Managing Our Cut

Our income tax system gives each of us a stake in the work of others – the more money others make, the more we each get via taxes.  In principle we could use this fact to justify a great deal of intervention in everyone’s work lives.  For example, one might argue: why should we let folks choose fulfilling but poorly paid jobs like social worker, veterinarian, or forestry agent, if they are capable of becoming an lawyer, doctor, or engineer?  Or why should we let folks work part time to focus on a music or acting hobby, or choose to live anywhere but the city where their skills are worth the most?

To most folks such regulations seem intolerably intrusive.  But when people are asked to justify our common and extensive regulations and subsidies of medicine and education, they often mention exactly this issue – that such interventions make sense because we all have a stake in the work of others via the income taxes those folks pay.  Why the asymmetry?  Why do folks think these arguments make sense regarding medicine and education, but not regarding choice of career or location?

My guess: humans inherited intuitions that the community should have more say in and contribute more to medicine and education.  This is the way our distant ancestors did things in their small nomadic forager bands, and we intuit we should act similarly today.  The stuff about managing our cut of others’ income is just a rationalization.

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  • Robert Koslover

    Yes. I wish more people noticed the (rather obvious, really) fundamental incompatibility of big government/socialism/high-taxes with maintaining individual rights/personal freedoms. But they don’t. Sigh. In fact, I won’t be surprised one bit if someone comments here — possibly even in eloquent language that implies he/she is a person of profound learning — about how completely wrong I am and that a truly socialist utopia (or something equivalent) will somehow work well and yield more freedom for everyone, just as long as it is somehow managed/governed by really, really smart people with very advanced degrees. But these sorts of claims are much like those of psychic powers – they only work if you believe! Ok folks… go ahead and have at it. But do me a small favor: support your case by citing at least one specific historical example of a time and place where lots of individual freedom and really big government have coexisted. Thanks.

    • libertarian

      How big does the government have to be to qualify as “really big” government?

      How about Denmark? The United States would probably qualify as well. Our government is huge by historical standards, more than twice historical levels of GDP, yet people have about as much individual freedom as ever. I guess privacy is worse though.

  • http://www.nancybuttons.com Nancy Lebovitz

    Trying to control other people’s lives to lower medical costs could be explained as loss aversion.

    I don’t know how culturally specific this is, but children and sick people are low status. If you don’t believe the latter, consider the usual treatment (low quality food, lack of respect for their need to sleep) people get in hospitals.

    OK, the food thing is based on an old stereotype– I haven’t heard complaints about hospital food lately, so it may have improved. On the other hand, it seems to be a real challenge to find a doctor that will listen to patients.

    All of the above is based on the US.

    • Jeffrey Soreff

      Partially agreed on your loss aversion view – but remember that some of the losses due to untreated illness can be _large_ . Typhoid Mary inflicted losses much larger than a typical loss of taxes from a single unmaximized income. It isn’t just loss aversion _bias_ that induces us to want to avoid losses like that.

    • Sproing

      Considering how important sleep is for recovery, that seems remarkably counterproductive…

    • http://www.vsspro.com Floccina

      consider the usual treatment (low quality food, lack of respect for their need to sleep) people get in hospitals

      I could not agree more.

    • Tracy W

      Is it really a matter of status? I’ve encountered situations where the neighbours had no respect for my need to sleep, and I am not unique. I mostly eat good food because I don’t buy the other sort and can cook. This has been true throughout my adult life.

      How good is the food and respect for need to sleep in the military? How about when it was a conscription military? I think it’s a matter of how easily you can switch to other options, not how low or high status you are.

  • http://www.rationalmechanisms.com Richard Silliker

    >Why the asymmetry?

    Multibehavioral polymorphism does not allow for the constraints to be properly placed. Everybody has an opinion, distinct to the way they shape value. The context is moved around. Some is taken out and other is added. Everytime you look at the context, the “centre” has moved.

    • http://www.rationalmechanisms.com Richard Silliker

      AMBIVALENCE. Ambivalence is asymmetrical. To provide for more symmetry people must cultivate an indifference towards their dislikes. This can be difficult for those driven by ideological preferences.

  • Unnamed

    It’s probably because forcing somebody to work longer hours, or preventing them from choosing their own job, is intolerably intrusive, while subsidizing schooling or taxing potato chips is not.

    If you equated the policies for intrusiveness (and effectiveness at raising the state’s revenue, which also seems questionable for the scheme to convince more people to become lawyers), there still might be a lingering asymmetry out of the sense that people who are induced to become healthier or better educated have their lives improved by the intervention, while people who are induced to make more money would have their lives worsened by the intervention. One is a free lunch – a way to help people while actually saving money – while the other uses people for profit.

