I heart economists

We have a short economist arguing against a tax on height and a tall economist arguing for it. “Economic agents” maximize their own utility but economists don’t.

In any case, Mankiw’s paper is pretty interesting. The abstract:

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard utilitarian framework for tax policy analysis answers this question in the affirmative. This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities.
Alternatively, if policies such as a tax on height are rejected, then the standard utilitarian framework must in some way fail to capture our intuitive notions of distributive justice.

In a way, the controversy over the Stern report can be seen in the same light. If you believe, due to some ideas of cross-generation distributional justice, that we should do something about global warming but you believe our standard values of the discount rate are correct (i.e. 2%), then there must be something wrong with the standard utility models.

I don’t think its good enough to say “yep, the models are wrong… ignore the economists.” You have to come up with an alternative framework. Without a good alternative model, there isn’t a common ground for discussion. In this way, a model is just a mode of thought that we can use to think through an issue.

4 thoughts on “I heart economists”

  1. How is productivity measured among individuals in modern society, in the context of social class? Donald Trump is not wealthier than, say, a night nurse just because he’s been putting in lots of overtime at the factory.

  2. Productivity is usually measured as output (income) per hour worked or something like that. Social class doesn’t really play a part in that measure.

  3. Anecdotally (which I know only occasionally counts for empirical evidence), I get the sense that much demand for distributional justice doesn’t stem from simple jealousy. Simple jealousy is more like “Mom/God/Zeus/Fate gave you these gifts and not me. You need to spread those gifts around so that things are fair.” The sentiment I get is more along the lines of “You’re doing well because you are cheating us. Give some of that back or else.”

    It’s understandable, though. Markets reward results rather than hard work, but our culture strongly emphasizes hard work. I’ve noticed (more anecdotes, I know) that one’s treatment tends to scale with one’s pay. A minimum wage factory worker deals with relatively poor working conditions, harsh management, and their work is usually closely monitored. A mid level manager also has to produce results, but they generally have a great deal of personal freedom at work, and there is much more tolerance for failure. Is it any wonder that the factory worker might compare the manager’s life to their own and decide that the manager is somehow cheating?

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