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Greg Mankiw takes on Jacqueline Passey
Jacqueline Passey writes:
...gambling is distributive justice, moving money from stupid people to smart people.
Greg Mankiw writes (do note that Greg is not a pure utilitarian):
The utilitarian in me points out that Jacqueline gets things exactly backwards: distributive justice demands moving money from smart people to stupid people. Smart people have the potential to make a lot of money and thus have lower marginal utility per dollar, while stupid people have less money-making potential and higher marginal utility.
This question is tricky. If gambling leads to little real enjoyment, stupid/poor people are receiving a low marginal utility from these expenditures. If we discourage gambling (whether by taxation or moralizing), might the would-be gamblers spend the money in yet another wasteful and thus low marginal utility way? Short of having government manage the entire budget of poor people, through extensive taxes and subsidies, this problem is hard to avoid.
Alternatively, if stupid people enjoy losing their money through gambling, then it is not wasteful and need not be discouraged.
It is hard to say that both a) marginal expenditures are wasted, and b) marginal expenditures bring a high marginal utility. Perhaps once gambling is removed as a temptation the poor will spend those marginal funds on tofu and vitamins, but I would not count on that.
Readers, how do you score Greg vs. Jacqueline?
Posted by Tyler Cowen on July 8, 2006 at 04:12 AM in Economics | Permalink
Comments
Interpersonal utility comparisons are impossible, so they're both wrong.
Posted by: KipEsquire at Jul 8, 2006 7:34:35 AM
I would include spectator sports and video games along with lotteries
and poker. The currency is time as well as dollars. Jacqueline has a
better bumpersticker.
Posted by: leapfrog at Jul 8, 2006 7:51:48 AM
I don't think that Jacqueline was equating smart with rich. In the poker
world that she seems to be involved in, there are a lot of rich people who aren't good poker players but who still like to bet heavily. Transfering money from these folks to relatively poor poker sharks probably increases total utility. Some forms of gambling are good training for business, and I've heard of people who have staked businesses with winnings from card counting or poker.
Posted by: Pat L at Jul 8, 2006 9:26:06 AM
It's a debate about the meaning of a phrase, "distributive justice", which can mean whatever you want it to mean.
The solution to the gambling problem, if it is a problem, is to require all children to study and to master the basic principles of probability and statistics. Twelve years of intense study, from the first through the twelfth grade, should be required. If then someone wants to gamble, let them.
This solution, if it could be implemented, would have the additional small benefit of solving most other social ills.
Posted by: Jeffrey Miller at Jul 8, 2006 9:46:39 AM
"Interpersonal utility comparisons are impossible, so they're both wrong."
Meaningless mantra.
Posted by: The Tsunami at Jul 8, 2006 9:47:18 AM
I hope that you took Jacqueline's phrase out of context because otherwise she's an idiot.
If distributive justice means transferring money from stupid people to smart people, then the following is a just transaction:
Your friend's developmentally disabled cousin has just received their SSI check from the government and cashed it.
You say, "Hey, Jimmy, how would you like it if I gave you these five $1 bills for just one of those $100 bills. You'll get five bills, and I'll get one. And you still have all of those other $100s. Also, look at this picture of George Washington—isn't he more handsome than Ben Franklin?"
Thanks Jimmy, I really appreciate the Franklin, let's do business again one time.
Notice the lack of violence, coercion, or fraud in the above example.
This is exactly what's happening to poor people who don't know math when they spend $20, $50, or $100 a week on lotto. They think they're making a good investment because they only have to win once.
But hey, according to Jacqueline Passey, that's distributive justice.
Posted by: c-cipher at Jul 8, 2006 12:04:57 PM
I score both Greg and Jackie at 82.36813, using the rule
of thumb that made-up numbers look much more convincing
if you give them a lot of decimal places.
But seriously, C-ipher makes a good point. In fact, we should explore this
point in more detail.
I'm guessing there's plenty of law and even more social
approbation against taking advantage of the mentally
handicapped. But what about laws against really smart
people taking advantage of average or slightly-below
average people?
For the sake of argument, I'll treat IQ numbers as a
linear measure of intelligence. If they're not, then just rescale and my argument still holds.
If it should be illegal for a person with an IQ of 95 to
take advantage of a person with an IQ of 69, why should
it be legal for a person with an IQ of 140 to hatch a
scheme (or "business plan") that takes advantage of
people with IQs of 95?
One old classic libertarian formula says that
government should only intervene against "force and
fraud." We now understand a lot about selection mechanisms (like "extended warranties") that essentially make
the stupid/ignorant defraud themselves. It seems like we
might then open up to paternalistic and semi-paternalistic regulation that stops these selection mechanisms.
Recently, Greg Mankiw expressed his moral objection
to gambling, basically saying that people who devote
their energies to winning at poker could be doing more
social good by doing something else.
I agree to some extent, but let's take Greg's argument
to the next stage: I'd rather have our smart and talented people dedicating their energies to making better products and services rather than hatching ideas that essentially take money from the unwitting and unsuspecting.
