JDN 2457326

This video is instructive, not as a serious economic policy argument, but as a glimpse into the thought processes of people who support conservative economic policies. It doesn't tell you much of anything about how the world works; but it does tell you about how their minds work.

[Youtube embed: https://www.youtube.com/watch?v=S6HEH23W_bM]

I don't know which is more painful to bear, the video or the transcript, but I've given you both so you at least have some choice.

Once upon a time, there were three brothers—triplets, named, Tom, Dick and Harry Class. They were raised in the same home, with the same parents, had the same IQ, same skills, and same opportunities. Each was married and had two children. They were all carpenters making $25 per hour.

While they were very similar in all these respects, they had different priorities: For example, Tom chose to work 20 hours per week, while his brother Dick worked 40 hours, and Harry 60.

It should also be noted that Harry's wife worked full-time as an office manager for a salary of $50,000. Dick's wife sold real estate 10 hours a week, and made $25,000 per year. Tom's wife did not work.

Tom and Dick spend all of their family income; since they paid into Social Security, they figured they didn't need to save for retirement. Harry and his wife, on the other hand, had, over many years, put away money each month and invested it in stocks and bonds.

Here's how it worked out:

Tom made $25,000 a year.

Dick and his wife made $75,000.

And Harry and his wife, $150,000.

When a new housing development opened up in their community, the brothers decided to buy equally-priced homes on the same private street. One day, the brothers decided to pool their funds for the purpose of improving their street. Concerned about crime and safety, and wanting a more attractive setting for their homes, the three families decided to install a security gate at the street's entrance, repave the street's surface, and enhance the lighting and landscaping.

The work was done for a total cost of $30,000.

Harry assumed they would divide the bill three ways, each brother paying $10,000.

But Tom and Dick objected. “Why should we pay the same money as you? You make much more money than we do.”

Harry was puzzled. “What does that have to do anything?” he asked. “My family makes more money because my wife and I work long hours, and because we have saved some of the money we've earned to make additional money from investments. Why should we be penalized for that?”

Harry, you can work and save all you like,” Tom countered. “But my wife and I want to enjoy ourselves now, not 25 years from now.”

Fine, Tom, do what you like; it's a free country. But why should I have to pay for that?”

I can't believe you're being so... unbrotherly,” Tom argued. “You have a lot of money, and I don't. I thought you'd be more generous.”

At this point, Dick, the peacemaker in the conversation. “I've got an idea,” Dick said. “Our combined income is $250,000, and $30,000 is 12% of that amount. Why don't we each pay that percentage of our income? Under that formula, Tom would pay $3,000, I would pay $9,000, and Harry would pay $18,000.”

I have a much better idea,” said Tom. “And one that's fairer than what you're proposing.”
Dick and Harry turned to Tom. “Harry should pay $23,450. Dick, you should pay $6,550; and I will pay.. nothing.”

To Dick, this sounded completely arbitrary, and not really fair. But it did have one big plus: His share would be $2,450 less under Tom's formula than under his own. So, he decided to be silent.

Harry, however, was stunned. “You want me to pay almost 80% of the bill despite the fact that each of us is receiving the exact same benefits? Where did you get such a crazy idea?”

From no less an authority than the US government,” Tom responded, as he pulled out a gray booklet. It's all right here, in the IRS tax tables. This is the progressive income tax system all US taxpayers live under, and I don't see why we should be any different. In fact, I believe all future improvements should be paid in this way.”

Works for me,” said Dick. So, by a vote of two to one, the cost of street improvements was divided as Tom had proposed[...].

Okay, thanks for bearing with that. I know it isn't easy.

The first thing that's obviously wrong with this analogy is that everything was set up explicitly with perfect equality of opportunity, and I mean perfect.

Let's hear that one again, shall we?

They were raised in the same home, with the same parents, had the same IQ, same skills, and same opportunities. Each was married and had two children. They were all carpenters making $25 per hour.

Like, seriously, what are you smoking? This has never been anything remotely like the distribution of income in any human society ever. There has literally never been anything anywhere near that level of equality of opportunity, even in the most socially-mobile society on Earth, home of the American Dream—I'm of course talking about Denmark.

If we make the analogy even slightly more realistic, the whole thing begins to unravel.

First of all, it's not even obvious to me that the system Tom proposes is all that bad. It seems unfair in this case, because Tom could simply choose to work more hours. But all we have to do is make that no longer feasible: Tom's company will only hire him 20 hours per week, no more. He could try to find another job, but that would take time and unemployment is high. He can't make more money right now, not without a huge amount of effort and risk. Bang; suddenly it doesn't seem unfair to use flat or even progressive taxation.

The figures need not be arbitrary either. We can go with my logarithmic tax system, set p = 0.1, and the subsistence level at $25,000, which gives us:

Tom's income: $25,000 = 1 S

Tom pays: (1) - (1)^(1-0.1) = 0 S

Tom pays nothing, as in his own suggestion.

Dick's income: $75,000 = 3 S

Dick pays: (3) - (3)^(1-0.1) = 0.31 S = $7,750

Harry's income: $150,000 = 6 S

Harry pays: (6) – (6)^(1-0.1) = 0.98 S = $24,606

Total raised: $32,356

That's just slightly less progressive than Tom's proposal, but obviously more progressive than either of the other two proposals (and still would save Dick money, so he'd still vote for it at the end). And it's not based on some arbitrary throwing out of numbers; it's calculated from the assumption of logarithmic marginal utility of wealth.

