Mankiw, height taxes, and wilful blindness to history

Comment on "Redistribution, height taxes and utilitarianism" at Economists View

Mankiw is committing the common mistake of classical economists, they simply ignore actual economic history and the differing motivations behind the progressive agenda.

Some parts of that agenda are driven by utilitarianism. For example I would put universal single payer in that category. As a democratic people we have decided some goods should be delivered by public means. This includes such things as schools, most roads, fire protection, libraries. More controversially in the 60's we added such things as basic nutrition, income and medical coverage for the poor. None of this was inevitable, in colonial days all of those services were delivered in large part or in whole via the private sector either on a profit, subscription or charity basis. The extension of this to universal health care may to some be driven by morality, to others by ideology, but in a democratic society the real driver is utilitarian considerations.

Progressive taxation has much more mixed roots. Certainly it is partially utilitarian in impulse, once we have decided that things like libraries are public goods we have to acknowledge that not all people who utilize them can afford to pay a pro rata share, or else we could have just left them on the existing subscription system. The inevitable result is that there will end up being some downwards subsidy. The solution devised was to fund most of these from taxes on property and sales, with some exemptions built it. But in any event these taxes are proportionate and keyed to free actions, that is no one is forced to build a mansion and furnish it luxuriously and so incurring huge property and sales taxes.

Which gets us to the progressive income tax which is by designed not strictly proportional. And the motivation for this is only partially utilitarian, it is also a concession to the historical reality that distribution of the gains from productivity are not delivered by some magical and precise division of those gains by the exact contribution of capital and labor inputs, that is a textbook fantasy promulgated by the servants of the winners in this particular game, e.g. the Manchester School.

I have just begun re-reading E.P. Thompson's The Making of the English Working Class and its lesson is clear. You can explain much of the political and economic history of England as a constant battle to protect property rights from democracy, and this too even for those among the leadership of the popular side of the English Civil War. On the one side you have the Leveller Colonel Rainborough:

"For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think It's clear that every man that is to live under a government ought first by his own consent to put himself under that government .... I should doubt he was an Englishman or no, that should doubt of these things."

This is a demand for universal manhood suffrage. To which Cromwell's son-in-law General Ireton replied

"o person hat a right to an interest or share in the disposing of the affairs of the kingdom... that hath not a permanent fixed interest in this kingdom"

And by what reason does he privilege property holders so?

"All the main thing that I speak for, is because I would have an eye to property, I hope we do not come to contend for victory-but let every man consider with himself that he do not go that way to take away all property. For here is the case of the most fundamental part of the constitution of the kingdon, which if you take away, you take away all that"

Ireton here is drawing a straight line from democracy to socialism and even communism (in the pre-Marx sense), property however acquired is to be protected by the state from the demands of the workers.

The resultant distribution of gains from productivity was the direct result of one sector of society, those who controlled capital, having complete control of the political institutions. This was to some degree less true in the United States, the near absence of a landed aristocracy and the free availability of land to the West leveled the political power some, but still prior to the Progressive movement of the late 19th century political power was largely reserved for large property owners who in turn made sure that no issues around equity or actual analysis of the relative contributions of capital and labor ever entered into the question of distribution of gains of productivity. Instead we have and perhaps still continue to have descendants of the Manchester School acting as apologists for their masters and insisting that any attempts to redress the power imbalance simply a violation of Economic Law carried down on an Invisible Third Tablet from Mt. Sinai.

Progressive taxation is then driven by a democratic understanding that the reason it took Great Britain until 1918 and the U.S. in most respects to the One Man, One Vote rulings of the early sixties is because property owners continued to maintain a thumb on the scale of economic outcomes. The graduated income tax simply being an acknowledgement of historical reality.

So Mankiw's argument rests on fallacious grounds and weasel language. The very use of 'redistribution' builds in the assumption that the initial distribution was strictly proportionate to actual economic inputs. Anyone who ever believed that should have had their eyes opened by AIG bonuses, those bankers, like English aristocrats in the Edwardian Age, had become comfortable with their lavish lifestyles and had no attention of giving them up even after being revealed to be mostly economic parasites. That is Mankiw is serving in the role of Jeeves, the hyper-intelligent and clever servant to his master the hapless Bertie Wooster, here represented by the wealthy and ultra-wealthy of the U.S.

Mankiw wants to blur the line between redistribution and restitution, the wealthy of this country in large part got that way because the political and economic structures have always been rigged in their favor. The progressive and graduated income tax is a method for demanding restitution for their unfair grab of the original gains. To pretend that this is all the same as taxing people on the basis of their height or their I.Q. or whatever is historical nonsense.