Bryan Caplan  

Earth 2.0?

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The latest Freakonomics Radio is on "Earth 2.0: Is Income Inequality Inevitable?"  I'm pleased to be prominently featured alongside Jeff Sachs and Alice Rivlin.  A few highlights:

And we'll remember to keep our eye on the economic ball:

CAPLAN: Any time you're trying to analyze a complex problem, just forget all the other stuff at first, and just say, "Well, what does this do to the productivity of mankind?"

And:
But not everyone shares Kanter's views on inequality.

CAPLAN: It's definitely the kind of problem that we should worry a lot less about.

Bryan Caplan is an economist at George Mason University.

CAPLAN: The main predictor of living standards of not just most people but the poorest people in the country is productivity in that country. Countries that produce a lot of stuff aren't just good places to be rich or middle class; they're good places to be poor. So when people complain about people being left behind ... China's got 1.3 billion people. Sure, someone's going to be left behind in there. But is it better to be poor now in China than it was 20 or 30 or 50 years ago, when people were starving to death? There is no question. It is only by going and forgetting history, forgetting comparisons, and then searching through a vast number of people to find a sad story that we can forget the big picture. What is the big picture? Not that we can find something that happened that is bad in the world so vast we can't even imagine it, but seeing what is happening overall. What is the general trend, and how can we keep the general trend good?

I even get to make the case for not just open borders, but desert itself:
CAPLAN: I am old-fashioned enough to like the distinction between the deserving and the undeserving poor. Right now, we have a lot of very expensive government programs that give money to everybody eventually. Old-age programs. Social Security writes checks to Bill Gates like anybody else. Again, to me, this is insane! Why tax everybody to pay for them in a situation that everybody knows they'll eventually reach, as long as they don't die young? Thinking about kids and the elderly in the same breath is crazy. You're born an orphan and there's nothing you could have done about that. That's totally not your fault. But if you are starving when you're elderly, then there's a question: why didn't you plan for this, which was totally foreseeable in every way?
Hear the whole show.




COMMENTS (15 to date)
Peter Gerdes writes:

My reaction to the show (and to the transcript here) is what part of being responsible/at fault for your suffering makes it any less bad?

As a full on utilitarian I just don't see in what way people being responsible (via poor planning or whatnot) is relevant to how we should morally evaluate outcomes. I mean to the extent it means they mind it less fine but to the extent it merely reflects irrational/poor choices what is the relevance.

I mean unless you are willing to go hardcore libertarian and defend the ability of people to sell themselves into slavery and other extreme choices it seems you recognize that even suffering that results from bad choices is something we ought to concern ourselves with.

Adam writes:

Great points. What is the political economy of productivity versus inequality? Don't the two lead to very different policies? Inequality reduction seems to greater government control and productivity increases to more liberty in individual action.

Rick Hull writes:

Peter,

If you think that the suffering from irresponsibility is bad, and you also think that incentives matter, then why not conclude that we should incentivise responsible behavior rather than irresponsible behavior?

Musca writes:

Rick Hull - one might conclude that, if one is left to pay the consequences of irresponsibility, reality itself incentivizes responsible behavior.

Peter - I am not sure that utilitarianism specifically denies human agency. But one could argue that the achieving the greatest good for the greatest number is hampered if choices are divorced from outcomes, since the suffering due to poor choices may recur if not explicitly disincentivized.

Bryan - to answer your rhetorical question, "[w]hy tax everybody to pay for them in a situation that everybody knows they'll eventually reach...", we are taxing the specific behavior of not-voting, inasmuch as not-voting correlates pretty directly with youth.

Rick Hull writes:

I just realized I answered a different question than Peter asked. If someone is indeed responsible for an undesired outcome, then can we say they behaved irresponsibly? Perhaps.

To truly take responsibility for an undesired outcome, to me, means shouldering that burden and not asking or demanding help from others.

Rick Hull writes:

I suppose Peter meant only causal responsibility, but I went off on corrective responsibility. Let me
back up. He asks if the suffering caused by tooth loss from not brushing one's teeth, let's say, is any less bad than that from receiving an unprovoked punch to the face. I think the suffering itself is probably equal.

With this in mind, I ask:

Do bad decisions deserve bad outcomes? Do good decisions deserve good outcomes? Do incentives matter? Do bad outcomes produce better decisions?

Thaomas writes:

If inequality is something we should worry less about and the most important determinant of the welfare of the poor is average productivity (which I agree with in the long run), then do you reject the possibility that growing inequality is detrimental to average productivity? Or is there a level of inequality that we should worry more about, but just not the present level?

And does not growing inequality make it harder to sustain the idea that low income is just lack of "desert" and more likely that high incomes are a matter of political capture of rents?

