Income, wealth, and redistribution

1. Russ Roberts writes,

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.

He is reacting to a tweet from Bernie Sanders saying that if we taxed $100 billion from Bill Gates we could do all these wonderful things. Roberts is saying that it is not the lack of $100 billion that keeps the government from ending homelessness and giving everyone in America safe drinking water. Apparently, government is unable to assign a high priority to solving those problems and/or the problems are too complex to be solved by throwing money at them.

The Roberts essay deals with a whole list of economic and philosophical concerns related to the issue of wealth taxation. But I think that the challenge is to change the frame of the debate from the intention heuristic to consequentialism.

The intention heuristic says that the intention of wealth taxation is to increase the fairness of society, and that settles the matter. Lately, I have come to think that arguing against the intention heuristic is like arguing against a brick wall.

2. In a debate with Donald Boudreaux, Branko Milanovic writes,

The figure below shows the share of the middle four deciles in total market income. (Market income includes all labor and property incomes, plus income from own businesses.) . . . it is 3 percentage points lower than in 1990.

The figure shows the share dropping from 32 percent in 1990 to 29 percent in 2020. Milanovic cleverly plots it on an axis where the minimum is 28 and the maximum is 36, which makes it look like a dramatic decline. If the range went from 0 to 100, the drop would barely show up.

24 thoughts on “Income, wealth, and redistribution

  1. I think all this “don’t deserve” or “left wing bell curve” is harmful.

    As Russ notes, all that really matters is that whether peoples lives are getting better. If you tax productivity, you get less of it. Nobody really seems to be making the case (effectively) that what you spend that tax on is more productive. So we are just left debating how much we want to stifle productivity out of spite (100%, 70%, 50%, etc).

    Does anyone really believe that where the OECD is today is stifling productivity too little? The Swedes turned away from more socialism decades ago. Productive people seem to flee when confiscatory taxation gets to high, and I don’t think progressives want to enforce strict labor and capital controls just so they can increase the tax rate.

    His recipe analogy basically sounds like the Null Hypothesis.

    Tyler Cowen says that in the grand scheme of things the only moral value that matters is long run economic growth. Hard to square that with “tax the productive into the ground”.

    • “I think all this ‘don’t deserve’ or ‘left wing bell curve’ is harmful.”

      It may well be harmful. But, there isn’t a left wing bell curve vs. right wing bell curve debate. Pretty much everyone that believes in the heritability of intelligence refers to it as a genetic lottery. You are a lone wolf pushing a very awkward theory that the parents somehow own their offspring’s intelligence.

      For example: here is Charles Murray himself in “Human Diversity”:

      “g HAS NOTHING TO DO WITH MERIT
      I deliberately avoid the word meritocracy to describe a society in which able people rise to the top, because the most important single ingredient, g, is a matter of luck. I’m willing to believe that people have some control over their industriousness, perseverance, resilience, and other personal qualities that have brought them success, even though those qualities are partly heritable. g is different. People can make a little or a lot of what they were given; maybe they can even tweak their IQs by a couple of points; but no one gets an IQ score of 130 by trying hard. Merit had nothing to do with it.”

      • Murray is playing word games because he has to, but we don’t need to pretend like we’re falling for it.

        He is trying a long-shot in which he hopes it might be possible to carve out a rhetorical space in which average group differences can be discussed and accepted by mature adults in a calm and reasonable fashion without provoking howls of outrage and condemnation. But it’s hopeless, and in such circumstances, one ought not to twist semantics which only muddies the waters even further.

        Michael Young coined the word and defined it in the way everyone has used it since, which is about absolute levels of talent and achievement, and thus has nothing to do with Murray’s attempt here to redefine it more narrowly as purely moral deserts based only on character and exertion of virtuous, free will efforts.

        A typical “order of merit” list is about results and outcomes, without correcting for innate potential. It’s absurd to argue that Olympic racing medals are not awarded in a meritocratic fashion simply because they go to the fastest, because the biological component of one’s capacity to run at world-class speeds has “nothing to do with merit”, and that, instead a truly merit-based system would operate on golf-handicap principles.

