Relevant and even prescient commentary on news, politics and the economy.

Rawls Part III: Progressive Taxation and Tradeoffs Between the Minimum, Mean, and Maximum Levels of Income(long)

Part I here, Part II here; a brief post on Rawls here.

Both Bailey and Alterman referenced Rawls to justify redistribution, and Rawls himself was strongly in favor of redistributing income (“Social and economic inequalities…[must be] to the greatest benefit of the least advantaged members of society”). But this is a fairly extreme position; it rejects any policy that makes most people better off while making some at the bottom a little bit worse off. Earlier, I said this entails “an extremely high degree of risk-aversion”. Why? Suppose you are in the Original Position, designing the structure of society and its rules, but not knowing where you will be born into the world. Consider a simplified example, with two possible states of the world (holding all else equal; e.g., prices, choices of goods, freedoms,…):

System A: 10% of the population makes $10,000/year and 60% make $40,000/year, and 30% make $100,000/year.

System B: 10% of the population make $9000/year and 90% make $90,000/year.

Rawls’ take implies that you are only concerned about what happens to you if you land in the “least-advantaged” sector of society (no amount of increased benefit if you get lucky can outweigh the decreased benefit in the bad state), so System A is clearly preferable. But many people, liberals included, would argue that System B is better. For example, they might point out that in System A, average income is $56,000 while in System B it is $81,000.

If you prefer B, does that imply that you are really saying that the goal of economic policy should be to maximize average income? (Note: maximizing average income is equivalent to maximizing total income, meaning that any set of policies that does one necessarily does the other). This latter view was first formally decribed by John Stuart Mill’s mentor, Jeremy Bentham (e.g., Of the Principle of Utility) and was also advocated by one of Rawls’ contemporaries, John Harsanyi (who shared the 1994 Nobel Prize in Economics in 1994 with John Nash and Reinhard Selton). But to evaluate the idea of maximizing average (or total) income, consider System C:

System C: 95% make $10,000 and 5% make $5 million

In System C, average income is $259,500 but most people reject C in favor of B–the reward is not worth the risk even though the expected income is higher in System C (ex-post, the fortunate 5% might argue strongly that System C is very just).

So can anything definitive be said about the ideal, or just, tradeoff between the degree of risk and inequality in society and the average level of income? Some political scientists and economists have tried, using experiments and surveys, and the results are consistently in favor of redistributing income, but never to the extent that Rawls advocated.

In 1992, Political Scientists Norman Frohlich and Joe Oppenheimer published a book(see a review here), Choosing Justice: An Experimental Approach to Ethical Theory, that included the results of a series of experiments. They took groups of five undergraduates and explained Rawls’ maxi-min principle (maximize the well-being of the least well off) and Harsanyi’s utilitarian principle (maximize the average level of well-being), and also described two in-between rules that involved reducing the average in exchange for increasing the minimum possible income. They then asked the students to design rules for how to divvy up society’s income. The experiments were set-up so that the students’ could only increase the minimum payoffs by also decreasing the average. After they designed rules, each group member randomly drew their place in society according to the rules they designed while behind the veil, and actual cash was paid out accordingly. The experiments were akin to presenting systems like the ones I described earlier and saying pick the one you like best, we’ll randomly draw your place in that system, and pay you according to where you land.

83 groups were told that they had to unanimously agree on a system, and all were able to do so (this is important, as it shows that the Veil is a useful construct–people actually can agree on a set of rules). But of those 83 groups, only 10 chose Harsanyi’s rule of maximizing average payoffs, and just 1 chose Rawls’ to maximize the lowest payoff they could receive. The other 72 groups all were willing to accept a reduction of their lowest possible payoff in exchange for an increase in the average payoff, but not to the extent of maximizing the minimum possible income level.

