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Archive for the ‘redistribution’ Category

It should be recognized that most people are stupid about most things; myself included. However, there is a certain lack of self-critical thinking I want to pick on at this moment, and I am going to call this mode of thought the “Preference Fallacy.” I will define it as this: the dissonance that inheres in what people say they prefer to be the case, and what they signal and/or choose to be the case by their actions. I’m noting that this is not some broad form of hypocrisy, since it is not so much someone saying “People shouldn’t do this” and then they go do it, but rather they say something like “This should be the case,” yet they do nothing of themselves to achieve that. Note how I say that it is of themselves, a very specific distinction I make for political cases, where the Preference Fallacy crops up very often.

Consider this image, which I have seen several times and which certainly has been seen by others:

What is meant to be illustrated? First, there is the bare fact that wealth distribution is unequal. That’s a given, and anybody with a brain recognizes that attempts to “reduce inequality” will inevitably lead to wealth destruction. I’m not going to hammer on that point. The other thing meant to be illustrated is this quaint notion many individuals seem to hold that “distribution should be equaler.” Why? Well, just because, but I’m going to challenge exactly this stated preference, since it not only fails to reflect reality (not a shortcoming of any preference in itself) and is beside the point, but because people don’t actually behave like this is the ideal. In fact, attempts to behave in order to fulfill this stated preference clearly, by demonstrated preference, would cost people what they prefer more. As such, this “stated preference” essentially doesn’t matter.

Here is a thought experiment. Equalitarian Edward states that he would prefer for society to be more equal. He insists that he behaves in accordance with this preference whenever he can. However, as we observe his behavior in the market, we see that this stated preference informs his decisions not at all. Who does he choose to buy his car from? Subaru, thereby increasing the profit of the company and by extension to a larger degree its owners, as opposed to the employees. Why does he buy a Subaru? Because he prefers its comfort, reliability, and style. He chooses not to buy the beater from Poverty Pam, even though doing so would help decrease wealth inequality, since now his money is going not to those who are already wealthy but to someone who is poor.

Where does Edward buy his groceries? The bulk come from Cub Foods, because it is most convenient, they have a wide selection, and the prices are cheaper. Once again, he passes over Pam. Likewise for where he buys his coffee (Starbucks), his clothes (JCPenney’s and assorted boutiques), his books (Amazon), his internet (Charter), his cell phone (Apple) and service (Verizon), so on and so forth, virtually every purchase of his lines the pockets of the wealthier more than those who are less wealthy. What seems a better explanation of his behavior, that he has a preference for lessening wealth inequality or increasing it? Between only those two options, the latter seems clearly to be the case.

But but but, you will certainly say, there are other explanations! And I say that is certainly the case! I don’t actually think he has a preference for increasing wealth inequality so much as he simply prefers better quality and service in his purchases, and it just so happens that this has a high degree of correlation to increasing the wealth of the wealthier. It is not that he has a preference for increasing wealth inequality, only that he doesn’t really have a preference either way. If it so happens that buying from a person who is poorer gives him a better quality good, he will do so; but that the person was poor won’t affect his decision so much as the product itself. In the market, people choose products, not people.

So what are we to make of the “ideal” distribution of wealth shown in the above graph? Precisely nothing. The demonstrated preferences of people in the market happens to support more wealth inequality rather than less. (Caveat: I say that it supports the present distribution only because the American society happens to have capitalistic elements. More accurately, the USA has a distributed socialist-corporatist economy with capitalistic elements peppered here and there. I’m not pretending a full-fledged capitalism won’t have “huge” wealth inequality, though I do believe the “true measures of wealth” would in fact be more equal. For an elaboration on my views here, read my paper.)

I understand that some who remain sold on the intrinsic good of “equaler wealth distribution” would like to point to other problems, say that while a company like Subaru might choose to disproportionately give its profit to the owners and elite controllers of the company, it shouldn’t. It just so happens that people don’t have a lot of say about how the companies they buy from are structured. To this, I would point out that this just pushes the Preference Fallacy back another step. Sure, one might state they have a preference for “more equally distributed profits” within a company, but once again, the business models that happen to correlate most with the products they prefer for itself are these companies where the CEO’s pay is many hundreds time that of the average worker within that company. I think distributists are especially prone to this way of thinking, and all my ire to them where that is concerned.

So I’ve chosen in particular the issue of economic inequality for my focus of the fallacy, but it certainly occurs throughout just about everything people say they prefer. Women say they prefer Nice Guys, but they run off with Bad Boys. People say they prefer the minimum wage higher, but they still shop around for cheaper prices and don’t tip those people who do work minimum wage (honestly, have you ever seen someone tip the cashier at McDonald’s?). They want men and women to have equal pay, yet (like the issue of business models) they consistently support those models in which women are paid less. (I’m not going to explain this one: here’s a video which deals with it in short order.)