        • My contention: just because someone inherited trait X, doesn’t imply that he/she has earned that trait (in the way that merit implies).

          For example, is someone with Down’s syndrome or some other genetic disease said to have earned his/her lot? My intuition is no.

          So, you need a further normative argument to get to where you are trying to go. Are you going to use consequentialism, deontological ethics or something else?

          Lastly, I would take Murray’s comments on genetic lotteries at face value (vs. reading your stealth interpretation into them). After all, he was talking about UBI long before it was uber hip to do so.

          • Parents avoid having a kid with Down’s syndrome by making different live choices. If you take settling down and having children seriously then you are going to have your children when you are younger. Downs Syndrome is almost non-existent at lower ages, it’s primarily a problem for people who through their choices had children very late in life.

            While the child is not responsible for this, the parents are responsible for the choices that led to that situation. They could have made different (better) choices in most cases.

            With Down’s of course we have a solution of sorts, you can abort and have another kid. Which is what people overwhelmingly choose to do. Of course having another kid is hard if you’re already pushing 40.

      • Handle tackles the semantics of merit meaning “results” vs “free will”. I won’t play word games.

        Rewarding results gets results. Instead of asking questions about the fairness by which we all found our genes, best to just keep doing that which caused GDP/capita to go up 10,000%.

        If ‘g’ is important for such results, as The Bell Curve claims, we want more of it. It seems to me that one way to get more of it is to reward it more. Let people with more ‘g’ keep more of their productivity and give people with less ‘g’ fewer unearned handouts. Then you will likely get more ‘g’ in the long run, because the high ‘g’ people will have more kids who do more to realize the productive potential of their ‘g’. Murray says so in The Bell Curve, it’s literally one of his policy recommendations when he discusses cutting welfare to single mothers.

        Even view of ignorance utilitarians like John Rawls get it:

        “In the original position, then, the parties want to insure for their descendants the best genetic endowment (assuming their own to be fixed). The pursuit of reasonable policies in this regard is something that earlier generations owe to later ones, this being a question that arises between generations. Thus over time a society is to take steps at least to preserve the general level of natural abilities and to prevent the diffusion of serious defects. These measures are to be guided by principles that the parties would be willing to consent to for the sake of their successors.”

        Like Murray, he understands that being respectable means remaining silent on the issue.

        “I shall not consider questions of eugenics, confining myself throughout to the traditional concerns of social justice.”

        Which is fine if your goal is to get progressives to adopt slightly less insane policies that ignore genetics and you think tricking them into it is easier than a more direct confrontation. Whether that is the best tactic to achieve that end I can’t say, but let’s not confused rhetorical tactics with facts.

        As to parents earning their offsprings genes, that is obvious and I’ve elaborated before. You should thank your own ancestors for not taking your talk so seriously. You literally owe your ability to rationalize to them.

        • “As to parents earning their offsprings genes, that is obvious and I’ve elaborated before. You should thank your own ancestors for not taking your talk so seriously. You literally owe your ability to rationalize to them.”

          1) if it’s so obvious that the parents earn the genes of their offspring, then they ought to, at the very least, be able to charge a royalty for them.

          2) based on your analysis, I’m going to build a shrine to my ancestors for bequeathing my genes. How far back should I go?

          3) I have no quibbles with your consequentialist argument. If g (+ hard work…i know a lot of unproductive people with high g) is the primary ingredient in wealth creation, which I think we agree on, then it is foolhardy (to state in lightly) to provide disincentives for creating wealth. And yes, much lower rates of reproduction at the lower end would help solve a lot of societal problems.

          • 1) Parents do it for the love of their children. Sometimes the children return that love in various ways, and sometimes the parents feel satisfaction even if they don’t because they just like doing things for their offspring. I guess you could call the natural human impulse to parent the “royalty”. My kids smiled and laughed yesterday and it was worth more to me then what I gave up in time and money to make that happen.

            2) Ancestor worship is pretty common. A couple weeks ago I had a discussion with someone about ancestry.com and tracing back several generations. People also generally take pride in “their history”, so for instance someone who takes pride in their national, ethnic, etc legacy which is basically like taking pride in their “super extended family”.

