Mankiw, Redistribution, Height Taxes, and Utilitiarianism
Via a distraught Conor Clarke, I see that not only did Greg Mankiw once write a cheeky paper arguing that maybe we should impose a height tax, he also goes in for some odd philosophical claims. To try to reconstruct his argument, he believes:
- The main arguments in favor of redistributive taxation are grounded in utilitarianism.
- Utilitarian theory supports taxing tall people more heavily than short people (this is the thesis of the paper).
- Therefore, people should either sign on for the height tax or else abandon their support for redistribution.
He concludes with this:
A moral and political philosophy is not like a smorgasbord, where you get to pick and choose the offerings you like and leave the others behind without explanation. It is more like your mother telling you to clean everything on your plate. If you are a Utilitarian redistributionist, the height tax is like that awful tasting vegetable your mother served up because it is good for you. No matter how hard you might wish it wasn’t there sitting on your plate, it just won’t go away.
I think there are a ton of mistakes being made here. This goes back to a point I was making a while ago about how dangerous it is that the public discourse is so dominated by low-quality freelance philosophy done by people with PhDs in economics. I’m fairly certain that if Mankiw were to walk over to Emerson Hall he could find some folks (possibly T.M. Scanlon who I know sometimes reads this blog) who could explain to him that there’s little grounds for the belief that a commitment to utilitarianism is the main justification for redistributive taxation.
So point one is factually wrong.
But that aside, I think the “smorgasboard” argument is a confused way of thinking about moral reasoning. A great many crucially important questions in normative ethics are easy. Is it okay to murder Greg Mankiw to steal the money in his pocket? No, it isn’t. But a lot of foundational questions in ethical theory are hard. And a lot of meta-ethical questions are hard. Normal people don’t even understand what all of these questions are. And those of us who’ve thought a little bit about them, but decided not to go into the professional philosophy game may be aware that there are issues in these areas about which we’re uncertain. There’s a certain hyper-literal sense in which these questions all form a hierarchy. First I must decide where I stand on meta-ethics. Am I a reductive moral realist? A quasi-realist? A practical reasons theorist? An old-school “moral facts are facts too, damnit” moral realist? Are there theological issues in play? Then I need to decide if I’m a utilitarian (and if so, what kind of utilitarian!) or maybe some other kind of consequentialist or maybe I have a more Kantian view. So then depending on those answers, I can say “killing Greg Mankiw to steal the money in his pocket is wrong because…” and then lay the whole thing out.
I think what Mankiw is implying with the “smorgasboard” argument is that this is how people should actually engage in moral reasoning. So if I find myself uncertain about a broad question in ethical theory, this uncertainty must logically inflict my first-order moral judgments. Maybe killing Greg Mankiw really is okay? And if I’m not uncertain, if I say “the reason it’s wrong to kill Greg Mankiw and steal his money is that the murder would reduce net utility” then the murderer can counter with “well, if you believe in utilitarianism, you ought to believe in a height tax.” Then I say “well that sounds wrong!” And then, having debunked utilitarianism, Mankiw gets shot and everyone agrees that justice has been done.
Something’s gone wrong there. We don’t abandon considered convictions about normative issues that quickly. Murder is wrong. If forced to contemplate the alleged contradiction, there are a bunch of things we might want to consider. Maybe the analysis of the height issue has gotten something wrong, utility-wise. After all, though the paper is clever, it’s hardly a comprehensive review of all of the hedonic issues in play. Or maybe utilitarianism isn’t the best theoretical grounding for the conviction that murder is wrong. Or, maybe the height tax thing actually is a good idea, albeit an unrealistic one. But since this isn’t a “live” subject of political controversy, and since there seem to be a lot of other more clear-cut policy issues, we decide to spend our time and energy thinking about less outlandish policy suggestions.
84 Responses to “Mankiw, Redistribution, Height Taxes, and Utilitiarianism”
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May 30th, 2009 at 1:07 pm
Re “Murder is wrong. ”
——–
I thought that philosophical claim was refuted by the manifestly true Texan claim that some assholes just need to be killed.
Empiricism trumps Neo-Platonism every time.
May 30th, 2009 at 1:10 pm
I’ll just say, as a short person, I would ultimately have to come out in favor of taxing tall people as a revenue generating mechanism. That’ll teach ‘em!
May 30th, 2009 at 1:14 pm
I find it incredible that you can read so much Plato and other philosophers of that school and still believe in an egalitarian, popular democracy.
Plato was no democrat, and he would never have been a re-distributionist.
It’s strange to see so many liberals so in thrall with great thinkers without realising what they are actually thinking. Alluding to Kant is all great and fine, but his paradigms are hopelessly flawed to the point of surreality. The ancients, on the other hand, would have been sickened by the mis-appropriation by latter-day rationalists.
May 30th, 2009 at 1:15 pm
Um, Mankiw is an idiot. Why would you tax something that correlates with income imperfectly when you can just tax income, which correlates with income perfectly? I wonder if Mankiw would be in favor of his employer paying him based on his height rather than his value as an employee, since obviously his height correlates with his value, albeit imperfectly.
May 30th, 2009 at 1:17 pm
Optimality? What the hell?
How can taxing exogerous characteristics which are imperfectly (no matter how closely, still imperfectly) correlated to income-producing abilities (which are themselves imperfectly correlated with income) be “optimal” when the utilitarian benefit comes from redistributing income?
Jacoby Ellsbury couldn’t steal that many bases in one play!
May 30th, 2009 at 1:18 pm
Mankiw is a fool. Need one say anymore?
May 30th, 2009 at 1:18 pm
There are lots of things correlated with wages. But what is the advantage of taxing height over just getting straight to the bottom line and taxing wages?
Re utilitarianism and redistribution: I suppose whether or not you think utilitarianism is the “main justification for redistribution” depends on what you think is the main justification for anything. As a consequentialist, I would tend to agree that some form of consequentialism is not only the main justification for redistribution but, in fact, the only valid justification, since all the other moral theories are mistaken.
