Revealed preferences

Is there a book that convincingly urges its readers towards suicide? There are a couple of pundits who I might be tempted to send that one, on bad days.

Will,

I know my voluntary contribution will accomplish something when combined with the contributions of others. Since I assume they won’t contribute, I don’t either.

Rich,

Not sure about suicide, but you might try sending them David Benatar’s “Better Never to Have Been.”

Your end goal is to achieve something with those tax revenues, not to increase them for their own sake, and it’s extraordinarily likely that the marginal increase which you can contribute won’t achieve that goal.

But McArdle’s comments (and the comments by Buffet that started this conversation) aren’t about government services. They were about tax revenues, who should supply them and in which proportions.

We’re not talking about the level of tax revenue here.

I get supplying public goods has a strategic component; I don’t get how volunteering to pay your “fair share” of taxes does. If you think you should pay more taxes, e.g. because you’re rich, then there’s nothing stopping you from donating.

Although I’d like to take credit, the LGM blogger in question was actually Dr. Scott Lemieux…

If mccardle receives an economics book every time she says something stupid higly debatable, I only hope she’ll make her library public at some point.

McMegan is usually silly. Someone ought to give Yglesias a good spanking for linking to her so often.

Someone besides McMegan, I mean.

“But isn’t a prisoner free to spend more time in jail if thinks that would be fair.”

No, you have to go out and get convicted again to get back in. Weird, huh?

Kenny, with your fuel economy example, the account that keeps track of people reducing their fuel economy voluntary wouldn’t be zero (or close to zero). People like you would make it positive.

Maybe on balance donations would be matched by tax decreases, but you’d still expect donations (if people care about paying their fair share of taxes).

The number of people voluntarily increasing their tax burden in Virginia is essentially zero. This means whereas some people talk about not paying their fair share in taxes (assuming there are mini-Buffets in Virginia), no one actually backs that talk up with action. This is exactly why economists rely on the notion of revealed preference. Talk is cheap.

“An individual donation raises government revenue an utterly trivial degree that will have no impact on the level of government services.”

Yeah but people vote. Voting influences outcome to an equally trivial degree. Still people vote but don’t donate to “voluntary tax fund” schemes.

Yeah but people vote. Voting influences outcome to an equally trivial degree. Still people vote but don’t donate to “voluntary tax fund” schemes.

Color me confused. What does the one have to do with the other?

Will,

No, it doesn’t follow that if someone (like Buffett) thinks he’s assessed less than his fair share of taxes, then he ought to make a voluntary contribution to the general tax fund. What he ought to do is to make a contribution to a group or candidate that is working to have taxes assessed fairly. Similarly, it doesn’t follow that Al Gore ought to have refrained from flying around, in order to reduce total global energy consumption, while making “An Inconvenient Truth.” Flying around was part of an effort to obtain a much larger reduction of global energy consumption.

The general principle is to do what will do the most good. If one person’s making a voluntary contribution will lead to something more than adding an insignificant amount to general tax revenues (eg, by inspiring lots of other rich, undertaxed people to do the same), then arguably one should do it. But the best thing to do, it seems to me, is to try to wake up Kansas and the rest of America to the fact that they’re being robbed by the tax system. Which is what Buffett was trying to do.

Well, voting is supposed to be a preference-revealing-aggregating mechanism in the end. It’s sort of an almost puritanical fetishism of duty to some but that’s neither here nor there. And even though Megan misuses the term “revealed preference” (and it’s a kind of term which yields itself to misuse) (and the concept is not circular, I think someone’s misunderstanding Sen) the basic point is sort of obvious; most people would prefer it if someone else paid for the stuff, even if they profess otherwise. Sure, there’s altruism (which, actually makes you want to have lower taxes as long as they’re costly to administer, and the altruism is of the ‘fraternite’ not ‘egalite’ kind) but that’s more along the lines of abb1’s post above. If you know the money will be put to good use you’ll be more willing to partake. Otherwise, you reveal a preference for free riding.

And why even bother reading Mirowski?

