Bryan Caplan  

Not So Hard to Argue

PRINT
Matt Yglesias on environmental... Larry Summers on TPP...
Scott Sumner:
Unlike many on the left, I don't envy the rich. I'm really happy that Larry is really happy. If Larry was even a bit happier, and if that boosted total global happiness, that would be fine with me. But I can't get away from the implication of (what I perceive as) diminishing marginal utility. Some redistribution is justified.

Larry Ellison is extremely lucky to live in a universe where:

1. Government is very inefficient.
2. Incentives have a surprisingly strong effect on behavior.

If not for those practical limitations to redistribution, it would be hard to argue against people who favor taking away almost all of Ellison's wealth, and reducing his consumption levels back to roughly average.
I have two responses.

1. Sumner neglects important additional practical limitations to redistribution.  Most obviously:

a. Targets of coercion often resent the fact they're being coerced.  So the relevant utilitarian calculation for forcible redistribution from A to B is not just "Will B enjoy A's stuff more than A" but "Will B enjoy A's stuff more than A plus the resentment cost."

b. Due to the endowment effect, people who lose their stuff suffer more than equally wealthy people who gain the stuff.  So instead of looking at inequality alone, you need to put some weight on initial endowments!

2. All practical limitations aside, arguing against full redistribution is child's play.  Just say: "Pure utilitarianism is not certainly true" and Sumner's extreme (though hypothetical) conclusion collapses.  Suppose for example there's a 99% chance utilitarianism is true, but a 1% chance that libertarian absolutism is true.  That 1% risk should at least slightly temper your redistribution.  And if, like Scott, you "know little about philosophy other than that Descartes said 'I think therefore I am,'" isn't substantial uncertainty about moral principles warranted?


Comments and Sharing






COMMENTS (13 to date)
Shane L writes:

I may be unusual in this, but when I receive my salary I only count the net income. That is, I don't bemoan the taxes taken from my gross salary, I don't count them as income at all as I have no choice over them. Thus the endowment effect may not be very significant in some cases, if the person heavily taxed does not count their pre-tax income as their property to begin with.

Hazel Meade writes:

I think you guys are all way off track on this whole issue of interpersonal utility as an argument for or against redistribution.

There are perfectly good utilitarian rasons to oppose redistribution that have nothing to do with whether the poor person would enjoy the money more. (I am happy to admit that he WOULD.)

For instance, everyone in society, including the poor, benefits enormously from a secure property rights regime. Without enforcable property rights or some reasonable assurance that most people can keep the gains from their labor, much of the economy would cease to function, as we can see when exactly that thing happens in other parts of the world. IMO, the utility of strong property rights generally outweighs the potential utility gains of redistribution, because without property rights, you will have much less to redistribute.

And I havn't even started talking about the utility of the rich persons investment over the poor person's consumption.

Things like the endowment effect are way down there at #6 or 7 on the list of utilitarian reasons why redistribution is bad.

Ak Mike writes:

Shane - you don't look forward to a tax refund when you file your returns? You don't take any actions to increase that refund? You just let it go?

Hazel - you appear to always be correct. Utilitarianism, I would think, should be concerned about the long term effect of actions just as much or more than the immediate effects. Of course, that does involve predicting the future, which is impossible, one of the many reasons that utilitarianism is nonsense. . .

ColoComment writes:

"...look forward to a tax refund when you file your returns?"

Why on earth would you do that (much less seek to increase it)? You should be trying to minimize your over-payment to your federal overlords.

Three years ago I hit the 1040 jackpot: no payment in addition to the amount withheld & no refund.

Perfect tax planning!

ThomasH writes:

I don't know how many Liberals envy the rich. None of the Liberals I know do. When I hear people say that, I wonder if they have any Liberals among their close friends.

I think Scott may be conflating "envy" with a political opinion than an income (or better, a consumption) tax more progressive than the one we have would be preferable. The latter is indeed common among Liberals.

Kevin Erdmann writes:

I agree with Thomas. Progressives don't envy the rich. They are just engaged in a massive potlatch where they play the role of the lead tribe, and fomenting envy comes naturally as a way of trying to engender support. That's why inequality has become such a popular meme. It's the symbolic transfer that is satisfying.

Scott Sumner writes:

Disagree on point one, both a and b. I think of it as designing a system. If you have a X% tax on wealth, then people will think in terms of their after-tax wealth. I don't feel any sense of loss from money taken away in taxes, because I never view myself as having that money in the first place. It's all part of the system.

