Russ Roberts

Angus Deaton on Inequality, Trade, and the Robin Hood Principle

EconTalk Episode with Angus Deaton
Hosted by Russ Roberts
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Is Big Data Your Frenemy?... How Poor is Poor?...

robin%20hood.jpg Nobel Laureate in Economics Angus Deaton of Princeton University talks with EconTalk host Russ Roberts about the economics of trade and aid. Deaton wonders if economists should re-think the widely-held view that redistribution from rich nations to poor nations makes the world a better place. The conversation focuses on the challenges facing poor Americans including the rising mortality rate for white Americans ages 45-54.

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0:33

Intro. [Recording date: August 30, 2016.]

Russ Roberts: Our topic for today is a recent essay you wrote with the title "Do We Need to Rethink the Robin Hood Principle?" What is the Robin Hood Principle that you are referring to?

Angus Deaton: Well, I think the common understanding is that the Robin Hood Principle is taking from the rich and giving to the poor. What I had in mind is a somewhat more technical concept, which philosophers nowadays call 'try-it-out-atarianism.' It was a bartime saying, that word. But that name I think comes from a philosopher, Derek Parfit [?]. But it was introduced into the literature by Serge Kolm[?], and perhaps most importantly by Tony Atkinson in a paper in 1969. And this is the idea that somehow, giving an extra dollar to a rich person is worth less than giving an extra dollar to a poor person. And so, the world would be a better place if you could do that. Which is, take money from a rich person, give it to a poor person. Provided you didn't flip them. So, provided the rich person stays richer than the poor person, than bringing them closer together. So it's a sort of egalitarian principle.

Russ Roberts: And why would we need to rethink it? I mean, I can think of lots of reasons. But why do you think we need to rethink it?

Angus Deaton: Well, I mean, thinking about it--I was brought up on that. Actually, the first seminar I ever heard in my professional life was Tony Atikinson, presenting that paper. I was very impressed. I thought maybe all papers in economics were like that. But, yeah: Why am I rethinking? And I'm not sure we need to rethink it. And it's clear that many people really do believe in that principle. And indeed, it's the foundation of modern tax theory: the writings of, say, Atkinson and Murley's--I think Piketty would certainly be committed to this. And so, it's a--you know, it seems like a fairly general principle. A lot of people would subscribe to. So, there's--the version of it that I was talking about in that essay is, you could imagine lots of reasons for revising even within a country. But I was thinking about it in terms of the whole world. So, for instance, if you are what I christened--and I think it's a name in the philosophical literature--a cosmopolitian prioritarianist, it would say that you sort of rank all the people in the world, no matter who they are, where they live, whether they are in Australia, the Central African Republic, or Iowa. And you give priority to the poorest ones, no matter where they live. So, that essay that you read about rethinking Robin Hood was in part a factual one. Which is: Is it really true, as we've all assumed, or as [?] thinking about these things, that the really poorest people in the world are not in the United States; and that there's no one in the United States who is as poor as people in Africa or in India, wherever you go, wherever you want to go. So, it was a purely factual thing. And then there's the question, a philosophical question, as to whether the cosmopolitan bit of that is right, which is: Shouldn't we give some extra priority to our fellow citizens, because they are fellow citizens? As opposed to just treating everybody in the world as if we were all one country together.

5:00

Russ Roberts: I guess my first thought--which wasn't what I was thinking of when I read the essay, which, you know, when I read the essay there were a lot of other things in it that we'll get to. But my first thought is that I don't think it's anyone's job or role, or nor is it desirable that we play with the income distribution in that way. I don't see--so, for example, certainly many, many of the poorest Americans are better off than--a great deal better off--than the poorest people on the face of the earth. And I would certainly not want to justify redistributing income away from them toward poor people outside the United States. But nor would I be against economic events that caused that to happen. And I think that's really what is at the heart of your essay. At least the part that struck home with me--which is: In pursuing a more global trading regime, a more open-border situation for goods to circulate around the world, it is possible that that has greatly improved the wellbeing of, say, people in China. That hundreds of millions of people have escaped the worst kinds of poverty. While, at the same time, that may have harmed, somewhat, the poorest, lowest-skilled Americans. And I think that's possibly true. And I think that's what every economist who is in favor of free trade should think about. Is it fair to say that that's a piece of what you are thinking about?

Angus Deaton: It's a piece of it. For sure. And I agree with what you just said. And I listened to your excellent interview with David Autor on these topics. And I think it's very, very important--I'm not sure how many times I would say 'very' there--that if you are thinking about globalization and it's [?] or whatever perspective, you acknowledge the first fact that you acknowledge there: which is that hundreds of millions of people have come out of poverty because of this. And these people in China and those people in India. And it's not just people in China and India; but they are the countries with the biggest numbers, being brought out of [?] terrible destitution by globalization. So, if you are going to start bitching about globalization because of what it does to people in rich countries, then you've always got to keep that in the other pan of the scales, as it were. And that doesn't mean that there aren't people in rich countries who aren't hurt by this. But however you weight those things, you've got to acknowledge that fact.

Russ Roberts: I agree.

Angus Deaton: So, let's take that as agreed ground. The bit I'm not so sure what was you said before that; and this is the factual matter that I've been rethinking. It's very, very, very difficult to measure--there I'm doing multiple 'very's again. But it's really quite hard to measure--I've spent a lot of my life thinking about global poverty and actually measuring it is really difficult. And so here is a factual question which turns out to be extraordinarily difficult to answer, which is: Is it really true, what you said a minute ago, that the poorest people in the United States are orders of magnitude better off than the poorest people in India or the poorest people in the Central African Republic? And I'm not so sure of that any more.

Russ Roberts: Why?

Angus Deaton: Well, partly--first of all, the purchasing power parity corrections that are done for global poverty are supposed to really make things right across countries, so that a dollar a day means the same in the United States as it does in India. And a dollar a day and its successor lines[?], $1.25 and now about $2.00, have been very successful, I think, among the very successful rhetorically for the international development industry, because no one can imagine living in the United States on $1.00, even $2.00 a day. So, people think, you know, $2.00 a day is the global standard of poverty; there's no one in the United States who lives on $2.00 a day because it makes it impossible. Okay? So the question is: Is that really true? And there are various strands of work that have disturbed that a little bit. First of all, one of the things you can do now, which is sort of delightful--you didn't used to be able to do--is you can go and take one of these bundles and you can price it around the world. You can go to a supermarket in California or a supermarket in Britain or a supermarket in South Africa or in India and figure out what these things cost. At least for food. Not so easy for rental or all the rest of that. And it turns out if you are just talking about food you could actually manage on $2.00 a day in the United States, you know if you take a bundle, and it's not a very luxurious bundle and it doesn't have lots of things in it that you might want. But you can get enough calories and fats and things like that as far as food is concerned for less than $2.00 a day.

Russ Roberts: Yeah, but--wait a minute. Hang on. Certainly your original skepticism about the prevalence of $2.00 a day or less poverty in the United States wasn't because you can't survive--

Angus Deaton: No, no, no, I understand that--

Russ Roberts: Most people make more than $2.00 a day.

Angus Deaton: This is just a riff. Okay? Most people make $2.00 a day. So that's right. It's just part of the story, I think. So, for a long time I thought that $2.00 a day, it was physically impossible even to get enough food to live on even in the United States on $2.00 a day, and therefore this statement that everybody in the United States had more than that is true. So that's from the consumption side. But you could ask, 'What about their incomes?' Well, first of all, none of the $2.00 a day stuff around the world is done in terms of incomes. Because incomes just aren't measured in most of the world. So, you are actually calculating the values of commodity bundles that people consume. So, and what's more if you look at in India and Africa where they are counting the number of people living on $2.00 a day, there's no charge in there for housing[heising?] whatsoever. It's just not counted. There's no charge in there for health care. It's not counted. There's no charge in there for education. It's just not counted. And the other is there's a Constitutional requirement that the state provide education. Of course it doesn't. There's a Constitutional requirement the state provide health care. Of course it doesn't. But when they do the poverty numbers and they make them up, they calculate them that way. These housing[?] surveys they use don't have those items in them. Or, they may have a tiny bit of them, the out-of-pocket expenditure the people do. And so the comparison of just saying food versus food in some sense is more relevant than you might have thought. Of course, people will say, 'Well, people in the United States, really poor people have access to Medicaid; they have access to all sorts of stuff.' But, you know, that's--if you are doing like with like, you really wouldn't want to include that stuff. So then this thing is much, much more murky. And then I can come to Kathy Edin's book about living in America on $2.00 a day--there's been a lot of dispute but it's an eye-opening book. And what turns out from that book, and the book that got a lot of attention, Matthew Desmond's book, Evicted, is that for the poorest people in the United States who are in the sort of unstable bottom end of the labor market, they may also have some mental health issues or they may not be fully abled in various other ways health-wise. That housing[?] is just a nightmare. And I think it's probably gotten worse in recent years. So if you are at the bottom of the income distribution, if you can get a job--and the argument in Kathy Edin's book is the end of welfare as we knew it, sort of workfare part of that, has really worked pretty well, in the sense that those people's lives are pretty good when they are at work. A job in Walmart is just terrific compared with what they face at home. And what they face at home is just the impossibility of finding a place to live, especially if you lose your job.

14:14

Russ Roberts: So, when you say that we ought to take more account of our fellow citizens and looking at the impact of, say, trade policy or immigration, whatever it is, you are not giving up on your cosmopolitanism. You are suggesting that maybe our fellow citizens are lower down in the rankings than we might have thought and deserve more consideration. Is that accurate?

Angus Deaton: Almost. In that I'm suggesting they are much further. There's a factual bit of this, which is, there we're thinking they may be much further down in the income distribution than we think they are. And I don't want to press that too hard, because there are all these issues about how do you account for Medicare, and so on, Medicaid? I mean, you can't buy food with Medicaid; you can't buy rent with Medicaid; but of course it's very valuable when you need it. So I'm not knocking any of that stuff. But I just wanted to introduce into the argument that it's not so clear where the poorest Americans are in this world income distribution--if you were a cosmopolitan. Of course, some of these people are like people living in the Mississippi Delta, who are incredibly poor; and they haven't been affected by globalization at all. So, you know, I resist the notion that it's all to do with globalization, or automation[?] or whatever. There's a lot of poor people in America who don't have anything to do with that.

Russ Roberts: I wonder about that. How many Americans--this is an empirical question that I do not know the answer to, and I don't know if anyone knows the answer to it, but it is an answerable--I think there's an answer and probably somewhere in Arkansas to this question, in the town of Bentonville. But my question is: How many Americans live within 20 miles of a Walmart? Is it--what percentage? Is it 90%

Angus Deaton: Oh, no.

Russ Roberts: Is it 60%? Is it 40%? [See link in Readings above for answer.--Econlib Ed.]

Angus Deaton: That's a good question.

Russ Roberts: So, that person in the Delta that you are thinking of--

Angus Deaton: May have access to--

Russ Roberts: Yeah. Because they're getting really cheap clothes and really cheap toys for their kids.

Angus Deaton: Oh, yah, yah. I agree. I'm on your side as far as that's concerned. I'm not on your side in that I think there are no losers from this.

Russ Roberts: Oh, no. I don't think that at all. Please--

Angus Deaton: Right. Okay.

Russ Roberts: I don't think there are no losers. I think there are a lot of people who have lost--

Angus Deaton: All right. That's cool.

