Robert Frank on Inequality
Nov 15 2010

Robert Frank of Cornell University talks with EconTalk host Russ Roberts about inequality. Is there a role for public policy in mitigating income inequality? Is such intervention justified or effective? The conversation delves into both the philosophical and empirical evidence behind differing answers to these questions. Ultimately, Frank argues for a steeply rising tax rate on consumption that would reduce disparities in consumption. This is a lively back-and-forth about a very timely topic.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Nov 15 2010 at 8:13am

Wow, Robert Frank on inequality. Can’t wait to listen to it. I bet there will be some serious fireworks.

Nov 15 2010 at 11:17am

Surprised you let that bit at the end about libertarians assuming perfect information go, but I suppose it was the wrap up and you wanted to give Frank the last word.

Very interesting podcast. I like that Frank’s suggestions were well informed by economic logic, even if I don’t agree with his overall premise. A consumption tax like he described would be much better than an income tax. Taxing savings and capital is very counterproductive.

Nov 15 2010 at 12:25pm

Good podcast. For me the first remarkable point came @15:00, when Roberts and Frank contrasted their preferred mechanisms for achieving dynamic economic gains over time. Russ championed the view that notionally long-lead time surplus-expanding changes which impose asymmetrical pain today should be embraced nevertheless by the short-term losers because their children, or perhaps their childrens’ children will eventually reap the benefits. In effect, such deals would represent a kind of bargain in which a small subgroup that stands to reap immediate, effectively certain private rewards must persuade a much larger subgroup to accept a combination of equally certain near to medium-term private losses plus a highly contingent, non-binding “suggestion” of greater-than-offsetting returns at some indefinite point in the future.

In such situations, wouldn’t it rational for the parties bearing the short-term pain to steeply discount the NPV of such a deal based on the considerable uncertainty in both the magnitude and the “maturity date” of the hypothetical benefits to come? Moreover, if each such agreement has even a chance of incrementally increasing the minority beneficiaries’ ability to alter the de facto delivery terms for deferred-but-expected gratifications that were created as a byproduct of previous bargaining interactions, wouldn’t rationality compel the party taking the long bet to be doubly skeptical?

Nov 15 2010 at 1:49pm

Very interesting podcast. I’m just reading Luxury Fever at the moment and it’s a great book! I didn’t realise the author was speaking until I he mentioned the story of living in Nepal then it clicked with me…

Nov 15 2010 at 2:01pm

I think a discussion of first principles about the role of gov’t in society would have been fruitful. I anticipate that Robert Frank would believe in a much more activist gov’t which tries engineer society to the politicians ideals.

Secondly, a comment regarding Robert Frank’s focus on relative income standing and government’s role to change this. It seems to me that having gov’t policy focus on relative income standing would institutionalize jealosy and coveting. Whenever you subsidize a behavior you will get more of it and this seems to be subsidizing said behaviors. I don’t believe jealosy and coveting are behaviors to condone but I would rather have a response to those behaviors be to be more productive and not petition gov’t to level the inequality.

Richard W. Fulmer
Nov 15 2010 at 4:31pm

Professor Frank’s most persuasive argument was that parents, wanting their children to go to good schools, are forced to buy more and more expensive houses. However, his solution to this problem will, at best, simply redistribute children among good and bad schools. The names might change, but the number of students condemned to bad schools will not. It is doubtful that the student distribution resulting from Frank’s solution would be any more “fair” than is the current distribution. Wouldn’t improving bad schools be a better use of resources than institutionalizing the commandment: Thou shall not have goods thy neighbors covet?

Nov 15 2010 at 7:13pm

There were several times questions occurred to me that I would have liked to hear answers to, usually related to public choice observations. In a way, Dr. Roberts granted the speaker his view of the world so that he could explore it further with him, and us. And in many ways, I appreciated that despite myself. I certainly enjoyed it.

@Richard: Like you I came away from the discussion thinking that I had heard a defense of Envy. It was interesting, but when Mr. Frank started talking about how his slower car made him feel inadequate, he really lost me completely.

Nov 15 2010 at 7:19pm


I’m only up to the 40-minute mark, but it’s been very interesting so far.

Frank’s discussion of his time in the Peace Corps raised one big question in my mind. If the leaky, grass-roofed hut he lived in never seemed unsatisfactory (because it compared favorably to his neighbors), then why did he ever leave. Why choose a house in the US, which although watertight might seem unsatisfactory by comparison with richer people’s houses, when he could have the nicest house in the village he served in? Clearly absolute quality does matter, even to Frank.

In fact, I suspect his attitude toward his living conditions was strongly influenced by being in the Peace Corps for two reasons. First, he was doing work he felt to be virtuous, which makes up for a lot of material privation. Second, he knew that he wouldn’t be living in that hut for the rest of his life. I suspect that the permanent residents of that village would be thrilled with even the smallest, least fancy house in a working-class American neighborhood.

Nov 15 2010 at 8:16pm


im just guessing, but i bet a really big factor he went back to the US wuz cuz he wanted to b home with family and friends again.

Pietro Poggi-Corradini
Nov 15 2010 at 9:42pm

Robert Frank makes many good points. However, his most salient examples for unnecessary competition are mostly about small groups, living in close quarters: stags, car-racers, people who like mansions, etc…Obviously I don’t tolerate blatant inequality when it comes to my kids, but then I’m reminded of a famous Hayek quote:

“Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within the different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e. of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once.” –F.A. Hayek.

I didn’t see Frank addressing the inherent complexity of civil society, which is quite different from simply a disjoint union of lots of small “races to the moon”.

[Hayek quote is from his The Fatal Conceit, p. 18.–Econlib Ed.]

Nov 16 2010 at 4:29am

@Richard Fulmer: good or bad students are what make a school good or bad. As much as it hurts to say this, schools’ abilities to influence educational outcomes is tiny. There is a good reason to WANT to distribute bad students equally among schools; while I hate the apple barrel metaphor, but when you’ve got one or two bad apples the rest are likely to get to market fine. If the barrel is half full with rottens you might as well save the whole thing for the still. Alternatively, concentrating underachievers tends to accentuate their underachieving and that of those around them for a variety of reasons.

Some general observations: people’s satisfaction IS determined much more by their expectations than by absolutes. However Frank did little to express how expectations are set. Is it the media, is it your neighbour Jose, is it your uncle Franz who moved from the potato farm to work in the US? Obviously it’s all of those and it differs for different people in different places at different times. I think Samuel Huntington(though I could be wrong) writes about what a disastrous effect the international comparative effect has on young democracies in the developing world. Would it be better if people in China knew nothing of the US? I have 0 doubt that the vast majority of them would be more satisfied with life, but their life would still suck and they would lose one of the #1 sources of motivation and hope for self-improvement in the future.

On a different note, I am really surprised by your eager support for a massive shift in the tax code. Willy-nilly switching to taxing consumption when 1% of people have 40% of assets(and presumably cutting those peoples’ consumption by, what, 90%?) would disintegrate enormous chunks of the US and global economy. Even if they just start investing all the saved money at once(and really is trillions of investment capital and crazy, supersaver, cheaper than ever credit what we need right now? haven’t we driven enough loose money into terrible schemes?) you’ll still have to unwind gigantic chains of production that were designed to cater to their overconsumption.

Where would the demand for all the new stuff even come from? Is it assumed that the government would absorb and direct all the extra savings? Because honestly that’s probably the best outcome in the short-medium term.

Finally, the political bargains that underlie capitalism in general, and laissez-faireish capitalism in particular, certainly are not predicated on me selling my kidneys for food so that my grandkids can maybe be rich by today’s standards. People come to America ‘cos they get paid more than if they didn’t come to America. Some come for democracy and safety. But mainly they come for money in the pocket. This is one of the few cases in which I don’t see anything all that wrong with the standard economic behavioural model.

That being said immigrant motivations are certainly worthy of a podcast of their own.

Nov 16 2010 at 6:31am

Mr. Frank’s argument reduces thus: “There are some kinds of consumption I don’t like. Those must be stopped or discouraged.” During his discussion of the pointlessness of fast cars, Roberts remarked that it was art. Well rendered Mr. Roberts. I wish Russ had pushed this idea. All forms of art are just as pointless as drag racers (all forms of signaling). But I can bet that Frank would be okay with some art – with some aesthetics (it certainly produces utility), Frank just wants lines drawn on his terms – his optimal savings rate, his optimal education level, his luxurious tastes etc &c. If you didn’t pick up on this during the podcast, its okay, I don’t think Frank has realized the fatuousness of his position either.

I was disturbed by the naivety of suggesting that certain ‘inefficient’ signaling margins be impinged, without acknowledging (or realizing?) that it will simply be squeezed to another margin. A significant portion of human consumption – and therefore effort – is spent on signaling. Elk would absolutely NOT choose to poly-laterally disarm and reap efficiency gains, they are NOT stuck in some local minimum and lack a collective action mechanism to escape. Such a suggestion belies a fundamental misunderstanding of animal nature and the prevailing role the mating market plays in human and animal interaction. Yes, it is inefficient, but it is nature. Of course Mr. Frank can change nature, he can make people better. His preferences are superior, his logic more prescient.

Mr. Frank is simply not a serious thinker – but comes across as one because he he is well-spoken. If you desire evidence, read through his intellectually-bankrupt idea of positional externalities, (which he touched on in the podcast) and his ludicrous solutions. Mr. Frank is wholly possessed of the fatal conceit – believing incorrectly that his plans are better than your plans.

Nov 16 2010 at 7:31am

The example of using redistributive methods to get polluting cars off the roads as being a better choice than others seemed to ignore a lot of political economy problems. Sure a program that subsidizes car purchases for people with old polluting cars could be better in theory but what would happen once the polluting cars were off the road? It seems unlikely that the program would be shut down. It seems like the incentives of car companies and politicians would be to expand the program in length and breadth. Over the long run it seems like the program would be very expensive. Are we not currently stuck with many programs left over from the new deal which we are still paying for, which whose benefits were realized decades ago if they were there at all.

Nov 16 2010 at 8:32am

Congratulations to Prof. Roberts.

He has once again demonstrated his preternatural ability to politely discuss a controversial topic with an individual whose views are far afield.

Prof. Franks views are based in large part on the Picketty-Saez data. This study is deeply flawed in that it is a tax return study that simply calculates the % of AGI of the top 1%. The study shows that the top 1% of AGI has increased from 8% to 16% over about 20 yrs. But the study fails to account for changes in tax laws that caused income shifting from corporate to personal tax returns, non taxable wages and benefits (401(K) plans, health benefits) and government transfer payments (that don’t show up as income on tax returns). When these factors are controlled, the change in the top 1% of income has been essentially flat. For a complete discussion and review of the flawed Picketty-Saez data – the interested reader can reference the work by Alan Reynolds of CATO.

Prof. Frank played his hand when he made the statment: “We could be doing a lot better with the income we generate”. This collectivist view of the world came tumbling down (literally) in 1989 when East Berlin was revealed to the world.

Nov 16 2010 at 9:32am

I find it curious that so much time and passion is invested here extolling individual autonomy/accountability as the basis for a “spontaneous order” of unbounded property rights, and yet so very little attention is devoted to the strangely privileged exemption to this rule that’s universally claimed on behalf of “juridical persons” in the form of (corporate) legal liability. What can one say about a spontaneous order in which the wealthiest and most powerful “persons” exempt themselves from the consequences of their own misjudgments and bad luck, but everyone else is expected to privately bear 100% of any/all self-imposed and environmental risks that they encounter? Surely the best way to promote broader appreciation for Hayekian principles would be to *first* demonstrate that they are properly understood to apply to every “one” equally?

To kick off this demonstration, how about proposing an exemption from onerous corporate taxation for any juridical person that irrevocably renounces all limited liability protections in favor of some fully (and transparently) funded private bonding or insurance arrangement? [c.f., William Rhee, “Bonding Limited Liability,” in the Mar. 2010 W&M Law review]

Would such a proposal be likely to appeal to the rational self-interest of corporate decision makers? If not, why should anyone imagine that voting populations would — or should — ever be willing to forego the kind of broad tax-funded public education, health care, and social programs that are literally the “poor man’s equivalent” of limited liability/risk protections?

Nov 16 2010 at 9:35am

I’m only about 20 minutes in so far and for some reason, this quote kept going through my mind: “The curious task of economics is to demonstrate to man how little they really know about what they can imagine they can design.”

Robert Kennedy
Nov 16 2010 at 10:01am

Here is maybe another way to look at this topic. What are 4 most essential things that we consume as humans? I would think they would be food, shelter, health, & education. Government is actively involved in all four and it’s policies dramatically drive up the cost of at least 3 of those.

It drives up the cost of shelter with it’s various incentives to borrow money for housing. It drives up cost of health with it’s various incentives to socialize the payment systems. It drives up the cost of education both via it’s various impacts on the supply of education (mandates, employee benefits, public schools, etc.) and the demand for education (various funding mechanisms for both K-12 & higher education). While government is actively involved in agricultural policies, and certainly does drive up some costs, my sense is that it’s impact on the cost of food is much less than it’s impact on the cost of the others.

I would think that if one is concerned about inequalities, one should be looking at how government policies exaggerate those inequalities by driving up the costs of these essentials.

Keith Vertrees
Nov 16 2010 at 10:23am

I think that Professor Frank should listen to The Trees by Rush.

Nov 16 2010 at 10:39am

Congratulations to Prof. Roberts.

He has once again demonstrated his preternatural ability to politely discuss a controversial topic with an individual whose views are far afield.

Prof. Franks views are based in large part on the Picketty-Saez data. This study is deeply flawed in that it is a tax return study that simply calculates the % of AGI of the top 1%. The study shows that the top 1% of AGI has increased from 8% to 16% over about 20 yrs. But the study fails to account for changes in tax laws that caused income shifting from corporate to personal tax returns, non taxable wages and benefits (401(K) plans, health benefits) and government transfer payments (that don’t show up as income on tax returns). When these factors are controlled, the change in the top 1% of income has been essentially flat. For a complete discussion and review of the flawed Picketty-Saez data – the interested reader can reference the work by Alan Reynolds of CATO.

Prof. Frank played his hand when he made the statment: “We could be doing a lot better with the income we generate”. This collectivist view of the world came tumbling down (literally) in 1989 when East Berlin was revealed to the world.

John Berg
Nov 16 2010 at 10:44am

I second two earlier comments:
The first proves Dr. Roberts has the “heart of a teacher,” because, “He has once again demonstrated his preternatural ability to politely discuss a controversial topic with an individual whose views are far afield.”

The second comment indicates, that Frank fails by, “believing incorrectly that his plans are better than your plans.”

I wonder if Frank appreciates how much I benefited in Philadelphia of the 40s from the Free Philadelphia Library with its local Carnegie Library, the Franklin Inst., the Philadelphia Art Museum, the Academy of Music, the Natural History Museum, any many others–most resulting from philanthrophy.

John Berg

Nov 16 2010 at 11:46am

For everyone scrolling through the comments – go back and read the comment by Bliss. It’s great

Mark Crankshaw
Nov 16 2010 at 1:17pm

The tired and worn arguments for income re-distribution (both from Robert Frank and recently John Quiggin) do not improve with each retelling. The premises upon which these arguments are built as are deeply flawed as the arguments themselves. Economics, in the hands of a redistributionist, serves merely as a tool to justify self-serving political action. At the heart of the arguments by Frank and Quiggin is a deep-seated ideological conviction: the world would be a better place if resources and capital were allocated by the few by political fiat rather than the many through the independent decisions of millions in the free market. Better for Frank and Quiggin, I have no doubt. You see, when the unenlightened hoi-poloi are free to choose how to spend the money they have earned as they see best, why then they may not spend it as their betters—their superiors—think best. Our enlightened betters and superiors would “better” place our money than you or I ever could, don’t you see—they would place it into the pockets of our betters and superiors where, in their view, it rightly belongs.

As I have stated in a previous post, I don’t not believe for one moment that Frank dispassionately reviewed the economic data and existing literature with an open mind, and then, with careful consideration of all of the facts and all the potential political solutions, selected the appropriate political solution to the alleged problem. On the contrary, he (and the millions of re-distributionists like him) started with a political solution (income redistribution) that favored their economic class and then selected the appropriate facts which served as a pretext to support his pre-determined ideological/political goal. Those like him simply ignore, discount, or conveniently remain ignorant of better alternatives and/or facts that do not support their argument.

Income redistribution is essentially a political, rather than economic, animal. Those who espouse this course of action always assume, despite the mountain of evidence to the contrary, that the political arena is fair, efficient, and rational and that political decisions reflect “the will of the people” or “serve the public good”. And maybe in Disney movies it does just that. But in the real world, the political process in routinely unfair, inefficient, and irrational. It is routinely high-jacked by special interests, and with alarming ease invariably tends to serve the interests of the powerful few at the expense of the many.

