DistributionDistribution

Why Does Distribution Matter?Why Does Distribution Matter?

Ethical and practical question Follows from sustainable scale: How can we care

about the well being of future generations and not care about the well being of people alive today?

If we can’t have growth, we can’t grow our way out of poverty.

How can we ask people who don’t have enough today to sacrifice for the future?

Ethical and practical question Follows from sustainable scale: How can we care

about the well being of future generations and not care about the well being of people alive today?

If we can’t have growth, we can’t grow our way out of poverty.

How can we ask people who don’t have enough today to sacrifice for the future?

Distribution and ScaleDistribution and Scale

The poorest do not care about the future The richest consume the bulk of the world’s

resources

The poorest do not care about the future The richest consume the bulk of the world’s

resources

Distribution and EfficiencyDistribution and Efficiency Demand = preferences weighted by income First and 2nd theorems of welfare economics Desirable distribution is pre-req for desirable

allocation Diminishing marginal utility and interpersonal

comparisons Negative externalities

Positional wealth Health The laws of thermodynamics and the destruction of

public goods

Demand = preferences weighted by income First and 2nd theorems of welfare economics Desirable distribution is pre-req for desirable

allocation Diminishing marginal utility and interpersonal

comparisons Negative externalities

Positional wealth Health The laws of thermodynamics and the destruction of

public goods

Distribution and DemocracyDistribution and Democracy

Is our country plutocratic or democratic? Wealth, power and rent-seeking behavior "We can have a democratic society, or we

can have the concentration of great wealth in the hands of the few. We cannot have both." Supreme Court Justice Louis Brandeis

Is our country plutocratic or democratic? Wealth, power and rent-seeking behavior "We can have a democratic society, or we

can have the concentration of great wealth in the hands of the few. We cannot have both." Supreme Court Justice Louis Brandeis

What’s the Existing Distribution of Wealth?

What’s the Existing Distribution of Wealth?

Trends in wealth distribution

15

25

35

45

1983 1988 1993 1998

Top 1% Next19% Bottom80%

What’s the distribution of income?

What’s the distribution of income?

The L-curve of Income Distribution

The L-curve of Income Distribution

http://www.youtube.com/watch?v=woIkIph5xcU

http://www.youtube.com/watch?v=woIkIph5xcU

Great Compression, Great Divergence

Great Compression, Great Divergence

Diminishing Marginal Utility?Diminishing Marginal Utility?

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Income Distribution and Taxation

Income Distribution and Taxation

International DistributionInternational Distribution

Far worse than within US Word Bank data 15 poorest countries suffered 3.2% decline in real

income from 1989-1999 15 richest countries experienced 15.5%growth 1% of GNP of US would double income of of 24

poorest countries

Far worse than within US Word Bank data 15 poorest countries suffered 3.2% decline in real

income from 1989-1999 15 richest countries experienced 15.5%growth 1% of GNP of US would double income of of 24

poorest countries

Distribution by factors of production (USA)

Distribution by factors of production (USA)

Wages-70% Profit- 20% Interest- 8% Rent-2% Do natural resources contribute only 2% to

production?

Wages-70% Profit- 20% Interest- 8% Rent-2% Do natural resources contribute only 2% to

production?

Inter-temporal DistributionInter-temporal Distribution

Discounting the future Should we do it? Why? What it means

Discounting the future Should we do it? Why? What it means

How Should we Discount?How Should we Discount?

Discounting built capital vs. natural and human capital

Discounting, scale and sustainability Discount rates for a business vs. an economy Discount rates for a cell vs. a planet

How do we discount? Hyperbolic vs. exponential discounting

Discounting built capital vs. natural and human capital

Discounting, scale and sustainability Discount rates for a business vs. an economy Discount rates for a cell vs. a planet

How do we discount? Hyperbolic vs. exponential discounting

Intertemporal Distribution: The EE perspective

Intertemporal Distribution: The EE perspective

Sustainable scale is essential--we cannot discount the future value of basic life support functions

Inalienable rights--future generations have rights to basic life support functions: soil, water, climate stability, ecosystem resilience, etc.

Sustainable scale is essential--we cannot discount the future value of basic life support functions

Inalienable rights--future generations have rights to basic life support functions: soil, water, climate stability, ecosystem resilience, etc.

Why is redistribution to be avoided?

Conventional view

Why is redistribution to be avoided?

