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Economists have no problems talking about economic efficiency when a few benefit at the cost of many. I'm not sure you got his point. If the government imposed

Economists have no problems talking about economic efficiency when a few benefit at the cost of many. I'm not sure you got his point. If the government imposed a tax that cost 1 million people $1K each and gave Bill Gates $1 billion, that policy would have neutral efficiency. In terms of efficiency, there is no rational basis for objecting to that policy. So economists who justify their normative claims by talking about efficiency do have a serious problem talking about policies whereby a few benefit at the cost of many when those policies have small or zero deadweight losses.

Retric 16y ago
That's a straw man argument. If you tax 1 million people for $1K each and gave Bill Gates $1.5 billion or a $1 Billion -> $1.5K per person then both of those increase efficiency. But you say "how can taxes do that?" And the answer is normally taxes don't result in wealth creation, however policy's can both create wealth and destroy it. Breaking up AT&T dramatically lowered most people’s phone bills in the US. For a direct contrast you can look at Mexico where high phone bills directly resulted in one of the largest fortunes in the world and a huge loss to the Mexican economy at the same time.
- Confusion 16y ago
  That's a straw man argument. The argument doesn't exaggerate anything. It strictly adheres to the Kaldor-Hicks criterion and shows that it can be used to justify all kinds of immoral policies because, as the OT states, it doesn't take into account 'who Jack and Jill are'. If you use the Kaldor-Hicks criterion to claim something is good, you are implicitly assuming the good of the collective is the good of all and imbuing your argument with morals. As MichaelSalib's example shows, those morals can have consequences many others consider immoral, which is exactly what the OT argues.
  - Retric 16y ago
    All taxes have dead weight costs. Thus, suggesting something which is objectionable on efficiency grounds is ok on efficiency grounds is wrong. More directly to the point, saying X does not cause an objection means little. Perpetual motion machines don't break the laws of gravity that does not mean you can build one. And even more directly, saying X is independent of Y so we should do X because of Y is irrational. PS: I have 4k karma to burn, if you want to down mod me on ideological grounds feel free. However, if you really believe I am wrong please try and create a rational argument as to why.
    - ynniv 16y ago
      if you really believe I am wrong please try and create a rational argument as to why Your comments in this thread have been haphazard and difficult to follow. You are correct that taxes have deadweight, but no one is arguing this point and it has little relevance to the overall discussion. You started off by attacking the author without providing a compelling argument of his ineptitude. Maybe you are tired or stressed? I suspect that you are being downmodded for being noisy and shallow, not wrong.
      - Retric 16y ago
        I say: "Economists have no problems talking about economic efficiency when a few benefit at the cost of many." However, for clarity many means society at large including them. Vs his argument: I distinguished in last week’s post between changes in public policies (reallocations of economic welfare) that make some people feel better off and none feel worse off and those that make some people feel better off but others feel worse off. The first type of policy can unambiguously be said to enhance social welfare. But no such claim can be made for the second He ignores magnitude of change. His actual argument is if any one person is worse off then it's not an economic argument. So, if one person lost 1$ and 1 billion people gained 1 billion dollars then according to his argument it's outside the scope of economics. And yes that is his argument. He disagrees with: the Kaldor-Hicks criterion and the efficiency criterion amount to the same thing. When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one. When Jack gains $10 and Jill loses $15, there is a deadweight loss of $5, so the policy is bad Because: Evidently, on the Kaldor-Hicks criterion one need not know who Jack and Jill are, nor anything about their economic circumstances. Edit: There is actually a lot of research into both corruption and monopoly's and the negative effects both have on an economy. Farm subsidies are another example of a harmful policy that benefits a few people which has been well researched. PS: Yea, I am tired, but I this guy is so out there I can't help but wonder if it's some sort of parody that I am missing.
        silverlake 16y ago
        > this guy is so out there I can't help but wonder if it's some sort of parody that I am missing. I think you wildly misunderstood Reinhardt's simplification to express a simple opinion. Unfortunately, your writing is very unclear and difficult to follow. Since I'm waiting for the delivery guy to bring dinner, I'll add my dim understanding of Reinhardt's post. Landsburg writes, "When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one." Reinhardt disagree that this is always "good". Society must make a value judgement about Jill's loses: if it's her last $5, is the policy still good? And if Jack is a billionaire, would that $10 gain offset Jill's suffering? He's not saying that economists never think about this problem. He's saying that economists often will make a policy recommendation (lower tax on capital, higher tax on income) that presumably raises social welfare, while skipping over the ethical issues (higher tax on the poor, lower tax on the rich). We want to pump $10 billion into the economy now. Should we give tax rebates as a % of taxes paid (more to rich, less to poor)? Or should we cut the payroll tax by a few thousand dollars (same for everyone, but more meaningful for poor)? The result is the same ($10B), but Reinhardt says there's a value judgement in the choice. This issue pops up everywhere, particularly in health care.
deleted 16y ago
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Retric 16y ago

