Income Distribution and Taxes: Friday 24 October 4-7

Posted on 20.10.14

Professor Corbett Grainger

Friday 24 October at 4 pm a seminar will be held by RNH on “Income distribution and Taxes” in the Gamma meeting hall on first floor in Gardastraeti 37. Professor Corbett Grainger from the University of Wisconsin in Madison will compare two approaches in the fisheries, taxation and allocation of rights; Professor Ragnar Arnason will analyse some errors and category mistakes in the measurement of income distribution; and Professor Hannes H. Gissurarson will criticize the theories of controversial French economist Thomas Piketty on a widening gap between rich and poor in the West.

The seminar is held on the occasion of a book published by AB Publishing, Tekjudreifing og skattar (Income Distribution and Taxes), a collection of papers by six Icelandic scholars, Professor Ragnar Arnason, Dr. Birgir Thor Runolfsson, Axel Hall, Dr. Helgi Tomasson, Professor Hannes H. Gissurarson and Arnaldur Solvi Kristjansson. One of the partners of RNH, RSE, supported the publication of the book. The seminar is co-sponsored by the Icelandic Taxpayers’ Association. After the lectures and a discussion a reception will be on the premises from 5.30 to 7 pm. The seminar forms a part in the joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

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Piketty’s Capital: Misleading Data on Income Distribution

Posted on 19.10.14

Participants in the ESL conference in Bergen. Professor Gissurarson (in blue jacket and red shirt) stand behind one of the girls who hold the ESL banner. Yaron Brook stands at the centre behind the banner.

The much-discussed theories of French economist Thomas Piketty are not based on sound principles, as can be seen on a close scrutiny. This was what Professor Hannes H. Gissurarson, RNH Academic Director, argued at the conference of European Students for Liberty in Bergen 10 October 2014. Professor Gissurarson contrasted Piketty with Rawls, the main leftwing thinker of the past: Whereas Rawls was preoccupied with the poor, Piketty seems solely to be concerned with the rich. Everybody agrees that poverty is a problem. But is affluence really a problem? But even if Piketty’s use of the data could be plausibly criticized, as has been the case, it could well be, Professor Gissurarson submitted, that the gap between the poorest and the richest groups in the West had widened somewhat in the last few decades (mainly because the richest have become much richer, the gap has been stretched upwards). But income distribution in the world as a whole had in fact become more even (mostly because many of the poor in China and India have produced themselves out of poverty; according to figures from Piketty’s own data base the real income of the poorest 90% in China has tripled since the mid-1980s).

Three speakers: Gissurarson, Brook and Hannesson. Photo Eszter Nova.

Professor Gissurarson asked: Is something wrong with this trend? Should it not be welcomed that hundreds of millions of people in China and India have escaped poverty by their own efforts? It was however correct that some people in the West possessing marketable, but unique, irreproducible and unimitable skills and abilities, such as film stars, entertainers, athletes, innovators and entrepreneurs, now could because of globalisation reach a much larger market than before, possibly three to four billion people instead of only 300–400 million in the past; this resulted in them gaining a much higher income (which would constitute rent in the sense of economics). But there was nothing wrong with income distribution by choice, Professor Gissurarson maintained. He gave a simple example: Milton Friedman visits Iceland to give a lecture. A thousand people attend the lecture, each paying an entrance fee of $50. Thus, Friedman becomes richer by $50,000, and 1,000 people become poorer each by $50. But where is the injustice? Everybody is satisfied. Professor Gissurarson also pointed out that capital was not made of the same solid and immobile material as Piketty seemed to think. Piketty frequently quoted Balzac’s novels. But the main theme in most of these novels was how fragile and fickle wealth could indeed be. For example, in Balzac’s famous Old Goriot (Père Goriot), often quoted by Piketty, Goriot himself, previously wealthy, has run out of money. One of his daughters was struggling to pay the gambling debts of her secret lover, while the husband of the other one had lost the dowry in speculations.

Five Icelandic students attended the Bergen conference. The other speakers were activist Rasmus Brygger from Denmark, Dr. Yaron Brook from the Ayn Rand Institute, and Professor Emeritus Rognvaldur Hannesson from the Norwegian Business School in Bergen, NHH, which was the venue of the conference. Professor Hannesson, an Icelander who has spent all his professional career in Norway, is also a Visiting Professor at the University of Iceland. The organisation was in the hands of Eirik Aaserod from Norway and Lukas Schweiger, ESL chairman. Professor Gissurarson’s lecture formed a part of the joint project by RNH and AECR on „Europe, Iceland and the Future of Capitalism”.