That point aside, consequentialist theories are in a better position than, for example, deontological theories to justify redistribution. Whatever weasel words deontologists employ, their rules have a certain default absolutism about them. Thus if there are property rights, then it becomes very hard to violate them no matter how beneficial the consequences. Of course, where these absolute “rights” come from tends to be very mysterious, when not simply assumed, but consequentialist theories are not faced with these problems in the first place.
May 30th, 2009 at 1:19 pm
As a liberal of moderate height/views, I’m somewhat on the fence as to taxing tall people — until we’ve figured out what the definition of ‘tall’ is.
That said, this is pretty cheap — not to mention lousy — reasoning. The reason wealthy people are taxed more is because they possess more of precisely that element that happens to be needed, namely money. If the government could run off of the three top inches of rich people, neatly sliced off and delivered to the U.S. Treasury, this construct might make sense.
May 30th, 2009 at 1:23 pm
That said, the tall tax doesn’t actually seem like that bad of an idea, if we can be certain that the “tall bias” in earnings is something that’s a permanent feature of humanity or society, rather than a transient statistical fluke. That, however, is a big if. For example, it would seem that with the recent influx of high-skilled Asian immigrants to this country, the earning power of a certain subset of shorter Americans would be increasing substantially.
So it’s unclear whether height is a permanent and reliable indictor of earning power. If it is, most progressives would probably be for a height tax, but would prefer an income tax to a height tax simply because it’s a more accurate measure of earning power. Meanwhile, there are plenty of other things that correlate with earning power that progressives also like taxing, such as the wealth of one’s parents–hence the justification for the estate tax.
May 30th, 2009 at 1:27 pm
This is stupid on so many levels. First, it assumes that being short is worse than being tall.
Second, taxing tall people (by taking their money) does nothing to redress the height differences between tall and short people. A real utilitarian or redistributive height tax would take away tall people’s height and give it to short people. Tall people could either have some of their bodies physically removed and grafted on to short people, or they could be forced to have sex with short people so that their offspring might approach some median height.
Poor people are poor because they have no money. Taxing people with more money in order to give money to the poor helps equalize this. Taxing money from tall people to give to short people doesn’t solve short people’s “problem,” unless that money would be used on “tall surgery,” “stretch therapy,” or some other method to make them taller.
May 30th, 2009 at 1:32 pm
This argument is neither cheap nor ridiculous (and Matt’s post amounts to just bitching about Mankiw’s not being a philosopher without addressing the point at all). The idea is that being tall has a pretty uniform positive effect on wages (leave aside whether that’s true or not). The fact that height is completely unearned should, under virtually any moral theory, mean that the government would be more justified in confiscating a portion of that income surplus than they would be in confiscating the fruits of labor that, however partially, stem from hard work, etc. Such a tax would also have the advantage of being extraordinarily efficient. Not only could it not deter people from working (since you can’t change your height) but it might, at the margin, encourage tall people to engage in more economically useful pursuits than the otherwise would have (in order to pay the tax). If you are a redistributionist and you think such a tax is ridiculous on its face, then that fact really should cause you to reconsider the basis for your support of redistribution, which is the point of Mankiw’s idea.
May 30th, 2009 at 1:34 pm
I’m one of those people that supports redistributive taxation for utilitarian reasons. My argument is based on the diminishing marginal value of the dollar in offering experienced utility especially if you discount positional status purchasing which is likely to be close to a zero sum game.
There is really a lot wrong with Mankiw’s argument, the biggest part of which is that it depends on the reader accepting a particular version of utilitarianism and a specific argument predicated on this version of utilitarianism that realistically most self identified utilitarians don’t accept either. Then Mankiw in his informal description of the work advances the paper as being a more general rebuttal to redistributive taxation for utilitarian reasons at all. It isn’t.
Put simply it seems as though he’s being dishonest about who exactly he’s arguing with and trusting that the opacity of this particularly argument will allow his fairly narrow argument to be expanded in scope because of the ignorance of the average reader.
May 30th, 2009 at 1:36 pm
The reason you’d tax height and not wages is that height is an ascriptive characteristic, and one that illicitly influences wages. Whereas wages are in large part determined by achievement, and its results should not be taxed.
Mankiw is a fool, but a clever one.
May 30th, 2009 at 1:45 pm
Sancho does a good job explaining some of the the implied moral argument in plain english, but errors when he says ‘virtually any moral theory’. Plenty of moral theories allow for certain ‘unearned’ attributes to have external rewards (IQ). Also while height is not earned it may be thought of as a proxy for merits that were otherwise earned. It’s a big psychological/philosophical problem to compartmentalize certain traits as under control or not. Different breeds of dogs have different temperaments, some or more or less aggressive or neurotic or lazy. So a person being hardworking or not can’t strictly be thought of as matter of merit. How do you separate mental illness from simple character flaws? It’s really hard. My point is that Mankiw is arguing against a really specific idea of utilitarian fairness as though it was an argument against fairness in general. That’s dishonest.
May 30th, 2009 at 2:03 pm
I read the paper. If tall people make more money, then taxing height will work somewhat like a progressive tax on income. The fact that tall people do make more money came from other research, not his.
His moral argument has been persuasive in practice as we remember from days in which the government imposed affirmative action, effectively taxing light skinned people. What the moralists found was that poverty was correlated to having darker skin, hence the utilitarian solution was to tax lighter skinned.
The justification was that dark skinned people must suffer discrimination, and as Mankiw points out, the back logic is that short people suffer discrimination (which they probably do).
Note also, people in wheel chairs suffer discrimination, so we tax the non disabled to build wheel chair access.
The real reason we progressively tax is because the higher incomes get more than their income share of government services, by about 10-15%. It was a problem strictly limited to government services.
May 30th, 2009 at 2:17 pm
RE: “But why don’t you just get to the point and tax income?”
Because taxing income distorts people’s incentive to work. You can’t change your height (much, see: basketball in the Philippines), but you can change the number of hours you work. Taxing height gets you redistribution without the distortion.
The actual problem with Mankiw’s argument is that random redistribution is bad. A utilitarian doesn’t want to randomly take money from one group and give it to another because that will tend to increase the variance of the distribution. On a very very small scale taxing height will be net beneficial because of the height-wealth correlation, but if you push it very far you’re just going increase the variance even more because height is only a weak explanation for income differences. But the optimal tax is so small that it will quickly be overwhelmed by the costs of administering it. I haven’t read the paper, but I would be surprised if Mankiw didn’t know or mention this.
