Distribution
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?
Distribution and Scale
 The poorest do not care about the future
 The richest consume the bulk of the world’s
resources
Distribution 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
Distribution 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
What’s the Existing Distribution
of Wealth?
Trends in wealth distribution
45
35
25
15
1983
1988
Top 1%
1993
Next19%
1998
Bottom80%
What’s the distribution of
income?
The L-curve of Income
Distribution
 http://www.youtube.com/watch?v=woIkIph
5xcU
Great Compression, Great
Divergence
Diminishing Marginal Utility?
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Income Distribution and Taxation
International 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
Distribution by factors of
production (USA)
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Wages-70%
Profit- 20%
Interest- 8%
Rent-2%
Do natural resources contribute only 2% to
production?
Inter-temporal Distribution
 Discounting the future
 Should we do it? Why?
 What it means
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
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.
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
Current Trends in Redistribution
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
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Private property
Land
Knowledge and information
Money and seignorage
 The enclosure trend
Policies towards a
sustainable, just and
efficient distribution of
resources
Your views
 Should we have a
guaranteed minimum
income?
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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
views
 Should we have
more income tax?
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Your
views
 Should we have
more progressive
income tax?
 What’s the tax rate
for hedge fund
managers?
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 Should we cap incomes?
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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
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Basic 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
Natural resources:
redistributing Rent
 Rent= unearned income
 Land- rent
 Non-renewables- user cost
 Renewables- natural dividend
The land tax
Non-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
Weak Sustainability: oil to income
Renewable resources: the natural
dividend
Renewable resources:
ecosystem services
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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
 What is seignorage?
 Reserve requirements
 Who should get it?
 Ithaca hours