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Monday, January 10, 2011

"Zombie Economics and Just Deserts"

Eric Schoenberg of Columbia Business School:

Zombie Economics and Just Deserts: Why the Right Is Winning the Economic Debate, by Eric Schoenberg: Economist Paul Krugman recently decried "zombie economics," policies advocated by "free-market fundamentalists [who] have been wrong about everything yet now dominate the political scene more thoroughly than ever." I share his chagrin, but suggest that the problem is that Krugman was wrong to also assert that "economics is not a morality play." In fact, I believe that defeating the zombie-like resilience of laissez faire capitalism will require directly refuting the moral belief in the inherent fairness of free market outcomes.
Consider a recent suggestion by ... Greg Mankiw ... that tax policy should be based on a "Just Deserts Theory" under which "people should get what they deserve." ... I think that widespread support for free markets is based more on belief in their inherent morality than on belief that they promote economic growth, potentially explaining the religious fervor of free-market fundamentalists defending their faith despite the considerable counter-evidence provided by recent events.
Mankiw concisely summarizes the theory underlying the ethical argument for market capitalism: "under a standard set of assumptions... the factors of production [i.e., workers] are paid the value of their marginal product... One might easily conclude that, under these idealized conditions, each person receives his just deserts." Mankiw's long-standing opposition to higher taxes on the wealthy suggests that he thinks these conditions usually pertain in the real world, too.
Consider me skeptical. The list of "standard assumptions" open to question is long... I believe, progressives must directly challenge the claim that unfettered markets create just deserts. This won't be easy. Free market fundamentalists have the advantage of a simple message -- ending bailouts will deliver just deserts -- and of nearly limitless funds from rich folks who benefited from the bailout but are happy to claim that it should never happen again.
Let me therefore suggest one way to start: replace the estate tax with an inheritance tax. Republicans use the term "death" tax to imply that society is confiscating a lifetime of just deserts wealth. But if taxes are to be based on Mankiw's proposal that those "who contribute more to society deserve a higher income that reflects those greater contributions," then inheritors who have contributed nothing themselves should pay substantially higher rates...
I believe a debate about inheritance taxes will allow us to distinguish two arguments that appear similar but are critically different. The claim that people should get their just deserts is tricky to implement, but offers a valid moral principle to guide public debate. But the closely related argument that government should "keep its hands off my money" represents pure selfishness by people who refuse to acknowledge that public goods like education and defense are essential for the creation and protection of private wealth. Progressives have to make clear that the attempt to eliminate taxes on inheritors suggests that conservatives believe that all-you-can-eat socialism is fine for the rich as long as there is just-deserts capitalism for everyone else.

    Posted by on Monday, January 10, 2011 at 12:18 AM in Economics, Income Distribution, Market Failure | Permalink  Comments (39)



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