Friday, April 15

Rant

What Would Ross Gittins Do Without Monkeys?

Okay, the title is stolen from James Taranto, but what else is there to say?

Ross Gittins, economics writer for the Melbourne Age and Sydney Morning Herald, tells us:

With so many businesspeople, economists and politicians banging away, you would have to be pretty slow not to have got the message: what our economy desperately needs is a lowering of income tax rates, particularly the punishing top rate of 48.5 per cent.

The high tax rates we face are discouraging people from working as hard as they could. We need more incentive to try harder - to earn more, produce more and consume more.

But I've just been reading a new book - by an economics professor, no less - that argues the exact reverse: we need to keep tax rates high to discourage us from working so hard and, in the process, neglecting more important aspects of life, including leisure.

The prof is Richard Layard - Lord Layard, to you - of the London School of Economics. His book is Happiness: Lessons from a New Science, published in Britain by Allen Lane.

BANG!

Okay, now that that's settled -

This guy is arguing that people working hard is the problem, and taking their money away is the solution? Niiiice.

Why on earth could so many of us - particularly those on the top tax rate - be working too hard and neglecting our leisure?
Because we like to get things done? Because we want the money? Because we enjoy our fancy toys? No:
At base, because our evolutionary make-up makes us highly rivalrous towards other people, to be always comparing ourselves with others and seeking higher status.
Mmmf. It's true enough that people seek status in various ways, including by the possession of material goods. But to argue that this is the only reason people work hard is as silly as, oh, I don't know, basing an entire economic theory on the levels of serotonin in monkeys.
The researchers manipulated the status of a male monkey by moving him from one group of monkeys to another. In each situation they measured the monkey's level of serotonin, a neuro-transmitter connected with feeling good. "The finding was striking," Layard says, "the higher the monkey's position in the hierarchy, the better the monkey feels.
I am not making this up.
Not convinced this has any implications for humans? Well, in a famous study of British civil servants, those of higher rank secreted lower average levels of stress-related cortisol - one reason people in the higher grades lived on average 4½ years longer than those in lower grades.
There are just sooo many things wrong with that paragraph, I hardly know where to start.

It's the tea, I tell you. The tea in the low-rank civil service cafeteria will kill you.

Meanwhile, back at the monkey farm:

Still not convinced we're obsessed by getting ahead of the Joneses? Consider this experiment where students at Harvard were asked to choose between living in two imaginary worlds. In World One, you get $50,000 a year while other people average $25,000. In World Two, you get $100,000 a year, while others average $250,000.

The majority of respondents preferred the first world. They were happy to be poorer in absolute terms, provided their RELATIVE position improved.

Now this is actually interesting. There's a leetle problem, of course, in that if everyone else makes 2½ times as much money as you, anything scarce will end up getting priced beyond your reach. So hey, you'll be able to afford twice as many ham and cheese sandwiches as in World One, but that nice house? That holiday in Tahiti? Forget it.
All this suggests that a major motivation for people in working so hard is to gain higher status directly from their position in their organisation or from the amount of money they earn and the homes, cars and other status symbols they are able to buy with that money.
Either that, or they have priorities other than ham-and-cheese sandwiches.

Or, y'know, because we should never discount this possibility, they're just idiots.

Trouble is, what may make sense for the individual doesn't make sense for society. Status-seeking is a zero-sum game. I can advance myself in the pecking order only at the expense of those I pass. My gain is cancelled out by their loss.
Says who?

No, really, says who?

Status is what people decide it is. Status is only zero-sum if people decide it is.

Thus all the effort we expend trying to get ahead of the Joneses, or at least keep up with them, is like a perpetual arms race, which is socially wasteful. We'd be better off if we could somehow call a truce.
In this case, "calling a truce" means "stealing everyone's weapons".
"So most people are not rivalrous about their leisure," Layard says. "But they ARE rivalrous about income, and that rivalry is self-defeating. There is thus a tendency to sacrifice too much leisure in order to increase income."

Taxes are clearly performing some useful function beyond that of raising money to pay for public spending, he concludes. "They are holding us back from an even more fevered way of life."

Oh, thank you, milord. Wouldn't want to suffer from the horrible fever of actually getting to keep some part of the money I've earned.

When did they start making communists into peers?

Posted by: Pixy Misa at 04:18 AM | Comments (6) | Add Comment | Trackbacks (Suck)
Post contains 893 words, total size 6 kb.

1 I think we should take Lord Layard's proposal a little further here. Would not raising the tax rate to, say, 100% be the absolute best thing for people's leisure time? After all, they would be much less motivated to work hard if they didn't get paid for it. Then they should have a lot of extra time on their hands! Perhaps he's on to something here? Perhaps not!

Posted by: Dave at Friday, April 15 2005 11:39 AM (c6xQA)

2

Actually, while I disagree with Layard, it's easy to misinterpet what he's actually saying. So easy, in fact, that both Ross Gittens and (to a lesser extent) my fell commenter Dave have done so.

Layard argues that we need taxes to capture the negative externalities of working. I'm very dubious about this, but perhaps he has a point. What solution does he recommend? Marginal total tax rates of 60%.

So, add up sales tax, VAT, GST, state/province income tax, federal income tax, payroll taxes of various types, property taxes, etc., and so forth and so on which, and you'll find that many of us are already facing a marginal rate of 60% or more. (And in many cases, much more.)

Put it together, and we see that Layard is arguing against such absurdities as a top income tax rate of 48.5% - since income tax is only a small portion of the total tax burden, this represents a marginal rate far higher than Layard deems optimal. Mr Gittens is to be commended for reading a book by an economist (even one of such dubious merits as Layard). His next task is to actually manage to COMPREHEND it. I fear it would be unwise for me to hold my breath...

Posted by: Cody at Saturday, April 16 2005 06:19 PM (wWGYH)

3 If one is worried about taxes, that person is doing ok.

Posted by: Collin Baber at Monday, April 18 2005 09:20 AM (fufbw)

4 Thank you Collin for that remarkable piece of insight. And having fulfilled my sarcasm quota for today, thanks Cody for that information. I still think that Lord Layard is very deeply wrong about the need to "capture the negative externalities of working", but it's interesting to note that Ross Gittens got it wrong too.

Posted by: Pixy Misa at Monday, April 18 2005 11:31 AM (+S1Ft)

5 Who knew that "rivalrous" was a word?

Posted by: The Colossus at Tuesday, April 19 2005 05:36 PM (Ru8KL)

6 Well, if you're talking the same amounts in real terms in a world of abundance, then it's #2. But of course if you're just adjusting the numbers for inflation, such that $250,000 is actually the $38,800 average US income, then $100,000 is poverty-level. Also, in a world of scarcity, you're arguably better off with #1 even in real terms.

Posted by: TallDave at Friday, April 22 2005 12:20 PM (lZMuK)

Hide Comments | Add Comment

Comments are disabled. Post is locked.
49kb generated in CPU 0.09, elapsed 0.277 seconds.
52 queries taking 0.243 seconds, 282 records returned.
Powered by Minx 1.1.6c-pink.