Wilkinson on Side Effects

When I buy a really expensive car, this story goes, it subtly shifts my community’s frame of reference for signals of social status. … As Robin has been insistently pointing out, how good-looking we are, … how smart and funny we are when we talk, … signals at least as strongly as our cars. If our investments in appearance, … Bourdieuian cultural capital, … are not equally harmful, then why not? …

This line of thinking can be taken even further. Many so-called “culture wars” are largely about cultural externalities. Consider Linda Hirschman-like arguments to the effect that women who choose to stay at home raising children impose a significant cost on women who wish to pursue professional success by reinforcing traditional stereotypes of women’s relative strengths. …

It looks like we’ve defined “harm” so loosely that the harm principle, so understood, could be the basis for the state regulation of any action whatsoever that affects anyone else in a way they don’t like. … If I open a hot dog stand across the street from your hot dog stand, I will take some of your business. … Have I “harmed” you in some way that requires that you be made whole … ? The law says no, and the law is right. …

When a black family moves into a neighborhood of white racists, thereby causing great unhappiness, or when the recognition of the legitimacy of gay marriages causes traditionalists to feel that their traditional marriages have been “devalued,” … somebody really is getting hurt in some real sense. But I don’t much care, and Robert Frank probably doesn’t either …

In the land of the deaf, there is no noise pollution. In the land of cosmopolitan enlightenment, there is no “there goes the neighborhood.” … To identify a “harm,” and to invoke the harm principle, the moment there is a complaint, is the essence of reactionary politics. It is to shut down the very possibility of relocating “the problem” from the source of a reaction to the reaction itself.

More here.  When I ask students to justify various subsidies and taxes, they are quick to say “externality,” but slow to identify specific plausibly-related side-effects, and even slower to seek opposing side-effects.  They usually just seek support for pre-existing intuitions.

Like Robert Frank and Geoffrey Miller, Will Wilkinson seems to me a bit too quick here to assume the activities he likes are less deserving of taxes.  I’ve been arguing mostly for consistent application of principles.  If we are to tax positional or unhappy activities, then let’s do that consistently, following our best data on positionality or happiness.   Let’s not just selectively apply a rationale to things we already intuitively disliked.

We have long had a clear theoretical basis for allowing businesses to harm each other via competition, but we have less clear a basis for allowing harm via changing expectations about car standards, female workers, neighborhood race, and marriage legitimacy.  So I won’t rule taxing such things out of hand.  But I will insist we first articulate a clear principle we are willing to apply consistently across a wide range of cases.

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  • http://www.churchofrationality.blogspot.com LemmusLemmus

    I will insist we first articulate a clear principle we are willing to apply consistently across a wide range of cases.

    How about utilitarian calculus – provided we keep the “rule utilitarianism” concept in mind?

  • Dave

    Disclosure: I was a TA for Frank and also took a class from him. I disagree with him on many issues, but I have been persuaded on the progressive consumption tax.

    From what I’ve seen, Robert Frank isn’t interested in micromanaging choices. Since consumption follows diminishing marginal utility, it stands to reason that once families spends on some basic necessities that each additional dollar spent within a budget is less useful than the previous one. Those who can afford to signal wealth, will do so with conspicuous spending. This starts at the top and cascades its way down, as people feel a need to keep up with their peers (or those who earn a bit more). Signaling is a game in which relative status matters. With a progressive consumption tax, this behavior would be curbed at the top, its benefits would cascade downward, and resources would in theory be reallocated toward efforts that are now relatively more profitable and potentially more socially beneficial (from building bigger yachts to cancer treatment research, for instance), voluntarily.

    This statement strikes me as questionable:

    As Robin has been insistently pointing out, how good-looking we are, … how smart and funny we are when we talk, … signals at least as strongly as our cars.

    If you’ve ever been out to bars or clubs, for instance, you’ll notice that some types of signaling are far stronger than others. When someone valets his Ferrari, everyone in sight gets the signal: this guy is relatively wealthy. If you are relying on personality, how many people will you get an opportunity to signal toward? Maybe none, if everyone is trying to talk to the guy with the Ferrari. Superficial signals are the most widely broadcast.

    Plus, being smart and funny doesn’t much influence decisions between consumption spending and investment and savings (aside from educational spending, perhaps). Since income can be used for consumption, savings, and investment, an income tax effectively taxes all three. A consumption tax encourages savings and investment over consumption, while still preserving the ability to signal relative wealth (at least in an ordinal sense) with less spending. Trading consumption for investment should lead to a more productive workforce over the long run, and ultimately to more consumption.

