Friday, September 25, 2015

Wicksellian Interest vs Wicksellian Benefit

Scott Sumner posted yet another blog entry on Wicksellian Interest.  Why is Sumner far more interested in Wicksellian Interest than he is in Wicksellian Benefit?  In his entry Sumner asks what he's missing.  Here's my guess...

It would seem to be a blatant injustice if someone should be forced to contribute towards the cost of some activity which does not further his interests or may even be diametrically opposed to them. - Knut Wicksell, A New Principle of Just Taxation

Justice would thereby have been done at least to the extent that each man received his money’s worth.  - Knut Wicksell, A New Principle of Just Taxation

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other.  - Knut Wicksell, A New Principle of Just Taxation

For Buchanan, Wicksell is “the intellectual father of modern public finance” (Buchanan, 1968: 192), and he states: “In any overall evaluation of the history of fiscal thought, Wicksell alone commands the heights of genius” (Buchanan, 1967: 285).  Buchanan’s Nobel-prize speech honored Wicksell with the accolade that Wicksell deserves designation as the most important precursor in public finance theory. (Buchanan, 1987: 243). - Bernd Hansjürgens, The Influence of Knut Wicksell on Richard Musgrave and James Buchanan

The effect (of the Finanztheoretische Untersuchungen, B.H.) on me was dramatic. Wicksell laid out before me a set of ideas that seemed to correspond precisely with those that I had already in my head, ideas that I could not have expressed and would not have dared to express in the public-finance mindset of the time.  - James Buchanan, Economics from the Outside in: "Better Than Plowing" and Beyond

A second analytical principle emerged more than a century after Smith’s Wealth of Nations, and it was not explicitly incorporated into the norms for policy. But it may have been implicitly recognized. It is important because it reinforces the classical principles from a different and essentially political or public-choice perspective. In 1896, Knut Wicksell noted that an individual could make an informed, rational assessment of various proposals for public expenditure only if he were confronted with a tax bill at the same time. Moreover, to facilitate such comparison, Wicksell suggested that the total costs of any proposed expenditure program should be apportioned among the individual members of the political community. These were among the institutional features that he thought necessary to make reasonably efficient fiscal decisions in a democracy. Effective democratic government requires institutional arrangements that force citizens to take account of the costs of government as well as the benefits, and to do so simultaneously. The Wicksellian emphasis was on making political decisions more efficient, on ensuring that costs be properly weighed against benefits. A norm of balancing the fiscal decision or choice process, if not a formal balancing of the budget, emerges directly from the Wicksellian analysis. - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes

Essential though the efficiency model of public goods is as a theoretical construct, standing by itself it has little practical use.  The omniscient referee does not exist and the problem of preference revelation must be addressed.  The Wicksellian perspective is thus needed. -  Richard Musgrave, The Nature of the Fiscal State

The only reason for recalling the Wicksellian Connection in this chapter is the long and solidly held conviction of many Public Finance economists that vertical fiscal imbalance and the intergovernmental flows of funds that it necessarily implies breaks the connection between revenue and expenditures and leads to fiscal illusion, bureaucratic manipulation, and waste. - Albert Breton, Competitive Governments: An Economic Theory of Politics and Public Finance

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