That's a straw man argument. If you tax 1 million people for $1K each and gave Bill Gates $1.5 billion or a $1 Billion -> $1.5K per person then both of those increase efficiency. But you say "how can taxes do that?" And the answer is normally taxes don't result in wealth creation, however policy's can both create wealth and destroy it. Breaking up AT&T dramatically lowered most people’s phone bills in the US. For a direct contrast you can look at Mexico where high phone bills directly resulted in one of the largest fortunes in the world and a huge loss to the Mexican economy at the same time.

Confusion 16y ago
That's a straw man argument. The argument doesn't exaggerate anything. It strictly adheres to the Kaldor-Hicks criterion and shows that it can be used to justify all kinds of immoral policies because, as the OT states, it doesn't take into account 'who Jack and Jill are'. If you use the Kaldor-Hicks criterion to claim something is good, you are implicitly assuming the good of the collective is the good of all and imbuing your argument with morals. As MichaelSalib's example shows, those morals can have consequences many others consider immoral, which is exactly what the OT argues.
- Retric 16y ago
  All taxes have dead weight costs. Thus, suggesting something which is objectionable on efficiency grounds is ok on efficiency grounds is wrong. More directly to the point, saying X does not cause an objection means little. Perpetual motion machines don't break the laws of gravity that does not mean you can build one. And even more directly, saying X is independent of Y so we should do X because of Y is irrational. PS: I have 4k karma to burn, if you want to down mod me on ideological grounds feel free. However, if you really believe I am wrong please try and create a rational argument as to why.
  - ynniv 16y ago
    if you really believe I am wrong please try and create a rational argument as to why Your comments in this thread have been haphazard and difficult to follow. You are correct that taxes have deadweight, but no one is arguing this point and it has little relevance to the overall discussion. You started off by attacking the author without providing a compelling argument of his ineptitude. Maybe you are tired or stressed? I suspect that you are being downmodded for being noisy and shallow, not wrong.
    - Retric 16y ago
      I say: "Economists have no problems talking about economic efficiency when a few benefit at the cost of many." However, for clarity many means society at large including them. Vs his argument: I distinguished in last week’s post between changes in public policies (reallocations of economic welfare) that make some people feel better off and none feel worse off and those that make some people feel better off but others feel worse off. The first type of policy can unambiguously be said to enhance social welfare. But no such claim can be made for the second He ignores magnitude of change. His actual argument is if any one person is worse off then it's not an economic argument. So, if one person lost 1$ and 1 billion people gained 1 billion dollars then according to his argument it's outside the scope of economics. And yes that is his argument. He disagrees with: the Kaldor-Hicks criterion and the efficiency criterion amount to the same thing. When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one. When Jack gains $10 and Jill loses $15, there is a deadweight loss of $5, so the policy is bad Because: Evidently, on the Kaldor-Hicks criterion one need not know who Jack and Jill are, nor anything about their economic circumstances. Edit: There is actually a lot of research into both corruption and monopoly's and the negative effects both have on an economy. Farm subsidies are another example of a harmful policy that benefits a few people which has been well researched. PS: Yea, I am tired, but I this guy is so out there I can't help but wonder if it's some sort of parody that I am missing.
      - silverlake 16y ago
        > this guy is so out there I can't help but wonder if it's some sort of parody that I am missing. I think you wildly misunderstood Reinhardt's simplification to express a simple opinion. Unfortunately, your writing is very unclear and difficult to follow. Since I'm waiting for the delivery guy to bring dinner, I'll add my dim understanding of Reinhardt's post. Landsburg writes, "When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one." Reinhardt disagree that this is always "good". Society must make a value judgement about Jill's loses: if it's her last $5, is the policy still good? And if Jack is a billionaire, would that $10 gain offset Jill's suffering? He's not saying that economists never think about this problem. He's saying that economists often will make a policy recommendation (lower tax on capital, higher tax on income) that presumably raises social welfare, while skipping over the ethical issues (higher tax on the poor, lower tax on the rich). We want to pump $10 billion into the economy now. Should we give tax rebates as a % of taxes paid (more to rich, less to poor)? Or should we cut the payroll tax by a few thousand dollars (same for everyone, but more meaningful for poor)? The result is the same ($10B), but Reinhardt says there's a value judgement in the choice. This issue pops up everywhere, particularly in health care.

deleted 16y ago

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