The paradox of inequality (income)

There is a movement in the USSA for the issue of what has been the business of top 1 percent of wealthy people for the rest of the population.

I am more than reminded of the great 1955 essay by Von Mises on “Inequality ofWealth and Income”. Some excerpts: 

• Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches. 

• …country enjoys the highest standard of living ever known in history because for several generations no attempts were made toward "equalization" and "redistribution." Inequality of wealth and incomes is the cause of the masses' well-being, not the cause of anybody's distress. Where there is a "lower degree of inequality," there is necessarily a lower standard of living of the masses. 

• There is no use in fooling ourselves. Our present taxation policy is headed toward a complete equalization of wealth and incomes and thereby toward socialism. This trend can be reversed only by the cognition of the role that profit and loss and the resulting inequality of wealth and incomes play in the operation of the market economy.

Why NOT Hayek! (and Mises)

Why Mises (and not Hayek)?

Nobel Prize for Mises!!

Prof Pete Boettke of George Mason University says that:

• Important to recognize that Mises, despite the fact that he was always a little bit out of step with the profession, he also was recognized. He was the Distinguished Fellow of the American Economics Association (AEA) in 1969; there was a large segment of people who pushed to try to get him the first Nobel Prize in economics. He won the highest medal of honor for scientific accomplishment from his own country, Austria. 

Listen the talk here. Also another one on Hayek is here.

Letters in spirits erode nothing but the ‘evil’

Recently I happen to read some of articles written by Jude Blanchette. The following are some of collection of letters written to various newspapers by Professor F A Hayek and Mises and Oskar Morgenstern. in the early decades of twentieth century.

From the "Austrian Economists as Denizens of the Popular Press"

• In 1923, a 24 year old F.A. Hayek wrote a letter to the editor of The New York Times in which he detailed incipient inflationary forces in Germany that had already devalued the mark to 1/500 of its value. "It is a matter of common knowledge," the young Hayek wrote, "that Germany's middle classes, including the small merchant and manufacturer, have lost almost everything."

• In a series of letters to the editor of The New York Times, for example, Mises outlined the socialistic nature of the Nazi regime. In a 1942 letter, he wrote that in Germany, "Market exchange and entrepreneurship are thus only a sham. The government, not the consumers' demands, direct production; the government, not the market, fixes every individual's income and expenditure. This is socialism with the outward appearance of capitalism ¾ all-round planning and total control of all economic activities by the government."

• The need to overcome economic nationalism through trade and commerce, an important theme throughout the work of Mises, was the subject of a 1943 letter to The New York Times. In this letter, entitled, "Super-National Organization Held No Way to Peace," Mises writes that, "The building up of a lasting union of the peace-loving nations is not a technical problem of conventions, constitutions and bureaucratic organizations. Economic nationalism cannot be eradicated by measures of a purely institutional character. What is needed is a radical change in political mentalities and social and economic mentalities."

• In a series of New York Times op-eds published in the 1950's, Oskar Morgenstern championed the capitalism of Hong Kong and noted the failings of the "third way" in Sweden. A 1954 piece entitled "Capitalist Oasis" details the remarkable progress made by the tiny island of Hong Kong, "a paragon of capitalist freedom."

• What would be of particular interest to Austrians, and indeed was for Morgenstern, was the regulation of money, or lack thereof. "The money market is remarkable in that three private banks are still allowed to issue banknotes of their own, which constitute the local currency in circulation apart from government coins. There is no central bank, but whether because of this or in spite of this, the money system is very stable. Every currency can be transacted freely and there is no control over capital movements in and out."

• In a remarkable four-part series appearing in the Wall Street Journal beginning December 12, 1949 and ending four days later, Mises condensed his critique of socialism and addressed it to the masses. The four op-eds were published under the titles "The Socialist Society," "The Socialist Planner," "Socialism's Unique Problem" and "Socialism in Disguise."

• Hayek, for his part, took to the offensive in articulating the ideas of freedom. In a response to Professor Harold Laski, appearing in The New York Times, on the question of "Is the World going to the Left?" Hayek reiterates the need for individual thought and freedom in the face of totalitarian pressures.

• "The century from 1848 to 1948 will probably come to be known as the century of Socialist delusion, a century during which, as a result of sheer intellectual error, so much good-will was canalized into efforts which very nearly succeeded in destroying the values the people most wanted to preserve."