Surely at this point there’s a large presumption against anything worthwhile being in a Megan McArdle post. She is reliably wrong on facts, bad at logic, and erratic at best in theory, and she doesn’t seem to ever learn when exposed to correction. The question then becomes, on what grounds should any of us spend effort on the next post?

Why bother reading Notsneaky? He asserts that he’s refuted everyone who disagrees with him, but anyone can do that.

the basic point is sort of obvious; most people would prefer it if someone else paid for the stuff, even if they profess otherwise.

Just who, exactly, has professed otherwise?

To me, this ‘revealed preference’ argument just seems to be a dishonest way of framing the debate (libertarians do that a lot) so that rhetorically, one can have one’s cake and eat it too; that is, it seems the ‘revealed preferences’ crowd are making some blue-sky (and rather inflammatory) assertions, and then expect everyone else to prove that they’re wrong. Iow, it’s the old “If you can’t make me say I’m wrong I win game.” Uh-uh. You make an assertion, it’s on you to provide a convincing argument that you’re right, not on others to try to convince you you’re wrong.

I note, btw, that in real life, I’ve voted on regressive tax increases to be levied against myself multiple times, for example, property tax increases to fund school development, regressive sales taxes to fund various community programs, etc. I suspect most people have done so, putting their money where their mouth is.

One last point: does anyone know of a pie chart that would show the median-income voter preference for how federal taxes are spent? I’ve seen a few articles that show individual slices of the pie are wildly out of kilter with regard to voter preferences, but nothing giving a nice overall view.

Will: “The number of people voluntarily increasing their tax burden in Virginia is essentially zero. This means whereas some people talk about not paying their fair share in taxes (assuming there are mini-Buffets in Virginia), no one actually backs that talk up with action. This is exactly why economists rely on the notion of revealed preference. Talk is cheap.”

Ya know, there’s dim (e.g., Megan), and then there’sa few thousand words have pointed out the error, and makes that same exact error with the same dim air of Revealing Higher Truth.

I live in Virginia, and I would gladly pay a bit more taxes. However, I can understand why a lot of people won’t: our state government is roughly spit between the two parties. Thus, many likely consider the risk too high that their money will be confiscated by the “bad” side of the government(however they choose to define it). One can carefully choose one’s favorite charity to have little or no counterpart to the “bad” side.

McArdle is probably constitutionally incapable of enunciating the phrase “rich, undertaxed people.”

Tactically she’d be happy to use the phrase to zing Democrats.

The following comment was rejected as off topic elesewhere:

We’re drifting, I’ll share my new McMegan theory*. She’s like Joey Ramone and Vince Gallo, a Republican in a hip milieu where Republicans are transgressive and shit. (Being a libertarian wouldn’t be trnasgressive enough, so she’s torture-neutral and vaguely pro-life).

She knows how to talk to liberals, having been born into a liberal family, and if you’ve spent your whole life in a Republican-free environment, she’s interesting.

Whereas if you’ve sent half your life avoiding swarms of Republicans coming at you from all sides, or if you’ve had significant, consequential disputes with Republicans, she’s annoying as shit. (And the you seem unfair and mean, since you lump her in with all the other people you’ve known with her views, whereas in truth she’s a unique little snowflake).

*This new theory is not meant to exclude darker, even more pejorative McMegan theories.

John, that makes excellent sense to me, and nicely explains the tolerance she gets from otherwise pretty sharp folks like Matthew Yglesias and Ezra Klein. They grasp the big-scale threats the Republican machine makes, but have a harder time thinking of themselves as the rubes in a local show.

But Tom t., people can prefer that other people pay more taxes, and at the same time prefer that everyone pays more if only other people paying is not an option.

It is perfectly reasonable to want to pay, ceteris paribus, as little tax as possible, while you are still willing to pay more if everyone chips in too so the government can improve services.

Let’s imagine a buying a farewell gift for a colleague about to leave.
A says: -Let’s ll pay 5 bucks
B says: – That’s not enough, if we all pay 10, we can buy something nice
A: -Then why don’t you pay 10 while we pay 5?
B: – No, that’s silly
A: – So, your revealed preference is for 5 bucks?

