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11577 results in Macroeconomics

Page 206 of 579

  • 10 - The Extreme Liquidity Creation during the Occupation Years, 1940–1945

  • from PART IV - MONEY IN TIMES OFWAR, CENTRAL PLANNING AND REGULATION, 1940–1986
  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 388-407

  • Summary

    The German Occupation and the Gold Stock

    In the early hours of 9 April 1940 German military forces occupied four of the largest cities in southern Norway and Narvik in the north. King Haakon VII, the government and members of the Storting managed to flee from Oslo the same morning, heading north with German troops on their heels and German bombers over their heads. By early June, when the skirmishes between Norwegian and German forces ended, they had all made their way to Britain, where the Norwegian government in exile was established.

    The German invasion had taken the political as well the military community by surprise. In some respects Norges Bank was better prepared. Plans for moving the gold stock and other valuables to a location outside the main office in Oslo had been laid in advance. Part of the gold stock had always been kept in a safe depository abroad, but there was a formal requirement that the part of the metal stock that was needed to back the note issue must be held in Norges Bank's vault. Towards the end of 1939 Norges Bank began to take steps to permit the whole gold stock to be located abroad, but the necessary law changes had not been formally sanctioned by the government when the war broke out. But already in 1938 the gold had been made ready for shipment, which came in very handy when it had to be moved quickly to avoid falling into the hands of the Germans.

    In the early morning hours of 9 April, fifty tons of gold, transported by twenty-six lorries, left for Norges Bank's branch office in Lillehammer, a town about 185 kilometers north of Oslo, just as German troops marched into the streets of Oslo. The Germans were never close to catching the gold stock once it had left Oslo on 9 April. The next day German soldiers encircled the main office of Norges Bank in Oslo while German officials made inquiries about the gold stock. The deputy governor then declared that the gold stock would not be used ‘in conflict with Norwegian and German interests’, which temporarily appeased the German representatives. On 15 April the Germans returned to the bank, explicitly demanding to know where the gold stock was stored.

  • PART III - WORLDWAR I AND TURBULENT INTERWAR YEARS, 1914–1940

  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 259-262

  • Summary

    The world as it was ended in 1914. The Great War came to unleash forces along a broad front that ultimately undermined the fundamentals on which the prewar society rested. One of the casualties of the war was an international monetary regime based on gold that linked national currencies together in a fixed exchange rate system. The attempts to restore the regime in the 1920s eventually proved futile. By the early 1930s, economic nationalism was on the rise and the few countries still on gold defended their currencies through capital controls and trade restrictions. Only after 1945, reflecting the lessons of the interwar years, was a new viable international monetary regime back in force.

    The interwar years were not only the decades between the wars but, just as important, the time between two long periods of extraordinary stability. Relative to what came before and after, the interwar years stand out as a period of sluggish growth, large economic fluctuations, social unrest and political instability. For economic thinking it was a period of nascent transformation. Economic liberalism no longer seemed to give answers to the new problems arising from the war and its aftermath, giving way to a search for new answers across the political spectrum. These answers more often than not included an enhanced role for the government, a turn against market forces and a new trust in the prospects of planning. The origins of the post-1945 political order centred on quantitatively oriented demand management and government planning can be found in these endeavours.

    Norway was caught up in this maelstrom. Although able to maintain its neutrality, Norway could escape neither the economic consequences of war nor its geopolitical position. The war created a dual Norway. On the one hand, a strong increase in the demand for export goods and particularly shipping services created a substantial inflow of foreign exchange and booming conditions in many industries. Enhanced expectations led to a pronounced jobbing atmosphere centred on the stock market, new shipping enterprises and the financial sector.

  • 8 - Bank Crises and Resumption of Prewar Gold Parity, 1920–1928

  • from PART III - WORLDWAR I AND TURBULENT INTERWAR YEARS, 1914–1940
  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 301-347

  • Summary

    Introduction

    In terms of dramatic events in monetary history, the 1920s saw it all. A nationwide and virulent banking crisis, large capital flows, steeply rising unemployment rates and extreme fluctuations in prices and exchange rates, culminating in the resumption of gold payments at the prewar parity on 1 May 1928, dominated the financial scene during most of the 1920s. New information on the fragility of the central government's financial position and the true extent of debt liabilities incurred by the government during World War I and its aftermath, which dawned on the political environment during the 1920s, represented an additional cliffhanger. The chief actor in this drama was early identified as Nicolai Rygg, who took over as governor of Norges Bank in November 1920.

