Thomas Cool

“ Above model was not perfect but helps us to understand how a free lunch percolates through the economy. It helps us to understand what a free lunch actually is.
In above model, the innovation falls from heaven like manna. The innovation is the free lunch. One may see the tautology: If you accept the model, then there is a free lunch; and you accept the model if you see innovation as a free lunch.
One may hold that above model is incomplete. One would want to introduce a separate R&D sector, and then there will be a balancing of R&D costs and the expected increase in national income. ”

“ It is useful to recall Montesquieu’s definition of political liberty:
“We must have continually present to our minds the difference between independence and liberty. Liberty is a right of doing whatever the laws permit, and if a citizen could do what they forbid he would be no longer possessed of liberty, because all his fellow-citizens would have the same power.”
Thus, of key importance: A person with few means can take less advantage of his liberties than a person with more means. A person with insufficient means might be regarded as not free at all. ”

“ Do these economists cross the line ? Do they wander in the perk reserved for politics ?
The answer is no. They only emphasise that society may be well willing to do something decent about unemployment and poverty, if only people had the knowledge. If the knowledge is lacking, then society faces a tough choice, and people in power will tend to look after themselves first. But with the knowledge, the situation is entirely different, and even those in power will be quite ready to help create the new prosperity. By doing so, they may also become popular, and gain or retain power. ”

“ One of the key points of Keynes in the General Theory was that the true, real, savings of an economy consist of what is invested. All the money that people save does not count as an investment or real saving. ”

“ I surmise that the economics profession quickly adopted the word ‘macro-economics’ since it sounds more professional and less political than ‘Political Economy’. It sounds as a distinction that can be made within economics, without having to visit the other sciences. The problem with equating macro-economics with Political Economy however is that Political Economy also is interested in distributional aspects - while macro-economics by definition looks at the aggregate only. ”

“ Productivity can be increased in basically two ways: by technology or by management. For example, computers can add to our wealth, and we must have technology to be able to have computers. But a room full of computers does not present much value if we don’t manage their use. So technology and management are the two sides of the coin of human wealth. Though no study should neglect either side, there of course is advantage in some specialisation of those studies. The engineers take one side, the economists the other. ”

“ For, it is possible that an economy spends 99% of its resources to R&D, and still does not come up with innovations. Good ideas remain like manna from heaven.
You may hold the view that agents already expect economic growth, so that they will not regard it as a free lunch. This reminds of the attitude of some children of rich parents who expect a rich inheritance and who don’t show gratitude for their daily bread. The point to note, though, is that the concept of a free lunch is not an expectational variable, but one of circumstance. ”

“ To simply give them credit, on the scale required, is absurd. Therefor it is access to Western markets that is essential for those nations and for political stability. Indeed, if they had access, and if the flow of trade were to start, then the World Bank and IMF could extend credits and thereby fuel the process towards stability.
At the same time, economic science tells us that it is not trade that has caused present Western unemployment. Marking trade down as the culprit, and using trade barriers to solve a situation that trade has not caused, only makes things worse. ”

“ Hayek often got out of touch with ‘sympathy’, or at least allowed that reputation to grow.
One of the prime reasons why economists have been seduced to put income before freedom is pure pragmatism. Income is a quick and dirty variable - and by itself already hideously complex to properly administrate and monitor. Income tax laws and the execution of them require huge bureaucracies. Price index measurements are a monk’s paradise. Maintenance of fair incomes requires extensive labour relations and social security laws. And this is just simple income. ”

“ To understand the point, let me first explain my reasoning on labour supply. At low productivity, one has to work 24 hours around the clock in order to survive. For example, if subsistence is at B and productivity is y, then the hours are B / y. Hours thus quickly rise when y drops (the working poor) . When productivity increases, one quickly starts working less hours, particularly since the kind of work at that level often concerns hard labour. At higher levels of productivity again, the kind of work is less exacting and pay is better, and one may work longer hours again. ”

