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Source link: http://archive.mises.org/7654/should-the-state-regulate-envy/

Should the State Regulate Envy?

January 15, 2008 by

Falling Behind, by Robert H. Frank, belongs to an unfortunate genre: books by well-known economists that endeavor to justify crude soak-the-rich policies, writes David Gordon.

Paul Krugman and, from an earlier day, John Kenneth Galbraith are perhaps the best-known authors of such works; but Frank fully equals these eminent figures in his railings against the well-off.

The sum and substance of his reform proposal is that, because the struggle to surpass others in positional goods does not result in anyone’s gaining an advantage, everyone would be better off if the struggle were curtailed. I want a bigger house than yours, but if adding space to my house fails to achieve this goal, because you add to your house as well, a limit on house construction helps us both. FULL ARTICLE

{ 31 comments }

Grant January 15, 2008 at 8:16 am

A good article, but I believe one very important point is missing:
The market already takes care of this. People who want to live in a small house do not move into a neighborhood of mansions. Likewise, people who wish to live in a mansion rarely move next to small houses, as the property value of the completed mansion would suffer. If a person does not want to need to drive a nice car and live in a nice house in order to be socially accepted, then that person does not move into Beverly Hills. People tend to select peers who do not engage in nonsensical positional arms races, unless of course they enjoy such races.

I think many sports are a good example, as a sport is almost entirely a positional arms race. Even still, most sports regulate the intensity of competition, and people tend to select sports with levels of competition they are comfortable with. Athletes do not join leagues where any and all performance-enhancing drugs are legal. Race car drivers do not join races where all safety is discarded in the name of more speed.

I think the ideas of positional arms races are important for managers of sporting leagues or neighborhood developers, but don’t belong anywhere near government.

Arend January 15, 2008 at 8:18 am

For Frank, economics is one long chain of prisoner’s dilemma’s where government can ex nihilio put us in de Pareto optimal solution without changing the game.

That is where Frank’s model flaws. It presupposes that there is some attainable optimal point of happiness or welfare that cannot be attained through voluntary actions and exchange with people only having certain negative rights. While neglecting the possible negative effect of government intervention.

Well if people never can act optimal, why not act at all and let government do everything? That’s at least the absurd conclusion where Frank’s reasoning should lead him.

Arend January 15, 2008 at 8:23 am

BTW: We know from George Reisman where nthis growing inequality comes from. For Frank, then, to claim more government intervention is plain cynism. But then again, Frank doesn’t of course know the real causes behind the growing inequality and is just occupated in the ‘problem solving’ of some psychic phenomenon. Heck, I wouldn’t even call it economics what he’s doing. Introducing this book then with the remark that its creator is an economist, is misleading with respect to the content of the book, to say the least.

Daniel M. Ryan January 15, 2008 at 8:49 am

Regarding this part of Dr. Gordon’s article:

Frank uses a familiar example to help explain his point. Suppose a spectator at a football game stands up in order to get a better view. If other spectators have the same thought and also rise, no one will succeed in improving his view. Moreover, all the spectators will be worse off, if one reasonably assumes that, holding their view constant, they prefer sitting to standing.

I was in a situation like this in the mid-late 1980s, only I was at a rock concert. I stood up on my chair, and was told by the person behind me to get down from it as I was obstructing his view. I stood down.

A simple resolution to the ‘dilemma’, isn’t it?

Daniel M. Ryan January 15, 2008 at 8:55 am

To make a more general point: people such as Frank seem to be enamoured of harnessing envy to attack jealousy (the dark side of competitiveness.) Given that envy is a stronger drive, doing so is akin to summoning Satan to drive out Beelzebub.

IMHO January 15, 2008 at 11:10 am

No amount of regulation will ever resolve the issue of envy. If nothing else, it will simply encourage the green-eyed monster.

When not held in check, envy can easily become the basis for all sorts of irresponsible behaviors. The obvious one would be to covet another’s property. But they might also desire another’s success, education, job, or even their spouse. The worst of the lot will delude themselves into believing that they are entitled to everything a person might have and will resort to the lowest forms of trickery to obtain the object(s) of their desire or to discredit the person who has them.

I’ve no problem with anyone who wishes for more, but the best way to avoid the pitfalls of envy is to learn how to appreciate the things one already has. Even better would be to learn how to be happy for another’s good fortune.

Inquisitor January 15, 2008 at 11:42 am

Nozick pithily states in his ASU that reducing one form of inequality only makes envy stronger in those remaining areas in which it persists. Thus, rather than alleviating the problem, it worsens it.

EconAndre January 15, 2008 at 11:42 am

Who is the largest consumer in the U.S.? Since the private sector seems to be falling behind government sector spending, let’s tax government expenditures and give a rebate to tax payers. But the government (at least the Federal Govt.)has no real budget constraints to restrain spending, so even a government consumption tax would not help.