• In Socialism, Mises wrote that, "Only ideas can overcome ideas and it is only the ideas of Capitalism and of Liberalism that can overcome Socialism. Only by a battle of ideas can a decision be reached."

Also read:

1. Education is the Effect, Not the Cause, of Affluence by Jude Blanchette
2. Government Is Better than the Market at Producing Human Capital? by Jude Blanchette
3. We Have Enough Globalization?by Jude Blanchette

Biology is similar to Economics

Krugman gave a talk at the European Association for Evolutionary Political Economy in 1996. Some interesting analyses were drawn in this talk mainly the difference between economics and biology.

But for learning basic economics in comprehensive he says:

Economics is “Interactions among intelligent, self-interested individuals.”

• “Economics is about what individuals do: not classes, not "correlations of forces", but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence.
• The individuals are self-interested. There is nothing in economics that inherently prevents us from allowing people to derive satisfaction from others' consumption, but the predictive power of economic theory comes from the presumption that normally people care about themselves.
• The individuals are intelligent: obvious opportunities for gain are not neglected. Hundred-dollar bills do not lie unattended in the street for very long.
• We are concerned with the interaction of such individuals: Most interesting economic theory, from supply and demand on, is about "invisible hand" processes in which the collective outcome is not what individuals intended.”

I believe many the libertarians will agree with me at least in the above lines.

Mises wrote in his masterpiece Human Action that “It is a mistake to set up physics as a model and pattern for economic research. But those committed to this fallacy should have learned one thing at least: that no physicist ever believed that the clarification of some of the assumptions and conditions of physical theorems is outside the scope of physical research. The main question that economics is bound to answer is what the relation of its statements is to the reality of human action whose mental grasp is the objective of economic studies.”(p.6)

Mises also argued that “The discovery of a regularity in the sequence and interdependence of market phenomena went beyond the limits of the traditional system of learning. It conveyed knowledge which could be regarded neither as logic, mathematics, psychology, physics, nor biology.”

But Krugman argues “…….economics and evolutionary theory are surprisingly similar. It is often asserted that economic theory draws its inspiration from physics”

Further Krugman says:

• “You will discover that our whole style of thinking, of building up aggregative stories from individual decisions, is not at all the way they think.
• Nature can often find surprising pathways to places you would have thought unreachable by small steps."

Professor Dani Rodrik is wrong……………

Dani Rodrik writes: 

• So is economics in need of a major shake-up? Should we burn our existing textbooks and rewrite them from scratch? 
  
• Actually, no. Without recourse to the economist’s toolkit, we cannot even begin to make sense of the current crisis.
  
• Why, for example, did China’s decision to accumulate foreign reserves result in a mortgage lender in Ohio taking excessive risks? If your answer does not use elements from behavioural economics, agency theory, information economics, and international economics, among others, it is likely to remain seriously incomplete.
  
• The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.
  
• Economics’ richness has not been reflected in public debate because economists have taken far too much license.  
  
• When economists disagree, the world gets exposed to legitimate differences of views on how the economy operates. It is when they agree too much that the public should beware. 
  
• Sadly, in view of today’s needs, macroeconomists have made little progress on policy since John Maynard Keynes explained how economies could get stuck in unemployment due to deficient aggregate demand. Some, like Brad DeLong and Paul Krugman, would say that the field has actually regressed. 
  

It is not surprise to me when Mr Dani did not mentioned economists like F A Hayek, Mises who actually explained about how “John Maynard Keynes explained how economies” functions “in unemployment due to deficient aggregate demand.”

Neverthless, some the above questions are relavent ot ponder.

Free Market Economist Mises in Indian Parliaments by Chandra

This idea was once brilliantly explained by Mises but now the Indian Politician Sharad Joshi explains the food crisis in India.

“This country enjoys the highest standard of living ever known in history because for several generations no attempts were made toward “equalization” and “redistribution.” Inequality of wealth and incomes is the cause of the masses’ well-being, not the cause of anybody’s distress. Where there is a “lower degree of inequality,” there is necessarily a lower standard of living of the masses”.

The below lines is from Sharad Joshi
“It is an old observation in economics that with increasing incomes the standards of nourishment rise”.