            It also seems to me that a connection to future generations of “your people” plays a big role in increasing human accomplishment and long term wealth accumulation. People build wealth to bequeath it to the future, and if their future ends with them that severely limits their incentive to create wealth.

            Children are in fact that main wealth store people build up. In fact if nobody had kids wealth would drop to zero quickly.

            The fact that we aren’t making very many of them, especially at the high end, means we aren’t building nearly as much wealth as we seem to think.

            What would wealth creation statistics looked like if we counted genetic human capital? Much worse, especially in 1.0 TFR IQ shredder cultures of Asia where much of our genetic wealth is stored.

            I think the problem is largely cultural (high IQ conservatives in the West have replacement TFR, liberals and seculars terrible TFR), but I have no doubt we could improve what Steve Sailer calls “affordable family formation” in order to help with TFR.

            For instance, I’ve pointed out that “good schools” are worth about 150k/kid or more to most families (I used a very conservative estimate of cheap catholic school as the replacement value, though many UMC seem willing to pay 2-3x that for private school and many public schools spend more per pupil). So if we could provide everyone with “good schools” without requiring them to bid up scarce real estate to the point of erasing that value then we would provide a huge incentive to smart parents to have more kids.

            This could be done by reforming an eliminating public school, take your pick. It costs zero or perhaps saves money. This doesn’t have to be “cruel” to anyone. We just have to stop providing a bad product to people which they can’t opt out of.

            3) “hard work” itself appears to be highly correlated with ‘g’ and itself heritable. I don’t mean to belabor this point like some kind of refutation of free will, but its a depressingly connected package of heritable traits.

            There are unproductive people with high ‘g’, but I suspect there would be even more unproductive people with high ‘g’ if you taxed it or otherwise disincentivize it.

            Murray’s UBI is expense neutral because it radically decreases payments to single mothers and the elderly to provide higher benefits to everyone else. This is obvious, if the money stays the same someone has to lose so someone else can win. The question is why the losers would agree to it rather than fight it tooth and nail against a largely disinterested recipients (do abled bodied adult males really want UBI enough to take it from the old and single mothers).

            Murray also says that immigration policy should be based on IQ, and that if it isn’t we are likely going to turn into something like a South American country.

            How you could miss the eugenic policy proscriptions in the book I don’t know. They are just a more polite version of Steve Sailer, whom Murray has spoken positively about several times. The stuff about cutting welfare has a libertarian leaning, but the stuff on immigration obviously isn’t doctrinaire libertarian at all.

          • @asdf

            1) Sorry, not finding the “parent’s earned their kid’s genes” argument compelling at all. Actually, I find it kinda scary from an ethical perspective – it implies that the parents have a property right in their kids. The fact that the parents choose not to exercise that right doesn’t provide much re-assurance. In any event, there are far stronger (but not perfect) arguments that get to roughly the same answer without the verbal gymnastics involved. Here is an example:

            https://www.econlib.org/archives/2012/05/the_able_slave.html

            2) For lack of a better term, I would describe Murray as a “humane eugenicist.” So, the point of TBC is not lost on me. What is lost on me is your continued co-mingling of the heritability IQ (a positive claim) with a merit (a normative claim). It’s perfectly reasonable to believe in one and not the other.

            3) I think Murray’s version of UBI would be an unmitigated disaster. Call me elitist or paternalistic, but I don’t believe that the average person has the willpower or acumen to make wise financial decisions. As an example, check out the meager individual savings rate. Most people (including many with high incomes) are living paycheck-to-paycheck. To counter this, you are going to need a social safety net of pre-defined programs (income security, health care, etc) vs. a blank check to each citizen.

          • 1) It was a common practice until recently for social and even legal claims to be made on ones children. I’m aware of many laws in the ancient world that allowed a parent to sue a child for not supporting them in their old age, provided they had done their part in raising them.

            In the modern world this is replaced with social security/medicare (a claim of old people in general against the collective children of society). This decoupling of personal retirement income from personal child rearing is accompanied by, but is not necessarily the main driver of, lower fertility.

