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Tax the Envious
Tyler, Greg and Brad all forget the Coase theorem - all externalities are dual. The solution to envy is not to tax the rich but to tax the envious. To be envied is unpleasant. People want to be admired but not envied. To be envied is one step from being hated. (Consider how much crime is motivated by envy.) It's envy which imposes an externality on the rich. Make the envious pay for their ugly preferences.
Surprising analysis? Not really - should gays be taxed because they make some people uncomfortable? Hell no. Tax the bigots for making gays feel unwelcome.
Posted by Alex Tabarrok on September 3, 2006 at 07:16 AM in Economics | Permalink
Comments
The line between envy and injustice is a similarly thin as that between greed and desert. What those fond of talking about envy often refer to is merely the sense of injustice or unfairness felt by people intuitively unhappy at the distribution of goods.
Similarly, those who like talking about envy tend to dislike talking about greed. In both instances it comes down to our sense of what is fair and just and when someone has exceeded that line. You can tax who you think is envious if I can tax who I think is greedy.
Posted by: finnsense at Sep 3, 2006 8:25:27 AM
Alex, you have spent too much time hearing my sarcasm! I don't *really* wish to tax extended family gatherings...Really not. Not.
Not today at least.
Posted by: Tyler Cowen at Sep 3, 2006 9:13:59 AM
Spot on!
Posted by: Matthew Cromer at Sep 3, 2006 9:56:11 AM
As so often, finnsense speaks sense. But then I would think that, while other well-meaning people think that Alex makes more sense. Two solitudes talking to ourselves in the same virtual room.
Phrasing the issue in terms of "envy" presupposes an independence that makes no sense to me. Implicitly, there is a model that I don't accept, which is roughly that of
(1) individual and independent achievement (tall and short poppies, in Jane Galt's phrasing), which leads to
(2) an income distribution, which is then
(3) the subject of debate about redistribution, greed, and envy.
A more modest version of (1) accepts that our height (in the poppy sense) is not primarily the result of our own personal striving, but of a network of preconditions and surrounding conditions that enable us to grow or prevent us from growing. As a non-economic example of such thinking, try an essay by Ronald Aronson on impersonal gratitude reproduced in my Sunday paper that can be found in http://www.philosophersnet.com/magazine/article.php?id=1009.
How else apart from a completely different philosophical starting point can well-meaning people end up at such different poles of opinion?
Posted by: tom s. at Sep 3, 2006 10:16:30 AM
I thought that the problem was spite, and the solution was to tax the spiteful...
Posted by: Brad DeLong at Sep 3, 2006 11:20:55 AM
Assuming I understand Coase right, it shouldn't matter which right we choose in order to achieve the efficient result, merely that we choose. I think this might have been your point, of course.
Continuing in that vein, however, the Coase theorem doesn't say anything about distribution (again, assuming I'm reading it right) -- giving a right to the relatively few envied will result in a massive increase in income inequality, while giving the right to the multitudinous envious likely won't (at least as much). Both might be efficient, but one might still be preferable to the other. This reason seems to be why there would be a strong tendency to prefer a tax on those generally considered prejudiced (against homosexuality, in your analogous example), not that the solution has any particular economics benefit. This also raises the question of the act of 'correcting' an externality can increase the effect of that externality.
Then there's the question of transaction costs -- my guess is that taxing the envied involves fewer transaction costs than taxing the envious (assuming we're forced into the choice). Additionally, I wonder if the sufficiently low income that some people are unable to pay (which is likely to only/mostly apply to the envious) qualifies as a transaction cost.
Lastly, the whole notion of the tax seems out of place -- the right would be all that's required for efficiency. Using a tax, there could be times when an inefficient solution would come about (regardless of which way it went), depending on the balance between envy and enviousness and their effects.
Just some thoughts, and I hope I haven't misread.
Posted by: Russell Duhon at Sep 3, 2006 11:24:51 AM
Alex was not making a serious policy prescription, folks. . .
Posted by: Matthew Cromer at Sep 3, 2006 12:26:27 PM
"Continuing in that vein, however, the Coase theorem doesn't say anything about distribution "
I thought the point of the Coase Theorem was that (initial) distribution mattered. But maybe I am misreading you, Russell.
Posted by: Josh at Sep 3, 2006 12:34:47 PM
Aren't government-run lottos/lotteries a pretty decent first approximation to a tax on envy?