  • http://ashish.typepad.com/ Ashish Hanwadikar

    For example, one might argue: why should we let folks choose fulfilling but poorly paid jobs like social worker, veterinarian, or forestry agent, if they are capable of becoming an lawyer, doctor, or engineer?

    Well, this is because social workers might help increase overall income level of the society even though they themselves don’t get paid very well. Remember, each of us have a stake in the income of others and not specific individuals.

  • http://robertwiblin.wordpress.com Robert Wiblin

    Wouldn’t (communist) hunter gatherer groups have had a reason to make sure people specialised in the task they were best at even if they didn’t enjoy it so much?

  • http://entitledtoanopinion.wordpress.com TGGP

    I have suggested that security is similar to education & healthcare in that people drop market-based reasoning for intuitions.

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

      The vast majority of people (voters) use intuition rather than market-based reasoning for everything. Why our physical environment (including medical care) keeps improving – its driven by businesses, especially small businesses that innovate, that rely on market-based reasoning. It’s why everything else keeps getting worse. So far, the economy has kept ahead of the politics, which is why the overall society has improved, but their lead is collapsing – if you think the economy is bad now, just wait a few years.

      • http://entitledtoanopinion.wordpress.com TGGP

        As Bryan Caplan & Robin Hanson have noted, even economists drop economic reasoning for some topics.

  • nazgulnarsil
  • http://www.irrationaltheorist.blogspot.com quantum_flux

    Socialism really only works in small populations, like within the confines of a small business sized population, but in that case it is actually called Capitalism.

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

      The Mennonites are a good example too. When a community grows above a certain point, I think it was about 120 adults, they start the planning to split the community. The process usually takes a couple of years, since they have to get the land and tools and build the infrastructure and houses for a new community, so if I remember right the community was usually approaching 200 by the time they actually split.

      • Cyan

        Those numbers are wonky. Just ask yourself — what’s a ballpark figure for the amount of time the two progeny communities have before they hit 120 and have to begin preparing to split again?

      • http://www.irrationaltheorist.blogspot.com quantum_flux

        I just find it funny when people start comparing socialism in small European sized countries to the idea of socialism in the United States. Seriously, each of those countries in Europe is only about the size of Arizona, I don’t think that socialism works with 350 million people, at least not without the use of a totalitarian police force to keep people in line like they do in China

        (I still can’t get over how much of China’s rampant development in recent years, I was their in 2006 and there were cranes everywhere with people working nonstop construction 24 hours a day, talk about bad foresight because I think they’re all vacant buildings because the great majority of people in China can’t afford them on their income so it’s mostly foriegners whom occupy those mostly vacant buildings).

  • http://www.johnson.cornell.edu/faculty/profiles/bl Robert Bloomfield

    Why not a story like this? In previous societies, rulers would demand cash payments (taxes) from their populous, but would also demand specific activities (slavery). Slavery is obviously much more intrusive, because while there are many ways to raise money, there is only one way to do the one job the ruler has asked you to do. So societies that become free eliminate most forms of mandated employment, but retain taxes because they still need money for the most fundamental functions of government, such as paying soldiers.

    Over time, the existence of the institutions underlying taxation (experience paying them, trained tax collectors, a body of law, etc.) make it relatively easy for taxes to creep well beyond the most fundamental functions of government. But we have very limited institutional tools to implement forms of slavery, so it is hard for that to spread–mostly we just have mandated school attendance and military service.

    Military service could spread into mandated public service, and I’m sure it often does. But these are more limited than the spread of how taxes are used, because again that there are many ways to make enough money to pay a tax, but only one way to satisfy a demand to do that one thing (be a doctor). Not only is it much more intrusive, but such a demand is also far more likely to be a flawed decision. A person may well know that they would be a bad doctor but a good lawyer, even though their test scores say otherwise.

  • Bill

    I disagree with your premise as to why we subsidize education:

    ” But when people are asked to justify our common and extensive regulations and subsidies of medicine and education, they often mention exactly this issue – that such interventions make sense because we all have a stake in the work of others via the income taxes those folks pay.”

    Not at all do we do this subsidy to get it back via income taxes.

    We do the subsidy because we want the liberty to do what we want in an occupation, that we value meritocracy, and that you cannot have meritocracy if the talented are impeded by their inability to pay for college or other education.

    We are parents–we are purchasing freedom and an opportunity to compete in meritocracy. We are our future selves–we are willing to pay today for the opportunity to be educated tomorrow. We are our community selves–we recognize that a subsidy for a social worker or doctor education is cheaper than paying the social worker or doctor more if there were a shortage of either.

    Why people bang on government when it frees them to compete in a meritocracy is beyond my understanding. Perhaps they like aristocracy and family wealth determining their own or their children’s future. Go figure.

