Misleading visions of the economy

Liberal Vision are in thought-provoking mood.  In what seems to be becoming a series (there’s an earlier one on Hayek), they have brought in a discussion of Robert Nozik, and in particular his famous Wilt Chamberlain example:

Nozick uses the example of individuals paying to see a basketball match featuring a very a popular player. That player will become very wealthy, because of the number of people prepared to pay for tickets for any match in which he is playing. This comes about through a multitude of individual voluntary actions. No one was coerced to give up money to watch that player, so the resulting property that player has is rightly his and should not be redistributed. No one individual decided to make that player rich, but the distribution of income should be the unintended consequence of actions, not state design of income distribution which would require violation of individual property rights, and choices

Do you find this convincing?  I once did, and then progressed. (This is what I was referred to earlier as that journey from entry-level thinking on economics.) I suggest that the Nozik passage is a good litmuss test of whether you think a particular libertarian view of society is realistic.

Because the truth is that most economic transactions are nothing like the ideal example offered here, of extraordinary talent just collecting some uncomputed fair result from the market. A combination of entrepreneurship and rent-seeking helps earn more than their reserve wage.   Power also makes a difference, as Dillow pointed out a while ago – and in my view not just for bankers but also Tube drivers.

And institutions and technology make a difference.  In another field, consider the following three uncontroversial propositions:

• David Garrick was probably a better actor than Michael Caine
• Michael Caine did not invent the cinema, nor is he responsible for our modern system of secure intellectual property rights
• Michael Caine is worth a lot more than Garrick and doesn’t see why he should pay any of it over

MC is richer than Garrick because he is born in an era where a combination of film technology and well-enforced property rights can turn even people far less talented than he into multi-millionnaires. Michael Caine = the basketball player in the Nozik example: a man with talent who is hugely helped by factors beyond his control.

So I don’t find the Nozik example very convincing (any more).  But nor do I believe with the late GA Cohen that  we’re all on a socialist camping trip.  People do not just happen to find themselves ‘better at fishing’ or ‘stumbling upon a pile of apples’ either when they get rich. Maybe it looks that way on the outside, but it really isn’t.

Finally, another really useful concept that helps explain above normal rent seeking returns: monopsony power. This is a concept I was struggling towards when arguing about the minimum wage.  When people complain about employers exerting a coercive power over their labour, I think this concept helps alot.    In the example linked to, the minimum wage forces an incumbent employer to bring his wages UP to the level that he would have to charge if the market were fully competitive.  This definitely happens – but its true extent is something I can’t report on.

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