U.S. Air Traffic
links for 2007-06-13

The Simple Analytics of Progressive Redistribution

Some of us were lucky to have Robert Waldmann http://rjwaldmann.blogspot.com/2007/06/possible-efficiency-gains-due-to-taxes.html in an adjoining room on the third floor of Weld Hall our freshman year. Others of us went to Yale.

Michael Froomkin writes:

Discourse.net: I Wish Robert Waldmann Had Been My Freshman Economics Teacher: What do you think the world would look like if freshman micro-economics students were routinely taught by Robert Waldmann? Instead of carrying around an Austrian model in their heads in which we assume total selfishness, zero transactions costs, and conclude that transfer payments are suspect, they’d be hearing about Possible efficiency gains due to taxes and transfers,

A little bit of altruism changes everything. If people care about their own physical well being (pleasure minus pain) plus that of those they love plus 0.00001 times the well being of strangers redistribution can be Pareto improving. Non poor agent A doesn’t need taxes and transfers to give his money to the poor. However, after he has chosen my level of private giving, he doesn’t want to give any more via taxes. However he wants to give rich agent B’s money to the poor. He cares a tiny bit about the small cost (in pleasure minus pain) to B and the same tiny bit about the large benefit to the poor. Increasing taxes and transfers from zero will make everyone happier if the population is large enough so that taxing one me is more than balanced by taxing lots of you

I’m pretty sure I had to wait until sophomore year to hear this stuff, and even then it was said with much less enthusiasm, as an embarrassing exception to an otherwise tidy result. (Or course, Robert couldn’t have been my freshman economics teacher, we graduated the same year from different universities, but you know what I mean.)