While Frank, like most re-distributionists, attempts to frame their arguments as “rich” against “poor”—the true battle lines in income redistribution pits public sector against private sector. The redistributionist would rather that resources and capital be directed politically rather than economically—the “rich vs. poor” angle is merely a smokescreen to the real agenda: advancing the economic interests of the public sector (and its employees) against those of the private sector. In fact, when “rich” and “poor” are defined in the political arena you are likely to get a convoluted definition of each—with numerous unjustifiable exclusions and perplexing inclusions into each ill-defined category. While the redistributionist may claim (and may even naively believe) that his policies “may help” the “poor” (however defined) at the expense of the “rich” (however defined)—all he can really claim is that these policies allow the State to arbitrarily seize the property of some (who may, in fact, be “poor” or “rich”) and shift this property to others. Contrary to impression that Frank et al attempt to imply, it is those who are politically weak or disorganized that are, of course, precisely those who are most likely to have their property seized and those who control or can manipulate the political process (the politically strong and/or organized) are the ones to whom the property is shifted. I have no malice towards those individuals who have amassed great wealth by serving the consuming public—I only despise the wealthy political entrepreneurs, those outside the market who use the State to amass their wealth through mercantilist policies and by skimming from the public trough and use their political power to protect that ill-gotten wealth. The politically strong and organized—no matter how “rich” they are—can easily sidestep income redistribution. The redistributionist is no Robin Hood—stealing from the rich to give to the poor—their redistributionist policies will in fact benefit the politically powerful at the expense of the politically weak. And they don’t come any more powerful and organized than the public sector. The policies Frank advocates are Robin Hood in reverse.

“I think I’ve shown that no rational libertarian would choose to become a member of a society that would differ in any fundamental way from the standard welfare state”.

And I think you haven’t, Mr. Frank. You state that, beginning in the early 1970’s, income mobility in the bottom quintile has been decreasing. Has it occurred to you that the early 1970’s is precisely the time when the poverty programs pushed by the left exploded in both the amount of money spent and the number of households on benefit? Critics of these programs have always maintained that these programs have fostered a culture of dependency, corrode the community, decrease opportunities, and socially handicap the very people these programs were supposedly to “help”. Perhaps the critics are right, Mr. Frank? Perhaps it was the very policies advocated by lefties like you that has led to that decreased economic mobility?
Take a look around you, Mr. Frank. I am a graduate of Cornell University, I grew up in the Finger Lakes region—I know the area very well. You reside in a tiny island of prosperity (Ithaca) right smack in the middle of an economic sinkhole—from the shores of Lake Erie in Buffalo to the Massachusetts border the only thing that is worse than the Upstate winter weather has been the moribund Upstate economy. Since World War II, in the entire Rust Belt region, there has been nothing but steady economic decline, plant closures and joblessness in all those tiny towns and slowly decaying cities that dot the region. The same could be said for many of our major cities (Detroit is a classic example). Anyone with any ability leaves—there’s really no other choice or opportunity. Do you really this “standard welfare state” is working in Upstate NY? Detroit? Southeast DC? No doubt you do, insulated as you are in your privileged Ivy-covered liberal cocoon, and it does work well…at least for you…

If you are like most of the loopy lefties that are employed at Cornell University (where every type of diversity is applauded except diversity of opinion), then you no doubt believe that poverty programs grew in the 1970’s out of a deep care and concern for all those poor unwashed souls in Upstate New York or the downtrodden denizens of our inner cities. Well, let me burst your bubble: those programs were designed and implemented by powerful political interests (mainly big city mayors) with the intention of stifling internal economic migration. In the past, when regions went bust and no jobs or opportunities were available, people moved to where the jobs were. And they did so in great numbers right after WW II right up to the 1970’s. However, certain powerful interest groups were less than thrilled that poor blacks from the South, or yokels from the hinterlands were moving to New York, or Chicago, or Los Angeles. Aside from those who saw these migrants as competition for their jobs/housing, it is expensive for city governments to have a lot of low-skill migrants pour in and burden city services. And, heck, while all of the benefits to stifling the internal migration are captured by the big cities, the programs cost, being State or Federally funded, could be shared by the working Upstate yokels as well. Suckers! And cities are where the jobs were (or more precisely, the “standard welfare state” that you laud so ensures that’s where the jobs were). Could it be that the welfare and poverty programs were designed to depress internal migration—that is, to keep the poor and unskilled permanently segregated into poor regions where opportunities are so few? And that by trapping or enticing potential economic migrants to reside in areas bereft of economic opportunity might impact the ability of these individuals to move up the economic ladder?

And as one who subscribes to the signalling model of education (as beautifully articulated by George Mason’s Bryan Caplan)– one prominent “wastage” of resources is all the money spent on higher education. Making the educational signal unnescessarily costly (in terms of time and money) costs society much, much more than a few extra-large mansions. An overly costly signal disproportionally benefits the deep-pocketed– the wealthy can abstain from work much longer and at a far higher standard of living than those born with poorer parents. We working-class folks can only stay out of the workforce until age 25-35 only under conditions of severe economic duress. Making the economic signal cheaper (and less time consuming) would remove a major economic advantage of the wealthy. Why not deep cuts in spending on higher education, Mr. Frank, and perhaps a less costly means of signalling?

Nov 16 2010 at 1:18pm

I don’t think there is any way in which you can argue that the net effect of government intervention in agriculture is to increase food prices. Similarly for education. What it actually does is cause over-production in agriculture and put a downward pressure on quality in education.

Nov 16 2010 at 1:25pm

Mr. Frank’s argument reduces thus: “There are some kinds of consumption I don’t like. Those must be stopped or discouraged.”

I think this is a misunderstanding of his position. He is describing an emergent order phenomenon (the race for status) that predictably leads to some inefficient economic results (according to his analysis). He is basically saying that not any form of emergent order is efficient. You could still agree with this point even if you disagreed with his examples.

Douglass Holmes
Nov 16 2010 at 2:23pm

Of course I think that Russ has great ability to politely discuss a controversial topic but I think Robert Frank did his part to keep it civil. In the articles that I have read by Frank, he is fairly good at keeping things civil (just compare his style to Krugman).
But, what grinds on my nerves is his constant assumption that the government could more fairly distribute wealth than the market. It isn’t enough to show that the market creates problems. He needs to show that the government solutions don’t create worse problems.
I don’t think he does that.
Thanks, Dr. Roberts for another fine podcast.

Nov 16 2010 at 3:37pm

“For the non-economists in the audience, surplus is just the cumulative sum over all people of the difference between the benefits they get and the costs they bear, evaluated in their own terms. So, if we can make the economic pie bigger, the attraction of doing that, is that it’s always going to be possible for everybody to have a bigger slice than before. I don’t think that requires any difficult value judgment at all.” -Robert Frank

I’d love to know more about how judging how we each value benefits relative to the costs in our terms is not difficult at all.

Thinking this can be done seems to be the fundamental flaw in Frank’s thinking.

The next fundamental flaw is not having an adequate control mechanism to correct for when he’s wrong.

Howard Roark
Nov 16 2010 at 3:55pm

I have heard numerous justifications over the years for “wealth redistribution” schemes, which is merely a euphemism for “legalized plunder,” but this has to be one of the most hare-brained of them all.

Here’s my favorite quote from the interview, “It’s relative antler size that matters, not absolute antler size.” So, does this rule apply to all male appendages?

Seriously, we should call Prof. Frank’s assertion, “The Relative-Size Appendage Theory” of social justice. Here’s his argument in a nutshell: People are inherently envious of others who are relatively better off. This leads to a “keeping up with the Jones'” mentality, which in turn leads to “conspicuous consumption” and a waste of resources; money which would be better spent, if only it were up to Prof. Frank’s standards and approval. Therefore, in order to address this problem, government must intervene to reduce one’s consumption while simultaneously “redistributing” his wealth to others. Voilà! – the need for a progressive consumption tax.

Since when did “conspicuous consumption” become a crime? (I am assuming, of course, that the rich man earned his wealth through legitimate means – i.e., by serving his fellow man through free, voluntary trade of value-for-value; as opposed to stealing his wealth via outright theft or fraud, TARP bail-outs, or other forms of government hand-outs). “Conspicuous consumption” may be considered vulgar, invoke envy and resentment, and/or motivate people to spend more in order to keep up. However, I see this as being analogous to free speech, where the price imposed on others is merely one of tolerance. If you don’t like the way a rich man lives, or you are afraid it will cause you to become a spendthrift, ignore him. Alternatively, if you really feel compelled to punish him for his success, stop buying the products and services he sells. What you are not morally authorized to do, is to vote for the use of government force and coercion to steal his wealth through a progressive tax.

Whenever I feel envious of another man’s wealth, I am reminded of Thomas Sowell’s comment: “I am so old that I can remember when other people’s achievements were considered to be an inspiration, rather than a grievance.” Alternatively, I often go back into my memory and relive the experiences I have had seeing burn victims, quadriplegics, the mentally-retarded, people living in abject poverty, and numerous other instances of personal misfortune. I then remind myself how incredibly “rich” I am by comparison. Usually, I feel ashamed to have taken my lot in life for granted. (I also feel compelled to help others through private, voluntary charitable giving; which unlike the welfare state, is consistent with liberty, and thus, morally virtuous.)

What Prof. Frank is advocating is socialism, plain and simple. Perhaps, he should heed the wisdom of Winston Churchill, when he said, “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy. Its inherent virtue is the equal sharing of misery.”

Or, as I noted in my comments in response to the podcast with Prof. Quiggin, “As they used to say in the waning days of the Soviet Union – ‘Comrades, we don’t have any bread to eat. But don’t worry about that, because at least we get to share our poverty equally.'”

At the end of the day, Prof. Frank is trying to have it both ways. He wants us all to enjoy greater absolute wealth, but at the same time he wants government to intervene to reduce the disparities in relative wealth. Doesn’t he recognize that the methods necessary achieve the latter goal will destroy the incentives to achieve the former? (Not to mention violate the moral / natural law principle of self-ownership, and its corollary: a right to keep what one has earned.) Or would that require a level of common sense which is not so common among the intelligentsia?


A final comment: The correlation between the amount of money spent on K -> 12 education and academic achievement is weak, at best. More money and greater resources do not necessarily lead to better outcomes. Poverty has been used as an excuse by teachers’ unions (and their Democratic co-conspirators) for far too long. If Prof. Frank is truly concerned about helping people achieve greater income mobility, he needs to advocate for reforming K -> 12 education in ways that actually work in practice. May I suggest that he take a serious look at success stories like the SEED School in Washington, D.C., the Harlem Success Academy, and the achievements of Ben Chavis’ et. al. at the American Indian Charter Schools in Oakland, CA. These schools have demolished the myth that kids in poor or broken homes are unable to achieve academic success. The same goes for “minority” kids, including those to whom English is their second language.

Howard Roark
Nov 16 2010 at 4:21pm

Correction: I should have included Prof. Frank’s quote in its entirety: “It’s relative antler size that matters, not absolute antler size that matters. Wasteful. If they could take a vote on it, they would all vote to have smaller antlers.”

Now, replace the word “antler” with another male appendage and see how this reads.

Perhaps, Prof. Frank believes “appendage” sizes should be smaller, whether it be a mansion, a fancy car, or other display of “alpha” status, but who gave him the authority to decide?

At least the guy is “walking the talk” and being consistent when he admits that he drives a 2001 Mazda Miata.

Richard Fulmer
Nov 16 2010 at 4:59pm

Envy is a destructive emotion that often tries to disguise itself as a desire for equality. Too many people want to take the shirts off others’ backs even though it will not make their own any warmer.

The former Soviet Union was driven by an envy so corrosive that it helped destroy the nation. Mikhail Gorbachev, the last Soviet president, tried to open up the economy, but when anyone became prosperous under Gorbachev’s policy of perestroika, the neighbors complained. The government obligingly responded by taxing away the offending inequity. Without either the stick of coercion or the carrot of profits, the Soviet economy quickly collapsed.

Envy was so pervasive that even the Soviets themselves joked about it. One such joke was that an Englishman, a Frenchman, an Italian, and a Russian were each asked what would make him the happiest man in the world. The Englishman replied that he wanted to be the world’s greatest equestrian, the Frenchman said he wanted to be the world’s greatest lover, and the Italian dreamed of becoming the world’s greatest opera singer. The Soviet said, “I want that my neighbor’s cow should die.” Any nation will remain destitute as long as its people would rather that their children go without milk than that their neighbor have one more cow than they.

From Bradley and Fulmer, “Energy: The Master Resource”

Nov 16 2010 at 5:05pm

@Howard: SEED school spends $35000 per student(of government money), that’s a mere 3 times more than the DC average. HSA is amazing(though the whole lottery thing is kinda creepy). SEED is proof that everyone who thinks that money can’t solve the problem of education simply hasn’t thrown enough money at the problem(–this is a joke).

I’m not sure why you think guaranteeing assistance to individuals with massive disabilities is somehow evil. Everyone in the country spends 50 cents a year to insure that thousands of heavily disabled people don’t have to hope for charity or beg on the street corner(or die). Honestly I don’t know how we sleep at night with that kind of oppression and misappropriation of funds.

Nov 16 2010 at 5:09pm

I like the idea of a progressive consumption tax. I would also like to try some kind of hourly wage subsidy to replace most welfare programs. (One negative though on an hourly wage subsidy is that it seems like it might increase support for closing the borders much more tightly also corruption).


I think that Robert Frank needs to acknowledge that the worst thing about being a “poor” American is that poverty in a developed country correlates strongly with bad habits, meaning the poor in America make bad neighbors. It is not so much that schools in poor neighborhoods are bad because of inadequate building or teachers but because they have bad students. College dorms and military barracks are often cheap and low per person living space but if the neighbors are nice, as they often are, life in them can be good. Bad neighborhoods are bad because of the people who live there.

As an experiment Robert Frank could build a big plush home in a bad neighborhood, disguised from the outside and live there for a while.

One other about what he said, I have thought a lot about individual vehicles verses mass transit and it is difficult to beat individual vehicles. One day soon I hope that we have individual vehicles that can drive themselves on the interstates.

Jeremy H.
Nov 16 2010 at 5:39pm

Frank’s example on relative inequality sounds disingenuous. Is the only reason he’s not living in a Nepal-esque, run-down shack because of status issues?

Aaron C
Nov 16 2010 at 6:37pm

Vast economic inequality inevitably threatens political equality, a point I wish Roberts and Frank had discussed. Enlightenment republican thought distrusted the institutions of aristocracy in part because such were based on birth, not merit, but also because enormous gulfs in economic outcomes tend to lead to conditions of domination and unfreedom, as a wealthy few seek to subvert democratic governance for their own benefit.

Roberts notes with admirable consistency how (setting aside their inefficiency) interventionist government’s mechanisms for distributive correction and regulation are subject to capture. Shouldn’t we understand the likelihood of such capture as flexibly dependent on economic conditions? The governments most given to graft and oligarchy do indeed seem to develop in conditions of vast economic inequality.

Very much enjoyed this conversation, and that EconTalk has elected to interrogate the views of scholars outside its friendliest orbits. Long live the bourgeois public sphere!

Howard Roark
Nov 16 2010 at 7:42pm

@Sebastian – I suppose that since SEED is a boarding school, one would have to exclude the boarding portion of the costs to make an apples-to-apples comparison. I will stick with my Harlem Success Academy and American Indian Charter School examples to make my point, though. Furthermore, when you look at the costs per pupil of traditional K -> 12 schools, it is important to note that they often neglect to include capital expenditures like school construction. The Cato Institute recently estimated that schools in L.A. spend $30,000 per student when these costs are included (see podcast titled, “A Half-Billion Dollar High School” on 8/24/10 – ).

I don’t have a problem with state or local governments funding K -> 12 education, so long as they give parents a choice via a voucher or a charter option. This is the only form of socialism I am willing to accept because:

1) K -> 12 education is arguably a public good (strictly defined), where all members of society benefit when the next generation has been educated. (Again, I am reminded of a T. Sowell quote: “Each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late.”)

2) Children are incapable of being held responsible for themselves. (NOTE: Since individual responsibility is the price of individual liberty, adults cannot be excused from the burden of taking care of themselves and their families.)

I don’t support federal spending on K -> 12 education, because I’ll be damned if I can find it listed as an enumerated power under Article I, Section 8. Therefore, per the 10th Amendment, it gets remanded back to the states.