    Two main themes stand out as fundamental in shaping the monetary history of the 1920s in Norway: the banking crisis and the effects on the domestic economy of the return to the gold standard. In our view it is essential to bear in mind that the severity of the banking crisis and the economic downturn had its roots in the wartime events and policy errors in the previous decade. Glasses were broken in the washing-up in the 1920s as well, but given the excesses of the wartime party, the task of the cleaners was no doubt formidable.

    The relationship between the banking crisis and the gold resumption policy has been a somewhat controversial issue in Norwegian monetary history. We argue that the initial and most severe phase of the banking crisis was primarily a consequence of the events of the previous decade, largely independent of the resumption of gold. The main reason is simply that the banking crisis started several years prior to when the deflationary impulses associated with the return to gold began to be felt. It is true that monetary policy was tight in the early 1920s during the onset of the banking crisis, which may have precipitated some bank failures. But monetary policy was hardly more contractive than in, e.g. Sweden, which escaped nationwide banking failures. In Norway the monetary expansion had been brought further and had lasted longer than in Sweden, which is why Norwegian banks were less able to handle the severe deflationary shock that hit nearly all countries in the early 1920s.

  • 15 - Inflation Targeting: Overcoming the Fear of Floating, 1998–2016

  • from PART V - THE LONG RETURN, 1986–2016
  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 544-588

  • Summary

    Introduction

    By the end of the 1990s, Norway had entered the arguably most prosperous period in its recorded history. The catchphrase ‘richest country in the world’ gained ground and Norway frequently topped international indices of human development. The prosperity or, to be quite precise, the part of its newfound prosperity that made it depart from the northwest European mean originated in the development of the global economy. The rise of China and other Asian tigers rendered Norway with, on one hand, declining import prices for many manufactured items and, on the other hand, a fabulous increase in oil prices, the country's most important export. Between 1998 and 2013, terms of trade improved by 101 per cent.

    Only once before had Norway been exposed to a positive terms of trade shock of this magnitude. The sharp improvement in the first years of World War I, however, had soon been arrested. The novelty of 1998–2013 was both its strength and its durability over time. Norway ran a double-digit trade balance surplus (in relation to GDP) for more than a decade. Only in the last half of 2014 did a marked weakening of terms of trade set in as a result of plummeting oil prices. For fifteen years, Norwegians experienced substantial, but rather effortless, real welfare gains in a time when the Western Hemisphere suffered the worst economic backslash since the interwar period.

    Windfall prosperity coincided with important changes in the monetary policy framework. In 1986, as discussed in the previous chapter, Norway had restored the monetary anchor and adopted a fixed exchange rate regime. In the following years it had taken part in the great moderation, which brought inflation rates down at home and abroad. Under the managed float following the end of the ERM peg in 1992, price stability had gradually come to the forefront of policy. By the autumn of 1998 the fixed exchange rate regime had run its course and in January 1999, Norway de facto moved to inflation targeting. Two years later Norges Bank was officially given an inflation target mandate.

  • 13 - From Regulation to Markets in an Embryonic Oil Economy, 1971–1986

  • from PART IV - MONEY IN TIMES OFWAR, CENTRAL PLANNING AND REGULATION, 1940–1986
  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 481-510

  • Summary

    Introduction

    The long postwar period of seemingly perpetual prosperity and economic stability came to an end by the early 1970s. On the international scene this was symbolised by the demise of the Bretton Wood accord and the global commitment to fixed exchange rates. Economic growth turned sluggish, more volatile and subject to greater variations across countries. High inflation in combination with widespread unemployment coined a new term, stagflation. The confidence of the Keynesian consensus was replaced by uncertainty. Decisionmakers and economists alike came to question the ability of the postwar policy model to address present challenges. In the course of the next decade economic policy tilted distinctively in a more liberal, market-oriented direction.