Gissurarson Slides in Bergen

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Gissurarson on Piketty in Bergen: Saturday 18 October

Posted on 17.10.14

Professor Hannes H. Gissurarson, RNH Academic Director, gives a lecture on the theories of French economist Thomas Piketty at an international conference of European Students for Liberty in Bergen 18 October 2014. He will compare the theories of Piketty and American philosopher John Rawls, the main difference being that Rawls was concerned with the poor, but Piketty with the rich. He will criticize Piketty’s use of data which involves a systemic underestimate of the income of the bottom income group and also a systemic overestimate of the income of the top income group. However, admittedly it is possible that the gap between rich and poor in the West has widened in the last few decades. One reason for this, Professor Gissurarson submits, could be globalisation which has two discernible ffects. First, unskilled labour in the West meets competition from unskilled labour in China and India and other countries putting pressure on wages. Secondly, individuals in the West with special abilities, difficult or impossible to reproduce, for example film stars, entertainers, athletes, innovators and entrepreneurs, now can reach a much bigger market than before, thus vastly increasing their income. Professor Gissurarson will also pose the question whether anything is really wrong with an unequal income distribution, if it is distribution by choice.

Other lecturers at the conference include Dr. Yaron Brook from the Ayn Rand Institute in California and Professor Emeritus Rognvaldur Hannesson, from the Norwegian Business School in Bergen, NHH. Dr. Brook will discuss the moral message in Rand’s works, while Professor Hannesson will analyse the possible privatisation of marine resources. Professor Hannesson’s most recent book is Ecofundamentalism: A Critique of Extreme Environmentalism. The lecture of Professor Gissurarson forms a part of the joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

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Three Icelandic Examples of Spontaneous Evolution

Posted on 12.10.14

From left: Jordan, Gissurarson and Poole.

Grazing rights in the Icelandic mountain pastures, individual transferable quotas in the Icelandic fishing grounds and the indexed Icelandic krona are three examples of institutions or solutions developed spontaneously by the market rather than imposed by government. This was claimed by Professor Hannes H. Gissurarson at a conference on the social and political theories of Friedrich von Hayek at Manhattanville College in New York 10 October 2014, organised by the Economic Freedom Institute. Professor Gissurarson recalled his meetings with Hayek who had asked the students of his thought not to become Hayekians, but rather to maintain their critical faculties and to develop classical liberal principles further, on their own. It was in this spirit, Professor Gissurarson said, that he offered his analysis of these three examples. The grazing rights in the mountain pastures and the individual transferable quotas in the fisheries had both been developed to escape “the tragedy of the commons” where open access to resources led to their over-utilisation. Professor Gissurarson said that he had first suggested the introduction of quotas in the fisheries at a conference in Thingvellir in 1980, in order to stop over-fishing, but that he had not then been aware of the fact that such quotas had already been allocated in 1975 in the herring fishery and in 1979 in the capelin fishery. A system of individual quotas was then introduced in the demersal fisheries (including the important cod fishery) in various stages from 1984, the quotas gradually becoming transferable and permanent. The system of individual transferable quotas was, according to Professor Gissurarson, a good example of an institution which was not designed by academics, but spontaneously developed by the parties directly involved, and then explained and articulated by academics.

Professor Gissurarson said that he had suggested publicly in 1983 that the Icelanders should abandon the krona and use instead some harder currency, arguing that the krona was not adequately fulfilling two of the three roles of money, as a unit of account and a store of value. However, he had not realized then that this problem had already been solved in Iceland by the use of the indexed krona which performed these two roles very well, while the ordinary krona could be used as before for the third role, as a medium of exchange. In fact, two currencies were — and still are — used in Iceland, the indexed krona for long-term contracts and the ordinary krona for short-term transactions. Professor Gissurarson pointed out that while legislation had certainly been necessary to support these three institutions, they were examples of solutions of the market rather than of government: the results of human action, but not of human design. Professor Gissurarson used the opportunity while in New York to have discussions with Professor Frederic Mishkin on the 2008 Icelandic bank collapse and with Walker F. Todd, a former lawyer at the Federal Reserve System and a specialist on currency swap deals. He also discussed the international financial crisis, the operations of the Federal Reserve System and the Icelandic bank collapse with Dr. Jerry Jordan, former President of the Federal Reserve Bank of Cleveland, and Dr. William Poole, former President of the Federal Reserve Bank of St. Louis. Both Jordan and Poole attended the Manhattanville College conference which was presided over by Professor Emeritus Anna Sachko Gandolfi and her husband, Dr. Arthur E. Gandolfi, former Citicorp Vice President and a student of Ayn Rand and Ludwig von Mises. The two Gandolfis have published, with David P. Barash, Economics as an Evolutionary Science. Professor Gissurarson’s lecture at the conference formed a part of the joint project of RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