As for other forms of welfare assistance, I don’t support using government force, coercion, and theft to help people, no matter how poor and destitute they may be. A much better alternative is private, voluntary charitable giving. It is far more effective and humane, while being perfectly consistent with liberty and morality. To quote Walter Williams, “There are people in need of help. Charity is one of the nobler human motivations. The act of reaching into one’s own pockets to help a fellow man in need is praiseworthy and laudable. Reaching into someone else’s pocket is despicable and worthy of condemnation.” (That’s basically what people do – especially those on the political left – when they vote for wealth redistribution schemes like progressive taxation.)

You may not like the fact that people will have to ask for charity, but this is one of its chief benefits. A person is far less likely to rely on his fellow man for help when it is no longer a birthright, but a privilege. This drastically alters the incentives for both the recipient and the donor. The recipient will be much less likely to ask for help when he doesn’t really need it, and he will be far more appreciative and willing to give back when his situation improves. And since the donor will be spending his own hard-earned money, he will: 1) Be far more careful than a government bureaucrat (who is spending someone else’s money on someone else) to only help those who are truly incapable of helping themselves (a much smaller number of people than those currently on the dole); and 2) He will be careful and cognizant not to do more harm than good by fostering a dependence-mentality.

Perhaps, you will argue that private charitable giving would not be sufficient because some will choose not to give. If true, that begs the question posed by Robert Nozick: “If one thinks that people are unlikely voluntarily to donate to charity to help the poor, why is it assumed that they will support compulsory taxation for the same purpose?” The answer is: they won’t if taxes become too oppressive (read: progressive).

Again, I can’t find anywhere in the Constitution the enumerated power for the federal government to provide people with food, housing, or healthcare. It is not included in the General Welfare Clause, because per James Madison, the acknowledged “Father of the Constitution”: “If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one…” Meaning, there would have been no point in the Founding Fathers listing the 17 enumerated powers in Article I, Section 8 if this clause could have been interpreted so broadly. Therefore, absent an amendment (per the process outlined in Article V), this issue gets delegated to the state level.

Now, if the states want to find the right balance between liberty and welfare- / nanny-statism, by all means, we should allow those fifty “laboratories of democracy” to do so. It won’t change the moral argument against legalized plunder, though.

For the sake of argument, if we assume that private charitable giving will not fill the void and people will end up starving in the streets (highly unlikely), the only way I can think of to get around this dilemma is to enact a flat rate (%) tax on either income or consumption (no deductions, no exceptions). This is fair, because every able-bodied person will have to contribute. It is also fair because those who earn more (or consume more) probably use a greater amount of government services like police protection, public infrastructure, etc. Thus, they should pay more in absolute dollar terms.

Either way, I can’t think of a valid reason why anyone should be required to pay a higher progressive rate (%) of taxation on each marginal dollar they earn (or consume). Legal or otherwise, progressive taxation is theft, plain and simple.

NOTE: If you are having a hard time getting your head around my moral argument, please take 8 minutes to watch the following video titled, “The Philosophy of Liberty” at – . If you can give me a moral counter-argument or alternative philosophy based in natural law, I would be very interested to hear it. I also recommend that you take the time to consider the difference between law and morality (they are not one and the same). An excellent lecture on this topic was given by Walter Williams, which you can view at – . This video will only take 7 minutes of your time.

Nov 16 2010 at 9:10pm

Thanks for a lively podcast.

There are many great comments this week which adequately summarize the fallacy and injustice and utopianism in Prof. Frank’s argument (does not retaining the fruit of one’s own labor and determining for oneself how best to deploy those resources not play a role anywhere in a natural view of human happiness?). It should be too obvious to state that wealth is a means and not an end; neither happiness nor virtue are denominated in dollars. It does not follow from this observation, however, that income inequality is a vice to be corrected by confiscation.

I would only like to point out that in his comments on Darwin I think that he simplifies and misses more complex points that both Darwin and also modern biological research makes about the individual vs. the family, group, hive, species, etc.

And it is my understanding that his example of the bull Elk – I assume he means the large North American Elk such as the Roosevelt Elk – is largely incorrect, in that the antlers are used for defense of the solitary bull and his harem against not only other bulls but also predators. When the antlers are shed the males live in male groups for the purpose of shared defense. The idea then that the antlers are superfluous for survival and are only for reproductive prowess is at least in part incorrect. (The Elk is also, for what it’s worth, particularly for such a large animal, very adaptive despite being “burdened” by his “maladaptive” trophy antler rack). Perhaps there’s a better example?

But wait. Stop and assume the example is true how he states it. A noble bull Elk in all his rutting majesty would vote to have small – or no – antlers if the others would just get along and share the mates?

This must be Orwellian satire.

The high is only explained by the low. There is no beauty, only utility. How bleak, this world without excellence.

Nov 16 2010 at 9:27pm

I enjoyed the podcast as I do all the podcasts. I just really had a hard time not getting frustrated with the guest. I kept hearing an argument based on class warfare. It just seems to me that if we were freer and didn’t suffer under onerous redistributive tax (and other) policies then the income inequality that existed would be irrelevant at worst, and something easily overcome by income mobility at best.

Nov 17 2010 at 1:18am

I want to second/add to Bliss’ comment above. Yes, a faster car is just a toy, but the pursuit of the faster car, or the pursuit of a robot car that can drive across the desert, etc. yield benefits to us all. I can imagine that pursuit of more and more power from an engine leads to mileage gains for all cars over time. Car engines 30 years ago were much less efficient (and much dirtier), and I would guess that some of the research behind these improvements came from rich people wanting better toys.

Nov 17 2010 at 6:09am

Those so sure an amount of money exists that is ‘too much’ may inadvertently strangle the proverbial goose with their policy desires. Frank and Company who insist on redistributing wealth forget that the wealthy redistribute voluntarily! (in the form of philanthropy, and spending/saving) Even the miser – even the avaricious – cannot completely sequester their resources. If they save, the credit and liquidity markets are benefited, if they spend, the goods and services markets are benefited.

What exactly is the difference to society between a dollar received through the Earned Income TC, and a dollar received through yacht construction. (I’m sure there are differences, but I would like to hear Frank detail them). It is not obvious the differences are profound, nor that conspicuous consumption is so terrible. Frank says that the utility from an extra thousand square feet of house is much less than the same amount redistributed to the poor. Maybe. But this calculation is incomplete without acknowledging the utility of income received by the construction worker – paid for completing the extra thousand square feet. Frank and Company assume that the rich should do without this or that type of consumption (the ones they don’t like). But they neglect those members of society on the other side of the transaction – can they do without? If income was capped, I imagine there would be huge repercussions in some industries and charitable organizations.

This brings up Damian’s point. Frank and other redistributionsts fail to grasp the abstruse ways income inequality textures the patterns of specialization and trade. It seems to me that today’s exorbitant goods become tomorrow’s mainstays of consumer utility. (An exaggerated hypothetical: If Frank lived in 1914, we could imagine him detailing with horror the excesses of wealthy automobile owners – maybe he could have prevented such conspicuous consumption!) Redistributionalists are blindly wedded to Maslow’s hierarchy – a drab, desolate perspective. Having some very wealthy members of society increases fecundity – it diversifies talent and specialization – it allows some people to capitalize on narrow peculiar endeavors, and we are all better off because of it.

Nov 17 2010 at 9:09am

One more observation…

The most chilling aspect of Frank’s approach to redistributive policy is its top-down nature.

There are of course some people who need assistance to survive. I think most people agree – the government should help them via redistribution. (Though I am sure many who frequent this site could argue the private sector might perform this function appropriately) This approach starts at the bottom (figure out who needs help, try to eliminate the system’s waste, leeches etc. to otherwise reduce the redistributive burden), and then determines the amount of redistribution needed to be taken off the top. This method is fairly practical.

Frank’s orientation is markedly different. Frank starts at the top (consider how much money is ‘too much,’ where money is being spent ‘inefficiently’ etc.) and then determines how it can be best used at the bottom (and middle?). This method is very ideological. This method has dramatic incentive effects – bleak indeed.

Just curious (and too lazy to research): does anyone know of countries with income/wealth caps in place?

Shawn Reed
Nov 17 2010 at 9:37am

For me, public choice has the final say in this issue (though, obviously, pc wouldn’t be persuasive to a leftist/statist).

“Ok, Prof. Frank, let’s grant your point about inefficient consumption being mitigated by legislation. Who writes the legislation? Who does the research that justifies legislation? Who oversees the rent-seekers that work within the letter of the law to facilitate the over-consumption of their goods?”

Jonas E
Nov 17 2010 at 2:04pm

A great podcast! I think it was refreshing to hear both counterparts listen to eachother, taking the arguments very seriously and finding out wether they could agree or not on the issues. It was a very mature conversation and I learned alot, especially, as alaways, when Roberts questions the data and how its measured.

I would like you Roberts to elaborate more on this issue in future podcasts since it is a very important and interesting subject. Me, being a Swede, tend to have much more acceptance to redistribution than the average american. What are the fundamentals that form our belief or non-belief in the governments abillity to govern the state. Social capital? Ethnic hetrogenicy? Equality? Opportunity? Heterogeneity?

Often when reading the comment field of the podcast I feel sick. Sick of knowing that the only place that where I could a more concentrated group of fundamentalists than among the commentators of Econtalk would be in the Swat valley in northern Pakistan. Do as John Quiggin, use the existing world as a starting point when discussing, not some free-market ideal. Reaching a well functiong free market economy (in its purest version) could be as unlikely as a “real” communist state.

Nov 17 2010 at 7:02pm

Nice podcast that did, as promised on twitter, appeal somewhat to my personal #BoudreauxBias. However, it seems to me that Robert Frank is no John Quiggin when it comes to rigor. That’s ok, I don’t mind some moralizing (suspect it’s inevitable) in my economists, but playing economic hide and seek with your moral choices (as I think Frank tended to do with some “everyone would agree” statements) is positively Epsteinian.

I also want to agree with the final part of the Jonas E’s comment above. Although I think I might have been more charitable than to head directly to the Swat Valley looking for like-minded fundamentalists to compare to EconTalk commenters. I’m thinking I’d have gone with anti-DH baseball purists or CNBC talkers or Christmas Day not Christmas Eve present openers or acolytes of jazz or FED governors as my comparison group demonstrating a similar level of “concentrated fundamentalism” as EconTalk commenters. But despite his taliban-talk, I do think he made a good suggestion for many of this community’s commenters:

“Do as John Quiggin, use the existing world as a starting point when discussing, not some free-market ideal. Reaching a well functiong free market economy (in its purest version) could be as unlikely as a “real” communist state.

Nov 17 2010 at 10:07pm

I think more consideration should be given to how immigration impacts on inequality to quote from the discussion.


“One is that we’ve had very high levels of immigration over that time period, which has changed who is the median.”

Nov 17 2010 at 11:56pm

Russ (and others),

I haven’t read all the comments yet, but I am surprised that another issue rarely, if ever, seems to come up when discussing the pros and cons of inequality.

That issue is the inherent inequality of the law in relation to wealth. You are much more likely to avoid jail time for a heinous the wealthier you are, not to mention the facility you will be held in is much nicer. Speeding tickets, fines, etc. represent a laughable fraction of your wealth, and although they might be a burden on a low income person or family, are barely noticed by those with significant wealth.

In addition I believe there is a good case for arguing that income inequality destabilizes the political system as it grows more extreme. This is not only do to the broad public perception when such conditions occur (making the electorate “restless” lets say) but also for the very real reason that money can be heavily influential in politics.

If you have a growing condensation of extreme welt (even relative wealth) in a smaller group it facilitates the process of political favoritism, easy lobbying, and hence a sort of cyclical reenforcement of the very wealth that is influencing the process in the first place. This has lead, in my view, to the down fall of various societies once the process becomes too overt.

Thoughts on these points?

Nov 18 2010 at 12:22am


Fellow podcaster & blogger Alan Harvey might also be an interesting guess…. as I read somewhere his podcast and blog Demand Side Economics is left of even Paul Krugman.

Nov 18 2010 at 12:44am

this must b part of the problem: it’s deepwired into whatever rules govern behavior. it may have been selected for.

Monkeys reject unequal pay.
Brosnan SF, De Waal FB.

Nature. 2003 Sep 18;425(6955):297-9.

During the evolution of cooperation it may have become critical for individuals to compare their own efforts and pay-offs with those of others. Negative reactions may occur when expectations are violated. One theory proposes that aversion to inequity can explain human cooperation within the bounds of the rational choice model, and may in fact be more inclusive than previous explanations. Although there exists substantial cultural variation in its particulars, this ‘sense of fairness’ is probably a human universal that has been shown to prevail in a wide variety of circumstances. However, we are not the only cooperative animals, hence inequity aversion may not be uniquely human. Many highly cooperative nonhuman species seem guided by a set of expectations about the outcome of cooperation and the division of resources. Here we demonstrate that a nonhuman primate, the brown capuchin monkey (Cebus apella), responds negatively to unequal reward distribution in exchanges with a human experimenter. Monkeys refused to participate if they witnessed a conspecific obtain a more attractive reward for equal effort, an effect amplified if the partner received such a reward without any effort at all. These reactions support an early evolutionary origin of inequity aversion

if we assume this aversion to inequality has been selected for, or has emerged, as is often said, then perhaps this is not a flaw but a valuable instinct- like the aversion to rotting flesh.

another explanation is that this sensitivity to inequality is like the appendix or something- u know, left-over and maybe better off without.

i doubt this cuz of the evolutionary proximity humans have to these primates- that’s just a guess. also, the aversion is likely associated with cooperation- which has only increased in humans vs monkeys.

oh yeah, and freedom is soooo correlated to wealth as to b a truism. in a broader view, freedom is correlated to power and wealth can b described as latent power.

luv the tax consumption idea far more than taxing labor/income.

n e way…i agree with russ that it’s really refreshing to have an economist thinking in terms of morality or fairness or whatever.

[Formatting edited. Link for quoted material: –Econlib Ed.]

Nov 18 2010 at 12:57am

Frank suggests that a non-optimal allocation of resources results from the excess consumption on the part of the super-rich. These high levels of consumption are a consequence of the rich’s destructive competition for status. We should not fail to notice that production of extravagant goods and services increases competition for the factors of production, bidding up their prices and making them more expensive for other, more productive uses.

While Frank accepts that absolute income is important, I don’t believe I heard Russ concede that relative income disparities can have powerful affects on the real economy (as in the example above).

We cannot prevent status competition from taking place, but we should try to channel it to other margins and discourage it in social contexts. If wealthy consumers better understand the secondary consequences of their purchases, perhaps they will change some of their behavior on their own.

Nov 18 2010 at 2:22am

Why is this an issue we should be concerned with as a matter of public policy? The simple fact is that public policy has an enormous amount of influence on the amount of inequality there is and amount of inequality a country has matters a great deal for outcomes people care about.

BINGO! Policy matters!

Great discussion. Thanks Russ

I also liked this:

Because it has become a slogan in American political discourse that it is illegitimate to tax the rich and transfer income to the poor.


Quinn Clark
Nov 18 2010 at 8:06am

Wow. I agree that this was a great podcast, though it made me throw up in my mouth just a little. It always amazes me when people accept as a given the premise that money should be taken from you and given to other people because the outcome would be better for everyone. Does the conceit and absurdity in the implied statement: “I know what’s good for you better than you do” never occur to these folks? Does it never occur to them that the funds they’re talking about must be taken from their rightful owners by force? In most places we call that … hmm, let’s see … theft.

But let’s ignore the obvious moral vacuum for a moment. Where is the incentive to spend someone else’s money wisely? Have we considered the enormous bureaucratic costs involved in figuring out what it is that everyone wants and needs? What about the fact that every job “created” by government must be paid for from funds that could otherwise be used to buy other jobs, jobs that are direct responses to the demands of the market, and not to the whims of the ruling class. And what degree of cultural blindness is necessary for someone to miss the fact that those confiscated funds aren’t going to be used for the “public good,” except in the minimum amounts necessary to keep the ruling class in office, which means just enough to pacify the public?

The naked market is aligned to find solutions that politicians could never hope to stumble upon. It is also the only moral solution, the only one that doesn’t require coersion and violence for its implementation.

Nov 18 2010 at 8:52am

My Austrian understanding points to one event that caused the increasing income and wealth gaps that we see today in USA society that the podcast pointed out started in the middle 1970s. That is the closing of the gold window which allowed the Federal Reserve to create money at will and deliver it to its member banks with a cut going to the government.

Being in business I would say that the consumption tax proposed is not a question of being good but of being good for whom. If I work building $6m houses or in building really fast cars then I will not be as enthusiastic about his consumption tax as he is.

I can now see the logic in Mises and Hayek wanting economics to be a value free science. This value added science stuff makes for bad policy and in any cases that I have seen, a worse off society.

