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04/23/2006

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Corey

OK, so I took a break from studying for law exams and read all this and now I have to write a response.

First, I support equality of outcomes, state sponsored redistribution through taxation of top earners and estates, as well as other social welfare transfer payments. I am a white male, I grew up poor, then I was briefly rich, now I am poor again.

Becker wants to rest his case on the fact that women and minority representation gaps have shrunk. To paraphrase Malcolm X: "you stick a knife in my back 9 inches, you pull it out 6 inches, and expect me to smile about it?" Representation is only a means to an end (equality). Income inequality is a social justice issue. It is about relating inputs to outputs, labor to profits, risk to return. And I don't mean rich people gambling bigger sums because they were born with it and don't care, I mean poor people who work hard, risk their health and their family life, and see their share drop.

Who died and made "productivity" god? Oh wait, I forgot the Hayekian mythology about socialism being debunked. OK, so, pretend someone besides the radical left thinks that talking about the economy in totality is a mask and an excuse for ignoring personalized localized need.

I think all this is a giant capitalism apology-fest. It is extremely good and doctrinally certified window-dressing. The grand new-liberalism justification for American corporate hegemony!

What would Cornel West say?

"The conservative project of supply-side economics and military Keynesianism of the 1980s yielded not simply a larger gap between the haves and the have-nots, but also a debt-financed public sphere and a more corporate-dominated economy-all in the name of 'free-enterprise'"

I think maybe we can all agree that that happened. The question is can we now justify income disparity by pointing to educational disparity, or is that just another more subtle version of blame-the-victim or get-a-job.

"Why have not more high school graduates gone on for college education when the benefits are so apparent?"

No, it isn't the breakdown of the family. it isn't "their" fault in any way. It was very easy for me to go to college, both times. I am sure it was easy for Becker and Posner too. The fact is, our society is still discriminatory, in very real, very de facto ways that our law has simply chosen to not see. The more the income gap widens, the more going to college is not just about seeing the apparent benefits.

I do agree however that education has become more important. Interesting then how the focus has become so keen on "standards" and test scores and "objective criteria". Isn't distributing educational benefits according to tests on which everyone admits there is a racial performance gap really suspicious and retrograde?

Everyone can't go to college. There is a completely separate argument about access to education and minority representation and culturally biased tests but no matter how that comes out, everyone can't go to college. If education is the only route to a fair share of our society's wealth, then there will always be an underclass.

Maybe we should talk about how we have 1 million lawyers in this society and how the vast majority of them work for one side of the capital v. labor, rich v. poor debate. With 1 million lawyers on the side of corporations, no wonder management has been seeing a rise in dividends.

Haris

Your characterization of the investor getting rich without doing anything. In the first scenario, the investor presumably paid the purchase price to someone (let's say the public), thus providing the public with funds at the beginning of the year. If the public invests those funds into, say, infrastructure, tax rebates, or anything else, by the end of the year they would have received benefits of the purchase price plus any return that yielded. If you believe in the effectiveness of the political process [I don't], then the public presumably felt that they would yield more benefits from having the up-front purchase price plus the return and a private beach than from a publicly owned beach and no up-front payment.

Additionally, all empirical evidence shows that public ownership leads to very low quality of management, so a privately owned beach is very likely to be better-managed than a publicly owned beach. The above arguments similarly undermine the other two scenarios.

In fact, public ownership would encourage rent-seeking far more than private ownership. You can just see campaign contributors "asking" for the government contract to maintain the beach using less than kosher methods. Meanwhile, a private investor would certainly use contractor who would do the best job at the lowest price and not waste taxpayer money.

The benefits of public ownership are limited to pure public goods like national defense. In the scenarios described above, private ownership would probably be better, even though the benefits are more concentrated. Of course, it is not necessarily fair or just that an investor who inherits money he never earned gets to use it to make even more. Then again, he is assuming the risks of failure in this case. The ultimate questions of fairness and justice and problems of distribution are beyold the scope of this post, but the answer certainly doesn't lie in public ownership.

