Difficult Facts About Redistribution

I suppose it is somewhat odd that "redistribution" is a bad word in the political sphere given that (1) we do it today and (2) no one seriously argues for stopping that. For example, I haven't heard any calls to end welfare or medicaid (though you do hear suggestions of various reforms). And unless you are prepared to say that welfare and medicaid are morally wrong, presumably redistribution is not always bad.

That said, I think there is a difficult fact for those who want more widespread redistribution.

This is easiest to explain by example. Let's look at Bill Gates. Many would suggest we should have taxed away most of Bill Gates's wealth and used it to improve the public welfare. That sounds nice. However, it must be kept in mind that Bill Gates is already spending nearly all of his money on improving public welfare.

Although I do not have aggregate data, Bill Gates is hardly alone amongst wealthy people. In addition to other rich businessmen (like Sergey Brin), many rich athletes like Lionel Messi (the best soccer player in the world) and even lesser known but still rich athletes like Dirk Kuyt (another soccer player) have foundations that spend their money on others.

In these cases, the question is not whether that money would be spent on the public good, because that would occur either with redistribution or without it, but rather how it would be spent. And this brings us to the difficult fact: Bill Gates is undoubtedly improving the public good more than the government would with the same money.

How can I say this? Well, most of Bill Gates's money is spent on improving health across the world. In other words, it's spent mostly on helping the poor. In contrast, most money spent by the U.S. government is not. It is spent on defense, social security, and medicare, which largely help the non-poor.

Indeed, I think there theory that explains why this would often be the case. The U.S. government is going to spend money on what the median voter wants, and the median voter largely wants to improve the lot of the median voter. Of course, they do want to help the poor as well, but a much smaller fraction of both their wealth (and the U.S. government's wealth) is sent on the helping the non-poor.

Hence, in the case of BIll Gates, "redistribution" would not mean transferring wealth from the rich to the poor but rather from the poor to the middle class.

The Politics of Happiness (part 1)

Many have become enamored with the idea of defining social welfare as the sum of each person's individual happiness. The advantage of adopting this idea is that it gives us a clear way to decide which public policy is the best (as happiness can be measured). And for those with more liberal leanings, another advantage is that one would expect this approach to favor progressive taxation since the marginal increase in happiness with each extra dollar is decreasing.

I am very skeptical of this idea though. And there are at least a couple of good arguments against it.

First off, it is highly questionable whether the state of maximal happiness is also the state of maximum "goodness" according to virtually any moral system.

Certainly, there is no religion on earth today that teaches people to try to make everyone as happy as possible. Instead, they talk about being a "good" person, that is, a moral person, and at a policy level, they strive to create a society that is as moral as possible.

Indeed, this is true of even non-religious moral philosophies. For example, the "virtue ethics" philosophy that goes back to at least the Greeks and has been popular for much of history (even today) strives to maximize virtue not happiness.

The second argument against this has to do with the oddities of what actually makes people happy. A large amount of "happiness research" has appeared in the literature in recent times and some of the results are surprising. I bought a book on this a few months ago but haven't read it yet. Once I do, I'll include some examples in part 2 of this post. However, just today a good example of this occurred to me.

In order to explain this example, let me start with a simple observation: shortages make people unhappy. When people can't get as much as they want of something, they bitch about it. And there is often no political solution short of having the government buy enough to make everyone happy.

Let me mention two examples of this.

The first example is transportation. A shortage of transportation resources is called "traffic". People hate traffic. In fact, I have heard traffic is the second most hated part of life after taxes.

If you talk to economists about traffic, they will tell you there is a perfect "solution" for it: tolls. It is a solution in the sense that it makes traffic go away. However, it does not make the shortage go away. It just rations transportation resources more efficiently.

Singapore is one place where tolls have been widely deployed, and economists love to point out how "successful" this has been. Indeed, traffic is nonexistent. However, when economists travel to Singapore, they are surprised to learn that citizens of Singapore hate tolls. They bitch about them constantly.

The only time when people seem happy about transportation is when there is more than everyone can consume. This may come in the form of enough roads to eliminate traffic or a public transportation system that is so pervasive and cheap that everyone has as much as they want.

People are happy (or at least they're not unhappy) if there's a surplus of transportation. But as far as I know, there is no political solution for living with a transportation shortage that will stop people from bitching.

My second example is healthcare. In particular, let's talk about medicines. Developing a new medicine is often expensive, which is another way of saying that there is a shortage. Indeed, when a new drug is first released, it is often very expensive. Once it becomes generic, it usually becomes much cheaper, but while the patent remains in effect, the drug has a high price.

Again, no political solution to this actually makes people happy. No one likes the fact that the drug is expensive. It doesn't matter whether people pay out of their pocket or in the form of taxes. They're not going to like it. People will either bitch about the price of the drug or they'll bitch about the taxes.

In other words, new drugs make people unhappy. On the other hand, they save lives. However, the number of lives saved by new drugs is decreasing. For example, there is still no cure for cancer, but there are an ever increasing number of treatments that continue to improve health outcomes by a small amount. In fact, with many types of cancer, the odds of survival have changed radically in the last 25 years, but that has not come as a big jump due to any one drug or procedure. Instead, it is come as a result of many small improvements.

Hence, when we look at investment in new drugs, it's not clear that many of these new drugs would pass a cost-benefit test in terms of happiness. A new drug makes many people unhappy, while only improving the health of a smaller number of people by a small amount.

Unlike the case of traffic, where we can simply choose to buy enough for everyone, we cannot buy enough medicine to make everyone happy. Creating the new drug is actually making people unhappy. So the paradoxical conclusion, if we are to chose the policy that maximizes happiness, is that we might decide to stop developing new drugs.

I have hard time accepting that this is the right answer. Personally, I'd rather keep more people alive, even if they will use their time on earth to bitch about things.

Hence, this is an example where social welfare (at least my definition of social welfare) does not correspond to the state of maximal happiness. So I remain skeptical about happiness.

P.S. How are you, Andrew?