Mankiw’s Fractured Fairy Tales

mr_peabody_and_sherman.jpgCome tax time, econoblogger Greg Mankiw is peddling parables about distributive justice designed to reconcile us to inequality. You see, if we tax high earners too much, they may just all flee to….well….another bar. Redistributive policies are ridiculed as gliding us down a slippery slope toward Harrison Bergeron-style taxation of height.

How to respond? Well, if there were thousands of people around who were, say, hundreds of times taller than the average person, and whose ability to consume resources were accordingly disparate, perhaps we’d try to find some way of rectifying the situation. As for “bar stool tax policy;” well, if the top guy also happened to be drinking 40% of the beer, er, income, perhaps we’d like to see him paying accordingly.

I suppose that Mankiw might say that the height paper is only an attack on “utilitarian social planner[s who] would like to transfer resources from high-ability individuals to low-ability individuals.” Only such a planner is attributed the desire to “levy a sizeable tax on height [such that a] tall person making $75,000 should pay about $4,500 more in taxes than a short person making the same income.” And perhaps he has dented “the theory of optimal taxation [according to which] any exogenous variable correlated with productivity should be a useful indicator for the government to use in determining the optimal tax liability.” But what relevance does this battle of ideal theories have for our world? Is any political party advancing the “theory of optimal taxation” Mankiw is trying to discredit?

It is easy enough to score debating points about the “impossibility” of perfect distributive justice, just as one can always dredge up Arrow’s impossibility theorem to discredit democratic procedures. But in a nation where an ever-growing number of people lack basic health insurance, and a world where tens of millions live on a dollar a day and a substantial proportion of the affluent do nothing to relieve their plight, it’s really difficult to see how reductiones ad absurda contribute to the practical decisions we have to make about distributing resources. Parlor games don’t lead to good policy.

PS: As for making the perfect the enemy of the good: there’s a rich campaign finance literature anticipating Mankiw’s approach. Skeptics always throw up their hands and say, “well, if we equalize campaign resources, we’ll need to equalize looks….and family connections…and persuasive ability. If we can’t equalize everything, how can we equalize anything!” Spencer Overton makes short work of that argument; see also E. Joshua Rosenkranz, Faulty Assumptions in “Faulty Assumptions”: A Response to Professor Smith’s Critiques of Campaign Finance Reform, 30 U. Conn. L. Rev. 867 (1998). Often inequalities in “uncontrollable” areas are correlated with inequalities that can be managed, thereby making it all the more imperative to do something about the latter.

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