Fighting Over the Harberger Rectangle

A diagram from Arnold C. Harberger's 1954 paper "Monopoly and Resource Allocation", annotated to highlight the contention for the "excess profits":

Harberger was interested in estimating the dead weight loss due to monopoly power, and found that it was low. Subsequently the same basic machinery was re-used to analyze the dead weight loss due to any externally imposed costs, such as excise taxes:

For the case of taxation, the dead weight loss comes from both consumer and producer surplus (two triangles), instead of just the single triangle of loss in the monopoly case.

The existence of the dead weight losses under monopoly or taxation is widely accepted. 

What's much more contentious is what to do with the rectangle of "excess profit". That becomes a normative "problem" immediately. The reader can fill in their own opinion for the case of taxation. For monopoly, some have said it's an attractive nuisance, some that it's a reward for superior design and production, others that the firm is more likely to redeploy the capital productively, and others assume that any diminution of consumer surplus is theft.

Certainly investors and economists have strongly differing views on monopoly "excess profit". Empirically, certain sectors have historically returned more excess profit than others. Active investors not only seek out such sectors and companies, but they count on there being such differentiation in the market. Their job is to seek out superior ROIC and put their capital there. Passive investors don't care, but to get results that match their Stigleresque expectation, active investors must exist, else there wouldn't be any reversion to the mean! 

The best use of excess profits, in the sense of "what causes the greatest societal economic growth?", may depend very strongly on the hands it is placed in. Hence the normative answer to the excess profits rectangle turns on the data. I get the sense that historically the economics literature more or less follows the normative expectations of those who bring normative values to the profession, while neutral researchers find a variety of mixed answers. This implies that ultimately the best way to answer the question is to let the market decide. Which in turn indicates that excess profits "should" belong to the monopolist, who will be rewarded or punished further based on how well they treat that newly received capital. 

A Preliminary Description of Categories of Political Ethics

Humans share values, but not all values are shared with everyone. Some values conflict.

In 21st century America, the conflicts are not only between these values, but in the assumptions of who possesses them. This essay makes a list of the categories and the beliefs about others that go with that category.

1. Solo, isolationist. Only the individual is supreme. Highly vulnerable to takeover by nearby groups with any other ethic.

2. Tribal, our tribe is the only moral tribe on the planet. We are the best. All other tribes and individuals are like animals and must give way or die.

3. Tribal, our tribe is best, but other tribes can exist provided they do not interfere with us. Or if they are our slaves. Perhaps it would be better if they can trade with us so that we are better off.

4. Tribal, but exists in or near a monarchical culture, and is aware that the larger polity can destroy them. Prefers trade, but may still harbor secret feelings of vast superiority. 

5. Tribal, but exists inside a WEIRD nation or culture. Will exploit blind spots of the WEIRD nation it finds itself in.

6. WEIRD, classic liberal, but is aware that other cultures are tribal. Extends favorable treatment to only those who are known to have WEIRD values. Treats non-WEIRD as outsiders and prefers not to allow them insider status. Will admit non-WEIRD individuals when they see those individuals consistently demonstrating WEIRD values.

7. WEIRD, classic liberal, is aware that some other cultures are not WEIRD, but assumes that other cultures can be made WEIRD liberal too as soon as you teach it to them.

8. WEIRD, classic liberal, but assumes that all cultures are WEIRD liberal too. Or assumes that the features of WEIRD culture are automatically part of any human political ethic. Does not have full comprehension of tribal ethics, or sees tribal ethics as entirely rustic, benign, noble. Willing to admit anyone from any culture automatically without testing their original political ethics. Assumes that all people are pro-social and have Western political values.

9. Monarchical based on religion. Common for large Western polities prior to WEIRD.

10. Monarchical based on ethnicity. Common for large polities with strong geographic boundaries prior to WEIRD.

11. Has some or most WEIRD characteristics (pro-social, laws respecting individuals and property rights) but did not evolve from the Catholic Church’s prohibition against cousin marriage and similar rules that broke up the power of family clans and created WEIRD culture.

A great deal of the conflict in the U.S. is between those of belief 6 and those of belief 8. Democratic Socialists have belief 5. China may fit 10. Japan may fit 11.

The strong parts of this analysis are thought to be in the tribal and WEIRD belief sets. Further discussion would likely refine categorization of Asian polities and those that existed in ancient Greece, Rome, and in the Middle Ages.

Multiculturalism is fine so long as each culture is itself distinct and separate, and each receives or suffers the benefits and misfortunes arising from its own rules of conduct. Humans have tried many ways of living in the last 25,000 years, and some of the tricks we have learned allowed us to live in groups larger than tribes or clans.

But it was an important feature of our past experiments that the bad ideas were weeded out, as weak or diseased experiments of arranging society were terminated by extinction or conquest. Otherwise our existing societies would have inherited many poor ideas and traditions that would continue to weaken the fabric of society.

When multiple and distinct cultures are brought together, which is altogether a new and completely different experiment, the outcome may or may not be a good one. But if all of the bad features of the poorer contributors are allowed free rein, and all of the extra resources of the good contributors are taxed to fill in the deficit created by the bad ones, then the society is unlikely to survive the experiment. It is the same with the presence of counterfeit money in circulation: Everyone withholds the good money and only exchanges the bad, so that the bad drives out the good. In a country blending the practices of multiple cultures, all bad practices, which have eager adherents because of the devilish nature of bad practices, will drive out the good practices, which take time to issue their rewards to adherents.