Uncommon Priors

I just discovered that about a couple dozen big-name economists have gotten together on a blog, to be turned into a book in some form. The idea is that a pair of editors are inviting a bunch of economists, plus the general public, to give comments on “creative capitalism.”

My favorite post is, of course, John Roemer’s. It’s a long and wonderful post, but if you’re short on time, here are the two best paragraphs:

In the last thirty years, conservative think tanks, almost all in the United States, have propagated the view that such high after-tax incomes are necessary in order to elicit the talents of those like Alison. This is a ridiculous claim. Suppose that, because of universally high tax rates in advanced democracies, Alison’s take-home pay were only $5 million – although her market income might well remain at $50 million, due to competition among firms for her talents. Would Alison work less hard? Would she prefer to stay home by the pool and cultivate her tan? Very unlikely. Alison is probably a workaholic, who loves the power that is associated with managing a huge firm, loves producing products which millions of consumers want to purchase, and loves the accolades that she receives from her social set for a being a mover and a shaker. Indeed, if everyone in her social set has a take-home income of ‘only’ $5 million or so, her prestige will be just as great as it would be in the current low-tax world. For the fancy life-style that Alison enjoys is not necessary to reinvigorate her for the tough job she does: rather, it acts as a signal to the rest of the world of how important she is. That signal, and the psychological return Alison gets from the ensuing recognition, depend only upon her relative consumption, not her absolute consumption.

* * *

Although the George W. Bush administration has been greatly weakened by its mendacity and incompetence with regard to the invasion of Iraq, exposing the more subtle lies of the American Right about how market economies work, the role of incentives, and the necessity of government intervention, remains a critical task if America is to become a more caring and solidaristic society. The central points are that markets, even if they work efficiently, will not produce a distribution of income which is just, and moreover, that those who earn the most would be perfectly willing to provide their productive services for far less income. High taxation of the rich would not only produce a more solidaristic society — by reducing the extreme differences in consumption that characterize contemporary American society — but would provide the government with income that could be used to vastly better the lives of the most disadvantaged through improved public education, access to health care, and the eradication of poverty directly, not to speak of the dedication of a larger fraction of our national income to foreign aid. Many have pointed out the uncooperative nature of American policies with regard to security and defense, and also with respect to the environment and climate change, policies which have surely decreased our moral authority in the eyes of the world. Reforming foreign policy is surely necessary, but America can and should set an example for developing nations on the cusp of the democratic transition by adopting a more solidaristic domestic fiscal policy as well.

I love it when brilliant and universally esteemed economists say this sort of thing: it’s so easy for the right-wing to dismiss the rest of us as economically clueless when we say it. However, I confess to being a little alarmed at the suggestion that what motivates those in the upper income echelons is relative, rather than absolute, consumption. He’s describing a motivation that is purely status-hierarchical — “unsociable sociability,” as Kant would say — people being driven to achieve by the ability to call themselves better than others, and more important. If that’s the real motivation driving the most economically productive, an egalitarian society based on mutual respect for fellow citizens as equals might be even further off than previously thought. (That is, the best-off would be especially sensitive to redistributions that threatened to offer other people equal social status. Bad news, particularly for Rawlsians.)