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Rawls, Bailey, Alterman, Progressive Taxation, and the Veil of Ignorance

I gave three takes on Rawls’ Veil of Ignorance here. The concept actually takes thinkers pretty far in terms of evaluating a number of social issues. Is Slavery moral? Circa 1860, if you were going to be placed into a random position in society, you would have about a 10% chance (based on some numbers here) of being a slave. Because virtually everyone would find those odds unacceptable, thinkers operating behind the view of ignorance would reject the institution of slavery. Rawls argues that the people in the original position, behind the veil, would come up with just institutions and practices; because slavery would be rejected from behind the veil, it is therefore unjust. Here’s a pretty easy one to try for yourself: the Taliban system in Afghanistan, circa late 1990s (you have about a 50% chance of being a woman).

Thought processes like these lead to Rawls’ first Principle of Justice: (i) “Each person has an equal right to the most extensive scheme of equal basic liberties compatible with a similar scheme of liberties of all”. The logic is straightforward and compelling: from behind the veil, you could end up starting anywhere in society; your rights and freedoms should not depend on where you start. But what if we could harm a very small part of society and thereby make everyone else much better off? Rawls would reject this because it would not be “compatible with a similar scheme of liberties of all”. Note that this first principle is basically an equality of opportunity principle—let all start in the same position and each then act in their own interest, letting the cards fall where they may. Alterman writes that thinkers behind the veil would create a social structure that is “equally fair if judged by the person at the bottom as well as the top; the CEO as well as the guy who cleans the toilets. In real-world American politics, this proposition would be considered so utopian as to be laughable.” Upon inspection, this statement is a bit ambiguous.

I doubt that more than a handful of nuts would consider the idea that the CEO and the cleaner of toilets should have the same rights, in the sense of the Constitution and Bill of Rights, utopian. This concept is on the (likely very short) list of things you could get Glenn Reynolds, Atrios, and my grandmother to agree upon. So this reads like Alterman is not just making a statement about liberties, but also about outcomes and income distribution. This is also what The West Wing’s Will Bailey was talking about in the scene I described here.

This redistributive line of reasoning derives from Rawls’ second Principle of Justice (sometimes called “The Difference Principle”:

(ii) “Social and economic inequalities are to satisfy two conditions: they must be

(a) to the greatest benefit of the least advantaged members of society; and

(b) attached to offices and positions open to all under conditions of fair equality of opportunity”

So, for example, it’s ok that doctors make a lot more than cleaners of toilets, because this inequality leads more people into medicine, and they then help people, including the “least advantaged members of society”. But Rawls took this much farther and went on to argue strongly in favor income redistribution. This is the “maxi-min” principle: designers operating behind the veil of ignorance would construct a society to maximize the minimum level of welfare in society. While redistributing income downwards does not necessarily lower average income (think of schools and roads), assume for the moment that it does (it surely does after some point). How much income should we redistribute? Rawls argued that we should continue to redistribute income up to the point where it no longer improves the well-being of the least advantaged members of society.

So Will Bailey’s proposal to increase the marginal tax rate on the “Uber-Wealthy” from 36% to 37% (to finance college tuition tax credits) is, while Rawlsian in spirit, well short of what Rawls would advocate. Still, as a response to the intern’s question, it does pretty well. Alterman’s “equally fair if judged by the person at the bottom as well as the top; the CEO as well as the guy who cleans the toilets” formulation seems much closer to Rawls’ vision.

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. This is a strong statement that is premised on an extremely high degree of risk-aversion in the population—mightn’t people accept a bit of a reduction in the income of the least among us if that risk were accompanied by an increased chance of higher wealth?

More to come, but not much more. Writing on Rawls is much tougher than, say, pointing out that Michael Savage is a jackass.

AB

[Links repaired 3/4/03]

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Slow Post Day

I’m still working on my Rawls follow-up, but in the meantime I do have one thing to point out to my readers: Michael Savage is a jackass.

I guess that makes the decision-makers at MSNBC objectively pro-jackass.

AB

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Cranky Physicist

Robert Park, a Physicist at the University of Maryland, posts/emails on Fridays. Here’s his take on the plans to eliminated the testing requirements for missile defense:

MISSILE DEFENSE: PENTAGON SEEKS WAIVER FROM REQUIRED TESTING.

In April 2000, the APS Council stated: “The United States should not make a deployment decision relative to the planned National Missile Defense system unless that system is shown through analysis and intercept tests to be effective against the types of offensive countermeasures that an attacker could reasonably be expected to deploy with its long-range missiles.” In fact, a law designed to prevent deployment of weapon systems that don’t work was passed in 1983 after Ronald Reagan announced his Strategic Defense Initiative. Now the Bush administration is proposing to exempt the Pentagon’s controversial missile defense from testing. The request is in the 2004 budget. I called my friend Puff Panegyric at the Missile Defense Agency. “You’ve got to admit the law makes sense,” I said. “Maybe it did in 1983,” Puff sneered, “but North Korea has made the world a more dangerous place. We don’t have the luxury of waiting until things work. There are leaders of some countries who would like nothing better than to start a war.” “I see your point Puff.”