My Libertarian view for a political economy would be in the statement: “Government that governs best governs least. Ergo a government that does not govern at all would be optimal.”

Nov 18 2010 at 12:24pm

What exactly is meant by ‘income inequality’?

Like ‘income distribution’, I think some folks take the mathematical meaning of the phrase (my income does not equal your income) and others understand it to mean some measure of fairness or justice (my income is lower than your’s and that’s not fair). If the latter, then it would also be nice to consider some measure of value creation inequality. Income would probably be the best measure for that. Another dimension may be how much of the income is earned through rents vs. voluntary actions, which might be harder to get at.

I get the sense that Frank believes the free market works well to produce the most good within a certain range of outcomes, but thinks he could produce better outcomes than the market outside of those ranges. He also doesn’t seem to have much respect for property rights.

The problem is he doesn’t seem to give due consideration that he might be wrong and that he’s applying his own preferences to analyze the situation.

If he could do more good than the market, he should be able to demonstrate that by first earning excess wealth of his own and second lead by example and help the folks on the other end of the curve with his own excess wealth.

John Berg
Nov 18 2010 at 1:57pm

As a thought experiment, consider a good redistributive task, Eisenhower builds the Interstate Highway system, and determine whether this task could be Constitutionally done under the enumerated powers. If not, what precise Constitutional amendment would be required?

John Berg

Michael Bishop
Nov 18 2010 at 5:25pm

Congratulations to Russ on a great podcast. As good as they are when he speaks with someone who shares his philosophy, they are even better when he speaks with intelligent people with whom he differs in substantial ways.

Nov 19 2010 at 9:10am

Great job in the comments rebutting Robert Frank – but I think I’d state my disagreements a bit more softly:

Robert F,
It is easy to argue specific areas where efficiency could be improved. I think Russ R’s point is that it is not so easy (impossible in fact) to actually implement policies that result in those efficiencies being realized.

It is logical to conclude that there is a better use for resources (time, money, material) than to add an extra 10,000 sqft that ‘doesn’t matter’ to individual’s homes. (Let’s ignore the subjective nature of such a claim and the impacts to personal choice.)

My problem is you seem to assume the freed resources now get used more efficiently, without allowing for the possibility that they could be directed to an equal or less efficient prospect. A tax on the sqft of homes may simply shift the expenditure to items within the home, or faster cars, longer driveways, higher ceilings, etc.

I think you will be hard pressed to demonstrate a policy that both captures ‘wasteful’ spending effectively and then manages it more efficiently — except for perhaps in the case of closing government agencies.

Nov 19 2010 at 9:11am

@john berg:

defense and security….it always has been.

The Dwight D. Eisenhower National System of Interstate and Defense Highways, commonly called the Interstate Highway System, Interstate Freeway System (colloquially abbreviated “the Interstate”),….

Nov 19 2010 at 10:26am

@Howard Roark:

In regard to education I actually am of the Richard Hanushek school(heh) of thought: I don’t think there is anything significant that schools can do to overcome non-school problems in their students. The reason why SEED is so successful(! with clear indication that it’s students ARE disadvantaged to begin with) is that it removes children from the destructive environment of their parents and peers. Most other charter schools cannot overcome the problem of selection bias. Whether they select by random or test, it is still likely that if your parent is willing to switch you out of a bad school in the first place you are not the bottom of the barrel problem student anyway.

My personal view of the education problem is that there are two solutions: one is to increase spending and make available SEED-like boarding schools in districts that are considered problematic(usually high crime, high poverty districts). The second is to allow bad students to fail and get out of the system. Either make it easier to kick them out, relax the mandatory education standards(ie. make education optional), relax pressures to enforce attendance(ie. if they don’t want to be in school leave them alone). I think the first solution is politically unpalatable and the second is morally disastrous(and also politically unlikely). This is probably why little to nothing will change in education policy anytime soon.

Regarding natural law arguments for government spending. First of all a true natural law theoretical framework would not tolerate any non-voluntary taxation at all. The notion that the rich benefit more from government spending is silly, the rich could always provide such benefits for themselves. There’s an older podcast arguing against the very notion of a public good and other such traditional arguments in favour of gov spending. Second, a flat(%) tax on income is hardly equitable. If I make 10k I pay 600 and if I make 100k I pay 10 times more. Why? Do I get 10 times more stuff? Of course not.

Personally I find the natural law arguments deeply unpersuasive. They’re just one small segment of deontological arguments, based around the semi-psychological factoid that most animals have some conception of private property(or at least possession) and since we have an instinct for property it’s somehow holy. Well, the unfortunate weakness of natural law arguments(and most but not all deontologicals) is that it ignore all our other instincts. What privileges our sense of property over our sense of justice, or our desire for revenge, or indeed our envy? The only way to truly justify property as a privileged instinct is with a consequentialist argument. Note, incidentally, that every argument I’ve heard Russ Roberts make is a consequentialist argument. Deontological arguments really have become extremely marginal in moral philosophy(and for good reason, if we are being logically consistent).

Finally, the constitution specifies that the Supreme Court is the institution that shall interpret the constitution. The constitution does not tell the Supreme Court how to interpret the constitution. If you believe that the Supreme Court is wrong you can attempt to pass a more specific constitutional amendment on the given issue. There is no other constitutionally legitimate(from the perspective of a constitutional literalist) thing to do in this situation because the constitution does not specify that the Supreme Court must rule in one fashion or another. The standard arguments about activist judges are inherently not constitutionally literalist. The arguments about the federal government’s excessive spread are also not constitutionally literalist(because it can’t be excessive as long as the Supreme Court approves). So with that said, it doesn’t matter if something is mandated in the constitution or not as long as a)it’s not explicitly(ie. government shall run no school or limit the right of the people to be illiterate) forbidden and b)it’s not forbidden by the Supreme Court.

Yes it’s tautological, but that’s working as intended. The constitution and the Supreme Court are supposed to function as a closed logical system with feedback loops going in both directions.

Nov 19 2010 at 12:18pm

Mark Crankshaw,

I am curious about a couple of things. You seem to imply that the only reason Franks has been supporting this redistribution for all these years is for the selfish reason that it will somehow benefit him. What is your evidence/reasoning behind that? Even if he did benefit at the expense of others (of which I am skeptical), aren’t there a million easier ways for him to improve his life than spending decades advocating small changes in legislation such as a consumption tax instead of income tax?

Also you are convinced that he did not view the evidence before drawing his conclusion, but the other way around. I happen to think this is often the case for many people as it is nearly impossible to completely overcome one’s biases.

Even if this is the case, I’m curious, did you read his book and examine his situations and evidence before making this conclusion? Or do you simply do what you you attack him for?

Nov 19 2010 at 1:18pm

If not the worst guest ever, very close.

This guy did nothing but wrap personal opinion in tired cliches masquerading as empirical fact.

Nov 19 2010 at 2:10pm

A lot of the comments here have been fairly uncharitable towards Frank. Somewhat surprising since he is using standard microeconomic theory to support his arguments.

David Friedman has made very similar arguments in his econ textbook regarding Marshallian efficiency:

I see much of the current debate in politics as a prisoner’s dilemma writ large. Neither side trusts the other and due to the large numbers involved, agreement is difficult and, accordingly, suboptimal outcomes result.

Frank’s discussion of labor unions, free trade and politicians provides a good example of this. We could have a higher standard of living by instituting more free trade, but since neither side can come to an agreement of how these gains will be distributed, we are stuck in a suboptimal outcome. I don’t find this view terribly controversial.

Nov 19 2010 at 2:19pm

“If not the worst guest ever, very close.

This guy did nothing but wrap personal opinion in tired cliches masquerading as empirical fact.”

Yes, but instead of labeling the guest this or that….refute his arguments. Your comment is just a variant of the ad hominem fallacy.

Pretty much all commentary on political or economic matters is nothing more than personal opinions about the right policy masquerading as irrebutable fact.

Nov 19 2010 at 4:31pm

Great episode. I love when Russ has people with different views on.

I think the main problem with Prof Frank’s point is—as Thomas Sowell would say, “Compared to what?” It’s always the dream of social engineers to somehow create a society that works better than the market—but I worry that most talk about “correcting” inequality would just make it even harder to for those who aren’t wealthy.
Discussion shows the importance of a deep understanding of statistics since it seems that there is a lot of disagreement among professionals over very public data.
The consumption tax was appealing. Hope this guest returns.

Nov 19 2010 at 7:40pm

One problem I have with a lot of comments attacking Robert Frank on here as some horribly intrusive “social engineer” is that much of what Robert seems to be advocating is not a MORE intrusive government, but making the intrusions already being made more efficient and less harmful. I find this to be an area where many libertarians seem to have a serious blind spot.

A common cliched slogan among gun advocates is:

“If you make it a crime to carry a gun than only criminals will have guns.”

Well I think one could make a similar phrase:

“If libertarians make writing any legislation immoral, than only progressives will write the legislation.” Or something like that.

I don’t believe this argument that basically “all legislation is equally evil and destructive.” Some works better than others, and if you can’t get rid of it there is nothing wrong with at least TRYING to make it better.

Nov 19 2010 at 9:27pm

Exactly what a low-income, hobby-economist needed to hear!

You know, $100 in the pocket of a low-income person is very different than the same in the pocket of a high-income individual. At the end of the day I know that as a matter of probability, both individuals are likely to either spend that money on frivolity or on productivity. In the end, the decision at the individual level becomes a mix of cost/benefit and morality. However, I know that as a whole, the more $100 bills I allow low-income individuals to keep, earn, save, or even receive, the more I will actually change lives positively. BUT, only if the incentives for productive decisions are apparent!

Just because government may chose to given the high-income individual more means for building jobs, doesn’t mean they will. In the end, the decisions of a wealthy individual hinge on a mix of cost/benefit and morality… the same for the poor individual. Incentives should exist for productive decisions and counter-incentives for the contrary.

John Berg
Nov 20 2010 at 1:07am

xian provided an answer I found agreeable that the Interstate Highway system fit under the common defense clause and at the same time provide much in the way of redistributive money. (One change I might have made would have been to prohibit any exits inside the beltway highways of each city and permit exits only outside beltways. Each exit would be a pretty big new town by now.)

Sebastian writes:

“Finally, the constitution specifies that the Supreme Court is the institution that shall interpret the constitution. The constitution does not tell the Supreme Court how to interpret the
constitution. If you believe that the Supreme Court is wrong you can attempt to pass a more specific constitutional amendment on the given issue. There is no other constitutionally legitimate(from the perspective of a constitutional literalist) thing to do in this situation because the constitution does not specify that the Supreme Court must rule in one fashion or another. The standard arguments about activist judges are inherently not constitutionally literalist. The arguments about the federal government’s excessive spread are also not constitutionally literalist(because it can’t be excessive as long as the Supreme Court approves). So with that said, it doesn’t matter if something is mandated in the constitution or not as long as a)it’s not explicitly(ie. government shall run no school or limit the right of the people to be illiterate) forbidden and b)it’s not forbidden by the Supreme Court.”

“Yes it’s tautological, but that’s working as intended. The constitution and the Supreme Court are supposed to function as a closed logical system with feedback loops going in both

The Constitution is interpreted by courts at all levels but also misinterpreted and re-interpreted at all levels. Only the “final” interpretation is made by the Supreme Court BUT even those can be re-interpreted by later Supreme Courts.

In the case of every re-interpretation, the Enumerated Powers provides guidelines for interpretation. A basic benchmark for Constitutional inclusion is that the clause limits the power of the Federal entity and reserves the rest for the several states.

(A pop-quiz: only two Constitutional inclusions prohibit individual freedoms; and one was repealed.)

John Berg

Nov 20 2010 at 3:14pm

The new Porsche 911 Turbo actually does 0-60 in 2.7s. If Prof Frank is wrong about that, who knows what else he’s wrong about.

JK. Enjoyed it a lot.

Nov 21 2010 at 11:52am

The Netherland painter art was mostly financed by rich businessmen of Hanseatic cities. Very nice city parts were built by rich people to signal their wealth.

Is it correct to assume that this was ‘wrong’?

However, I was surprised by the beginning: Equality is wrong ‘because’ if you just make it so that everyone gets the same share, nobody would have incentive to produce.

Yes. But that does not mean that you could not have equality if you get no redstribution. It’s not “equality” what’s “wrong” – it’s the rules of the game. If you get wrong rules, you get wrong results. If you get ‘no redistribution’ rules, you get different results; you may get equal society, you may get unequal society.

It seems to me as if you didn’t like that the USA always wins the basketball world cup, so you start chaning the rules. And you say: The USA always wins; that’s wrong; therefore the rules are wrong. It seems like non-sequitur to me.

Nov 21 2010 at 11:38pm

It seems to me as if you didn’t like that the USA always wins the basketball world cup, so you start chaning the rules. And you say: The USA always wins; that’s wrong; therefore the rules are wrong. It seems like non-sequitur to me.

Andy, as phrased I would agree. But we’re not talking about such a trivial thing as basketball. We’re talking about total-sum social gains and losses, the moral implications of doing nothing for low-end economic outliers, and the responsibilities to those around us.

The truth is that redistribution is (and always has been) happening, but it’s always been subject to the regime. I believe the difference today is that we have the technological means and the institutional structure to make it fair and effective. The so called rules can be made fair (though a very troubling term).

I think Frank was reiterating that absolute equality is not necessarily morally wrong, but fundamentally flawed in that it strips us all of incentives to work hard (though this is not entirely true) and distinguish ourselves from those around us by merit. Economically, it prevents us from obtaining more wealth through our endeavors.

That’s why a significantly simple way to achieve fairness is the idea to which Frank is pointing- the success in making signaling as a social act actually the opposite of consumption (ie production). Do we really benefit as a society when someone has a $30,000 watch or $100,000 sports car?.. That’s the point…

Doc Merlin
Nov 22 2010 at 12:51am

If you allow redistribution towards the poor, you will get even more redistribution towards the rich, as the rich have more political power.

In his example, in the long run the rich get their protections and the poor get their payoffs, and in the long run everyone loses. Its a sort of odd game theory result.

Doc Merlin
Nov 22 2010 at 1:01am

Another thing is: every example he gave where inequality mattered were situations where politics determined value instead of markets.

In political market places, relative power matters a lot more than in trade market places. This means that when we try to redistribute we should get MORE inequality rather than less. The time data bears this out; when did it begin to increase according to him? The 70’s… also the time when Johnson launched the Great Society programs.

Doc Merlin
Nov 22 2010 at 1:05am

I think I am going to beat a dead horse here. The time frame he says where things got worse is when we began most of the redistribution.

Doc Merlin
Nov 22 2010 at 1:37am

Your example of our venture capital market is a bad one. While the barriers on acquiring VC are relatively low. The barriers on investing one’s money in VC is extremely high. One has to be a “qualified investor” which means million+ dollars a year in income is a prerequisite.

Bob Layson
Nov 22 2010 at 8:29am

The conversation ignored the consequences for absolute levels of income in the remainder of the world if the US damped down its growth in consequence of pursuing tax-and-transfer redistribution.

Bob Layson
Nov 22 2010 at 8:47am

If thinking of the greater income of others, manifested in their expenditures and acquisitions, makes people fretful and unhappy they should think again and think otherwise.

They should value themselves by the things that money cannot help to buy or rank and fame secure: honesty, decency and a clear conscience.

There is an aristocracy by deed open to all. Think on that.

Howard Roark
Nov 22 2010 at 5:57pm


Re: K -> 12 Education

You wrote, “Most charter schools cannot overcome the problem of selection bias. Whether they select by random or test, it is still likely that if your parent is willing to switch you out of a bad school in the first place you are not the bottom of the barrel problem student anyway.”

I have heard this argument before. Basically, what you are saying is that some parents actually care about the quality of education their children receive, while others do not. And it is the children of the former parents who are most likely to succeed. So far, so good… I agree that this is most likely true. However, this is not sufficient to excuse public schools for failing to educate their students to the same high standards that charter schools like the Harlem Success Academy have achieved. Perhaps, you should take a look at a study conducted by Caroline Hoxby. She is an economics professor at Stanford University and her study tracked the subsequent / ex post academic performance of children whose parents applied for admission to charter schools in NYC via the lottery system. Her study included both the children who “won” the lottery and were admitted to the charter school, as well as the children who “lost” the lottery and were not admitted. Because the lottery system is random in nature, the kids from both groups were nearly identical from a demographic standpoint. Furthermore, because the parents in both cases entered their children in the lottery, and by doing so they clearly signaled an interest in their kids’ education, the “Do the parents care?” variable was isolated and held constant. The conclusion of the study was that the parents of the kids who subsequently attended the traditional public schools were equally interested in the academic success of their children (ex ante), but their kids performed more poorly (ex post) nonetheless.

