Quote notes (#61)

Garett Jones on the Chamley-Judd Redistribution Impossibility Theorem:

Why isn’t Chamley-Judd more central to economic discussion? Why isn’t it part of the canon that all economists breathe in? Why isn’t it in our freshman textbooks? Part of the reason is surely mood affiliation — it’s an uncomfortable result for some to talk about as evidenced by the handwringing I see in most textbook treatments (exception here, big PDF, p.451). The result can’t be waved away as driven by absurd assumptions: It’s not too fragile, it’s too solid. It’s OK to teach Real Business Cycles since we all know (or “know”) that the Federal Reserve and aggregate demand really drive things in the short run. But to tell people that if we care about the long run, the tax on capital income — on interest, profits, dividends — should be zero? And to have only “exotic” counterarguments? Let’s just leave that for the more advanced courses …

(Thanks to Jim for the pointer. “The Chamley-Judd Redistribution Impossibility theorem is economists admitting Ayn Rand was right while trying to sound as if they are not admitting it.”)

February 16, 2014admin 20 Comments »
FILED UNDER :Political economy

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20 Responses to this entry

  • Alrenous Says:

    Crap.

    There’s various strong arguments that the king doesn’t much care about the total size of the pile* as long as he’s on top of it.

    Unfortunately, (I just realized) this proves that nobody else cares either, as long as the top isn’t too far away. Since envy trumps rational self-interest, the workers (can’t openly admit they) would rather bugger the entire economy as long as capital is getting more buggered than they are.

    *(Again with the exotic counterarguments, but in a patchwork, kings could compete for status based on how big they can make their piles. Notably this is still indirect.)

    [Reply]

    Alrenous Reply:

    Correction: I shouldn’t call it rational self-interest. That’s a code phrase, and I hate code phrases. I mean material wealth in absolute terms.

    It is neither rational nor irrational to value reduction in envy. It’s just a value. It just happens to exclude other values, such as science, wealth, and military superiority.

    [Reply]

    Handle Reply:

    You’ve identified one of the obvious major flaws in the king-for-life absolute-monarch model. The protections of tenure are corrupting at any level of authority – from king to lowest civil servant. There must always hand some sword of Damocles.

    The obvious solution it to make the position and benefits of leadership aligned with – indeed strictly contingent on – performance, as they are in the corporate and military sectors.

    The trick is to avoid letting the King even think he could ever get control over the means to sever this alignment and thereby prevent his own ouster.

    The theory of Democracy was that the people could hold the King’s performance to account. The practice of Democracy was the King found a way to control the people’s opinions as regards accounting.

    [Reply]

    Alrenous Reply:

    As per Dark Locke, grading by performance will not get you the outcome of discriminating against low performers. Kings might have more trouble controlling a dedicated grader’s opinions as regards accounting, but ultimately not infinitely more.

    Moreover, who has real power? The guy being graded, or the guy doing the grading? Quis custodiet?

    Having collapsed that as an option, is king for life really noticeably worse?

    N.B: I’m still anarcho-formalist. There is a solution: delegitimize coercion entirely.

    Handle Reply:

    @Alrenous:

    grading by performance will not get you the outcome of discriminating against low performers

    Sorry, but that’s ridiculous. There are plenty of institutions in history and in the present world with highly effective, performance-related, leadership-selection mechanisms.

    Even some parts of the government itself – the military and some of the civil service – actually do a pretty decent job of this (good leadership and competent management, mission-accomplishment, etc.) before it gets to the mission-generating, political-appointee level, where things break down. A refined frontal cortex is pointless is pointless if the reptilian brain is calling the shots. It just is that much more effective at pursuing nefarious ends.

    It is other selection mechanisms that generate bad, abusive leaders. Hayek’s “The Worst Rise To The Top”, for example, happens under circumstances of Demotist central planning.

    ‘Real Power’ is a solipsistic illusion – the stuff of hermits or supervillians with ‘rings of fnargl’.

