Wednesday, July 22

Yglesias vs. Yglesias

Via Marginal Revolution, Matt Yglesias 30 May 2009:
This goes back to a point I was making a while ago about how dangerous it is that the public discourse is so dominated by low-quality freelance philosophy done by people with PhDs in economics. I’m fairly certain that if Mankiw were to walk over to Emerson Hall he could find some folks (possibly T.M. Scanlon who I know sometimes reads this blog) who could explain to him that there’s little grounds for the belief that a commitment to utilitarianism is the main justification for redistributive taxation.
Vs. Matt Yglesias 20 July 2009:
...the point here is that the marginal utility of money income declines as it grows. This is also a strong argument for believing that redistributing money from wealthy or high-income individuals to the poor or to public services will be welfare-enhancing.
And a great point in comments:
What's really funny is that the argument doesn't even work, even if all of the premises (the diminishing marginal utility of money, the possibility of meaningful interpersonal utility comparisons, everyone has the same welfare function, no adverse incentive effects or public choice problems with implementation) are granted. The reason being that we live in a world where resources can be directed towards production as well as consumption - it is precisely the diminishing marginal utility of money which means that the rich have a higher marginal propensity to invest. Given that there is a link between growth and investment, it becomes far less clear that egalitarian redistribution will serve to maximize utility.

(the argument here is shamelessly taken, by the way, from a paper by David Schmidtz called Diminishing Marginal Utility and Egalitarian Redistribution.)

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