On the other hand I feel outrage about income taxes, but only because the system is a monstrosity on both equity and efficiency grounds. But a well-designed progressive consumption tax would be fine, and would reflect the fact that Larry Ellison earned his wealth in collaboration with others. We set up certain rules like copyright laws to promote efficiency, but that doesn't mean that those same laws distribute the resulting wealth creation in a fair manner.

As far as point two, I partly agree. But if utilitarianism is wrong, in which direction is it wrong? Does it call for too much redistribution, or too little (as Mao and Pol Pot would argue.) So while I concede it may be wrong, it doesn't give me much sense of where to go in the 1% chance it is wrong.

ThomasH writes:

I'm glad that Kevin E agrees that Liberals do not, in general envy the rich. But I'm even more sure that we (or at least the Liberals I know) do not foment envy. Again, I think Keven my be mistaking expressing an opinion in favor of more progressive taxation as fomenting of envy. That certainly is not the intention and I do not believe it is the effect. Does he think that Scott is "fomenting envy" by favoring a progressive consumption tax?

Zeke writes:

Bryan,

I thought of the endowment effect when Scott posted his original piece. However, I chose not to comment because the conclusion is a hard one to swallow. It would render almost all Kaldor-Hicks improvements as not really improvements. Consider Scott's example of farm subsidies. Most everyone agrees that we would be better off (though some farmers would be worse off) if there were no farm subsidies. But, if you include the farmer's endowment effect, it isn't clear that getting rid of subsidies is a smart decision. It might not even be Kaldor-Hicks efficient any longer!

Maybe that means I need to rethink my position on farm subsidies. Or maybe it means using the endowment effect in an argument prioritizes the status quo ante too much. One thing I do know: this example above illustrates why any subsidy should be carefully examined before it is approved.

_NL writes:

"1. Government is very inefficient."

Whole lotta stuff packed in that sentence. Not just bloat, waste and suboptimal transfer problems. But also the risks of corruption, crime, tyranny, repression and retribution. Plus the Hayekian knowledge problem of figuring out who has good stuff, how good that stuff is, how best to transfer it, how much to transfer, to whom to transfer it, and how much the parties will appreciate the transfer.

So, basically, in a world where the government is approaching both omniscience and omnibenevolence, and (per premise 2) where people are so mindless or selfless that they will work for reduced or negative gains, then redistribution might make utilitarian sense. Might as well just say that marginal redistribution would be a good option if bureaucrats were angels.

Maximum Liberty writes:

Both professors are wrong. Professor Sumner is wrong because he believes that the utility the recipient gets is more than the utility lost by the taxpayer. Professor Caplan is wrong because he argues within the same framework.

Utility is relative, not absolute. We can measure are relative preferences and indifference of a single person. For example, I can ask you if you prefer an apple or a banana. If you prefer a banana, I can start asking you how much money I would have to put on top of the apple for you to take the apple instead. I can then do the same thing for lots of people and we can figure out how much each person likes bananas compared to apples.

If we then carried that out for what Professor Sumner proposes, we would ask Larry and some guy named Joe how much they each preferred having Larry's wealth and not having Larry's wealth. We'd then top up "not having Larry's wealth" with cash until they are both indifferent. Amazingly, the amount of cash you'd have to add would exactly equal Larry's wealth!

So, we're not talking about measurable relative preferences when we talk about redistribution. Instead, we are talking about some absolute sense of utility. And utility in that sense is not measurable on any commensurate scale. How many utils do I have for a banana? Is a util the same for you?

So, please let's throw away the pseudo-economics purportedly justifying redistribution. It's not science. It's a moral intuition or an aesthetic judgment that spending on necessities is better than what the rich guy would have done with the money. (I.e., for much of the wealth, invested it in income generation, which creates jobs.)

Floccina writes:

@ThomasH I do not see envy either but they talk as if rich people get together and plot against the rest. They also seem paranoid about corporations and anyone making money.

Peter writes:

I never understand the claim that A should give to B because A has more. I accept the claim that A may need to give to B in various circumstances. I do not accept that C acquires merit by forcing A to give to B.

I think it is an unarguable prior that A is more entitled to A's justly gained wealth than any other person. The only arguable claim for the forced redistribution of justly gained income is the pressing need of the beneficiary.

Your good fortune, let's say, in being born intelligent does not create an obligation owed to the less intelligent and enforceable by them or on their behalf.

What is it about being human that supports the demand for leveling? It is not inherent in our nearest relatives.

Comments for this entry have been closed
Return to top