But the preferred progressive position is:

(with 3 people including middle class A1 and A2 and richer B)

A1: Let’s all pay 5 bucks.
B: OK.
A2: Wait we can’t get something nice for a total of only 15 bucks. We get something nice for 150 bucks though.
B: Hmm, I’m willing to pay more for nicer but that seems a bit expensive so why don’t we each pay 25 bucks.
A1: 75 bucks sounds good.
B: Ok
A2: Great 5 from me, 5 from A1 and 65 from B.
B: What?
A2: There are two of us and one of you. Besides, you agreed that 75 bucks would get something nice.

Which is precisely Megan’s point. People have a strong preference for getting stuff on other people’s dime.

What ‘fooling’? There was no trickery or confusion. They straight up voted to have him pay for what they want.

Sebastian, you’re being silly. Are you complaining about the principle of progressive taxation? If so, then come forth and acknowledge your depravity. If not, then are we to assume in your example that A, B, and C all have roughly equal disposable income and wealth? If that the case, then would you connect your imaginary conversation to reality somehow?

Where I work they pass an envelope and everyone gives as much as they want. Again, it all depends on the specifics: in some cases people make voluntary donations and that’s fine, in other cases they have to be forced to pay, unfortunately.

Uhm, I thought Warren Buffet was the guy Megan was arguing against? If he counts as middle class but not rich, than who does classify as rich?

Gosh, it’s not like it’s been empirically demonstrated that government officials are more responsive to wealthy constituents, or that wealthier people make more use of the entire infrastructure, or have wider-ranging networks of assets supported by government guarantees and facilities…

The funny thing about you using this analogy is that you do so as if sticking me with the meal is ok.

Do I?

I suppose I’ll directly deny it then. Note that Megan’s idiot idea is dispensed with at the very top of this thread.

Geo: In your opening paragraph of #58 you state that if it is a matter of voluntary donation then it has no bearing on a tax system. In your second paragraph, however, you state that “rich people agree to do this in principle by retaining their citizenship,” indicating that taxes are in fact voluntary, accepted by a failure to reject citizenship. Which is it?
I do agree that #43 is a poor example, at least in America. In a pure Democracy this example would work just fine, but since America is a (Representative) Republic it is somewhat more difficult to overrule the will of the minority (in #43 – B)since explicit freedoms and process for the protection of the minority rights have been put in place by the Constitution and the legal system at large.

“Those majority voting to spend the money are paying whatever rate is necessary to fund those decisions.” Currently. I believe the argument was “it could be better to have a relatively similar tax rate, high enough to support the majority’s spending desires with the majority choosing to exempt or partially exempt the poor from taxation” Indicating the desire to prevent the taxation on the upper bracket from turning into a hot-air balloon piloted by the impoverished.
“A society’s rules for acquisition and ownership of property are just as much a matter for democratic determination as the tax schedule.” It already is, check amendment 5 of the United States Constitution “…nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
“The relevant moral principle is that whatever is socially produced (ie, everything) should be socially available, with whatever exceptions (enormous at our present abysmal level of human solidarity) are necessary to motivate selfish and talented people.” So… Communism?
“Of course we are, practically even if not metaphysically, individuals; and so individual ownership of property above the median level, even far above (though not stratospherically far, as is common at present), is necessary and desirable.” So… Not Communism?
“But the notion that more fortunately endowed people are entitled to own as much as they can bribe politicians (rather than honestly persuade their fellow citizens) to let them keep is just a mistake.” I think Judge Learned Hand covered this eloquently when he stated “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” Just because the poor don’t have the resources easily available, does not mean that the wealthy should be penalized. If that’s what you want, make it a criminal offence to be a Tax Attorney or an Accountant.

“Remaining a citizen is voluntary….”
While I continue to disagree with #43 as an accurate example for the American Tax system, I do have to say that in the example it appears as though retention of citizenship, or in that specific case membership to the group of 3 was a presupposition. If, however, we wish to stick with “citizenship is voluntary,” we may just as easily say that membership in the group of contributors is voluntary. In order to remain a member of either group, payment is required. With that, both may be expressed:
If A wishes to be a part of group B then A must pay amount C.
Membership in B is voluntary.