Russ Roberts: in the short run.

Angus Deaton: Yes.

Angus Deaton: The question is--I think there's two questions. First of all, as I've said in the Autor episode, and I will continue to say it: Economists who claim that free trade is good for everybody in the literal sense that everybody is better off after a trade agreement or trade barriers are brought down--that's a lie. It's dishonest. It's just simply not true. You can say that--

Angus Deaton: People say that all the time.

Russ Roberts: I know. They shouldn't.

Angus Deaton: They say that about the minimum wage, too.

Russ Roberts: They shouldn't. Right. It's wrong; it's a form of intellectual hucksterism in my view. Now, there's a subtler view, which I would attribute to my friend and former colleague Don Boudreaux at George Mason, who argues that trade generally makes all of us better off; but any one piece of trade could harm one of us, some of us in particular, because of competition, just like any increase in competition could be harmful in the short run--or the very long run. Which is I think part of what--the semi-long run--which is what I take David Autor and his co-authors to be saying, that some of the ability of the American worker to adjust to these changes is very limited, and they may have lower wages for a fairly long period of time or may struggle to find work. So I think we agree on that. Right?

Angus Deaton: No, we're all on th same page here. But I wanted to come back to the other bit of your question, which is: there's the factual question of where these people are in the world income distribution. The second question is whether I'm a cosmopolitan or not. And I'm not. So I don't believe in cosmopolitanism.

Russ Roberts: Continue.

Angus Deaton: And I think there are lots of reasons for that. So, even if we knew where they were in terms of the world income distribution, I do think our fellow citizens deserve different and somehow special consideration that you would not give to people in the [?] Central African Republic. And this is a very unpopular view. So I got yelled at for saying that in this piece. There's an interesting piece, too--I don't know if you've read Paul Theroux's book about the Deep South--

Russ Roberts: No.

Angus Deaton: I think it's called--well, I'm not sure what it's called, but it's his most recent book. And it's about multiple visits to the deep south in the United States. And he'd written all these books about Africa and so on, and he claimed in an op-ed piece in the New York Times that these people in the deep south, the poor people in the deep south, were way poorer than anyone he'd ever met in Africa. For instance. And again, was denounced by all the usual voices saying, 'This is just ridiculous; you have no idea what you're talking about.' While I do know [?], I think he might be right. But there's just this philosophical question about whether you should think differently about your fellow citizens than you should think about your non-fellow citizens; and I think the answer to that is Yes. I've just come back from Montana. That's where they send the kids to fight. You know, you meet people who have 6 kids, all of whom would be in the military. You know, where I live around here, I know a couple of people whose kids have been in the military. The population of India doesn't get to serve in our military or our sort of [?]--[?] is too strong a word--but they don't have great other opportunities, if you grow up in Ennis, Montana, which is where we are. And so I think we owe people something for that, and we have a Veteran's Administration, and we have various benefits to veterans. We revere our veterans. We pay a lot of attention to them. I think that's right. And, you know, if we want to go on some madcap military adventure somewhere in the world, then the population of Punjab doesn't have to go into [?].

20:50

Russ Roberts: Well, I think that's something of a red herring, perhaps. Let's take the more basic point, that people growing up in rural Mississippi and rural Montana, for a variety of reasons, find the military attractive. And for a variety of reasons maybe struggle to get integrated into the information economy that you and I are a part of, the service economy that you and I are a part of that happens to pay very well as opposed to some of the other parts. The only point I would make--and I would--well, let me just make this point, that the reason that someone is desperately poor in Mississippi is not the same reason somebody is desperately poor in parts of India or Africa. Here in America, you are very near very prosperous places where they speak your language, where you may have relatives nearby, where it's somewhat familiar. And, yes, we put up a lot of barriers to that kind of movement, which I think is wrong--those are--you know, we've made housing a lot more expensive in urban areas, I think artificially more expensive, and that's a terrible thing. And that's made it harder for people to move. And it's created some forms of effective borders. And I think that's a mistake. But the economy as a whole in the United States is "thriving." Not every single piece of it, but overall thriving relative to parts of, say, sub-Saharan Africa. I don't think it's productive to think of them as anything remotely similar, even if there are indeed people for personal, tragic reasons who didn't finish school, who have trouble with mental health issues, etc., in parts of America.

Angus Deaton: Yeah, I think that's probably right. So I'm not going to fight it. And also, I thought you were going to make a different argument, which is, we have an all-volunteer force.

Russ Roberts: I was going to make that, too; but I left that alone. Good point.

Angus Deaton: So that, you know, you could the military is making opportunities for these people, and that's a good thing and we don't owe them anything for fighting for us, or nothing special that we--

Russ Roberts: Nothing special--

Angus Deaton: That we don't already. Well, we don't behave that way. We don't have an Arlington National Cemetery for Pediatricians, for instance. Or other people--

Russ Roberts: Entrepreneurs--

Angus Deaton: I think we think we owe something to those people. So that's one thing.

Russ Roberts: I just want to say: I don't disagree with the fact that people who put their life on the line deserve something special, even if the wages were enough to attract them in there. I have no problem with honoring them way beyond that. And I think part of the reason we do that is we want to attract a certain kind of person into that profession, not just for the money. So, I mostly agree with you.

Angus Deaton: Yeah. All right. But, I mean, you do agree that that's something that's different between--it's part of our social contract, which is not there for someone who lives India, for example.

Russ Roberts: That's true. Agreed.

Angus Deaton: So, the other thing, I think, is that, you know, cosmopolitan philosophers believe that--the way they like to put it is that national boundaries have no ethical significance. Right? So they are kind of arbitrary lines on a map. And it's clear there are parts of Africa where that's pretty much literally true because a bunch of colonialists came along with a bunch of maps and drew some lines for their own convenience. But, for instance, I grew up in Scotland; and I think the border between England and Scotland, even though it's not a national border and even though, you know, people have farms that span the border and commute across it and everything else, that there's something different about being Scots. And there's a whole national heritage which we're very proud of--in some cases not so very proud of: when we burn a bunch of people in caves or something. But, you know, there's something that the cosmopolitan philosophy just does not recognize, which is there's something there of a national identity which is very important; and that means we treat other Scots differently than we treat other people from very far away. Now there are limits on that. It doesn't mean we ignore people who are far away and have no obligations to them. And it's a limited set of spheres of things that you really care about. But there's something there that's not recognized by the fact that these borders are arbitrary impositions that were put there by mindless colonial bureaucrats, for instance. So, it's not entirely clear what you do with that. And I don't think the philosophical literature is always very clear about that, either. The cosmopolitanism is very easy because you say everybody's the same and we just ignore these stupid borders and we ignore politics and nationalism and all the rest of it. But, you know, there are parts of nationalism that are real and make some sense. And they are important to people like religion or something. And actually, Rawls wrote this book called The Law of Peoples, which Rawlsians don't read, and they don't like it very much, because it's very anti-Rawlsian. And he says, you know, world government would be the ultimate tyranny. And nations have the right to do things for themselves and not be part of this thing.

Russ Roberts: Well, competition is a good thing.

Angus Deaton: Yeah. And also they're different.

Russ Roberts: And the world government--

Angus Deaton: And even--you know, when I come back from Montana I always think that Washington is tyrants.

Russ Roberts: Meaning?

Angus Deaton: Well, it's sort of like there was a world government, people in Kenya would be being ruled to some extent by people from Washington. We Scots don't much like being ruled very much from London. And people in Montana don't like much being ruled from Washington.

Russ Roberts: Agreed.

Angus Deaton: Because they think they have all sorts of takes[?] and things that are important to them that are not fully recognized by the people who lord it over them.

27:11

Russ Roberts: I think there are two questions here, which are somewhat conflated by this position you are taking on national borders. Culture matters a ton. National identity matters a ton. The unique vision of America as a land of liberty, I think has made a big difference in the world, and not just for the millions of people who have had the opportunity and privilege to live here. It actually infuses daily life--less so maybe than it once did, but I think it still does. And crossing that border and being born a few miles to the south in Mexico or a few miles to the north in Canada can make all the difference. So, borders matter. But the question is whether they should matter ethically. And then the more important question is whether they should matter economically in our ethical consideration. And by that I mean, if you make a product in Texas that competes with my product in Maryland and that puts me out of work but makes a lot of Americans better off who prefer your product to my product, I don't know why that's really different if you move your factory 5 miles to the south and your factory is called a Mexican factory; and suddenly it's a Mexican factory that's making Americans better off and making me worse off. I think that's the key question. We think about how the tendency--the propensity, excuse me--to truck, barter, and exchange that your fellow Scotsman Adam Smith talked about, I think he was making a very deep point: that where it came from, who you were trading with, is not so important for whether we should be open to buying it or not open to buying it. If we close our national borders, if we close our state borders, if we close our towns' borders, we will be desperately poor.

Angus Deaton: I agree with that. And I did not go that far.

Russ Roberts: I know you didn't. But there's a temptation. You made a bit of a reductive argument.

Angus Deaton: You don't have to go all that way to recognize that there are issues over which people care on this. And you might want to say, you want to be very, very careful here, because they care about issues that are actually going to impoverish them even if they think it's going to make them better off. So, I think the cosmopolitan impulse is a very worthy one, a very good one. But I think some of these issues that--on issues where you think we would lose our Scottishness, or we would, you know, impinge on our historical thing, historical heritage, then you'd want to be a bit careful there. Which gives them some moral significance. I'm not saying, I'm not [?] for complete autarchy or nonsense like that. We don't want to turn ourselves into Albania--actually, Albania is not like that any more. Or North Korea. But let me do a third thing, then, which is something that the philosopher Dworkin argued about a lot. So, let's say these national borders exist, you know, even if they were arbitrarily drawn by crazy colonialists. Then, once you are in one of these things, whether you want to be there or not, you are subject to all sorts of laws and customs that you have no option over. All right?

Russ Roberts: Correct.

Angus Deaton: So, for instance, you have to obey the laws. They may be laws that you don't like. And so, you are in a sort of contract with other people in that thing. And you say, well, you get some benefits from living in this country; but at the same time you have some obligations. Those may be to serve in the military; but that's not the end of it. You have to serve on juries. You have to obey the laws. You have to drive at a speed you think people want to drive at. And so these are obligations that you have and foreigners don't have. And so there certainly comes a bunch of obligations to fellow citizens. And again, we could agree or disagree or talk about how extensive these obligations are. And that bit of the op-ed got sort of chopped and made much shorter. And all--I'd wanted to raise the military thing which isn't in there, but I talked about this insurance arrangement. But I do think that's important. I mean, there are, most nations have insurance arrangements of one sort or another, which limit the operation of the market. Whether it's old-age pensions or whether it's national health care or whether it's a safety net--and these vary enormously from country to country. But you are locked into that contract, whether you'd like it or not, once you are in that nation. And in that nation, that gives you certain rights. It gives you certain obligations. And it gives you certain benefits. And other people [?] aren't a part of that.

Russ Roberts: I agree.

Angus Deaton: So, I just think it's nonsense to line up everybody in the world on a scale of 1-7 billion and say who is the richest and who is the poorest. And even if we could--which, thank God we cannot--would it be, if you, you know, could bring yourself, which I doubt either of us could, to think that world redistribution was a good idea--which a lot of people think--[?], the World Bank and the international organizations--all these people are somehow dedicated to this proposition, that redistribution of income making a more equal world would be a really good thing--then I don't think you could really do it that way. You would have to recognize the national borders in some part of that formula.