The reason that a height tax seems obviously silly but utilitarianism doesn’t is because a height tax is obviously silly and utilitarianism isn’t.
May 30th, 2009 at 2:21 pm
“There are lots of things correlated with wages. But what is the advantage of taxing height over just getting straight to the bottom line and taxing wages?”
Wins the thread, no contest.
May 30th, 2009 at 2:22 pm
Also, the best explanation for height-wealth correlation is because both are correlated with better childhood nutrition/parenting. If the tax on height is big enough parents might start trying to stunt their children’s growth. Unintended consequences!
May 30th, 2009 at 2:22 pm
Does anyone know what –or whom –Myles is addressing in post 3?
Touch of malaria fever, old boy? Try some gin and tonic –that’s what it’s there for.
May 30th, 2009 at 2:26 pm
“But a lot of foundational questions in ethical theory are hard. And a lot of meta-ethical questions are hard. Normal people don’t even understand what all of these questions are.”
Only abnormal people do.
May 30th, 2009 at 2:28 pm
There isn’t a single social program on the books that depends on redistributionism, considered as an end rather than as a side effect, as a justification. You can be fervently against redistribution as an end in itself, and still support pretty nearly everything the government currently does, quite without fear of contradicting yourself.
May 30th, 2009 at 2:59 pm
As a 6′4″ person with relatively low income, I am opposed to this height tax. However, if I had a very large income, I don’t think I’d mind it that much.
Income’s funny that way.
May 30th, 2009 at 3:00 pm
One could, of course, ground arguments for redistributive taxation in neo-Thomistic, natural law arguments about the natural end for which property is ordered. Too many people make the mistake of viewing property rights as an end in themselves. On the contrary, the proper way to view property rights is in light of the end to which they are ordered, i.e. the provision of material and social needs for the members of society, and the cultivation of the human talents and virtues. In those instances where property rights obstruct the natural end to which property is ordered, then they must be overriden. This argument is rooted not merely in Aquinas but in the consistent teaching of various church fathers, Ambrose of Milan for example, about property.
Now I realise that Yglesias and his crew can’t make use of such arguments since as far as they are concerned, Aquinas is outmoded and unfashionable these days. To me, however, they seem to overcome some of the challenges of an utilitarian or Kantian moral framework (both of which, to me, seem gravely defective).
May 30th, 2009 at 3:07 pm
“Because taxing income distorts people’s incentive to work.”
Just saying it doesn’t make it so, Rush.
May 30th, 2009 at 3:22 pm
It’s funny, but for a lot of people, you can read something without agreeing with it.
Ancient Greek writers, natural philosophers, and mathematicians and geometers wrote lots of things. Some of them proved correct and some didn’t.
But it’s a rare, childish, selfish, Dubai-fixated, and supposedly Renaissance-worshiping jackanape that looks at the history of Western reading of Platonic and Aristotelian philosophy and is surprised that those most closely engaged with it failed to remain in agreement forever with its tenets.
May 30th, 2009 at 3:23 pm
Many of us crazy ultra-fringe anarcho-socialists and participatory economics supporters come to similar conclusions via entirely secular, empirically-informed, and first-principles oriented arguments.
May 30th, 2009 at 3:41 pm
[...] Yglesias on Mankiw. [...]
May 30th, 2009 at 3:53 pm
Again, this is a stupid argument to be having, while being tall might correlate to some sort of income advantage/disadvantage, we already have an excellent way of determining whether someone is economically disadvantaged or not. How much money does this person have? What is this person’s income? Rich people almost invariably have more money than poor people.
You can’t say this for tall people vs. short people. Short people tend to make less money at least in part because women (who tend, on average, to be short) make less money than men (who tend, on average, to be tall). If women’s heights were magically raised, their money-making potential wouldn’t really change. Conversely, black people in America tend to be taller than Asian people or Jewish people. Black people, on average, make less money than those two groups, yet they would be more adversely affected by such a tax.
May 30th, 2009 at 3:59 pm
Now I realise that Yglesias and his crew can’t make use of such arguments since as far as they are concerned, Aquinas is outmoded and unfashionable these days.
It’s not a matter of fashion. It’s that on many questions Aquinas is simply wrong (for example his proofs for the existence of god), and where he makes arguments that purport to depend only on reason they often appeal to vague things like natural ends and what supposedly follows from something supposedly being a natural end.
Aquinas simply won’t do.
May 30th, 2009 at 4:09 pm
Murder is wrong.
Well, maybe it’s not wrong. Kill Greg Mankiw and what does it get you? Not much. In fact nothing but trouble. But, if you’re a government and you’re killing innocent civilians, some think it gets you a lot.
So is murder wrong or not?
May 30th, 2009 at 4:25 pm
Re: It’s that on many questions Aquinas is simply wrong (for example his proofs for the existence of god),
Actually, Fool, Aquinas was correct. (Though personally I find Anselm’s ontological proof even more convincing.) The fact that hipster yahoos like yourself are unable to understand the proofs does not make them invalid. The world was not designed in order to satisfy the ignorant whims of cosmopolite yahoos. A five year old does not want to eat his broccoli, that does not mean that broccoli is not nutritious.
May 30th, 2009 at 4:32 pm
4 thoughts:
a) It seems like an there’s a very easy utilitarian way out, namely that contingent facts about human beings make taxing height suboptimal; it just doesn’t feel that great for us (or isn’t in line with our preferences, whatever). You see similar arguments all the time about how a utilitarian can prefer her friends and family to strangers, since that’s the kind of life people want to have.
b) it looks like taking philosophy 101 can make people just as annoying as taking economics 101.
c) You’d think Mankiw would have heard of that Rawls fellow that the hip kids all like. It’s not exactly obscure stuff.
d) Mankiw is a pretty accomplished guy, but he seems like a real douche.