    Actual power, like wealth, is always distributed in real life. It is a network of principle-agent relationships and delegations of authorities. This enable both mass cooperation and coordination (numbers to dominate rivals, monopoly on force, etc.) along with specialization, comparative advantage, and divisions of labor.

    So, the best way to ensure reality-feedback and performance-accountability is to make sure everyone in the system is an agent answerable to their principle.

    Eventually you get to a chief executive who is delegated almost all power except the power to escape performance-accountability.

    In the corporate sector, he answer to the board. The board answers to the shareholders. And the shareholders answer to the market, from whose accountability one can never escape.

    In the military (within the bounds of what is permitted by political controllers), one is accountable to death and defeat at the hands of the enemy, from whom there is also no mercy from being held to account.

    Being held to account to ‘popularity’ is the poison pill that throws a wrench in the whole system.

    Alrenous Reply:

    One constant of distributed power is that the distribution changes. By centralizing, historically, unless we’re talking the breakdown of order.

    Regardless, it can be factored out. Whatever the jurisdiction, macro or micro, one person has power. In a conflict, one Czar will get what they want and everyone else will only get what they want if they happen to agree with the Czar.

    In every territory there is a group with the physical capacity to simply seize everyone else’s stuff. We only have stuff by their sufferance. Their sufferance may be extremely stable, and thus can generally be ignored, but that doesn’t make it not-sufferance.

    In neither case is ‘real power’ an illusion. Of course it’s not fnargl, but looking from outside, it might as well be.

    In your model, one person has the de jure power to remove the monarch. One other person has de facto jurisdiction over the security forces, and thus the physical power.
    So one of three things will happen.

    Damocles will move to oust a monarch, and the general will disagree. The general will win. Thus the general hires himself as Damocles.

    Damocles will tell the king beforehand what will get them removed. Therefore, kings will become weak humans, because the competition will be to become Damocles, not the king. Soon, a psychopath will win and start giving the king very particular conditions. Why bother with the middleman?

    The king will convince Damocles to be a rubber stamp. See also: SCOTUS.

    Well, fourth possibility, the king doesn’t have power anyway (See: POTUS) and the game is played elsewhere. Depends on how the jurisdictions shake out.

    It will be a nice place to live until it breaks down, though. Don’t forget the Bureau of Bureacratic Reduction. It’ll be captured, but it will be great until then.

    Lesser Bull Reply:

    One of my objections to NR is that it’s not real obvious to me that actual voting is at the root of our trouble. Actual voters and actual election results have surprisingly little sway. The bureacracy, the elite consensus that informs what the President and Congress do, media pressure (which is usually self-generated, not just reporting on exogenous groundsweels), and most of all the courts–they all matter much more than voting and voters.

    Characterizing the situation as popularity contests is clarifying. Popularity contests exist where there isn’t voting, like in high school. And where they exist, they usually aren’t reflective of mass opinion. One of the late John Reilly’s dictums was that the “people” usually consists of cafe society. For the French Revolution he argued that the “people” that constituted “popular opinion” was pretty much just a particular plaza where radicals liked to hang out. You see the same thing in high school. The most popular person may be heartily disliked by most of the students–but they are arbiter of fashion and morals for the high status kids.

    Rule by popular opinion really means rule by the cathedral. It should be possible to have voting as your actual system of governance and not just as a symbolic ritual that conceals the real system.

    We don’t live in a democracy. We live in a ‘popular opinion’ state, which means that its rule by elite consensus, but with the added feature of often focusing on what the elite find admirable and enhances their self-regard (i.e., rule by elite opinion, not rule by elite self-interest, though there’s plenty of self-interest admixed). But it’s a mixed state that has some actual democratic features. The democratic features serve to legitimate the elite consensus whenever the voters happen to line up with the elite consensus (“one man, one vote, as many times as it takes until you vote the right way”), they serve as a pressure valve and feedback mechanism to the elites for when they’ve pushed too far, and finally they serve as a way of channelling elite competition (into elections) and siphoning off the strivers and the ambitious from the provinces.