32:49

Russ Roberts: That's a really, that's an interesting point, that I don't--as you suspect--didn't shine through that piece as well as it could have. You couldn't[?] get to say exactly what you wanted. But I think the other point to make in response to that is that it's all well and good to say the top billion should be giving up money to the bottom billion. But it's a very different thing to say, 'Well, we're going to pretend the top billion are giving to the bottom billion.' But it really goes to the thousand in the bottom-billion countries who happen to be living quite well according to Western standards, even; and they siphon it off for themselves. And that to me--I mean, it's one thing to have a thought experiment about whether I should feel morally obligated to give up some of my own money, either for my fellow citizens who are poorer than I am or for citizens around the world. But to do so and have it go to enhance the bower of the richest people in those poorest countries to further subjugate their fellow citizens is a horrifying thought, which I'm afraid is something of what has actually happened.

Angus Deaton: And that's what I wrote about in the last chapter of The Great Escape, which we talked about before. I mean, I think, you know, it's nonsense--I don't know if we talked about this, but one of the examples I like to give is some cult member moves next door, you know, with a wife that he subjugates. And he exploits that wife and makes that wife do all sorts of things for him. So he lives in a life of luxury while this woman is essentially a slave. And you would like to do something about it. You know, giving him money doesn't seem like the best thing to do.

Russ Roberts: Correct.

Angus Deaton: Giving her money is a complete waste of time, because it goes straight to him. And then when you think that through, maybe it would actually be better to give money to him, provided you put some conditions on it. And even that won't work if your next-door neighbor says, 'Well, why are you putting horrible conditions on that guy? I'll give it to him for free.' And then you give him the competition with your neighbors to see who can shower the most money on this guy who laughs all the way to the bank.

Russ Roberts: Or you can put conditions on him that he pretends to follow but doesn't actually.

Angus Deaton: Yeah. That's right.

Russ Roberts: Before we move on--and we're going to move on to this issue--I have a couple of things I want to add to this discussion. I just want to go back and put a footnote to the earlier part of the conversation, because I think it's so important. I made the point that you agree with, that there are people who are harmed by any particular opening of certain trade restrictions, reduction of certain trade restrictions, or just through technology. Through all kinds of reasons. We have a dynamic economy; there's creative destruction; and I think it's dishonest of any side to say everything is "good for America," implying that that's good for every American, and that's certainly not true. At the same time, I think it's really important to point out that over time--and this is why I kept making this short run/long run distinction that economists get mocked for--but I think it's incredibly important in the long run, meaning in a generation or two: the children and grandchildren of that worker are almost always better off than their parents were before them. And that's not a coincidence. That's part and parcel of accepting the dynamism of the economy. I often use the example of agriculture. Certainly it was not easy on the farmers of America to watch farming go from 40% of employment to 2% of employment in the United States in the last hundred or so years. Many people dreamed their kids would own farms; they couldn't. Many children dreamed they would own those farms; they couldn't make that work, because of technological change and consolidation, larger firms being more efficient. And so fewer and fewer people were necessary to grow even enormous amounts of food; and that's a glorious thing for almost everyone except farmers. But it's even good for farmers, if you count their children and grandchildren. And they would. A farmer in 1900 who is told, 'I have bad news for you. Your sector is going to be devastated by technological change. Your children and grandchildren will not grow up to do what you do and what you dream of them doing. But don't worry: here's what their life looks like,' they wouldn't say, 'Oh, that's a terrible deal. Don't do that to me.' They'd say, 'Thank you. My children will live long. They will have rich lives of meaning. And they will also have tremendous material wellbeing.' So I think this whole idea of merely looking at the fact that trade with China makes life hard for some people--and I concede that and it's tragedy and we ought to find ways to make it easier for people to deal with--and I'm uncomfortable saying it, as you, I think are, also, given that I have not paid any particular price from that. I get all the benefits and few of the costs. But I don't think the costs are imposed on the poorest Americans say in the manufacturing sector with only a high school education. They are right now. But I think their children and grandchildren will live richer lives for it. That's my justification for open borders, not some Pollyanna-ish, 'Everybody-benefits and the gains from trade will all be distributed tomorrow.' They won't be. But in a couple of tomorrows I think they will be.

Angus Deaton: Well, I think as a factual matter, that's right. Whether everybody would make that choice for their grandchildren, I'm a little more pessimistic about human nature than you are.

Russ Roberts: Fair enough.

38:06

Russ Roberts: Let's move to a different, but not unrelated point, which is money versus meaning. One of the issues here--the way this debate often gets framed until recently was about material wellbeing. Which counts. But as economists, again, even though everyone thinks that's all we care about, it's not all we care about, and it shouldn't be all we care about. And so for me the fundamental issue about these changes that we're talking about, these dramatic changes do to trade or globalization or aid, they are about what people's, the texture of their daily lives, not just how much food they can put on their table.

Angus Deaton: Right. I think some of what Paul Theroux was arguing about the Deep South is that the cultural texture in which many but certainly not all people in Africa live may make it much easier to live on almost nothing than the cultural texture in the United States. And I think that that's what comes through very brutally in both the Desmond book and the Kathy Edin book. I believe in both of these situations you're out of equilibrium. Some of it is there are government programs in there that aren't working and are arguably making things worse. And so maybe that's a transition. That's not a way either of them would see it, but it's just that whatever safety net we have for many of these people is clearly not working, and whatever social structure would have been there that might be there in Africa, might be there in India, is not working either. So, I'm not on very sure ground here, because it's also true that I've been in villages in India where people don't have enough to eat, even, talking about social structure and everything is okay there, that doesn't cut much [?] with me, either. If you are watching your kids dying and you don't have enough to eat and you are being brutalized and you are treated more or less as a slave, that may be a better description of a lot of people in the world than saying they are happy poor people living in a caring society.

Russ Roberts: Yeah. I don't think we should romanticize any kind of poverty, ever. But I do think--not having read the Paul Theroux book--but I do think there's a difference in how people deal with low levels of income. Or a better way to say it is, 'Other things matter.' If you are not dying, if you are not starving to death, certainly there are many consolations in life which we all have regardless of our income level which make life not just tolerable but delightful. And I think there is a tendency--one of the results of our individualistic in liberty and tolerant culture of America is that some people get left behind. And we don't force them to do things any more, like we used to. We used to lock up people who were really different. And we called them crazy. And we put them in insane asylums. And I'm glad we don't any more. But I'm not going to tell you that they have an easy life the way they live now. They didn't either, before. It's a fundamental challenge. But I do think how people get by and what gives their life meaning goes way beyond the paycheck, the size of the paycheck.

Angus Deaton: I think that's true, but as we were saying a minute ago, extreme poverty can really destroy that.

Russ Roberts: Yeah. Oh, absolutely.

Angus Deaton: And we also know which way the correlations go. So if you look at almost any of these other things, to the extent we can measure them, they are graded[?] with income. That doesn't mean that everybody has correlation--we're talking about correlation, etc., way less than 1. But there is a lot more sickness; there is a lot of bad stuff goes on among poor people which compromises the quality of their lives. No doubt about it.

42:13

Russ Roberts: But, don't you think there is a view that's arising now that--maybe it's in your piece or maybe it's not, you tell me; and tell me what you really think--but there's this view that there's an arrogance of the elites and that the underclass perceives this and feels they are not getting respected. I want to take that argument seriously, and at the same time it's the kind of argument that an elite person would cook up for feeling guilty about something that maybe doesn't exist. So, what do you think about that?

Angus Deaton: Well, it's harder. [?] We're the elites. So, even if you think you are trying to think through this honestly, you know, the old saying that what you think depends on where you sit--you always want to keep that in mind. We do the best we can. I do think that here and in Europe and in Britain people have sort of to a large extent felt that they are excluded from the political processes that are important for them. And that, I think that's largely true. I was very persuaded by Larry Lessig's book, for instance, and I thought that it really has become a problem in the United States that there's really no very well defined political structure for many of these people. We used to have unions. And God knows, unions had lots of terrible problems. But there was some political representation for a lot of those working class people, and that's gone. And so I'm not sure any more. I mean, the Democrats seem to be--they have the same needs for money that the Republicans have. But, you know, it can't be entirely that, because money is much less important in Europe and yet there's a tremendous amount of disaffection in Europe, too. So, I think that's a puzzle that we don't fully understand. Anne Case and I wrote this paper at the end of last year about the rising mortality rates among white mid-life non-Hispanics, which is most extreme among people who have a high school degree or less. And this rise in mortality is not entirely driven but the biggest categories are rising suicide rates, rising drug addiction to mostly prescription drugs and overdoses from oxycontin and the like. And alcoholism. Those are nothing to do with the health care system--well, they are, but, you know, these are behavioral conditions, not an infectious disease of some sort.

Russ Roberts: Possibly goes the other direction; and it's possible that the health care system is subsidizing those drug habits.

Angus Deaton: Yeah. I mean, I think there's a lot of what we call iatrogenic medicine going on there. Which is that--oxycontin--you know, if someone had said 20 years ago, 'Wouldn't the health care system save a lot of money if it just gave someone heroin in a pill?' Well, that's sort of what we do. And it has very serious long-term consequences. It's going to take a long time to [?] do away and getting that fixed. But it was that finding, too, that Anne and I call these 'deaths of despair'--just for a label. And that suggests that this group is really, really seriously hurting. You can say, 'Well, they're not that poor. There's lots of opportunity here in America.' But you know they are killing themselves and ever larger numbers are taking these drugs and overdosing from them. And you know, I don't think we understand what that is. We've talked about getting together with David Autor and looking at whether his correlations are the same as ours. But, there's lots and lots of other explanations, and just about every Presidential candidate in the primaries talked about that paper in some form or another. And I could reel off a whole list of explanations--

Russ Roberts: I'm tempted to say 'Congratulations,' but I'm not sure that's in order. Something--

Angus Deaton: Well, I'm not sure, either. Well, you know, we did go to the White House with the other Nobel Laureates, and having Obama greet us and say 'We've got to talk about this paper'--it is sort of every academic's dream--that you go to the White House and the President wants to talk about your paper and has read it very carefully indeed.

Russ Roberts: Well, as your fellow Scotsman said, 'Man naturally desires not only to be loved but to be lovely.' And that's one of the better examples of getting some love. I mean, that's pretty--that's a thrill. Be careful. You are hardwired to love it.

Angus Deaton: We're hardwired to love it--well, we treat it with the appropriate degree of discount. But, you know, who knows? There's been a big decline in religion. If you believe some people, it's a cultural failure, among white people, which parallels the cultural people, failure among black people 30 years ago. You know, if you are [?] Putnam you think it's to do with the collapse of opportunities for these people's kids. Which is something we haven't talked about and is a serious matter. Or at least not a collapse but very much more difficult than it once was. And, you know, it's not so easy for kids to move if their parents aren't moving, if the local school system is not what it once was. I remember Joe Stiglitz telling me that in his high school in Gary, Indiana there were something like 5 National Merit Scholars in his year. While, now, hardly now anyone goes to college from that school. And, it's much harder for the kids to get out than their parents.

Russ Roberts: I wonder what expenditure is per student in Gary, Indiana, today.

Angus Deaton: It's probably gone up.

Russ Roberts: That's not the problem.

Angus Deaton: But, no, it's not the problem. Well, it is the problem in the sense that to make it much better would take more money; but if you put more money in, it would not make it much better. Like a lot of problems in the world.

