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September 25, 2009

Comments

Josh

I'm not an economist and I won't tear you apart, but I'll just point out that out of the marginalist revolutionaries, only Jevons (and maybe Walrus?) had psychological underpinnings while Menger made sure to avoid this.

max

I'm only half an economist, so a few thoughts in an economistic vein:

1) You say that 'the only way a price can be 'wrong' from a neo-classical point of view is if a market failure is present ... neo-classical economics introduces the tautology that a banker is 'worth' £28k a week because the 'customer' (i.e. the bank) is prepared to pay him this much.'

You're right that most neo-classical economists assume market failures are the exception, not the norm. But as people like Paul Wooley point out, most bankers get paid £28k a week precisely because of the pervasive market failures in both the financial system and - linked to this - in their employers' compensation systems. Shareholders (and taxpayers, in nationalised banks) suspect something is up, but don't have the information to do anything about it. Keynsian economists (and people like Akerlof and Stiglitz) would say that capitalist economies are riven by structural market failures - information asymmetries in particular - so that first-best outcomes are probably the exception, not the norm. Bankers have used the efficient markets hypothesis to suggest their industry operates at close to the neo-classical ideal. We now know have far from the truth that is.

2) Given all of that, most economists would say that making everybody's pay public is a radical move, not a nostalgic one. From a pure efficiency perspective, this massively increases the amount of information we have about what people's work is worth. In that sense it might take us much closer to (ahem) neo-classical labour market equilibrium. Although, er, what about privacy?

3) The Freakonomics guys should do a chapter on farmers' markets. I suspect they would conclude that either that the stallholders have successfully internalised the social externality of feeling massively good about yourself; or that going to Broadway Market is a form of Veblen-style positional good, like riding a fixed-wheel bike or driving a Hummer ...

Will Davies

Thanks both. Useful, err, information for me to chew on.

Re the publicising of pay: it is interesting that we have developed norms that make it perfectly acceptable to ask "how much did this artefact cost?" (a vulgar reduction of quality to quantity), but totally unacceptable to ask "how much do you earn", a matter of political-economic seriousness in my view.

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