Posted by: Sol at Sep 3, 2006 2:00:24 PM
LOL... no, government sponsored lotteries are a tax on people who don't understand math :)
Posted by: quadrupole at Sep 3, 2006 4:13:57 PM
Um, I thought buying a lottery ticket was a license to dream about what you could do with a few million unearned dollars.
Of course, I've never figured out what buying a second lottery ticket got you...
Posted by: Tom West at Sep 3, 2006 5:21:35 PM
I think you miss the mark when you say that people don't like being envied. Many people want exactly that. People are not admired for having possesions. People are admired for their actions or characteristics. Conspicuous consumption is consumption where the goal is to solicit envy (if the goal is to solicit admiration it is a fools errand).
Can you honestly say that the sentence "I really admire Alex for having an expensive car." makes sense. I am not saying that envy is a good thing, I am not even saying that those that consume conspicuously are to blame for envy, but I am saying that they desire those that conspicuously consume desire the envy (but maybe not everything that comes with it).
I have difficulty imagining the model of human psyche that you are working with.
Posted by: Michael F at Sep 3, 2006 6:35:48 PM
The model of human psyche I am working with is the one I know best, my own! I don't want to be envied and I don't think that most people want to be envied. Admired yes, but envied no. I will grant that perhaps some screwed up people want to be envied (more or less equivalent to what Brad calls spite). It is certainly not the case, however, that the "the rich" in general want to be envied.
Posted by: Alex Tabarrok at Sep 3, 2006 8:45:45 PM
I won't call it a desire to be envied exactly, but haven't most of us felt the added pleasure of being seen to have succeeded in some way? I would do my research (cryptography, not economics) without much recognition, but I certainly enjoy it when I get it.
Is there some distinction between the emotion Brad DeLong is describing on the part of a rich person and the emotion of a thin, attractive woman going back to her class reunion, upon seeing how most of her old rivals have gained 50 pounds and married used car salesmen? Or the extra zing a middle-aged man gets showing his 30 year old trophy wife around?
Anyway, it's not clear that this emotion is a net loss. To the extent that our values drive our accomplishments, or our accomplishments change our values, we may mostly find ourselves more admirable than everyone else does. Honestly, how many of you really admire, or even envy, Donald Trump or Paris Hilton? Sure, we'd all like their money, but that's not quite the same. I think most of us can find areas where we don't admire some otherwise-enviable person. If the fat classmate thinks "what a shallow clothes-horse" and the thin one thinks "what a disgusting cow," who's really worse off?
I also suspect that there's no getting rid of peoples' tendency to put themselves in some kind of success or pecking order, and no way to keep people who have succeeded from making that clear. Maybe Fred isn't allowed to buy a Lexus anymore, but he can still bring the trophy wife along. Or "casually" note that he's just made partner, or gotten tenure, or been promoted to a GS15, or opened a new store, and ask his neighbors what's been going on in their lives.
(I hope you guys envy my insights.)
Posted by: albatross at Sep 3, 2006 11:38:13 PM
If the rich want to be envied, shouldn't they be trying to move to poor neighborhoods where their consumption will be more conspicuous? Or do they really only have spite for people just slightly less rich then them?
Posted by: TGGP at Sep 4, 2006 9:15:09 AM
Rich people don't live in bad neighborhoods if they can help it because bad neighborhoods aren't considered bad for no reason. They don't look nice, they have bad schools, they have more crime, and they tend to be noisier.
TGGP makes a good point, I still think that an important subset of rich people want to be envied. But they don't value everyones envy equally, they would rather be envied by "a better class of people".
I want to make it clear that I don't have any firm ideas on the policy implications of spite and envy, just that I am pretty sure that they exist and am interested in the nuances of how they are experienced. I think there exists a sort of desert island utility for goods and a seperate social utility for goods. A vacation provides a certain amount of utility from being relaxing, interesting, or fun. It also provides a certain amount of utility from viewing one self as the kind of person who can afford to take vacations, and maybe the kind of person that chooses to take high minded vacations. There is also a certain amount of utility that is contingent on having other people know that you took the vacation; from believing that one is viewed in a certain way. This last part of the utility can be described as spite, or desiring envy, or wanting to be admired.
Posted by: Michael F at Sep 4, 2006 10:38:43 AM
We should declare war on envy like we've declared war on terror.
