Jon Elster and Robert Nozick on the economics of Karl Marx
29 Jun 2014 Leave a comment
in Marxist economics, Rawls and Nozick Tags: Jon Elster, Karl Popper, Robert Nozick
Popper held that Marxism had been initially scientific: Karl Marx postulated a theory which was genuinely predictive.
When these predictions were not in fact borne out, the theory was saved from falsification by adding ad hoc hypotheses to explain away inconvenient facts. By this, a theory which was genuinely scientific became pseudo-scientific dogma.
Popper criticizes theorists like Marx who attempt to accumulate evidence that corroborates their theories and not looking for evidence that would demonstrate that their hypothesis is false.
Popper claimed that falsifiability was an essential feature of any useful scientific theory. If a theory cannot be falsified, neither it nor its predictions can be validated, for everything that happens is by definition consistent with the theory.
As Popper and Kuhn understood it, bold, risky hypotheses are at the heart of great advances in the sciences and scholarship generally.
Nozick’s view is that people are entitled only to what others are willing to give them as gifts or in economic exchange
28 Jun 2014 Leave a comment
in Rawls and Nozick Tags: distributive justice, justice and acquisition, justice in exchange, Robert Nozick
Nozick was correct to point out that resources are not manna the fell magically from heaven where:
If things fell from heaven like manna, and no one had any special entitlement to any portion of it…
Resources have moral histories that count. Individuals who hold resources through the scattered efforts and transactions of innumerable individuals themselves and these individual efforts and separate transactions give them a moral claim over what they have created, created, acquired and exchanged:
In the non-manna-from-heaven world in which things have to be made or produced or transformed by people, there is no separate process of distribution for a theory of distributions to be a theory of…
According to Nozick there are three sets of rules of justice, defining:
- how things not previously possessed by anyone may be acquired;
- how possession may be transferred from one person to another; and
- what must be done to rectify injustices arising from violations of (1) and (2).
A distribution is just if it has arisen in accordance with these three sets of rules. What matters is the moral history of who has what.We cannot escape that because resources do not fall’s manner from heaven.
These resources came from somewhere and from whence they came they have a moral claim over them. That claim must be treated seriously.
There are individual exchanges, in which the parties do not usually care about desert or handicaps, but simply about what they get in exchange:
No centralized process judges people’s use of the opportunities they had; that is not what the process of social cooperation and exchange are for‘
When people freely to use their property as they choose, any income and wealth distribution advocated by socialist and egalitarian liberal will be undone. Attempts to enforce a particular distributional pattern or structure over time will necessarily involve forbidding individuals from using the fruits of their talents, abilities, and labour as they see fit. As Nozick puts it:
the socialist society would have to forbid capitalist acts between consenting adults
Rawls, Nozick and Gore Vidal on envy
25 Jun 2014 2 Comments
in Rawls and Nozick Tags: difference principle, distributive justice, envy, Gore Vidal, John Rawls, Richard Epstein, Robert Nozick
Nozick argues that one of the unchallenged assumptions made by egalitarians is that the have-nots resent the haves only to the extent that the haves possess power and wealth that were unearned. The envious man, if he cannot also possess a talent and success that someone else has prefers that the other not have it either. The envious man prefers neither have it if he does not have it.
An old Russian joke tells of a poor peasant whose better-off neighbour has just bought a cow. In his anguish, the peasant cries out to God for relief from his distress. When God replies and asks him what he wants him to do, the peasant replies “shoot the cow.”
Nozick said that what really rankles the have-nots is the haves who clearly earned their status and possessions:
It may injure one’s self-esteem and make one feel less worthy as a person to know of someone else who has accomplished more or risen higher.
Nozick said that proximity is a bigger factor in the creation of envy than just desert. Envy is local rather than global in its scope with your neighbour as the target of your envy is rather than far-off figures you don’t really know who may be far more wealthy and successful than the people you actually envy in your day to day lives:
Workers in a factory recently started by someone who was previously a worker will be constantly confronted with the following thoughts: ‘Why not me? Why am I only here?”
Whereas one can manage to ignore much more easily the knowledge that someone else has done more if one is not confronted daily with him.
The point, though sharper then, does not depend upon another’s deserving his superior ranking along some dimension. That there is someone else who is a good dancer will affect your estimate of how good you yourself are at dancing, even if you think that a large part of grace in dancing depends upon unearned natural assets.
These considerations make one somewhat sceptical of the chances of equalizing self-esteem and reducing envy by equalizing positions along that particular dimension upon which self-esteem is importantly based.
Knowing that another’s superior ranking along some dimension depends in part upon unearned natural assets does not soften this loss of self-esteem. These considerations made Nozick sceptical of the chances of equalizing self-esteem and reducing envy by equalizing positions along that particular dimension upon which self-esteem is importantly based.