Or suppose we believe that income is the result of differences in skill (I do not, but many economists seem to). Suppose we say that the three brothers do not have the same IQ: Tom has IQ 110, Dick 120, Harry 130. The reason Harry makes more money is that he's actually smarter, and can do better work.

Does he deserve to receive higher pay for his better work? I'd say so. But he already starts to look less than generous if he expects his brothers to pay the same amount even he knows they can't make as much money because they aren't as smart.

And oh, by the way, it's ridiculous to suggest they all live in the same sort of house. Tom probably lives in a slum; Dick might have a nice place in the suburbs; Harry is the only one living in a fine gated community.

Of course now they can't be building the same fence (also: shades of the Trump Fence?) or the same roads; they have to be participating in some larger project with implications for the whole community. Let's say they're hiring a police officer to protect the city. Well, whose part of the city is he likely to protect? You guessed it: Harry's. So tell me again why Tom should pay just as much for it?

But we're not done by any means. Let's go a bit further down the road of inequality of opportunity, and say that they all grew up in different neighborhoods; Harry was raised in that fancy gated community, Dick in that nice suburb, and Tom in that bleak, crime-ridden slum. He doesn't make as much money because the struggle to survive made it hard to succeed in school.

Or suppose they did grow up together, and do have the same skills, but Harry is rich because he won a $3 million lottery that he put into stocks and bonds which now provides him with that $150,000 per year (that's 5%, pretty conservative). Doesn't it seem fair that because he just got lucky he should be expected to share that bounty with others?

Finally, let's suppose that Harry was Dad's favorite, and inherited $3 million. Is it not now apparent that he has not a leg to stand on when he asks that the others pay anything at all? Yet inheritance is one of the primary drivers of wealth in our society (and all societies), as noted by that well-known socialist rag The Economist: “Mr Piketty estimates that 12% of those born in 1970 may cross this threshold [...] [wherein they] will receive a sum in the form of inherited wealth that is larger than the lifetime income earned by the bottom 50% of the population.”

And that's not even getting into things like racial discrimination. What if they're not brothers, but tom is Black and the other two are White, but they all share the same last name because Tom is the great-grandchild of a slave who was raped by Harry's great-grandfather? Tom has been discriminated against his whole life, Harry inherited the wealth from the slave plantation, and now Harry has the audacity to say that taxing him at a higher rate is unfair?

Oh, and did I mention that these income ratios are remarkably equal compared to the actual reality?

In the video, the ratio of incomes is $150,000 to $25,000, which is only 6 to 1.

That's not an accident, by the way; it's simply impossible to have the level of inequality we actually have under a system where everyone makes a similar wage. Almost everyone works about 40 hours per work; very few work less than 20 by choice; almost no one works over 80. That would only be a 4 to 1 income ratio, or 8 to 1 if you include two-income households. The actual income ratio between top 1% and bottom 5% is more like 80 to 1. The actual income ratio between CEOs and their employees is now above 400 to 1. The full scale of incomes across the United States, from the lowest poverty measure of $5,000 per year to Bill Gates at about $10 billion per year, is 2 million to 1.

Take a look at these graphs, which I made from the World Top Incomes Database:

top income shares adjusted

Including capital gains, the top 0.01% makes over 4% of the income—meaning they are 400 times as rich as the average person. Furthermore, that share has been rising since the 1980s—since Reaganomics.

If one person makes 3 or 6 times as much as another person, as in the video, we can reasonably believe that they actually do work 3 or 6 times as hard. It's even more likely that they are 3 or 6 times more productive, which is not at all the same thing (if a kindergartner and a quantum physicist solve the same math problem, the physicist is surely more productive, even though the kindergartner would have to work a lot harder to get it done at all). Even 400 times as productive we might be able to imagine in certain extreme cases—Jonas Salk, Albert Einstein. But when one person makes 2 million times as much as another—as, let me remind you, is true, right now, here in these United States of America—it becomes obvious that this is not a question of higher productivity but a question of higher power. It could be political power, market power, or even old-fashioned physical force—but it's clearly power.

But this sort of video does give us a glimpse into the minds of those who would think otherwise, those who honestly believe that differences in income are just differences in work ethic; many are rich, and honestly think they earned what they have (even if their father loaned them more money than most people will ever have); but a surprising number are poor, and actually seem convinced that they deserve their own lot because they just didn't work hard enough (even as they work two jobs, care for their sick grandmother, and still can't make their rent on time). These are the people who talk about “lazy freeloaders” and “free stuff”.

They think that an analogy which abstracts away from all the real causes of inequality and assumes an impossible standard of equal opportunity is nonetheless a solid critique of our tax system.

And that's pretty terrifying. Happy Halloween?

Patrick Julius

Patrick Julius

This email address is being protected from spambots. You need JavaScript enabled to view it.
Recent Articles
Would gun control save lives?
Who pays the tax?
Why aren't we colonizing other planets?
We live in the cyberpunk future.
Should we vote for nincompoops?

  • Recently an acquaintance told me, "I worked hard for everything I have." My thought was, "and I didn't?" She never got married, never had children and has never had the experience of being laid off. "They think that an analogy which abstracts away from all the real causes of inequality and assumes an impossible standard of equal opportunity is nonetheless a solid critique of our tax system." She is an example to me of someone who thinks the playing field is equal for everyone and has no idea that it is not.