“By “rich,” I’m referring to people in the top 2 percent of the income and wealth distributions.”
To tell you the truth, I’m not overly concerned about the top 2 percent of the wealth. What I do, however, find disconcerting is that a household that makes $65,101 will pay 10% higher taxes than a household that earns $65,100. The newest solid numbers I could find were from the Census Bureau in 2005, but in that year: 28.22% of households made under $25,000 and 26.65% made under $50,000. So I’m not talking about the people on a pedestal, I’m talking about 54.87+% of the population who are in the two lowest tax brackets voting in increases for everyone above them.

“If communism means Leninist totalitarianism, then no. If it means democratic control of the economy, then yes.”
Communism – a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.

And you said “The relevant moral principle is that whatever is socially produced (ie, everything) should be socially available…” in #61. Perhaps you could clarify.

“This doesn’t mean, however, that it’s moral (even if legal) to influence legislation simply by giving lots of money to legislators, or to hire lawyers who will thwart the clear intentions of the law… Perhaps you think the tax laws are actually enforced…. even if they were enforced, they’re bad enough…”
Well the beauty of a Republic is that if you don’t like your legislators taking bribes then you are welcome to either vote for other ones or run for office yourself. If enough other people feel that the same way that you do, you just may get elected. You stated “If it means democratic control of the economy, then yes.” We the people are in control of the economy and we vote in several different ways. One is at the ballot box, one is with our bank accounts, and one is with a jury of our peers. We can use any or all of these to affect change.

P.S. I’m enjoying our discussion. I hope you’ll excuse me if I’m rusty.

Sebastian syas:

At some point (and we can have plenty of argument about where exactly that point is) you just get a majority voting itself more services without having to immediately worry about where the payment comes from because they vote the cost onto someone else.

This is reasonable point, and if you look at the tax system of European welfare states, you’ll see they are acutely aware of it. So when they introduced most saftey net features, the money for them was raised, on purpose, through relatively ‘even’ taxes, such as the VAT and obligatory social insurance systems. Both are effectively regressive taxes, but used to pay for progressive policies.

This is a good example of a wider point about democracies: while in theory they could lead to all kinds of dictatorships of the majority, in real life this doesn’t appear to happen.

But I think this distracts from the central point here, namely that it is perfectly reasonable to wish for tax increases for all, including oneself, while still not volunteering for an individual tax increase.

Well said, Mike. If only Rawls could write as well as that.

Is that really such a ridiculous point?

Yes.

My point, which is really Friedman’s point, is that it isn’t wise as a general principle to set up an incentive structure where people can regularly vote themselves benefits without the expectation that they will be largely contributing to paying for them.

Which is, of course, why the wealthiest 2% suffer under a marginal rate of 95% for every dollar made over $5 million. Oh, wait, they don’t.

And _my_ point is that data trumps theory every time. What are the ‘revealed preferences’ of people who hold onto theories long after observations have proven them incorrect?

And the rich guy had to pay for it and could do nothing! NOTHING!!!

Isn’t this a “moral hazard” case?

Suppose that 1.) I think that more money should be spent on schools and that 2.) I think that my taxes should be raised so that more money can be spent on schools.

Why don’t I just donate the money? Because 3.) I also think that school funding is a public obligation and should be paid for by taxes and 4.) people who don’t want to pay taxes should not be allowed to shift the burden of schools to private donors.

I disagreed when Dsquared made this argument elsewhere, because sometimes in bad political circumstances you end up giving in and dealing with the local situation. But Dsquared was right on the main principle, and a common though not universal effect of voluntarism is to favor kids in well-off neighborhoods even more than they already were favored. (The US school system’s local control organization is designed to maintain inequality.)

My use of rational arguments indicated no weakening of my conviction that McMegan is a malicious twit and not worth bothering with. What’s with the Economist, anyway?