    [Reply]

    Kevin C. Reply:

    Lesser Bull,

    You say it “should be possible to have voting as your actual system of governance and not just as a symbolic ritual that conceals the real system.” On what basis, what evidence, do you make this rather extraordinary claim? Many would hold the opposite, that it isn’t, in fact, possible.

    “We don’t live in a democracy. We live in a ‘popular opinion’ state…”

    If a true “democracy” is something different than a “popular opinion state”, then true democracy does not exist, has never existed, and can never exist.
    See also the Iron Law of Oligarchy.

    Posted on February 16th, 2014 at 4:12 pm Reply | Quote
  • Drfitforge Says:

    In an equilibrium state, there is no capacity for redistribute. So in practice as an equilibrium state is never really reached in the economic sphere, the degree of disequilibria represents the capacity for redistribution. At the extreme ( in a panic or revolutionary state ) , the potential for redistribution is vast.

    [Reply]

    Posted on February 16th, 2014 at 5:32 pm Reply | Quote
  • spandrell Says:

    The board answers to the shareholders.

    If you really believe this I have this bridge I wanna sell to you.

    Every board answers to different pressure groups that have more or less influences towards them. Shareholders usually aren’t organized and have little influence over any decision process. In the end is the different factions inside the board who take decisions through politics.

    “Accountability” is one more concept that should be retired as misleading. There’s n ways to game accountability and not answer whoever you’re supposed to answer to.

    [Reply]

    handle Reply:

    Corporate governance isn’t perfect, but human beings being what they are, i don’t think you can do much better as a generic design.

    Having once assisted in providing counsel to a board, I can tell you that they’re not very worried about any kind of ‘political’ influence from individual holders, or being voted out or with some kind of organized protest, but that’s not what I’m taking about.

    Instead, they are terrified of a large number of institutional holders walking away selling and taking their capital elsewhere, which they will do the minute their scrutiny of your books tells them there’s a 1% better bet elsewhere. Keep in mind a lot of companies are majority owned Not by random individuals Making independent choices but by insiders plus a few huge sophisticated financial companies (mutual and hedge funds).

    Look, call it what you want, ‘ accountability’ or ‘reality feed back’ or ‘competitive market test’. You know perfectly well what I’m talking about. Of course people try to insulate themselves as much as possible, but if they can’t generate competitive dividends there’s no other way to maintain investor loyalty.

    [Reply]

    VXXC Reply:

    Speaks to the wisdom of private funding over public.

    Publicly Traded companies at the mercy of pyschopathic nerds, that is no mercy or long term outlook. Had this been the case in the 19th century – or indeed anytime as our time proves – we would have never built the nation.

    Or built anything. Ever. Anywhere.

    Nor will they get us into space, or anywhere.

    Nor will they maintain.

    Nor can these creatures and the rest of man live under the same sun.

    [Reply]

    admin Reply:

    There’s internal corporate governance, which tends to deteriorate (due to agent problems). Next level out is the hostile takeover machinery of leveraged buyouts, raiders, private equity, vulture funds, etc. which recycle those companies unable to govern themselves competently. Finally there’s the great Darwinian god of bankruptcy, and radical resource recycling.

    Even though corporate governance is vastly superior to politics in performance, it would be a mistake to think this is an institutional mechanism that can ever be reliably adaptive without a vigorous selective process from without. Entropy dissipation requires culling.

    [Reply]

    Handle Reply:

    Agree entirely.