            This is a distraction from my main point, which isn’t about something like “ownership” of ones children. It’s about how the genes of your children are a result of your actions. Either through your natural fitness or your free choices you can secure better genes for your descendants (by getting a better mate, by ensuring your children thrive and can get better mates). In your Down’s syndrome case by having children younger.

            As to the Caplan link, isn’t the answer obvious. Harry (or his children) starve and this frees up more resources for Abel to have higher TFR. Each generation is full of more and more Abels, enabling higher productivity and a higher standard of living. According to Gregory Clark, this is exactly what happened to give us the modern world.

            We can get cute. Maybe Able gives up a little of his surplus to Harry so that Harry doesn’t try to kill him, but not so much that he doesn’t have higher TFR than Harry. Or maybe Able gives a fraction of the surplus needed to support Harry to one of the other islanders in exchange for that islander killing Harry if he tries to harm Able.

            Or maybe Able is generous but still has lots of surplus and has higher TFR than Harry anyway.

            The current answer seems to be that we tax Able to the point where Harry has higher TFR than Able does.

            The bottom line though is we want more Able’s and less Harrys in each generation, and “to each according to his need, from each according to his ability” isn’t going to produce that.

            2) “Merit” is results based. It cares not whether those results came from genetic endowment or free will. I think you want the definition of “merit” to be based solely on free will regardless of objective results. As I said, I don’t wish to play a word game.

            If someone tries really hard and still gets poor results, is that someone we want more of in the next generation. Seems like banging ones head into a brick wall.

            If someone doesn’t try hard at all and is still 100x more productive than someone who tries really hard, don’t we want more of the productive person. If Able only works two hours a day and produces enough feed to feed two people, and someone else works 16 hours a day and can barely feed himself (or worse), then clearly Able is superior to that person. He got superior results with fewer inputs. We would want our society to be composed of Ables, even relatively lazy Ables.

            3) We already know what UBI looks like. It looks like an Indian Reservation. It looks like “Player Piano.” Murray is trying his best to come up with a reform to a system where the working poor face 100% marginal tax rates.

          • You know that is a good way of phrasing the Caplan question.

            If Able wants to use his surplus to have another child, but they force him to give it to Harry instead, is the slavery not even more obvious and cruel.

          • @asdf

            Appreciate your replies. Helps me frame it in my own mind. Other than my higher IQ wife, I’ve got no one else to discuss this stuff with.

            “It looks like an Indian Reservation.”

            +1

        • “Murray says so in The Bell Curve, it’s literally one of his policy recommendations when he discusses cutting welfare to single mothers.”

          Please provide the quote. Pretty sure he didn’t say this.

          • Here you go…I stand corrected.

            “Of all the uncomfortable topics we have explored, a pair of the most uncomfortable ones are that a society with a higher mean IQ is also likely to be a society with fewer social ills and brighter economic prospects, and that the most efficient way to raise the IQ of a society is for smarter women to have higher birth rates than duller women. Instead, America is going in the opposite direction, and the implication is a future America with more social ills and gloomier economic prospects. These conclusions follow directly from the evidence we have presented at such length, and yet we have so far been silent on what to do about it.

            We are silent partly because we are as apprehensive as most other people about what might happen when a government decides to social-engineer who has babies and who doesn’t. We can imagine no recommendation for using the government to manipulate fertility that does not have dangers. But this highlights the problem: The United States already has policies that inadvertently social-engineer who has babies, and it is encouraging the wrong women. If the United States did as much to encourage high-IQ women to have babies as it now does to encourage low-IQ women, it would rightly be described as engaging in aggressive manipulation of fertility. The technically precise description of America’s fertility policy is that it subsidizes births among poor women, who are also dis-proportionately at the low end of the intelligence distribution. We urge generally that these policies, represented by the extensive network of cash and services for low-income women who have babies, be ended. The government should stop subsidizing births to anyone, rich or poor.”

  2. I find orthodox economists, left and right, are barking up the wrong trees.

    Sure, redistribute, but that’s is not going to work as long as…

    1.Property zoning suffocates new housing supply. As Kevin Erdmann of Mercatus Center has noted, this allows property-owners to extract all income gains from renters.