May 30th, 2009 at 4:36 pm
Hector:
No, actually, Aquinas’ reasoning fails. You’re clearly several centuries behind advances in philosophy. I recommend that you read Mackie’s Miracle of Theism so you can begin to catch up.
May 30th, 2009 at 4:36 pm
I think we should have a penis size tax. I don’t mind paying a bit more so that the less fortunate, like Mankiw, can benefit.
May 30th, 2009 at 4:44 pm
http://www.penis-data.com/statistics/satscore
Toss out the SAT scores and break out the rulers!
May 30th, 2009 at 4:59 pm
Stephen Bank is on to something: Mankiw is a major douche. I can’t tell if it’s worth having him at Harvard just to prove that meritocracy doesn’t describe our world. But Pinker’s good for that, and even he seems to do less immediate harm to the discourse.
May 30th, 2009 at 5:02 pm
Re Hector at 31: “Actually, Fool, Aquinas was correct. (Though personally I find Anselm’s ontological proof even more convincing.) The fact that hipster yahoos like yourself are unable to understand the proofs does not make them invalid.”
————
1) You mean Aquinas proofs like the following?
“We proceed thus to the Third Article: It would seem that several angels can be at the same time in the same place.
I answer that: There are not two angels in the same place. The reason of this is because it is impossible for two complete causes to be the causes immediately of one and the same thing.”
———–
2) Although I agree that if you threaten to BURN the first son of a bitch who snickers, it does add a certain weight to the logic.
May 30th, 2009 at 5:06 pm
Why did no one ever appoint Thomas Aquinas to the Supreme Court? Sounds to me like the old boy would have been a natural.
Perfect gibberish for cowing the masses.
May 30th, 2009 at 5:18 pm
Although Aquinas on his best day could not reach the bar established by Dred Scott:
http://en.wikipedia.org/wiki/Dred_Scott_v._Sandford
But hey, we need to follow precedents.
May 30th, 2009 at 5:22 pm
PS The Supreme Court –and the American Bar Association — can suck my cock.
May 30th, 2009 at 5:24 pm
Hector:
BTW: Ontological “proofs” are so much mental masturbation. You can’t think something into existence.
If you could, I would not be writing on this blog right now as I would be far too busy ravishing that hot babe than which none more perfect can be conceived.
May 30th, 2009 at 6:15 pm
A bunch of people wrote papers that said you should do X because if you make certain assumptions about utility it will make people better off.
So Mankiw wrote a paper showing if you make those assumptions, then you should tax height because people would be better off.
It’s called satire. Get a grip.
May 30th, 2009 at 6:16 pm
That’s hipster thinking, Fool. Which means you can never experience the Sublime Pleasures of a life elevated by Denial of the Flesh and steadfast devotion to Moral Purity in order to free the Mind for contemplation of the Infinite.
Oh, Look! There’s an altar boy!
May 30th, 2009 at 9:20 pm
We don’t abandon considered convictions about normative issues that quickly.
Oh yes we do, completely, and without a qualm, when it is required to context art. Especially drama.
And we all live in a 24/7 melodrama movie theater, and it affects hell out of our reasoning. Not for the better, either.
But you knew that.
May 30th, 2009 at 9:22 pm
It is true that Locke was the first philosopher to include property as a natural right. Before that, no one ever thought or suggested that anyone had a “natural right” to more than they needed. Aquinas was merely repeating what Roman thinkers such as Cicero and Senecca had said. Even Locke met with considerable opposition until Herbert Spencer came along.
May 30th, 2009 at 9:50 pm
As a utilitarian, I’m going say that Mankiw’s argument is basically correct in the literal sense (though not necessarily as applied to height individually) and therefore doesn’t serve as a reductio ad absurdum even to the narrow strain of economic utilitarianism that he is criticizing (so both he and his critics are wrong). The reason to tax correlates with income rather than income itself is that taxing income distorts motivation to produce labor while taxes on unchangable income correlates do not (as Mankiw explains in the paper).
The problem with taxing height is that 1) it’s not really impossible to affect by life choices 2) taxing only height is problematic for those who have good height values but poor values for many other income-associated traits. While equalizing after-tax income is a worthy optimizztion goal, not every action which leads closer to equalization is good because variance matters as well as the mean, as Kyle noted. But if a great majority of these characters can be discovered and we can well predict income from unchangable conditions at birth, then sure, I’ll support such redistributive taxation.
May 30th, 2009 at 10:08 pm
Don Williams,
Well, since it seems to me to be an obvious fact that the holy angels do exist, it is legitimate grounds for speculation whether they can ocupy the same place at the same time. If these matters don’t interest you (hint: they don’t interest broccoli-hating twelve year old boys either) then leave them to people who are interested. Aquinas answere this question to my satisfaction, though I must disagree with him (again, largely on ontological grounds) as to some other points of angelology.
Fool,
Anselm’s point was not that you can think something into existence, it is that logic compels the existence of a Perfect Good. If God did not exist, then existence itself would be meaningless. Which of his premises, specifically, do you disagree with?
May 30th, 2009 at 10:17 pm
What is so great about the incentive to work that it is a primary value that must not be meddled with?
May 30th, 2009 at 10:20 pm
Here’s one litmus test for Supreme Court nominees I support:
“Is Greg Mankiw a pestiferous douchey toolbag who thinks he’s above partisan and ideological politics all while engaging in the most blatant political hackery?”
If your agreement is anything but instant, fervent, and full, you can’t sit on the court.
May 30th, 2009 at 10:27 pm
There is some remarkably unexamined philosophy here that posits that “undistorted” incentives are good, whatever “undistorted” means. So if you don’t like income taxes, you holler that income taxes distort the incentive to work. If you don’t like forests, you holler that conservation efforts distort the effort to cut down trees. And nobody ever asks – why is the undistorted incentive a good?
To the “incentive to work” mantra chanters, sweatshops must be sacred territory, and if the market could make everyone want to work like that, how wonderful the market would be! That damned income tax comes in the way.