    The Four Winds of Reality Accountability:

    North Wind: Exit From Within (Investors and Employees)
    East Wind: Predation From Without (Hostile Takeover, Corporate Raiders and Vultures, DIP-financiers and Turnaround Specialists)
    South Wind: Exit From Without (Customers leaving for Competitors)
    West Wind: Disease From Within (Potential Collapse of Governance and Management)

    Posted on February 17th, 2014 at 9:24 am Reply | Quote
  • Igitur Says:

    This is fairly obvious if you admit that there’s no reswitching of optimal technologies between capital and labor at different interest rates. Samuelson once published a non-reswitching theorem (kind of an esential result for us to assume “capital” is even well-defined as an object of decision), but pinko classics scholar Sraffa proved him wrong. Samuelson eventually conceded and withdrew his publication. Then economics continued like this (and the general fizzing out of non-tatônnement general equilibrium theory) never happened — we’re really good at lying to ourselves.

    But really, reswitching is an existential problem — since we don’t really have a marginal productivity of capital, then any marginal theory of production with an f(K,L,..) production function is bogus. Including this.

    Again, it’s fairly obvious, as a stylized fact, that capital gains shouldn’t be taxed at different rates from labor income. It’s just too easy to reclassify income, for one. It’s also fairly obvious that smart people tend to beget smart people — look at the mathematical families, the Gausses, the Bernoullis. It’s just not a good strategy, PR-wise or even for the dynamic development of your community, to hook on poorly understood technical aspects of academic disciplines and claim them as victories, as truths that the Cathedral is denying. The truths that the Cathedral is denying are out there, the freaking president of Harvard once in a while erupts with one of those.

    This isn’t “high barriers to entry” either, unless you count the tranny porn I have to look at to see funny trolls at /b/ a high barrier to entry. I can understand wanting to weed out thin-skinned pinkos at an early stage with a rowdy, borderline racist atmosphere, and I’m okay with that. What I’m not okay with is a growth strategy that involves the commemorating things you don’t actually understand. And this isn’t because I’m concerned with truth and love, this is because if NRGLBTqxx* ever gets anywhere, it’s going loaded with a number of things perfectly contrary to reality, such as precisely the parts of marginalist economics that can’t be relied upon at all, or really small results in population genetics and so on.

    It’s embarassing in a way that antisemites and pseudoantisemates and caesaropapists are not; I was loving the mischief this was running with, but it suddenly turned more like a child standing on his toes on a stool to reach the topmost shelf to pick up a Nat Geo magazine for the boobies.

    [Reply]

    Posted on February 17th, 2014 at 1:54 pm Reply | Quote
  • vimothy Says:

    If the Ramsey model was a good description of the economy, then Chamley-Judd might be an important result. More (much more) here: http://www.interfluidity.com/v2/4218.html

    [Reply]

    Posted on February 18th, 2014 at 3:33 pm Reply | Quote
  • Marc Pisco Says:

    Yeah, but… Economists…?! I mean, is there any sane reason to think it’s necessarily true? It sounded good before I knew there were economists involved.

    Extraordinary claims require extraordinary evidence; those of economists, a great deal more.

    [Reply]

    Hurlock Reply:

    Economics used to be a very solid and sane science (and still can be).
    As with everything else, it is when politics get involved that the descent into madness is set in motion…

    [Reply]

    Posted on February 19th, 2014 at 2:27 am Reply | Quote
  • Peter A. Taylor Says:

    @Kevin C.:

    I agree that the distinction between democracy and “popular opinion state” is meaningless.

    What criteria do we use to say if some country has “true” democracy? Incumbents are always going to be hard to oust, and when it happens, it’s compared to being struck by lightning.

    I forget who said it, but one rule is, “If lightning is going to strike, it needs to be allowed to.”

    [Reply]

    Kevin C. Reply:

    “What criteria do we use to say if some country has “true” democracy?”

    If by “true democracy” one mean’s Lesser Bull’s idea of “voting as your actual system of governance and not just as a symbolic ritual that conceals the real system”, then there is a very simple criterion as to whether country X has true democracy. That critierion: does country X exist? If so, then the answer is no.

    [Reply]

    Posted on February 21st, 2014 at 5:48 am Reply | Quote

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