    2. Borders are de facto open for cheap labor. “American won’t do this kind of work.” So now, we no longer believe the price signal matches supply and demand.

    In short, a country with “labor shortages” and abundantly-supplied property markets is a happy country. Explain to the Fed that targeting 5% unemployment is a bad idea (though lately they seemed to have caught on).

    Should wage income ever be taxed? Interesting question. Taxes on wages are a tax on productive behavior.

    Probably better to tax property, fuels, vice, and imports. Eliminate the USDA, VA, HUD, Labor and Education, cut DoD in half.

    • Your assessment of #2 “So now, we no longer believe the price signal matches supply and demand” assumes that demand cannot rise. This is inherently false and not even George Borjas believes this. Clearly, the United States could triple in population over time without any decrease in employment; and indeed, it has tripled in population many times in the past. The 8% increase in Miami’s population of low-skilled workers within a year had a debatable and difficult to measure possible decrease in earnings for the very lowest income group only. So, don’t increase the population by 8% a year and/or don’t concentrate the increase all in the low-skill end of the employment spectrum.
      The economic argument against immigration makes about as much sense as “trade wars are good and easy to win.” The argument against immigration is cultural, which is legitimate but should be debated on its own merit.

      https://www.wsj.com/articles/the-great-mariel-boatlift-experiment-1497630468

  3. #1: Didn’t Bill Gates say in January that he believes in paying taxes? Why doesn’t he just volunteer that $100 billion? If the purpose is the same as his foundation’s goals, why not pay the IRS instead of a charitable donation to a tax-exempt organization?

    I know that’s not the point of the essay but it’s amusing that he says he believes in paying taxes, another person says he should be tax more, yet he doesn’t pay more.

  4. It’s clear to me that, if the welfare program imagineers truly wanted to solve the social and/or wealth inequality problems that they purport to, the programs that they create would include clearly stated goals, incremental objectives, and [accurate & honest] methods for measuring progress. …as well as timeframes for achieving same and automatic termination if a program fails to meet those objectives.

    But noooo. As Reagan said once upon a time, “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!”

    Government programs are not designed to solve problems: that’s only the “seen” justification. The “unseen,” unstated, intention is to create a permanent dependency on government for a dedicated employment cadre, and for a permanent clientele.

  5. Looking at the 2019 OECD stats on the homeless, the USA with 0.17% of the population homeless compares favorably to countries like Sweden (0.33%), Canada (0.36%) Germany (0.41%), France (0.22%), and New Zealand (0.94%). But the USA compares unfavorably to Japan (0.00), Mexico (0.04%), Hungary (0.1%), Poland (0.08%), and Brazil (0.05%). See table 3.1.1 at http://www.oecd.org/els/family/HC3-1-Homeless-population.pdf.

    The USA has higher government expenditures per capita (PPP) than Japan ( https://ourworldindata.org/government-spending ) so total government spending is not the issue. HUD alone has a $60 billion budget and that is only one of the federal direct spending programs on housing. The Departments of Defense and Veterans Affairs spend substantial sums on housing (as well as health and income security but that also get rolled up into Roberts’ $700 billion defense spending figure).

    That the federal government has a U. S. Interagency Council on Homelessness (USICH) within DHHS that “coordinates the Federal response to homelessness by partnering with 19 Federal agencies, state and local governments, advocates, service providers, and people experiencing homelessness to achieve the goals outlined in the first Federal strategic plan to prevent and end homelessness” suggests that homelessness may only get worse in the USA even with $100 billion more in federal spending.

    In Japan, alleviation of homelessness is primarily handled by private charities. And importantly as the OECD notes “Japan has lagged behind the deinstitutionalisation trend, and still has the highest number of psychiatric beds in the OECD, with 269 beds [per 100,000 population] compared to the OECD average of 68.“ And the situation is ameliorated somewhat by not having open borders and by prioritizing high skill immigration.

    True, Japan has more libertarian zoning laws set by the national government. But that has consequences as well. The value of the average Japanese house depreciates to zero in 22 years, whereas the median age of a house in the USA is 37 years.