May 30th, 2009 at 10:33 pm
I agree with your point one cannot be do stuck to an idea as to follow it to its conclusion with out question such a premises would mean that all things are resolved in that one system and that implies something impossible it requires that all situations in which its applied have to be measured the same way from laws to taxation if a cop shoots a guy with a gun he is justified if a guy shoots another guy he is a murder that is a realistic approach but if you take an unbending view then both are considered murder and all things are conditional based solely on logic and practicality not dogma taxing a person more because they earn $20 million a year at 30% id not quite the same as taxing a person who makes 30,000 a year at 20% its a very big difference and of course being tall dose not mean rich adding a 25% height tax would leave the 30,000 a year guy would create an unjust system but you cant tax a millionaire at 50% or some other extreme amount but practicality requires some understanding of the conditions involved this Greg Mankiw is looking for an absolute argument in a conditional world
May 30th, 2009 at 11:01 pm
There is some remarkably unexamined philosophy here that posits that “undistorted” incentives are good, whatever “undistorted” means. So if you don’t like income taxes, you holler that income taxes distort the incentive to work. If you don’t like forests, you holler that conservation efforts distort the effort to cut down trees.
“Distorted” refers to the difference between the price of something and it’s real value. Conservation efforts done well actually reduce market distortion because allowing free private use of public goods like forests distorts the true value of the forest, which is greater than its private value. The reason market distortion is bad is that it leads to arbitrary incentives and therefore deadweight loss. For example, in the case of income tax, if progressive income taxes discourage working, then the government will get less money and the rich will get less money, which is worse for both parties than a non-distorting tax.
May 30th, 2009 at 11:20 pm
it seems to me to be an obvious fact that the holy angels do exist
Silly Hector. Those are not angels. Those are flying angel-haired pasta monsters. I see them too.
May 31st, 2009 at 12:32 am
Well, since it seems to me to be an obvious fact that the holy angels do exist,
…come on, you’re just trolling us now, right?
May 31st, 2009 at 12:48 am
So let me get this straight: if we’re talking about something like the price of labor and minimum wage, or Heritage plates, then ‘value’ in this case is just what people will pay for it. But if you’re talking about income taxes, they’re distorting the ‘real’ value of labor. Is there a nice theory as to when value of something is ‘real’ as opposed to merely being the price someone else is willing to pay for it?
May 31st, 2009 at 1:41 am
So let me get this straight: if we’re talking about something like the price of labor and minimum wage, or Heritage plates, then ‘value’ in this case is just what people will pay for it. But if you’re talking about income taxes, they’re distorting the ‘real’ value of labor. Is there a nice theory as to when value of something is ‘real’ as opposed to merely being the price someone else is willing to pay for it?
We can indeed think of value as the price someone is willing to pay for something provided there were a market for it. I don’t understand why income taxes pose an exception to this rule. Progressive income taxes distort the price of labor because, if I’m willing to pay you $100/hr constant for your labor, you get less and less money the more you work for me, which arbitrarily discourages you from working the more you work even though I’m paying you the same amount at all points. This isn’t necessarily a fatal flaw of progressive taxation–I think progressive taxation is good–but it is a flaw, and we could deal with that flaw by taxing potential productivity instead of income were such a thing possible.
The interesting apparent exception is things like forests, as mentioned earlier. The value of a forest isn’t the amount someone will pay for it in a market because forests are a public good; there is no way to divide the various functions of a forest into pieces and auction each piece off with the sum equal to its value. Nevertheless, we can still define the value of the forest as equal to that sum were such an auction possible, and that deals will all possible exceptions and gives you the nice theory you’re looking for.
May 31st, 2009 at 3:26 am
Matt, you think too much (a symptom of youth, if I remember correctly). You gotta be careful, it will drive you crazy. You don’t want to walk that razor’s edge too often.
Try keeping it simple on occasion. Think trite Hallmark type things like: “if I don’t ever commit an act of premeditated cruelty I will lead an ethical life.”
I only have one heinous act cruelty on my resume; it involved a female elephant named Simba and I’m not sure it was even premeditated. Not only that, I apologized profusely to the large and lovely cow so I think I’m in the clear and can consider myself a good man up until this point.
Also, we will not be able a species to sit around smoking pot and discussing Kant and Kierkegaard if we go extinct (actually when I’m high I would rather discuss whether Hedo Turkoglu has Magic Johnson like court-sense, has Hedo in fact reached the Magic-level of symphony conductor).
That’s why I am convinced that even though the last hope for mankind is deep thinking left-wing bloggers, we need on occasion to discuss simpler philosophical dilemmas like the ethical relevance of the electric engine and the combustion engine. For instance, the electric engine reaches 75% of its potential efficiency, the combustion engine only 15%.
Such interesting statistics creates a climate for a philosophical debate I can really sink my teeth into. Plus, if we succeed in this world-wide ethical struggle, and electric supplants combustion, my planet might survive, affording the possibility that I will have something to come back to when I’m reincarnated.
The joke, of course, will be on me if I come back as an elephant named Simba.
May 31st, 2009 at 4:19 am
It is true that Locke was the first philosopher to include property as a natural right. Before that, no one ever thought or suggested that anyone had a “natural right” to more than they needed.
Not really. Before modern capitalism, property rights were tied up with formal military and political-dynastic rights. For example, the Athenian’s citizenship rights are the over-arching right he possesses, and his rights to his property are bound up within the right of birth. The mercantile-banking families of Renaissance Italy hired mercenaries, built forts, and erected towers to defend themselves, and their property rights, quite logically, is the equivalent of how much they can afford to defend with armed prowess.
It is true that only until Smith do we get an elocution that property rights are a separate right, inviolable, unto itself, but of course this is purely because property rights, before that time, was synonymous with certain other rights. When the Athenian spoke of his citizenship, he meant his property rights as well as his abstract legal identity, and when the Venetian millionaires hired galleons, they were for the defence of their property and commercial interests.
May 31st, 2009 at 4:24 am
But it’s a rare, childish, selfish, Dubai-fixated, and supposedly Renaissance-worshiping jackanape that looks at the history of Western reading of Platonic and Aristotelian philosophy and is surprised that those most closely engaged with it failed to remain in agreement forever with its tenets.
It is unsightly that the liberals are appropriating the gold-plated names of the ancients when advocating the precise opposite of their teachings. It is like someone calling upon the name of Jesus to preach Hinduism. Utterly bizarre.
