@kevinmarks, a too long for Twitter response

Background. So, I pick up on a point that Lane Kenworthy makes, about how the Easterlin Paradox is wrong.

The background to that. Easterlin posited that higher incomes, once past a certain level, don\’t make us any happier. This obviously has lovely political implications: all that money the rich have doesn\’t make them any happier so they won\’t be made more unhappy by our taking it from them to pay for diversity advisers.

Now, we could just regard this as some triviality but unfortunately it\’s become quite deeply embeded in a certain set of political suggestions. Richard Layard\’s \”Happiness\” for example makes this quite explicit. Indeed, in large part it is based on this idea.

If you read the first few pages of The Spirit Level you will see that they do the same. They go from diminishing marginal utility of income (true) to zero marginal utility (Easterlin, and wrong) in only a few pages.

As a result of having pointed this out I get this tweet:

Kevin Marks ?@kevinmarks

@worstall so you\’re arguing about the gradient of a line fitted to a complex curve, but presenting it as a revolutionary insight on tax?

Err, no. The \”revolutionary insight\” is the claim by Layard and Wilkinson and Pickett, based upon Easterlin, that the marginal utility of income falls to zero.

A claim that is oft repeated across the lefty side of the political commentariat.

All I\’m pointing out is that this revolutionary claim is wrong.

And thus so are political prescriptions based upon it.

As I do point out:

There is a declining marginal utility of income, yes. So it’s still entirely possible to base arguments in favour of progressive taxation upon that point. But it is a declining marginal utility, not an end to increased utility.

Given that we are supposed to be involved in the application of a science to the real world don\’t you think that we should get that science right before the application of it?

Or are we supposed to think of political economy as simply the repetition of any old prejudices which are convenient to our tribe?

 

15 thoughts on “@kevinmarks, a too long for Twitter response”

  1. Easterlin could be right, and taxing happiness would still be wrong.

    Tax credits for divorce, car accidents and so on?

  2. This obviously has lovely political implications: all that money the rich have doesn’t make them any happier so they won’t be made more unhappy by our taking it from them to pay for diversity advisers.

    That explains why so very few rich folk engage in tax avoidance. Heaven knows why Ritchie keeps calling for more tax inspectors if the rich are going to hand over their monies so readily.

  3. “Or are we supposed to think of political economy as simply the repetition of any old prejudices which are convenient to our tribe?”

    I thought that’s just what it was. At least that what you’d deduce from watching politicians and ‘activists’.

  4. Decreasing marginal utility of extra income is probably right. I probably got more satisfaction from getting my first real job after Uni than I would from landing a 10% pay increase now. Ironically though that first job of mine would now be made illegal under the minimum wage.
    Funny how those same lefties that make the claim about the first increment of income being the most important fail to see the logic of that position when applied to the NMW.

  5. Robert Waldman at Interfluidity has an interesting theory that the rich treat wealth as a form of insurance against calamity, which is why they are so keen on getting more and so unwilling to share it with others. Worth a read – including the comments, some of which are distinctly unimpressed with his idea.

    http://www.interfluidity.com/v2/3487.html

  6. Tim: The Easterlin paradox is that whereas within a country being richer makes one happier, between countries above a certain level of GDP the richer ones are not happier. As such, it creates an argument against the desirability of economic growth; it says nothing about the structure of income tax.

    The paper Kenworthy links to address the Easterlin paradox as I have stated it, and finds that subjective well-being is upwards sloping at all historical GDP levels. However, Easterlin’s recent results disagree – this is not a settled question.

    The paper also reviews the literature on the effect of increasing income within a country, and finds that a plausible hypothesis is that subjective well-being increases with the log of income. That does imply that the rate of change of subjective well-being with income falls asymptotically to zero, and therefore that income tax hurts less the higher one’s income.

    Tim adds: And I’ve not disagreed with any of that.
    I’ve stated that marginal utility does not decrease to zero above a certain defined limit. Thus Layard, Wilkinson and
    Pickett are wrong. Which is what I said.

  7. Easterlin has recently been superceded by some trendy lefty psychologists, who posit that we have a “happiness thermostat”.

    That’s to say, whether you lose your leg or win the lottery, after a bit you go back to being just as grumpy or cheery as before.

    Where can they have got such an idea? Surely not here:

    “…the mind of every man, in a longer or shorter time, returns to its natural and usual state of tranquillity. In prosperity, after a certain time, it falls back to that state; in adversity, after a certan time, it rises up to it.”

    A Smith, Theory of Moral Sentiments, p 172 in the Penguin edition.

  8. It is truly amazing how many members of the trendy left apply so much of their time to getting to the negative side of the zero position.

  9. You can never have enough money. Happiness has nothing to do with it.
    Enough cash and you can not only provide for offspring but you can bribe the right people.
    Life tends to be smooth when lined by gold.

  10. It was that great philosopher Arnold Shwarzenegger who confirmed that money didn’t bring happiness. He pointed out that he was no happier when he had fifty million than when he only had forty-nine.

  11. I save the money which has marginal utility so that one day it can be used when it is really needed. This is more efficient than the State stealing it and maybe giving back some of it later.

  12. Wolfie: diminishing marginal utility of income is more than just probably right. It would be astonishing if it were wrong, even if marginal utility merely remained constant.

    I am happy to allow that you can force marginal utility as close to zero as you like by giving a person a sufficiently large income.

    But that marginal utility should actually hit zero, or even a good approximation of it, at an income level which is reasonably close to that of, say, the top 1%? Anyone who thinks that the rich would like to get richer cannot believe that, since this would contradict the assumption of zero marginal utility.

    But every single leftie believes this, since they constantly decry the desire of the rich to get richer. Therefore, they cannot believe that marginal utility actually hits zero. QED.

  13. Philip,

    Sorry. Complete rubbish, I’m afraid.

    Only us baby-eating capitalists have this bourgeois requirement for self-consistency, or the outrageously anti-progressive instance on logic, in our delusions.

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