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The Morality of Taking From the Rich and Giving to the Poor

The Morality of Taking From the Rich and Giving to the Poor

(Bloomberg Opinion) -- Because so many people’s lives and livelihoods depend on economic policy, there’s a strong tendency to politicize the discipline of economics. In order to resist this tendency and retain their academic credibility, economists generally try to stick to the facts. Instead of telling society what it ought to do, they strive to offer a menu of choices and trade-offs. Economists do occasionally try to quantify how much policies improve welfare, but this analysis tends to be stilted, one-dimensional and based on mathematical assumptions.

In an era of fast economic growth, economists could usually get away with this neutral approach; as President John F. Kennedy liked to say, a rising tide lifts all boats. But growth in developed nations is tapering off, thanks to aging populations, plateauing education levels and a global productivity slowdown. That means that economists are not going to be able to dodge the hard questions of redistribution for much longer.

One approach is for economists to play the part of moral philosophers, telling people what kinds of redistribution they ought to want. Harvard University economist Greg Mankiw took this approach in a 2013 essay titled “Defending the One Percent,” in which he argues that most rich people have earned their fortunes fairly and deserve to keep them. Naturally, many left-leaning economists have pushed back against this idea, with such luminaries as Thomas Piketty calling for billionaires’ fortunes to be taxed out of existence.

But economists are generally not suited to the task of moral philosophizing. Nor is it clear that they ought to move in this direction, as a few people have demanded. There is already a discipline called philosophy, and it has its own departments and its own specialists.

Instead, economists can help by trying to translate people’s preferences for fairness, equality and other moral goals into actionable policy. This requires getting a handle on what amount and types of redistribution people actually want. Some researchers now are attempting to do this.

For example, in a new paper, economists Alain Cohn, Lasse Jessen, Marko Klasnja and Paul Smeets, reasoning that richer people have an outsized impact on the political process, use an online survey to measure how wealthy individuals think about redistribution. Their findings were not particularly surprising; people in the top 5% of the income and wealth distributions supported lower taxes and tended to vote Republican.

The authors also performed an online experiment in which some people were allowed to choose to redistribute winnings among other experimental subjects who completed an online task. No matter whether the winnings were awarded based on merit or luck, rich subjects chose less redistribution.

But not all rich subjects. Cohn and his co-authors found that people who grew up wealthy favored redistribution about as much as average Americans. But those with self-made fortunes favored more inequality. Apparently, many people who make it big out of poverty or the middle class believe that everyone should do the same.

This suggests that the U.S. has a dilemma. A dynamic economy creates lots of new companies, which bring great fortunes to the founders. But if Cohn and his co-authors are right, those founders are likely to support less redistribution as a result. So if the self-made entrepreneurs wield political power, as the authors believe, there could be a political trade-off between economic dynamism and redistribution.

Another interesting new paper comes from economists Christina Fong and Panu Poutvaara. Studying survey data, they confirmed the long-standing finding that the more people believe that success is due to effort rather than luck, the more tolerant they are of inequality. Philosophically, this doesn’t make a lot of sense -- many factors that determine effort, such as mental health, parental influence and the availability of role models are largely due to luck. But moral beliefs don’t have to make logical sense in order to be politically powerful.

Fong and Poutvaara also found that beliefs about welfare spending depend mainly on what people think about the poor, while beliefs about taxes depend mostly on what people think about the rich. And those may not match up. If people believe that the poor are poor mainly because of circumstances beyond their control, while wealthy people succeeded thanks to their own effort, they’re likely to support more spending without the taxes to match. That could be a recipe for higher deficits. Conversely, those who believe that the poor have mostly themselves to blame, but that the wealthy succeeded due to luck, will tend to support high taxes but will probably want to spend the revenue on the middle class instead of on welfare.

So economists are confirming that beliefs about the causes of wealth matter a lot. The next crucial task, therefore, is to determine to what degree economic success is due to which factors -- parental influence, neighborhood environments, personal work ethic, role models, a culture of hard work, mental health, discrimination, willingness to take risks and so on. By untangling the sources of success, economists can help the public to make an informed moral choice about how much to take from the rich and give to the poor.

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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