Russ Roberts: Yeah. There you go.

Angus Deaton: So, anyway, there's just a lot of things like that lurking in the background. There's been a huge upsurge in pain, which we don't understand either--and it may be that, you know, if you get pushed out of a nice job at IBM (International Business Machine) and you are now working at McDonald's you have a lot more lower back pain than you did before. These are things we're working on.

Russ Roberts: Yeah. I think these are questions that are better answered, perhaps, by a sociologist. I don't think I'd ever utter that sentence, let alone on EconTalk. But getting at the underlying causes of some of these problems is not going to show up, I don't think, in the current Population Survey. It's going to show up in somebody going door to door or house to house or city to city, town to town, trying to figure out what's going on in people's lives on the ground, if you are really going to make the case that it's deaths of despair rather than something else.

Angus Deaton: I agree with that. But that's why studies like Matthew Desmond's and Kathy Edin's are so valuable. Because they've done that. Desmond went and lived in a trailer park for a year. Rented property in the black ghetto, and [?], they've done that ethnographic work. And you don't necessarily want to buy the macro stories that come with that work. But the work itself is immensely valuable, and I'm amazingly full of admiration for people who are prepared to do that.

Russ Roberts: Yeah. No, that's interesting. I don't know either of those books, or the Theroux book; and I look forward to looking at all of them. Another book that's getting a lot of attention these days is the J. D. Vance book, Hillbilly Elegy, I think is the title. And it's obviously on the same terrain, generally.

Angus Deaton: Same terrain but very different view.

Russ Roberts: Yeah.

Angus Deaton: Whether it's in the right--but a deeply felt experience, and a very impressive book.

50:43

Russ Roberts: Can I come back to a remark you made about Europe? You made the point that Europe feels, a lot of Europeans feel, I would call it, unrepresented, dispossessed. And they have a very different political system, typically, in many European countries than we do. They have ceded some power to the EU (European Union), which is inherently not particularly representative. But I think the other issue which seems to me to be really important which doesn't get enough attention is what I would call heterogeneity. So, when people feel "I'm not being heard," or "I'm not being represented," that's a lot more important when you have an incredibly diverse country like the United States compared to, say, Norway. So, Norway is small. It's incredibly homogeneous. So, there's not going to be a lot of political malaise. There's not going to be a lot of people who feel like, 'What's in it--where's my share? Where's my goodie,' out of Oslo, out of the equivalent of Washington, or whatever capital we're talking about in Europe. And so much of it, it seems to me, is that--I desperately want to get more stuff, personally. My philosophical view is I want to get more stuff out of Washington so that politically powerful people can't steer it toward themselves. Because we are a diverse country; and by definition there's nothing that's good for 'us': there's things that are good for me, not so good for you, great for her over there. And it just seems to me that in a diverse country like ours, increasing political power in Washington is going to increasingly lead to this kind of disaffection and anger.

Angus Deaton: Yeah. There's a lot of stuff in there, and I'm ambivalent about it, at least some of it. The Norwegians are not so happy, because there's been a lot of discussion about this so-called Norwegian solution for Brexit. And, you know, the Norwegians effectively have to obey the rules of the EU without having any vote in the EU. So, that's sort of like, we're back to the Montana situation [?]. And also, I don't know how much Scandinavian noir mystery novels you read--

Russ Roberts: A few--

Angus Deaton: There's sort of a whole anime[animus?--Econlib Ed.] and concern about immigration and lack of homogeneity. Sweden has been enormously generous in doing what none of the rest of us will do, which is having an aid policy that allows foreigners and others to come and live in Sweden. And it's produced tensions, too. So I'm not sure that--I think that the homogeneity of those countries can be overstated. It's also true, of course, that I think they are much more different one from another than is the case in the United States. If you get on or off an airplane in Budapest it doesn't look the same as when you get off an airplane in Madrid. Whereas in the United States it does to a first approximation sort of look the same. That's not to say that there aren't lots of variations. And I think that's being [?] a problem, which is: if you are ruled from a not very democratic EU in Brussels it's even worse than Montanans or Alabamans being ruled by Washington, where at least we do have a lot more in common than they do that. But I do think you are seeing this thing that--Rawls would have called it this tyranny of supranational rule, because there's no way of doing it that doesn't tyrannize someone. On the other hand, you know, there are clear examples where if you don't have central control, awful things are going to happen. And have happened. Like civil rights, being an example.

Russ Roberts: Yep. There are tradeoffs, for sure.

54:30

Russ Roberts: Let me raise a policy space to see where you come down. So--that's a terrible sentence. I don't know what I meant by that. I'm going to shift gears, because I want to hear what you think about the following. Let's accept as a fact that there are large numbers of people in the United States who are struggling, whether it's for meaning, whether it's financially. Some of it, I've argued, is a result of the way we measure income over time and household structure, so that's also gone on at the same time. But let's put that to the side. Everybody would agree that there are some people who have a tough time. It could be because of trade, that they are having financial difficulties because foreign workers compete with them more directly. It could be because of immigration: they come here and compete with people more directly. It could be because of technological change: that a skill that they once has is no long of value. Or it could be cultural: they are doing okay but they don't, for whatever reason, their job does not give them much satisfaction and meaning in their life; or other institutions have withered that once gave them or their parents meaning in their life. Whatever the answer is, the actual reasons determine what our policy might be if we wanted to help these folks. But it seems to me that improving the education system is a winner--if we know how to do that--no matter what the cause. Would you agree with that?

Angus Deaton: Yeah. I would. And I've come to realize that more and more over the last year or so, as we've been talking about these things. And it's something--you and I talked about The Great Escape, and one of the great things that's missing from The Great Escape is enough discussion about education. And I don't know very much about education. It doesn't seem like we've been very successful in making it happen, though, in those communities. I was very impressed by Bob Putnam's book and just this argument that a kid like him, who grew up in, I guess, Port Clinton, Ohio. His argument is that, you know, he could go from there and be a Harvard professor and a very distinguished political scientist and sociologist; but the chance of that happening now are very remote. And he's arguing, and I don't know if it's true, but he makes a plausible case that inequality [?equality?--Econlib Ed.] of opportunity has much decreased in the United States. And you don't know that until you wait 50 years or 25 years and see what the correlation between fathers' and sons', or mothers' and daughters' incomes are. And he's sort of impatient and says, 'Well, let's look at what's going on now, and let's look at these mechanisms.' And they seem to be breaking down. And I think it would be terrific if we could stop that. We've talked about this at various points: we have this very dynamic economy. If it's not working for you in Montana, you know, go to Arizona or go somewhere else. But it's hard to do that for kids.

Russ Roberts: By 'kids,' you mean an 11-year-old.

Angus Deaton: Yeah, an 11-year-old. And I think for me, that period of my life from sort of 7-14 or something, was an incredibly important period. And I was lucky enough to have terrific educational institutions even though we had no money and we were just desperately scraping by, the educational things. And so the sky was the limit, and I could go anywhere. And I did. And, you know, [?] was the same. So it really would be a bad thing, if it is true--and Putnam knows that he has not nailed it. But it's very, very suggestive, if it were true that we can't do that any more.

Russ Roberts: Yeah. Well, it also makes Harvard education a lot less interesting than it would otherwise be, as well.

Angus Deaton: It makes what education?

Russ Roberts: Harvard education. If everybody who teaches at Harvard grew up in the suburbs of Boston--

Angus Deaton: Yes. Yes.

Russ Roberts: and the wealthy suburbs of Boston, I think that's another factor. People would argue--mainly they'd worry about the effect on inequality. But it also--there's a literal quality issue there of background. Well, that's okay. Other schools--

Angus Deaton: No, actually I think that's not true. Because--and in economics I know the numbers, and in other subjects apparently the same--something like, in the Princeton Economics Department the last time I counted there were 35 different countries [?]. And that's happening throughout academia in the United States. So that, to some extent, has substituted for domestic opportunity, if that is what has happened. And I think it actually is very important and under-recognized, that there's been this huge shift in American academia that comes with globalization. But I went to the opening exercises at Princeton a couple of years back, and you know, they give [?] to all the underclassmen, and women, because the seniors got them when they graduated. And they read out the schools they've been to. And both Anne and I were just astonished by the extent to which they were private, you know, well-endowed American private schools.

Russ Roberts: Yep. Well, there's some truth to that. And some of it's probably an artifact of the baby boom and the desperation with which people are trying to squeeze their kids into the handful of first-rate schools--which, there can only be a handful, by definition, if you only care about relative quality and not absolute quality. And it's a challenge.

Angus Deaton: And also inequality partners[?] that up, too. I mean, there are a lot of very rich young people with small caps[?].

Russ Roberts: With what?

Angus Deaton: With small caps.

Russ Roberts: Meaning?

Angus Deaton: Well, I mean, if you look at New York City, where my son lives, for instance, you don't know the competition to get into even kindergarten is cutthroat. And it's not as bad in other cities, but you see it everywhere to some extent.

Russ Roberts: Yeah, no, that's true. It's worse there, but it's bad in lots of places.

1:01:13

Russ Roberts: Well, let's close with some optimism and cheer if we can find it. We both are somewhat, I suspect, uncertain about our ability to either change the quality of the American school system or to get those changes that we might desire in place. You think anything else can happen in the short or medium run that's going to help people cope with the kind of changes that are coming, in technology perhaps if not trade? As one EconTalk listener pointed out to me, the Autor effect, the China effect, is probably a one-timer. It was the result of hundreds of millions of Chinese moving to cities and wanting to work in factories. It maybe accounts for--it's still only a portion of the changes in manufacturing--

Angus Deaton: Automation has got to be more important, right? It's not going to go away.

Russ Roberts: I think it is. Well, that's true. So, got anything to be cheerful about?

Angus Deaton: Well, I'd like to see much more attention paid to campaign finance reform, as paid to campaign finance reform. I don't think we can have a very good politics when Congressmen and Senators spend 80% of their time raising money. And it affects, you know, what sort of voices are heard in Washington, and I think that certainly contributes to the problem. You wanted me to be optimistic, and I'm not very optimistic that that might happen, but it would be really good if it were on more people's radar.

Russ Roberts: I couldn't disagree more.

Angus Deaton: Really?

Russ Roberts: I can't--to think that that would--first, I'm not even sure that would improve things. But secondly, I don't think it gets at the underlying problems in an important way. I don't think the--that people in Congress don't have enough time to solve our problems is not, to me, the problem. So, whether they have the incentive to do it, you could argue, is a result of the money. But I don't know--I just think there's deeper things going on here that are not related to Washington. Certainly the perception is, though; that part I agree with.

Angus Deaton: Yeah. Well, people don't feel they are being well represented by people who are beholden to interests that they think are very opposed to them. I think that perception is a big problem in its own right, because not perceiving that you are well represented is a diminution of liberty in itself.

Russ Roberts: Yeah, I agree with that.

Angus Deaton: So, anyway. But I do think the dynamism of the place and the fact that, you know, there are lots of people who are doing very, very well. And I think, for instance, my own subject, which I know best, I think it's been improved immeasurably by this influx of all these people with all these different backgrounds. And that part of globalization I think has just been wonderful. And it's made economics an infinitely more interesting subject than it used to be.

Russ Roberts: Well, let's close on that somewhat cheery note.