  • http://torontopm.wordpress.com Paul Hewitt

    Guess again. First of all, TGGP is going to cut you to shreds, because you can’t show him any empirical evidence for these “inherited intuitions”. (Maybe you could find cave pictures showing a teacher in a cave-classroom). Perhaps there is a more logical answer.

    Maybe we can use economics to provide some insight. We often forget the role of externalities in economics, because they are eliminated, by assumption, in the neoclassical framework.

    The reason we intervene more in medicine and education than in telling individuals what to do is that the benefits are far greater. Converting a starving artist into a “productive” member of society may generate some additional tax revenue, but we may lose the next Renoir.

    Subsidizing education for the masses, however, brings substantial benefits to everyone. Ditto for medical subsidies. No one individual is likely to fund research to cure a disease, because the benefit to the individual is much less than the cost. The sum of the benefits to all individuals is much greater than the collective cost. So, we are logically, and reasonably, justified in taxing society to subsidize these activities. There is no need to bring the cavemen into the argument.

    • http://entitledtoanopinion.wordpress.com TGGP

      Hewitt is referring to this discussion we had, in which I asked for productivity data and he never provided any.

      Perhaps information is a public good and so it makes sense to fund research. But that is the case for many areas, not just medicine. Communicable diseases involve externalities, so perhaps we should subsidize (or even make mandatory) vaccinnes. But a great amount of medical spending, which is heavily subsidized, is not for that. It is meant to treat the problems caused by age, as well as unhealthy habits. Many now justify paternalistic policies against such habits using the justification that they impose costs on the healthcare system (not technically correct since early death means less costs). Robin’s explanation covers this more general medical spending (as well as the paternalism).

      I haven’t heard a good argument for the externalities of education. It would seem that the benefits are internalized. Perhaps we don’t think parents would do a good job of looking after their children’s education, but we also subsidize higher education, by which point the recipients of education are legally adults.

      • http://torontopm.wordpress.com Paul Hewitt

        “…so perhaps we should subsidize (or even make mandatory) vaccinnes.”

        Um… we do. Why do you think we do this? It is mainly because of the negative externalities associated with serious diseases/viruses (H1N1). Last fall, there was quite a debate, here in Canada, about whether one should get the H1N1 shot. Those opposed generally thought “It’s unproven. I’ll take my chances.” This type of person gives little or no thought to the negative effects that their behaviour may cause to others (i.e. passing on the virus). Surely, you can see there are negative externalities at play, here.

        “I haven’t heard a good argument for the externalities of education. It would seem that the benefits are internalized. Perhaps we don’t think parents would do a good job of looking after their children’s education, but we also subsidize higher education, by which point the recipients of education are legally adults.”

        You haven’t heard any arguments about externalities in education? Have you given this any thought? Would you be prepared to trust society’s education to parents, alone? As for higher education, yes, there are significant subsidies, and with good reason. Governments subsidize higher education to attract the “brightest and the best” to their jurisdictions. Companies locate where they can find top people. Companies (and individuals) also donate to subsidize higher education. Yes, there are an awful lot of people and institutions that believe there are very, very significant positive externalities associated with higher education.

        By the way, I left a “riddle” for you on Unqualified Reservations.

      • http://entitledtoanopinion.wordpress.com TGGP

        I thought it might clutter up things too much here to talk about the productivity issue, your UR puzzle as well as market-failures in healthcare/education. So I made a post at my blog where I invite you (and others interested) to respond.

    • http://www.vsspro.com Floccina

      Subsidizing education for the masses, however, brings substantial benefits to everyone.

      First schooling and education are not equal. There is little evidence that schooling for the masses, brings significant benefits to everyone. Even less for school beyond a 3 years. Almost all the gains do to schooling are do the signal value.

      Certainly we can all agree that at some point more spending on schooling will yield less benefit than cost. To be concrete perhaps we should all give a number of years and amount of spending that we each think is optimal else we cannot have an edifying debate.

      I will go first:
      I would guess that we would be close to optimal at 3 years of schooling per person and spending about $5,000/year per student.

      I think we are asking the wrong questions when it comes to schooling and education.

      • http://torontopm.wordpress.com Paul Hewitt

        I think you inadvertently provided us with evidence to disprove your argument.

      • http://www.vsspro.com Floccina

        See that 16 years of schooling and I cannot write a coherent sentence. My grandparents on the other hand operated well on 1 year of schooling.

    • Tracy W

      I don’t get your medical cost analysis. I’m guessing you are saying that the fixed costs of funding a cure for a disease are much higher than the marginal benefit to any one customer. But in a market society people do invest in such assets, one group of people build something and then charge everyone else who wants to use it a fee – eg how many of the people who visit Disneyland would pay for the entire park to be built?

  • http://www.modeledbehavior.com Adam Ozimek

    Robin,

    That we let people make decisions about where to live and what jobs they do doesn’t mean we don’t have “common and extensive regulations and subsidies” in these areas. Policies encouraging urbanization and specific careers are widespread. How many political stump speeches talk about policies to encourage children to become engineers and scientists?