A similar study (see Table 1, p. 7) using students from India found similar results-the students were consistently willing to accept reductions in both the maximum income and the average income in exchange for increases in the floor income, though not nearly to the degree Rawls argued. Here is a subset of their results:


(In Rupees) Minimum Income Average Income Maximum Income Percent
Preferring B
System A 3,000 35,333 100,000
System B1 10,000 35,333 86,000 96%
System B2 4,250 15,016 36,550 33%


So, comparing B1 to A, all but 4% of those surveyed were, holding the mean constant, willing to reduce the maximum payout by 14,000 in exchange for increasing the minimum payout by 7,000. That is, they favor a society that redistributes income downward. But only one third of the same students thought that B2 was preferable to A–for the remaining two thirds, increasing the floor by 1,250 was not worth reducing the mean and the maximum by more than 50%. Johansson-Stenman, Carlsson, and Daruvala (Economic Journal, April 2002, Vol. 112 Issue 479, p384) found similar results using European students.

What does this all mean? Appealing to Rawls and the Veil of Ignorance as a justification for progressive taxation (as opposed to either flat or regressive) is on balance valid, in the sense that real people when asked to make decisions from behind a pseudo-veil prefer increasing the minimum even when it entails some reduction in the average and maximum levels of income. But that only addresses the question of whether taxes should be progressive at all, not the question of how progressive they should be.

The data do exist to do a more directly relevant experiment. We could assemble statistics on the income distribution (minimum, percentiles, mean, and maximum) for various countries (the OECD has such data) and then replicate these studies, but to my knowledge this has not been done. Could economists use surveys like this to evaluate specific policy proposals, like the President’s latest tax package? Sure, just as soon as they find a way to agree on the distributional impacts of various proposals (meaning don’t hold your breath).

AB

P.S. While he was in favor of redistribution in general, Rawls was not politically active and did not advocate using his logic to evaluate specific policy proposals. Matthew Yglesias, who went to Rawls’ memorial service, recounts the words of Rawls’ colleague, Tim Scanlon [Matt's words]: “Scanlon then noted that perhaps times were changing and mentioned the Rawls reference on last night’s West Wing. Then he got all professorial and noted that the veil of ignorance is not supposed to be applied to political issues in isolation, but rather to the basic structure of society as a whole. The tax system is, of course, part of the basic structure, but he cautioned against looking at it in isolation from the rest.”

P.P.S. Thanks to Kevin Drum for helping me get rid of the big open space.

Comments (0) | |

I Can’t Believe I’m Pro-War Group Shrinking

Talking Points Memo: “At this point, we have truly the worst case scenario on the international stage. And I think the those costs now outweigh those gains.”

CalPundit: “I still believe strongly that we need a tough-minded long-term policy aimed at eradicating terrorism and modernizing the Arab world (among others) — and that this policy should include the use of force where necessary — but not this time. This is the gang that couldn’t shoot straight.”

Sean-Paul (The Agonist): “I’ve had enough as well. I was going to make that argument about credibility, you know–the worst argument ever– but after one too many lies folks, it’s simple enough to say this: Mr. President, I am opposed.”

But Matthew Yglesias remains undaunted: “For what it’s worth, I’m not quite sure what the point in flip-flopping at this point would be.”

And of course, ETL New Republic remains true to the cause, so to speak.

I think the liberal war-supporters were pro-war because they believed that the Iraqi people are suffering (they are, but the world is full of evil dictators), that Saddam makes the region less stable (probably, but so might war, and so does the Palestinian-Israeli situation), and that there was some legitimate risk that to the extent that he has WMD, he might sell or give them to those who would use them, either in Israel, Europe, or North America (the thing that scares me).

But I think it’s important to look at how a war gets started, not just why. As evil as Saddam H. is, when a campaign of lies–from the plagiarized report to the fraudulent Iraq-Niger documents–is used to drum up support for the war, and all it yields are the U.S., Britain, Spain, and Bulgaria in the pro-war column, it’s just not plausible that there’s grounds for war there. Did I mention selling out the Kurds, spying on our allies and threatening Mexico? And there’s no intellectual consistency on the pro-war side, by which I mean that under every metric, North Korea is a bigger threat (But attacking North Korea doesn’t count as revenge on Muslims, which is what I think this war is really about for many on the Right).