COMMENTS (38 to date)
Floccina writes:

I have known a lot of people who like to get up in the morning and start getting high (pot, THC, whatever). I have trouble relating to that because I do not have that desire at all but none of them seemed to be in any particular despair. As far as I could tell it was entertainment. So I think the opium epidemic is due to more access to opioid and people liking opioid.

Also I went to some high rated schools and some low rated schools and the only difference that I could see was the quality of the students. I think you are both putting way too much hope in schooling. I think that research shows that schools cannot really get the students to learn much more but they could improve by:

1. Teaching more valuable life schools. That is if you cannot get them to learn more focus on getting them to learn the more valuable stuff for their lives. Consumer and practical skills.
2. Change the hours of schools to better support working people. that is cover most working hours.
3. Focus on spending less money on administration.

Trent writes:

A wide ranging discussion that kind of shocked me at the end when Prof. Deaton recommended campaign finance reform as where he'd start with a solution.

Maybe he means something else by that phrase, but it's typically used to mean public financing of campaigns - that a set amount of tax dollars would be given to each candidate for use in their campaigns, and that's it. To me, this would change the politicians' focus from the entities where they get their money today (individuals, PACs, unions, etc.) to the entity that would be in charge of financing campaigns.

Surely a new bureaucracy would have to be created to decide which candidate gets how much money and for what race. Or, if it's somehow filtered through the political parties, then they gain an immense amount of power. Either way, the gulf between politicians and the people they represent would necessarily have to widen under 'campaign finance reform' rather than shrink.

Charles Chandler writes:

Sorry, but Angus Deaton is not correct when he says, "the World Bank and the international organizations--all these people are somehow dedicated to this proposition, that redistribution of income making a more equal world would be a really good thing."

Except for safety nets (which are encouraged), the World Bank and other international organizations do not advocate redistribution, as your guest states, but rather focus on improving the productivity of developing economies. This amounts to investments in infrastructure and other efficiency improvements in different sectors of an economy that serve to generate economic and social benefits (this is not redistribution to improve consumption).

Ralph writes:

I'd just like to introduce to the discussion the fact that much of the true poverty in the US is rural people who refuse to move from a home they own, that many would consider a hovel, into a government subsidized housing project, mainly because they are either too independent and proud or they are frankly scared of the subsidized neighborhoods and the drugs and violence.

I grew up in the rural south, and homes with wells and handwashed laundry hanging in the yard were common. Even with electricity available it is rarely used. I can point out examples even now. Widows especially live out their days on the land their husbands farmed. Churches become their lifelines.

Many people live like that because they prefer it to the alternative. Their homes are often hiding in plain site, tin roofed shacks or even picturesque but run-down farmhouses near large modern estates. A friend in school once pointed out such a home and said it's shameful that in America live in such poverty. I dared him to try to walk up on the porch and ask her to move into an urban ghetto: she'd probably pull a shotgun.

Usually, when we think of poverty we think of ghettos, but city ghettos have access to an abundance of services - the healthcare and education the author mentioned.

Ralph writes:

In the US, the military is better educated generally than the rest of the country. Most have completed high school, and officers have college and higher education.

Ralph writes:

Much of the discussion is the difference between maximizing economic utility vs maximizing lifestyle. Open borders and free trade would be great if all areas are equivalent in terms of lifestyle, including rights, justice systems etc. In reality they are not, so there is a give and take. European Community countries have found economic management virtually unmanageable even with the similarity of their first world economies. The difference between first world and third world is much greater.

Just as people are brand conscious, they are culture conscious and are willing to pay more to preserve that perceived advantage.

Nonlin_org writes:

Let's retire Robin Hood - his likes go to prison in any country.

"giving an extra dollar to a rich person is worth less than giving an extra dollar to a poor person" - giving, really? How about earning?

India is not poor due to the lack of global trade, but to misguided local policies. Others cannot help if they don't want to help themselves.

Income distribution and cosmopolitanism become irrelevant once people are simply allowed to do their best. In general, economists pretending they are in charge of the world economy is a misconception. More humility is needed (in fairness, I did hear some today).

DiggletheMoid writes:

Around the 37 minute mark Russ lays out a vision of extreme optimism about the future. I agree with this prediction, but it seems weird in the larger context of the conversation about Robin Hood.

Suppose Haitians started a charity in Haiti that collected their meager amount of money and sent it to the United States. Or say the Haitian government sends the USA an impoverishing amount of its tax revenue each year. That is how I view growth-chasing economists. Sure, if we invested more our grandchildren would be even better off, but they are going to be much richer than us. We will look like paupers!

There is an underlying inconsistency to care about contemporary international poor today but not care about intergenerational poor people.

This isn't even factoring in the discount rate for future souls.

SaveyourSelf writes:

Right at the start of the podcast Angus Deaton said,

“And this [the Robin Hood Principle] is the idea that somehow, giving an extra dollar to a rich person is worth less than giving an extra dollar to a poor person. And so, the world would be a better place if you could do that. Which is, take money from a rich person, give it to a poor person.”

Stop. Hold the podcast. Russ, you can’t talk about anything else with this Nobel Laureate until we’ve cleared up this misconception because, unquestionably, Angus Deaton couldn’t have just made that statement without immediately following it with, “but that’s pure hogwash.” Surely he didn’t just describe the most patently false statement ever uttered by an economist without making it clear to the whole world that it is unquestionably false. Yet he did. He just breezed over it and walked on, almost as if he agreed with it!

Thank god Econtalk is also a blog. Allow me to clear this up.

This “Robin Hood” idea is based on the premise that, at the margin, a dollar is less valuable to a person with many dollars than it is to a person with few dollars AND a second premise that taking from a person who values a thing less and giving that thing to someone who values it more creates a net improvement.

First off, these premises are based on “value.” Value is a slippery concept. For one thing, value determinations are necessarily made at the level of an individual. Like an electron, value judgements are in constant flux and enormously difficult to pin down. For example, the value of water changes constantly depending on an individual’s level of thirst and the value of diamonds also constantly changes depending on the value of water and every other value the individual holds. Since value is in continuous flux inside each person, it cannot be determined outside of a person by, say, another person. Thus we cannot know, in advance and for whole groups of people, that one group values money more than another at the margin with any certainty.

Second, because value judgements are always changing and impossible to determine outside of a single person, it is impossible to compare values between individuals in advance. However it is possible to compare values after the fact in a low friction, open trading environment like a market. In a market, one party can declare a value for an item and a second party, if he feels the item has more value for him than the declared offer, can accept the offer and a trade takes place. Thus we can observe value differences and—to an extent—measure those differences after an exchange has occurred, which is one of the many amazing things about markets.

Importantly, Ronald Coase tells us that an exchange won’t happen—even when the true subjective values previously discussed are markedly different—if transaction costs—costs required to make a trade happen—are higher than the difference in the value judgements between the two trading partners. Economists call such a stalemate an, “arbitrage opportunity”, which is an opportunity for a middle man to enter the equation to help the transaction occur by bridging/reducing/overcoming the transaction costs. “Markets” are places people gather to minimize transaction costs of trading. Markets frequently form around arbitragers and/or attract arbitragers after they form.

Third, Arbitrageurs, by definition, reduce transaction cost. The opposite is true for thieves, which is why theft is immoral in a utility maximizing system—it increases transaction costs and violates Justice.

Forth, “Justice,” as a concept, means withholding actions which cause harm to another person. Justice means, “Do no Harm.” Hitting another person harms them and is therefore unjust. Trading with another person who does not desire to trade also harms the unwilling party and is considered Unjust. We presume if a trade does not occur spontaneously but is made to happen anyway, then the person forcing the trade actually values the item less than the person who opposes the trade after accounting for transaction costs. For brevity, we call forcing a trade against someone’s will, “stealing.” We call the ability to force someone to trade against their will, “Monopoly power.” Thus stealing is an exercise of Monopoly Power.

Fifth, frequent trading is often referred to by its shorthand title, “a job.” It follows, therefore, that subjective value differences—which fuels trade—is also the fuel that drives job creation. “Jobs” and “Job creation” are the constant fodder of politicians, most of whom don’t seem to understand what jobs are or what conditions lead to job creation. Here it is made clear: resolving differences in value judgements through trade and reducing transaction costs make jobs.

Sixth, Government “redistribution” is, in fact, taking from one individual and giving to another individual without actually knowing—because it is not possible to know—the value any party except the government attaches to the money. Though there exists a truly infinite number of possible value differences in this formula, there are only three broad scenarios we need to consider.

  • 1) The recipient of the money [here the poor person] values the money less than the victim [here the wealthy person] from whom the money was taken.
If the “wealthy” individual—the victim in this case—values a dollar more than a “poor” person, then the trade would never have occurred naturally. Thus the government’s role here is to force a trade. Forcing a trade is stealing, by the definition given above. It is a simple robbery scenario made slightly more complex because it is performed by a third party—robbery by mercenary, if you will.
  • 2) The recipient of the money [the poor person] values said money more than the victim [the wealthy person] from whom the money was taken before transaction costs are considered. However after transaction costs are included, the recipient of the money values it less than the victim.
This is an arbitrage opportunity. The transaction wants to take place spontaneously but cannot because the transaction costs are too high. If someone can step in and reduce those transaction costs, then the trade will take place automatically. Arbitrage is valuable from the perspective of both the buyer and the seller, meaning both would be willing to pay for that service if it costs less than the total difference in their value judgements. In this setting, all three parties would benefit from the exchange, so it would, likely, happen naturally without any coercion. However, we’ve already stated the government was forcing this exchange to happen, so it is certain that the Government has failed to function as an arbitrage agent and had to result to force to make the exchange take place. If that were not the case, redistribution would be a voluntary program, not a “tax” punishable by imprisonment or worse, and it wouldn’t involve Robin Hood so we wouldn’t need to talk about it. Therefore, we can safely ignore the aspect of this scenario where the government adds utility.
  • 3) The recipient of the money [the poor person] values that money more than the victim [the wealthy person] from whom the money was taken even after transaction costs are taken in to account.
In this set up, a trade would have occurred spontaneously, especially if the difference in perceived value by each party was large and the transaction costs were small. In such a scenario, the addition of a third party, like the government, is an unnecessary expense that only increases transaction costs. Higher transaction costs decreases the total number of possible trades and, ultimately, reduces the number and profitability of jobs.

Seventh, to summarize, this whole Robin Hood thing is, at best, an entirely unnecessary intervention adding unnecessary costs to trade or, at worst, institutionalized theft. As bad as that is, that’s not all that’s bad or even the worst of the bad. In addition to higher transaction costs, violations of Justice, fewer trades and fewer jobs, redistribution also creates a situation where the costs of the trade and the benefits of the trade are each experienced by different parties. The recipient of the money [here the poor person] gives up nothing in the exchange. To him—the poor fellow—the exchange has no cost, only benefits. “Costless benefits” are called, in economics, “Public Goods.” Public-goods scenarios are one of the two major known causes of market failure—the other being Monopoly. As we already discussed, the ability to force someone to make an exchange they would rather not make is called Monopoly power. So redistribution is, literally, the use of Monopoly Power against one person [here a wealthy person] to establish an artificial Public-Goods scenario for another, relatively poorer person. Redistribution is, no joke, COMBINING of the two known causes of market failure in a single, coherent system.

