8 ms·

In college, I studied Ronald Coase's famous 1920s papers. The major application ATT was infrastructure stuff. Coase's argument was that "given 0 transaction co

by netcan 5y ago

In college, I studied Ronald Coase's famous 1920s papers. The major application ATT was infrastructure stuff. Coase's argument was that "given 0 transaction costs," it doesn't matter who owns what property or right. The market will achieve efficient solutions as firms sell each other radio spectrum or whatnot. Policy should focus on minimizing transaction costs and let the market organize itself. Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised. What Coase actually meant is that (1) transaction costs tend to be high (2) this explains the clearly observable inefficiencies of such markets. Literally the opposite of what I was taught as "Coase Theorem." He meant that because market are imperfect, it really matters what the starting position is. Trickle down economics is the same kind of error. If we are extremely confident that markets work the way efficiency-assuming models do... Trickle down makes sense. It doesn't really matter where the money starts, the market will deal with allocation efficiently. If not it does matter where the money starts. In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises. The actual equality dichotomy is ROIs vs labour/income.

user3939382 5y ago
I've had The Nature of the Firm sitting on my bookshelf for 3-4 years. Maybe I should get around to reading it...
- netcan 5y ago
  It's very readable.
WastingMyTime89 5y ago
> In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises. I agree with you but it remains a problematic point. The issue is the power imbalance it creates and outlines. Because in and of itself, wealth is of little interest. Economy is first and foremost the study of exchanges. If the wealthy stayed amongst themselves with their wealth parked peacefully and little interaction with the rest of the system, you could pretend they didn’t exist and from the point of view of the economy experienced by the majority of the people that would mostly be true. That’s mostly what’s happening actually which is why people don’t riot. It is both a blessing and a curse because as usual throughout history when an aristocracy arise, their main fear is that the general population realise they are not actually providing that much value and could be dispensed with. That’s why they use the power they own - the ability to put the system out of balance - to lobby in their favour, keep control of the political system and information apparatus in order to keep being able to extract value from the system. From my point of view, we are in situation which has a lot to do with the Old Regime. Aristocrats used to explain that they could not be dispensed with because they had superior value and were needed to administer and guide while exploiting the collective labours of the population. Modern large shareholders and executives explain that they can’t be dispensed with due to their superior ability to manage and impart a strategy while exploiting the collective labour of their employees tolling for meager wages.
- seibelj 5y ago
  A major difference now is the majority of those with vast wealth earned it themselves through creating new enterprises. The aristocrats of old received it through birth or politicking. The rich today are far more effective and organizationally superior considering it was those exact skills that made them their wealth.
  - fumar 5y ago
    Are you arguing that the wealth class today isn’t politicking to maintain power and wealth either to a corporation or themselves?
    - Jensson 5y ago
      They do, but as we have seen in the past 30 years they often still fail to do that.
      - fumar 5y ago
        Given the rise of lobbyist spending, I am not convinced they failed. https://www.statista.com/statistics/257337/total-lobbying-spending-in-the-us/ https://www.statista.com/statistics/257337/total-lobbying-sp...
    - fitchjo 5y ago
      I think he is arguing the exact opposite.
  - sveme 5y ago
    Most, if not all of the rich entrepreneurs come from wealthy families. If you start rich it is so much easier to spend time on founding companies.
    - sokoloff 5y ago
      If you are surrounded by entrepreneurs, you’re also more likely to contemplate doing that yourself. I suspect there’s an inherent positive correlation here.
littlestymaar 5y ago
> The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. This is obviously wrong. Take India vs Switzerland as an example. Also, in the post-war era, the Western European countries saw a diminution of wealth disparity at the same time as a great wealth increase. Actually the history of the western world in the 20th century looks more like “the less wealth disparity, the more wealth growth” (I'm not implying causality, but at least the correlation goes this way).
- skywal_l 5y ago
  Absolutely. Piketty showed that wealth inequality peaked right before WWI and was very low in the 60/70s. The amount of wealth between these two periods does not even compare.
  - rbanffy 5y ago
    Could the low inequality be a cause for rapid wealth expansion?
    - leto_ii 5y ago
      Personally I wouldn't be surprised if that was the case. I strongly suspect less inequality is positively correlated with a host of beneficial outcomes (more access to education and healthcare, better quality if life etc.) which can in turn lead to a virtuous cycle that would in turn increase wealth.
    - littlestymaar 5y ago
      It's probably not the only cause, but more wealth for the poor people means people more apt to contribute to the society. Compare one billionaire buying a mega yacht and 10,000 people buying their first car, in both cases you've created say $200M in direct GDP, but in the later case you have 10,000 people more mobile to get a job or consume other goods or services.
    - throwaway0a5e 5y ago
vslira 5y ago
Good comment. Regarding this whole “zero transaction costs” issue, I can’t recommend weyl and posner’s “radical markets” enough. I’m right wing/classical liberal / leanbertarian or whatever you want to call a pro-market stance, but that book opened my eyes about the conflict between market mechanisms and the absolutist way our capitalist economy understands property. Once you see that absolute property rights are not pre-requisite to market dynamics, you can’t unsee it anymore.
masklinn 5y ago
> Trickle down economics is the same kind of error. Is it really an error if what is observed is what was expected is what was desired?
- rbanffy 5y ago