Attempts to dismiss the success of the charter schools based on the “Do the parents care?” variable is yet another lame excuse for teachers’ unions to protect the status quo and shield themselves from accountability for their failures. If you would like to see Prof. Hoxby present her findings, go to at –

Re: Natural Law

Morality is an inherently human concept because we are the only species capable of rational thought. So, let’s forget about whether or not other flora and fauna have natural rights. They don’t. As human beings, there is no right more fundamental than a right to self-ownership. It is inherent for two reasons:

1) Process of elimination – If I don’t own my life, then who does? The answer is no one. Hence, I own my life by default.

2) Homesteading – I am the only one who has ever occupied my physical body and put it to productive use, and I am the only one who ever will.

While it is true that humans have other natural instincts like envy, revenge, or a propensity to steal life and property from a rival (if one can get away with it), these human behaviors do not override an individual’s right to self-ownership and its corollary: ownership of what one has produced, traded, or received as a gift from others – i.e., private property.

A right to self-defense of life, liberty, and property is derivative to a right of self-ownership. Since people have a right to self-defense, they can morally delegate this right to their government to act on their behalf. Specifically, via military and police protection against enemies, both foreign and domestic. Since these services are “public goods” (strictly defined), it is not always feasible to exclude others from enjoying the benefits (i.e., the non-exclusionary problem with public goods). Thus, lest there be any free-riders, it is morally acceptable to require everyone to contribute.

While I have read Murray N. Rothbard’s argument describing how military, police, as well as courts of law might be privatized, I am more sympathetic to Robert Nozick’s claim that a limited form of government would evolve naturally. (If you are interested in the debate between Rothbard and Nozick, see Rothbard’s article titled, “Robert Nozick and the Immaculate Conception of the State” at – .) The problem I have with Rothbard’s suggestion that police forces and courts of law could be privatized is: What happens when there is a decision made by the private court that one party chooses to ignore? Would the two parties enlist their private police forces to go to war against one another? I believe they would, just as nation-states have gone to war for millennia.

Regardless of whether anarchy (Rothbard) or min-archy (Nozick) is more morally just, the point is that you cannot so easily dismiss the natural law argument of self-ownership merely because there are other human behaviors which are innate. Theft may be a natural human behavior hard-wired in our brains over millions of years of evolution, but that does not mean a man can morally enlist his government to be his accomplice to this crime.

Re: Flat rate (%) tax

As much as possible, those who receive the benefits of government services should bear the costs directly. For example, if a rich man – in pursuit of profit – makes greater use of public roads, he should be charged a toll for such usage. However, since it is simply not feasible to assign the costs for all government services in this manner, a flat rate (%) tax on either income or consumption is probably the closest approximation to fairness. The assumption is that in order to earn more income, one must produce more. In doing so, this requires the producer to employ greater resources like property, plant, equipment, and machinery. In turn, deploying these resources requires greater use of government services like infrastructure, police and fire protection, etc. Thus, the man who earns $1 million in income should pay more taxes in absolute dollar terms than the man who only earns $50K, but a flat rate (%) system would insure that no man is required to pay more than another for each marginal dollar he earns. Again, this is far from perfect, because the man who produces intellectual property (e.g., like writing a book) is probably going to use less government resources than the man who produces tangible property (e.g., like building widgets in a manufacturing facility). Regardless, it is not always feasible to collect taxes via tolls, user fees, etc.

Re: The Constitution and the Supreme Court

If the Supreme Court can interpret the Constitution arbitrarily, then we should end the charade and shred the document. A “Living Constitution” doctrine (or any other variation of judicial activism) is merely another way of saying that there need not be a Constitutional limit placed on the power of the federal government at all. I would like to see a process put in place where Supreme Court justices can be removed from the bench when they fail to abide by the original meaning and intent of the Constitution. There are various ways to do this, but it should require a super-majority vote of both houses of Congress, the States, or the Electoral College. States like California put their Supreme Court justices on the ballot for an up- or down- vote periodically, and these judges have remained apolitical for the most part.

Nov 23 2010 at 3:26pm

Frank’s views were some of the best I’ve heard on his side of the issue, but like Russ I have trouble seeing the issue in the first place.

Income inequality is just a fantasy problem created by looking at economic statistics instead of reality. When I look around, I don’t see any mansions, fancy cars, private jets, etc. That world has zero impact on me.

I live in one of the best housing situations I can see in my city, drive one of the best cars in my opinion in my city, own 6 computers and a home theater, all on a combined income of less than $40K/year. My wife and I each earn about $20k plus benefits. It is simply not true that you need high income to live well in the United States. 99% of American’s only encounter a couple of these top 1% rich folks per year. The vast majority of cars on the road are not Porsche 911’s, they are just the normal $10K-30K car that anyone can afford. I don’t know a single person who worries about conspicuous consumption or gets depressed because the super-rich are flying around in private jets.

People who worry about income inequality should be focused on helping those who cannot earn a basic income of $15,000 per year or so. I DO know people who live in trailers/apartments and wish they could afford a house. THOSE are the people who need help. 99% of people are perfectly satisfied once they achieve the American dream of a decent house and car.

James Gambrell
Nov 23 2010 at 3:54pm

Let us keep in mind that of these claims about “no real wage growth in the middle class” are based on a highly inaccurate consumer price index. From my consumer perspective I look at facts like these:

1. I can now call any U.S. phone for free using Google, used to have to pay for phone service and long distance.
2. I can buy a fresh large pepperoni pizza for $5 from a local pizza place, used to be $10 or more
3. I can work from home now, used to be impossible
4. I can buy a laptop for $400, used to be $2000+
5. Super Wal-Mart

From my point of view the dollar buys twice as much as it did 10 years ago, and I can earn them more easily. So people like Frank often sound like they are talking about an alternate reality. Notice that these sort of improvements only help the little guy, maybe yacht prices are higher than ever?

One more thing: the conspicuous consumption/keeping up with the Jones’s argument breaks down for the super-rich because it isn’t possible to compare fabulous custom-made super expensive yachts/paintings/houses/watches/etc. and tell whose is better.

Nov 24 2010 at 7:07am

@James Gambrell

You are right, that the consumer price index is highly inaccurate, but you are missing the point of the main argument it was used for: inequality has grown.
All those points you mentioned do apply to the rich, because even though if used less, their effects “tickle up” to benefit them:
“the little guy” might benefit disproportionately from them, but you would have to claim that this increase in buying power outstrips the increase in buying power of the rich. That would be a rather strong claim to make. Why? Because if the “little guy” can buy more per dollar, he will compete harder for that dollar, accept lower pay and thus products in general would decrease in price. This would also benefit the rich.

What I am trying to say is that even though the social inequality might not have grown as is generally said, it would be hard to argue that it has grown only a little or that hasn’t grown at all.

To your second point:
By Jones’ argument, they are comparable if their only value is their price. Usually one would expect that the value of these yachts is the benefit they give to the owner in terms of travel, leisure or comfort, which is hard to measure in dollar terms. Jones’ claim though is, that the value of these yachts is the status increase of the owner and that status increase is measured in how much you paid for the yacht. Simply: if you bought a wooded plank for 10mill it’s value in status terms is equal to a tricked out yacht for 10mill.

Nov 24 2010 at 7:33am

A point I wanted to mention: Roberts and Jones both want to abandon the utilitarian argument where they don’t have to.

Russ says: “enslaving people that led to great outcomes would be a good thing.”
Jones answers “[…]The person enslaved is not going to agree to a situation like that.”

The utilitarian here would have to say, that people should be enslaved if general welfare increases, aka the economic surplus pie gets bigger.

Imagine yourself choosing between a state where you are free, work 9 to 5, but get to spend that working and freetime however you wish. The thing here implicitly valued is the freedom of choice.

The other state is run by a dictatorial computer that knows how to efficiently use people. The effect is that you can be called upon any time during the week to work 1 hour in any job the computer tells you to. you are his slave for that hour. The rest of the week however you are free to do whatever you want. To sweeten the deal: some people don’t have to work ever, the efficiency is so great, that everyone consume as much as they want.
Which state would you chose?

By now decreasing the benefits of the dicatorial computer state, one could find out how much people actually value their freedom of choice.

Further Jones says: “Not saying that if a rich guy is willing to pay $10 million to shoot you and you are only willing to pay $10,000 to prevent him from doing that, that allowing him to do that makes for a bigger surplus. You have to say certain things are off the table.”

If this is all that happened every utilitarian would have to agree that this action should not be taken, but it isn’t off the table. In this example, the 10mil are only transfered to other parties, there is no surplus generated.
This kind of argument depends heavily on how you frame it. If these 10 million $ would either be burned, or if that guy gets shot, be invested in a treatment for cancer and the benefit in terms of “happiness” for humanity would increase more than the “happiness” that was lost by that one death, then the utilitarian would say that this action should be taken.
To be more specific and relevant to this example: would the guy agree to be shot if he knew his family would get the 10mil and that he could only provide them with 100004 tops?

Again, this argument depends heavily on how you frame “happiness”: monetary gain, live quality, self identity, etc., but something has to be gained, not just transferred. Just seeing utilitarianism as pure transfer payments is too simple and doesn’t do it justice.

Nov 26 2010 at 10:59am

Russ (& Stephan),

I agree with some of what Stephan states. There are a couple of additional considerations though. One is that utilitarianism can also be looked at as a system of ethics, not just on an individual situational basis. For example in the case of killing someone for a million dollars you could ask if this in general increases happiness, welfare, desires (currently I prefer desire utilitarianism which looks towards maximizing the fulfillment of desires), etc.

So if were create a system where it is ok to kill people for money will this lead to a society which maximizes the fulfillment of desires? I happen to not think so.

This leads to another point which is the hypothetical narrative. For example, if I say you have the choice between two worlds, one in which there is no slavery but everyone is destitute and miserable, and another where there is slavery but everyone is better off (including the slaves), has more food, more happiness, etc. Are you saying you would pick the world with more misery simply because slavery is wrong? I happen to think one should pick the better world, but more importantly I believe this is hypothetical. In reality I DON’T believe slavery maximizes the fulfillment of desires, happiness, etc. that is WHY I am opposed to it, above and beyond a general distaste. In addition I DO believe a certain freedom of action is highly valued by people and therefore it ways heavily on the scale for the anti-slavery side.

Also a particular feature of desire-utilitarianism is to point out certain desires are malleable while others are not. While I cannot change my desire for food and water, I can alter my desire to possess the benefits of another’s labor. Because my desire for another’s labor thwarts their desire to be free it is in everyone’s best interest that I avoid this desire.

So in short I believe not enslaving, not raping, etc. maximizes desire fulfillment. I am always curious about people who claim to not be utilitarians, do you really believe you would be against slavery, raping, etc. if it made everyone happier? Again, if one could choose to live in a world full of “immorality” in this sense, but where everyone’s desires and happiness maximized, or one could live in a world where these “moral” codes are enforced but no one’s desires are fulfilled (I happen to think this is somewhat of a contradiction), you would really choose to make the world miserable just so you could uphold certain rules?

Nov 29 2010 at 2:50am

Great podcast. The best discussions always come from the shock of opposing views.

Some comments have alluded to this, but none in a way as clear as I would like it. I think Frank mist a – if not the – crucial problem that comes with excessive inequality: the provision of public goods and the general design of laws. To form a community, the members must agree with what goods they want to provide publicly and what laws should be enforced. Thus, they must share common needs and values.

Starting from an equal society, moderate increase in the wealth of some, if they contribute more to public goods, has a positive externality for the poor. But there is a point (which I think the U.S. past a while ago) where their interest simply becomes too divergent. Instead of public schools, hospitals and police forces, the rich want to keep their money and pay for their own private schools, clinics and private security agency patrolling their gated community. Since the rich have more influence on the design of public policy, they will push for a minimalist State.

The same applies for laws. They are just only if they benefit to everyone:

“The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
– Anatole France, Le Lys Rouge [The Red Lily] (1894), ch. 7

When I see prisons crowded by poor minorities while the crooks of Wall Street always seem to find a way out, I think of this song:

“Steal a little and they throw you in jail
/Steal a lot and they make you king”
– Bob Dylan

Dob Bylan
Nov 29 2010 at 12:05pm

nicholas has a theory:

Those with (extreme?) relative wealth “will push for a minimalist State.”

How do you think this theory holds up empirically?

I see just the opposite. The very rich favor an expansive state because it leverages their wealth. Large corporations perform much better the more involved the government. A large state maximizes the influence of wealth.

That being said, Nick’s observations concerning inequality under the law (as a function of wealth) cannot be overstated – it is deplorable.

Nov 29 2010 at 1:11pm


1. Selection bias

The problem is that the learning environment of a child determines their learning as well. Put Bob in a class with average students and he’ll perform better than if you put him in a class with terrible students. Charter schools weed out the worst students therefore obviously their classroom environment will be superior to that of public schools, indeed as a higher percentage of students end up in charter schools the proportion of terrible students in the public system(really, they’re both public, maybe the “default public system” would be a better term) will increase and EVERYONE in the public system will have a more difficult learning experience as a result. This does not even account for the fact that charter schools can actually get rid of problem students whereas public schools have to serve them.

2. Natural law

Human morality is tenuously linked to human logic. Human law is somewhat more logical but it still comes with a lot more instinct-derived assumptions than most realize. The very existence of socially-accepted or even encouraged wide scale redistribution in modern societies is ample indication that the property instinct is far from supreme in our moral hierarchy.

A somewhat more accurate description of morality is that it emerges, like language, from base, hard-coded, instincts that express themselves even in a completely unformed child’s behavior. These instincts likely get their initial set structure during our childhood and then are refined throughout our lives. “Moral minds” by Marc Hauser is probably the best introduction to this. Attempting to understand morality with purely rhetorical tools was well and good 50 or more years ago, but psychology and neuroscience probably have more to contribute to the discussion now than intellectually appealing theories.

3. Flat tax

So it’s a compromise on the absolute principle of personal property. Just like all other forms of redistribution, but differing in terms of degree and slightly more appealing rhetorically(because it’s “fair”, right?).

4. Constitution

I don’t really understand your argument anymore. Let me try and simplify mine:

A person that is a constitutional literalist would accept the Supreme Court’s stated authority to enforce the constitution, unless their decision goes against the obvious letter of the constitution(ie. they validate a law banning all religious practice in the country). A literalist does not interpret or even understand(in a meaningful sense) the constitution, he reads it and applies some word based logic.

“What the founders would have said”-doctrine and “living document”-doctrine are not literalist. They are both guesses as to HOW the documents’ writers would want it to be interpreted. Some things are vague(interstate commerce), some things are not at all vague(2nd amendment, postal service).

Howard Roark
Nov 29 2010 at 4:15pm


Re: K -> 12 Education

There is some merit to your selection bias argument, if we assume that parents’ interest in their children’s education is the single most important variable when measuring educational achievement outcomes. While this may be a factor, I don’t think it is sufficient to explain all (or even most of) the differences in test scores between charter schools (which are public schools, yes) and traditional public schools (which are subject to teacher union work-rules). I believe the differences in educational outcomes stem more from: 1) Creating a culture of high expectations, 2) Strict enforcement of behavioral standards (e.g., wearing school uniforms; make-up days on Saturdays, when a student misses class or misbehaves), and 3) A system that rewards teachers based on merit and performance (rather than seniority).

A great example of point #2 is the policy enforced by Ben Chavis et. al. at American Indian Public Charter Schools (AIPCS) in Oakland, CA. If a student misses class, he is expected to show-up on Saturday to make up for it (the teacher also has to make the sacrifice to be there on Saturday, which is unheard of in a union shop environment). Also, if a student litters or defaces school property, guess who has to clean up the mess? The student does, since the school does not have a janitor (they can’t afford one, because the unions have succeeded in trying to starve the AIPCS schools of funds; they receive far less money per pupil than the traditional public schools). If you would like to read about AIPCS, see the L.A. Times article titled, “Spitting in the eye of mainstream education” at –,0,7064053.story (cut and paste the URL if the entire article does not come up). See also, John Stossel’s ABC 20/20 Special, “Stupid in America,” starting at 9:45 minutes at –

I have to ask, are you a public school teacher? I wonder, because you seem to be making an awful lot of excuses on their behalf. Regardless of whether your excuses are valid or not, as a matter of principle, the parents should be given a choice. If their choice leads to their kids being segregated from the parents / kids who have no interest in getting a good education, then so be it! Why should a parent who cares about the quality of education her child receives be required to send her child to a school where the lunatics are running the asylum?