I strongly recommend Park’s newsletter, which you can read or have emailed to you at http://www.aps.org/WN/.

AB

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More Mankiw

Earlier, I gave a piece of advice to Greg Mankiw, incoming chair of the Council of Economic Advisors:

Note: Mankiw has also written a few books, including a Macroeconomics textbook. I advise keeping public pronouncements consistent with theories in the latest editions of those books.

Atrios has the goods on Mankiw’s Principles of Economics. Here’s an excerpt from Atrios’ excerpt:

An example of fad economics occurred in 1980,” Mr. Mankiw wrote, “when a small group of economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise revenue.”

After reviewing the impact of Mr. Reagan’s policies, which included a run of high budget deficits that lasted until the mid-1990’s, Mr. Mankiw wrote that the moral of the experience was that “when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate.

In later editions of his textbook, Mr. Mankiw dropped the entire section on “charlatans and cranks” and muted his criticism. But he has not mended his fences with today’s advocates of big new tax cuts.

Now I almost wish I hadn’t said “latest editions”, because this creates some wiggle room for Mankiw to say that the thinking about deficits changed. But in the late 1990s, I can’t think of any new events that would make an economist decide that lowering taxes would increase federal revenue, since the exact opposite had occured (taxes were raised in 1993, the economy boomed, and deficits began shrinking and then turned into surpluses).

Doesn’t the Whitehouse have staffers who can vet for this kind of stuff? I suspect they do, but to find an economist who remained true to Supply Side economics and the Laffer Curve throughout the 1980s and 1990s, the administration would have to go pretty far into the ranks of Republican hack-economists. This would cost the administration much-needed credibility (scroll down to question 10 to see less than half favor Bush’s economic plan and that opposition reached 40%) on the economy.

AB

Still to come: more Rawls, Alterman and Bailey, but as Matthew Yglesias points out, it takes some care and time.

Update

Max Sawicky has another great quote (tying deficits to long term interest rate) from Mankiw’s book here.

Slate’s Daniel Gross also discusses Hubbard and Mankiw here.

And here’s a link to the list of economists opposing Bush’s tax cuts. Even excluding the ten Nobel Laureates, it’s an impressive list.

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Three Takes on “The Veil of Ignorance”

Preface: I don’t entirely agree with Rawls’ conclusions, but this is surely true: only a few people in this world are truly irreplaceable, John Rawls was one such person; read one obituary here.

The Three Takes:

  1. The West Wing.

    In the first scene, Will Bailey (the character that replaces Rob Lowe’s character) presents three hypothetical tax-payers: A box unloader at minimum wage (taxed at 15%), a teacher at $41.7k (taxed at 28%), a doctor making $150k (taxed at 36%); later, he adds a fourth box for the “Uber-Wealthy” CEO making $16 million. Will’s plan (and the Bartlett administration’s) is to raise the rate on the CEO by 1 percentage point (to 37%) to finance a tax deduction for college tuition for people making less than $80k/year.

    An intern (qua speechwriter) quips that “the doctor got into medical school, he had to work hard to do that. And presumably the CEO has some skills, the value of which the market has place at 16 million dollars”. Initially, Will replies glibly.

    Later in the show Will says to the same intern “the answer to your question of why the MD should accept a greater tax burden in spite of the fact that his success is well-earned is called the Veil of Ignorance. Imagine that before you are born you don’t know anything about who you’ll be, your abilities, or your position. Now design a tax system.” The intern replies “the Veil of Ignorance”. Will replies “John Rawls”.

  2. Eric Alterman (What Liberal Media, p. 19):

    “Contemporary intellectual definitions of liberalism derive by common accord from the work of the political theorist John Rawls. The key concept upon which Rawls bases his definition is what he terms the “veil of ignorance”; the kind of social compact based on a structure that would be drawn up by a person who has no idea where he or she fits into it. In other words, such a structure would be equally fair if judged by the person at the bottom as well as the top [emphasis mine]; the CEO as well as the guy who cleans the toilets. In real-world American politics, this proposition would be considered so utopian as to be laughable.”