Mark Otaris writes:

Bad decisions do not deserve bad outcomes. If we could increase the purchasing power of the poor without reducing the purchasing power of anyone, we should do that even if it means the poor will be less responsible. Responsibility is not an end in itself, it is only a means to get closer to Pareto optimality.

That said, I am fairly confident that wealth redistribution gets us farther from Pareto optimality, not closer.

Wealth redistribution programs have costs. At the very least, government employees need to be paid salaries.

If these costs were reduced enough that they were insignificant, the matter would be less clear cut. The law of diminishing returns is such that one unit of purchasing power has more utility for someone who is poor than for someone who is rich, so there is a utilitarian argument for taking goods and services from the rich and giving them to the poor.

But this is not what wealth redistribution programs do. People who are richer than I am in net worth by a factor of thousands do not consume more goods than I consume by a factor of thousands. You can take a good or a service from Warren Buffett and give it to someone poorer, but if you take money from Warren Buffett and give it to someone poorer, this person is going to spend it on goods and services where Warren Buffett would invest it instead. The goods and the services will have to be taken somewhere. Since the richer people, though they do have a far higher net worth than the average person in the Western world, do not consume nearly that much more goods and services, there is only so much that can be taken from them and given to other people before they become poor too.

What’s worse, taking things from the rich to give them to the poor removes incentive from the rich to produce goods and services or contribute to the production of goods and services and removes incentives from the poor to manage their money responsibly.

Many of the rich, though, are thought not to contribute that much to the production of goods and services. CEOs for example, are thought to have salaries too high relatively to how much they contribute. But is this true? Salaries of CEOs are often chosen by shareholders. It is possible that the shareholders are irrational. I have another explanation. If increasing the salary of a CEO by one hundred thousand dollars allows a company with one billion dollar in annual revenue to pick a better CEO, or to have the CEO make better decisions, and this results in an increase of company revenue of one percent, that’s an increase in company spending of $100,000 for an increase in company revenue of $10,000,000. Perhaps the shareholders aren’t that irrational.

And, in practice, the costs of wealth redistribution are not insignificant. If a government is given the task of redistributing wealth, it is likely that elected officials will attempt to use it for other purposes, spending it inefficiently, with the support of the electors since they are irrational.

Aaron writes:

Bryan, will you ever start your own podcast?

Martin Kessler writes:

When I studied Economics our Professors always reminded us "Economists do not make moral judgments".

Why all this talk about "inequality". I assume all the talk is concerned with income distribution by moralists, not economists. Moralists , not economists, prefer to meddle with the economic system. An economist would say [ if you would just stop your meddling ] everyone receives the value of their marginal product. There is no inequality. Or to put it right, there is no inequality for an economist qua economist to study.

I am concerned if the commentators above are teachers of Economics to young students.

Thaomas writes:

@ Mark Otaris

That said, I am fairly confident that wealth redistribution gets us farther from Pareto optimality, not closer.

Although there are probably many policies that are both Pareto improving and redistributive (reduced farm subsidies, eliminating loopholes in the corporate tax code that mean that all sector do not pay the same % of tax on profits) and many other "paired" policies that would do the same (substituting EITC for minimum wage, VAT financing of SS/Medicare/Medicade instead of wage taxes) that there is a trade-off between redistribution and Pareto optimality is pretty universally accepted; c.f. Okun's bucket.

Surely this was not offered as an insight.

CC writes:

"But if you are starving when you're elderly, then there's a question: why didn't you plan for this, which was totally foreseeable in every way?"

Yes, but to what extent are things like foresight and delayed gratification influenced by genetics? Do low IQ people really deserve to suffer because they failed to adequately plan 50 years into the future?

Evan writes:

One question I always have to advocates of desert is, "What if it was possible to redistribute deservingness?"

Imagine that it was possible to drain responsibility, foresight, and intelligence out of people who have it, and put it into people who lack it? Redistributing deservingness is just as easy as redistributing money. Maybe you could argue that some people are more deserving than others, but are some people also more deserving of deserving than others?

The idea seems viscerally horrifying to me, but I think it's because it would violate people's rights to mental and bodily autonomy, not because the deserving are somehow more meta-deserving. Imagine the government had some way to synthesize responsibility and foresight in a liquid form, without having to drain it from those who had it already. And it could either inject it into those who have it the least, or sell it to the highest bidder. It seems like it would be better to distribute it more equally.

And if that's the case, does it make sense to say everyone is equally meta-deserving, but not equally deserving?

Jesse C writes:

I like the points about Social Security. I think what might be the most horrifying aspect of it is that it's a direct transfer of wealth from people who unfortunately die young to those who are fortunate enough to live a long life. It's absolutely cruel.

Rick Hull writes:

Mark Otaris and Thaomas:

Good insight, thanks!

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