    In the 1970s Norway became a decisive outlier. True, as a small open economy it shared much of the common economic misery experienced in the Western world: traditional industries suffered when overall European growth turned sluggish; Norway had its fair share and more of high inflation; and the country had to find it way in a world where fixed exchange rates no longer served as a compass. But this was counterbalanced by the discoveries of oil and gas in the North Sea. These findings fundamentally altered its prospects and signalled the beginning of an era that would make Norway one of the wealthiest countries in the world. While the trend growth in the golden era had been close to the European average, Norway's growth record in the following decades was well above. Unemployment remained at low levels throughout the period.

    Newfound prospects of future prosperity undoubtedly influenced the way in which Norway met the turbulent 1970s. Where other countries had to consolidate the welfare state, Norway had an unprecedented freedom for further welfare reform. In healthcare, education and social security the expansionist mood of the 1960s was sustained and taken further. This new freedom made it possible for Norway to retain the postwar economic policy models well into the late 1970s. In response to the new challenges in the course of the 1970s, particularly to counterbalance weakened fiscal discipline and wage formation, all the instruments of the 1965 Credit Act came to be employed, making that decade the peak of financial repression.

  • PART II - THE RISE OF PRIVATE DEPOSIT-TAKING BANKS, 1850–1914

  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 113-116

  • Summary

    The quest for monetary stability had been an uphill struggle for the new nation. However, by the early 1850s, despite the severe challenges of the crisis years of 1847–1848, the commitment to currency convertibility appeared firm. In retrospect, the middle of the century represented the start of an unprecedented period of stable monetary values spanning more than six decades. Until the international monetary order fell apart with the outbreak of World War I, Norges Bank honoured its notes in specie without exception. Its commitment to monetary stability was never in question.

    The turn to monetary stability, however, is not the only shift associated with the middle of the century. By 1850, Norway was in the process of achieving modern economic growth. Although growth rates continued to be volatile in the short run, reflecting the exposure to international demands for Norwegian raw materials and shipping services as well as the variations in the riches nature rendered, the long-term trend was clearly positive. From 1840 to 1914 annual average real growth per capita ranged between 0.9 and 1.7 per cent per decade. In the same period, the population more than doubled. There was no return to the low-growth economy of the old Norway where new generations were hardly any better off than their forefathers.

    The emergence of modern growth in Norway is intimately interwoven with the broad process of economic transformation that took place in Western Europe in the nineteenth century. In 1914, Norway was an altogether different economy than sixty or seventy years earlier. Semi-substance farming had been replaced by more skill-based occupations, time-saving machinery and market orientation. By the turn of the century, mining and manufacturing had replaced farming as the most important sector in terms of production value. From the 1870s, industrial growth, moreover, had become ever more export-led: first through pulp and later paper, thereafter from the late 1890s increasingly based on electrochemical and electrometallurgical industries making use of the newly discovered hydroelectric power potential of Norwegian waterfalls.

  • 7 - TheWartime Money Glut, 1914–1920

  • from PART III - WORLDWAR I AND TURBULENT INTERWAR YEARS, 1914–1940
  • Øyvind Eitrheim, Jan Tore Klovland, Lars Fredrik Øksendal
  • Book:
    A Monetary History of Norway, 1816–2016
    Published online:
    09 February 2017
    Print publication:
    22 December 2016, pp 263-300

  • Summary

    Introduction

    The outbreak of World War I marks the beginning of a troubled period for Norway as a nation and for the Norwegian economy. The overriding objective of foreign policy during the war was to preserve Norway's neutrality. The government did succeed in manoeuvering between the belligerent nations in such a way that Norway was not directly drawn into the military conflict. This was a great relief to the nation, although it could be achieved only by giving some financial concessions to Britain and Germany in connection with the export of fish to these countries. This seems to be a low price for achieving neutrality, but as will emerge from the narrative of this chapter, this policy greatly exacerbated the liquidity problems that Norges Bank had to struggle with in the final years of the war.