  3. John Rawls:

    In “Social Unity and Primary Goods”, section II, paragraph 1, Rawls describes two “Principles of Justice”

    (i) “Each person has an equal right to the most extensive scheme of equal basic liberties compatible with a similar scheme of liberties of all”

    (ii) “Social and economic inequalities are to satisfy two conditions: they must be

    (a) to the greatest benefit of the least advantaged members of society; and
    (b) attached to offices and positions open to all under conditions of fair equality of opportunity”

    In his book, A Theory of Justice, Rawls asks us to imagine ourselves behind a veil of ignorance. I’m skipping over much material of consequence, but Rawls concludes that from such an original position–having the ability to structure society, but not knowing where in that structure we might fall–rational people would, perforce, design a “fair” society, and that society would be as consistent as possible with the two principles of justice.

More to come.

AB

P.S. I’m posting this before I read more than the beginning of it, but Salon has a feature on “All conservative, all the time: It’s time to bury the myth of the ‘liberal media’ “writes Eric Alterman in his new book. How can progressives find their voice?“. While I’m about to disagree somewhat with Alterman’s take on the Veil of Ignorance, I must reiterate: buy and read his book.

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Angry Bear Hits Continue to Grow

Wow, a link from Atrios can really drive a lot of traffic my way. Thanks Atrios, and welcome new readers!

But I wonder…is that too much power for one man or woman to wield?

AB

Coming soon: John Rawls, The Veil of Ignorance, Eric Alterman, Progressive Taxation, The West Wing (in particular, Will Baily), and how they all tie together.

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A New Trend?

Maybe this will lead to a First Amendment challenge of the Digital Millennium Copyright Act (DMCA). Here’s the highlight:

U.S. Justice Department said Wednesday it had seized a rogue Web site that offered information on bootlegged video games and movies, as the owner faces sentencing for copyright violations.

Note that the siezed site offers information on bootlegged games and movies, not the actual bootlegged games and movies. This is one of the more egregious consequences of the DMCA, making it illegal to talk about ways that copyrights can be broken. It’s long been legal to say “they sell crack down on 12th street” while being, of course, illegal to go down to 12th street and sell crack. The DMCA makes the online version of this speech illegal. This is problematic on principle (1st amendment) and problematic on practical grounds. A number of activities proscribed by the DMCA are “dual use”. For example, the controversial DeCSS program (code that hacks DVD encryption) was not originally written for piracy purposes, but rather because DVDs could only be played on PCs running MS Windows…a clever programmer wanted to play DVDs that he legally purchased on his Linux computer.

The recent Eldred Decision by the Supreme Court (ruling in favor of the Sonny Bony Copyright Extension Act) may not bode well for a challenge to the DMCA, but my lay opinion is that Eldred was less clearly based in free speech than something like this. (The cynical view of Eldred is that everytime Mickey Mouse is about to become part of the public domain, Congress extends the length of copyrights).

This may also represent a disturbing new trend in the seizure of web sites by the government, which then redirects visitors to a government site. As TalkLeft points out , redirecting visitors likely entails a log of all IP addresses that visit the original site. Nice.

AB

Postscript on Eldred:

Eldred was premised on the idea that “strong intellectual property rights encourage innovation”, but this argument only looks at half the equation, the marginal benefit of innovation. As Isaac Newton remarked once, “”If I have seen far it is by standing on the shoulder’s of giants”. Under a strict intellectual property rights regime, standing on giants’ shoulders becomes a much more expensive proposal (license fees, searches, tort exposure). So such a regime increases both the costs and benefits of creative activity; the net effect on innovation is therefore ambiguous. Given this ambiguity, maybe deference to the language in the constitution would be wise:

The Congress shall have the power. . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries]. . .[Art. I, Sec. 8, Clause 8].

I was suprised at the ruling because of the self-proclaimed “strict constructionalist” philsophy of the justices who ruled in favor of copyright holders (Stevens and Breyer dissented strongly). It’s very difficult for me to see life+70 years as satisfying the “for limited times” language.

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More on Mankiw

Before this announcment, Brad DeLong wondered why Mankiw (and others) signed the “Republican Economists’ Letter”:

I was slightly disappointed, second, to see Greg Mankiw’s, Mike Boskin’s, and Marty Feldstein’s names on the signature list. I don’t think the letter accurately reflects their views–meaning that if I held their views about how the economy works and what a good society looks like, and if I held their political allegiances, I would not have signed the letter.

Besides the economists DeLong mentions, I’d add that the only other economists of academic note that I found in a quick skim of the list are Ed Prescott, R. Hodrick, Allan Meltzer, and Michael Jensen (who I cited here, about 1/2 way down). By “academic note”, I mean their works are likely to appear in at least one first or second year PhD Economics or Business course. I probably missed one or two (apologies), but given the length of the list, the list is most noteable for the lack of signatures of top economists. Again, DeLong beats me to this punch:

Without their [Mankiw, Feldstein, Boskin] names, the signature list of the letter is not all that terribly impressive: the overall impression is of people who don’t know very much about the federal budget, old Republicans who should have known better, young Republicans who I hope will soon learn better, political hacks hoping for government jobs, lobbyists hoping to get their names on lists of people owed favors, and a smattering of True Believers with fringe views (not that there is anything wrong with having fringe views: my views on a number of important questions are “fringe”: truth is not always with the establishment consensus). Keeping Boskin, Feldstein, and Mankiw on board would have been a high priority.