Nozick said that a contraction of options through regulation, redistribution and other government mandates will only increase envy because it will inevitably result in fewer socially acceptable ways of demonstrating personal worth. With fewer options (i.e. less freedom), the perception of inequality and emotion of envy are likely to be more, not less pronounced. Nozick has point here: primitive societies were racked with envy and any good fortune good fortune has tainted by genuine luck from escaping harvest failures and disease.
Nozick said we should expand a person’s options through capitalism thereby making it more likely that he will find something that he does well and on which he can base his self-esteem. Nozick said we should expand a person’s options thereby making it more likely that he will find something that he does well and on which he can base his self-esteem.
Adam Smith wrote that matters of justice can only be resolved if people distance themselves from the grubby particulars their own positions in particular disputes. This view evolved into Rawls arguing that the justice of social institutions should be tested from behind a veil of ignorance where people are ignorant of their particular role in society and individual talents.
Rawls had no place for envy behind his veil of ignorance:
- Principles of justice should not be affected by individual inclinations, which are also mere accidents; and
- The parties behind the veil of ignorance should be concerned with their absolute level of primary social goods, not with their standing relative to others.
Rawls was nonetheless alive to the possibility is that:
The inequalities sanctioned by the difference principle may be so great as to arouse envy to a socially dangerous extent.
Rawls’ project was to outline a realistic utopia — a society that could really exist given actual human nature. Political philosophy must describe workable political arrangements that can gain support of real people as they are.
On envy, Rawls’ main fall-back was the background institutions (including a competitive economy) making it likely that excessive inequalities will not be the rule. He recognised that the income of the poorest, along with the whole of society, benefit from competition in a market economy. Richard Epstein explained how the market is important to distributive justice and social peace despite envy:
Strong competitive markets do not favour one individual over another. They work well to harness individual self-interest to generate massive amounts of wealth, widely distributed in society, through voluntary transactions. Behind the veil, rational people should the support of strong and transparent markets as their first order of business.
Academics and their bias against the market
19 Mar 2014 1 Comment
in F.A. Hayek, market efficiency, occupational choice, organisational economics, personnel economics Tags: academic bias, compensating differences, Hayek, intellectuals, Richard Posner, Robert Nozick, Schumpeter
The expansion of jobs for graduates from the 1960s onwards increased the choices for well-educated people more disposed to the market of working outside the teaching profession. Those left behind in academia were even more of the Leftist persuasion than earlier in the 20th century.
Dan Klein showed that in the hard sciences, there were 159 Democrats and 16 Republicans at UC-Berkley. Similar at Stanford. No registered Republicans in the sociology department and one each in the history and music departments. For UC-Berkeley, an overall Democrat:Republican ratio of 9.9:1. For Stanford, an overall D:R ratio of 7.6:1. Registered Democrats easily outnumber registered Republicans in most economics departments in the USA. The registered Democrat to Republican ratio in sociology departments is 44:1! For the humanities overall, only 10 to 1.
The left-wing bias of universities is no surprise, given Hayek’s 1948 analysis of intellectuals in light of opportunities available to people of varying talents:
- exceptionally intelligent people who favour the market tend to find opportunities for professional and financial success outside the universities in the business or professional world; and
- those who are highly intelligent but more ill-disposed toward the market are more likely to choose an academic career.
People are guided into different occupations based on their net agreeableness and disagreeableness including any personal distaste that they might have for different jobs and careers. There is growing evidence of the role of personality traits in occupational choice and career success.
The theories of occupational choice, compensating differentials and the division of labour suggest plenty of market opportunities both for caring people and for the more selfish rest of us:
- Personalities with a high degree of openness are strongly over-represented in creative, theoretical fields such as writing, the arts, and pure science, and under-represented in practical, detail-oriented fields such as business, police work and manual labour.
- High extraversion is over-represented in people-oriented fields like sales and business and under-represented in fields such as accounting and library work.
- High agreeableness is over-represented in caring fields like teaching, nursing, religion and counselling, and under-represented in pure science, engineering and law.
Schumpeter explained in Capitalism, Socialism, and Democracy that it is “the absence of direct responsibility for practical affairs” that distinguishes the academic intellectual from others “who wield the power of the spoken and the written word.”
Schumpeter and Robert Nozick argued that intellectuals were bitter that the skills so well-rewarded at school and at university with top grades were less well-rewarded in the market.
- For Nozick, the intellectual wants the whole society to be a school writ large, to be like the environment where he or she did so well and was so well appreciated.
- For Schumpeter, the intellectual’s main chance of asserting himself lies in his actual or potential nuisance value.
