Re: Re sorting the issues

[IPGmail@aol.com]

Some responses to Shann and Keith below.  (My only response to Michael's 
comments about income security is that I agree with what he had to say.)

First to Shann:

"I would like to clarify point 3b of the overview presented by Alan Zundel
who has presented Kelso's view as mine..."

I apologize if I have distorted your views; I did not mean to collapse them 
into Kelso's or imply that they were derivative.  I use Kelso's ideas as a 
benchmark because I am very familiar with them, yours are new to me.  As you 
note, there are affinities between you and Kelso; getting the distinctions 
clear may take some repetition.

"I believe that the Kelso position is that 'we don't need to redistribute
but to change the distributive mechanisms for 
ownership of newly created capital'.  My position is that this approach is
useful but represents only a 'band aid' solution to the problem created by
the present rules of ownership which allows ALL types of real property
owners to capture 'surplus profits and/or windfall profits from
'externalities'.  Sharing the creation of 'newly created capital',
mitigates but does not stop the existing system concentrating wealth,
power, privilege and exploitation."

Your ideas about surplus profits are new to me and quite interesting, but 
otherwise the above does not sound that far from Kelso.  He also believed 
(and I agree with him here) that the present system serves to concentrate 
wealth &tc. via tax laws, accounting conventions (depreciation), the 
channeling of credit, and so on.  If I am following you, I think you are 
saying that "redistribution" may be a deceptive term because it implies that 
present ownership claims and privileges are taken at face value as being just 
or natural or something.  (Anyway, that is what I think about it.)

Now to Keith:

> >1. Is broader capital ownership good, bad or neutral from a
>  macro-economic standpoint? 
>  THIS IS NOT QUITE THE ISSUE.  ECONOMISTS LOOK FOR AN 
> IMPROVEMENT IN THE GENERAL WELFARE...  

"General welfare" is manifestly an ethical concept, and an ambiguous one into 
which a wide variety of more specific meanings can be read.  If this is the 
term economists use, then they are either acting as social ethicists or using 
an ethical term misleadingly to mean something more prosaic such as the 
macroeconomic indicators you list (i.e., employment, growth, interest rates, 
etc.)  I say it is misleading because it ties these indicators to an ethical 
term in a way that could influence people to believe that these actually 
comprise true social well-being, which is a controversial claim as you note.  
Are you saying that you wanted a discussion here among economists as to what 
"general welfare" should mean?

>   >1a. Conventional economic theory sees it as bad or neutral... 
>  I WOULD DISAGREE WITH THIS INTERPRETATION.  IT IS QUITE CONCEIVABLE TO
>  ARGUE FROM CONVENTIONAL THEORY THAT BROADER CAPITAL OWNERSHIP COULD BE GOOD
>  FROM THE PERSPECTIVE OF CONVENTIONAL MACROECONOMIC INDICATORS... 

I was going on my memory of the "Paul Krugman" point made early on; I thought 
the idea was that PK might say broadened ownership is not such a hot idea and 
the aim here was to come up with good arguments to convince him otherwise.  
Maybe I didn't quite catch it.  But it seems to me that the conventional 
economist would be most likely to say that either (a) the distribution of 
ownership does not really matter, what matters is the efficient allocation of 
resources, or (b) broadened ownership is not a good idea because you need 
people with resources beyond their consumer needs in order to invest, 
spreading the wealth means spreading income and the new capitalists will 
spend their new income on consumer goods rather than investing it.  The Kelso 
argument against (b) relies on the idea that investment can come from credit 
rather than financial savings.  I don't feel qualified to assess this 
argument, nor do I know of a macro-economic argument against (a), but I am 
interested in what you economists have to say about all this.

> ...THESE POLICY INSTRUMENTS
>  CAN HARDLY BE IMPLEMENTED WITHOUT AT LEAST A LITTLE BIT OF REDISTRIBUTIVE
>  IMPACT.  THAT IS WHAT TRIPS THE WARNING BELL FOR ECONOMISTS AND MAKES US
>  UNCERTAIN OF THE OUTCOME.
>   >3. If broadening ownership is a good thing, what's the best way to get
>  there? 
>  FROM THE ECONOMISTS’ PERSPECTIVE, ONE THAT IS EFFECTIVE WITH THE LEAST
>  REDISTRIBUTIVE IMPACT.

