crowd out Plume and all the other weeds. Pretty soon all the most valuable space in the garden would be occupied entirely by the most valuable plants. The garden would still have weeds... but they would be located in the most remote part of the very big garden.
This is how and why markets work. Consumers can't pull weeds... but they can help nourish the most beneficial plants. The logical result of consumer choice is that resources are unevenly distributed among the unequally beneficial plants. Redistribution might seem fair... but it simply provides more valuable space to less valuable plants.
Nobody truly benefits when society's limited resources are placed in less beneficial hands. In other words, the opportunity cost of fairness is way too high.