There are so many things people say they prefer to be the case, but they won’t help to establish that for themselves. Sure, they might be a political activist, but note that the introduction of the power of the state to cure problems doesn’t count as exercising one’s own preferences but penalizing and prohibiting the preferences of others.

Don’t look to what people say, look at what they do. There is nearly always some degree of bullshit in what people say they prefer. This bullshit is the Preference Fallacy.

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I jotted this off yesterday. It ended up receiving more attention than I expected, so I wish to submit some further considerations to bear out the story I told. Also, the difference between a liberal and conservative is that the liberal won’t blame a poor person for their being poor, while the conservative will. Take that as you will.

The story I told goes roughly like this. Peter and Paul both had equal opportunities in their life to do as they will. Peter chose more immediate consumption, while Paul chose to delay consumption in order to invest more. Paul went off to college to become an aerospace engineer, so by the time they were both 50, Paul was earning roughly three times as much as Peter.

My point is simply that just because Paul is earning more than Peter is not a good reason for coercive redistribution. If one wants to defend the case for redistribution they need to have a reason other than the mere fact of income inequality.

I wonder if progressives could even concede that?

They seem to have done so, since the objections brought up weren’t related to this argument. Hence the need to deal with further considerations, which I don’t object to in principle. The story told was simplistic, but then that was just because I wished to illustrate the one basic point about income inequality.

Does the story cover all reasons for income inequality? No. I wasn’t intended to do that. But does it cover the general reason for inequality within societies? I think so. It takes a lot of money from your parents to have a substantial head start in terms of opportunities, but I won’t deny that having richer parents tends to correlate with children who go on to become richer. I don’t have a problem with this in general, because I think that what’s more of an influence is the values given by parents to their children.

I think this deserves much closer attention. People who are rich are rich because they have a greater preference for higher consumption in the future. Those who happen to be rich for any other reason are the exception to the rule, but otherwise if someone is rich, it is because they work hard and spent a lot of time learning and developing their skills. Medical doctors, engineers of various sorts, accountants, lawyers, business executives, and the like have all gotten to the point where they are because they worked at what they do for years. That’s the reason they earn more; the supply for their profession is much lower because of how hard it is to be qualified in that profession.

Those who aren’t willing to give up a considerable amount of immediate consumption are not going to be making the investment of time and attention that one needs to make in order to have those sorts of jobs later in life.

This sort of story about preference for immediate or higher but delayed consumption covers a vast majority of the reasons that individuals have higher or lower incomes. Some people happen to prefer working less even if that means making less, and some people prefer working more in order to earn more. That is just the way it is.

Now what of those rare individuals for whom this story doesn’t fit? I don’t deny that they exist. But do they serve to make a sufficient case for redistribution? I don’t think so. I say this because I find it unlikely that any sort of redistributive scheme will make their plight better in general. This is because the availability of welfare policies decrease the incentive for one to seek after future higher consumption rather than lower immediate consumption, so that it is likely to produce more of these individuals for whom the opportunities to set aside current consumption in order to invest in a higher future consumption don’t exist. It is also likely to further engender these values towards lower immediate consumption rather than higher future consumption.

This serves as another reason against redistribution; the dis-incentivizing of the poor to seek a better lifestyle for themselves and their children.

*These are meant as economic, rather than moral, considerations. Morally, I believe coercive redistribution is theft, so even if there did exist economic reasons to believe that redistribution had a benefit it would have to overcome this objection.

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Suppose you have two individuals, Peter and Paul. Both have more or less equal opportunities to choose how they structure their time dedicated to education and a career. They both attend the same high school, and have about the same grades.

But after high school, their choices radically diverge. Peter, who has a higher preference for immediate consumption, chooses to forego college and obtains an entry-level position at a local factory. Paul has a lower preference for immediate consumption, so he chooses to forego the entry-level position he could also have and attend college.

Over the same period of time (i.e. about 8 years), Peter has become a mid-level manager at the factory with decent benefits and wages for someone his age, while Paul has finished his education and become a professionally certified aerospace engineer. When Paul enters into the workforce, he makes as much as Peter does.

Over a period of 20 years, we see an even greater divergence of wages. Peter has become the factory’s top manager, making approximately $60,000/year. However, Paul now makes $200,000/year. There is a vast inequality in income between the two.

Now here is the question. Should Paul be made to supplement Peter’s income?

It appears not. The position both have in regards to their career and income are due to their own preferences; Peter has the job that fits with his own preferences for more immediate consumption, while Paul’s job fits his own preferences. While Peter certainly wouldn’t object to having his own income supplemented, it doesn’t make sense to supplement his income when the reason he makes such a great deal less is due to his own free will choices.

Suppose a person chooses A, where they will receive $20 and have to work 1 hour. Another person chooses B, and they will receive $200 for working 8 hours. It wouldn’t make sense to take money from the second person to give to the first person, because they both made their own choice in regards to what they would like to receive. If the first person had really wanted more money, then he should’ve picked B; but he didn’t because he preferred more time to more money, so he is in fact already getting exactly what he preferred in this situation.

