A Relatively High Income Today Matters More Than Sixty Years Ago – an Interview with Prof. Pencavel

Professor John Pencavel of Stanford, one of the most eminent economists, has published several studies on various areas of economics. We have this opportunity an interview with him.

How does the productivity work out when an organization is owned by an individual or a group of individuals that act as investors? 

Please allow me to use the words “worker co-ops” for organizations owned and managed by the workers who work in them. In a number of cases I have observed, at the same level of employment, size of plant and equipment and producing the same product, worker co-ops produce no less and often more than their conventionally-owned and conventionally-managed twin firms. This may not be the case in all circumstances, but it does seem to be the case in several instances. Worker co-ops face problems (such as obtaining enough start-up capital and they have a tendency to evolve into a more closely-owned type of firm), but there is also much to be said in favour of the worker-co-op type of organization.

If a group of people want to put together such an organization, I would welcome their efforts. 

You are known to have said you would like to see economists talk more about Ethics. Could you please elaborate on this? 

Many propositions or conclusions that economists make have ethical implications. I would prefer it if these ethical consequences were made explicit.
To elaborate, some economists advocate a set of policies that (they believe) would raise the economy’s total output and income. Sometimes, they are silent about who receive these higher incomes. I would like it if these economists take another step and determine (if they can) the identity of those who receive these higher incomes.
Moreover, I also believe that the methods by which total output and incomes are increased deserve analysis for their ethical implications and approval by society.

Why does having a high income matter more today compared with a few decades back? 

A relatively high income today matters more than a relatively high income sixty years ago (at least in the U.S.A. and many other Western countries) because more things are transacted (exchanged) on markets today. That is, the scope of transactions has widened. When all things can be bought and sold and when the market is the mechanism for access to these things, an income becomes more critical to one’s well-being. Today, more than ever, we can buy access to the top schools for our children, we can buy better health care, we can employ for-profit mercenaries/armies to fight our wars, we can pay women to act as surrogate mothers, we can buy and sell body organs, we can buy the activities of specialists who pressure legislative, executive, and judicial decisions of government, and we can buy an opportunity to kill endangered species in for-profit animal sanctuaries.   

Money after all cannot buy happiness. In your view what is that threshold after which increase in the income does not matter? 

I cannot specify a precise threshold at which an increase in income does not matter. People always find an object or service on which to spend their money if only it is not to spend their money but to hide it under the bed !
It is surely the case that an additional $100 matters more to a poor person than the same $100 given to a rich person. Though this may be difficult to demonstrate, few would doubt this is the case. 

Tell us about your growing up years and what motivated you to become an economist. A word of advice for the youth. 

I grew up in a working class neighbourhood of west London in England. Our house was rented from the local council (what in the U.S. is called “public housing” and what in England is called a “council house”). My parents were not well off. Not only did we not own our home but also we did we own a car and my parents were very frugal though they worked very hard. My parents were very supportive and loving. I could not imagine better parents.
At school, until my mid-teens, my academic performance was mediocre and my energies were devoted to football and other games. At about the age of 15 years old, I discovered that learning could be fun and my academic performance improved. I was a “late bloomer”.
As for economics, I enjoyed the chains of reasoning (or models) that led to observable outcomes and that could be confronted with observations. Much human behavior can be understood through the lens of economics. 

As for advice, given the importance I attach to education and learning, for those who find school tedious or complex, I would suggest that they try to find ways to make it fun and enjoyable. We used to find ways to engage (in a civil and polite manner) with our teachers. It was good for us as pupils and many of our teachers welcomed an engaged student body.
I also believe that adult outcomes depend in part on random factors. Obviously we don’t choose our parents, but differences among people as adults can often be traced to their upbringing over which they have had little choice. Therefore, those who have had good fortune will find pleasure in helping those who have been less fortunate. There are personal benefits to benevolence.

Photo: From the archive of Professor Pencavel

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