Conventional view People are entitle to keep what they have

earned with the sweat of their brows Destroys incentives, reduces well being of

worst off Most taxes are distorting, and lead to

inefficient outcomes

People are entitle to keep what they have earned with the sweat of their brows

Destroys incentives, reduces well being of worst off

Most taxes are distorting, and lead to inefficient outcomes

Current Trends in RedistributionCurrent Trends in Redistribution

Current trends in redistribution: enclosure of the commons

Current trends in redistribution: enclosure of the commons

What is the commonwealth? Values produced by nature

Non-renewables: minerals and energy Renewables: Goods and Services Air waves, orbits etc.

Values produced by society Private property Land Knowledge and information Money and seignorage

The enclosure trend

What is the commonwealth? Values produced by nature

Non-renewables: minerals and energy Renewables: Goods and Services Air waves, orbits etc.

Values produced by society Private property Land Knowledge and information Money and seignorage

The enclosure trend

Policies towards a sustainable, just and efficient distribution

of resources

Policies towards a sustainable, just and efficient distribution

of resources

Your viewsYour views

Should we have a guaranteed minimum income? Roosevelt’s 4 freedoms A right to health care? A right to food and shelter? A right to other basic

needs?

Should we have a guaranteed minimum income? Roosevelt’s 4 freedoms A right to health care? A right to food and shelter? A right to other basic

needs?

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Your viewsYour views

Should we have more income tax?

Should we have more income tax?

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Your viewsYour views

Should we have more progressive income tax?

What’s the tax rate for hedge fund managers?

Should we have more progressive income tax?

What’s the tax rate for hedge fund managers?

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Should we cap incomes? View of Plato and Ben and Jerry View of Peter Drucker Actual status: Average CEO Views of the

‘founding fathers’ Economic rights

vs. political rights Social obligations

vs. individual rights

Should we cap incomes? View of Plato and Ben and Jerry View of Peter Drucker Actual status: Average CEO Views of the

‘founding fathers’ Economic rights

vs. political rights Social obligations

vs. individual rights QuickTime™ and a decompressor

are needed to see this picture.

Basic PrinciplesBasic Principles People keep what they earn with the sweat of their

brows Wealth created by nature and society distributed

equally Public goods replaced with public goods

Negative externalities of inequality are internalized Those who benefit most from government services pay

the most One of the most important services of government is the

protection of private property

People keep what they earn with the sweat of their brows

Wealth created by nature and society distributed equally Public goods replaced with public goods

Negative externalities of inequality are internalized Those who benefit most from government services pay

the most One of the most important services of government is the

protection of private property

Natural resources: redistributing RentNatural resources: redistributing Rent

Rent= unearned income Land- rent Non-renewables- user cost Renewables- natural dividend

Rent= unearned income Land- rent Non-renewables- user cost Renewables- natural dividend

The land tax The land tax

Non-renewables: capturing rentNon-renewables: capturing rent

Ricardian rent = total revenue-total extraction cost

Scarcity rent = value arising from scarcity Investment in substitutes

Salah El Serafy, 1989, “The Proper Calculation of Income from Depletable Natural Resources”, in Environmental Accounting for Sustainable Development, edited by Yusuf J. Ahmad, Salah El Serafy, and Ernst Lutz, Washington D.C., World Bank.

Alaska permanent trust

Ricardian rent = total revenue-total extraction cost

Scarcity rent = value arising from scarcity Investment in substitutes

Salah El Serafy, 1989, “The Proper Calculation of Income from Depletable Natural Resources”, in Environmental Accounting for Sustainable Development, edited by Yusuf J. Ahmad, Salah El Serafy, and Ernst Lutz, Washington D.C., World Bank.

Alaska permanent trust

Weak Sustainability: oil to income

Renewable resources: the natural dividend

Renewable resources: the natural dividend

Renewable resources: ecosystem services

Renewable resources: ecosystem services

Who owns them? Pollution taxes Taxes on ecological degradation? Who should be compensated?

Sky trust How do we compensate the future?

Who owns them? Pollution taxes Taxes on ecological degradation? Who should be compensated?

Sky trust How do we compensate the future?

Financial Capital: Interest and Seignorage

Financial Capital: Interest and Seignorage

What is seignorage? Reserve requirements Who should get it?

Ithaca hours

What is seignorage? Reserve requirements Who should get it?

Ithaca hours