    It seems to me that this is a more desirable way to raise revenue, and I consider myself to be very libertarian (Frank is generally much more to the left than me). We have to tax something to raise revenues for the government (ideally smaller revenues than it collects today, but that’s another debate). And I think the reality is that taxes have to be progressive, not only for practical reasons (the wealthy are the most able to contribute), but also because the wealthy clearly benefit the most from having an orderly, well-protected society to conduct business in; it’s in their best interest to keep such an environment in place. My own view is that such a consumption tax shouldn’t be as progressive as Frank desires, but tax schedules are a matter for debate no matter which system we use.

    In any case, I’m glad to see the idea get some air time. I also posted links to Frank’s recent posts on the subject last night.

  • Michael Bishop

    Great comment Dave!

  • http://hanson.gmu.edu Robin Hanson

    Your basis for questioning my claim is what you’ve noticed when you’ve been to bars, completely ignoring the published data I cited? How exactly are your bar observing skills a more reliable source than four peer reviewed publications?

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  • tom

    The real mystery is why so many smart people have moved so quickly from the idea the happiness research can reliably show something about people’s wants to the idea that you should should it to regulate the hell out of things. This is the Regulatory State.

    I think the more fun thing would be to have these same people explain how they would structure the happiness cost-benefit councils that would reach conclusions about new products and services. Who would be on the councils? Would it be economists, community representatives, psychologists? (Frank may discuss this; I’ve only read Miller’s book.)

    Miller uses the iPod and universities as examples of activities that would not be subject to taxes. But there are good arguments that these are great examples of items that should be taxed. As you and your fellow econbloggers point out again and again, and as Miller notes, high-priced liberal-arts universities might be the most expensive signals in the world. Who gets to decide that Ivy League degrees are not taxed while Ferraris are?

  • Yvain

    “But I will insist we first articulate a clear principle we are willing to apply consistently across a wide range of cases.”

    Do you agree that real harms do exist? For example, do you believe there should be some system in place to prevent someone moving into the property next to yours and playing loud music all night long that makes it impossible to sleep?

    If so, do you have a clear theoretical underpinning that allows that to be a real harm without also admitting the other harms that Will wants to dismiss as silly? It seems unfair to demand a theoretical basis from people you disagree with without providing one yourself.

    “They usually just seek support for pre-existing intuitions.”

    Isn’t this the opposite of supporting a pre-existing institution? If you ask the entire population whether not they would support taxes on conspicuous consumption, 50% would say “no” and 50% would be so confused they wouldn’t even understand the question. It seems disingenuous to oppose people seeking a radical reform probably opposed by a vast majority of trying to “support pre-existing institutions” while giving the motives of people who want to support the status quo a pass.

    “So I won’t rule taxing such things out of hand.”

    This sounds kind of like an attempt to signal impartiality, and thanks to you, I am suspicious of signals nowadays. To cure me of my cynicism, can you link me to some posts where you finally decide to advocate government regulation or taxation of something to solve a controversial problem?

  • http://williambswift.blogspot.com/ billswift

    “For example, do you believe there should be some system in place to prevent someone moving into the property next to yours and playing loud music all night long that makes it impossible to sleep?”

    I work nights. I have arranged things so that I can sleep through the day with traffic, lawn mowers, amd all the other urban noise sources. If I can do that then there is no reason to impose on others who want to have noisy parties or whatever during the night. It’s your problem, you deal with it.

  • http://entitledtoanopinion.wordpress.com TGGP

    To cure me of my cynicism, can you link me to some posts where you finally decide to advocate government regulation or taxation of something to solve a controversial problem?
    It’s not solving a controversial problem, but he did advocate taxing the tall.

    billswift, do you also think pollution or street crime should just be dealt with? I’m open to the possibility, but I don’t want to be quick in dismissing what seems evidently a loss of utility for many people.

    the happiness cost-benefit councils
    Reminds me of James Q. Wilson’s Commission on Life Enhancement and Preservation from Bureaucracy.

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  • Dave

    Robin,

    Even without mentioning my skepticism of peer reviewed journal articles (doesn’t GMU host the Econ Journal Watch?), the research you found is moot:

    The link to the last paper you gave didn’t work for me, and it’s the only one that claims intelligence is among the most positional goods. However, there is a difference between positional goods (the desire to be relatively better off than others), and using positional goods to signal (the Wilkinson quote discusses signals). I stick by my statement that visible signals are the mostly widely broadcast. There are other signals that may be verbal, but they can only be signaled to people whose attentions are already captivated. You may have gone to Harvard and Oxford, but no one will know it if they aren’t listening to you. Or perhaps you’ve bought a Harvard sweatshirt, in which case the sweatshirt is the positional good of interest, because it is visible. There are other settings of course where education and intelligence is used directly as a positional good for signaling: in job seeking, or when you already have someone’s attention. But note that even in job seeking, it becomes a matter of visibility on the resume.