Henry Miller January 15, 2008 at 11:56 am

Facing enormous federal budget deficits at a time when we are not paying teachers enough, not repairing our roads, bridges, and municipal water supply systems, and not inspecting the meat we eat,

In the city where I work they spent most of last summer trying to figure out how to raise money for a new swimming pool, new bike paths, and other park improvements. Then in late Augest we got record rainfall and roads got washed away because the neglected drainage system couldn’t handle it (investigation showed that the road was washing out for 20 years but the surface looked fine). In fact tax dollars would have been enough to keep this working, but you don’t see 30 years of neglect, just that a town paying attention to the details doesn’t have as nice a park system.

Somehow we are to believe that more taxes will solve the problem, but in fact the problem is people don’t want to think about or pay for details. Then we get mad when nobody does it for us. I’m sure with Minneapois bridge collapse we will see more bridge work for the next couple years, but then everyone will go back to parks and the likes until the next disaster strikes. Does anyone remember New Orlean’s floods anymore?

Inquisitor January 15, 2008 at 12:18 pm

Pure nonsense, and yet it is published.

If someone wants to spend on a good or service, it is because they think it is of value to them and will make them better off than ex ante. To call this “waste” (according to equilibrium models?) is nothing short of being a supercilious twit. Further, it is true that some of the rich engage in conspicuous consumption (by no means all; as Frank notes, they save mostly anyway) but not true that everyone seeks to emulate them. Those that do usually do so in the form of cheaper knockoffs (anyone who has read a fashion magazine will often note that some of them indicate how one can emulate the rich via high street goods.) Without having read the book, it seems to be a web of fallacies.

Jim Fedako January 15, 2008 at 12:49 pm

The advice I always heard was this: It’s best to build the smallest or least-appointed house in the neighborhood since the larger, higher-quality houses increase the value of yours. Ah, the free rider.

Yes, let’s not forget the free rider.

Take group gift exchanges: An arms race of sorts usually occurs as folks try to out-do each other. Yet, within such exchanges, the free rider — me — lurks. I have no positional status that is worth the cost of expensive gifts. So, I free ride. I purchase gifts at the minimum full well knowing I will receive gifts far in excess. According to mainstream economics, my free riding should stop the group exchange from forming. Therefore, government must step in and run the process, mandating expensive gifts for all, from all.

So, government must also mandate the size of all homes in order to eliminate the free rider in developments.

The solution, as always, is for government to cure ills that only exist in the minds and egos of many.

Regardless of mainstream economics, group gift exchanges continue despite free riding. And, someone always builds the smallest or least-appointed house in a development.

Paul Marks January 15, 2008 at 1:18 pm

Robert H. Frank is employed by a University Econonics Department and calls himself an “economist” – however he believes the vast government spending on domestic programs (which is at a record high – however it is measured) is not enough and that such things as education and the quality of food would be improved if government spending was increased still further.

He also seems to believe that government revenue went down when the top rates of income tax were cut – when, of course, government revenue from “the rich” has greatly increased.

All this ignorance in an “economist” is deeply depressing – but only too common.

As for “free riders”…..

Indeed this is often a non problem.

For example, ship owners and other donated money for the building of light houses on the coasts of Britian in the 18th and 19th centuries – even though they would benefit whether they contributed or not.

Just as people still give money to the R.N.L.I. (the sea rescue volunteers) even though they will rescue people regardless of whether they have donated money.

billwald January 15, 2008 at 2:12 pm

“I was in a situation like this in the mid-late 1980s, only I was at a rock concert. I stood up on my chair, and was told by the person behind me to get down from it as I was obstructing his view. I stood down.”

Why? Because you are a nice person or because you didn’t want to get into a fight that you might lose?

IMHO January 15, 2008 at 2:57 pm

“The advice I always heard was this: It’s best to build the smallest or least-appointed house in the neighborhood since the larger, higher-quality houses increase the value of yours. Ah, the free rider.”

The flip side of the coin is that as the value of your home increases, so do your property taxes.

IMHO January 15, 2008 at 2:58 pm

“The advice I always heard was this: It’s best to build the smallest or least-appointed house in the neighborhood since the larger, higher-quality houses increase the value of yours. Ah, the free rider.”

The flip side of the coin is that as the value of your home increases, so do your property taxes.

fundamentalist January 15, 2008 at 3:13 pm

Frank says, “if you are not somebody for whom context matters, you are not a normal person” (p. 39).

The research of Dr. Thomas Stanley (The Millionaire Next Door) calls Frank’s bluff on this one. According to Stanley, the vast majority of millionaires/billionaires in the country live in modest middle class neighborhoods. Without a doubt, these wealthy people have friends with much larger houses, yet they choose to live in smaller houses because they have a different set of values. All we can assume from Frank’s book is that he is envious of the wealthy and assumes everyone else is, too. Only he wants to turn his envy into law.