Concluding, is it any wonder that Socialism—that grand application of the Robin Hood Principle, through the Government, to [most] individuals in the society—kills the market economy? Markets exist to reduce the costs of trade. Trades exist to increase the standard of living of the traders. Fewer trades means a lower standard-of-living for traders and fewer jobs overall. Involuntary redistribution by the Government, therefore, is the ideal method to maximize poverty and unemployment across a society. What then, after the death of the markets, is left to perform the necessary role of rationing scarce resources except centralized rationing?

“Centralized rationing” is that system where one person decides for others what trades occur, when trades occur, between who they occur, the values of the trades, etc. It requires one person or a group of people to define for others their values. Such “rationing by others”—also called, “slavery”—is the least efficient economic system ever devised by man. Slavery in the deep south of the USA prior to the Civil War was a prototypical centralized rationing system, at least for the blacks. The USSR prior to collapse was a classic, centralized rationing system. Hitler’s Germany in WWII was a centralized rationing system. In fact, totalitarian states are, by definition, centralized rationing systems. In other words, redistribution is an inefficient, immoral contrivance designed to, ultimately, remove power and money from both rich and poor alike and transfer what is left to government workers, but even the government workers are made worse by the arrangement because what is left in a centralized rationing system, even when horded by a single group, is so very much less than what is available in a competitive market system even when spread out.

To wit, there are no winners in the society that elevates Robin Hood from outlaw, to idol, to Monarch.

Mark Crankshaw writes:
Shouldn't we give some extra priority to our fellow citizens, because they are fellow citizens? As opposed to just treating everybody in the world as if we were all one country together.

There is, of course, another ethical permutation, and in my view, the superior one. "We" could give no extra priority to our fellow "citizens" and NOT treat everybody in the world as if "we" were all one country together. My concern for "everybody in the world" is equivalent to the concern "everyone in the world" has for me: I have absolutely none.

"Citizen" is such a vacuous term, as is "country". I completely disagree with the assertion that I should have a feeling towards "Americans" greater than the complete lack of feeling between me and "non-Americans". No such feelings for "Americans" exist in just the same way as Non-Americans, because there is absolutely no basis for it. The appellation "American" tells me nothing of the race, ethnicity, ideology, religion, interests, experiences, character or anything else meaningful of any it allegedly "describes". That is, the term "citizen" is completely devoid of any factor that would form a basis of "connection". An "American" could be a child-raping, communist, anti-social lout of the worst sort just as easily as anything else.

I agree with Dr. Deaton's assertion that our "relationship" with the State and our fellow "citizens" exists whether we like it or not. I further contend the nature of the relationship is completely unsatisfactory for millions of Americans.

However, I liken my relationship with the State to being forced, literally at gun point, to buy an unsatisfactory product from a monopolistic goods producer. Why does this imply that I should feel "ethically" bound to other State subjects simply because they are also coerced to buy from that same horrible exploitative producer. They are nothing to me and I am nothing to them.

If I had a monopolistic Cable TV producer, was forced to buy Cable TV from that monopolist, would this ethically "bind" me to the mass of people also being exploited by the Cable TV producer? How so? I completely disagree. I don't know these people, don't want to know them and I certainly am completely disinterested in the multitudinous "problems" of other cable TV "customers", most of which are self-inflicted, merely because we share the same lousy and despised cable provider.

The State, as monopolist, profits (politically and financially) from me being politically bound to other "Americans" and therefore forces me to do so. Fair enough, they are well armed thugs who get nasty to anyone who doesn't obey them. However, that has nothing to do whatever with ethics. It is merely an unjust political imposition I absolutely loathe.

Harvey Cody writes:

The discussion of military compensation and what, if anything "we" owe military personnel missed a huge factor, one of high economic significance.

Monitary competition and employee benefits for military personnel are relatively low given the risks, burdens, labor, sacrifices and commitment they must accept. Joining the military (or a police force), however, provides compensations other than pay and benefits which an economic discussion should not ignore.

It is likely true that some people have few, or perhaps no, better job opportunities than the military. There is little reason to believe that represents a large fraction of enlistees. It is also true that people in some places (say Montana) are more civic minded, patriotic or duty bound than the self-centered and entitled youth of other places. It was incorrect and unfair to suggest otherwise with the large cohort of enlistees who could make it in in the marketplace.

A huge component of compensation to military personnel is the respect, admiration and appreciation (both real and imagined) they experience for taking up such a noble calling. Whether every mission on which they are deployed is noble is not their decision or relevant to the nobility of standing ready to protect their loved ones, their community, their nation or peoples elsewhere who are unfairly attacked, or to preserve freedom (or what is left of it).

The societal benefit of people willing, if not desirous on accepting such non-monitory compensation means the country can defend itself and others more cheaply than if that feeling of being respectable (lovely?) were not present.

So, in addition to being unfair to diminish what they do by suggesting they have no alternative, it's bad economics.

David writes:

I had a younger highly educated, well read, brother who died from alcohol abuse. He fit the age bracket you described. It seems to me, even with a grand knowledge base, most professional jobs become cookie cutter, mundane, pursuits.
Imagine Sisyphus. After the allure of being embedded in learning we are turned out to mostly employment of repetitive tasks and narrow in expertise. The human mind wants variation, craves it, yet we move 180 degrees in opposition. We specialize in our craft, we know only a small slice of the world.
Next time your in traffic look around at the blank stares who hurry mindlessly from one task to another, checking boxes along ones way. Why does this demographic take their own lives you ask? As a Doctor of Pharmacy I believe it's deeper than access to Rx medication. There is a deep dissatisfaction
with the shallow nature of our material society. That is why I no longer play the game. No longer on the Merry Go Round.

Patrick Allen writes:

People are taking the whole Robin Hood thing completely out of context. Nobody is advocating direct redistribution here. It's more of a guiding principal when deciding between different policies: when this policy is implemented there will be winners and losers, how do we weight these together in order to come to a decision?

In general, it has been viewed that if poorer people are the winners and richer people are the losers then this is a net benefit, and these things can be compared across otherwise acceptable policy choices. Nobody has been advocating this principal as the only guiding force for policy decisions.

If you believe in liberty of some sort as the end all be all in morality and ethics, it's difficult to have this discussion. If you open yourself to the possibility that some form lf consequentialism is at least relevant in some realms, you'll have an easier time understanding the discussion.

Harvey Cody writes:

Saveyourself, "Allow me to clear this up."

The alleged fallacy you purported to clear up was this:

“And this [the Robin Hood Principle] is the idea that somehow, giving an extra dollar to a rich person is worth less than giving an extra dollar to a poor person. And so, the world would be a better place if you could do that. Which is, take money from a rich person, give it to a poor person.” [You have misstated the argument somewhat, but let's go with it.]

Rather than clearing anything up, you have muddled the two points raised in the quote to no avail.

The points are (1) "An extra dollar to a rich person is worth less than giving an extra dollar to a poor person," and (2) Therefore, humans would, on average, be better off (welbeing would increase overall) if money were taken from the rich and given to the poor. You nip at the heals of the first point, and wax elegant about the shortcomings and dangers of engaging Robinhood activity, apparently assuming you had already refuted the first point.

You correctly identify the shortcomings and evil of Robinhood activity. That's all well and good. As Sowell so wisely instructs us, however, there are no solutions there are only trade offs. So unless you truly refute point (1) - which you did not - the relevant question is: Are the benefits of Robinhoodism greater or less than the detriments of Robinhoodism. In short, you did not get at the heart of the matter, so you did not clear up anything.

Because I have been both poor and what many people would call rich, I can tell you from personal experience that a constant dollar was far more valuable to me when I was poor than it is to me today. While you are correct that value is subjective, and I will concede there are likely some rich people who value dollars more than some poor people, you have not refuted the generally accepted economic principle of diminishing returns. Until you do that, it is fair to assume that, in general, rich people value dollars less than poor people. This is exemplified by the fact that when a poor person sees something expensive on a store shelf she is apt to ask herself whether she can afford it, while a rich person is more apt to wonder where will he store it or what must he put into storage so that he can display this item.

That being the case, in a very real sense, in general there would be positive effects of redistribution. I, like I suspect you, believe that the positives of redistribution outweigh the detriments of redistribution. Clearing up why that is so would have been valuable.

Frank Bresz writes:

During the discussion you asked about Walmart locations and the number of people within 20 miles.

A close answer. 90% live within 15 minutes. (Not really sourced)

https://m.reddit.com/r/todayilearned/comments/17fza7/til_90_of_americans_live_within_15_minutes_of_a/

I recall once a friend was getting directions to Walmart and the GPS announced - there is a Walmart 110 miles from here.

I stated flatly - that's against Walmart corporate policy.

[By the way, the source is listed in the Readings at the top of this page. It's Business Insider, presumably using numbers reported to them by Walmart. http://www.businessinsider.com/crazy-facts-about-walmart-2012-11#90-percent-of-all-americans-live-within-15-miles-of-a-walmart-14.--Econlib Ed.]

Ralph writes:

"I recognize that individual charity almost always produces useful results. It devotes itself to the greatest miseries, it seeks out misfortune without publicity, and it silently and spontaneously repairs the damage. It can be observed wherever there are unfortunates to be helped. It grows with suffering. And yet, it cannot be unthinkingly relied on, because a thousand accidents can delay or halt its operation. One cannot be sure of finding it, and it is not aroused by every cry of pain."

"I admit that by regulating relief, charitable persons in association could infuse individual philanthropy with more activity and power. I recognize not only the utility but the necessity of public charity applied to inevitable evils such as the helplessness of infancy, the decrepitude of old age, sickness, insanity. I even admit its temporary usefulness in times of public calamities which God sometimes allows to slip from his hand, proclaiming his anger to the nation. State alms are then as spontaneous as unforeseen, as temporary as the evil itself. I even understand that public charity which opens free schools for the children of the poor and gives intelligence the means of acquiring the basic physical necessities through labor."

- Alexis de Tocqueville Memoir on Pauperism, 1835.


"But I am deeply convinced that any permanent, regular administrative system whose aim will be to provide for the needs of the poor will breed more miseries than it can cure, will deprave the population that it wants to help and comfort, will in time reduce the rich to being no more than the tenant-farmers of the poor, will dry up the sources of savings, will stop the accumulation of capital, will retard the development of trade, will benumb human industry and activity, and will culminate by bringing about a violent revolution in the State, when the number of those who receive alms will have become as large as those who give it, and the indigent, no longer being able to take from the impoverished rich the means of providing for his needs, will find it easier to plunder them of all their property at one stroke than to ask for their help."

- Alexis de Tocqueville, Memoir on Pauperism 1835.


"Any measure that establishes legal charity on a permanent basis and gives it an administrative form thereby creates an idle and lazy class, living at the expense of the industrial and working class. This, at least, is its inevitable consequence, if not the immediate result. ... Such a law is a bad seed planted in the legal structure. Circumstances, as in America, can prevent the seed from developing rapidly, but they cannot destroy it, and if the present generation escapes its influence, it will devour the well-being of generations to come. "

"Individual alms-giving established valuable ties between the rich and the poor. The deed itself involves the giver in the fate of the one whose poverty he has undertaken to alleviate. The latter, supported by aid which he had no right to demand and which he may have had no hope to getting, feels inspired by gratitude. A moral tie is established between those two classes whose interests and passions so often conspire to separate them from each other, and although divided by circumstance they are willingly reconciled. This is not the case with legal charity. The latter allows the alms to persist but removes the morality.”

