Do I Deserve What I Have? Part III

“doesn’t the logic of part I — the acceptance that my standard of living is in some fundamental way unearned — justify what I will call Gentle Socialism — a dramatically larger redistributive effort than what we currently have in America? Shouldn’t the top rate of income tax be at least 70%? Isn’t a wealth tax of 2% or more, a good idea? Shouldn’t we consider a maximum level of income, say $1 million or maybe $10 million and have a tax rate of 100% of everything above that cap? Any of these proposals would go beyond Sweden say, and take us closer to something more egalitarian.”

“Some people seem to confuse material well-being with money. If you’re not careful, you might come to think that there’s a fixed amount of money in the world and the rich have a disproportionate share of it. Justice means simply reorganizing who has that money. This is the world of zero-sum economics. It is not the real world or at least not the one with real-world consequences.”

“While wealthy people may have a fairly large amount of cash on hand, most of their wealth is usually in the form of assets. Wealth is a result of investment in assets, the result of people spending less than they receive in income and the using the difference to buy shares of companies or to lend out money in return for interest. Those investments create capital — it’s what fuels innovation. Capital assets are expected to yield benefits in the future. So an investor is giving up consumption today for more consumption tomorrow — the return or their foregoing of consumption.
Capital makes workers more productive. Innovation makes our lives better. Not just the people who funded the innovations who often earn large returns for taking risks, but the people who enjoy the products and the workers who use the machines that make those workers more productive. If everyone has no more than an ox and a plow and has to farm to stay alive, no one is rich. And every once in a while, the rains don’t come and some people starve. Investment and innovation lets a lot of people get rich. Once someone invents a grain combine and the other tools of modern farming, you get a lot more food, the price of food is a lot lower, not everyone has to be a farmer and the person who invented the grain combine has enough money to fund some new companies that can find new ways to make people more productive.

If you start taxing wealth and if you tax income at really high rates, you’re probably going to get less of it. But it’s not just that the super-rich will have to share their money with the rest of us. They’re going to save and invest less because the tax system is going to take some of the gains away. If that happens, it won’t just hurt the rich. It will hurt people who benefit from the savings and investment that rich people make in making the rest of us more productive.”

“I would suggest that the world would be a better place if we spent more time as economists looking for ways to allow the poor the chance to flourish and to lead lives of dignity and agency rather than trying to measure the gap between rich and poor and proposing ways to close that gap with money.”

“Is $100 billion all that stands between ending homelessness and giving everyone in America clean water? If that’s true, what a brutal indictment of our government’s ability to solve problems. In 2019, according to the Congressional Budget Office, the federal government spent $4.4 trillion. If only taxes had been set high enough to raise $4.5 trillion! Then we could have cured homelessness and provided everyone with clean water.”

In fact, taxes weren’t really the problem at all. In 2019, the federal government collected $3.5 trillion running a deficit of $900 billion. Sanders’s claim is that an increase in the 2019 deficit of a mere 10% could have ended homelessness and provided everyone with clean water.

What should we conclude? One possibility is that homelessness cannot be solved by spending more money. I think this is true. I also think that the other “socialist” solutions on the table lately like free college, free universal health care, free child-care and so on would not be particularly effective in solving the problems they are meant to solve. The government doesn’t have the best track record of spending money effectively.

But the other reason that we don’t “solve” the problem of homelessness is that the political system responds to political power. Homelessness just isn’t at the top of most politician’s to-do lists.

Of that $4.4 trillion worth of federal spending in 2019, about $700 billion went to defense spending. Would the nation have been unsafe if spending had been a mere $600 billion? The $4.4 trillion the government spent included subsidies to wealthy farmers, subsidies to the education of wealthy individuals attending college via federal student loan programs. It also included Social Security and Medicare payments to individuals many times about the poverty line.

In other words, even though I do not deserve what I have, it is far from clear that increasing the size of government revenue by raising tax rates dramatically will lead to a better world even if I thought giving poor people money would improve their lives. We are likely to get a bunch of other stuff that we will not particularly like.”

Do I Deserve What I Have? Part II

“I realize that the case of pure socialism is something of a straw man. In the next part of this series I’ll look at the case for simply more redistribution than we have now. But a look at pure socialism on both practical and what I would call spiritual grounds is still illuminating.”

“GDP in the US is currently about $21 trillion. There are about 250 million Americans over the age of 18. So that’s about $84,000 per adult. How about a system that gives $84,000 to every adult over the age of 18? Earn above $84,000 and you pay a tax of 100%. Earn less than $84,000 and you get a check to make up the difference. Bianca and I would be on the same footing. Bianca currently makes something on the order of $30–40,000. Pure socialism would roughly double her standard of living.”

“Full equality simply wouldn’t work very well. If you earn $80,000 you’d get a check for $4,000. If you earn $14,000 (roughly the Federal minimum wage for full-time work) you’d get a check for $70,000. And if you don’t work at all, you’d get a check for $84,000. Some people love what they do or feel some kind of calling to their work and those people might keep doing what they’re doing. But some people will stop working and enjoy the same consumption as someone working two or three jobs to make $50,000.
A policy that equalizes income at $84,000 isn’t a safety net. It’s a safety hammock. Some people would choose to relax in it.”

“GDP isn’t going to stay at $21 trillion. Even if everyone currently earning less than $84,000 stopped working entirely, GDP wouldn’t fall by half because the top half of the income distribution produces more than half of the output. But GDP would almost certainly fall.”