  • http://t-a-w.blogspot.com/ Tomasz Wegrzanowski

    For example, one might argue: why should we let folks choose fulfilling but poorly paid jobs like social worker, veterinarian, or forestry agent, if they are capable of becoming an lawyer, doctor, or engineer?

    The evidence that this would appreciably change average income being…? In most cases well-paid jobs are well paid because they require unusual skills (like for doctors / engineers), or because they’re in a winner-takes-most tournament (like for actors / sportsmen / CEOs / politicians / writers etc.).

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

    Unnamed, people forced to do things they would not choose for themselves are not benefited from their point of view. So why do the rest of us see their lives as “improved” via forced school and med choices, but not via forced career or location choices?

    Ashish, if we want think the marginal product is above the marginal wage, why not raise the wage until they match? That is the usual approach.

    • http://www.modeledbehavior.com Adam Ozimek

      Might not some people prefer to be forced to do things? You might argue that people can and do enter contracts to be forced to do something at a later point in time, but what if people prefer to be forced into these contracts and not have a choice to opt in or out?

    • Unnamed

      Most people don’t assume that everyone makes optimal decisions. Health decisions may tend to be less optimal than income decisions because they tend to have more distant benefits, produce less regular feedback, and require more specialized knowledge, and it seems pretty obvious that better health is good for someone so other people can judge “improvement.” And if you look at specific examples where government health interventions are supported because they raise tax revenue, I’ll bet you see the supporters also claiming that the interventions benefit the people that they influence. Do you have any specific cases in mind where this doesn’t hold?

      With education, I’m having trouble thinking of any examples that involve forcing (rather than subsidies or government spending) besides mandatory schooling for children, which can be defended on straightforward paternalistic grounds and which typically overrules parents’ choices for their children (rather than the children’s choices for themselves).

    • Proper Dave

      Because we are incapable of doing it? You need capability AND happiness for productivity, if you have a truly efficient planner for most people it won’t feel “forced” it would feel like this perfect advice giver. In the rare cases where a person is being irrational and being “forced” they will soon be happy and find out the planner after all “knew better”.

      Now this impractical to say the least.

      Now the other “forced” things is practical and effective, thus the vast majority approves and find benefit of the social benefit.

  • Robert Koslover

    People are most productive in jobs that they enjoy doing. Their productivity suffers when they are forced to do jobs they dislike. The best business managers understand this.

  • Doug S.

    One important purpose of compulsory education is to pass on shared values to children of parents who don’t share some of those values (immigrants, religious fanatics, KKK members, etc.)…

    • http://entitledtoanopinion.wordpress.com TGGP

      Funny enough, the KKK was one of the early boosters of compulsory education combined with separation of church & state. Supreme Court Justice Hugo Black, who was influential in promoting such concepts, was a Klansman. This doesn’t of course prove that any of it was bad.

  • mjgeddes

    Alan Fiske’s Relational models explain all this well. People have an inbuilt intuition that Health is an issue based on Communal Sharing, and should not be subject to the market, which is based on a different type of relationship, Equality Matching.

    Politics is such a mess because people are trying to mix types of relationship which shouldn’t be mixed. The solution is simple, go through every issue on a case-by-case basis and carefully weigh up evidence until you’ve firmly decided which type of relationship the issue in question falls under. Then apply only that type of relationship to the domain in question – either 100% Socialism (e.g health, environment), 100% Libertarianism (e.g., basic consumer goods) or 100% Authoritarianism (e.g law and order, defence). Don’t mix these three!

    Income Tax is a big mistake, there is no need for it. Income taxes should be abolished. The Georgists had the answer: all natural resources should be taken off the market, put under pure (100%) democratic control and rented only rather than owned outright. This would amount to an extended version of Land Value Tax (LVT), which is the only correct way for the government to raise revenues. It is far more efficient than income tax, since there is no drag on innovation, and it doesn’t take from other peoples work. Embyronic forms of Georgist ideas work very well in places such as Alaska and Hong Kong – it is very promising, do the research:

    Georgism

    You can be sure that a super-intelligence (SAI) would put an immediate stop to the insanity that is the current politics. Income Tax will be abolished at once, issues matched to their correct type of governance and kept sharply separated. No ‘mixed economy’ nonsense allowed!

  • jason walters

    Veterinarians are far from poorly paid. In the small town i grew up in, veterinarians were some of the wealthiest residents.

    “Median annual wages of veterinarians were $79,050 in May 2008. The middle 50 percent earned between $61,370 and $104,110. The lowest 10 percent earned less than $46,610, and the highest 10 percent earned more than $143,660.”

    from the BLS website

    http://www.bls.gov/oco/ocos076.htm