But what is more serious than that, is it is misleading. Everytime Yglesias alludes to Plato to support his point about something, or to buttress up his writing, he is conveying the inherent and mistaken assumption that they are somehow in concordance with each other, when it could not be further from the truth.
I actually have heard, shocked, a liberal talking about all those great liberal and democratic traditions of the ancients and how they ought be our example, and I just thought, no one has ever been more the product of disgusting propaganda, on American soil, than him.
May 31st, 2009 at 5:29 am
Well Mankiw is just wrong. Philosophy really is like a smorgasboard. No internally consistent theory is complete. So not only can you pick and choose what you want, you sort of have to.
Besides, arguments stand or fall on their own merits, not on the authority of whichever dead guy the author happens to be mimicking. This is especially true when the proposition at hand is more like a deliberately retarded tax proposal than a fascinating trivium about the integers.
May 31st, 2009 at 5:44 am
I wonder if Plato would endorse direct subsidies from The Republic to the Producers to build a high speed rail network?
I can quite clearly envision a bullet train of The Republic, zipping along, the Phi-kings up front in spacious and luxurious compartments, having a great time, the warriors a little further back, in spartan but comfortable quarters, ever alert, always at the ready to defend the train, and the smucks, everybody else, crammed into the cramped but livable cattle-cars that make up the back of the train.
And the poor, poor poets. Every time the speeding train crosses over a bridge the lyricists get tossed overboard, into the abyss.
May 31st, 2009 at 8:57 am
Matt, your point about hard questions is well made. Clever “hyper-literalism” is the crutch of many right-libertarian “thinkers”. It is form of intellectual laziness; not necessarily stupidity, just laziness.
May 31st, 2009 at 9:03 am
if I’m willing to pay you $100/hr constant for your labor, you get less and less money the more you work for me, which arbitrarily discourages you from working the more you work even though I’m paying you the same amount at all points.
No, to keep me from working myself to death, you’d have to start paying me much more than $100/hr for the additional hours, and that is a good thing, it is not a distortion of the market. That, by the way, is called “overtime”. Sorry, you don’t get a volume discount on my labor
And you missed a better argument. If you can afford to pay me $100 per hour then the progressive income tax hits you far more than it hits me. Your incentives get “distorted” far before mine do. So maybe you can find some argument there.
But the argument as made is very revealing. The plutocrat who has to pay more in taxes frames his arguments against it in terms of his employees’ distorted incentive to work. This is the “objective” economics science that you’ve absorbed, and what is taught in the universities. And it is all theoretical, any real-world impact of a progressive income tax on the workers’ incentive to work is not demonstrated.
Think about it, , if Wall Street workers had spent 20 hours a week less creating CDSs, CDOs and such because the progressive income tax limited their potential upside from such activities, how much better off all of us would be!
May 31st, 2009 at 10:54 am
How curisous to find all these folks upset because someone might believe in the process of thought –e.g. logic –without necessarily accepting all of Plato’s conclusions.
Are they kidding? Or are they just menbtally challenged?
That position is like suggesting that I should reject linguistics because I don’t 100% believe all of Noam Chomsly’s political commentary. Plato had a great deal of insight into the process of thinking, but he was a guy whose privileges (e.g. the time to think) was based upon a slave society. Thus we get the incredible premise from him that slaves have “slave natures”.
Thinking has two components, as it relates to the real world. The first, and often ignored portion, is to arrive at base premises that appear justifiable. This is frequently the hardest part.
The easier part is thinking from the premises by consistent principles.
What Plato, as well as Mankiw, frequently represent, is the ability to arrive at outlandish conclusions using an apparently reputable thinking process based upon several faulty (and unexamined) premises.
Probably Plato should have listened more carefully to Socrates. The unexamined life is NOT worth living.
May 31st, 2009 at 11:00 am
“The mercantile-banking families of Renaissance Italy hired mercenaries, built forts, and erected towers to defend themselves, and their property rights, quite logically, is the equivalent of how much they can afford to defend with armed prowess.”
If you have to use physical force to defend your property, then property is not a right. If it were a right in that society, it would be protected for you by the courts and other governmental agencies.
On another note, I think it’s interesting that all the schools of ethical philosophy that have been referenced in this thread are from the Anglo-American analytic tradition, and none from the post-Kantian Continental tradition.
May 31st, 2009 at 1:02 pm
You are of course aware that you didn’t answer my question. What is the difference between ‘real’ value, as opposed to value being the price someone is willing to pay? And what guides which of the terms to use in a given situation?
May 31st, 2009 at 1:51 pm
Re: Thus we get the incredible premise from him that slaves have “slave natures”.
Tim Conner,
Did Plato really say this? I’ll take your word for it, but I was under the impression this came from Aristotle. Certainly the apologists for slavery in later centuries certainly tended to cite Aristotle more than Plato.
May 31st, 2009 at 2:23 pm
No, to keep me from working myself to death, you’d have to start paying me much more than $100/hr for the additional hours
Yeah, sure, but that’s not the point. In the absence of a progressive tax the point at which you would stop working is different than in the presence of a progressive tax, and the difference is deadweight loss.
But the argument as made is very revealing. The plutocrat who has to pay more in taxes frames his arguments against it in terms of his employees’ distorted incentive to work. This is the “objective” economics science that you’ve absorbed, and
what is taught in the universities.
Nonsense. Keep in mind that I am advocating much much higher taxes for the rich–as I said earlier, it is a good goal for after-tax income to be equal for all citizens. So don’t imply that I’m in the hand of the plutocrats. I’m just agreeing with Mankiw and the utilitarians that it would be better to tax potential productivity than income, were it possible.
And it is all theoretical, any real-world impact of a progressive income tax on the workers’ incentive to work is not demonstrated.
The use of theory vs. empiricism in science is a rather broad issue not worth getting into in this post. Let me just say that if you want to reject theoretical economics as a field you should at least learn its basic arguments first, and why many highly intelligent people do accept those arguments.
