Wednesday, October 01, 2003


A couple of folks have written in asking about my recent post on Krugman's Unequal Exchange essay. I apologise for being obtuse. I'll try and do better this time.

The gold miner/fisher parable is actually a very standard labor economic model for talking about how greater risk demands greater return for people to take it on. Or at least, it's what we used in class at Chicago. So imagine my surprise when it's trotted out to argue that the gold mining town should have *greater* redistribution, quite opposite to it's usual moral.

The sad truth is that this is one of those times when people's intuition about what's fair is not a reliable or helpful way to think about how to organize a country. I am very sympathetic to how counterintuitive, or even repugnant, basic economics is, but Man is not at the center of the universe, and supply curves slope up, demand curves down.

The insight I would hope an economist (esp. a humane economist) would bring to a distribution discussion was that if a society, for reasons for technological change, switches from a fishing to a gold prospecting economy, the costs of redistribution are going to soar precisely when the urge to redistribute rises as the gap between rich and poor becomes wider.

That's what an economist would say (or at least take as a starting point). Krugman is an economist. He did not say that. Disingenuous? It seems so to me, which is why I don't read him any more, but you're free to differ.


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