Pragmatic Taxation

Like Yglesias, I find this just weird. Talking about optimal taxation policy, Greg Mankiw :

The point of our paper is this: If you are going to take that philosophy seriously, you have to take all of the implications seriously. And one of those implications is the optimality of taxing height and other exogenous personal characteristics correlated with income-producing abilities.

A moral and political philosophy is not like a smorgasbord, where you get to pick and choose the offerings you like and leave the others behind without explanation. It is more like your mother telling you to clean everything on your plate. If you are a Utilitarian redistributionist, the height tax is like that awful tasting vegetable your mother served up because it is good for you. No matter how hard you might wish it wasn’t there sitting on your plate, it just won’t go away.

Funny, I think moral and political philosophies are just like that buffet! Given what he wants to do with this rhetorical move, assuming that metaphysics should act as a straightjacket against our experiences, instincts and culture is the whole debate, and Mankiw assumes what needs to be proven. And I know from following Mankiw’s blog that he also wrote this when Richard Rorty died:

I took an introductory philosophy course from Rorty when I was a freshman at Princeton…After taking the course, I briefly considered majoring in philosophy and then pursuing a PhD in the area, but a talk with a philosophy grad student dissuaded me. (Academic jobs in philosophy were pretty darn scarce.) Nonetheless, Rorty’s course had a big impact on me…

Rorty’s obituary contains this quotation: “There is no basis for deciding what counts as knowledge and truth other than what one’s peers will let one get away with in the open exchange of claims, counterclaims and reasons.”

I am sure Rorty wasn’t thinking about economics when he wrote this, but it applies perfectly. Even now, more than 30 years after I sat in his lectures, Professor Rorty still strikes me as having an uncanny ability for seeing to the heart of an issue.

So I’m sure Mankiw is a aware that there is a tradition in American Philosophy that goes like this, from the Richard Rorty I can grab quickly:

For the pragmatists, the pattern of all inquiry – scientific as well as moral – is deliberation concerning the relative attractions of various concrete alternatives. The idea that in science or philosophy we can substitute “method” for deliberation between alternative results of speculation is just wishful thinking. It is like the idea that the morally wise man resolves his dilemmas by consulting his memory of the Idea of the Good, or by looking up the relevant article of the moral law. It is the myth that rationality consists in being constrained by rule. According to this Platonic myth, the life of reason is not the life of Socratic conversation but an illuminated state of consciousness in which one never needs to ask if one has exhausted the possible descriptions of, or explanations for, the situation. One simply arrives at true beliefs by obeying mechanical procedures…The pragmatist tells us that once we get rid of this model we see that the Platonic idea of the life of reason is impossible.
Pragmatism, Relativism, Irrationalism

Or:

The Deweyan claim that moral philosophy was not the formulation of general principles to serve as a surrogate for divine commands, but rather the application of intelligence to social problems, gave American youth a new way of looking at the meaning of their education and their lives.
Professionalized Philosophy

The idea that our moral theories are not guidebooks helping us to navigate a complex reality full of contingency, but instead rulebooks where if we want to follow one rule we need to follow all of them, strikes me as completely backwards. Take a simply case – “Friend A trusted me with the information that he will do something that will harm Friend B.” Approaching it as something to mechanically (“never break a trust.” “always stop harm”) can lead to disastrous results, and applying a calculus requires our experiences of both events and our situation and the cultural context to make sense of what is at stake. Our moral theories can help us with this problem, indeed they do greatly, but at the end moral theories don’t make actions, we do.

Life is not full of easy and clear ethical problems. And this straightjacketing is particularly backwards in the context of social policies, where there isn’t one Ideal Policy that will we find, perfect in form and invulnerable to critique if we deliberate just a little bit longer, but instead solutions that work well-enough, given the events at hand. Things enough of us can agree one, given what it will accomplish and what will happen if we do nothing. And if read Pragmatism as a rejection of of some of the more brutal 19th century determinisms then this fluidity and freedom in dealing with a reality that will always be more complex than the tools we have is a massive improvement.

If experience tells us some policy will work for Context A but not Context B, is the policy wrong for all Contexts, or is this valuable information about when to deploy this specific policy? To make that specific, how progressive I think taxes should be is related to the shape of the income distribution. If the mean was much lower than the median instead of the other way around, my view on taxation would be radically different. Is that a feature or a bug? I’d argue a feature.

And shouldn’t an economist be down with this? If you take Bertrand Russell’s line that if we were all Pragmatists, “ironclads and Maxim guns must be the ultimate arbiters of metaphysical truth”, and replace the ironclads and Maxim guns with “the bond market”, I get the sense that most economists would nod approvingly instead of feel some sort of deep horror. If you take economic theory as a (a)moral theory, perhaps Mankiw thinks that any moral theory that may be deployed to ‘critique’ this has to be (similarly) over-determined, but this is not self-evident.

This entry was posted in Uncategorized. Bookmark the permalink.

3 Responses to Pragmatic Taxation

  1. Terry Ivanauskas says:

    The idea of height tax is used to justify why progressive income tax would be wrong. Basically, if it is absurd to charge more tax from the tall, then should also be absurd to charge more tax from the rich (height and income would be justly acquired endowments). However, height is just an instrument for income (http://en.wikipedia.org/wiki/Instrumental_variable), it is not income itself. An instrument is a variable that does not itself belong in the explanatory equation (i.e, it seems like an absurd as explanatory variable) and is correlated with the endogenous explanatory variables. So, you can use income to explain consumption; you can’t use height to explain consumption (it seems absurd, correlation does not imply causation); but you can use height as instrument for income to explain consumption. It is fishy to use instrumental variables to make philosophical statements. The real philosophical debate is about the meaning of egalitarianism and what it represents not just in terms of political and civil rights, but also what it represents in terms of economic rights. Height is a delusion.

  2. Mike says:

    That’s an even better point. You break out IV methods if you are worried about estimating correlation when variables are cross-correlated (or something like that – its been a while, and I’m not digging out my notebooks). “We can’t measure income but want to tax it, so we tax levels of education and age and job sector and oh here’s a height measurement to help us deal with the fact that the first three are all correlated among each others.”

    It would be very useful, perhaps, if we wanted to tax income but could not measure income, but we can! And income is perfectly correlated with income.

  3. Terry Ivanauskas says:

    Basically, we use IV when the explanatory variable is correlated with the error, which happens, for example, when there is endogeneity (e.g., do we buy health insurance because we have health care expenses, or do we have health care expenses because we have health insurance? – in this case, if we want to explain health insurance, we use IV for health care expenses, something strongly correlated with health care expenses but that doesn’t explain per se health insurance). The authors are using an IV to create delusion of causation. Otherwise, using the authors’ logic, if you say that it is absurd to explain consumption by height, then it would be also absurd to explain consumption by income (like if you say it is absurd to charge height tax…)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s