Re: Natural Law

I am very familiar with the “meme” concept of cultural evolution (a term coined by Richard Dawkins). There is no doubt that morality has evolved, as well. I watched a debate between Rev. Al Sharpton and Christopher Hitchens on a few years ago (see – ) on the topic, “God Is Not Great.” Sharpton argued that religion gives us our morality, and without God we would have no morality at all. Hitchens replied, “Do you think that mankind was unaware that thou shall not steal or fornicate with another man’s wife prior to Moses climbing to the top of Mt. Sinai and receiving the Ten Commandments?” (I am quoting from memory, but this is roughly what Hitchens said.) Hitchens is right, of course, because theft and adultery most likely resulted in a man being killed by his rival. Thus, people found it practical to avoid such behaviors. In fact, religion itself is a wholly human construct, and it too has evolved (albeit, often very slowly) over time as a tool to re-enforce behavioral norms (witness the Pope giving some concessions toward the use of condoms recently).

Man evolved as a member of a co-operative tribe. And like most (if not all) living creatures, our species has benefitted biologically through kinship selection and reciprocal altruism (i.e., “you scratch my back, I scratch yours”). For this reason, I believe the human brain is hard-wired to favor socialism, and this may explain why so many people are attracted to “liberal – progressive” politics. But human nature does have its limitations. (Meaning, human nature is not perfectible, as the modern “liberal” would have us believe.)

A man is not likely to act as his “brother’s keeper” when the other person is neither his brother nor even remotely related genetically. Likewise, a man is not naturally inclined to help a complete stranger (i.e., a member outside his tribe) who has a low probability of returning the favor. Thus, as mankind has moved away from small hunter-gatherer groups into much larger civilizations, any attempt to impose this tribal instinct on a macro scale is bound to fail. In other words, our brains may still be hard-wired for socialist tendencies, but we no longer live in groups small enough for it to be practicable. As Edward O. Wilson famously stated, “Karl Marx was right, socialism works, it is just that he had the wrong species.” He was referring to ants, of course. This is the consequentialist argument, and history is replete with examples of the disastrous failures that have come when socialism (communism being one variation) has been imposed on a large scale.

Regardless, if you still believe progressive taxation (i.e., legalized plunder) is morally sanctioned when voted upon by the majority, does this mean you believe in moral relativism, as well? I believe there is no room for compromise on the central premise of self-ownership, even if this principle was not always practiced prior to the Age of Enlightenment (e.g., slavery), or during the socialist / communist and American Progressive eras in modern times (e.g., wealth redistribution and welfare).

Re: Flat rate (%) tax

There is no compromise on the principle of self-ownership and private property with the flat rate (%) tax. While it is not perfect in terms of directly assigning costs to benefits received, it is the closest approximation to fairness from a practical standpoint. There are morally legitimate functions of government, but these are limited to the services government provides which can be morally delegated by an individual when (and only when) the individual possesses such rights as a matter of natural law (e.g., a right to self-defense). Since there are costs involved in providing such services, a tax is necessary to pay for them.

However, when government engages in activities which would be considered a crime when committed by an individual (e.g., robbing Peter to pay Paul, even if Peter is filthy rich and Paul is dirt poor), no form of taxation is morally permissible. I recommend reading, On the Duty of Civil Disobedience, by Henry David Thoreau.

Going back to the example of religion being a subset of cultural evolution, I find it interesting that the Church expects its members to tithe a flat rate of 10%. It does not expect the members of its congregation who are rich to tithe ever greater progressive rates. Why? Because a flat rate (%) system is inherently fair.

Re: The Constitution and the Supreme Court

Yes, per the Marbury vs. Madison (1803) decision, the Supreme Court has the final say on whether a law or government action by the other two branches of government is Constitutional, or not. However, don’t be so quick to dismiss the originalist argument regarding the proper interpretation of the Constitution. Keep in mind that we do have a reliable readers’ guide to the Constitution, and it is called, The Federalist Papers. We also have numerous letters and other documents written by the founders that can be used to discern the original meaning and intent of the Constitution.

Regarding the Commerce Clause, if you would like to see an especially egregious example of judicial activism, consider the landmark case, Wickard vs. Filburn (1942). Now, please tell me this decision is what the Founding Fathers had in mind when granting Congress this enumerated power?


Since you have asked me to defend my argument against progressive taxation (i.e., legalized plunder), I would like you to state your case. Please begin by clearly stating your premise(s) and walk me through your logic leading to your conclusion that stealing property from one man in order to help another man is morally acceptable. When making your argument, please address the following questions: 1) How is it morally permissible for mob rule to trump an individual’s right to property?, and 2) How is it morally permissible to force a man to help another man when private, voluntary charitable giving is a viable alternative, which neither violates individual liberty nor involves government force and coercion?

Nov 30 2010 at 4:00pm

I’m a college student and not American.

Education: I’m basing my assumption of what really determines student performance on various studies I’ve been reading, for instance Hanushek’s Assessing the Effects of School Resources on Student Performance. Family income level is by far the biggest determinant. I actually DO NOT agree that there is nothing a school can do to educate kids better. But the burden of proof is on the program and its proponents to show that they make a difference. Preferably with a large sample, long or medium term study of the school.

As such, I’m not so much making excuses for teachers as pointing out that their influence ranges between zilch and low. As far as our data can tell us.

Morality: There’s an old Adam Smith quote about how people can’t care about an earthquake in China because there’s only so much careium in our brain to distribute. Of course the international response to Katrina, the tsunami in Asia and Haiti belie that statement. What people care about is complicated. A good starting point is that we care about what we see and hear, hence the impact of youtube on international crisis response. But honestly, it’s complicated and we don’t get it.

Our instincts are not socialist. Our instincts are complicated. We think people should not steal, people should not hurt other people, equal pay for equal work, honesty, reliability, taking care of the weak, punish rule breakers, punish free riders and a bunch of other things are evident even in toddlers. To me that sounds pretty capitalistic. But in reality it’s an illogical and contradictory mix of emotions. We are not machines, a bunch of instincts coevolved over time and in many situations they tell us to do different things. It’s an internal struggle and it determined and continues to influence morality.

This, really, is my point. Logic doesn’t determine morality. What person A thinks is right, is what person A’s morality is. Most people use logic. A bit. And mostly go with their gut. There are so few truly logically sound moral frameworks and when we come across one we are usually creeped out by it(ie. Peter Singer).

You can make your moral argument against taxation, but you should at least be aware that a)most people don’t share your moral framework b)most people that do share your moral framework aren’t all that passionate about it c)even people that think they are passionate about it don’t seem to be doing all that much to fix the situation.

Moral relativism meaning what? Accepting that morality is just some fuzzy concept that is loosely shared by large groups of people? Yeah. It has some basic features, the stuff that’s hard wired(opposition to hurting people, sense of personal freedom, some sense of fairness, desire to protect and some other stuff). But the vast range of what people think of as moral, or the moral details that people argue about are mostly irrelevant. The more controversial a moral precept is the more skeptical we should be of its claim. This being the market of ideas in action.

Tax: there is no way to argue that a flat tax is not coercive and does not violate property rights. It’s a tax, it does that by definition. Nobody gets asked if they want to spend money of national defense, no one has a choice as to whether they fund “basic” infrastructure or whatever. I’m unsure why you think I support progressive taxation. I’m just pointing out that both progressive and flat taxation are immoral if you think that property rights are inviolable.

Constitution: my point is that both right and left of the court interpret the constitution. They just choose different criteria. You are saying that the originalist filter is better than the progressive filter. This is something that needs to be backed up, as opposed to some automatic, appeal to tradition, argument-settling, masterstroke. Think on this:

Who would support the abolition of the Postal service? Perhaps replacing it with some publically accessible internet cafes, to allow even the poorest to communicate with each other over a distance for low prices.

Clearly a good idea by most any way of thinking about the matter, but hardly something that the founders could have envisioned. Indeed something that goes against the literal reading of the constitution. Can you interpret around it? Probably. Would the originalists favor something like that? No. Not even a question.

I don’t really care about the matter of taxation. I’m not arguing in favor of progressive taxation. I am pointing out the fact that taxation, flat %, flat $, progressive, regressive, VAT, estate, whatever is theft. It’s annoying when people talk about the sacred nature of property rights, say that progressive taxation is the devil and then say flat % taxes are somehow justified. They’re not. The argument in favor of one is the same as the argument for the other; you just change some digits around(maybe as income goes up you consume proportionally more state services, at 10k it’s 1k at 50k it 7k blabla). Who cares? It’s unprovable empty rhetoric.

What I think is that the tax system that is moral is the one that a democratic society accepts over a long period of time. No one is forcing you to work hard and pay high taxes, no one is forcing you to live in that state at all(if they do, that’s clearly undemocratic and you probably have bigger things on your mind than taxes). The notion that taxation, in and of itself, is some burning moral issue is insulting given the amount of genuine human suffering out there in the world. As it relates to poverty, conflict, whatever taxation is worth talking about. Aside from that it is an utterly frivolous thing for us to worry about one way or the other. I find no argument for one tax system or another persuasive as long as it doesn’t appeal to some actual effect on real peoples’ well being.

Quinn Clark
Dec 1 2010 at 2:26pm


Very well said, sir. You are a champion of consistency. I agree, as you seem to be pointing out, that what people call their own personal morality is seldom tainted by logic. Most of it has its genesis, I think, in early childhood culture and socialization. It is inconsistent because it is not designed to serve truth, but to serve the various purposes and agendas of others. It takes quite an effort to impose consistency on one’s moral code, but such consistency (or at least the quest for consistency) is necessary if one wants to claim to have a rational basis for their personal philosophy.

What we’re left with are the “basic features” that you speak of, those moral tenets that virtually everyone agrees on, the things that we all value (“universally preferable behavior” Stefan Molyneux would say). All else are preferences, not moral tenets at all. Real morality must be capable of universalization. Moral “relativity” happens because we’re miscategorizing our preferences as absolute truths. Thus:

“Theft” is wrong, unless you’re the government, in which case we call it “taxation” and say that it’s necessary. “Murder” is evil, but if you’re wearing a uniform and under orders, then we apply various euphamisms and consider it heroic. “Kidnapping” is wrong, unless a person violates the words on a special piece of paper we call a “law,” in which case we change the name to “imprisonment,” and that’s good. Most people have the intellectual capacity to see that these beliefs can’t logically coexist, but few are willing to seriously examine them. Instead, they parrot the justifications they’ve long been told and firmly clasp their hands to their standard-issue blinders.

Howard Roark
Dec 1 2010 at 8:04pm


I hope you will save your most recent post, if for no other reason than to look back in ten or twenty years to see how far your thinking will have evolved by then. Wisdom comes with age and experience, and there is much truth to the following two adages: 1) “Youth is wasted on the young,” and 2) “If I only knew then what I know now.” I don’t mean to sound condescending. You are clearly an intelligent man. However, there are some moral absolutes in this world, and none is more sacred and inalienable than a right to self-ownership. Virtually every other moral principle can be derived from this one.

If you don’t want to accept the moral basis for my argument against progressive taxation and the welfare state, then I hope you will at least accept this fact: Survival is by far our strongest natural instinct, and it is shared (consciously or not) by every species on Earth. Without it, life would cease to exist. Therefore, every man has a strong vested interest in protecting his life, including those things which sustain his life. You say that taxation is, “an utterly frivolous thing for us to worry about one way or the other.” I beg to differ. So long as a government agent has the power of the gun, and can strip you of your resources, it is far from frivolous. You say, “the tax system that is moral is the one that a democratic society accepts over a long period of time.” Is a top marginal rate of 90% okay, as was the case during the 1950s and early 1960s in America? I don’t think being a slave 90% of my working day is much better than being a slave 100% of the time. You might take your economic liberty for granted, but I don’t. Age and experience tell me otherwise.

When I was an undergraduate student, I believed there was a role for government to play in order to protect the poor, the weak, the mentally disabled, and the sick. I also believed that government should “level the playing field” to make life a bit more fair. My political philosophy was not too far removed from that of John Rawls, even though I had never heard of the man (or his magnum opus, A Theory of Justice) until at least 15 years later. Nevertheless, it didn’t take me very long upon graduating from college and entering the “real world” to realize what works and what doesn’t in practice. I blame much of my ignorance up to that point in my life on: 1) Youth and a lack of personal experience, and 2) A lack of understanding of history – meaning, a lack of knowledge which is learned through the experiences of others. As the historian Paul Johnson has pointed out: “The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us novel and plausible, have been tested before. Not once, but many times and in innumerable guises; and discovered to be, at great human cost, wholly false.”

The quixotic quest for “social justice” is one of those “novel and plausible” ideas that has proven to be not only dangerous to liberty, but disastrous in terms of outcomes and human suffering. Do I need to cite the numerous examples from the 20th Century?

Without a doubt, there is a strong positive correlation (and causation) between liberty and prosperity. Attempts to improve upon free-market capitalism have often led people astray from what works in practice, as well as away from basic moral principles like: the right to own property; the freedom to contract with others and engage in voluntary, mutually beneficial trade; the freedom to choose how one lives his life; etc.

You mentioned Adam Smith, and this is the opening sentence of The Theory of Moral Sentiments: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” This fact, along with our innate sense of empathy (see for example, Frans de Waal’s book, The Age of Empathy) give me great hope that private, voluntary charitable giving can replace the welfare state.

Smith does, of course, go on to write: “The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them [i.e., the earthquake victims in China], he will snore with the most profound security over the ruin of a hundred millions of his brethren.” While this is probably true, too, as you pointed out, the amount of aid given by relatively rich Americans (as well as Europeans, Japanese, and others) to people throughout the Third World belie this argument to some degree and demonstrate that people are still willing to help others who they are likely never going to meet.

In the opening sentence of the Preface to Anarchy, State, and Utopia, Robert Nozick wrote: “Individuals have rights and there are things no person or group may do to them (without violating their rights). So strong and far-reaching are these rights that they raise the question of what, if anything, the state and its officials may do.” This should be the standard used to judge all government policies. And yes, since this argument is based on natural rights like the right of self-ownership, it does beg the question, “Is any form of taxation morally justified?”

Nozick goes on to argue that a minimal state would evolve naturally (and that in turn, this would require some form of taxation to pay for it). But here is what Murray N. Rothbard wrote in his article titled, “Robert Nozick and the Immaculate Conception of the State” ( “Since Nozick’s justification of existing States – provided they are or become minimal – rests on their alleged immaculate conception, and since no such State exists, then none of them can be justified, even if they should later become minimal. To go further, we can say that, at best, Nozick’s model can only justify a State which indeed did develop by his invisible hand method. Therefore it is incumbent upon Nozick to join anarchists in calling for the abolition of all existing States, and then to sit back and wait for his alleged invisible hand to operate. The only minimal State, then, which Nozick at best can justify is one that will develop out of a future anarcho-capitalist society.”

I tend to agree with Nozick that a minimal state will arise naturally, because as I pointed out earlier (in my post on Nov. 22 at 5:57 p.m.): “The problem I have with Rothbard’s suggestion that police forces and courts of law could be privatized is: What happens when there is a decision made by the private court that one party chooses to ignore? Would the two parties enlist their private police forces to go to war against one another? I believe they would, just as nation-states have gone to war for millennia.” Regardless, I like Rothbard’s idea of testing this theory by starting with an anarcho-capitalist society, first, so as to be morally consistent with the natural law principles of self-ownership, liberty, and all of its corollaries.

The reverse course of action would also be a good one, where we start with our status quo government and gradually reduce its size, scope, and power to the absolute bare minimum; with the goal of eventually eliminating government and the involuntary taxation needed to sustain it. If private charitable giving failed to fill the void, then there might be an argument for government forced “wealth redistribution” in order to help our most needy citizens. In the meantime, this help should take place through voluntary means.

You wrote, “No one is forcing you to work hard and pay high taxes, no one is forcing you to live in that state at all.” On your first point, let me restate it as follows, “No one is forcing me to work hard, and indeed, I won’t if I don’t get to reap what I sow. However, I am being forced to pay high taxes if I do work hard and create a producer’s surplus (i.e., profit) in the process of serving my fellow man.” A “producer surplus,” of course, is a subset of economic surplus (see –

On your second point, I often hear this argument. It basically says, “If I don’t like the policies the mob has imposed on me, I am free to leave the country.” But why should I be the one forced to leave? It is my inalienable rights which have been violated, not the other way around! Let me also point out that because the American system of government has largely been consistent with morality (at least, relative to the rest of the world), people have (and continue to) vote with their feet by emigrating here; often times taking extreme risks in order to do so. America has been a net importer of human-beings seeking liberty and prosperity in every year of our nation’s existence.

