(3) The book now uses euro’s. I didn’t use the latest data but use those of Colignatus & Hulst (2003) for consistency. The Enlargement of the EU from 15 to 25 member states on May 1 2004 caused some changes in the data and text however. A discussion with Henk Folmer (Wageningen University) caused an update on OECD data and papers, clarification of some points in the argument, and the longer Abstract below.
(4) Colignatus (2001) “Voting theory for democracy” is my implementation of the theory on social choice within Mathematica. An earlier suggestion of (1990c) for an algorithm was developed in more detail, which caused me to find a name for it: this became the “Borda fixed point” approach. Further reflection caused the paper Colignatus (2002) “Without time no morality” that now has been adapted to a new chapter in this edition. The total enriches the analysis on Arrow’s Theorem with a practical social choice algorithm.
(5) The chapter with notes on ethics has been added.
(6) The chapters on the reduced form have been re-united into Book IX again. In the earlier paper Colignatus (1992b, 1995a) they already formed a unity, but in the first edition of this book they got separated for a reason that appeared unconvincing.
(7) Since Coligatus (1990) had in its title “After 20 years of mass unemployment”, I could write (2004) “After 35 years of mass unemployment”, and this has been included as a chapter. Since the (1990) paper was hit by censorship and the intermediate years have seen no resolution of that matter, I now advise to a boycott of Holland till that censorship is resolved. Please study the chapter closely.
(8) The following comments can be included at this very spot:
(a) Much of current policy focus is on the EU Lissabon Strategy and issues like pensions. This book does not explicitly discuss these but it would be a mistake to conclude that this book would not be relevant for those topics. The point is that this book already had that long term approach to start with. Lissabon and pensions are new kids on the block and one should rather study this book before proceeding with new policy making.
(b) Advised reading is Skidelsky (2000), the third part of his biography of Keynes.
(c) Lomborg (2001), “The skeptical environmentalist. Measuring the real state of the world”, gives an impressive review of the problems in this subject. As an economist and non-ecologist it is difficult for me to say anything about his comments on the state of the ecology. Three statements in the realm of political economy are:
(b1) Lomborg does not yet take account of the argument by Hueting (1980) and Van Ierland et al. (2001). Statistical measurement of national income derives from the economic theory of social welfare. To approximate the social welfare function we use the income hyperplane that is tangent to it. Market prices for the environment will not suffice since there are market failures.
(b2) In his discussion on the ‘double dividend’ Lomborg relies on economic papers that do not take into account both the analysis by Hueting and the analysis provided in this book on the Trias Politica, unemployment, the tax void and dynamic marginal rates.
(b3) The case for an Economic Supreme Court appears enhanced. Human flourishing requires proper environmental protection, and monitoring of the information about the environment then requires proper safeguards.
(d) Shiller (2003), “The new financial order. Risk in the 21st century”, discusses how the market with proper government regulation can give rise to new risk instruments. Part of what I try to do with the constitutional amendment for an Economic Supreme Court, he tries to do with ‘macro-markets’, i.e. financial instruments based upon macro variables: namely, getting better information. My impression is that both approaches have merits of their own, and that it helps to disentangle what the instruments are intended for precisely. Similarly, the analysis in this book on unemployment cannot be replaced by an insurance on the distribution of income. Yet, when these more basic reforms on the Economic Supreme Court and unemployment have been implemented, Shiller is right that welfare can be improved by novel risk instruments.