I'll Bite My Nose...as long as it Spites my Neigbor's Face MORE than it Spites MINE.
That's what I take from a couple of articles written by social democrats that I've read over the weekend. The pronounced and unmistakable willingness of some to justify having less as long as long as the better off have EVEN less in relation to the worse off is indeed troubling to me. The mental gymnastics that I see these people put themselves through with the full knowledge and implications of their wishes known to them is indeed cause for pause. And at the same time, such rigorous mental exercises from these people ignore such fundamental caveats in their logic...caveats that they would surly consider if their agenda worked in reverse. I discovered the first article via Will Wilkinson . He links to and discusses an article by Lane Kenworthy on inequality. Reaction from Matt Yglesias is also linked. The Gist of Kenworthy's article: Reducing inequality requires more than just very progressive taxes. It needs heavy transfers of wealth. In fact, progressive taxes do little to reduce inequality with heavy transfers. But even the heaviest of progressive income taxes is not enough to fund these transfers. Basically, we need a consumption tax to generate the shortfall since we cannot get that money from simply overtaxing the wealthy. There simply aren't rich people to tax. He shows charts that compare the U.S. to other Western nations to demonstrate how transfers is the key and that takes a lot more money than a tax hike on the rich can produce. In short, we need a regressive consumption tax to fill the gap. It's what western european nations do and it fills the coffers with enough money to fulfill this aim of lowering inequality....other side-effects be damned. Says Will of Yglesias's commentary on the matter:
So Yglesias is right (though he doesn’t quite put it this way). Democratic strategists need to be looking at clever ways for the government to take a lot more money away from middle-class families without thereby making the GOP look golden again.
What a conundrum. The very people Kenworthy wants to help need to be the main target of these new taxes. But that's OK for Kenworthy....as long as it lowers inequality. Me, I think Kenworthy ignores the demographic make-up of most of his shining examples of equality. He ignores also the size of most of these nations. He also seems to ignore state and local taxes in his totals for the U.S. total. See here . The U.S. is more in the range 32-35%. In summary, I think Kenworthy is far too willing to hurt everyone in the name of inequality. Kenworthy should think about ways to get rid of government spending to make room for his grand spending ideas of lowering inequality...just as long as he doesn't complain about the problems of lower standards of living for the people who suddenly see the top of the pyramid a little closer to them. Yippie. Now what? Ezra Klein is next . Says Klein:
Robert Frank explains this well in his book Falling Behind: How Rising Inequality Harms the Middle Class, but a nice way to think about it is through housing: Would you rather live in a land where you had a 4,000-square-foot house and everyone else had a 6,000-square-foot house, or one in which you had a 3,000-square-foot house and everyone else had a 2,000-square-foot house? Given this choice, studies show that most respondents pick the latter. They'd rather have less home in absolute terms if it means more home in relative terms. That makes housing a positional good. Being concerned with one's relative position rather than one's absolute position is not irrational or merely motivated by envy. In order to retain your relative standard of living, you need to keep up with the purchases of others in your income bracket.
Funny, some people are vain. Thanks, Ezra. Besides, I question how scientific that finding is. Either way, should that be the basis of policy? Should it really matter? I think not. And yes, Ezra: It IS envy...plain and simple. Stop kidding yourself into whitewashing your emotions. Basically Erza and Robert Frank are saying people are justified in feeling this way and that tells that us that we should do something about inequality in goods. It's just "positional" after all. What good is a 4000 sq. ft. home when everyone's is 6000 sq. ft.?? 'Tis better to have a 3000 sq. ft. home and know that everyone else has a 2000 sq. ft. Really Rich, Ezra. So, I wonder what that says for the people in the 2000 sq. ft. homes. Hmmmm. I see another war. Brad at The Liberty Papers had some words for Ezra on this matter. After channeling some timeless Hayek and pointing out that YES...it is indeed envy, he applies that logic to taxes:
Well, let’s say I work for a living and make the median household income of $50,000/year. I work hard, and every paycheck I see money taken out of my paycheck for taxes — for the sake of argument, $10,000/year. My neighbor, on the other hand, is working very hard at a higher-paying job, making $100,000/year, but is paying the same flat tax rate of 20%, thus $20,000/year. If Ezra Klein is right about the rationality of positional goods, it makes perfect sense for me to be happy if my taxes are raised to $20,000/year (40%), as long as my neighbor’s taxes are raised to $50,000/year (50%). In what bizarro world should it be rational that I be happier to give up $10,000/year more to the government if I simply think that those making more that me are getting soaked even worse?
Hmmm. If Ezra's right, Lane Kenworthy has nothing to worry about in his pursuit for more equality via the decreased wealth of everyone. Everyone will like it as long as the better off get soaked even more. Is this what the goal is? Is this what we really want? For everyone to have less as long as the wealthiest have lose more than we do? That makes life better? How "liberal". Not.