AB

P.S. Here’s the entire text of the letter, what could be more vacuous? There’s no how or why. Nor does it address deficits.

We enthusiastically endorse your economic growth and jobs proposal. It is fiscally responsible and it will create more employment, economic growth, and opportunities for all Americans. Moreover, it will improve corporate accountability and strengthen the nation’s international competitiveness.

Update: Tapped also has some good info on the “economists” signing the letter

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Now who do I pick on?

This just came across the wires: Hubbard leaves econ post. My theory: the barrage of critical analysis from Angry Bear became too much to bear. Note that the announcement hit the wires a scant 9 minutes after my More Glen “No connection” Hubbard and Taxes post.

Hubbard’s being replaced by N. Gregory Mankiw from Harvard. Note: Mankiw has also written a few books, including a Macroeconomics textbook. I advise keeping public pronouncements consistent with theories in the latest editions of those books.

Seriously though, Hubbard was a good economist and a reputedly very smart guy for 20 years, then had two rough years that were not 100% his fault, and now should be able to return to a productive career as an economist (rather than a political strategist). Good luck, Glenn.

AB

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More Glen “No connection” Hubbard and Taxes

I came across this very recent interview with Glenn Hubbard (chair of the President’s Council of Economic Advisors, in which Dr. Hubbard talks about “The Fundamentals of Tax Reform”. I first mentioned Hubbard and tax reform here, give links to other stories on Consumption and Income Taxes here , and give a more comprehensive summary here. Finally, my three part series on dividend taxes are (in order) here, here, and here.

Here are some quotes from Dr. Hubbard, with comments. Note that I am not familiar with The Library of Economics and Liberty, the organization conducting and publishing the interview, but I do characterize the interview as very sympathetic to Hubbard’s position.

Quote 1: …especially important in the wake of the recent corporate governance scandals, the tax code is biased in favor of retained earnings instead of a more transparent system and greater dividend pay-outs.

Analysis: The second half of the sentence is true, as I explained in the previous post. But it’s not causally related to the antecedent. Hubbard is trying to imply that if there were no dividend taxes then there would not be corporate fraud. I don’t see the mechanism for this. Independent boards, strong oversight, and independent auditors affect corporate scandals. The relationship to dividends is tenuous at best. For example, perhaps the second largest scandal (behind Enron) was Tyco International. As this chart shows, they regularly paid dividends over the last decade.

Quote 2: But on the issue of the dividend plan, if companies pay a dividend to a shareholder, the shareholder would not pay tax on the dividend, provided corporate tax had already been paid.”

Analysis: The last caveat is a big issue. A recent paper by a Finance Professor at Harvard Business School finds that the gap between the profit companies report to shareholders (“book income”) and the profits reported to the IRS (“tax income”) increased over the 1990s (for the wonks: well beyond that explained by the increased use of stock options over the same period). In the early 1990s both types of corporate income were pretty close to equal; by 1996, corporations were on average reporting profits 40% higher to shareholders than those reported to the IRS. (The vast majority of this is not corporate fraud, just using existing loopholes).

Quote 3: About ten years ago, the Treasury Department and the American Law Institute both did very significant studies of corporate tax integration, that is, removing the double tax on corporate source income. Both of those studies found quite significant effects on economic activity going forward so that one could raise the economy’s growth rate by a couple of tenths of a per cent over a very, very long period of time.”

Analysis: Great and probably true, but why use 10 year old studies? I’m not saying these studies are wrong, just a bit dated. This raises some skepticism because it excludes 1993 and after. Clinton’s 1993 Tax Plan imposed some very modest tax changes that increased corporate taxes, yet corporate profits went up. This might complicate the analysis. There are surely more recent studies.

Quote 4: We believe that the revenue feedback effects were they to be [dynamically] scored for the dividend piece could be as high as 40%.”

Analysis: Anyone remember the Laffer Curve? Not that the cuts aren’t stimulative, but the would-be cutters always exaggerate the stimulative effect. Remember “dynamic scoring” and the 2001 tax cut? Here’s a funny Bruce Bartlett quote from 1999:

Although dynamic scoring is no panacea for the Republicans’ budgetary problems [the problem being the inability to sell tax cuts to the public], it would make it easier to both cut taxes and still maintain a large surplus.

Quote 5: I’m not a very political person. But I have observed in this President a great concern about long-term growth.

Analysis: On the first part, ask what lead Hubbard to recently deny a connection between deficits and interest rates. For the second, see Alan Greenspan.

AB

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