Wednesday, September 06, 2006

Why Jane Galt is Still Wrong

I'm willing to bet a fairly hefty sum of money that almost none of the lefty bloggers who linked to it originally will link to my attempts to rectify their misunderstanding.
So writes Jane Galt. I don’t think I’m one of those she had in mind, since I didn’t deal directly with Ms. Galt’s arguments in my earlier posts (and I wouldn’t willingly accept the term “lefty,” though it’s possible that the shoe fits, or that it appears to fit). Nonetheless, I can’t resist the challenge.

Her words again:
…my metaphor was aimed at a specific kind of redistribution: that which is less interested in making the poor better off, than in making the rich worse off, so that they don't make the rest of us look bad. Or as Brad Delong said:
Surely public policy should weigh the spite-generated utility the rich gain from their conspicuous consumption as worth less than nothing?

And in that case, the wealth hierarchy is precisely equivalent to the beauty hierarchy, morally speaking: it is a zero sum game in which a lucky few feel better only when the others feel worse. So to my mind, anything that applies to the enjoyment of wealth by the lucky few applies equally well to the enjoyment of endowments like beauty, athleticism, and intelligence. I am unable to construct a moral argument for cutting down the tall poppies of the income distribution that doesn't apply equally well to conspicuous flaunting of one's pulchritude, physical prowess, or brains.

But how is it that she misses the critical point? To wit: the creation of conspicuous wealth, by its very nature, uses up resources that could be used for other purposes. Indeed, wealth might be defined as the ability to command resources, and therefore, the more resources that are used to produce conspicuous wealth, the more effective it is. By contrast, the process of flaunting one’s pulchritude, etc., while it may use up some resources, is not inherently resource-intensive. And certainly, such endowments, to the extent that they are truly endowments, don’t require resources to create.

The beauty hierarchy is, as Ms. Galt states, a zero-sum game (roughly), but – because of the resources used up – the wealth hierarchy could very well be a negative-sum game. Using up resources is fine as long as the full social benefit of the product exceeds the cost of the resources. But with conspicuous consumption that is not necessarily the case. Because there are negative externalities – namely the unhappiness (mistakenly labeled as envy) generated among inferiors – associated with that consumption, there is no mechanism to insure that the social benefit from the resources used is at least as great as the cost.

Of course there are counterarguments. For example, as Ms. Galt points out, there are also positive externalities associated with the pursuit of wealth. But those positive externalities have had their day in court. It is not at all fair to brush aside the negative externalities that may be associated with the pursuit of wealth (even if they are more difficult to measure).

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8 Comments:

Blogger Gabriel Mihalache said...

Right. There's no doubt about it... one mechanism to signal wealth can be more or less efficient than another. I think we can all agree on this.

One point worth making is that taxing conspicuous consumption, by itself, is not an alternative mechanism. It might just distorts the existing one.

Conspicuous consumption is "bad" because it's not Pareto-optimal. In this sense, I'm with you. But until a Pareto-improvement, or a K-H improvement can be proposed... it's stalemate.

The same thing applies to Jane Galt's argument: beauty is mostly natural but in this day-and-age of extensive cosmetic surgery, expensive make-up and Pilates... some of that expenses might be inefficient compared with an alternative system.

Wed Sep 06, 02:38:00 PM EDT  
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