Wednesday, October 29, 2014

Mark says smart stuff

This is Joseph

In the context of a recent post by Mark Palko:
Both the tech and financial sector have embraced the idea that economic rewards are directly correlated to work and worth. It's a strange mixture of efficient market theorem and social Darwinism, often with more than a bit of Randianism.
I found both of these arguments for increased taxation of high income earners interesting.   First:
Because rich people spend their money on useless stuff. Not far from where I live, there is a new house going up. It will be over 10,000 square feet when it is complete. 2,500 of those square feet will be a closet that has two separate floors, one for regular clothes and one for formal wear. If that is what you are spending your money on, then yes, I believe raising your taxes to fund education, infrastructure, and health spending is a net gain for society.

Don’t poor people spend money on stupid stuff? Of course they do. Isn’t the government an inefficient provider of some of these goods, like education? Maybe. But even if both those things are true, public investment and/or transfers to poor people will result in some net investment that I’m not currently getting from the mega-closet family. I’m happy to talk about alternative institutional settings that would ensure a greater proportion of the funds get spent on actual investments.

Because I’m not afraid that some embattled, industrious core of “makers” will decide to “go Galt” and drop out of society, leaving the rest of us poor schleps to fend for ourselves.  Oh, however will we figure out how to feed ourselves without hedge fund managers around to guide us?
I think that this points out that the notion that people deserve the actual income/wealth that they currently have, in some sort of fundamental way, is a true measure of worth/contribution.  It is true that rich people do pay taxes, but consider all of the benefits they get?  We have a whole society of laws devoted to reducing kidnapping, murder of near kin, and robbery, and the wealthy definitely benefit from this. 

So I am not saying that the current level of taxes is too low, too high, or just right (on any specific segment of the market).  I am saying that an open discussion should consider issues like "everybody spends money to satisfy desires and that these desires rarely pass the scrutiny of outside parties".  Or that the whole idea of "going Galt" is often rather silly.  In academics, we have many good people for every position.  The marginal loss of any one person is sad but does not destroy the whole enterprise. 

Similarly, I suspect that there are a number of possible hedge fund managers in the world who could do a relatively comparable job (at least insofar as society as a whole matters -- losing your superstar investor could be a private tragedy).  Otherwise we'd expect the market to collapse when one of these key people dies of old age (and the market has been pretty robust to replacements via death so far). 

So some points to ponder. 

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