Richard Posner also had little time for academics who say they speak truth to power:
- The individuals who do so do it with the quality of a risk-free lark.
- Academics, far from being marginalized outsiders, are insiders with the security of well-paid jobs from which they can be fired with difficulty.
- Academics flatter themselves that they are lonely, independent seekers of truth, living at the edge.
- Most academics take no risks in expressing conventional left-leaning (or politically correct) views to the public, which is part of the reason they are not regarded with much seriousness by the general public.
Why are there so few workers’ co-ops?
19 Mar 2014 6 Comments
in Austrian economics, industrial organisation, labour economics, managerial economics, organisational economics, theory of the firm Tags: adverse selection, cooperative ownership, Jon Elster, kibbutzim, moral hazard, Ran Abramitzky, Robert Nozick, worker ownership
If workers’ cooperatives are so efficient, why are there so few cooperatives? Workers’ cooperatives should be able to slowly undercut other firms on price because they do not have to pay a profit to the capitalists.
Building societies, credit unions and some life insurance companies were mutually owned by their customers for a long time, but recently fell out of favour because of a growing lack of competitiveness and under-capitalisation.
Cooperatives are not economically viable because of intrinsic difficulties of entrepreneurship and management. And most workers prefer to work in firms for a wage rather than wait for the co-op to start up and hopefully break even before they get their first pay cheque. That could be a slow train coming.
The kibbutzim are Israeli agricultural communities initially organized on socialist lines, mostly between the 1910s and 1950s. The kibbutz is an example of voluntary socialism. The founders of kibbutzim were socialist idealists wanting to create a new human being.
Robert Nozick pointed out that few people actually join a kibbutz. Six per cent is the maximum proportion of any population who would voluntarily choose to live in these socialist communities. More recently, 2.6% of the Israeli population live on a kibbutz.
Originally, most kibbutzim followed strict socialist policies forbidding private property; they also required near-total equality of income regardless of differences in productivity, and in some cases, even abandoned the specialisation of labour. Kibbutzim are communities whose aim is equal sharing.
Kibbutzim were expected to fail because of moral hazard and adverse selection. Other organisations subject to adverse selection and moral hazard are professional partnerships, co-operatives, and labour-managed firms because they are all based on revenue sharing.
Kibbutzim have persisted for most of the twentieth century and are one of the largest communal movements in history. About 40% are still run on communist principles. Why is this so?
The kibbutz movement was founded by individuals who can be regarded as ex-ante homogeneous in their ability and potential income, and who came to a new land full of uncertainties. They were young unattached individuals who share a comparatively long period of social, ideological, and vocational training.
An even more durable example of voluntary collectivist living is Catholic monasteries and convents, but notice that these too were founded on a realization that close family ties are inimical to communal order.
Kibbutz founders wanted insurance, but their founders realised that members who would turn out to have high abilities might leave the Kibbutz.
- The founders of the kibbutzim decided to abolish all private property and to own all wealth commonly, which served as a lock-in device.
- Like monasteries and convents, kibbutzim deter members from fleeing through this communal ownership of property. You leave with the shirt on your back!
Kibbutzim also put prospective members through lengthy trial periods to make sure they are made of the right stuff. Those raised on a kibbutz tend to have learned kibbutz-specific skills, such as agronomy, which also makes exit to the outside world even more difficult.
Kibbutzim are similar to law firms, medical and business partnerships that pool income for risk sharing purposes.
Mutual monitoring and peer pressure replace direct monetary incentives in mitigating moral hazard in a kibbutz (and in monasteries and convents) in the same way as in professional partnerships, cooperatives, and labour-managed firms with pooled assets and the option of exit.
The trade-off between insurance and adverse selection determines the level of equality within a kibbutz and its size, as with any other professional partnership:
- Kibbutz vary in size from less than a hundred to over a thousand, but most have between 400 and 600 members, with an average of 441 members.
- Kibbutz size is limited by the savings on income insurance no longer offsetting the costs of moral hazard and other transaction costs as the Coasian firm grows in size.
Ran Abramitzky writes with great insight on the economics of the kibbutzim. He is writing a book The Mystery of the Kibbutz: How Socialism Succeeded. He found that high-ability individuals are more likely to leave a kibbutz. The brain drain would be worse if kibbutzim didn’t make it so costly to exit. Is this a familiar theme of socialism?
Many hybrid organisations exist in the market, ranging from joint ventures and agricultural seller and supermarket buyer co-ops to labour-owned firms such as in most of the professions.
But rarely do we find real life existing cooperatives with all workers and only workers having equal ownership rights. As Jon Elster noted, there are often non-working owners, non-owning workers and unequal distribution of shares in real life workers’ co-ops. All other types of co-ops and professional partnership share this feature.
