Microeconomics versus macroeconomics

[brendan]

How about the need for a welfare system for the equitable distribution of income or more so, to ensure that the poor have access to basic necessities for life?

I would make a distinction between an "equitable" distribution of income and alleviating the effects of poverty.

But wouldn't market failure still occur?

Why?

[Collin Li]

How about the need for a welfare system for the equitable distribution of income or more so, to ensure that the poor have access to basic necessities for life?

Unfortunately, the VCE Economics course does not go into any exploration of utility or well-being. I have told you they are maximised in free markets.

Those two synonymous terms are catch-all variables that represent the value-judgements of individuals working the free market. What I am trying to get to is that utility should really pick up on our values, including the value to have equitable income distribution, if that value really exists. So if we left the market free, and there was little to no charity, it simply means that society has not valued this (equity) as much as the government thought we did. That is exactly what I am opposed to, the coercion of values (that some bureaucrats have decided upon) onto others.

I lean towards the Austrian side on this issue. The generally accepted view is not good enough for the government. That is the raping of the few by the many. One-size, or one set of universal values, does not fit all.

[costargh]

This is my understanding of an equitable distribution of income:
"Where everyone has access to the basic goods and services needed to avoid absolute poverty so as to guarantee basic material living standards. It does not imply that there would be 'equality', but that there should be a fair final distribution of personal income"

I only believe in ensuring that everyone has 'access to basic goods and services to avoid absolute poverty'. The 'fair' bit is open to interpretation and I think that's where you'd find a lot of lefties pushing 'equity' closer to 'equality' and I don't believe that is desirable for obvious reasons.

[brendan]

"Where everyone has access to the basic goods and services needed to avoid absolute poverty so as to guarantee basic material living standards. It does not imply that there would be 'equality', but that there should be a fair final distribution of personal income"

Well it sure isn't a definition that an economist would use as it is not very objective.

'access to basic goods and services to avoid absolute poverty'.

If you believe that then you must also believe that someone else has a obligation to provide these things whether they like it or not.

[costargh]

How about the need for a welfare system for the equitable distribution of income or more so, to ensure that the poor have access to basic necessities for life?

Unfortunately, the VCE Economics course does not go into any exploration of utility or well-being. I have told you they are maximised in free markets.

Those two synonymous terms are catch-all variables that represent the value-judgments of individuals working the free market. What I am trying to get to is that utility should really pick up on our values, including the value to have equitable income distribution, if that value really exists. So if we left the market free, and there was little to no charity, it simply means that society has not valued this (equity) as much as the government thought we did. That is exactly what I am opposed to, the coercion of values (that some bureaucrats have decided upon) onto others.

I lean towards the Austrian side on this issue. The generally accepted view is not good enough for the government. That is the raping of the few by the many. One-size, or one set of universal values, does not fit all.

But poverty will always exist, whether or not government intervention has a hand in it or not. It's not so much that people wouldn't value equity if we had no welfare system, but there would not necessarily be a means by which we could ensure that our values of equity flowed through to alleviating poverty. Eg. We may want to help, and we may help some by donating to local charities etc, but how about for people who live in remote areas where giving assistance to the people through charities etc would not be administered properly? I think you'd also find that the general sentiment in the community is that some forms of welfare to "help the elderly have their cup of tea" are necessary and valued.

[Collin Li]

If it is truly the general sentiment, voluntary action will drive this, because it would increase their utility to do so (the feeling of goodwill).

You are suggesting that the government can provide a better charity service than charities that operate on the basis of consumer demand? If consumer demand dictates that hard-to-reach communities are to be helped, then charities will supply it. Not-for-profit and government agencies are too complacent to do the job effectively. They will plunder and waste resources.

Personally, I don't have much belief in charities. It is a lot like giving a man a fish, rather than teaching a man to fish. I respect the entrepreneur who expands his business and creates many jobs (serving society through his own self-interest), far more than the philanthropist.

[costargh]

How can charities do it better? They shouldn't have a profit motive, therefore they would just be as inefficient as an government body administering welfare/charity.

[Collin Li]

How can charities do it better? They shouldn't have a profit motive, therefore they would just be as inefficient as an government body administering welfare/charity.

Competition.

Your argument is clearly wrong, because we know that private schools do better than not-for-profit public schools, for example. The distribution system of a State government (Soviet Union) failed, of course - there was no competition, there was no profit motive.

[costargh]

Competition for what? What are charities competing for?

[Collin Li]

Profit.

[brendan]

Competition for what? What are charities competing for?

To serve their clients, and hence survive. Even a NPO has to be financially sustainable. Every organisation needs cashflow to operate.

[Collin Li]

Competition for what? What are charities competing for?

To serve their clients.

That's how they get their profit

[brendan]

Greg Mankiw, Harvard Econ Prof,  on Micro vs Macro: http://gregmankiw.blogspot.com/2006/04/micro-versus-macro.html

[Collin Li]

I should add, however, that NPOs can be as competitive as private charity, as long as the competition is open. NPOs can be competitive as long as intrinsic benefits exist (non-monetary rewards - which contribute to utility). However, without competition and choice, there will be complacency, which is what the biggest-monopoly-of-all, government, is the best at.

[Collin Li]

It's almost an assumption the business cycle just occurs. Here's one theory that believes central banks are actually the problem:

http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory

I withdraw my support for the Austrian Business Cycle Theory. Here is why it goes wrong for me:

"The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account."
Source: http://www.gmu.edu/departments/economics/bcaplan/whyaust.htm

The essence of the ABC is that the short-term interest rate will affect investment decisions in a way to promote malinvestment (to promote investments that would not have been profitable had there been no intervention). That passage above drives a nail through the theory.

However, the need for a constantly expanding monetary base (what Milton Friedman argues for) still baffles me. I am also unsure whether the Chicago school is in favour of the current style of central banks that we have.