  What is observed is more or less the opposite of what its proponents say would be observed.
  - gorbachev 5y ago
    That's because the proponents don't say the quiet part out loud.
  - masklinn 5y ago
    > the opposite of what its proponents say would be observed. Your mistake is you’re listening to what they’re saying rather than looking at what they’re doing.
JKCalhoun 5y ago
> It doesn't really matter where the money starts, the market will deal with allocation efficiently. Interesting take. I haven't ever heard trickle down proponents suggest we give the money to the working class. It's like they don't really believe that.
- xondono 5y ago
  > I haven't ever heard trickle down proponents suggest we give the money to the working class. Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
  - rbanffy 5y ago
    Also the trickle down proponents, however middle-class, think of themselves as wealthy and have the misconception that it’d be their money being reallocated.
    - brezelgoring 5y ago
      Isn't wealth distributed in basically a normal distribution with destitute-poor in the middle and omega-rich on the edges? If it is, they'd be right.
    - throwaway0a5e 5y ago
      Run the numbers, the billionaires don't actually have that much money compared to the hordes of doctors, lawyers and managers. If you want to cut the masses a meaningful sized check (lump sum or over time really makes no difference) you're going to need to take it from more than just the very top. Look at how Europe pays for its social safety nets. That's on the order what the tax burden would look like. You can't just snap your fingers and make that happen. Well you can, but that's a great way to get you and your like minded buddies shot in the hole you just dug. That frog needs to be boiled slowly and doing it that way isn't a sure thing. Basically you have to convince enough of the middle class that something that is very much not worth their while is the right thing to do.
leto_ii 5y ago
> More wealth, more wealth disparity... almost universally. How so? Why would you assume that the distribution of wealth is correlated to the total stock? In reality this actually doesn't have to be the case at all. Aside from direct means of wealth redistribution, the are ways of setting up an economic system such that wealth inequality is reduced. > Many or most people have no wealth, depending on your semantics of "wealth." Again, this is not a fact of nature. It's not in the biological nature of most people to be poor. Poverty is a result of a badly functioning society and can be alleviated.
- deleted 5y ago
  [deleted]
- dredmorbius 5y ago
  This is covered well in Gregory Clark's book A Farewell to Alms. Increased wealth through technological means has had two effects. 1. It's raised the maximum possible wealth ceiling. That is, the wealthiest people who've ever lived, are alive today. 2. It's lowered the minimum survivable poverty floor. That is, it's possible to survive being poorer than at any previous point in history. As Clark puts it in his introduction, "There walk the earth now both the richest people who ever lived and the poorest." Sample chapter online: http://assets.press.princeton.edu/chapters/s8461.pdf http://assets.press.princeton.edu/chapters/s8461.pdf https://archive.org/details/farewelltoalmsbr00clar/page/n9/mode/2up?view=theater https://archive.org/details/farewelltoalmsbr00clar/page/n9/m...
jt2190 5y ago
Typo: He was pissed [off]. (I don’t usually comment on typos but this one took more than a second for my brain to decipher.)
- Semaphor 5y ago
  "Pissed" meaning "pissed off" is American English, in BE "pissed" without "off" is "drunk"
- deleted 5y ago
  [deleted]
socialdemocrat 5y ago
> More wealth, more wealth disparity... almost universally. That is a stark claim with little empirical evidence. If you look at the world, you will find that Europe, one of the most affluent parts of the world has the lowest wealth inequality. While wealth inequality is very high in Africa, one of the poorer regions of the world. Wealth inequality is far more likely to be the outcome of policies. Europe has been dominated more by various social democratic parties which have actively worked to reduce inequality. While areas such as North American with high levels of inequality has been dominated by parties pushing neoliberal economic policies.
- mrep 5y ago
  Then why do the netherlands, russia, and sweden have the first, second, and third highest wealth ginis [0]? [0]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_inequality https://en.wikipedia.org/wiki/List_of_countries_by_wealth_in...
  - nouveaux 5y ago
    So I only looked up Netherlands: "The issue is that the accumulated inter-generational wealth compounds itself quicker than the Dutch government can reduce the money added to it. The Netherlands’ historical wealth can be traced back centuries ago, with huge money-makers like the Dutch East Indies company. They allowed an extremely small minority of the Dutch population to accumulate astronomical amounts of wealth that are still compounding and increasing the wealth gap to this day."[0] Even with their ginormous disparity, the poor in the Netherlands are not doing so bad.[1] [0] https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutch-economy/ https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutc... [1] https://en.wikipedia.org/wiki/List_of_countries_by_percentage_of_population_living_in_poverty https://en.wikipedia.org/wiki/List_of_countries_by_percentag...
ZeroGravitas 5y ago
Even the strong 'in a perfect theoretical world' version only says; > The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property.' Key phrase there being 'Pareto efficient' which basically means 'without addressing the initial starting point inequality'. I'm also not sure what your last claim is about, it sounds like a garbled version of 'you need inequality to progress' which is a common trope, but not actually backed by any logic as far as I can tell, or even fleshed out enough to escape from the 'not even wrong' category.
tomeon 5y ago
> Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised Similar themes came up in Ronald Coase's appearance (at a stunningly-lucid 101 years old) on this 2012 episode of EconTalk: https://www.econtalk.org/coase-on-externalities-the-firm-and-the-state-of-economics/ https://www.econtalk.org/coase-on-externalities-the-firm-and... Plugging this as it's one of my favorite episodes of one of my favorite podcasts.
- netcan 5y ago
  Erm... correction then. This is the episode I was referencing. 100-something Ronald Coase