Robert Nozick and J.K. Rowling
15 Mar 2014 Leave a comment
in Rawls and Nozick Tags: distributive justice, Harry Potter, J.K. Rowling, Robert Nozick, top 1%
Tyler Cowen summarised Robert Nozick’s Wilt Chamberlain example, thus: a bunch of poor kids pay to see Wilt Chamberlain play basketball. Wilt gets the money, the kids get to see the game. Wilt is millions of dollars richer by the end of the season and the kids poorer. Since we wouldn’t object to any one of these individual voluntary market transactions, why should we object to the resulting new distributional pattern of income and wealth? Is this new pattern unjust?
Robert Nozick argued that most notions of distributive justice would require a continual and unjustified interference in personal liberties to stop people undoing equality by trading with people such as Wilt Chamberlain. Individuals would be stopped from using the fruits of their talents, abilities, and labour as they see fit.
Isn’t it time to update and internationalise the Wilt Chamberlain example?
- A Scottish welfare mum decides to cheer herself up and write a book, going to local cafés to do so to escape from her unheated flat.
- The initial print run was 1,000 books, five hundred of which were distributed to libraries.
- J.K. Rowling is the first to become a billionaire by writing books.
- Every one of those book purchases was voluntary.
- Every one willingly gave up their money for her books.
- Is this new distributional pattern of wealth and income unjust?
G.A. Cohen twisted and turned to argue that the fruits of Rowling’s mind and willingness to work, in effect, belong to us all?!
How many more Harry Potter books would have been written if Cohen is right and his ideas applied about taxing the rich?
Are you willing to risk explaining your answer to the young and not so young fans of Rowling’s books about how it would be part of a better world for them that the additional Harry Potter books were not written?
Instead of just letting young people buy her books if they want them, we must put up with constant interference with people’s liberties to prevent injustices from J.K. Rowling’s royalties stream getting too high.
Liberty upsets patterns. Allowing individuals freely to use their equal wealth and income as they choose will inevitably destroy any distributional pattern advocated by socialists and egalitarians. If anyone evaluates how just this or that pattern of income and wealth distribution is based on how things end up, they must constantly support interferences with people’s liberties. That people having rights and resources have moral histories was central to Nozick’s attack on Rawls. Nozick rejected Rawl’s notion of resources and talents being collective assets to be assigned by a central distributor.
More and more of the top 1% of income earners these days are superstar celebrities, athletes and entertainers. J.K. Rowling and most top celebrities, athletes and entertainers get a pass on distributional injustices and growing inequality resulting from their membership of the top 1% of income earners. Why?
Philosophers do spend a lot of time arguing over whether we own our own eyes and thus can can take our eyes with us behind the veil of ignorance or whether our spare good eye instead should be left outside to be redistributed through an eye lottery to the blind. But if we own our own eyes no matter what, why not our other natural gifts, talents, good health and work ethic?
P.S. J.K. Rowling is a socialist who gave millions to British Labour. She would not be able to do that if the 83% top income tax rates of 1970s British Labour had applied. Maybe she would have been another of the legion of left-wing tax exiles such as in the 1970s?
Robert Nozick’s framework for utopias
13 Mar 2014 Leave a comment
in liberalism, Rawls and Nozick Tags: Liberalism, Robert Nozick
Robert Nozick’s framework for utopias has the following features:
- The main problem in any utopian project is people are different, and their preferences for an ideal community also differ;
- Utopia will consist of many different and divergent communities in which people lead different kinds of lives under different institutions;
- People in these utopias are free to leave; and
- If they do not enjoy any of the utopian worlds currently available, they can create the world they would prefer to live in.
Nozick’s framework tries to open up as many options as possible for as many people as possible, with people free to leave for what they think is a better place.
Utopias are many federal systems with a right to emigrate to other states or countries. Is people and their talents, education and capital being free to leave really part of a progressive Left utopia?
Freedom has many difficulties, and democracy is not perfect.
But we have never had to put a wall up to keep our people in, to prevent them from leaving us!
JFK – ‘Ich bin ein Berliner’ Speech
Any utopia must have exit, voice and loyalty. That has been the case as the world embraced free market policies and democracy since 1980. A major step towards utopias was the collapse of communism and the rejection of big government.
Exit, competition from abroad, and new entry are the cornerstones of utopias.
The progressive Left talks of a single utopia with a great sense of community but also with a certain disdain for tax exiles.
The libertarian Right talks of utopias where people lead lives under different institutions they can vote in and out or reject and just migrate to somewhere better. Everyone can live their lives in accordance with their own preferences. Welfare state utopias are free to compete with Hong Kong style utopias. Good luck.
Utopia, you are standing in it! 
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