Gissurarson Slides at Manhattanville College

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Gissurarson in NY on Spontaneous Evolution: Friday 10 October

Posted on 10.10.14

F. A. Hayek

Professor Hannes H. Gissurarson, University of Iceland and RNH Academic Director, gives a lecture at an international conference of the Economic Freedom Institute at Manhattanville College in Purchase, New York State, north of New York City, Friday 10 October 2014. The conference is devoted to The Road to Serfdom by F. A. Hayek, published 70 years ago. Seventeen academics and scholars give papers at the conference, including the distinguished monetary economist Jerry Jordan, former President of the Federal Reserve Bank of Cleveland, William Poole, former President of the Federal Reserve Bank of St. Louis, Professor Sanford Ikeda, State University of New York in Purchase, and Professor Edward Stringham, Fayetteville State University in North Carolina.

Professor Gissurarson discusses spontaneous evolution in Hayek’s sense. First, he analyses briefly three well-known examples where people can solve in market transactions what economists have sometimes wrongly considered to be public goods, only to be produced by government. The first example is from A.C. Pigou about two roads of different quality where the traffic would not be allocated efficiently between them. F.H. Knight pointed out that this problem could be solved by private property rights to the two roads. The second example is in many textbooks, including that of P.A. Samuelson. It is of lighthouses where seemingly it is difficult to confine their services to those paying for them. R.H. Coase pointed out the historical record which showed that these services had often been included in port tolls. Therefore, their services could bee privately produced and priced. The third example is the US radio spectrum, where radio frequencies are allocated by government agencies. T.W. Hazlett pointed out that in the 1920 private property rights to certain frequencies in certain areas were being developed, by court decisions in a homesteading process, but that this development had been stopped by federal law.

Then, Professor Gissurarson analyses three Icelandic examples. Professor Thrainn Eggertsson has written about one of them: Grazing rights, itala, which was formed when farmers used mountain pastures in the summertime for their sheep. The pastures were each commonly held by an association of farmers in the valley closest by, but the temptation for each farmer was to add more sheep to the total number than was efficient, because the loss was dispersed amongst all the farmers, but he alone reaped the profit. This temptation was removed by only allowing each farmer to graze a given number of sheep on the mountain pastures. The second example is well known to all Icelanders. Professors Ragnar Arnason and Gissurarson have both written on it. The system of Individual Transferable Quotas, ITQs, was developed to stop the over-utilisation of the Icelandic fishing grounds. The general idea is the same as in the case of over-grazing: Each fishing vessel owner gets a quota. Then the quota-holders discover in their trade of the quotas who are best qualified to harvest fish and who would be better off leaving the fisheries. The third example is of the Icelandic krona. It was equal to the Danish krone, and Iceland was indirectly a member of the Nordic currency union before 1914. But between 1922, when an exchange rate between the Danish krone and the Icelandic krona was first registered, and 1992, the value of the Icelandic krona went down to 1/1000 of the Danish krone (the krona having been replaced by a new krona, worth 100 old kronur, in 1983). Obviously, the krona did not adequately two of the three roles of money: to be a unit of account and the store of value. Therefore, Professor Gissurarson had already in the early 1980s suggested that the krona would be replaced by a harder currency, such as the US dollar. However, the market had already solved this problem by introducing the indexed krona, which was a hard currency, unlike the ordinary krona, which remained a soft currency and which could still fulfil its role of being a medium of exchange. Thus, Iceland essentially used two currencies. A cup of coffee was paid for by ordinary kronur, but long-term contracts were made in indexed kronur.

Professor Gissurarson argues that the Icelandic institutions or rules of grazing rights belonging to particular farms, fishing rights defined to particular fishing vessels and the indexed krona for long-term contracts are examples of spontaneous rather than constructed solutions. They were developed in a process of trial and error, even if such solutions had sometimes to be consolidated or protected by legislation. His lecture in New York forms a part of the joint project by RNH and AECR on “Europe, Iceland and the Future of Capitalism”.

