Saturday, February 27, 2010
N. Gregory Mankiw (Harvard University, Department of Economics) gives the Presidential Address today at Eastern Economic Association's 36th Annual Conference in Philadelphia on Spreading the Wealth Around: Reflections Inspired by Joe the Plumber:
One of my favorite recent moments in political theater was when “Joe the Plumber” posed a question to candidate Barack Obama during the presidential campaign of 2008. As you may recall, Joe was an aspiring small business owner, and he asked then-Senator Obama about his proposal to raise taxes on high-income households. The candidate responded, in part, “It's not that I want to punish your success. I just want to make sure that everybody who is behind you, that they've got a chance at success, too…. I think when you spread the wealth around, it’s good for everybody.”
The reason I like this particular moment is that it focused public attention on one of the defining differences among competing economic philosophies. Indeed, I don’t think it is an exaggeration to say that the single most important difference between the political left and the political right is over the questions of whether, and to what extent, “spreading the wealth around” is a proper function of government.
Looking ahead, I fully expect the issue to remain at the center of political debate. One reason is that the tax cuts signed into law by President Bush in 2001 and 2003 will expire next year unless Congress takes action to extend them.
Another, perhaps more important, reason is that the U.S. federal government is running a large budget deficit and faces an ominous fiscal gap looming on the horizon. ...
In the end, I don’t think the Just Deserts Theory necessarily calls for radical changes in policy toward taxes and income distribution. It does, however, suggest that we focus on a different set of questions when thinking about policy design. A utilitarian asks how quickly marginal utility falls as income rises and how much people respond to the disincentive effects of redistributive tax policy. A Just Deserts Theorist admits that questions regarding utility functions and incentive effects may enter into the analysis, but they are the wrong place to start. Rather, he begins by asking whether people’s compensation reflects the contributions they make to society and how much they benefit from government actions.
There may be no way to decide which of these approaches to tax policy is right. The issue is not one of positive economics, so data alone cannot settle the matter. My guess is that people will have different moral intuitions about which approach makes more sense. I suspect that if we had the opportunity to ask them, Barack Obama and Joe the Plumber would reach different conclusions about this fundamental question.