Wes

In the first scenario, the investor presumably paid the purchase price to someone (let's say the public),...You make a good point. If the beach was originally owned by the public then you would have both the public and the investor getting richer but if the beach was originally owned by another investor then you merely have two investors getting richer. Essentially, whoever has wealth becomes more wealthy at the expense of whoever doesn't have wealth.If all the wealth is owned by private individuals then this is an unstable system. As the gap between the rich and the poor widens, the widening of the gap accelerates. Eventually, the rich own everything and you end up with something like the feudal system that existed in Medieval Europe.The only way to keep this instability in check is to either aggressively tax the wealthy or to have wealth owned collectively so that wealth increases uniformly.Of course, it is not necessarily fair or just that an investor who inherits money he never earned gets to use it to make even more. Then again, he is assuming the risks of failure in this case.It is not clear that owning a beach is a great risk, however, if society wanted to reward risk it could simply pay people to play in traffic. What society really wants to reward is behavior that makes society more productive. This means directing wealth toward machines and technology that make production more efficient rather than having wealth tied up in something like a beach that does not increase the efficiency of production.Additionally, all empirical evidence shows that public ownership leads to very low quality of management, so a privately owned beach is very likely to be better-managed than a publicly owned beach.Privately owned beaches are typically restricted to rich people who pay large amounts of money to not have to associate with poor people. Whether you consider that to be higher quality of management depends on whether you can afford to not associate with poor people.Public ownership of land and natural resources would go a long way to helping with the inequality of wealth distribution but, from a practical point of view, it is the same as having high taxes on land and natural resources that then result in more equally distributed private ownership of land and natural resources.

Haris

Apologies ahead for time for the long post.

if society wanted to reward risk it could simply pay people to play in traffic.

This is not the type of risk I'm talking about, and I'm pretty sure no economist is ever talking about this kind of risk. I'll pass on the question of how your hypothetical "investor" you resent so much got his money to begin with. Maybe he borrowed it from members of his neo-Nazi group. Maybe he sold his huge collection of child pornography. Maybe he robbed a nursing home. But let's just say that at some point, the investor or his ancestors did something productive and saved some money which they thought to invest. It doesn't matter if he bought the beach from the public or another investor. That other investor or one before him must have bought the beach at some point from the public. And even if you go back to a time when no one owned the beach, the first investor at some point discovered the beach, cleaned up the seaweed, built a parking lot and an access road, and then hoped that people would want to pay $5 to use the beach. And this happened several times in the whole world, in a good number of cases, no one came, and the investor took a loss. But those that succeeded did become wealthy. That is the kind of risk that society rewards. That's the kind of risk that leads to investment in R&D to find the technology

Privately owned beaches are typically restricted to rich people who pay large amounts of money to not have to associate with poor people. Whether you consider that to be higher quality of management depends on whether you can afford to not associate with poor people.

I would pay money not to associate with any people at all, but I can't quite afford my own beach yet. And by quality of management I mean that someone whose income depends on visitors willing to pay to use his beach has every incentive to keep it clean, safe, and otherwise attractive so that it can fetch a high price. Public beaches usually lag badly behind private beaches in quality because without profits, there is no incentive to provide a high quality product.

The only way to keep this instability in check is to either aggressively tax the wealthy or to have wealth owned collectively so that wealth increases uniformly.

Collective ownership of wealth generally leads to a reduction of wealth because the incentives to produce don't exist. Only the most altruistic would work hard to increase wealth when that wealth is shared and those who don't work hard also benefit. See generally the entire Eastern European experience since 1945. Not to mention the tragedy of the commons: publicly owned resources get overused and exploited. This is not to say that private entities don't exploit land - they do, and frequently with terrible results. The worldwide rise in deforestation is the best example of private entities exploiting land for their own short-term benefit. But the tragedy of the commons problem explains why public ownership of resources might solve wealth inequality and "instability" but the stable state will be at a low level of wealth.