Why does "redistributive impact" trip warning bells and a bias towards 
miminalizing it?  Transfer costs and distortion of incentives, difficulty of 
predicting how politicians will use redistributive tools, or...?  I thought 
Keynesian economics had made redistribution a tool that could be considered 
as a route to smoothing the economic cycle.  It sounds like it is regarded as 
something of a dirty word; I'd like to understand why.

>  AS AN ECONOMIST, ELLERMAN CANNOT ENDORSE REDISTRIBUTION, FOR REASONS
>  SUGGESTED ABOVE.

But if Ellerman or any of you endorse any particular conception of "general 
welfare" you are in the same situation, making ethical judgments.  (The 
"reasons suggested above" were not clear to me; maybe you could fly them by 
me again.)
  
>  ...THE "TRULY FREE MARKET ECONOMY" IS AN ITEM
>  OF RHETORICAL BULLSHIT... 

I agree with you.  Just to be clear, I was presenting the "truly free market" 
argument as that of the orthodox Kelsonians, not myself.

>  >A lot of Kelso's theory is built on that foundation, but I have yet to get
>  an answer as to >*why* income shares in a free market would reflect
>  productiveness.
>  ...DOES THE ANSWER HAVE SOMETHING TO DO
>  WITH HISTORICAL CONTEXT?  THAT IS, WITH THE POWER ENJOYED BY LABOR UNIONS
>  IN THE DECADE FOLLOWING WW II--WHICH TO ECONOMISTS REFLECTS THE RELATIVE
>  PRODUCTIVITY OF LABOR, IN SPITE OF THE PHYSICAL QUANTITY OF WORK THAT WAS
>  BEING PERFORMED BY STEEL AND CONCRETE FACTORIES ENERGIZED BY THE
>  COMBUSTION OF FOSSIL FUELS?

This is a theoretical issue and not (in present circumstances cannot be) an 
empirical one.  Kelso claimed that in a "truly free market" income shares 
would reflect productiveness.  He dismisses actual income shares (skewed 
towards labor, not capital, and thus not reflecting relative 
"productiveness") as a product of a variety of political interferences (laws 
stemming from labor union power, etc.).  What I can't see, and haven't 
received a good answer from Bob Ashford or Norm K. about, is why in their 
theoretical "truly free market" income shares would be expected to reflect 
productiveness.  If they cannot answer this, a lot of Kelso's structure (the 
stuff that most antagonizes economists) falls down.

>  >Second, to reemphasize a point made above: the discussions of ESOPs are
>  interesting, but >even Kelso saw them as second-best to his other policy
>  ideas...
>  BUT DO THE OTHER DEVICES RAISE EVEN MORE CONCERN ABOUT REDISTRIBUTION IN
>  CONTRAST TO "EARNED" OR "MERITED"  INCOME?

That depends upon whether the ESOP stocks are regarded as compensation for 
labor or truly self-financed.  If the latter, no.  If the former, it also 
depends upon whether the other beneficiaries receiving the stock can claim to 
earn or merit it (e.g., consumers contribute to a company's success by buying 
its products.)  All these issues of "meriting" something are ethical issues 
and rather murky.  We have to go back to Shann's contention that current 
ownership rules give unmerited wealth to current owners.  It may be that 
aspects of financing capital formation such as the provision of credit by the 
gov't are simply not a matter of merit; no one (or perhaps everyone) has 
earned the new wealth and the fruits of it.

>  IT IS WHEN WE ARE ASKED TO PARTICIPATE IN THE
>  MORAL AND POLITICAL ARGUMENT THAT ECONOMISTS GET EDGY ABOUT WHAT WE MAY
>  RESPONSIBLY SAY AS MEMBERS OF A DISCIPLINARY GROUP... 
>   AS INDIVIDUALS, OF COURSE, WE HAVE OUR
>  MORAL AND POLITICAL PREFERENCES LIKE ANYONE ELSE.  THOSE OF US
>  PARTICIPATING IN THIS DISCUSSION EXPOSE OUR PERSONAL BIAS BY THE VERY ACT. 

Your economist's training shows here in referring to moral judgments as 
"preferences" or "biases."  I think they are much more than that, and are a 
proper subject of our reasoning, discussion and criticism, especially when 
our professional work is on subjects that impact public policy.  Even a 
"preference" for efficiency is an ethical position, after all.

Alan Zundel
Institute for the Public Good
http://www.publicgood.org