This is one reason against redistribution. Many cases of income difference reflect this state of affairs. People who make less than others tend to make less because of different preferences they have about time commitments and immediate consumption, so they shouldn’t receive the benefit of having worked more because they chose to not work more. They are already in what they consider a preferable state of affairs. Redistribution can’t make utility more equal in this case.

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It might surprise those who know me to hear that I support redistribution. But I do! Redistribution can be a great good, and I believe it should be allowed to occur. But, unlike others who support coercive redistribution (i.e. Robin Hood, stealing from the rich to give to the poor), my belief in redistribution is not due to my concern for the poor. I believe redistribution is a natural occurrence of the free market, and my concern for the poor is why I think the free market should be allowed to work, seeing as it excels in redistribution in terms of actually making wealth cheap and widely available (cheap wealth sounds like an oxymoron, but it makes perfect sense if you’ll let me explain) and in that it is not morally ambivalent at best, but perfectly morally sound.

What do I mean by redistribution? Any process in which the wealth of those who are relatively rich is found to subsidize and make better the living standards of those who are relatively poorer can be considered redistributive, since it allocates and makes available the wealth of the rich. By wealth is meant not mere income, but actual prosperity and living standards. Income does not directly correlate to wealth; we would say that a poor person living in America in the 21st century who has a car, basic health insurance, the Internet, a home, and no fear of starving to death, is at least as wealthy if not more wealthy than a (controlling for inflation) millionaire from 100 years ago. The fact that being a relatively “poor” person in terms of comparative income still allows one to enjoy an objectively wealthy lifestyle (when you consider that, for 99.9% of human history, 99.9% of people lived short, nasty, brutish lives full of sickness, starvation, and uncertainty) is proof that redistribution has occurred. So I only need to show how it occurs, since the evidence that it has and does occur through the free market is settled.

There are two primary mechanisms that exist in the free market which I’m aware of, and I’m confident that there are several more. One is a major form of redistribution, while the other is a more minor form of redistribution. (I can also note that not all redistributive mechanisms redistribute from wealthy to poor; but these are inconsequential to our present considerations, since they allocate capital control from those incapable of efficiently utilizing available resources to those who are. I’ll talk about these in a later post.)

The minor form of redistribution from the relatively rich to the relatively poor comes in the form of price discrimination. Price discrimination occurs when a business figures out how to offer different prices for the same product, helping to secure profits from those who are not benefited by the provided means of cheaper prices while still allowing others to gain from the service even if they otherwise offer a lower individual profit and thus less certainty of overall profit. A common example of price discrimination comes in the form of coupons.

Some (though not all) coupons make a situation in which the business offers a price for a product that will yield a lower individual profit on the product. The regular listed price provides a higher individual profit, and thus provides more certainty. What occurs then, is that those who have it in their interest to save time over money pay the regular listed price, making it possible for the business to offer the same product at a lower coupon price even if otherwise they couldn’t offer it at the price due to higher uncertainty of making an overall profit with selling the product at that price.

We see that the relatively richer thus subsidize the consumption of the relatively poorer, since the poorer are more likely to benefit from taking the time to collect coupons. A redistributive mechanism in the free market which occurs without coercion.

The major form of redistribution that occurs in the free market comes in the form of improved and cheapened technology. Any newly introduced technology, whether it is a new product or just an improvement on an existing product, is more expensive than the preceding technology, and often prohibitively expensive for it to be widely available. Therefore, only the richer can consume the new technology when initially introduced. But, what occurs is that these initial purchases by the richer provide profits that serve to make it possible for the businesses to invest in making the same technology cheaper, so that they can sell it to a greater portion of the population.

So, while the rich might be able to benefit from the technology before others, they make it possible to allow the technology to benefit a wider portion of the population because their ability to purchase the items when they are more expensive makes it possible to research making that tech cheaper. This is another redistributive mechanism, in which we see the wealth of the rich become more available over time due to the initial investments in that tech provided by the rich. It operates because making a product cheaper allows it to be sold more cheaply and to a wider population, while still allowing it to be profitable. In other words, it is in the interest of the rich to enact this redistributive mechanism because that is how they can become rich.

A great example of this in history is cell phones. When cell phones were initially introduced, they cost several thousand dollars, and so were only affordable by the rich. However, over time, cell phones came down in price until they began replacing traditional land lines and are universally owned. What made cell phones cheaper is investment in the research of cheaper methods of production and construction made possible by the profits cell phone companies were able to initially make by selling cell phones to the rich.

Of course there are other examples. Any thing which you can point to that is more widely available now than it was before is due to this redistributive mechanism in the free market. Computers, internet, cars, food, houses, paper, coffee, sugar, and so on.

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