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A Simple Economic Explanation for Rising Polarization

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I just read Jason Furman’s review of Ezra Klein’s new book Why We’re Polarized.    I would like to offer a simpler economic explanation.   Every economist is taught that a necessary condition for trade through markets to yield a mutually beneficial outcome is that we must agree on who has the property rights.   When I enter a Starbucks,  I want a coffee.  Starbucks owns the coffee beans and the capital stock and has trained the talent to make me a coffee.  The price that I buy the coffee from the owner of the coffee is such that the trade makes both of us better off.  Yes, I would prefer to pay $0 for the coffee but at that price Starbucks wouldn’t sell me the coffee.

 Rising polarization is taking place because there is now a fundamental disagreement across our society concerning who has the property rights to different resources.  Whether the issue is the right to emit carbon, free health care, free college, admissions to Harvard, free health care, in each of these cases a fight is brewing about property rights.  The owners (or the tacit owners) of such property recognize that there will be a large negative income effect if the transfer of property takes place and they are digging in to protect their claims to what they have always controlled.

When “property rights” redistribution enters the policy discussion, game theory becomes the key discipline for analyzing what will be the outcome. Who can make a credible threat? How are coalitions formed?

Given this setup,  would I predict that all rich people will approach the redistribution issue in the same way?  Tom Steyer is very rich and he supports many of the progressive positions.   His wealth portfolio is unlikely to be hurt by carbon taxes.  Given that he is very rich, he can afford to sacrifice some of his $ to achieve his social goals. 

Economists can play a productive role here by nudging the public to be explicit about what are your economic property rights?  Given the balanced budget condition, can all of these “rights” be consistent at a given point in time? 


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