“ There are not only disincentives for the rich, but also incentives for the poor to participate in society. There are so many other effects. Alleviating poverty, by getting people into jobs, could reduce the crime problem. Or, a rich person may decide to work less and spend more time on a hobby or with the kids - and might find out that he or she is actually better off. The prime comment, and the prime economic observation, is that the pie itself is relevant, but the social utility derived from it is even more relevant. ”

“ An example of the policy failure is the curious phenomenon of the Tax Void. The tax void is the income range between the net and gross minimum wage. Since people may not work below the gross minimum, those affected don’t earn income and don’t pay taxes. The taxman intends to collect taxes in that range, but since there are no earnings there, he doesn’t collect anything. The tax code only drives up the gross minimum wage, causing unemployment and the associated benefit burden. ”

“ Many economists think that there are no free lunches. It may even be a dogma or mantra to them. With this general attitude, they close their eyes to the free lunch that presently exists in the inefficient labour market. They adhere to their ‘no free lunch’ philosophy regardless of what arguments other people forward. My diagnosis is that this is one of the reasons why the debate on unemployment is rather stuck.
It actually can be shown that the economy is full of free lunches. ”

“ If unemployment is inefficient, then by definition there is a Pareto optimising solution, that will not cost anything. Most economists don’t believe in cheap solutions. Much of the debate hence focusses on ‘efficient unemployment’, where the sad state is caused for example by globalisation, technology or ‘welfare state scelerosis’ (with poverty traps) . But, clearly, the tax void exists, it is a cheap way out, and the other arguments will turn out to be ghosts, which they already can be shown to be. ”

“ From the 1950s till the end of the 1980s the common view among economists and policy makers was that the unemployment in the trade-off was “general” unemployment. Nowadays we tend to link unemployment to lowly productive labour. For us it may be obvious, but compared to the earlier view it is revolutionary that the once-thought-to-be “general” unemployment now turns up as a rather specific type. To make the revolution specific: we will hold that the unemployment in the trade-off has always been related to the distribution of productivity across labour. ”

“ What we earn now, depends so much on what our ancestors have been doing. It is truly difficult to determine what our own personal contribution is. The $100,000 earned are only the proceeds from a market situation - but the market is an amoral beast, and not a god of justice that allocates what people ‘deserve’. And thus, having such a marginal tax rate could well be one of the necessary ‘rules of the game’ to create a both prosperous and civilised society.
Mankiw shows an awareness of this on some pages, but not integrally so. ”

“ In fact, a company that produces but can’t sell and goes bankrupt might actually do society a favour, since at least some goods have been produced which otherwise might not have come into existence. The challenge is to get production and investment without such perceived incompetence or fraud. The economy should be designed so that those investments come about in an optimal way, where the optimum must be defined not only in terms of expectations and stability but also in terms of social welfare and full employment. ”

“ The line of reasoning thus is that if you want to resolve mass unemployment then you need the theory that is blocked from internal discussion by the directorate of the Dutch CPB. Since other ways fail, a boycott of Holland can be a good way to resolve the issue.
This is an advice and not an appeal. I am not an activist, but a scientist. It is only sound advice for the citizen who wants mass unemployment resolved. This advice derives from the integrity of economic science. This advice is also stock and barrel of economics itself and can be included in every economic textbook. ”

“ Poverty is always relative, and its definition is always a search for what the better-off regard as acceptable rather than a search for objective truth. Opponents of a reduced welfare state, like Cox and Alm, should rather accept that relative standard, rather than confuse the debate with some absolute arguments. For example, a Dutch poverty debate in the early 1900’s was about whether a table would be part of household necessities or not. Defining poverty as three times the grocery bill would surely answer that question. ”