by netcan 5y ago

user3939382 5y ago

I've had The Nature of the Firm sitting on my bookshelf for 3-4 years. Maybe I should get around to reading it...

netcan 5y ago
It's very readable.

WastingMyTime89 5y ago

> In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises. I agree with you but it remains a problematic point. The issue is the power imbalance it creates and outlines. Because in and of itself, wealth is of little interest. Economy is first and foremost the study of exchanges. If the wealthy stayed amongst themselves with their wealth parked peacefully and little interaction with the rest of the system, you could pretend they didn’t exist and from the point of view of the economy experienced by the majority of the people that would mostly be true. That’s mostly what’s happening actually which is why people don’t riot. It is both a blessing and a curse because as usual throughout history when an aristocracy arise, their main fear is that the general population realise they are not actually providing that much value and could be dispensed with. That’s why they use the power they own - the ability to put the system out of balance - to lobby in their favour, keep control of the political system and information apparatus in order to keep being able to extract value from the system. From my point of view, we are in situation which has a lot to do with the Old Regime. Aristocrats used to explain that they could not be dispensed with because they had superior value and were needed to administer and guide while exploiting the collective labours of the population. Modern large shareholders and executives explain that they can’t be dispensed with due to their superior ability to manage and impart a strategy while exploiting the collective labour of their employees tolling for meager wages.