Also, Frank assumes just one outcome to inequality—envy. And he assumes that the envy leads to an “arms race.” But instead of envy, let’s assume that a poorer person simply admires the larger house of a neighbor. Such admiration could motivate the poorer person to get more education, start a business, work a second job, or find ways to improve himself and increase his income. Frank seems to believe that the only option left to the admiring person is to spend more. However, most people of average intelligence realize that their income limits their current spending, so to increase spending, they must increase income, and to increase income, they must become more productive. As Smith pointed out, self-interest leads to civilization.

Finally, Frank wants to punish the rich in order to soothe the stinging envy of the not-so-rich. But by taxing the rich even more, he reduces their savings; reduced savings translates into less capital investment; lower capital investment reduces productivity and ultimately wages. So Frank’s cure would eventually increase the inequality he despises so much.

anon January 15, 2008 at 3:49 pm

What about Prof Reisman’s article yesterday on credit creation and inequality.

Surely inflation and credit creation are a major cause of a consumption “arms race” leading to increased inequality and reduced capital formation. With a static money supply, houses would not increase in price every year., and might even depreciate due to wear and tear Other luxury goods, e.g. cars would depreciate even more quickly than today. Consumer goods e.g. art would no longer be seen as investments.

George P January 15, 2008 at 4:03 pm

My God!!!
What is proposed here is breathtaking – no terrifying. I am disappointed that an Austrian would lend credence to this crap by attempting a reply. What this fool, Frank, is saying is that he should be or rather the State should be empowered to re-order people’s value scales. All human achievement would thusly by subject to state control. Great music, art, cuisine, fashion, philosophy, athletics would now be bludgeoned down to the lowest mind numbing common denominator for the sake of assuaging the wounded egos of the average. A few years ago I happened to catch a movie on television called “Harrison Bergeron” with Sean Astin and Christopher Plummer based on a short story by Kurt Vonnegut. At the time I thought it was a bit over the top because no one would actually be this stoupid. Frank has convinced me otherwise.

Daniel M. Ryan January 15, 2008 at 4:18 pm

@billwald:

The fellow that asked me to stand down was older than I was: he was there with what appeared to be his wife. I was a teenager at the time.

You can interpret these facts in any way you wish. Myself, I would peg it as being well-behaved.

IMHO January 15, 2008 at 4:21 pm

“What is proposed here is breathtaking – no terrifying. I am disappointed that an Austrian would lend credence to this crap by attempting a reply.”

I hardly think that by critiquing this book that Prof. Gordon is lending credence to it. We need to know what the public is reading and should be prepared to respond to it.

George P January 15, 2008 at 4:41 pm

“I hardly think that by critiquing this book that Prof. Gordon is lending credence to it. We need to know what the public is reading and should be prepared to respond to it.”

Sometimes we can’t see the forest for the trees. By attempting a point by point rebuttal Prof. Gordon is distracted from the true horror of what Frank is proposing. Who cares about Frank’s “positional” construct? The real evil is the idea that you can force people to think a certain way by using taxation and I suppose when that fails then what?

TGGP January 15, 2008 at 5:21 pm

A good response to Frank on the externality of neighboring houses comes from Alex Tabarrok here.

Paul January 15, 2008 at 9:34 pm

Frank’s macroeconomics textbook is a piece of junk too.

Paul January 15, 2008 at 9:35 pm

Oops, I meant micro.

Larry Ruane January 15, 2008 at 9:57 pm

Great article, and excellent comments here so far.

How about let’s apply Frank’s idea to government itself? Politicians undoubtedly look out at how well their fellow politicians in other countries are living, and what sorts of monuments to themselves (and weapons!) they are building and so on. They may decide that they need to keep up, or surpass, them. To do that they need to increase taxes (as Frank gives them an excuse to do).

So to be consistent, Frank ought to advocate that the wealth that this consumption tax expropriates should be burned or buried in the ground. Strangely, he doesn’t advocate that.

Sooperdave January 16, 2008 at 7:59 am

The Harrison Bergeron short story.

David Spellman January 16, 2008 at 10:19 am

I have seven children. You would probably accept it as axiomatic that I need more money and a bigger house for my family. But Frank’s proposal is to financially penalize me for building a bigger house so that I have even less money.

As another example, suppose someone wants a large house to host charity balls. Frank would penalize them, thus limiting their ability to garner funds to help the poor, the underprivileged, and the widows and orphans.

Frank equates consumption to a uniformly negative behavior. There are many reasons why people may want to buy more–not the least of which might be to donate to the less well off. Trying to second guess motives and assign evil intentions is an impossible task.

wintercow20 January 16, 2008 at 12:46 pm

Hayek famously wrote:

However human, envy is certainly not one of the sources of discontent that a free society can eliminate. It is probably one of the essential conditions for the preservation of such a society that we do not countenance envy, not sanction its demands by camouflaging it as social justice, but treat it, in the words of John Stuart Mill, as “the most anti-social and evil of all passions.”