Understand, there’s no compelling evidence available to the public (or apparently outside of the governments of the US and Britain) that Saddam poses and immediate threat to his neighbors or to the West. So we’re talking about, at best, misinformation being used to justify a war against a nation that is not invading any country, and in the process we are straining alliances that have held strong for over 50 years. Starting a war in this way is a huge precedent, and an unwise one.

AB

Update. (Via Atrios) NYT now antiwar (excepting UN, perhaps NATO approval, or even just France and Germany–the wording is vague):”If it comes down to a question of yes or no to invasion without broad international support, our answer is no.”

Comments (0) | |

When Competition Goes Bad

Competition is generally a great thing. It explains why cell phone and long distance prices plummetted over the last 20 years (competition and technology), while local prices remained fairly flat (lack of competition). But for some reason, competition makes the mass media worse. Consider the antics on CNN in the post-Fox era (competition); contrast that to the BBC and NPR (little direct competition).

For those who aren’t already reading him, Bob Somerby’s Daily Howler is a must read. This week he’s (incomparably) been reviewing the coverage of Gore during the 2000 campaign, with a particular focus on the Naomi Wolf “scandal”. As Somerby recounts, a slew of articles came out on Gore and “earth-tones”, all sourcing Time magazine (a Washington Post story with a quote from Dick Morris speculating is the actual source):

…Time had said nothing about earth tones. The next day, Maureen Dowd also misstated the point, writing that “Time magazine revealed that Al Gore hired Ms. Wolf…to help him with everything from his shift to earth tones to his efforts to break with Bill Clinton.” Clarence Page asserted the bogus fact too, in his syndicated Chicago Tribune column. “It was Wolf, Time reported, who persuaded the president to wear more ‘earth tones,’” Page erroneously said. Indeed, Morris went down the memory hole as journalists ran with the “earth tones” report. According to a NEXIS search, no one ever cited Morris as the source of the pleasing claim, while a wide range of writers falsely attributed the story to Time. Meanwhile, many scribes found an all-purpose way to avoid citing Morris’ “speculation.” They said that Wolf “reportedly” told Gore to wear earth tones, using an all-purpose word that lets a writer repeat any tale that has ever been said.

Amazing, they all referenced a fact that didn’t exist! It could be accidental, but it sure seems opportunistic. Dick Morris was and is an aspiring pundit and is not a big fan of Clinton/Gore and so is not a credible source; Time, on the other hand, is credible. Sure it was a trivial issue, but do you think the pundits are less sloppy on other issues? I guess you can’t believe something is true just because all the pundits are saying it. While it might in fact be true, it could just as easily be that pundits are lazy and find it easier to simply parrot each other. But where are the editors and fact-checkers?

AB

P.S. Try it yourself:

(1) Search Time (1/1/99-12/31/00) archives for “Naomi+Wolf”

(2) Search Time (1/1/99-12/31/00) archives for “Naomi+Wolf+Earth”

Note that the one hit from the second result is in the “Letters” section–I don’t have archive access, but this almost surely means that one letter referred to the Naomi Wolf story (that never mentioned earth tones) and some other letter mentioned the earth. Importantly, you can clearly tell that the word “earth” is not in the “Gore’s Secret Guru” story.

Comments (0) | |

Hey, Angry Bear, weren’t you blogging about Rawls?

Yes, I was, first here and then here, and there is more to come.

In the meantime, Matthew Yglesias has some thoughts on the issue:

I don’t think that’s really the best way to think about the issue [AB note: here, Matt is referring to my claim that "The open question is whether people behind the Veil of Ignorance really would choose to structure society in a way to maximize the minimum of well-being"]. It’s better to see that the purpose of the original position is to provide a formal model for a conclusion reached on independent normative grounds. In other words, Rawls sets up the original position the way he does because he thinks it leads to the conclusions he favors, and not the other way around.