"The law strips a man of wealth of a part of his surplus without consulting him, and he sees the poor man only as a greedy stranger invited by the legislator to share his wealth. The poor man, on the other hand, feels no gratitude for a benefit that no one can refuse him and that could not satisfy him in any case. Public alms guarantee life but do not make it happier or more comfortable than individual alms-giving; legal charity does not thereby eliminate wealth or poverty in society. One class still views the world with fear and loathing while the other regards its misfortune with despair and envy. Far from uniting these two rival nations, who have existed since the beginning of the world and who are called the rich and the poor, into a single people, it breaks the only link which could be established between them. It ranges each one under a banner, tallies them, and, bringing them face to face, prepares them for combat."

-Alexis de Tocqueville, Memoir on Pauperism, 1835.

Mark Crankshaw writes:

@Harvey Cody

Therefore, humans would, on average, be better off (welbeing would increase overall) if money were taken from the rich and given to the poor.

Not if the "overall" average of "well-being" were weighted correctly. I would add weights to the well-being based on how important that individual was to me. I am very important to myself, so I would weigh my well-being by, let's say 10,000. Someone I don't even know is not important to me at all, I would weigh their well-bring by 0.000001. Using such weights, even given the absurdity of mathematically quantifying "well-being", even a tiny decrease in my well-being may be greater than an enormous increase in the well-being of someone I don't even know.

Using an unweighted measurement of "overall" well-being is completely arbitrary. Using the weight scheme I used above is also completely arbitrary. Which is better? Any answer is purely subjective, a mere opinion.

I myself absolutely do not believe the positives of redistribution outweigh the detriments of redistribution. Any claim that it does is both arbitrary and subjective. Redistributors and advocates of redistribution, in their zeal to cash grab, never spend much time examining why some people are "poor" and some people are "rich". In my opinion, they tend to arbitrarily, subjectively and steeply discount the effects of effort and ability, the effects of life-time income cycles, the effects of prudence and the ability to postpone gratification (or the relative lack of any of the positive attributes above).

Your quote above is therefore not objectively true. It is only your subjective opinion. In my opinion, the weighting scheme used in your supposition is completely inappropriate and, using the weights I prefer, the supposition is generally false.

Mark Crankshaw writes:
And so I think we owe people something for that, and we have a Veteran's Administration, and we have various benefits to veterans. We revere our veterans. We pay a lot of attention to them. I think that's right.

I understand that Angus Deaton is not the first guest to abuse the term "we", but I really wish that that inclusive term were no longer used in that way. Who exactly is this "we" that is doing the owing, revering, and paying attention? It certainly doesn't include me and millions of others.

Being a proud religious, political and civil heretic thoroughly grounds one in the concept that there is no all-inclusive "We". Some people may revere and pay attention to the military. The ruling class certainly does (see the Roman Empire for what might happen if they didn't). Perhaps even most people revere and pay attention to the military, but that in no way implies that the rest of us who don't should therefore start owing the military anything more than they are already extorting from us. I don't owe anybody I don't know anything. Full stop.

My father fought in Vietnam. He told me about his military experiences, and that didn't exactly lead me to "revere" the military. Everything I have learned about the military and war since has led me in the exact opposite direction of reverence. Our military solely serves the interest of the ruling class, and spends most of its' time and money enriching the top Pentagon brass and a coterie of affluent arms manufacturers and throwing endless amounts of money into other military/corporate black holes. You can't miss that living in Northern Virginia as I do. The US military is the biggest socialist enterprise in the history of mankind (completely centrally planned, politically directed to achieve social "goals"), and everyone should know how I feel about socialism by now...

Military personnel get paid for the "services" they provide-- money coerced from me--- that means they don't get anything else from me (like reverence, gratitude, etc.). Most of that "service", invading other countries, interfering in the domestic politics of other nations, I simply don't want. In the age of "global terror", it seems they spend most of their efforts stirring up hornets nests knowing that it's the civilian population that will get stung. Gee, thanks a lot.

Harvey Cody writes:

@Mark Crankshaw

While I believe your weighting system renders all economic analysis pointless, your comments point out that I made a terrible error in my comment.

I meant to say "I, like I suspect you, believe that the detriments of redistribution outweigh the positives of redistribution. Clearing up why that is so would have been valuable."

In short, I stated the precise opposite of what I believe.

So in that respect, you and very much agree.

Ralph writes:

Veterans are not receiving charity. Veterans are contracted to provide a potentially deadly service, and as a contractual obligation, they are compensated for their service. That repayment outlasts their time of service, but the time difference doesn't make it charity.
Veteran's benefits are payment for services rendered.

Mark Crankshaw writes:
While I believe your weighting system renders all economic analysis pointless, your comments point out that I made a terrible error in my comment.

I'm glad we are in agreement about that.

However, my point was that an arbitrary set of weights is always being used in that type of economic "analysis". The unstated weight in the typical "well-being" analysis is a weight of 1.0 for everyone (for example with John Rawls, equal weights for all people in whatever arbitrary grouping is being analyzed). That's an arbitrary stipulation (as was my own). Use another set of arbitrary weights and the "logical" conclusion desired by the re-distributionist simply don't occur.

I quite agree with you that such "well-being" economic analysis is generally pointless. Such arguments have always seemed to me to be solely political tools to quite transparently attempt to rationalize and justify forcible redistribution that's solely in the self-interest of those who make such arguments. They seem to me to start with a political goal (forcibly appropriate the wealth of others for personal financial, political, or psychic gain) and then, at length and after torturous deliberation, a convoluted "analysis" is derived such that it supports their preferred goal. Glad to hear that you are not one of their number...

David writes:

Vet benefits are payment for services rendered?

My father flew 43 missions as a B-24 bomber pilot in WWII at the age of 19. In exchange for his forced participation he received an engineering degree on the GI bill. Growing up he told my brothers and I that if there was another war that required the draft, I will get you out of the country. He, Sir, thought that there was nothing on this earth that could compensate him for standing in harms way. PS...when he left the U.S. Heading to North Africa he flew a new B-23 with his crew, they flew over the pentagon and opened the bombardier doors whilst on auto pilot and moved their bowels.

Dave Hamilton writes:

Mark it seems you want to blame "the military" for what the politicians do. People who serve in the military have no more say over how the government uses them than you do. If you want to place blame which you are entitled to do you should at least place it on the actual culprits.

Mark Crankshaw writes:

@ David Hamilton

People who serve in the military have no more say over how the government uses them than you do. If you want to place blame which you are entitled to do you should at least place it on the actual culprits.

Fair enough. My disdain is actually directed exclusively at the politicians, the top military brass over at the Pentagon, and the various corporations and agencies that engorge themselves at the public trough. I quite agree that the "grunts" at the bottom of the military hierarchy have no say about anything and are just doing their job because they need the money. My Dad was one of them...

However, I still don't feel I owe the "grunts" anything and certainly don't revere them, and still feel most of their efforts are misguided and counter-productive rather than some great sacrifice or service for which I should be eternally thankful. That said, I'd freely donate some empathy and human understanding for the young men and women mired in that level of Sisyphean socialist futility, for whatever that's worth. It is a real pity to me that so many lives are wantonly sacrificed, it is vexing that so much human energy and effort is mindlessly wasted, so needlessly on the altar of Socialism.

I'm not a leftist hippy type that would spit on the enlisted (were I in the spitting mood, it would be solely directed said leftist hippy-types or green haired social justice warrior types) but neither am I filled with reverence for anything about "the military".

Ralph writes:

David:
So you would prefer that your father not have gotten Veteran's benefits like the GI Bill and healthcare after his service?
Tell him I said thank you for everything he did to preserve freedom in Europe and America.
I appreciate it, even if you don't.

David writes:

Ralph,
He paid for his health care, the VA in our area was horrific.
The GI bill wasn't even a down payment for getting your plane blasted with flak every mission. Look up ploesti bombing raids and tell me you think the GI bill was fair compensation. The cowards in Washington sat behind their desks and got pension and health care for life. Forced service, not volunteered, is the difference here. Since we vote in our reps, like them or not, and if they get us in a war, then by proxy we are responsible for those drafted. Those drafted deserve better benefits than congress. At the end of his life the state of Pa. Succeeded in
Extracting money out of the sale of his home for his long term care.

Harvey Cody writes:

@ Mark Crankshaw

"I quite agree with you that such "well-being" economic analysis is generally pointless."

Actually, we disagree on this point. I do agree (a) values are subjective and (b) the intensity of feeling among those who are "on the same side" of a value proposition can vary greatly. It is also true, however, that if 99% of humans value A over B and 1% value B over A, then there will be certain circumstances in which policies which promote of A over B or suppress B over A are appropriate - assuming the policies are appropriately designed, i.e., the existence of subjectivity is not an automatic bar to action.

"Such arguments have always seemed to me to be solely political tools. . . ." Sadly, such is usually (not always) the case. That a tool is often misused does not mean that it should never be used. Because good policies (whether motivated for good or bad reasons) can make things better for humans, policies which happen to be based on the subjective values of the vast majority of humans should not be rejected just because other, similar looking, policies were based on political considerations only.

bonaparte writes:

A bit disappointed with the interview with Deaton. I'd expect more policy prescriptions from a respected empirical economist. Instead, I ended up learning little, just as when I listened to these econ modelers.

Simon Cranshaw writes:
this philosophical question about whether you should think differently about your fellow citizens than you should think about your non-fellow citizens; and I think the answer to that is Yes.

I find this hard to understand. Can anyone give an explanation of why this should be the case? It seems to me that ethically all people should be in some sense equal. Or at least, I can't see why someone's importance to me should vary with what is written on their passport.

He seemed to be starting to say that because some of the people join the military I should therefore care more about all my fellow citizens.. Does that make sense? What if I consider the actions of that military to be evil and against my interests? Does it still make sense then?

Glen writes:

Russ - I really think that you shouldn't be so agreeable that free trade agreements hurt people UNLESS you also point out that the absence of free trade agreements hurts MORE people. Moreover, the discussion around free trade agreements tends to presuppose that free trade is something created by governments when quite the opposite is true. Governments create barriers to free trade and free trade agreements are only try to remove those barriers. (I know you know all of this, but I needed to get it off my chest.) On a personal note, I'm not terribly sympathetic to people who lose businesses and jobs that depended on government created barriers to trade. Contrary to popular belief, my limited experience suggests that many if not most of them know that their business/job relies on such barriers.

Cutting off Nobel laureate writes:

When you asked Angus Deaton if he had anything to be cheerful about, he started to talk about campaign finance reform. That's a very interesting topic to many readers, and I certainly wanted to hear what he had to say about it. You cut him off, and told him -- I'm paraphrasing -- that he was full of it. End of conversation. Bummer.

Please let the Nobel Laureates speak their piece! Hell, even ask them a question or two. What could it hurt?

SaveyourSelf writes:

Patrick Allen wrote, “People are taking the whole Robin Hood thing completely out of context. Nobody is advocating direct redistribution here. It's more of a guiding principal when deciding between different policies: when this policy is implemented there will be winners and losers, how do we weight these together in order to come to a decision?”

First, Patrick Allen, thanks for making a comment. This subject is important.

Second, when you said, “nobody is advocating direct redistribution here,” I think you missed Angus Deaton’s statement right at the beginning of the podcast, “…take money from a rich person, give it to a poor person,”—a near perfect dictionary definition of “direct redistribution.” So I think it is safe to say we are talking about redistribution.

