For those of you looking for good reasons to support progressive taxation (note that is different than asking one group to pay more, we are asking them to pay more than more), I would suggest you stay away from the idea that “a dollar is worth more to a poor person than a rich person.” For starters, recent research by Justin Wolfers and Betsey Stevenson have found that consumption does not seem to reach a satiation point as previously thought. But on the philosophical side – if you want to argue that income can be transferred because it means more to one group than another … well … then there is nothing grounding that argument.
What do I mean by that?
Well, such an argument leaves itself open to the following simple line of attack: “rich people like dollars more than poor people, that’s why they’re rich.” And taken to a Nietszchean extreme would leave us with the opposite conclusion – that the only moral way to deal with income is to take it from the poor and send it to the rich, or perhaps just to the richest, money hungriest person out there. Methinks we want to avoid such conclusions.
UPDATED: on 10/2 at 9:29pm to add link to the Wolfers and Stevenson paper.
Not familiar with the Wolfers and Stevenson research, but isn’t it possible that rich people DON’T like dollars (especially marginal ones) more than poor people EVEN IF there is no satiation point in consumption?
That is, they always want more dollars (no satiation) but not as much as a poor person.
Isn’t the line of attack assuming that richer people are richer solely because they have worked harder to get money or worked harder to hang onto it, and therefore deserve wealth in proportion?
So Paris Hilton must love money more than a Chinese peasant, and therefore deserves more wealth?
Maybe the peasant started a tad disadvantaged compared to Ms Hilton.
I’m not a ‘squeeze the rich’ kind of guy, but I think that’s a pretty weak argument.
The point is if you are going to distribute wealth according to marginal value, it may be that money hungry people value the next available dollar much more than individuals who place a higher value on leisure – it may be these personal preferences that create the differences in monetary wealth in the first place.
I am a greedy person. When I wake up in the morning, I think about how I am going to make more money. When I eat lunch, I try to figure out different ways to acquire money. I don’t leave big tips because I’d rather have money than good service. I don’t give to the poor because I’d rather invest in stocks. I don’t give to the church because I work on Sunday mornings trying to make more money. The money I have Id rather save then spend becuase my ego is perfectly positively correlated with the quantity of dollars in my bank account.
I also have a friend, much smarter than I am, who values money less than I do. He volunteers his time because giving back to the communit makes him happy. He tithes every Sunday and always leaves big tips becuase he loves to support local businesses. He was offered a promotion at work, but turned it down because it would’ve required that he spend more time at the office, and he would rather be with his family.
So they offered the promotion to me and I was happy to take it so I can have more money.
Now I make more money than my friend. But I still value money much more.i want more more more! I want to buy stocks and real estate! My friend, however, rarely even thinks of money. He has everything he desires.
Now if we redistribute according to marginal value, my friend has to give me money simply because I want it more. Fair?
(Sorry, second comment is a different Alex from the first, BTW. )
Second Alex, I think you’re mssing the point. The premis around a lot of progressive taxation is that a dollar means more to the poor person than the rich person. Well take the case of “poor” class upbringing Joe and “poor” class upbringing Dave. Dave likes spending time with his kids while Joe doesn’t really care for family life. Joe works weekends and is able to bring in a middle class salary while Dave does not and is still considered “poor”. Is it evident that Dave should receive money on the premis that Dave values it more becasue he is “poor”? I would argue that Joe values it more as he forsook family life to earn more money. Therefore, you can’t just apply the generality that “poor people value that dollar more than the rich guys” as your justification for a progressive tax system.
Thanks Sherlock – indeed I’m not making any arguments for or against progressive taxation here. Nor am I saying anything about how folks got in that position. This is a methodological question and indeed the second comment above points out the reason that it is interesting, in my view. Attention to the point is deflected often in these kinds of discussions.
I’m (the first Alex) also missing something: It seems that, just because you can imagine a counterexample doesn’t mean the underlying reason or generality is unsound. We can apply the generality that “killing is always wrong” as a justification for a legal system that prohibits murder, even when it can sometimes be used for self-defense.
If we were making these decisions on a case by case basis, then, in Dave’s case, the premise that poor people value money more would be unsound, just like the premise that killing is always wrong would be unsound in a self-defense case. But if we’re making policy decisions, then the premise is that poor people GENERALLY value money more because they need to feed their family, get decent health care, and any other progressive fancy.
Of course its possible that some people are poorer because they choose to be. But it’s possible (likely?) that a majority of the poor do not choose that situation. That money could provide a way out (that might be shaky) validates the progressive-taxes premise that poor people generally value money more than rich.
Why is the discussion even going anywhere near the “of course it is possible that some people are poorer because they choose to be?” It’s an incredible distraction from the simple point of logic I am making.
In regard to your point – well, if you make any statement general enough, then it has no teeth. Further, notice the title of the post. Finally, this reply above misses what we mean by value. By arguing that poor people really need to feed their family says nothing at all about the “value” of the next dollar, particularly as compared to the Scotts of the world.
Excellent points. I’m going to use this argument next time this conversation pops up.
Very interesting. I was originally thinking, in regards to poverty as a counter, that there is a threshold of extreme poverty (i.e., starvation) in which a person would HAVE to value additional dollars more than anyone else, especially if it means life or death for oneself or one’s kin, but as we know, we don’t even value our own lives limitlessly. So who’s to say there isn’t a greedy, monocle wearing capitalist who values a dollar more than the starving man values it, and therefore more than the starving man values his own life?
Fantastic post. The last thing I read on subjective well being was Glen Weyl’s course slides on redistribution, where he was quoting some literature which had claimed to find that people’s utility of money followed some log function. He then inferred an optimal tax rate based on that. Please do cite the Wolfers and Stevenson research, because that sounds extremely interesting.
Here is that Wolfers and Stevenson paper: http://www.brookings.edu/research/papers/2013/04/subjective-well-being-income
What interesting ideas.
Not to demean armchair economists, psychologists, and philosophers (not I!), it sometimes is worth descending from the theoretical to the empirical, being careful not to generalize from one’s experience. So I have qualified my next bloviation about life.
Of course, Wintercow is correct that there are many more things that motivate us than money. There are mountains to climb, fields to be planted for the sheer fun of it, and there is golf to be played when you can barely afford it, when working that Saturday, every Saturday, might be the career track to pay off your $15,000 per month mortgage for your condo on Fifth Avenue.
The idea that Rich people (couples filing jointly living in New Caanan, Connecticut with their $15,000 per month mortgage and getting on a train every day) and the Poor (who get on the subway to go to work in Manhattan) think differently about money is absurd. But I generalize. Of course everybody thinks about money differently. I daily worry about what our government is doing to our money, on the advice of Princeton Wise Men, some of whom have sections in their textbooks about marginal utility. Everybody should, and eventually will, be concerned about what they are doing with screwing around with our money, our rice bowl .