I agree that Rawls likely had his Principles of Justice in mind first (it may well be documented in some of his writings), and then searched for a theory to justify them–a search that lead to the Veil of Ignorance/Original position argument. If this sounds backwards, it is–from a scientific method perspective. However, Philosophy is expressly normative, not positive, so this is not a weakness in Rawls’ approach.

In any event, if you are trying to use Rawls’ Veil of Ignorance to make a point, as Will Bailey and Eric Alterman recently did, I think you would start with the Veil and then try to get to the conclusion, in a Socratic fashion, not the other way around.

Matt’s site allows comments (something I should add someday), and his readers have interesting things to say. For example, a reader going by the name Ogged says “Not to put too fine a point on it, but you’re right, Bear’s wrong”, while an anonymous commenter says “Original postion deliberation doesn’t obviously lead to either Minimax *or* equal considerations of liberties. Why shouldn’t I be willing to swap unequal liberty (given some minimum: I’m not a slave, etc.) for a chance at more money?” This second commenter is making a statement about preferences and risk aversion, which I’ll talk about in my next (and final?) post on Rawls.

AB

Comments (0) | |

More Mankiw from MaxSpeaks

Max Sawicky finds two more nuggets in Prof. Mankiw’s books. Apparently, deficits do affect interest rates and the corporate income tax only hurts workers and customers of taxed corpotations, not the owners.

I agree with Mankiw on the former point; we’ll see if he changes his tune as part of his new job. As to the latter point, Mankiw only gets it partly right–when corporate income is taxed, the incidence is shared among all interested parties: shareholders/owners (who get less take home profits), workers (less are hired, wages may be lower), and customers (may pay higher prices and/or have fewer firms to choose from). I say Mankiw is partly right because, while a corporate income tax seems like it would only hurt the owners of a company, it also (but not only, as Mankiw’s quote insinuates) affects workers and customers.

AB

Comments (0) | |

Miscellaneous

Charges (wisely) Dropped

&C, even the liberal New Republic’s blog, has a pretty good roundup on the buzz surrounding Osama and reasongs why is Bush unexpectedly giving a press conference tonight at 8:00.

Alan Kreuger writes on the ballooning federal deficit. Items of note include Goldman, Sachs raising its estimate of the deficit for the current year to $375b (without including the war, and $75b higher than last OMB numbers I’ve seen)…”This dire predicament inspired the Committee for Economic Development, a nonpartisan business organization, to issue a report yesterday calling urgently for tax increases and spending cuts to put the government’s fiscal house in order. Unless corrective action is taken, the group warned, investment, productivity and living standards will suffer.”…”Although the group’s recommendation of higher taxes is unlikely to be popular, past experience with deficits suggests that tax increases are virtually inevitable before the decade is out. Even Ronald Reagan ended up raising taxes to try to make up for the big shortfall from the 1981 cuts.”

Wednesday is (well, was) Cartoon Day at Alas, a Blog.

AB

Comments (0) | |

This is A Big Deal

Here’s the joint French, German, and Russian statement:

ARIS, March 5 — Following is the text of a joint statement by Foreign Ministers Dominique de Villepin of France, Ivan S. Ivanov of Russia and Joschka Fischer of Germany, as translated by the French Foreign Ministry:

Our common objective remains the full and effective disarmament of Iraq, in compliance with Resolution 1441.

We consider that this objective can be achieved by the peaceful means of the inspections.

We moreover observe that these inspections are producing increasingly encouraging results:

The destruction of the Al Samoud missiles has started and is making progress.

Iraqis are providing biological and chemical information.

The interviews with Iraqi scientists are continuing.

Russia, Germany and France resolutely support Messrs. Blix and ElBaradei and consider the meeting of the Council on March 7 to be an important step in the process put in place.

We firmly call for the Iraqi authorities to cooperate more actively with the inspectors to fully disarm their country. These inspections cannot continue indefinitely.