    In the first part of World War I the Norwegian economy boomed. The demand for some of the staple export goods, such as metals, ores, fish and hardened fats, soared to unprecedented heights. The Norwegian merchant fleet profited enormously from the steeply rising freight rates. The surge in export revenues and freight income provided the initial injection of money into the domestic economy. In the final war years and for some time beyond, however, disruptions to foreign trade and shipping greatly diminished the flow of income from abroad. But the base money creation continued largely unabated; now the main sources of liquidity injections stemmed from the government's various efforts to ensure the supply of consumer goods to the public, and, as referred to above, from funding operations on British and German account. As a consequence of the abundant liquidity of the commercial and savings banks, a significant expansion of bank credit could take place.

    A main theme in the monetary history of Norway during World War I is thus how the monetary authorities coped with the initial money glut due to booming export revenues and later added to the problems by creating more money themselves. The challenges facing the monetary authorities that were caused by the war economy were truly demanding, and, it is fair to say, grave policy errors were committed. We say this not only with the benefit of hindsight but, as it will turn out, by reference to the contemporary critics of economic policy.

  • MDY volume 21 issue 1 Cover and Back matter

  • Journal:
    Macroeconomic Dynamics / Volume 21 / Issue 1 / January 2017
    Published online by Cambridge University Press:
    21 December 2016, pp. b1-b5
    • Article
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  • ENDOGENOUS POLITICAL INSTITUTIONS, WAGE INEQUALITY, AND ECONOMIC GROWTH

  • Christos Pargianas
  • Journal:
    Macroeconomic Dynamics / Volume 21 / Issue 1 / January 2017
    Published online by Cambridge University Press:
    21 December 2016, pp. 183-213

  • The paper suggests that the political changes brought about by the increase in the proportion of college graduates in the U.S. labor force in the 1970s may have contributed to the decline in the college premium during the 1970s and its increase during the 1980s and 1990s. The study argues that the proportion of skilled workers in the labor force affected their relative importance in the political process. Thus, the increase in the proportion of skilled workers during the 1970s reduced the skill premium in the short run, but induced a change in policies that favored skilled workers and increased the skill premium in the long run.

  • MDY volume 21 issue 1 Cover and Front matter

  • Journal:
    Macroeconomic Dynamics / Volume 21 / Issue 1 / January 2017
    Published online by Cambridge University Press:
    21 December 2016, pp. f1-f4
    • Article
      • You have access
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  • Preface to the Third Edition

  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp xv-xvi

  • Summary

    The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.

    John Maynard Keynes

    In undertaking a third edition of this text, the authors of the first and second editions, Dan Hausman and Michael McPherson, set themselves a series of tasks: to update the discussion, especially in the context of the financial crisis of 2007–2009; to address issues that have become prominent in the decade since the previous edition such as growing social and economic inequality; to fill in some of the gaps in the range of issues covered previously; and to take cognizance of developments within ethics and relevant areas of economics. This is a tall order, for the relevant literature is immense and the conceptual challenges in selecting materials to discuss and synthesizing their insights are daunting. To help with this task, Hausman and McPherson asked Debra Satz to join them as a third author, and this third edition is the result of our three-way collaboration. It has been extremely rewarding for us three, and we have learned a great deal from one another in writing together. We hope that our efforts will be rewarding to our readers, too.

    Although some sections of the second edition have made their way into this third edition with few changes, the book has been extensively rewritten with a great deal of new material. One unfortunate consequence is that it has grown longer, and bigger books are often more expensive, more intimidating, and less likely to find readers. But we believe that the new material is as important and timely as it is interesting (to us, at least). We hope that it will stimulate more economists and philosophers to learn from each other. We also hope that it will intrigue and delight our readers and more than compensate them for the greater investment of time and money that this edition demands. Among the most obvious differences between this edition and the second edition are the addition of questions for study and discussion at the end of each chapter and a completely new chapter on the limits of markets.

  • PART III - LIBERTY, RIGHTS, EQUALITY, AND JUSTICE

  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp 173-174

  • Summary

    Though well-being is obviously important, other moral considerations, such as freedom, rights, equality, and justice, are also important. Some people risk their lives pursuing these values. Even if economists had no interest in any values except welfare, they would still need to understand these other values in order to comprehend the goals of policy makers and to help devise policies to achieve them.