Part of the genius of the U.S. Constitution is that it was originally written (and intended) to limit the power of the federal government. Thus, per the 10th Amendment, most of the power properly belongs to the states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” This means that if the majority of voters in some state like the People’s Republic of California want to engage in welfare- / nanny- statism to a greater extent than another state like Texas, they are free to do so under our Constitution. Likewise, people are free to move into (or out of) these states without sacrificing their citizenship. Keep in mind that in order to leave one’s country, one must be accepted into another country (not always a given). As Frederic Bastiat wrote in The Law (1850): “When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law.” Neither option is desirable, and the latter can lead to outright rebellion.

Liberty should always be the default position. And yes, this includes a parent’s right to choose where his or her child goes to school, even if the studies you have read claim that teacher quality does not matter. (You don’t really believe that, do you?) Most parents (albeit, not all) are perfectly capable of making the proper decisions for their children, and they have a right to do so since those choices are theirs alone to make. Milton Friedman once said, “In a free-society, you cannot give a man the freedom to choose without also giving him the freedom to fail when he makes poor choices.” And another wise man once said, “Eternal vigilance is the price of liberty.” While both statements are true, the latter is incomplete. What must also be added to the “freedom invoice” are: 1) Individual responsibility for one’s actions (or lack thereof), and 2) A tolerance for imperfections. The quest for “social justice” and other Utopian fantasies, unfortunately, is a recipe for disaster.


For the record, you revealed some personal information about yourself, and in fairness, I will do the same. I am 40 years old. Old enough to know I am not wise, but old enough to appreciate the importance of wisdom. My moral and political philosophy has been forged in two ways: 1) As an autodidact, and 2) As an alumnus of the School of Hard-Knocks.

Dec 13 2010 at 5:36pm

Russ, i may be repeating some of what has been said. But I want to emphasize the moral component that some of your guests want to side step. If mister Frank wants to even out some of the inequality with his own money, I will not object. But when he wants to level the field with my money, I have a large problem. Whatever cloak he tries to put his thesis in, the moral term is “covetousness”. And I will posit that we didn’t have as much inequality when a higher power set the rules.