Of course, given public choice considerations, the government power to make
these distinctions may not work out like I'd want...
When I think about the
preference that many leftists
have for small-town monopolists over Wal-Mart's
law prices, it doesn't give
me much hope for this kind
of paternalistic regulation.
Posted by: Keith at Jul 8, 2006 12:48:16 PM
Some of us like to play out a James Bond fantasy while delivering one-liners to the dealer. It's just not the same without putting real money on the line.
Kip,
The ability to make an interpersonal utility comparison is an epistemic constraint, even if we presume an objective distribution, we need not also presume that we can attain knowledge of it. That said, not-IUC merely means that we cannot prove any proposed distribution has any relationship to the just distribution, all other things being equal.
Posted by: Steven Schreiber at Jul 8, 2006 1:44:42 PM
I think Jacqueline is losing with the distributive justice/her boyfriend
gives the money to charity argument. The gambling itself is a zero-sum
game -- somebody wins, somebody loses. There's no overall wealth creation
from the activity of gambling.
But I think Mankiw loses with the gambling has no social (ugh, I hope he
means economic) value overall. The most obvious example is how over the
last five years professional poker has become a spectator sport, and the
stars of professional poker are now essentially entertainers in the same
fashion as actors or professional atheletes, so the extent those sort of
entertainers create economic value, the professional gamblers who help
drive ratings on ESPN do too.
Then of course there is the fun. Cards, dice, coin flips, who cares.
My personal favorite is rock paper scissors for $5 a throw. But the fun
is worth something right? When humans dream they dream of money...not the
cubicles & commutes it usually takes to get money.
Posted by: Kenny Rogers at Jul 8, 2006 2:00:46 PM
Moralizing in the first place is a waste of time. Both Mr. Mankiw and Ms. Passey are making the error of trying to justify their personal feelings, which is a lost cause to start with.
Greg gets points for starting out by saying that he recognizes he's moralizing and implies that we shouldn't put much weight on his post. Jaqueline makes no such caveat, though she's equally condescending of others' choices. Greg's "social good" is a more common error than Jackie's "distributive justice", making it a bit stronger of a silly argument.
So, the match goes to Greg, but neither side does well, and has to do better to get to the quarterfinals.
Posted by: Dagon at Jul 8, 2006 2:00:56 PM
Kenny Rogers nails it: Gambling may not create wealth but the most popular forms of gambling (i.e. not coin flips or something similarly trivial) create fun.
Most people at a given casino (or in a given sports pool: choose your favorite form of wagering) are losing a bit of money but having a grand old time. At opposite ends you have the people making money (aside from the house itself) and the degenerates who have an addiction and are miserable. Obviously the latter need to be helped, but criminalizing gambling won't cure their addiction and so won't help them enough to be worth taking away everyone else's fun.
Posted by: Matt at Jul 8, 2006 2:14:00 PM
It's a wash!
Distributive justice generally has to do with the fair division of a surplus of cooperation among the parties to cooperation. But the general notion has to do with the game of life, which is positive-sum if you get the rules right. The game of poker, for example, (a sub-game within the game of life) is zero-sum--money-wise at least--and it has its own rules of distribution. The person with the best hand (or the last person to bet without folding), wins the pot. If there is some strong correlation between intelligence and winning pots, and if the principle of distribution within the game of poker defines a within-game notion of justice, then Jackie is kinda-sorta right in a sloppy way. But intelligence is contingently related to winning. The within-game distribution is within-game just because the winners won according to the rules, not because they are smarter. So maybe she's not talking about within-game justice, but justice more broadly.
But if we're talking about the gambling-caused transfers not within a particular game of chance and skill, but within the broader game of life, then it's hard to see how she's right. Assuming we are entitled to our pre-gambling holding, and we play the games consensually, agreeing to their terms, then the winners will be entitled to their holdings after the gambling. What it means to cooperate in the game of life while playing a sub-game of conflict is just to follow the rules of the game--handing over the money when you lost according rules that require you to hand over money. But what makes the transfers fair is that the parties agreed to play by the rules of the game. Again, it may be that there is a statistical relationship between winning and intelligence. But the winner is entitled to her winnings because she won, not because she is smarter.
If Jackie has a substantive normative commitment that people are deserving in virtue of their intelligence, and that the income distribution ought to track intelligence, then she might endorse gambling BECAUSE of the statistical relationship between winning and intelligence. But then she is also very weird, because it's very hard to see why intelligence, outside of its role in production and cooperation, would be any kind of basis for desert.
Greg's inner utilitarian is just being a utilitarian: move stuff to the people who will get the most utility out of it. But this is hardly a principle of distributive JUSTICE, since it has no clear relationship at all to fairness, desert, reciprocity, etc., that go into a conception of justice.
Posted by: Will Wilkinson at Jul 8, 2006 2:21:17 PM
"If Jackie has a substantive normative commitment that people are deserving in virtue of their intelligence..."