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Autumn 2014: Many Upcoming Events

Posted on 10.09.14

Ridley in Iceland in 2012

Many exciting events are coming up at RNH in the autumn of 2014. At a seminar on “Taxes and Income Distribution” Friday 24 October, 4 pm, in the meeting room of finance company Gamma, Gardastraeti 37, Professor Corbett Grainger of the University of Wisconsin in Madison will explain why a resource rent tax in the fisheries may be both less efficient and less equitable than the development of private use rights; Professor Ragnar Arnason will analyse some deficiencies in the measurements of income distribution and tax burdens; and Professor Hannes H. Gissurarson will criticize the theories of French economist Thomas Piketty on an ever-widening gap between rich and poor. The seminar is held on the occasion of the publication, by AB Publishing, of a collection of papers in Icelandic, Tekjudreifing og skattar (Income Distribution and Taxes), by six Icelandic scholars, Professors Ragnar Arnason and Hannes H. Gissurarson, Associate Professor Birgir Th. Runolfsson, Assistant Professor Helgi Tomasson and doctoral candidates Axel Hall and Arnaldur S. Kristjansson. The book was sponsored by an institute with which RNH often cooperates, RSE. The seminar is co-sponsored by the Icelandic Taxpayers’ Association.

At a seminar on “The World is Getting Better” Thursday 30 October at 5 pm, in the meeting room of the finance company Gamma at Gardastraeti 37, best-selling author Dr. Matt Ridley, former science editor of the Economist, member of the House of Lords and a regular contributor on science to The Times, will discuss the main topics in his book The Rational Optimist which is being published by AB Publishing under the title Heimur batnandi fer (The World is Getting Better). A frequent visitor to Iceland, for salmon fishing, Ridley mentions Iceland thrice in his book. Professor Thrainn Eggertsson responds to Ridley’s talk, and Professor Ragnar Arnason explains why the Icelandic system of individual transferable quotas, ITQs, in the fisheries is a good example of a sustainable and profitable utilisation of a natural resource. The two seminars form part of the joint RNH-AECR project on “Europe, Iceland and the Future of Capitalism”. RNH will also be one of the sponsors of a European Students of Liberty conference in Iceland 15 November.

F. A. Hayek

Professor Hannes H. Gissurarson who is RNH academic director, will also give some lectures this autumn. One of them will be at the Economic Freedom Institute conference in Manhattanville in New York 10–12 October on F. A. Hayek’s Road to Serfdom. There he will describe how three Icelandic institutions, grazing rights in the Icelandic mountains, an indexed currency for long-term contracts (establishing in fact two currencies, one soft and one hard) and fishing rights, ITQs, in the fisheries, are all examples of spontaneous orders in Hayek’s sense, even if they have to be supported by law. Another lecture will be at a European Students for Liberty conference in Bergen 18 October where he criticizes the ideas of French economist Thomas Piketty on income distribution. The third lecture will be at a conference organised by the Social Sciences Research Institute at the University of Iceland 31 October on the attitude and opinions of British authorities, in particular Chancellor Alistair Darling, on Iceland. Professor Gissurarson discusses Darling’s account of Iceland in the financial crisis in his 2011 book, Back from the Brink. The fourth lecture will be at the Institute of Economic Affairs in London 27 November where he seeks explanations for the fact that Iceland was left out in the cold in the 2007–9 international financial crisis. His lectures form part of the joint RNH-AECR project on “Europe, Iceland and the Future of Capitalism”.

Twenty five years will have passed on 9 November 2014 from the fall of the Berlin Wall, a symbol of the victory over communism in the Cold War. On this occasion, RNH will open a website with online books on communism, starting with the Black Book of Communism, edited by Stéphane Courtois, originally published in French in 1997, and published in an Icelandic translation by Professor Hannes H. Gissurarson in 2009. This event forms a part of the joint RNH-AECR project on “Europe of the Victims”. Dr. Tara Smith of the University of Texas in Austin will give a lecture Monday 24 November at 5 pm at the University of Iceland, meeting room HT-105 in Haskolatorg, on the message of Russian-American author Ayn Rand, whose books have sold in more than thirty million copies all around the world and inspited many readers. AB Publishing, sponsored by RNH, has published three novels by Rand, The Fountainhead (Uppsprettan in Icelandic) 2012, Atlas Shrugged (Undirstadan in Icelandic) 2013 and We the Living (Kira Argunova in Icelandic) 2014. A staunch supporter of capitalism, Rand maintained that progress could only be brought about by creative individuals, entrepreneurs and innovators, not by those who live by exploiting others. Dr. Smith’s lecture forms a part of the joint RNH-AECR project on “Europe, Iceland and the Future of Capitalism”.

Next year, 2015, Professor Gary Libecap, one of the world’s leading experts on resource management, Professor Andrew Morriss, an expert on law and economics, Julian Morris of Reason Foundation and other scholars will give papers at an RNH conference on “Green Capitalism”.

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