In ordinary talk, you often hear arguments like: There aren’t enough Jazz stations – government should subsidize them. Too many kids today let their pants hanging low – that should be illegal. Not enough kids want to be scientists – schools should push that earlier.
Scenario 1: Bob can be made better off without making any other person worse off. In the OP's view, this is a place where an economist, speaking as an economist, can comment.
Scenario 2: Bob can be made dramatically better off, but Tim will be mildly inconvenienced. In the OP's view, this is a place where an economist, speaking as an economist, cannot comment.
Why? The expertise needed to identify the latter situation is the same expertise needed to identify the former situation. And to the extent that Scenario 2 requires accepting certain normative premises that aren't implicit in the factual expertise of economics, well, Scenario 1 does the same thing.
I would actually disagree with the point about the estate tax. The biggest risk that you want would want birth position to hedge against is precisely who your parents are. Sure, exactly what sperm and egg combination produces you and when that happens matters, but those are less significant risks than the identity of your parents. If your parents are wealthy enough to be affected by the estate tax, then you don't need birth position insurance. In my argument, there is no way for parents to protect children from birth position risk, only to make being born as their child a more or less desirable outcome. True birth position insurance would benefit all children who are borne under conditions below some chosen threshold, at the expense of those born into positions above the threshold.
It’s been omitted because it’s gobbledegook nonsense.
Perhaps when it comes to proving it from axioms, but addressing the effect of inequality on the business cycle is a reasonable empirical question. There seems to be good reason to think the economy is more vulnerable with increasing inequality. What is gobbledegook is the Austrian view of economics insofar as it tries to define the discipline as a priori.
Would that be a market failure by Hansonian standards?(and how universal are those standards to economists who use the term?)
The anonymous quote that Caplan gives as an endnote here agrees with you.
> No, that isn’t a market failure argument.
But, "I’m not saying market failure is the only consideration anyone uses to decide policy, but I am suggesting that it is the main consideration that economists use in their role as holders of economic expertise. Economists don’t have much expert to say about whether we have too much or too little inequality, outside of their expert ability to discern and fix market failures."
Yet, the argument (how would you characterize it?) is one that economists seem quite capable of making. So economists aren't limited to market failure arguments.
And, to repeat, if it isn't a market failure, then the definition of market failure is inherently biased in its promotion of narrow efficiency at the expense of overall utility--becoming more pernicious than useful.
"A more conventional “market failure” that has for some reason been omitted from this discussion is that inequality decreases effective demand, making the economy more volatile."
It's been omitted because it's gobbledegook nonsense.
"Taking from those who have accrued a substantially disproportionate wealth isn’t unjust to most hunter gatherers, wasn’t unjust in our “effective evolutionary environment” as far as we can tell."
To some degree, historically, it has been considered unjust. That's why ethics against theft exist in every culture. But my point in declaring theft unjust was exactly to reveal the shaky ground underneath your declaration that inequality unjust. INOW, there are essentially no grounds for either, even in "evolutionary psychology". You just made an empty claim. So did I.
"There is another incentive: your moral conscience. The conscience is an innate desire humans have within them to be good (that is, to be a person who increases utility for themselves and others). You seem to be assuming that self-interested desires are innate, but non-self-interested desires are caused by environment. "
Non-self-interested desires don't exist. All action is directed toward the expansion of the ego. The ego, however, is dynamic, and can be identified with things other than the body. (William James has it right with his "the self is all that a man can call HIS OWN". That could mean his own country, his own family, or his own bank account). The problem with expanding the ego by identifying with a group, however, is that said ego doesn't actually have control over, ie doesn't actually own, the actions of the group. If the group acts in ways contrary to the desires of that ego (which it inevitably will), the association splinters. That's why the workers of the world can never unite for any extended period of time.
"Democracy is socialism."
Socialism (workers owning the means of production) is illogical nonsense (what does it mean to "own" something?). Democracy, then, with all its corruptions, is what the emotional ideal (envy) behind socialism degrades into.
"And perfect equality is a red herring; we can try to make society more equal."
Except that isn't desirable.
1. Market failure isn't measured by total utility (because total utility can't be measured), but by pareto efficiency.
2. Also, even if total utility could be measured (which it can't), #3 does not follow from #1 and #2. What follows is that total utility could only be measured for a given moment in time.
Because the above doesn't apply to everybody. Not everybody is satisfied being upper-middle class.
"Then, economists will have to appraise markets as efficient when they obtain their efficiency at the _expense_ of disutility caused by increased inequality."
Uh....if you can't calculate utility, then you can't claim that increased inequality creates disutility.
No, that isn't a market failure argument.
Even in the most austerely value-neutral role for economists, they still have a place in proposing policies designed to achieve various levels of redistribution at minimal cost or with minimal disruption. Other economists seem to believe this, and seem to explicitly say it fairly often, at least to their students.
After all, as a matter of empirical fact policy makers often do want to reduce inequality of various sorts, and the question of how best to do it is an economic one. The problem is just as well-posed as and similar in character to addressing market failures, with different but equally objective goals.
It seems not only unjustifiably righteous but also unfortunate if some economist decided to provide no input on this question, because they had decided that efficiency was the only acceptable goal. (Though there may be other reasons to provide no input on this question, for example if one was deeply opposed to redistributive policy and hoped that by generally scorning it they could reduce its social acceptability etc.) In particular, this would be unfortunate even from an efficiency perspective--since politicians will endorse redistributive policies, as noted, and we'd like them to choose policies which are as efficient as possible given their desire for redistribution.
DeLong stated (recapitulating and ultimately approving the argument of Diamond [no relation] and Saez::
The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.
Caplan quoted the dialog and presented a surprisingly Hansonian analysis trying to discredit the proponents as hypocrites.
A more conventional "market failure" that has for some reason been omitted from this discussion is that inequality decreases effective demand, making the economy more volatile.