seibelj 5y ago
A major difference now is the majority of those with vast wealth earned it themselves through creating new enterprises. The aristocrats of old received it through birth or politicking. The rich today are far more effective and organizationally superior considering it was those exact skills that made them their wealth.
- fumar 5y ago
  Are you arguing that the wealth class today isn’t politicking to maintain power and wealth either to a corporation or themselves?
  - Jensson 5y ago
    They do, but as we have seen in the past 30 years they often still fail to do that.
    - fumar 5y ago
      Given the rise of lobbyist spending, I am not convinced they failed. https://www.statista.com/statistics/257337/total-lobbying-spending-in-the-us/ https://www.statista.com/statistics/257337/total-lobbying-sp...
  - fitchjo 5y ago
    I think he is arguing the exact opposite.
- sveme 5y ago
  Most, if not all of the rich entrepreneurs come from wealthy families. If you start rich it is so much easier to spend time on founding companies.
  - sokoloff 5y ago
    If you are surrounded by entrepreneurs, you’re also more likely to contemplate doing that yourself. I suspect there’s an inherent positive correlation here.

littlestymaar 5y ago

> The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. This is obviously wrong. Take India vs Switzerland as an example. Also, in the post-war era, the Western European countries saw a diminution of wealth disparity at the same time as a great wealth increase. Actually the history of the western world in the 20th century looks more like “the less wealth disparity, the more wealth growth” (I'm not implying causality, but at least the correlation goes this way).

skywal_l 5y ago
Absolutely. Piketty showed that wealth inequality peaked right before WWI and was very low in the 60/70s. The amount of wealth between these two periods does not even compare.
- rbanffy 5y ago
  Could the low inequality be a cause for rapid wealth expansion?
  - leto_ii 5y ago
    Personally I wouldn't be surprised if that was the case. I strongly suspect less inequality is positively correlated with a host of beneficial outcomes (more access to education and healthcare, better quality if life etc.) which can in turn lead to a virtuous cycle that would in turn increase wealth.
  - littlestymaar 5y ago
    It's probably not the only cause, but more wealth for the poor people means people more apt to contribute to the society. Compare one billionaire buying a mega yacht and 10,000 people buying their first car, in both cases you've created say $200M in direct GDP, but in the later case you have 10,000 people more mobile to get a job or consume other goods or services.
  - throwaway0a5e 5y ago

vslira 5y ago

Good comment. Regarding this whole “zero transaction costs” issue, I can’t recommend weyl and posner’s “radical markets” enough. I’m right wing/classical liberal / leanbertarian or whatever you want to call a pro-market stance, but that book opened my eyes about the conflict between market mechanisms and the absolutist way our capitalist economy understands property. Once you see that absolute property rights are not pre-requisite to market dynamics, you can’t unsee it anymore.

masklinn 5y ago

> Trickle down economics is the same kind of error. Is it really an error if what is observed is what was expected is what was desired?

rbanffy 5y ago
What is observed is more or less the opposite of what its proponents say would be observed.
- gorbachev 5y ago
  That's because the proponents don't say the quiet part out loud.
- masklinn 5y ago
  > the opposite of what its proponents say would be observed. Your mistake is you’re listening to what they’re saying rather than looking at what they’re doing.

JKCalhoun 5y ago

> It doesn't really matter where the money starts, the market will deal with allocation efficiently. Interesting take. I haven't ever heard trickle down proponents suggest we give the money to the working class. It's like they don't really believe that.

xondono 5y ago
> I haven't ever heard trickle down proponents suggest we give the money to the working class. Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
- rbanffy 5y ago
  Also the trickle down proponents, however middle-class, think of themselves as wealthy and have the misconception that it’d be their money being reallocated.
  - brezelgoring 5y ago
    Isn't wealth distributed in basically a normal distribution with destitute-poor in the middle and omega-rich on the edges? If it is, they'd be right.
  - throwaway0a5e 5y ago
    Run the numbers, the billionaires don't actually have that much money compared to the hordes of doctors, lawyers and managers. If you want to cut the masses a meaningful sized check (lump sum or over time really makes no difference) you're going to need to take it from more than just the very top. Look at how Europe pays for its social safety nets. That's on the order what the tax burden would look like. You can't just snap your fingers and make that happen. Well you can, but that's a great way to get you and your like minded buddies shot in the hole you just dug. That frog needs to be boiled slowly and doing it that way isn't a sure thing. Basically you have to convince enough of the middle class that something that is very much not worth their while is the right thing to do.