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Podcast Episode Highlights
0:36Intro. [Recording date: November 3, 2010.] Recent NY Times essay, reiterated a concern of yours you've had for a long time: rising income inequality in the United States and the implications for behavior and happiness. Basic question: Why is this an issue we should be concerned with as a matter of public policy? The simple fact is that public policy has an enormous amount of influence on the amount of inequality there is and amount of inequality a country has matters a great deal for outcomes people care about. Is it a bad thing in and of itself? There's got to be some inequality. Thought experiment in which you imagine everyone working all day, contributing 200% of his wages to the pot and then everybody getting 1/nth of the pot distributed back to him--if you play that out in your mind, it's pretty obvious to most people that there would be no incentive for anybody to get up and go to work in the morning. You'd kill off any reasonable hope of having a vibrant, productive economy. There's got to be some inequality. The question is how much? The knowledge base we have so far seems to suggest clearly that beyond a certain point, additional inequality not only doesn't stimulate additional output for the economy--it makes output lower. And on top of that, it makes people experience many costs as they go about trying to achieve many goals in their lives. There's an optimal level of inequality, is the short answer. You want to speculate about what that might be? In your essay, you invoke Adam Smith and his effort to write about morality; you argue that economists should spend more time and effort speaking like philosophers and moralists. So, take a crack at that. I was writing in response to many modern economists who say the question of whether inequality is good or bad thing is one that requires a value judgment, so it's really not the province of economists. We need to kick that can down the road for the philosophers to wrestle with. Economics began in moral philosophy; Adam Smith was a moral philosopher, a descendant and contemporary of Hume. Moral philosophy has been prominent in the discourse of economics all along; less so today than it was at one time but coming back now. This is the kind of question economists are well-equipped to think about, especially if you take note of the fact that in departments of moral philosophy there are two schools--the deontologists--certain principles you have to follow no matter what--and the other camp, the consequentialists, where economists find their natural home. They say that the best choice is the one that leads to the best consequences over all. How you measure that is obviously the hard part, but economists are very used to thinking in those terms. We look at a situation, try to size up the relevant costs and benefits, and decide whether a change is likely to lead to a better outcome or a worse one.
4:40Want to derail you for a minute. Agree that we ought to be doing more moral philosophy; don't know if we are very good at it. My argument is that since we have opinions on these matters, it would be dishonest to pretend that we don't, and that we are merely scientists. Do you agree with that? The consequentialists say that the right thing to do is the thing that leads to the best overall consequences. Consequences, the way an economist naturally thinks about it, is best summed up in terms of economic surplus. So the best situation from an economist's perspective is the one that leads to the largest surplus. For the non-economists in the audience, surplus is just the cumulative sum over all people of the difference between the benefits they get and the costs they bear, evaluated in their own terms. So, if we can make the economic pie bigger, the attraction of doing that, is that it's always going to be possible for everybody to have a bigger slice than before. I don't think that requires any difficult value judgment at all. Guess I don't agree. You wouldn't want to argue that enslaving people that led to great outcomes would be a good thing. There you are taking way too narrow a measure of economic surplus. The person enslaved is not going to agree to a situation like that. You have to start from some initial position where the rules we are going to live by are ones everybody would have freely agreed to at the outset. If you were deciding whether to join a society and one possibility is that you'd be a slave in it, the odds are you'd find some other society more attractive to join than that one. Implicit in your definition is utilitarianism, of sorts; though I was raised that way--University of Chicago--and taught a lot about deadweight loss, sacrifices of economic surplus, loss, net benefits using your calculus, I don't teach that any more. Found myself increasingly uncomfortable with it. One, I don't think that's how we as citizens make our decisions. Two, there is an implicit value judgment there that all of our gains can be measured in dollars--in principle they can, but the last part of the statement you made, which used to appeal to me, doesn't any more: which is, if we make the pie bigger we can always redistribute it in ways that make everybody better off. Leads to the problem of when we don't make those redistributions, what does it mean to say we are better off as a society? Troubled by that. What's your reaction? Should be clear that when I'm talking about the biggest pie, I'm talking about choices that don't involve life and death outcomes. Not saying that if a rich guy is willing to pay $10 million to shoot you and you are only willing to pay $10,000 to prevent him from doing that, that allowing him to do that makes for a bigger surplus. You have to say certain things are off the table. Natural way to do that is to imagine the situation where people were deciding which societies to form at the outset: would you agree to join a society that permitted that kind of transaction? I think most people would not. Limiting our attention on only those transactions that allow a small, limited amount of your lifetime wealth--makes perfectly good sense is the best thing to do is the thing that makes the surplus possible. If you don't do that, then why can't we all agree to change from what we are doing now and redistribute in a way that gives us all a bigger slice than before, which by definition would be possible to do if the surplus got bigger. Except that the tools for redistribution aren't really as flexible as that; and the nonmonetary parts are hard to measure. The anguish, frustration, lack of personal expression involved with some policies would be hard to deal with.
9:47Narrower question, not life and death. Would you be willing to join a society that had tariffs and quotas? I think tariffs and quotas make the pie smaller. They do. I think it would be possible to have a framework for political decision-making that side-stepped the issue of tariffs and quotas because it would be in everybody's interest to abide by rules like that. I agree with you. I'd rather live in a society without them as well. But the nonmonetary part is what makes it tricky and interesting. Here's the issue: suppose you were a champion of the working man, and in the Senate you had the power to block pending legislation that would open the country up to a broader trade agreement that you think without compensation would hurt your constituents--it would make workers worse off. You know, however, that if the agreement is approved, the total economic surplus available in the United States will be larger than it is now. So, why isn't it your best move on the next step to say I will cede my power to block this agreement in return for an increase in the earned income tax credit or an increase in training allowances or whatever specific form you'd like the transfer to take, and just move forward? Couple of thoughts. I don't think--the earned income tax credit or training allowance--the problem is that's going to affect a lot more workers than just mine. Bluntness about various redistributive measures. Issue for me in that case: the dynamic aspects of that problem. So, I would agree that my workers might be worse off, in the short run--might be ten years, twenty years, maybe the rest of their lives will struggle--but I'd argue that their children are going to be better off, or their children's children, which is what has happened generally in the United States over the last 250 years, debated by whether that's happened in the last 30. Once you start entering into those issues, difficult to structure side-payments. Start thinking then: I'd like to pinpoint particular people and ease the pain for them--very difficult to do in a public policy setting. We've done a terrible job of that in the trade area--trade adjustment assistance hasn't helped very many people, and trade clearly has effects on individuals' lives. Either for political or practical reasons, we've not made everybody winners. Then the next step ought to be to make those adjustments finer-grained. That may not be possible, right? If you want to say it's not possible, then the rational thing for the champion of his union in the Senate is to block the agreement. Maybe you are saying that's why he blocks the agreement. I think it is. I wanted to make a different claim, gets at your point about nonmonetary aspects: I don't think the financial aspects of tariffs and quotas are the only part of what makes trade policy important. Think it includes the opportunity for each generation to use its skills and dreams to shape the world; includes the harm done to the person who had a skill that no longer is viable because of foreign competition. Those parts to the equation often dwarf the monetary parts, and we as economists tend to teach the triangles--the deadweight losses that one time or a snapshot in time measure of the size of the pie. I think the nonmonetary and dynamic parts are the important parts. No, but the big gains are the enduring gains, as you point out: the children and grandchildren who will all be richer as a result of expanding trade in these ways. So I think if the alternative is to block the agreements then there is enormous latitude for trying to compensate the people who will be harmed in the short run, or maybe even for a generation be harmed. Resistance to compensate has been an enormously costly stance in policy. Interesting example: In Los Angeles, in order to meet the air quality targets they were shooting for, they had to adopt stringent nitrous oxide (NOx) requirements on new vehicles because they were unwilling to have old vehicles comply with the pollution requirements--mostly poor drivers drive the old vehicles and it was thought to be too onerous to require them to comply. Lower income drivers. So we ratcheted up the requirements on the new cars to meet the target and it was about $900 a pound to get all the NOx out of new cars--all the low-hanging fruit had already been picked in that domain--so for the inevitable democratic impulse to shield poor people from hardship we ended up spending $900/pound to get NOx out of the air, whereas if we had caused older vehicles to come into compliance we could have gotten that same pound out for $10. Way cheaper over all if we'd taxed wealthy motorists in California a little bit extra and given a voucher to poor motorists, who would turn in their old cars and buy a 5-year old Toyota Corolla or some other compliant vehicle. Great example. Why do you think we do that? Because it has become a slogan in American political discourse that it is illegitimate to tax the rich and transfer income to the poor. And in a democracy, if you don't attend to the interests of the poor in an efficient way, you'll just end up attending to those interests in a less efficient way. The problem with cost-benefit analysis: that's got to be the standard if you want to make the pie as big as possible, adopt all the policies that pass the cost-benefit test; the problem you hear from champions of the poor is that you can't use cost-benefit analysis because that gives an unfair advantage to the rich. They don't care any more strongly about the policies, they prefer if you would hook if you would hook them up to a head-onometer their brain waves would be just as intense about their policies as those of the poor are for theirs; but because they are richer they are able to pay more, so they tend to prevail when there is a conflict in what the two groups want. So cost-benefit analysis on that view is unfair to the poor. Standard argument. Simple solution to that: if the alternative is you are not going to use cost-benefit analysis, you just grant transfers to the poor of a very general sort; and here I think your objection to the earned income tax credit doesn't seem compelling to me. Up the earned income tax credit to the losers by enough to sustain being on the losing end of decisions more often than before. Every side does better if we do that, and I think we should do that. That's a different example. Much better case than a particular factory being closed in a particular Congressman's area. So are we on the same page there? I'm not a big fan of redistribution. I've got to think about that. But I accept your point that if you have a broad enough policy that is surplus-enhancing that falls widely on the poor, that there is a policy instrument that would offset that. That's a good point.
19:11Back to inequality. One of the things I find strange about it is I don't feel it, no matter where I am on the income distribution--top 1%, bottom 25%--if it's growing, which is the claim you make in the essay and I've seen in the data, that 1945-1975 was a relatively placid time for inequality; that in the period 1975 to today the level of inequality has risen greatly. How would I know that if I didn't read the government data? Why does it bother me as a citizen? If you believe that the standard economic models we use were an accurate description of the way the world works, it probably shouldn't bother you. You should be concerned only with your absolute income and if that's higher than it used to be, you could say you are better off than you used to be. Never mind that others are way better off than they used to be. That's good for them; doesn't affect me. If you believe those models are descriptive that would be the logical way to feel about it. What I think, too, though, is that those models are not descriptive. There's very compelling evidence that people assess their situations not in a vacuum but in a very tight frame of reference that is governed by local conditions. So, if you want to know: is my house okay? It's impossible to think about it without a frame of reference, and the frame of reference most people will naturally use is: How am I doing compared to people in the same time and place I inhabit. I was a Peace Corps volunteer--lived in a grass one-room house that leaked, had no plumbing, no electricity; never for a moment did I ever feel that house was unsatisfactory. You wouldn't want to live in that house here; your kids wouldn't want their friends to know where you lived. But in that context in Nepal it was a delightful house, seemed subjectively to me like a good house. So, what you need, feel you need, to go out in public without shame as Adam Smith put it centuries ago, depends strongly and in obvious ways on what others consume around you. We live in a social context and the more others consume around you, the more you have to consume to just be a participant in the social matrix. If you want to think about it instrumentally: one of a parent's first goals in every case is to send his kids to the best possible school. The way that works in every country I've lived in is you've got to buy a house that's served by a good school; and since every parent wants a house like that, you've got to outbid other parents for it. So, what predicts whether you will be successful in your efforts to do that is not your absolute income--that doesn't tell us anything. What you need to know is the relative income. If you are not in the top half, you are not going to end up sending your kids to an above-average school. I agree with you that people care about their relative standing, though I do like those Econ 101 models too. I think absolute advancement matters, but I think it's not the only thing that matters. My question is: if the top 1% is doing a lot better today than it was 20 years ago, which is the case, how would I know that? What in my daily life--I certainly look at the people around me, see what kind of cars they drive. By the way, sometimes I get pleasure from driving an inferior car to them because I like to think that I have a different set of values about what's important. But I agree with you that if I'm in a hovel and they are in a mansion my kids and I might feel a little bit embarrassed or inadequate. Status issues that we all have as human beings, we keep score. But the nature of the data that is used is not tangible to me on a daily basis. It's only tangible if I read the Picketty and Saez paper. If I could have drafted a question that I wish you could have asked me, it would have been exactly the one you asked just now. Great question. Very keen to hear your response to my answer. Totally agree that you don't cross paths with the people at the top of the income ladder very often. At least I certainly don't and even if I did I wouldn't feel any discomfort as a result. And what we know, on the contrary, is that people actually seem to like to see pictures of the yachts and mansions--they derive pleasure from it. That may not be true in every country. You see people shaking their fists at the rich in images from some countries. That's always struck me as a good think in the United States, that people didn't seem jealous of the rich. They think they'll be rich some day or maybe their kids or grandkids. Take your point that that's not on the ordinary person's radar screen. But here's the dynamic I think we've seen unfold. The income gains--virtually all of them--have gone to people at the top of the income ladder. The higher up you go--look at the Picketty and Saez paper--the higher up you go, the more concentrated the income growth has been. So, what happens? We know when people get more money, they spend more. I think people make a mistake to wag their fingers at them because they buy big mansions, yachts, large diamonds, they think that's decadent somehow--that's a failure of perspective. That's what we all do--everybody spends more when we get more money. That's not a moral indictment of the rich at all. The people who are very near the rich travel in many of the same social circles; so while you and I don't feel any change in our frame of reference, the people very near the rich do feel it. So maybe it's the custom to have your daughter's wedding at home rather than in a hotel, maybe now have to have dinner parties for 36 rather than 24. The near-rich build bigger; travel in a set of circles and the people just below them, their frame of reference changes, and they build bigger. Get a cascade down the income ladder. The result of that cascade or the intermediate result is that when you get to the median earner--someone whose income is about 7% lower than it was in the early 1970s, so he's not richer than before--that person now has to buy a house that's about 50% larger than the new house built 30 years ago. It was 1530 square feet in 1970; by 2007 the median new house built in the United States was over 2300 square feet. If you don't do that, then it's your kids who go to the schools with the metal detectors and classmates that score in the 20th percentile in reading and math. I think the middle income guy doesn't have more money, but because of this expenditure cascade that's a direct result of higher income at the top, that guy's got to spend a lot more on a house now or else send his kids to an inferior school. Virtually every parent opts for the larger, more expensive house rather than send his kids to an inferior school; and they save less, borrow more, more likely to file for bankruptcy. If we look at counties where income inequality has grown the most, we see the largest income inequality-growth counties are where the divorce rates have risen most rapidly--that's where the factors that marriage counselors always cite, couples they see, financial trouble. The bigger the income inequality growth, the bigger the divorce rates, the bankruptcy filings, long commute times--that's another margin families use when they can't make ends meet. Whole cavalcade of costs experienced by the guy in the middle. So: where is the data? It's there that you see the data on the shadow of income inequality.
29:36Great answer. Certainly with respect to the personal tangibility of it. I have to say I don't agree with all the data premises there, so let me give you my response and you can fight back. Picketty and Saez data--one of the wonderful things they've done is put their data up online so you can play with it yourself-- it's on shares. It's on the proportion of the pie that you command. So, the rich can get, of course, a bigger share--that does not mean that other people are worse off. Could mean that, but I don't think that it does. You correctly point out that median wages have declined in real terms; the crucial question is whether those findings are a statistical artifact or measuring something else. The crucial period we are usually talking about is somewhere in the 1970s onward. Three things in there that I want to mention; empirical question how important they are. One is that we've had very high levels of immigration over that time period, which has changed who is the median. If we take a snapshot of the median today versus 20 or 10 or 30 years ago, it's not the same person. Second, the divorce rate rose very dramatically starting in the early 1970s, which created a whole number of extra households; often these data are measured by household. Which means that, again, who is in the bottom quintile, where you are drawing the 20% line or median line, suddenly give a very different underlying set of families. Third, the price level is incorrectly measured. Fourth would be we have pursued a lot of housing policies which have distorted our housing choices; which I was naively ignorant of when I used to say increased size of housing is a good thing, a sign of our wealth. The most important thing I'd mention, and these data are not well known because they are not politically palatable, is when we follow people across time, the same people as opposed to taking a snapshot in time, they do better. They do a lot better. So the median person in the 1970s,you look at their standard of living over the last 30 years starting as a young person, not just from life-cycle effects which would always be there; but their standard of living is much higher. So I accept the point that the keeping up with the Joneses can be unhealthy; but I reject the argument that the median person is influenced by those rippling down from up above to pursue options they can't afford. I think they can afford more; they've chosen often to spend it on housing and education, indirectly in the form of choosing where they live. Final point: it's a bad system to have your school choice tied to where you live and we ought to get rid of that. Certainly does distort the housing market. What do you think? It's true there are all sorts of complications in trying to assess how the median guy's doing now compared to before. A lot of the points you mentioned would shift the comparison in your direction. If you look at the economic mobility data, it was always a point of pride in the United States--while we may have high income inequality compared to other nations, but this is a very open society; if you perform well there are almost no barriers that stand in your way of achieving economic success. In contrast to, say, England, where the accent with which you speak is still a huge barrier to the kind of job you are considered for. Right to be proud of that openness and it's still true that the U.S. society is open in those ways. If you can muster the suite of behaviors the market wants, you can succeed here. What's changed in the last 30 years or so is we've gone from being a country with high socio-economic mobility to one with virtually the lowest socio-economic mobility of any industrial country. If you look at the correlation between fathers' incomes and sons' incomes, that's lower here than in other countries; transition probability. If you are born in the lower 25% of the income distribution here, what's your likelihood of jumping into the middle quintile--here it's lower than in other industrial countries. Even that is statistics to be proud of. The odds that you'll be able to muster the behaviors the market wants are much lower here than in a lot of these other countries, where if you are poor, where the quality schooling more uniform, access to health care better, rate of poverty much lower. Here if you are in the bottom quintile you are often stuck there, and that's not something we ought to feel good about.
35:43I think that's a statistical artifact. If we look at the panel data, it's true that the odds of your leaving the bottom quintile might be different from those in another society. If you follow people over relatively long periods of time, more than one or two years where there is a lot of randomness due to better or worse times, if you look over 10-20 years, it's true that you might end up in the same quintile as your parents, but your standard of living is much higher. Panel data from Panel Study of Income Dynamics. Now, it's true that in the European data you might have an even higher chance of leaving the quintile, but their quintiles are much narrower: much narrower distribution of income, so random changes can push you in and out in a much different way than when the gaps are much larger. Going back to our Econ 101 slight disagreement, I think we care a lot about our absolute standing; I think we care a lot about our relative standing. I don't dispute that absolute income is important; I think Dick Easterlin published a paper long ago that first got people focused again on relative income--"Does Economic Growth Improve the Human Lot?" He argued that because you can't easily measure any increase in human happiness, in survey data when incomes grow over time for everybody, economic growth doesn't matter. I think that's just the wrong conclusion to reach. There are all sorts of ways in which we care enormously about what the absolute standard of living is that might not be reflected in the responses to happiness survey questions. If you are going to die at 90 because we are a rich society, rather than at 50 because we are a poor one, "How happy are you today?" is going to get the same answer when you pose it to people still alive as it would when you pose it to people in the other society. But if you ask "Do you care if you die at 50 or 90?" we wouldn't need to debate what the answer to that would be. Would you turn back the clock and live in the 19th century, when 3 out of your kids would die before they reached the age of ten? I don't think very many people would want to go there. Of course absolute income matters. But the point is, we could be achieving a whole lot more with the total income we generate. What's also not easy to dispute is the finding in the happiness data that beyond a certain level further increases in consumption in many categories just don't achieve much for anyone when everybody does them. Size of a CEO's mansion: If every CEO had a 30,000-foot mansion today, and then income grew for CEOs like it's been growing and they had 40,000 square feet a decade from now, would they be happier on that account? I think the data on that are very clear: the answer is No. They need a bigger mansion because the standard has shifted, and if they had the same size mansion they have today, there'd be that many millions of dollars of resources freed up to buy resources that they would value more than the bigger mansions. They drive their Porsche 911s on roads that have deep potholes in them. We could patch those roads with the money we save. We could whisk them from Boston to Washington in two and a half hours rather than have them circling in the air waiting for permission to land. Not the best use of the resources we have to have everybody launched in these expenditure races to buy bigger and better when, when everybody gets bigger and better it doesn't seem to have any impact on how they feel about things.
39:55Funny, today, talking about the pleasure people get from high levels of consumption--just so happens that the most highly viewed story today in the Wall Street Journal the last time I looked was a story called, "Dream House in Carmel." The construction costs--not the land cost--were $6 million dollars. It's a stunningly beautiful house. I don't know if they are keeping up with their neighbors, but it's beautiful in its own right. Slide show; aesthetic marvel. Certainly agree that there is some competitions in consumption that are not as fruitful and wasteful. Not as confident as you are. I don't know, either. I know if you are spending $5 million dollars a year on consumption now, probably the next dollar you spend won't be urgent in the same will it would be for the best use we can find for that dollar. Let's turn to that best use, and to some of the policy issues. Think the two central issues, we've left untouched, are the causes and cures--if you think there is a disease. Those are both difficult. What do you see as the causes, and do you think we need to understand the causes if we need to get to the cures? I think a lot of commentators on the left think there has somehow been a breakdown of competition, packed the Boards full of cronies, cutting special deals for themselves. That goes on; that was Adam Smith's worry--that there would be constraints from trade, concern about why the invisible hand wouldn't work. The real factor that's changed is not that there is less competition than there used to be--it's that there's way more. If these problems have gotten worse, it's not because the original reason for them was insufficient competition. I think you have to look for the problem rooted in something about the competitive dynamic itself. Here's where I think Charles Darwin understood competition better than Adam Smith did. I think you learn from him. He took from Smith and he built on it. Very influenced by his reading of Ricardo and Smith. What Darwin saw was the evolution--that was his competition, the competition for traits in plants and animals--a trait would be selected if it helped the individual do better in its struggle to survive and reproduce. Whether it helped the species do better or not was a secondary issue. Some traits, like keen eyesight in hawks, helped both the individual and the species; but when you are talking about traits that are selected because they help individuals compete with members of their own species, those typically are bad for the species--good for the individual. Think about the antlers of the bull elk--4 feet across, weigh 40 pounds--horrible appendage to be stuck with if the wolves are chasing you into the woods. Good for showing off. More important, good for competing with other males to get access to mates. It's relative antler size that matters, not absolute antler size, that matters. Wasteful. If they could take a vote on it, they would all vote to have smaller antlers. Can't vote. In our case, if you need a bigger mansion because the standard of entertainment has evolved, that's what's expected of you, you are not stuck with that if you live in a society with rules and ordered ways of resolving issues. We could scrap the income tax altogether. I think it's really inequality of consumption that's much more troubling than inequality of income. We could adopt in place of progressive income tax a much more steeply progressive consumption tax. So, you report your income to the Internal Revenue Service (IRS) same as we do now; report how much you saved during the year the way you would for a 401K account now; the difference between those two numbers, that's how much you spent during the year. Then knock off a big standard deduction like $30,000 for a family of four and that's your taxable consumption. The rate starts low and then it goes steeply upward as consumption rises into the stratosphere. Which goes into the stratosphere, the consumption or the rate? Both. So if you were a savvy rich guy and you saw a country like that, you could say to yourself: Hey, I'm going to move there; that way I won't have to spend so much on a coming of age party for my kid. I won't have to spend the fortune I've accumulated to afford a bigger mansion. I and others at that high income level will have an incentive to shelter that income in tax-free accounts and let it grow over time. That's what I think would be in the interest of rich, middle, and poor alike--to scrap the current tax system and move to that.
46:10Interesting idea. Milton Friedman sent me a nice warm note when I proposed that about 15 years ago. He said he didn't think we needed to raise more revenue; that was of course when the government was in more balance; he said if we needed to raise more revenue, that would be the way to do it. I agree with you that a consumption tax is better than an income tax, and politically, I'd rather see a progressive consumption tax than a progressive income tax. Fundamental question is: how fast that rate rises and how high it gets ultimately. Two thoughts come to mind: no one wishes he spent more time at the office, and it's not true that whoever has the most toys, wins. Accept the idea that our urges often don't lead to activities that promote our happiness; think we as economists often neglect that; salute your efforts to bring this back into discussion. Adam Smith railed against consumption for status in the Theory of Moral Sentiments. He was on this. He used the example of a toothpick holder--it was the iPad, iPhone of his day--said a man will try to get the latest because it's a way of showing status. I think he's right that that often doesn't lead to happiness. Having said that, I think the challenge is: I'm not convinced that most people, rich people, would say: Phew, I don't have to bring my daughter to the Bahamas for the wedding or buy a bigger house. I think there's an urge within us for more--that's the Econ 101 part I do agree with. The second part is that status competition isn't going to go away. The question is how effective they would be and what they would be. I think we'll continue to compete just as before. It's a question of what the costs of the competition is. So, the racing associations, engine limits on displacements in certain classes. We know what happens when you don't put limits: You get the America's Cup. Nobody's got a proposal that's going to limit competition. We'll compete in the same ways as before. Winning in this competition means having something that stands out from the pack, and there will always be somebody at the top of the heap. Not going to be any change there. Just that we'll be spending less, saving more, investing more, income would grow more rapidly; ultimately we'd consumer more than now, since 80% of a big number is much bigger than 98% of a small number.
49:19So, those observations, both about the consumption tax and the fruitlessness of material competition--those are true at any point in time. They don't really address the issue of increasing inequality. Of course, they could. Obviously, societies differ in all kinds of ways--policy-wise, culturally, how much natural inequality there will be from natural economic forces. When I look at inequality, when I look for my cures I'd like to see--I don't recognize it inherently as a bad thing but I do recognize your point, that some material competition is not always productive--when I think of public policies we've pursued that have made things worse, curious if you agree with me that getting rid of these would be a step in the right direction. So, a common observation is that Wall Street has made enormous profits over the last few decades; certainly "don't deserve them" usually because they are large. I've come to believe that too big to fail policies over the last 25 years, going back to 1984 when we started bailing out creditors, has allowed people to spend other people's money. Creditors and taxpayers. Agree with that. So one of the distortions today is that policy, which I think has helped special interest groups. Public school system not very effective, hurting people at the bottom; minimum wage discourages people from getting started. Better to raise the earned income tax. Finally, my other point, really meant forced redistribution: would rather see private solutions to help people who are not doing so well. Do those appeal to you at all? I've long argued that the earned income tax credit would be a much more effective way of trying to boost the incomes of low-wage workers. You don't have any incentive of employers to lay people off or not hire people, as you do under the minimum wage. The problem is that that's on the budget. Whereas the minimum wage is off budget; some people pay for it in the form of higher prices, which they don't see as a tax. Somehow we've gotten this meme sold in the discourse--that if it's a tax it's bad and we can't do it. Much better to pay an explicit tax to achieve a goal like that than an implicit tax and achieve the same goal at higher cost. Always it comes back to: if you are going to do something, do it efficiently. If you are not doing it efficiently, you are missing a chance to help the people you are trying to help.
52:51Lastly: we touched on, earlier, some of the differences between Europe and the United States, dynamism of their society, etc. One of the things we have here in the United States, which is really glorious, is we have a good-functioning--our venture capital market works really well. We allow people to get really rich. So, Sergey Brin, Larry Page start Google; leave graduate student status, evolve to very top of the income distribution; increase measured income inequality; make a lot of money--don't know how lavish their lifestyles are but they live better than people in Burundi, no doubt Nepal. They do consume a lot; not all of it, but they take a chunk of it--some on cars, things he's passionate about, Tesla Project. That's a powerful thing. Other part of this, mysterious, is other countries don't have this to the extent we have it--either because their distribution is not as unequal as ours, you don't get the accumulation of wealth in the hands of people who want to do something besides consume it, or for cultural reasons. What do you think about that? I like the fact that we have that active venture capital pool here, too. Think that's yet another reason to favor the scrapping of the income tax and moving to a progressive consumption tax. That would steer even more dollars into that pool. If you've got your fellow venture capitalists buying cars that get from 0 to 60 mph in 3 and a half seconds and you are only at 60 and 4 seconds, then you've got to respond to that before you do anything else. And you've got less money left over to invest. You know, fast is a relative concept. We can spend as much as we want to make the standards for 'fast' go down quickly, but I don't think there's any real gain to us overall from doing that. We are already pretty fast. Doing 60 in 3.5 seconds is already mind-numbingly fast. My first sports car as a teenager was a 1955 Thunderbird. Just looked this up the other day, didn't know how fast it went, felt blisteringly fast: it went from 0 to 60 in 11.5 seconds. Today, people would say, What's going on here? My 2001 Miata goes from 0 to 60 in 7.9 seconds. Doesn't feel fast to me because in today's context it isn't very fast. The new Miata is able to do that sprint in 6.7 seconds. The new Porsche 911 Turbo, 3.7 seconds. There are cars coming that will knock that down below 3 seconds. That's incredible, but it's not clear that the people who get there in 3 and a half seconds are going to be happier than I was in the 1950s getting there in 11 and a half seconds. Having sat in a Tesla--which I didn't bargain for, but I did sit in a Tesla, which goes very, very fast, forget it's time--it is a different experience. Not just faster, but frighteningly faster. Other point I'd make is the aesthetic point. A Ferrari going faster than a Thunderbird isn't that important, but it is a lot more beautiful. A piece of art. But in the end, don't lose sight of the fact that if we invest more and spend less now, those standards are going to be reached in the end at a much higher level. Going to have higher consumption ultimately if we invest more and consume less now. I'm a little confused by that. Miracle of compound interest. If you plot consumption in a society where people consume 98% of their income against consumption in one where they start at the same level but consume 80%, the consumption's going to be lower in the second society, but it won't take many years before it passes the trajectory of the first. Sure, but I'm just surprised it's a selling point. You will stand by absolute? Absolute consumption does matter. In some domains it matters enormously--alleviate pain, suffering premature deaths are huge payoffs if we can score gains there. Making the houses bigger, not so much.
58:39Intellectual road you are on. This message, which you have been talking about for a while: How has it been received by the profession? What do you see as its likely impact on the profession down the road? Do you feel Quixotic or do you feel like you are making some headway. I first started writing about this when I published Choosing the Right Pond 25 years ago. That book came out in January of 1985; it was my expectation then that by the fall term in Congress there would be bills wending their way through both Houses incorporating some of the suggestions I'd made. None of that's happened, of course. Or at the U.N. I've just finished a draft of The Libertarian Welfare State, in which I grant every libertarian premise--markets are rational, people are fully informed, and I add to that the very uncontroversial additional assumption that life's graded on the curve to different degrees in different domains. I think I've shown that no rational libertarian would choose to become a member of a society that would differ in any fundamental way from the standard welfare state. I think it would be a less intrusive welfare state than we have a libertarian designed it, and that would be good. The interventions would be more market oriented; they would be attempts to make more expensive the kinds of activities that cause harm to others. The aims of the interventions would be roughly the same as we see in the welfare state today. Will that ever have any impact? I don't know. Probably not in my lifetime, but hope springs eternal.