If gays were in the majority, do you believe that the tax burden would fall disproportionately on them?
Posted by: Chairman Mao at Sep 4, 2006 9:49:48 PM
The argument that “all externalities are dual” works as long as you are arguing purely on efficiency grounds. But if, like me, you believe in social welfare, then it’s obvious that the poor, who have a higher marginal utility of consumption, should be given the benefit of consuming more non-envy rather than the rich being allowed to consume more spite.
But you all are getting too hung up on the terminology here. (In fact, Brad is conceding way too much by countering the word “envy” with the word “spite” instead of challenging the whole emotional frame of reference.) To say that the poor are envious is a misleading (I would say, intentionally misleading) linguistic simplification of the argument that the poor get disutility from their lack of relative wealth. The word “envy” implies hostility toward the object. That is not really what we should be talking about. It’s not that the poor are hostile toward the rich (although they may be, but that’s a separate issue); it’s that the poor feel bad about themselves because they are relatively poor.
And similarly, “spite” implies hostility, but in fact, the rich are not hostile, they just feel good about themselves because of their relative wealth. The terms “envy” and “spite” suggest a greater degree of other-regard than is actually present. The others are not the objects of emotion. They are merely a mental reference point.
Posted by: knzn at Sep 5, 2006 12:53:03 AM
Alex points up the only useful lesson to be learned from the questionable Coase theorem, namely that all externalities are dual. A practical solution to this problem is the low-cost avoider rule. Is it easier for the envied to live with the envy of others or for the envious to stop envying? Or on Brad's original question, is it easier to stop being spiteful or easier to live with spite?
Something some Austrian said about subjective value and incomparability is raising its ugly head...
Posted by: nick at Sep 6, 2006 3:14:17 AM
You're on solid ground in attacking envy, which is obviously a destructive
emotion. But what you term "envy" may be a well-justified sense that
society is unfairly distributing benefits and burdens. Moreover, as
Robert Frank shows, much "envy" has objective grounds; a driver of a
small car may not merely envy his neighbor's Hummer, but may objectively
fear it because such cars create higher likelihoods of dying in crashes.
Posted by: Frank at Sep 6, 2006 7:08:02 PM
I think this is just another scheming way to tax people for another dumbass reason. Envy is just another
human emotion that we cant help. The "less fortionate" are always going to be envyous or greedy of thoes
have more than them so what good are you going to do to tax someone that dosen't have anything any way.
When you do this your only going to put the econmoy in to more debt causing the other taxes to rise.
When that happens you will be bitchin about your property tax, your federal tax and you income tax...ect.
So what do you think we will acommplish by taxing thoes who are envyous,not a damn thing.
Posted by: Tanner M. at Sep 6, 2006 10:46:56 PM
I do not really agree that people do not want to be envy. The majority of people buy new goods just to show them off and to be envied by their friends
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Posted by: borys at Oct 17, 2006 12:40:06 PM
We live in a world of injustice. There is excessive poverty on one scale and on the other scale there is excessive wealth. Both can and are influenced by envy!!! Class, Culture, Age and Gender are all affected by Envy!
Where does envy come from? It's from the realisation that we are all created equal but chance has given some people something that others cannot have or lack. Lots of wealth, good looks, heroic strength, good business acumen...anything really.
So if envy comes from lack... who's to be blamed for feeling this way?
We cannot be taxed for our own human character flaws, as envy is part of being human.
However if you want to tax someone for envy...then tax those, who outside of their own insecurities, spend their time creating envy!!!
For example: the media, paparazi, advertisers, dodgy business companies that create middle men for every sphere of business and waste our hard earned cash, bad politicians, banks for their usury, the so called 'level palying field' of the Global Stock Market for not accepting poor nations so Multi-nationals can purchase their products at a price not fit to live on, Petro-chemical companies who give Food Aid in exchange for oil drilling and cash crops that do not benefit the poor benfactor nations they contribute to, Multi-national-global corporations who make people work to unrealistic targets to boost shareholder earnings at the expense of creating high staff turn over and a transient workforce, and other rich oppressors who make people feel like they should be grateful to be poor because atleast they have a job despite not having enough to live on and pay for medicine etc etc.
All this creates envy out of lack - and these are the people you should tax!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by: Richard Bell at Aug 25, 2008 12:07:57 AM
