Chapter 16 Distribution

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Chapter 16Distribution

• Geog 3890 ecological economics

A fat, rich, man who just ate a 16 ounce steak
a baked potato creates more demand for food when
he orders an after dinner mint than a destitute
child who has not eaten anything in two days. In
the market, hunger is not demand for food, money
is. In fact, it would not be efficient or
pareto optimal to feed that child.
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Outline of Chapter

• Pareto Optimality
• Efficiency, Scale, and Distribution
• Economics as a Positive Science?
• Distrribution of Income and Wealth
• Functional and Personal Income Distribution
• Measuring Distribution
• Distribution and Taxation
• Consequences of Distribution for community health
• Intertemporal distribution of Wealth
• Normative approach of Ecological Economics
• Positive approach of Neoclassical Economics
• Discounting, Psychology, and Economics

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Global Distribution of Wealth
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Distribution of Wealth American Perception
Reality
http//urizen-geography.nsm.du.edu/psutton/Sutton
_Courses/Geog_3890_Ecological_Economics/Miscellany
/WealthDistributionArticle.pdf
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Pareto Optimality Pecan Pie

• Efficiency maximized at Pareto Optimal allocation
  of resources by the marketplace.
• This allocation is fundamentally dependent on the
  initial distribution of wealth
• Re-distribute wealth equally there will be no
  market for Lamborghinis
• Efficient does not mean or imply Fair.
• Economists typical solution to unfairness is
  simply to grow the economy.

7 minute Video Pareto Optimality and Pecan
Pie http//www.youtube.com/watch?vwCuI-2LI6-M
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Question Does Pareto Optimal allocation assume a
given Scale as well as a given Distribution?

• Linear, areal, or volumetric scaling?
  (They cant all be the same)
• The size of the economy
• Relative to the size of the of
• Worlds ecosystems is
• constrained.
• Optimal Allocation assumes a given scale just as
  it assumes a given distribution.

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Positivism and Economics

• Economics prides itself on being a positive
  science. Allocative efficiency is thought to be
  a positive, or empirically measurable, issue,
  even though, as we just saw, it presupposes a
  given distribution. Whether or not the scale of
  the economy is sustainable is also considered to
  be a positive issue involving biophysical
  constraints, although normative questions of
  conservation for the future and other species are
  not far below the surface. Distributive equity,
  on the other hand, is a normative issue. This is
  the main question addressed to distribution Is
  it Fair? Not, Is it Efficient? or, Is it
  Ecologically Sustainable? The question Is it
  Fair is directly and unavoidably normative, and
  for that reason alone it is given minimal
  attention by the positivist tradition of
  economics.
• -
  Well give it some attention now ?

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Can redistribution increase total utility while
being inefficient?

• The Pareto Optimal criteria forbids
  interpersonal comparisons and summations of total
  utility.
• The extreme individualism of economics insists
  that people are so qualitatively different their
  hermetical isolation from one another that it
  makes no sense to say that a leg amputation hurts
  Smith more than a pin prick hurts Jones.
• If we abandon the Pareto Optimal forbidding of
  making interpersonal comparisons we could improve
  the human condition by redistributing wealth.

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Which Cat do you think you are?
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Distribution of Income Wealth
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Winners Take All..

• http//motherjones.com/politics/2011/02/income-ine
  quality-in-america-chart-graph

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How rich are the super-rich?
A huge share of the nation's economic growth
over the past 30 years has gone to the top
one-hundredth of one percent, who now make an
average of 27 million per house- hold. The
average income for the bottom 90 percent of
us? 31,244.
http//motherjones.com/politics/2011/02/income-ine
quality-in-america-chart-graph
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Capitol Gain Do our congresspersons live on
Wall Street or Main Street?
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Functional Income Distribution

• Functional Income (above)
• How do Histograms on left differ in meaning?

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Measuring Distribution GINI coefficient I

• The GINI coefficient is used to measure the
  inequality of the distribution of wealth or
  income across a population. A GINI coefficient of
  1 implies perfect inequality (one person owns
  everything), and a coefficient of zero indicates
  a perfectly equal distribution

Australia .305 China .415 Denmark
.290 Guatemala .551 U.S. .450 India
.368
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Measuring Distribution GINI coefficient
IIhttp//www.sustainablemiddleclass.com/Gini-Coef
ficient.html

• The GINI Coefficient for the United States has
  risen steadily since 1967. If the current trend
  continues, the United States will reach a GINI
  Coefficient of 0.546 in about 37-years, or 2043.
  This coefficient is equal to the one Mexico had
  in year 2000. Mexico is not known for having a
  large prosperous middle class.