I think that's the plain meaning of Jackie's original statement. She's saying the smart deserve to be rewarded and the stupid deserve to be punished. Think of it as the "fool and his money are soon parted, and should be" principle. Now, she might not have been totally serious about that, because she was just making a jocular statement (or rather, quoting someone else's). But I think that was the sentiment. Maybe there's a evolutionary logic to it, akin to the logic of the Darwin Awards (given each year to people who have done the species the biggest favor by removing their genes from the gene pool through their own stupidity).
Posted by: Glen at Jul 8, 2006 2:52:02 PM
Will Wilkinson: Don't we all assume that intelligence is a basis for desert when we, for instance, oppose eating great apes or dolphins because of their intelligence?
Keith: Great points.
Posted by: michael vassar at Jul 8, 2006 4:08:54 PM
C-Cipher does make a very good point. So good that I mulled over it while out for a walk, and I think I have an answer. Every society has, in some loose sense, the strictest morality that it can afford. For example, we were willing to tollerate slavery when slaveholding was the only way to be rich, but when that was no longer the case we stopped tollerating it.
We can afford to have a morality that regards an IQ-100 person taking andvantage of an IQ-60 person as wrong, because there are so few IQ-60 people that it's not a big incpnvience to confer this special status on them. But there are scads of IQ-100 people, so to confer upon them a special moral status and guard against their exploitation by IQ-140 people would be a bigger burdeon than our society can afford. Perhaps one day, when our society is even richer than it is today (and we all regard eating non-free-range-chicken as unimaginably barbaric) we will have the resources to worry about the exploitation of the IQ-100s.
Posted by: David Wright at Jul 8, 2006 9:20:35 PM
The high-and-low marginal utility conclusion is puzzling, but I think it can be salvaged by unburying the moralist lurking beneath the surface. Indeed the marginal utility of the gambler is low and we might even say the money spent gambling is âwasted.â The social marginal utility of spending a dollar on the (poor) gambler, however, is high: it is the âsmartâ person who receives high marginal utility from ensuring that the gambler spends money on the ârightâ activities. The gambler, nearly indifferent between gambling and many other options, barely notices the reduction in his utility after his money is redirected.
I think the position is consistent, but repulsive. I vote with Dr. Mankiwâs libertarian 50%.
Posted by: blink at Jul 8, 2006 11:08:45 PM
Great points Blink and David Wright.
Tyler or Alex should give Greg Manikew some pointers on how to attract intelligent comments. The contrast between the comment quality on the two blogs is astounding.
Posted by: michael vassar at Jul 9, 2006 1:35:37 AM
Tyler, why do you support the tradition of assuming the can opener ("Short of having government....the problem is hard to avoid")?
Posted by: Edgardo at Jul 9, 2006 7:01:07 AM
Itâs immoral to let a sucker keep his money.
Posted by: Canada Bill Jones at Jul 9, 2006 7:22:25 PM
Jacqueline Passey responds:
http://jacquelinepassey.blogs.com/blog/2006/07/greg_mankiw_con.html
Posted by: Jacqueline at Jul 9, 2006 9:06:43 PM
Readers, how do you score Greg vs. Jacqueline?
I score it ridiculous.
Posted by: Timothy at Jul 10, 2006 1:20:45 AM
"There's no overall wealth creation from the activity of gambling.
But I think Mankiw loses with the gambling has no social (ugh, I hope he means economic) value overall..."
You just said that gambling creates no wealth, then went on to describe how gambling creates wealth.
As we say on the internet, gg.
Posted by: Noah Yetter at Jul 10, 2006 12:04:07 PM
As I know Jackie, and share similar views on things, I'm naturally leaning toward her. I shall note that "Taxes on Stupidity" are not unique to the gambling world. Beyond state lottery commissions, which offer prizes with absurdly low returns on the risk of 10-15% under most circumstances, particularly considering inflation and income tax, while at the same time hypocritically insisting casinos offer an average 95% return on risk of all games they run, academic scholarships for smart kids and full boat tuition for rich dumb kids is a similar form of distributive justice practiced by the university system. Those who eat and exercise smart (and thus stay thin and attractive) beat out those who eat poorly and don't exercise in the race for wealthy spouses, better jobs, and political offices.
Finally, I'll note that gasoline taxes, energy taxes, and carbon taxes, which I suspect are all things that Mankiw supports implicitly, punish those who stupidly waste fuel, energy, and pollute, and rewards those who are efficient with cleaner air and lower energy costs for less than an equal capitation of inhaled O2 and temperate climate. I suppose Mankiw believes that some kinds of stupid are more equal than others.
Posted by: Mike Lorrey at Jul 10, 2006 7:10:50 PM
David writes ... " Every society has, in some loose sense, the strictest morality that it can afford. For example, we were willing to tollerate slavery when slaveholding was the only way to be rich, but when that was no longer the case we stopped tollerating it. etc etc etc"
Brilliant. I never thought of that.
Posted by: BillWallace at Jul 11, 2006 12:32:52 AM
Do poor people enjoy gambling more than they dislike being poor? Come on. Opportunity costs. You're an economist. You're supposed to ask these types of questions from the outset.
Posted by: Larry Jones at Jul 14, 2006 12:00:32 AM