May 31st, 2009 at 2:24 pm
By the time of the Romans the Greek idea that some people had slave natures was passe. Most of the Roman elites (including the Emperors) were followers of Stoicism, whose major thinker, Epictetus, had been born a slave. The stoics believed that as far as their minds, if not their circumstances, all men were equal, and that slaves were entitled to humane treatment. They also believed in austere living, and frowned on ostentation. Although it may not seem so to us, they were rather austere compared to other ancient peoples.
Equality before the law was a precept of Roman law and was absorbed into Christianity. Cicero, a wealthy landowner, did not believe in communism, but all Romans believed that excess wealth should be put to public use.
May 31st, 2009 at 2:26 pm
You are of course aware that you didn’t answer my question. What is the difference between ‘real’ value, as opposed to value being the price someone is willing to pay? And what guides which of the terms to use in a given situation?
Yes I did….there is no difference, and the only complications is whether the good can actually be put in a market such that the price someone would be willing to pay can’t be determined.
May 31st, 2009 at 3:50 pm
I don’t think you answered the question. Calling it deadweight loss is simply giving it a name, not explaining anything.
Let me try another way -
Why and how is the world better off if I have as much incentive to work 60 hours a week at $100 an hour as 40 hours a week at $100 an hour? (If the world is not better off, then the question of progressive income taxes disincentivizing me is irrelevant).
How does a progressive income tax dissuade me from working 40 hours a week at $200 an hour compared to working 40 hours a week at $100 an hour?
($100 is just a figure picked from previous posts, you can use minimum wage in place of $100, and twice minimum wage in place of $200, if you like).
May 31st, 2009 at 3:55 pm
I think that economics as it is smuggles in a notion of value that is not examined closely enough (”efficient”, “deadweight loss”, “distortion”). The “efficient” world may not be a world that anyone wants to live in.
May 31st, 2009 at 4:29 pm
Good, you’re making progess. Now, how does the income tax ‘distort’ wages? Suppose that the costs of other inputs go up, say, the cost of steel and electricity. Now you can no longer offer an employee wages of $100/hour. So you’re saying that the costs of steel and electricity distort the cost of labor, and thus should be held down by virture their effects?
Are you sure that’s what you want to say? We already know that you think Angelo Mozillo was worth every penny he was paid, ditto for the CEO’s of AIG etc; I think I can say without contradiction that most people already find your assertions unrealstic.
May 31st, 2009 at 4:47 pm
The right to property is a right conferred by the government. It is mostly considered a secondary not an intrinsic right. Without a government to protect it there can be no property. So it makes sense that it should be taxed.
May 31st, 2009 at 5:04 pm
Why and how is the world better off if I have as much incentive to work 60 hours a week at $100 an hour as 40 hours a week at $100 an hour?
I’m not sure I understand the question. Interpreting it literally, the world isn’t better off–it would be better if you had more incentive to work 60 hours a week than 40 hours.
How does a progressive income tax dissuade me from working 40 hours a week at $200 an hour compared to working 40 hours a week at $100 an hour?
It doesn’t, obviously. You would rather work for $200 an hour….what does this have to do with anything?
I’ll explain the whole deadweight loss thing a bit better and maybe it will clear things up. Say I’m willing to work the first 40 hours a week for $100 an hour, and the next 20 hours a week also for $100 an hour. You are willing to pay me $111 an hour for my labor, and my taxes are 10% on my first $4000 and 20% on all money after. So I’m only willing to work 40 hours under this progressive tax scheme–at the 40th hour, you’re willing to pay me $111, and I’m willing to work for $100, but after tax I’m making less than $100 so I stop working.
Now what are the consequences of me not working? I’m willing to work for $100 but can’t due to taxes, so I’m hurt. You’re willing to pay me $111 for my labor, but can’t because of taxes, so you’re hurt. And the government would get $10 if we did work at the lower-tier tax limit, so the government is hurt. No one gains from this situation–that is what is meant by deadweight loss.
I don’t mean to say that this is the only possible scenario. But it is one, and it is a flaw in progressive taxation, a flaw recognized even by most economically educated advocates of progressive taxation.
May 31st, 2009 at 5:13 pm
Good, you’re making progess. Now, how does the income tax ‘distort’ wages? Suppose that the costs of other inputs go up, say, the cost of steel and electricity. Now you can no longer offer an employee wages of $100/hour. So you’re saying that the costs of steel and electricity distort the cost of labor, and thus should be held down by virture their effects?
No, increases in input costs cause a real decrease in the value of labor, so it doesn’t distort anything for employees to have wages go down. Income taxes and progressive income taxes in particular do not reflect a real decrease in the value of labor after a certain threshold.
Are you sure that’s what you want to say? We already know that you think Angelo Mozillo was worth every penny he was paid, ditto for the CEO’s of AIG etc; I think I can say without contradiction that most people already find your assertions unrealstic.
The existence of poor or mistaken choices in an undistorted market is not really an argument for distorting a market. Moreover, one might argue that the financial markets were quite distorted in that profits were privatized while risks socialized, and that arbitrarily over-incentivizes risk-taking.
May 31st, 2009 at 5:26 pm
[...] Posted in Uncategorized by Mike on May 31, 2009 Like Yglesias, I find this just weird. Talking about optimal taxation policy, Greg Mankiw : The point of our [...]
May 31st, 2009 at 5:38 pm
!?!?!? Not that I didn’t strongly suspect this already, but you’re just making this up as you go along, aren’t you? Note also that you’re back to using the word ‘real’ as if it means something other than ‘the price someone is willing to pay’.
You’re not using your words correctly.[1] I’d watch criticizing other people for their lack of economic acumen if I were you.
[1]If someone is willing to pay A.M. that much money, that’s how much he’s worth . . . by definition (at least, according to you.) So it’s impossible to say that this was a ‘mistaken’ choice.
P.S. – You’re not be any chance working in the IT field are you? Your posts have that flavor.
May 31st, 2009 at 5:59 pm
!?!?!? Not that I didn’t strongly suspect this already, but you’re just making this up as you go along, aren’t you? Note also that you’re back to using the word ‘real’ as if it means something other than ‘the price someone is willing to pay’.