Third, when you say, “policies”, it seems clear you mean, “centrally planned policies.” One of the several objectives of my long exposition was to demonstrate that centrally planned policies that involve redistribution justified using the “Robin Hood Principle” are a markedly inferior instrument for rationing scarce resources when compared to competitive markets. Apparently I failed, but it’s important, so let me try again.

When you ask, “when this policy is implemented there will be winners and losers, how do we weight these together…to come to a decision,” the best answer ever discovered for that type of question is the voluntary, competitive market.

There are many reasons why voluntary, competitive markets do a better job of answering your question then central planners. One that I find particularly compelling is that only individuals can actually know if they are winning and losing. Winning and losing is subjective. So the only values available to a central planner are his own. Now you might want to argue that it is possible for a planner to overcome that limitation by performing a survey of the whole population—like an election or a vote—to get all the other individuals’ feelings on a particular matter. But, though a survey sounds like a reasonable and logical solution, it fails miserably. One reason the failure of surveys and voting lies in the fact that language is a clumsy substitute for reality. Forming questions using our language only faintly resembles the true richness and detail of the reality it purports to resemble. Thus, simply trying to capture anything approaching the infinite variety of possibilities present at each decision point for every individual in words is literally impossible. It cannot be done. Thus, before any answers are obtained by a survey, the information it is capable of capturing is already filtered and restricted to such a severe degree as to make it results—generally—useless.

For example, on my county’s last election ballot was the following question: ”Should the county adopt the new budget proposal put forward by the council of city commissioners --Yes or No?”

A little background information about me: I’m a physician. Economics is my hobby. Outside of those two subject areas, I am poorly equipped or educated or experienced to answer questions helpfully. In addition, budgets are a particular weakness of mine. I can barely balance my personal finances, much less other peoples’.
When confronted with that ballot question about the budget, I wondered: “Why would anyone knowingly seek my opinion on this matter? Also, what was the old budget we are seeking to replace like? How is the new budget different from the old? Additionally, if I vote the new budget down, will I get to keep more of my money? On the other hand, if I say yes to the new budget, will my taxes go up? And if this new budget fails to pass, will the old budget stay in effect or will the county have no working budget, like congress?” After fruitlessly pondering the ballot question several seconds, I cast a vote. In truth, I provided, through that survey, about as much useful information as a coin toss—perhaps less. I imagine there were probably eight people in the whole county who knew all the answers to all the possible questions about the budget—the people who wrote it. Additionally, there might have been about 100 others in the community who knew a particular part of the budget intimately because it pertained to their business and another 10 people who knew a little because they care deeply about the community, were hired consultants for the budget committee, or just enjoy reading budgets. The remainder of the 24,000 plus people, I suspect, were about as qualified as I to make a value judgement on the desirability of the new budget, which is to say not at all. Worse still, my opinion and the opinions of all the other uninformed masses were given weights equal to those who actually knew something about the budget. Our uninformed answers, therefore, massively diluted the little the meaningful information provided by the tiny minority who knew something so that the final accounting by ballot was no better than random noise.
Next I feel it is instructive, though challenging, to consider the same question through the eyes of a few individuals in a voluntary, competitive market. Considering pathways in a market is difficult because there are an infinite number of possible variations energy can take when passing through a market. Markets are complex systems. Thus the single path I am going to describe is but one possibility out of infinity. For me, though, single examples are easier to visualize and understand—as well as capture in words—than using chaos theory or decision matrix with unlimited branches or even statistics. So back to the question:
Had a community leader asked for my opinion on a county budget, I would instantly have determined I knew nothing about the question and was poorly equipped to answer it even had I known more. Accordingly, I’d have paid the obligatory 0.2 percent of my annual income that goes to fund the local police and fire department and declined to answer or fund anything else in the budget. Instead, I’d have spent my money in the medical field, where I know a few things, and purchased a new MRI machine. I’d buy the MRI with my money and sell its imaging services to my community as a markedly cheaper alternative to the only other MRI in the community, the one at the hospital, which I happen to know charges monopoly rates.
As an aside, you might think I’d just lost my mind—that I’d proposed answering the question about the budget by not answering it—and you’d be right but also gravely mistaken. For one thing, in markets, not voting—with my money—sends important information. Also important is the fact that every market is connected, at least potentially, with all other markets so that interacting in one market relays information to all the other markets—something like energy rippling through water—a truth that has surprising relevance to the question of this budget. Now return to the market.
One line item of the newly proposed community budget contains a proposal to repair a rural road called, “John’s Road”. The estimated cost of the repair of John’s Road is $6000. One of the many persons who live on that road, John, I’ll call him, planned to invest $150 towards that specific item of the budget this year. Several months before, however, he sprained his knee and required an MRI. He got that MRI through my machine and saved $300 compared to the only other alternative in town—the super expensive MRI at hospital. Having saved more than he anticipated on medical bills this year, he decided to put another $150—for $300 total—towards that proposed repair of John’s road. After that, he still had money left over—thanks to my inexpensive MRI services—so he contributed another $50 for the community bus service which he used now and again and $50 for the homeless shelter which he considered an effective charity. Unfortunately, no one else on John’s road was willing to commit any money towards the road repair so it was eventually determined that John’s road would not get repaired this year. The bus service was so popular the county purchased another bus for their fleet. The total homeless shelter funding was about the same as usual. The $300 dollars John was willing to invest in the road repair was returned to him, minus a small fee for the work of the government who compiled the budget and administered the election. It’s miraculous, really, and complicated, but by sticking to my areas of expertise—medicine—in a voluntary, competitive market system, I was actually able to contribute more useful information towards the county budget—admittedly by indirect and unintentional means—than I could ever have done voting for a centrally planned policy created and then forced on me by the government. It is humbling but true that even central planners provided access to real time surveys of their whole electorate can never produce results as highly nuanced, efficient, or complex and incorporating the desires, interests, values, and knowledge of each person in the chain that is a community than a voluntary, competitive market. The answers provided by markets are summative. The answered provided by centrally planning are, at best, averages and, more likely, random noise. One choice is clearly superior to the other. They’re not even in the same league, really. Just comparing the two side by side gives more weight and relevance to the central planning option than it deserves in fact.
Bogwood writes:

The veteran issue was only a small part of the interview, but it is a big part of the economy. Veterans should be treated individually and not as a class. There might be some that deserve respect and some that tend toward sociopathy. As far as benefits we should go to a defined contribution rather than a defined benefit model. Calculate the risk in any one year, figure the present value and place it in the individual's account. He or she can cash out at any time. Do not give the pentagon a loan on the future, pay to play.

Another issue is child abuse. We now know from MRI data that the brain's executive center is still mush until age 25. An eighteen year old kid cannot "decide" rationally to go to Iraq. Above 25 the volunteers take their chances and deserve no adulation. I agree with MC that the military will not get my grandchildren without resistance.

The main advantage of the draft was to give a wider population a jaundiced view of the government. The residual conscription laws just show our tendency to be sheep.

(LCDR USN ret)

Greg Alder writes:

Kudos to Russ for noting that there is a lot more to enjoy in life than material goods. Sometimes during Econtalk interviews that fact gets forgotten.

It's curious to me why some people who have never been poor think it's a horrible form of existence -- for others.

I lived as a Peace Corps volunteer in Lesotho, Africa for three years and met many people who were enjoying life more than me, the rich American. (And I like to think of myself as a pretty happy guy!)

SaveyourSelf writes:

Simon Cranshaw wrote, “I find this hard to understand. Can anyone give an explanation of why this should be the case? It seems to me that ethically all people should be in some sense equal. Or at least, I can't see why someone's importance to me should vary with what is written on their passport.”

  • There is a real difference between Citizens and Non-Citizens. It's a contractual difference. Citizenship is a contract—an agreement made between individuals to a) not harm each other and b) aid other Citizens if they are under threat of harm. In other words, Citizenship is a common agreement on Justice and a commitment to unified response against Injustice.
  • How a Citizen thinks about his fellow citizens or non-citizens is immaterial to his obligation to act or not act in accordance too the contract. How a Citizen acts—or does not act—when non-citizens are threatened or harmed is related to how he thinks about and values lives of strangers, because he holds no contract—and therefore owes no obligation—to those people.
  • The interesting scenario—and possibly the one Angus Deaton is referring too—arises when the obligations of Citizenship conflict with the values a Citizen assigns to non-citizen strangers—a situation where his thoughts and values may conflict with duty.
SaveyourSelf writes:

Harvey Cody wrote, “While you are correct that value is subjective, and I will concede there are likely some rich people who value dollars more than some poor people, you have not refuted the generally accepted economic principle of diminishing returns.”

Refutation is not necessary. There are important limits to the principle of diminishing returns that you must understand. The most important of which, as you have already conceded, is that value is subjective. Thus, value can only be considered for a single individual by that individual. This makes comparison of values outside of an individual—in advance—meaningless. You cannot stand outside of two people and say, “this one has twenty and that one has two hundred so if we gave each one more then the one who had twenty would value the addition more than the one who had two hundred.” You can’t know that is the case. It is not possible to know that in advance. If you could, then value would not be subjective, it would be objective.

So you made two points. “The points are (1) ‘An extra dollar to a rich person is worth less than giving an extra dollar to a poor person,’ and (2) Therefore, humans would, on average, be better off (welbeing would increase overall) if money were taken from the rich and given to the poor.”

Your second point is conditional on the first. You have already conceded the first is subjective, thus the first point cannot be known to a central planner, which means the second statement has no meaning, at least to a central planner.


Ian writes:

I do like the line of thought that supposes that the grandchildren of those who suffer economic displacement from free trade do much better than they would if the displacement did not occur. But do we know if this is true?

It appears that later generations as a whole do benefit. But could this be because the descendants of the displaced make up a smaller fraction of subsequent generations, and are largely replaced by descendants of the more fortunate?

Owl Eyes writes:

Russ, Angus, and others,

This was a very good discussion, on the podcast and on the comments afterwards.

There have been attempts to try to figure out relative value. The idea of a "deprivation index" moves somewhat in that direction.
http://www.caledoninst.org/publications/pdf/836eng.pdf

If you want to compare how less-well off people are doing in Missouri vs Mozambique, I think you need to get a sense of how a person would be expected to feel about getting only so many dollars or mozambician meticals per month, you have to have an idea of what that kind of place that kind of income would put them in socially. I think there might be promise in applying something like a "deprivation index" to try to get a sense, on some kind of absolute scale, how people are affected. There are people in Flint, MI I would think who are much worse off than many but not all people living in Jakarta Indonesia.

I think one of the worst books on the topic I have read in recent years was one called The Birthright Lottery which goes to something of an extreme in conflating wealth and citizenship. The legal prescriptions offered reflect the misguided thinking behind the book. I am sure the citizen of Flint, MI that I referred to would just thrilled to donate some of her income to a person in thriving, cosmopolitan Jakarta. Yet this is just what Lottery author Shachar would have us do: after all the USA's per capita GDP is something like 15 times more than Indonesia's. What bothers me most about the book is all the back-patting it seems to have gotten from other academics. Clearly the citizen of Flint "won the lottery". It's a misguided conception of what citizenship means. I think Angus hit the nail on the head when he started talking about the sacrifices that citizens are sometimes called on to make. Citizenship is not equivalent to a supermarket membership. It's not just about whether Costco members are better off than those of Sam's Club.

http://www.hup.harvard.edu/catalog.php?isbn=9780674032712

Thanks again for the thoughtful episode.

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