We consequently ask that the inspections now be speeded up, in keeping with the proposals put forward in the memorandum submitted to the Security Council by our three countries. We must:
Specify and prioritize the remaining issues, program by program.

Establish, for each point, detailed time lines.

Using this method, the inspectors have to present without any delay their work program accompanied by regular progress reports to the Security Council. This program could provide for a meeting clause to enable the Council to evaluate the overall results of this process.

In these circumstances, we will not let a proposed resolution pass that would authorize the use of force.

Russia and France, as permanent members of the Security Council, will assume all their responsibilities on this point.

We are at a turning point. Since our goal is the peaceful and full disarmament of Iraq, we have today the chance to obtain through peaceful means a comprehensive settlement for the Middle East, starting with a move forward in the peace process, by:

Publishing and implementing the road map;

Putting together a general framework for the Middle East, based on stability and security, renunciation of force, arms control and trust building measures.

I’m “Ambivalent, but on Balance Against, Bear” on a war against Iraq. The main risk–at least the plausible main risk–that Saddam poses is the chance that he will sell or give whatever technologies of mass destruction that he posesses to those who could bring them into the US or other regions that might ignite his ire. To date, however, there is no credible public information that Saddam has either the ability or inclination to do so. Thus, a rush to war seems substaintially premature. What I find wrong with the war concept is that whatever evidence exists, and I’m sure there’s much that is not public, is not convincing to any of our NATO allies except Britain. On the other hand, Tony Blair, at great personal political risk, is on board–and on every other issue he’s more Clintonesque than Reaganesque.

So we’re in the position where those with much to lose by supporting the President’s plan (Blair has much to lose) do support Bush, while those with much to lose (France, Germany, Russia) by opposing the war do, nevertheless, oppose the war. But, if in doubt, don’t start a war seems like a reasonable proposition, particularly when starting the war jeapordizes NATO alliances.

AB

And what about North Korea?

Comments (0) | |

Another Update

In an update of his own, Instapundit references an article by a former student, Jennifer Niles Coffin, that discusses the mall free speech issue in great detail. For example,

There is no consistent rationale behind the decisions that grant free speech protections to the visitors of shopping malls. The Colorado Supreme Court found sufficient entanglement with the government to support a finding of state action. The Oregon court based its decision on the initiative and referendum powers reserved to Oregon citizens in the state constitution. The California and New Jersey courts balanced the property rights of mall owners against the free speech protections of the state constitution and held that the right of citizens to engage in free expression outweighed the property interest of the mall owners. Both courts dispensed with the traditional state action requirement in that context. The New Jersey court also noted the “affirmative right” granted by the free speech provision of the New Jersey Constitution. Interestingly, the language of New Jersey’s free speech provision is nearly identical to that of states in which the courts have refused to extend free speech protection in shopping malls.

However, most of these cases involve petition drives, or protests–things that seem more likely to disrupt commerce than wearing a shirt.

What makes a shirt different? Again, this is from a layperson, but Title II of the Civil Rights Act might. It basically says that if you are open to the public (and the Act gives an expansive definition that surely includes malls), then you can’t discriminate against (or bar, or evict) people on the basis of “race, color, religion, or national origin”, but it doesn’t mention political ideology. So if the shirt said “I’m a Jehova’s Witness and therefore I believe that we should give peace a chance”, then the act seems to apply. But if it just says “Give peace a chance”?? Again, what distinguishes this case from the cases Ms. Coffin discusses is that (based on reports I’ve seen), they were only walking around the mall in their shirts, in the process of shopping. They were not doing anything, such as pamphleteering, petitioning, or protesting, that would interfere with commerce (other than the innate fear of spending money and desire to flee that seeing the phrase “Give Peace A Chance” might induce.)

On one level it’s a silly issue–it’s a T-shirt. But on another it’s fundamentally disconcerting that people would be harassed for something like this. Regardless of your view on the war, here is something worth keeping in mind.

AB

Comments (0) | |