Wes

Public beaches usually lag badly behind private beaches in quality because without profits, there is no incentive to provide a high quality product.Beaches don't need an incentive to produce. The value of a beach (that a person can go there and relax and recreate) accrues simply because the beach is there. A beach is not produced and a beach is not consumed - if I sit on a beach today someone else can still go sit there tomorrow.Comparing a state like Michigan where the beaches are mostly privately owned with a state like Florida where the beaches are publicly owned, I definitely like Florida's system better. In Michigan, huge swaths of beaches sit empty most of the year because the owners either don't allow access to the general public at all (private residences) or they only allow access for exorbitant fees (luxury beachfront hotels).Campgrounds in the midwest are, however, a counter-example to beaches. In this case, the land is relatively worthless and the main value comes from someone producing a service (telling people where to camp and providing bathrooms and custodial services).In this case, I actually prefer the private campgrounds to the public campgrounds. Incidentally, however, this is because the private campgrounds are less well maintained than the public campgrounds.With a private campground - maybe the bathroom hasn't been cleaned in weeks and maybe the customers are basically just pitching tents on an old farm field but you can show up at 9pm and for $5 they'll squeeze you in somewhere and let you use the bathroom.With a public campground, on the other hand, the facilities may be well maintained and the campground manager may be dressed in a spiffy looking uniform but, unless you filled out all the right forms two months ago, you are out of luck. Even if you can get a camping space, the public campgrounds is still likely to be more expensive than the private campground.Collective ownership of wealth generally leads to a reduction of wealth because the incentives to produce don't exist.Owners of wealth get wealthier without working (producing) regardless of whether the wealth is owned collectively or individually. Only when wealth is concentrated in the hands of a few individuals, however, is enough income derived from wealth (without production) to dissuade the wealth owners from working. More concretely, a person doesn't stop going to work because he owns 1/3,000,000th of a public beach somewhere (although some people might leave work a little early on a Friday afternoon to go to the beach).Essentially, the ideal, and most productive, economic system has public ownership of wealth (or at least equal distributionof wealth) but private production of goods and services (eg. wages are earned based on individual productivity).

Haris

Never minding the fact that beaches need to be maintained to be attractive (trash cleanup on beaches alone is a service that the public has to pay for, whether through taxes for a public beach or through fees to a private owner), I will focus on the latter part of your argument, namely

the ideal, and most productive, economic system has public ownership of wealth (or at least equal distributionof wealth) but private production of goods and services (eg. wages are earned based on individual productivity)

How, exactly, would that work? If one receives wages based on one's productivity, the most productive citizens would make more money and in most cases, accumulate savings. These savings are wealth that they privately own and want to invest somewhere. If that somewhere is a copper mine, or, to use a rarer but vital resource, a bauxite mine, you think they will want to face the up-front costs of investment for such an undertaking when the benefits will be distributed to everyone? If the public owns the "wealth" that is contained in the bauxite, it would never be able to utilize it because no one would want to give up their savings for the common good. [People suck.] While no one would stop working because he owns part of a beach, he also owns parts of all beaches, all mines, and all other natural wealth. That's plenty to stop working, or at least enough to not work as hard or invest in one's education.

Progressive taxation, rather than public ownership, would accomplish your goals with much less social cost.

Corey

If a private investor can decide to accumulate capital for a mine, a public employee empowered to do so can as well. Corporations started as public interest sub-contracts to perform government functions. There are many other ways to organize and administer capital.

Clearly the idea of the public trust is dead, if the majority of people here can't conceptualize a beach as anything but a product to be consumed. The beach example is supposed to evoke spiritual notions of nature and the limits of human strivings, not speculation about the most efficient commodification of a scarce resource. Ugh.

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