U of M economist John Chipman is translating an influential Italian text.
John S. Chipman, Regents' Professor of Economics Emeritus, is close to wrapping up the translation of an obscure/famous book called the Manual of Political Economy, written by Vilfredo Pareto in 1906. He's translating it from Italian and French to English. [ TOM WALLACE � email@example.com _ Assignments #20025049A_ August 22, 2012_ SLUG: viewpoint0826_ EXTRA INFORMATION: CQ'ed by biz card.
Even at 86, John Chipman doesn't shy away from rigorous work.
The emeritus economics professor at the University of Minnesota is wrapping up a translation of the "Manual of Political Economy,'' a seminal 1906 book by the Italian economist Vilfredo Pareto.
Chipman's translation, the first directly into English from the original texts, will be published by the Oxford University Press.
Pareto's work established the concept now known as "Pareto optimality," the idea that an economy is optimal when it is so efficient that an adjustment to it makes no person or group of people better off without causing other people to become worse off. If, in a given economy, one group can be made better off without hurting any other group, then that economy is not "Pareto-optimal."
Sure, it's an abstraction. No economy has ever been that efficient. But the concept -- which has implications both for economics, game theory and yes, politics -- is taught in college and graduate classes, and is used by both the political left and right to justify various policies.
Chipman -- who by the way is one of more than 500 economists who has signed an endorsement of Mitt Romney for president -- sat for an interview this week. He's a bit tired of Vilfredo Pareto, and ready to move on to other topics, including a book on German contributions to utility theory and the work of Russian economist Eugen Slutzky.
Chipman grew up in Montreal, got his Ph.D. at Johns Hopkins, taught at the University of Chicago and Harvard, and then arrived in the Twin Cities in 1955. He retired from the University of Minnesota in 2007, though he keeps an office there.
QWhy is this book important?
AMany important ideas are due to Pareto. The most important one is probably the idea that perfect competition brings about an optimal situation in the sense that nobody can be better off without someone else being worse off. It's a famous idea, and it's still used in courses, even undergraduate courses in economics.
QWhat's the real-world application of the principle?
AFor example, minimum-wage laws. It looks like a good idea, but it distorts prices and wages. You ought to allow the wage rate to be determined by supply and demand of workers, and if you introduce other considerations, this distorts things and lowers output, makes the economy worse off. But that's hard for economists to explain to people. There are always pressure groups that are pushing for this or for that, and if they succeed then everybody loses, because it means the economy is less efficient. Some people gain, but the losses outpace the gains.
QHow Pareto-optimal is the U.S. economy?
ASo far the United States has been the most free of these distortions, which is why we've had the fastest rate of growth.
QWas Pareto a free-market guy?
AHe's the one who proved the theorem that free markets are the best way to get an optimal economic outcome. So to this day that's called 'Pareto optimality.' The situation is optimal if you can't make everyone better off, even though some people might dispute the distributional aspects. But often these redistributive measures result in a situation which we call non-Pareto optimal. If it's possible to make everybody better off, then that's a very inefficient situation.
QSo no economy will be perfectly Pareto-optimal?
AOh, no. But some are worse than others. So far the United States has been in the best shape.
QIn the history of humanity?
AI would say yes.
QWhat about the "Pareto principle," sometimes known as the 80/20 rule, that 80 percent of the land in Italy was owned by 20 percent of Italians?
AThis was another contribution by Pareto on income distribution, and it has held up all over the world, in capitalist countries, communist countries, all sorts of countries. There's always uneven distribution of income. This was, in fact, one of Pareto's greatest contributions. I guess it's a natural consequence of inequality of aptitudes of different people.
QThis is America! We don't believe in inequality of aptitudes.
AHa ha. There's equal opportunity, yes, which doesn't exist in too many countries. But equal outcomes I don't think have ever existed, anywhere.
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