“people currently earning more than $84,000 would work a lot less as well, knowing that any income over $84,000 would go to someone else. So the standard of living wouldn’t be sustainable at $84,000. It would be something less and whatever that lower number is, it probably wouldn’t grow much over time — the incentive to invest and innovate would be smaller. Not a zero rate of growth — as before, money isn’t the only motivator. A lot of people would still try to create new things. But presumably the growth rate would fall fairly dramatically.”

“If everyone earns the same amount after tax, you don’t care what your market wage is. So wages won’t motivate you to do something unpleasant or something that takes skills that can only be acquired over a long period of time. Why would anyone want to wash dishes or cut lawns on hot days or work at a garbage dump? Or do anything that is dangerous? Better to stay home and collect your check”

“The fact that basketball actually pays more than ballet is not irrelevant. The dramatically higher salary of an NBA star relative to ballet is telling Lebron that he is much more valuable as a basketball player than a ballet dancer. That dramatically higher salary is telling Lebron that a lot more people are willing to pay a lot more money to see him dance with a basketball than to dance with a ballerina.
The money is telling him something. It’s not telling him he has to be a basketball player. But it tells him something about what it costs him to be a ballet dancer. It’s pushing him toward basketball.

That’s what salaries do in a market economy. They send us signals. The signals are sometimes distorted — they can ignore costs and push us to do something tawdry but financially pleasant. They can understate what the full impact of something is. Hard as it is to believe, many people are able to enjoy Lebron James without buying tickets to Lakers games or buying his jersey or watching him on television. You can actually make the case he’s underpaid. But ignore that. The point is that salaries and prices more generally are imperfect. But they’re not irrelevant.

When you go to a world of complete equality, salaries play no role in assigning people to tasks. That task has to be performed by some other mechanism, usually the State, which means that a bunch of people with little or no skin in the game have the job of figuring out who should do what. That isn’t going to turn out very well. It certainly didn’t work well in the Soviet Union where the workers in the workers’ paradise had an informal motto: we pretend to work and they pretend to pay us.

So pure socialism doesn’t work very well in the sense that I don’t think Bianca would be better off in that world in the sense of material well-being. This is essentially Rawls’s criterion for redistribution — we should maximize the well-being of the poorest member of society. Bianca’s not the poorest but the point is similar. I think Bianca would have a lower standard of living and her children would have less of a chance to flourish — the world would be a more static place. And by a lower standard of living, I don’t mean just a little lower. Without incentives and the informational content of wages, we couldn’t achieve anything like a modern standard of living for 330 million people. We’d be much much poorer in material ways with consequences for non-material aspects of our life like health.”

Do I Deserve What I Have? Part I

“Later I got to thinking. Is there anything just or fair about the differences between Bianca and me, between her son and my children? And the answer is, of course not. I don’t deserve the comfortable life I have relative to hers. Oh, I can fool myself and talk about the time and effort it took to attend graduate school, but as I outlined above, there was so much luck in all of that.

I can cook up a story that makes the differences between Bianca and me seem more fair than they are, the kind of story economists tell about why some jobs pay a little and some pay a lot. Those stories are true, I think, as far as they go. My skills are much more valuable than Bianca’s. A lot of people can shine shoes. Not as many people can learn enough economics to explain it to people and help them understand it. The demand to understand economics is much greater than the demand for shined shoes. I have a lot more human capital. I have a Ph.D while Bianca probably didn’t finish college. She may not have finished high school.

All of that is true. All of that explains my higher standard of living. But it doesn’t justify that higher standard of living. She may be a much better person than I am, a better mother than I am a father, a better spouse than I am. I don’t know. But it is strange that because of the luck I describe above, I earn a lot more than Bianca.

All of which is to say that there is a case to be made for taking a lot of the money I earn and giving it to Bianca. A $10 tip is nice, but it’s a drop in the bucket of what it takes to even the score or get close to making our life experiences a little more equal. Of course the federal and state and local governments already takes a lot more money from me than they take from Bianca. And it probably gives a chunk to her. She may be getting the earned income tax credit. Her son probably goes to a public school while my children didn’t. Maybe she is on Medicaid. Maybe she gets food stamps. But surely you can make a case that the government should take a lot more from me than it currently does from people like me who have relatively easy lives and give it to Bianca and those in a situation similar to hers.

So what’s wrong with that?

“What’s wrong with real socialism? Given the injustice or at least non-justice of the current state of the world, why not strive for something dramatically more redistributive? Why not take the justice argument seriously?

I’ll give that a shot in Part II of this essay.”

Ending a Life That Has Not Begun—Abortion in the Bible

“Choosing to ban abortion in cases where rape caused pregnancy would be difficult to argue as biblically supported, as the Book of Numbers prescribes a potion that should cause sterility and perhaps even abortion as the enforced consequence of infidelity. As a result, it is hard to argue that the Bible always speaks out against abortion.”

“All in all, the Bible does not speak as clearly about abortion as some politicians might wish. Where it does speak about pregnancy and abortion, the God-given character of human life is an important point of departure. On the one hand, there are passages that state how God has plans for some special human beings, his prophets, already during their stay in their mother’s womb. This implies that already at that stage God had selected them as the persons they would become. On the other hand, some passages indicate that human life was only thought to begin either at the moment the fetus was fully developed or even up to a month after the baby’s birth. It is therefore difficult to refer to anything like “the Bible’s teaching on abortion.” The Bible contains a diverse collection of views on the origin of human life. Any attempt to base a political strategy on the Bible should always indicate, for honesty’s sake, that such a “biblical view” is based on a conscious choice of passages and interpretations by each individual speaker.”