IMHO January 17, 2008 at 12:31 am

wintercow20,

An excellent quote that says it all.

Richard January 17, 2008 at 9:40 am

Reaching for the crux of the matter:

Is it Economic Man vs. Cultural Man?–read my essay in here, “Capitalism and Marxism in America,” which raises the point:

Corporate America: What Went Wrong?
http://corporateamericawhatwentwrong.blogspot.com/

Also, to learn what’s really afoot with globalization, read my report on Lt. Col. Roberts’ 1968 booklet, “The Anatomy of a Revolution”:

Planned Destruction of America: Open Letter
http://planneddestructionofamerica.blogspot.com/

Artfldgr January 17, 2008 at 12:17 pm

A interesting piece, but from your example paragraph

Facing enormous federal budget deficits at a time when we are not paying teachers enough, not repairing our roads, bridges, and municipal water supply systems, and not inspecting the meat we eat, can multi-trillion-dollar tax cuts really be a sensible policy?……

i could not help but think that he doesnt care at all for the reason that things are that way.

early on, leftist/socialist/communists, decided to divert revenue streams from such things as bridges, to such things as social programs.

one only needs to read the congressional record and the pages about bundt the farmer and crockett the senator called not yours to give, to understand the core reason we are in this pickle.

note that this ‘communist economist’ says nothing as to the validity of stealing from one group to give to another group.

without a “law of socialist limitation” bascially a cap that says beyond this amount we will not take money… the needs expand to the point that people can make up interesting reasons that others of whose money it isnt, think its a good way to spend.

what would be the state of bridges adn society if the 51 trillion that is going into sociel services over its history, went to productivity and so forth. how much better off would all our lives have been if that 51 trillino ended up in research, insurance, housing, bridges, medicine, and so forth? whats more, it would have gone that way if no one took it for other things. not to mention the effect on the averate persons sense of doing legally whats right, when they need to work aroudn what the state does thats wrong.

anyone want to point out that a progressive tax was a soviet invention, and a major point of communists in their desire for things to visit the west. the book the naked communist, points out that a progressive tax is one of their goals.

but whats interesting is that an equal apportioned tax would do what they SAY they want without ever having all that overhead.

if everyone paid 5 percent in, and the total amount was divided up evenly among everyone, rich and poor… what would be the mathematical result?

the middle would stay stationary… the wealthy would lose a bit off the top… and the poor would get a boon.

the state would take their cut off the top, say 20%… that still would leave a huge disbursment, and no way to wiggle aroudn it.

the law would be so simple, it would not have exceptions.. it would not allow for favoritism and lobbying… how?

but that would be the kind of tax that our founders invisioned if any there would be one.

[and removing the irational logic that allows imortal companies made up of people to be treated like people politically and legally, might not be a bad thing either]

go through the history.. the word “progressive” is a synonim (now), for socialization..

its what progressive education turned out to be… and progressive health care… and now progressive taxation..

to quote
“We Americans are the singularly most compassionate in the world, the most benevolent and the most naive people there have ever been. We even believe that Communism is dead because the Berlin Wall came down. Communism ain’t dead. It is called something else. It is called “progressive”. It is called “Social Democracy”. It is called “Democracy”. Some even call it “International Democracy”†?think George Soros here. Political Correctness has blind-sided those that merely go along with the emotionally weak.”

after all, why would all these ideas all lead to totalitarianism of one sort or another… after all, to take that much from wealthy people one will ahve to treat them like kulaks…

if one didnt, maybe someone like gates might take a billion and put it on the street to cause what?

this is why such promotions would have to have a totalitarian license first… for if your going to take it all away from a wealthy person, they might just dump it on your enemies for spite.

lets see… he is worth more than 40 billion.. lets say he gives 20 billion to al qeada to stop the progressive tax and such people in government.

this is why they have to grab it all if they are going to grab so much. so in effect his argumetn is a soft call for communism to redistribute wealth, and he doesnt use the old word communism, he uses the new one “progressive”

he takes his orders from the old soviet school

here are the the original ten planks of the Communist Manifesto written by Karl Marx in 1848.

1. Abolition of private property and the application of all rent to public purpose.

2. A heavy progressive or graduated income tax.

3. Abolition of all rights of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly.

6. Centralization of the means of communication and transportation in the hands of the State.

7. Extension of factories and instruments of production owned by the State, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal liability of all to labor. Establishment of Industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.

10. Free education for all children in government schools. Abolition of children’s factory labor in its present form. Combination of education with industrial production…..

so really… what is Frank really proposing here?

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