    More subsidies for homelessness will likely only produce more homelessness. Before slashing defense spending to pay for it, Roberts might want to consider how much of that defense spending is for actual military purposes. He might also consider that USA military spending is not just to make us USA citizens feel safe but also the hundreds of millions of citizens of countries with which the USA has mutual defense treaties. I look forward to his plan for abrogating those treaties. Or perhaps consistent with his thought on trade, he is simply welcome to the idea of Chinese world domination.

  6. Re: changing the frame from intentions to consequences, the problem is that voters do not have effective feedback loops. Or rather, feedback loops are not connected to outcomes but to local social pressures.

    The solution is localism. It’s impossible to imagine an effective feedback loop between federal government actions and the average voter. Don’t vote in federal elections. Run for local office. Shame every donation to the two major parties.

    “The common and continual mischiefs of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it. There being constant danger of excess, the effort ought to be, by force of public opinion, to mitigate and assuage it.” -George Washington

  7. Arnold, you say “But I think that the challenge is to change the frame of the debate from the intention heuristic to consequentialism.”

    I assume you refer to the academic debate, one in which the parties attempt to persuade each other, and in particular to those focused on public policies. Yes, we can say that academic debates on public policies have been dominated by those that have a good excuse (= your intentional heuristic). Ex-ante or ex-post these people argue that whatever the cost of the public policy they support (or supported) the benefit is greater. They don’t care about the total cost and if pressured to take it into account they walk away. They want you to believe that the benefits are large enough to overcome any cost (indeed, inflating benefits is much easier when they are defined in terms of social justice or similar, see Wikipedia). And please don’t try to add insult to injury by asking them about rent-seeking.

    Indeed, the normative analysis of both Public Economics and Macroeconomics research ignores how much “good-excuses” and “rent-seeking” usually pervades public policy. As you know, in the past 50 years many universities added graduate programs in public policy, some related to Econ Departments but many independent (the latter with the good-excuse that good policy requires interdisciplinary work). I think these graduate programs also rely on normative analysis that ignores “good-excuses” and “rent-seeking”.

    And then we have “Public Choice” programs that were supposed to trigger positive analysis of public policy taking into account both “good-excuses” and “rent-seeking”. Over 40 years ago, when Buchanan and Tullock’s Center was at its peak, I spent time there with the expectation that their work will lead to a drastic change. I wonder why Pubic Choice has failed.

  8. “Just a bit more money” to solve the world’s problems is an old story. A few years ago, I read a book called “The Two Percent Solution”, arguing that just 2% more tax would do it. His thesis was, forget about the money that is already being spent, it is hopelessly entangled with party politics, republicans and whatnot. All he needed was to be King for a day, and cut through all this red tape and obstructionism.

  9. Roberts’s point is spot on: if the government could end homelessness and provide clean water to everyone by redirecting the least valuable, most wasteful 2.3% of spending (100B out of 4.4T) yet hasn’t done so, then either (1) homelessness and clean water are lower priority than 97.7% of other government priorities or (2) the government is incompetent.

    But, there’s another corollary here: when considering whether to raise taxes, it’s incorrect to consider the value of the best use of those tax dollars, e.g., homelessness and clean water. That’s not the *marginal* spending enabled by those marginal tax dollars. The marginal spending enabled by 100B of new taxes are the *most wasteful, least valuable* 100B of government spending. By definition, marginal spending is the *lowest priority* spending. So, rather than ask, “Should we raise taxes to end homelessness?” we should ask, “Should we raise taxes to pay for items that are even lower priority than our current lowest priority spending?”

  10. Taxation aimed at wealth levelling is just a vote getter amongst the majority. It doesn’t really have a positive economic effect for them apart from making them feel that they are getting back at the rich minority.
    Any positive economic effect is offset by the reduced productivity from people who are driving the economy and providing the mass produced items and services everyone wants.
    Fine someone for doing something you don’t want them to, such as driving badly, and fewer people do it.
    Tax someone for doing something you do want them to do, such as produce smart telephones, and don’t be surprised if they produce less of them.

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