William M. Briggs

Statistician to the Stars!

Pajamas Media: The Dismal Economics of Utopia

Today’s post is at Pajamas Media: The Dismal Economics of Utopia.


Pajamas Media

This is first is a short series. I thought it would be fun to show how the utopian ideas of income equality and the traditionally misused statistics of “household income” come together to create massive inequalities.

The point behind this series in logical economics is to show that ideas of equality are either horribly confused, purposely and hatefully vague, or impossible—not unlikely, impossible.

As I say,

Socialists and other utopians are usually content to let this definition float, and let its fuzziness work to their advantage. This sly trick puts realists on the defensive, who are ever nervous about making statements that might be judged hostile to equality.

See you on the tofu lines.

12 Comments

  1. No one but the dimmest idealist, or someone without options, wishes to do a difficult or dirty job without extra benefit. Even in a socialist economy with forced “income equality”, which we now see is impossible, there will be perquisites used in lieu of income to entice people into the necessary lines of work. The bureaucrats, who always feel underpaid and overworked, will use “public” resources for their own benefit. The bureaucrats become the new rich. Soon you have the old communist world again. The average people, those without perquisites, eventually learn to increase their income through theft, and the black market; or they lower their productivity to par with income by slacking and so forth.

    It is a hell of an economic model. When intelligent people propose it, they simply assume they will end up owning the public resources.

  2. Hi, Matt. Looks like one of my posts is in limbo again. Would you fetch it for me? Thanks.

  3. Briggs

    18 April 2010 at 11:54 am

    Kevin,

    Sorry about that; have no idea why your comments sliding to Spam box. None of the keywords I ban are in your list, for example.

    Maybe WordPress knows more about you than I do.

  4. Eh.

    I’m more interested in efficient allocation of resources, not perfect allocation of resources.

    The problem I have with both sides of the debate is that they’re not really characterized by a desire to efficiently allocate along some kind of Pareto efficiency, but in allocating resources to their constituents for the sake of constituency. It doesn’t matter if you lower taxes in and of itself. It matters if you lower taxes because the marginal tax rate is leading to decreased desire to work on the margin. In other words, is the taxation rate on the last dollar so high that it discourages work? I’m not convinced that it’s always the case.

    Both sides seem unwilling to address the fact that marginal tax rates and effective tax rates often mismatch a great deal. Look at Google’s 1Q2010 effective tax rate: around 22%. Is that too high? Too low? I’m not entirely sure, since I don’t know enough about the industry, the marginal net incomes of the industry, etc. to tell you. But I do know this: my effective income tax rate was a helluva lot higher than that, even on my 1099. Individuals in lower and middle income tax ranges simply cannot avail themselves of the tax shields that higher earners can.

    Quite frankly I don’t give a rat’s behind what percent of the total tax burden various quintiles are paying. I care about the effective tax burden on individuals relative to their purchasing power as measured on an inflation-adjusted yearly basis. Money shouldn’t by itself be the goal, either. It should be the utility that the money offers people that is the goal. Money by itself is meaningless unless it offers people purchasing power. But it’s so much easier to bitch about tax rates on the last dollar when you’re in the upper-middle class because at that point the marginal utility of the next dollar earned is so much lower when it’s weighted against basic needs.

    Unfortunately, reforming the tax code isn’t likely since it’s a supremely good situation for anyone with a CPA on hand… or a Big 4 retainer if you’re a big company.

  5. Congrats on Glenn Reynolds 2:37PM Instapundit.com referral, Matt. That should bump your hourly rate amongst the academics by at least $4.50.

  6. Briggs

    18 April 2010 at 8:04 pm

    49erDweet,

    I’ll invest it all in lottery tickets.

    Ari,

    Although exaggerated, the media often use household income to soap box how uncaring the “rich” are. Look for it next time you see incomes mentioned.

  7. Matt,

    I agree on both counts– household income, by itself, isn’t useful. It’s also used to show the same thing you mention.

    However, let’s be fair here: the media misuse all sorts of economic metrics, ranging from per capita income to bond spreads. How many times have I heard “Professor Copper” used on CNBC? Too damn many.

    The fact is, however, that household income is somewhat useful when used properly. Although, like per capita income, it doesn’t really tell us much. I love being told that people with my educational attainment earn, on average, $80K a year per capita. Really? Too bad it doesn’t tell me much about earnings in NY, in my age bracket, in my career…

    I dislike very broad economic measurements as a rule because they are easy to misuse and hard to understand. The media isn’t anti-rich as a rule– most press guys would love to earn what Anderson does– they’re pro-controversy. The golden rules is that if there’s no conflict, then there’s no story.

  8. Ari:

    “The golden rules is that if there’s no conflict, then there’s no story.

    Or golden rule #2; if there’s no conflict, invent one.

  9. Utopian models that assume equality also impose stasis – hence the overall ignoring of time in marxian economics. If you allow discretionary choices and discretionary effort on the part of individuals then you will rapidly recreate inequalities. Not allowing such choices and activities, demands huge curtailments of liberty and the imposition of coercive power.
    Any examination of small groups that may start with equal resources will find that inequalities based on the returns on foregone consumption, i.e., savings and investment, quickly appear. Immigrant groups, where they do not suffer from too much discrimination, are classic examples of this phenomena: Those with get and go, get up and go. They quickly outstrip local populations withing two generations. Even within families – differences in attitudes towards consumption and risk lead to large variations (or, if you must inequalities ) in resources within a single generation. Look at your own siblings or aunts and uncles.

  10. I’m with Bernie. My brother had every advantage in life (more than me even), yet he’s persistently done nothing but work in call centers for this or that company, constantly at the edge of losing his livelihood, while I sacrificed, went to college and am now a successful engineer.

    Right there we see in just one family and generation how inequalities can emerge. The real issue isn’t (or shouldn’t be) inequalities in society. We can’t help but have them. By birth, some are nearly incapable of doing more than the most menial work, while others are gifted with great physical or mental abilities. How can any system really fix that? Sure, we may be able to create a system where the system itself doesn’t introduce more inequalities, but that’s not what most Utopian ideals aim at.

  11. Ari’s “Quite Frankly” paragraph really drives home the entire point, and no one with an opposing view is willing to tackle it or even address it.

  12. John (and Ari):
    I didn’t comment because I am not sure I understand what Ari is trying to say. By and large, I believe that the issue of tax rates is not about the allocation of existing resources but the impact on future resources via its impact on individual motivation and expectations. If tax rates operate as disincentives to individual discretionary effort and creativity then economies go into downward spirals – you optimize at a lower level of possible ouputs. Pre-Thatcher Britain is an example of this tax model.
    Notions about the value of marginal $ IMHO are hugely over generalized since it dependes so much on what an individual’s return is on that marginal $ or the individual’s marginal utility. One could easily argue, for example, that the distribution of spending on such discretionary items as cigarettes, lottery tickets and alcohol are better indicators of the value of the marginal $ since it is actually tied to individual consumption patterns – hence the use of sin taxes which also supports the general notion of the impact of taxes on behavior. My recollection is that, given his spending habits, Warren Buffet’s marginal utility of a $ is likely higher than many who earn $50K per year! Under what logic is it therefore efficient to tax Warren Buffet more that the 25 year old who blows a goodly % of his or her income on $10 martinis?
    P.S. I do not smoke or gamble and buy my liquor in NH!

Comments are closed.

© 2014 William M. Briggs

Theme by Anders NorenUp ↑