Huh? How so? How does anything I said violate the definition of value as the price someone is willing to pay for something provided there were a [ideal, see below] market for that something? When the value changes, so does the price. How does that not make sense?
You’re not using your words correctly.[1] I’d watch criticizing other people for their lack of economic acumen if I were you.
[1]If someone is willing to pay A.M. that much money, that’s how much he’s worth . . . by definition (at least, according to you.) So it’s impossible to say that this was a ‘mistaken’ choice.
Well, yes. Implicit in the concept of “market” in the definition of value defined earlier is full information, which precludes the possibility of mistake. So you’re right; I am a bit loose with words here because going over econ 101 again would take a bit of time. In the real world one can overpay (pay above value) for something due to inaccurate information. Value is the market price in a hypothetical ideal market; i.e perfect competition, perfect information.
P.S. – You’re not be any chance working in the IT field are you? Your posts have that flavor.
Nah, I’m a biology student with a hobbyist interest in econ.
June 1st, 2009 at 2:43 am
I wonder if Mankiw realizes that military spending is redistributive. After all, poor people also live under the blanket of security it provides. I suppose then he will endorse the idea that we should disband the military. I mean, political philosophy ain’t a smorgasbord, people.
June 1st, 2009 at 5:38 pm
I’m willing to work for $100 but can’t due to taxes, so I’m hurt. You’re willing to pay me $111 for my labor, but can’t because of taxes, so you’re hurt. And the government would get $10 if we did work at the lower-tier tax limit, so the government is hurt. No one gains from this situation–that is what is meant by deadweight loss.
I happen to disagree. You will hire a second person to also do this valuable work. The government will get some taxes – not as much as if you paid me, but some. Since the purpose of government is a better-off society, not higher tax revenue, it is not a loss. Someone will get a job. I will work 40 instead of 60 hours a week, and will be happier and healthier for it. You will have someone who can fill in for me when I go on vacation, and will be better off too. Moreover, you will only have to pay this person $100 per hour, not $111. Moreover, I get to live in a middle-class society – which if you have lived in the alternative, will know from experience that it is infinitely better than a highly unequal society.
Everyone gains. Anyone who calls themselves economically literate should be able to see this.
June 2nd, 2009 at 2:28 pm
[...] sloppy work in other fields. Most recently, we saw Greg Mankiw take an interesting paper about the economics of taxing people based on height and turn it into some pretty half-assed moral philosophy. Something similar is going on with Martin [...]
June 2nd, 2009 at 9:09 pm
ScentOfViolets and Anun,
I’ll step in for realist for a second. I’ll try to restate his argument from the beginning.
First, under a utilitarian framework, there exist optimal outcomes. For example, it could be that global utility is unambiguously higher when a doctor works 40 hours a week instead of 20. By deviating from these “ideal values”, then global utility decreases, and everyone is worse off. (Notice, I’m using the plural, there can be more than one optimum. But that isn’t as important as you’d think).
Now, under somewhat unrealistic assumptions(Contract enforcement, lack of externalities like pollution, etc), it can be shown mathematically using the general welfare theorem that market processes lead to the previously mentioned optimal outcomes.
Of course, these conditions are not naturally satisfied. And when they are not, then market mechanisms lead to outcomes that are not optimal. For example, if a coal plant causes pollution that harms everyone in the neighborhood but doesn’t have to pay for the pollution, then a profit-maximizing plant owner would burn more coal than is socially optimal. Realist would say that the price of electricity is “distorted”. By for example, implementing a Cap’n'Trade scheme or a carbon tax, you can bring the “market cost” in line with the “social cost”.
[As an aside, the idea that "the price of a good is what someone is willing to pay for it" leads to optimal outcomes is only true under very restrictive conditions. A better heuristic would be "The optimal price of a good is one that is as low as possible without inducing shortages, that is, where supply equals demand, in a market where no producers or consumers have individual ability to influence prices". The real one is, "The optimal price of a good is one that maximizes a global utility function"]
Now, in order for the government to create conditions that allow a market to function and create socially optimal outcomes, the government needs to spend a lot of money. And this means that the government needs to raise money.
However, once you introduce means of raising revenue, you change incentives and begin to distort prices. And remember, the reason the government is even raising revenue is to spend it in ways that will correct distortions in prices! So obviously, it becomes important to pick forms of taxation that minimize dead weight loss to society. (This isn’t an argument against progressive taxation. There are reasons to believe that an optimal income tax schedule would be progressive in some way, but that’s a messy empirical question.)
[As another aside, the fact that there are multiple "optimal values" becomes important when considering things like income inequality. There might be a couple of pareto-optimal outcomes, but some of them will be "better" than others under some kind of society level metric like "Number of children who go to sleep hungry". So there are justifications for the state to do things to "switch" the market from one equilibrium to another.]
This explanation gets a little complicated, and there are *a lot* of caveats I glossed over (Game theory, imperfect information, inter-temporal considerations…), but that’s why economics is an actual academic field…
June 2nd, 2009 at 9:28 pm
I think I’ll expand a bit on why “the price of a good is what someone is willing to pay for it” is wrong, and why these econ 101 truisms can oversimplify things.
Suppose you have a town with a single giant farm that enjoys monopoly power. Then the farm could burn huge amounts of it’s produce and charge higher prices. Since people *need* food, then they will pay. Some people, mostly sociopathic republicans, would say “The value of a good is only what someone is willing to pay”. But clearly, the town would have been better off had the farm not burned half it’s produce in order to raise prices. So then, econ 101 talks about supply and demand curves, and the need for perfect competition.
So now, imagine the town has a bunch of farms, none of which enjoy any market power. Prices converge to marginal cost, and supply meets demand. Now suppose that every couple of years, there is crop failure, leaving the town without food.
Ideally, the farms would make some extra grain in the good years to save so that they could profit from the high prices of food during the famine. But if the farmers have different levels of risk-aversion than the towns people, then the math doesn’t really work out, and not enough grain ends up being produced. In this case, the previous market clearing price wasn’t socially optimal, they should have been higher.
My point is that all of this verbiage isn’t just the codification of common sense. Sometimes, the bare level utilitarian framework of economics is needed to solve actual policy questions.