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When is enough enough?OrWhen is the CEO making
way toomuch more than the Mail Clerk?

• Plato 4x
• Ben Jerry 5x
• U.S. Today - 500x
• Back to Slide 4
• Americans think it
• Should be about 3x

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Distribution Taxation
Can you find Krugmans Gilded Age,
Middle-Class America and Great Divergence in
the figure above?
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Consequences of Distribution for Community and
Health

• Do societies with lower GINI coefficients have
  better Health outcomes?
• The answer is YES , according to
• Richard G. Wilkinson (Richard Gerald Wilkinson
  born 1943) is a British researcher in social
  inequalities in health and the social
  determinants of health. He is Professor Emeritus
  of social epidemiology at the University of
  Nottingham, having retired in 2008. He is also
  Honorary Professor at University College London.
• He is best known for his 2009 book (with Kate
  Pickett) The Spirit Level, in which he argues
  that societies with more a equal distribution of
  incomes have better health outcomes than ones in
  which the gap between richest and poorest parts
  of society is greater. His 1996 book Unhealthy
  Societies The Affliction of Inequality had made
  the same argument a decade earlier.

4 minute video on The Spirit Level
http//www.youtube.com/watch?vjsEZr3s1aBA
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Inter-temporal Distribution of Wealth

• Seven generation sustainability is an ecological
  concept that urges the current generation of
  humans to live sustainably and work for the
  benefit of the seventh generation into the
  future. It originated with the Iroquois - Great
  Law of the Iroquois - which holds that it is
  appropriate to think seven generations ahead (a
  couple hundred years into the future) and decide
  whether the decisions they make today would
  benefit their children seven generations into the
  future.
• Ecological Economics (Intergenerational
  Justice)
• Mainstream Economics (Intergenerational
  Allocation)
• Evolution of the ethical question from
• How much should we sacrifice to make the future
  better off?
• 
  To
• How much whould we sacrifice to keep the future
  from being worse off than the present?

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Ecological Economics take.

• The generation into which someone is born is
  based entirely on chance. There is therefore no
  moral justification for claiming that one
  generation has any more right to natural
  resources than any other. At the very least,
  future generations have an inalienable right to
  sufficient resources to provide a satisfactory
  quality of life. The current generation has a
  corresponding duty to preserve an adequate amount
  of resources.
• Limit Fossil Fuel use to at least the waste
  absorption capacity of the biosphere.
• Minimize generation and dispersal of garbo-junk
• Develop substitutes for consumed non-renewable
  resources
• Harvest biotic stock flow resources at less than
  MSY

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The Positive approach of NCE

• Objective decision rule for intergenerational
  allocation Intertemporal Discounting
• People Prefer Things NOW. Why?
• Impatience
• Uncertainty and of course Death (PRTP)
• Opportunity Cost Could at least have made
  interest on it
• Richer Future argument diminishing marginal
  utility
• Pure Time Rate of Preference (PRTP)
• The primacy of the Discount Rate and Net Present
  Value (NPV) calculations.

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Intertemporal Discounting and Global Climate
Change

• High Discount Rate (6) No Justification for
  reduction in greenhouse gas emissions
• Low Discount Rate (2) We should make
  substantial investments to reduce impacts of
  global warming
• High discount rates favor projects with costs put
  off to the future with benefits now.
• Is choosing a discount rate an art or a science,
  a normative or an objective question?

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Discounting Reconsidered

• People Die.
• Societys dont (societal existence continues
  indefinitely)
• This is a serious difference.
• Consequently social discount rates should be
  lower than individual discount rates.
• The complementarity of Natural and manmade
  capital coupled with the law of diminishing
  marginal utility suggests we should apply a
  negative discount rate to Natural Capital.

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Hyperbolic Discounting

• Why is it so difficult to generate concern for
  events that are seen as belonging to the future
  even though their consequences may be dire?  Why
  is it so easy to generate concern for much
  smaller events that are happening right now? 
  Consider the outpouring of generosity that
  happens when a local family without insurance is
  burned out of their home.  In a single day the
  community will respond more than they would to a
  year's worth haranguing by Peak Oil activists.  A
  recent article on the web site "The Oil Drum"
  sheds some light on why this happens, and it's as
  simple as it is surprising.

This web site provides best explanation http//www
.paulchefurka.ca/Hyperbolic20Discount20Functions
.html
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Distribution is fundamentally different from
allocation, and, consequently, justice replaces
efficiency as the relevant criterion for policy
when time periods become intergenerational.