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:
@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?