    In fact, we suspect that economists care as deeply about freedom and justice as do other people, even if these values are absent from their models. Adam Smith objected to most government interference in the market as diminishing welfare, but at the same time he maintained that to prevent people “from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind” (1776, book IV, chapter 7, part 2). Values such as freedom, rights, and justice may be difficult to understand, but welfare is not a simple notion either. In assessing economic outcomes, processes, institutions, and policies, normative economics should encompass a much wider range of moral concerns than welfare.

    In Part III we shall be discussing important moral notions other than welfare, under the separate headings of liberty and rights (Chapter 10), equality (Chapter 11), and justice (Chapter 12). Although it is convenient to divide the discussion in this way, these considerations are closely related. For example, different theories of justice have implications for what liberties and rights are important and for the extent to which inequality should be viewed as a moral problem. Our way of classifying the issues is an expository convenience, and readers should not take it too seriously. Readers should also not consider our discussion of other important moral notions exhaustive. For example, the deepest moral commitments of many of those concerned to protect wilderness areas or of those concerned with community are not captured in these chapters. In these chapters, we also discuss three kinds of moral theories: libertarianism (Chapter 10), egalitarianism (Chapter 11), and contractualism (Chapter 12). It is natural to link libertarianism with liberty and rights, but liberty and rights are also important to nonlibertarians. It makes sense to discuss egalitarianism while discussing concepts of equality, but concepts of equality are important in theories of justice that are not egalitarian.

  • Appendix: How Could Ethics Matter To Economics?

  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp 337-352

  • Summary

    We hope in this book to have shown how knowing moral philosophy can help one to do economics better and how economics can contribute to ethics. The most persuasive way to make this case is the one we pursued in the main text: by describing important aspects of moral philosophy and showing their bearing on economics. Many economists are nevertheless inclined to deny that moral philosophy has anything to contribute to economics. Why? In this Appendix, we explore some of the arguments and reaffirm the central thesis of this book – that ethics is relevant to economic inquiry.

    We shall assume that those economists who would deny that moral philosophy is relevant to economics distinguish positive economics, which addresses factual questions, from normative economics, which addresses evaluative questions, and that they recognize that moral philosophy is relevant to normative economics. But they deny that moral philosophy is relevant to positive economics. We respond to three key arguments in support of their position. Section A.1 considers the role of positive economics in policy making and argues that normative questions are almost always implicated in such work. The second section turns to the general question of what it means to say that positive economics is “value free” and then sketches what we call “the standard view” of the relation between positive and normative economics. Section A.3 comments briefly on the exaggerated distinctions sometimes drawn between positive and normative inquiries, criticizing in particular the view that evaluative claims cannot be rationally addressed. The fourth section revisits the standard view and discusses some problems it faces. Having argued that economic work presupposes ethical commitments, that normative inquiries are subject to reasons, and that the standard view is overly strong, we return to the question of whether positive economists have anything to learn from studying ethics.

    Objection 1: Economists as Engineers

    There are economists who deny that ethics is relevant to economics and go on to repudiate normative economics as the bastard offspring of completely distinct inquiries that ought to be completely separate. And yet they do not deny that economics is relevant to policy making.

  • 2 - Ethics in Welfare Economics

  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp 19-38

  • Summary

    This book will be filled with arguments, but we shall begin with examples to bring them down to earth. One good example may do more to clarify how ethics matters to economics than would a hundred pages of argument. Furthermore, ethical reasoning is not just a matter of logic. Emotion has its part to play, too, and examples help to engage the emotions. In this chapter and the next, our concern is not to argue that ethics matters in economics but to exhibit through examples how important ethics is.

    In this chapter we will focus on two examples, which will enable us to identify the main moral assumptions that characterize mainstream normative economics. The first example caused an uproar.

    A Shocking Memorandum

    Consider the following confidential World Bank memorandum, which was published in The Economist (February 8, 1992, p. 62). Larry Summers, then the World Bank's chief economist, absorbed the criticism the memorandum provoked, but he was probably not the author:

    Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDC's [less developed countries]? I can think of three reasons:

  • (1) The measurement of the costs of health-impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health-impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.

  • (2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always thought that under-populated countries in Africa are vastly under polluted; their air quality is probably vastly inefficiently low [sic] compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world-welfare-enhancing trade in air pollution and waste.