“ The questions always are: does the definition cover the facts as we know them, does the definition not introduce hidden aspects that cause confusion and prevent advancement ? If a new definition wins out, it is, apparently, only so because it is believed to have passed the test. Though, we should be critical of this assumption. Only if the environment is ‘critical’, then we might presume a ‘survival of the fittest’ for concepts. ”

“ Bureaucrats embrace barriers since these give a sense of control, and these also justify the very existence of this bureaucracy. Labour unions will fight unemployment at home with whatever misguided argument it takes. Governments embrace economic tales about ‘globalisation’ and ‘competition from cheap labour countries’ since these distract attention from home grown errors, and these goverments neglect economists who tell them that ‘globalisation’ and ‘competition from cheap labour countries’ are rather like fairy tales indeed. ”

“ In my analysis the moral imperative for the Western nations since the Fall of the Berlin Wall is to help the Russian and Eastern European peoples to recover from the brutal communist oppression that they have suffered. The best way to help is to allow trade. But the West is afraid for cheap products, and thus its own unemployment. And hence there are barriers to trade again. But the true cause of unemployment is not external, but internal to the West, internal in our system of economic policy making. ”

“ I take the position that the human mind apparently is able to conceptualise Euclidean space - and that this actually defines our concept of space. If we take a non-Euclidean geometry - such as a globe - then this still can be imagined to exist within Euclidean space. Pythagoras’s theorem is invalid for triangles drawn on a globe, but to hold that space is a globe would be erroneous - since our definition of space would be Euclidean. ”

“ Economics is thus taken to mean a study of the economic aspects and conditions of man’s political, social and private life; but more especially of his social life. The aims of the study are to gain knowledge for its own sake, and to obtain guidance in the practical conduct of life, and especially of social life. The need for such guidance was never so urgent as now; a later generation may have more abundant leisure than we for researches that throw light on obscure points in abstract speculation, or in the history of past times, but do not afford immediate aid in present difficulties. ”

“ The lack of infrastructure, machines or tools may ‘tax’ people - and once these have been provided, they could start earning income, and their earnings would, crucially, be larger than needed to pay for the equipment. Economists of course understand this concept of a physical tax - as the lack of efficient capital markets, or the frustration of those by taxes - but the crucial point is the abstract one. When people don’t earn anything, and the economist suggests to abolish some tax, then a listener may become upset, since how can you abolish something that people don’t pay ? ”

“ In the English economics literature, ‘perfect competition’ is defined as the situation when no agent can affect the price, i.e. all agents are price takers. The Dutch word for this case is ‘full competition’. The English definition forces English economists to use the word ‘imperfection’ for all other cases. Even quite reasonable cases, in the normal state of human life, when agents have market power but balance at some social optimum, would be ‘imperfect’. ”

“ The emphasis on taxes does not mean that technology, international trade and labour market inflexibilities are irrelevant. It does not mean that we can throw away the current macro-economic models. On the contrary: the emphasis on taxes is only an amendment to the current models. The tax analysis would be meaningless without these current models. I myself participated in the construction of the CPB (1990) Athena model, a sectoral model of the Dutch economy with 7000 variables, and I would be the last one to suggest that only taxes matter ! ”

“ In fact, Keynes wrote his General Theory with an eye to the threat of war:
“War has several causes. Dictators and others such, to whom war offers, in expectation at least, a pleasurable excitement, find it easy to work on the natural bellicosity of their peoples. But, over and above this, facilitating their task of fanning the popular flame, are the economic causes of war, namely the pressure of population and the competitive struggle for markets. It is the second factor, which probably played a predominant part in the nineteenth century, and might again, that is germane to this discussion.” ”

“ Economists like to say they will not be needed in heaven. The reason is that in paradise, wants are few and resources boundless. Its inhabitants will never have to decide how much to spend and how much to save, how heavily to tax, how much butter to give up in order to have guns.
The definition given by Keynes, the most widely acclaimed economist of the 20th century, is a rather puzzling one. Economics is here defined partly as a “technique of thinking.” ”