leto_ii 5y ago

> More wealth, more wealth disparity... almost universally. How so? Why would you assume that the distribution of wealth is correlated to the total stock? In reality this actually doesn't have to be the case at all. Aside from direct means of wealth redistribution, the are ways of setting up an economic system such that wealth inequality is reduced. > Many or most people have no wealth, depending on your semantics of "wealth." Again, this is not a fact of nature. It's not in the biological nature of most people to be poor. Poverty is a result of a badly functioning society and can be alleviated.

deleted 5y ago
[deleted]
dredmorbius 5y ago
This is covered well in Gregory Clark's book A Farewell to Alms. Increased wealth through technological means has had two effects. 1. It's raised the maximum possible wealth ceiling. That is, the wealthiest people who've ever lived, are alive today. 2. It's lowered the minimum survivable poverty floor. That is, it's possible to survive being poorer than at any previous point in history. As Clark puts it in his introduction, "There walk the earth now both the richest people who ever lived and the poorest." Sample chapter online: http://assets.press.princeton.edu/chapters/s8461.pdf http://assets.press.princeton.edu/chapters/s8461.pdf https://archive.org/details/farewelltoalmsbr00clar/page/n9/mode/2up?view=theater https://archive.org/details/farewelltoalmsbr00clar/page/n9/m...

jt2190 5y ago

Typo: He was pissed [off]. (I don’t usually comment on typos but this one took more than a second for my brain to decipher.)

Semaphor 5y ago
"Pissed" meaning "pissed off" is American English, in BE "pissed" without "off" is "drunk"
deleted 5y ago
[deleted]

socialdemocrat 5y ago

> More wealth, more wealth disparity... almost universally. That is a stark claim with little empirical evidence. If you look at the world, you will find that Europe, one of the most affluent parts of the world has the lowest wealth inequality. While wealth inequality is very high in Africa, one of the poorer regions of the world. Wealth inequality is far more likely to be the outcome of policies. Europe has been dominated more by various social democratic parties which have actively worked to reduce inequality. While areas such as North American with high levels of inequality has been dominated by parties pushing neoliberal economic policies.

mrep 5y ago
Then why do the netherlands, russia, and sweden have the first, second, and third highest wealth ginis [0]? [0]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_inequality https://en.wikipedia.org/wiki/List_of_countries_by_wealth_in...
- nouveaux 5y ago
  So I only looked up Netherlands: "The issue is that the accumulated inter-generational wealth compounds itself quicker than the Dutch government can reduce the money added to it. The Netherlands’ historical wealth can be traced back centuries ago, with huge money-makers like the Dutch East Indies company. They allowed an extremely small minority of the Dutch population to accumulate astronomical amounts of wealth that are still compounding and increasing the wealth gap to this day."[0] Even with their ginormous disparity, the poor in the Netherlands are not doing so bad.[1] [0] https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutch-economy/ https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutc... [1] https://en.wikipedia.org/wiki/List_of_countries_by_percentage_of_population_living_in_poverty https://en.wikipedia.org/wiki/List_of_countries_by_percentag...

ZeroGravitas 5y ago

Even the strong 'in a perfect theoretical world' version only says; > The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property.' Key phrase there being 'Pareto efficient' which basically means 'without addressing the initial starting point inequality'. I'm also not sure what your last claim is about, it sounds like a garbled version of 'you need inequality to progress' which is a common trope, but not actually backed by any logic as far as I can tell, or even fleshed out enough to escape from the 'not even wrong' category.

tomeon 5y ago

> Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised Similar themes came up in Ronald Coase's appearance (at a stunningly-lucid 101 years old) on this 2012 episode of EconTalk: https://www.econtalk.org/coase-on-externalities-the-firm-and-the-state-of-economics/ https://www.econtalk.org/coase-on-externalities-the-firm-and... Plugging this as it's one of my favorite episodes of one of my favorite podcasts.

netcan 5y ago
Erm... correction then. This is the episode I was referencing. 100-something Ronald Coase