  • 10 - Liberty, Rights, and Libertarianism

  • from PART III - LIBERTY, RIGHTS, EQUALITY, AND JUSTICE
  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp 175-193

  • Summary

    Many people have a passionate commitment to individual liberty or freedom (which we here take to be the same thing). Some object to paternalistic laws (such as those requiring the use of seat belts) as infringements on freedom, regardless of whether these laws increase human welfare. Many favor protecting the freedom of those with unusual lifestyles or unpopular religious convictions even if doing so diminishes welfare. Social deliberation often treats protecting freedom and enhancing welfare as independent goals.

    It is ironic that normative economics focuses exclusively on welfare, because most economists value individual freedom very highly. When leading economists criticized socialism, for example, they not only questioned whether it is efficient but also argued that economic and political power must be kept separate in order to protect individual liberty (Friedman 1962, ch. 1; Hayek 1944). Economists also value the prosaic liberties that are part of market life such as the freedom to change jobs, to start a business, or to move from place to place within a country. They worry about measures that increase the power of the state. Consider that many economists favor taxes or exchangeable emission rights over direct state regulation of pollution not only because the taxes or exchangeable emission rights are purportedly Pareto superior to the regulation but also because state regulation limits freedom directly rather than via prices and property rights. By increasing the reach of government, such regulations may also threaten freedom indirectly. Similarly, economists often favor cash over in-kind transfers both because cash transfers are more efficient and because they leave the recipients with more choices.

    The efficiency case has been a part of “scientific” welfare economics because it has appeared to rely only on uncontroversial moral premises, while the argument in terms of freedom usually has been reserved for “unscientific” essays because its moral premises have appeared to be controversial. The focus on efficiency has also been fostered by a belief that Pareto efficiency itself promotes liberty, because it values outcomes that fully accommodate the voluntary choices of individuals. But the link between efficiency and liberty is tenuous. For example, consider a problem such as homelessness.

  • 12 - Justice and Contractualism

  • from PART III - LIBERTY, RIGHTS, EQUALITY, AND JUSTICE
  • Daniel Hausman, University of Wisconsin, Madison, Michael McPherson, Debra Satz, Stanford University, California
  • Book:
    Economic Analysis, Moral Philosophy, and Public Policy
    Published online:
    28 May 2018
    Print publication:
    15 December 2016, pp 223-244

  • Summary

    Among the questions of justice that are important to economists are those that concern the distribution of benefits and burdens among members of a society. What claims can persons legitimately make upon one another or upon the state? What burdens can the state place on its citizens, or individuals on one another? Because justice is concerned with the distribution of scarce resources in society, its subject matter overlaps with economics.

    Economists, like philosophers, cannot decide what principles of justice to rely on by consulting public opinion, because people are committed to different principles, and even when there is a social consensus, it may not be well considered, or it may be so abstract as to offer little practical guidance. As an example of poorly considered agreement, consider that for centuries people believed that women were the natural inferiors of men. Consider as an example of ambiguity and overabstractness, equality of opportunity: almost everybody accepts this value, but there is little agreement about what it entails. Economic evaluation presupposes at the very least well-defined principles of justice. The principles of justice that guide policy should also be well considered.

    Many issues of justice are controversial, and economists would like to avoid them. But controversial questions are often unavoidable. Suppose, for example, economists are called upon to describe the economic consequences of alternative policies affecting families. Should they evaluate these policies by looking at their effects on the household or on each individual member? Should economists include the unpaid contributions women make to the household in GNP? Do changes in family law such as no-fault divorce that harm women and children in terms of standard of living, while also allowing women and men to leave unhappy marriages more easily, increase or decrease social welfare? All these questions involve matters of justice, and one cannot choose among policies without answering them.

    Libertarian and utilitarian moral theories, the subjects of Chapters 7 and 10, imply theories of justice. For most libertarians, justice primarily involves respecting property rights and negative freedom. For most utilitarians, principles of justice are utility-maximizing general rules that facilitate cooperation and regulate conflicts of interest. But there is a different idea of justice than the libertarian or the utilitarian that appeals to the idea of agreement.

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