    From another paper you linked to:

    A study of the visibility of private goods found that high-visibility goods (as determined by surveying a random sample of Americans), such as clothing, cars and jewelry, have higher total expenditure elasticities than low-visibility goods, such as utilities and home telephone service (Heffetz 2004). Luxury goods tend to be high-visibility goods, perhaps because status-seeking operates best when consumption is visible.

    Sounds like that supports my case for visibility.

    Also, one more item. In an earlier post, you ask:

    Since sport effort seems especially positional, should we tax sports, instead of subsidizing them as we often do now?

    In The Winner Take All Society, Frank addresses sports in a few ways. The basic premise of the book is that in an age of low distribution costs (via television, cheap shipping, and presumably the soon-to-explode internet), relatively small differences in talent can reap large rewards for the winners of various competitions (you can think of each “winner” as not a singular winner, but a collection of winners who dominate various industries). It’s easiest to understand in entertainment. The three tenors could record music and sell it around the world, but how much better were they than the fourth best? I’m no expert, but it’s hard to imagine a large discernible difference. The same idea not only easily applies to movies and sports, but any business with global reach (iBankers, CEOs of large companies, top lawyers, etc). He relates this to the tragedy of the commons by suggesting that the products of these competitions don’t get much better when an additional contestant decides to enter; the NBA doesn’t become that much more successful because one more person decides to pick up a basketball and pursue it. However, each person who decides to pursue the riches in the NBA lowers the probability that everyone else with the same dream will make it. People are overconfident in their chances to make it and so too many people decide to compete. Not many will make it into the NBA, and those who do not are now left without useful skills. One reason he favors a heavily progressive consumption tax is to curb the perceived benefits of “winning” these competitions, in hopes that they will pursue more productive activities.

    He also points to incentives to use steroids and take other health risks for the potential rewards. And with regard to college sports, he believes that the investment is clearly too large now that the financial benefits of winning are so large for universities. This leads some universities to reap the rewards of their athletic investments while many of the losers regret their investments when they come up short. They’ve also charged ordinary students mandatory fees to subsidize these programs.

    He also has a whole chapter on the battle for educational prestige. Perhaps you would be interested in reading the book. I’m not going to take the job to defend all of his positions (and also, he had a coauthor), but just wanted to let you know that he has some opinions that you can find, since you asked.

  • Dave

    Let me correct my own comment… what I meant to say was that education and intelligence are the positional goods. Harvard sweatshirts and resumes are the signals of education and intelligence. Another signal of intelligence is to be smart and funny in conversation.

    The reason I thought the Wilkinson quote was incorrect is because visual signals have further reach, as explained in my other comments. The research you linked to merely states that people say they would rather be relatively smart than have relative advantages in some other areas. But that is different than saying that being “smart and funny when we talk” signals as strongly as our car.

    Does that make sense?

    Sorry that my last comment was so sloppy on this point.

  • Yvain

    “I work nights. I have arranged things so that I can sleep through the day with traffic, lawn mowers, amd all the other urban noise sources. If I can do that then there is no reason to impose on others who want to have noisy parties or whatever during the night. It’s your problem, you deal with it.”

    At the risk of getting bogged down in a trivial example, I’m not sure you understand the difference between background noise and life-ruining level. The reason I used this particular example was because my new neighbors, a group of Irish college students, keep me up until 4 AM with their partying, which tends to involve really loud music and getting into semiregular fights. I wear expensive, high-quality earplugs and have a white noise machine on high power, and I still can’t get to bed until 4 in the morning. When I ask them to stop, they threaten to kill me, and they’re obviously drunk enough to try. The police have been by a few times, but it hasn’t helped. I eventually had a choice of failing all of my exams because I can’t stay awake during classes or moving out to a more expensive place (I’m moving on Saturday). I’m just glad I didn’t own the place, or I’d be selling it at a huge loss.

    Just because you managed to deal with some traffic okay doesn’t mean anyone else will ever have a legitimate complaint.

    Other more powerful examples to get the point across: someone buys the property next to yours and builds a slaughterhouse on it, which smells terrible. Someone buys the property next to yours and builds a bar on it, and every morning you wake up with beer bottles and vomit all over your lawn and the occasional broken window. Someone buys the property upriver from you and dumps industrial waste in the river, turning it green and mildly radioactive.

    It’s very easy to tell other people “Oh, just tough it out”, but it doesn’t lead to very happy people or a society anyone wants to live in for very long. As Will points out, the harm principle can certainly be overused, but we can’t scrap anything where we can’t elegantly distinguish legitimate and illegitimate uses.