Mankiw’s Fractured Fairy Tales
posted by Frank Pasquale
Come tax time, econoblogger Greg Mankiw is peddling parables about distributive justice designed to reconcile us to inequality. You see, if we tax high earners too much, they may just all flee to….well….another bar. Redistributive policies are ridiculed as gliding us down a slippery slope toward Harrison Bergeron-style taxation of height.
How to respond? Well, if there were thousands of people around who were, say, hundreds of times taller than the average person, and whose ability to consume resources were accordingly disparate, perhaps we’d try to find some way of rectifying the situation. As for “bar stool tax policy;” well, if the top guy also happened to be drinking 40% of the beer, er, income, perhaps we’d like to see him paying accordingly.
I suppose that Mankiw might say that the height paper is only an attack on “utilitarian social planner[s who] would like to transfer resources from high-ability individuals to low-ability individuals.” Only such a planner is attributed the desire to “levy a sizeable tax on height [such that a] tall person making $75,000 should pay about $4,500 more in taxes than a short person making the same income.” And perhaps he has dented “the theory of optimal taxation [according to which] any exogenous variable correlated with productivity should be a useful indicator for the government to use in determining the optimal tax liability.” But what relevance does this battle of ideal theories have for our world? Is any political party advancing the “theory of optimal taxation” Mankiw is trying to discredit?
It is easy enough to score debating points about the “impossibility” of perfect distributive justice, just as one can always dredge up Arrow’s impossibility theorem to discredit democratic procedures. But in a nation where an ever-growing number of people lack basic health insurance, and a world where tens of millions live on a dollar a day and a substantial proportion of the affluent do nothing to relieve their plight, it’s really difficult to see how reductiones ad absurda contribute to the practical decisions we have to make about distributing resources. Parlor games don’t lead to good policy.
PS: As for making the perfect the enemy of the good: there’s a rich campaign finance literature anticipating Mankiw’s approach. Skeptics always throw up their hands and say, “well, if we equalize campaign resources, we’ll need to equalize looks….and family connections…and persuasive ability. If we can’t equalize everything, how can we equalize anything!” Spencer Overton makes short work of that argument; see also E. Joshua Rosenkranz, Faulty Assumptions in “Faulty Assumptions”: A Response to Professor Smith’s Critiques of Campaign Finance Reform, 30 U. Conn. L. Rev. 867 (1998). Often inequalities in “uncontrollable” areas are correlated with inequalities that can be managed, thereby making it all the more imperative to do something about the latter.
April 17, 2007 at 10:51 pm
Posted in: Legal Theory, Philosophy of Social Science, Politics, Tax
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Responses (7)
Cheers to Mankiw - April 18, 2007 at 2:27 am
Do you really believe Mankiw is playing parlor games? Didn’t the man honorably serve in government, addressing real problems with pragmatic solutions?
In any event, Hillary Clinton seems to think we can have an optimal tax policy, just as she seems to think we can have perfect information if we only increase the cost of collection. She just gave a policy speech on “realtime data collection” that addresses the matter.
My quibble with your rip on Mankiw’s bar analogy is that you seem not to understand what bars are like. As someone who carouses in them, let me assure you that there is no limited pool of beer over which the various sundry patrons duel. There is plenty of beer for everyone. If I drink more beer it may be because I have more greenbacks in my billfold or it may simply reflect my superior thirst. But I’m not in essence or in fact swiping frothy, delicious beer out of the hands of rival patrons who are competing for the attention of the bartenders. The greater the demand for beer in the bar, the greater the number of barrels of beer rolled into the bar for sale. The more money spent on beer in the bar, the more beer in the bar there will be. So the perceived inequality in your take on the bar analogy may simply reflect the different preferences of the various patrons, but what is assuredly true is that the greater the consumer spending, the more beer there is available for any and all comers and partakers, which guarantees that the bar will remain an institution in the neighborhood so long as its landlord is kept satisfied. Why you fail to see the benefit of a bustling bar brimming with beer right there for easy access to even the most casual of slakers is beyond me. It is far more important that the process of getting drinks is fair and the access to the bar is there than it is important to criticize the distribution of Bud over the stomachs of bleary-eyed patrons.
Anon - April 18, 2007 at 9:32 am
From one of the best columns of Paul Krugman (no right-winger he):
James Grimmelmann - April 18, 2007 at 10:03 am
Umm, why is this post illustrated with a picture of Mr. Peabody and his boy Sherman? I was expecting at least a Wayback Machine joke about. If you’re going to go to the Rocky and Bullwinkle well, I’d recommend the box-top cycle, in which Boris tries to wreck the U.S. economy by hoarding redeemable box tops, which illustrates, arguably, your point about extreme inequality of wealth.
Matt Bodie - April 18, 2007 at 11:48 am
Thanks for pointing this out, Frank. I can’t get over how silly that barstool “parable” is. Rich folks just “are” rich, and poor folks just are poor! Hey, don’t scare away the rich folks! Unbelievable. And as for that height paper, I guess he doesn’t think we should give assistance to anyone with a disability, either. Hey, that’s just the way they were made! I feel like I’m reading a Tom Tomorrow cartoon, only without the sarcasm.
David - April 18, 2007 at 3:00 pm
Several other problems with the bar analogy:
1) there are very few transactions costs associated with relocating to another bar (unless you’re driving drunk); the costs of immigration are quite substantial;
2) the other patrons at a bar might add some to your enjoyment, but it’s certainly nothing like an interconnected enterprise like a post-industrial market economy; our high standard of living is built on the backs of many of the less fortunate; and
3) the analogy simply doesn’t hold up to close scrutiny; look at Norway–one of the highest per capita incomes in the world, but also a strong social safety net, and a progressive income tax system (although Norway relies more on a VAT for overall revenues).
Conservative News - April 19, 2007 at 7:57 am
VAT is an essential part and revenue generator for any state or country. Relocation costs these days are cheaper, and hassle free trasnactions are available IMHO.
RAH - April 20, 2007 at 1:07 am
Redistributive Tax policies work against human nature. I will support my family and children but do not feel any need to support another persons family off of my labor and productivity. After all my wealth is from my labor which is derived from my time on this planet Why should I spend my life for others I do not know or have no relationship with?
Interesting historical example is the Plymouth colony. The pilgrims started with a communal/communist system. The first winter those that survived the crossing all worked together to take care of those who cold not take care of themselves. This care was just not building shelters and growing food but required bed changing from sick people and other ugly tasks. The first harvest was minimal. But after the first year those that got used to being taken care off started to malinger and those that was working the hardest on the commmunal lots and doing the chores around the house started to resent this imposition.
The harder workers went to the Governor and petitioned to have independent/private plots so they could grow their own food that was their sole property. The workers continued to put some effort into the communal plots.
Surprise, surprise the next years harvest was much larger and capitalism started being the basis of the community.
Please understand this was self selected group of people imbued with the protestant work ethic and still the shirkers took advantage and engendered resentmant.
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