Sunday, October 23, 2011

The Problem with "The Invisible Hand" of Right Wing Economics/Politics

Here is a bit from a post by Tim Harford in his blog:
[Robert] Frank has a particular Darwinian insight in mind: the idea that contra Smith’s “invisible hand”, individuals competing can produce results that are bad for society as a whole.

Consider the vast antlers of the north American bull elk: they’re the result of sexual selection balanced by other selective pressures. Elks with big antlers win fights with other elks, and mate with multiple females. However, they also get hunted down and killed by packs of wolves. Elks as a whole would be better off if they could all agree to shrink their antlers by a factor of four or five: the males with the biggest antlers would still get the girls, while only the wolves could object to faster, more agile bull elks. Sadly for the elks and happily for the wolves, that’s not how sexual selection works.

In a new book, The Darwin Economy, Robert Frank sees elk antlers everywhere he looks in modern society. For example, when parents bid up the price of houses near good schools, they’re engaging in a wasteful arms race: children as a whole will be no better educated as a result, but vast sums are devoted to the quest for the right school district. My flashy car makes you less satisfied with your own; if I take ladies out to the opera and Michelin-starred restaurants, other men will no longer succeed by offering scampi and chips at the Romford dog track. In short, says Frank, my spending harms you as surely as I would harm others by standing up at a concert and forcing everybody behind me to stand up in turn.

Sometimes this dynamic is the result of envy; at other times it is genuine competition for scarce resources, such as beautiful partners or elite university places.

Elks cannot reach an agreement to trim their antlers, but humans can, and Professor Frank advocates a steeply progressive consumption tax to serve this purpose. In effect, the tax would be an income tax with an exemption for savings, encouraging investment but discouraging spending sprees. Frank argues that it should be progressive because the wasteful economic arms races are at their most grotesque at high consumption levels.
Harford goes on the quibble with Frank, but this is a very easy-to-understand critique of the political right's "cut taxes, cut taxes, cut taxes" agenda in support of their billionaire overlords.

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