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Saturday, December 8, 2007

On Mankiw's silly paper

Mankiw's paper on the taxation of height espouses the idea that, if we reject such a notion, then why are we bothering with models of efficient forms of taxation and the like.... The NY Times recently points out what they believe the paper's logical flaw.

Credit Mankiw for posting the critique. The mistake the NYT thinks Mankiw makes is, to quote: "that if you can draw a silly inference from an approach, then that discredits a model.”

Mankiw responds by saying, 'well what's the point of having theories then.'
He says further, "
It seems to me that if you are going to reject a logical inference from a model, you have to explain why. That is not so easy for a height tax, which is precisely the point of the paper."

I disagree wholly with Mankiw, as do many others. It seems patently obvious why people reject height taxation over other forms of taxation. And the fact that Mankiw doesn't see this shows just how disjointed his belief in the power of economics is with reality.

On this, I make two points: First, economic theory does illuminate, but it doesn't illuminate COMPLETELY. If all policy makers listened ONLY to their economic advisors, this world would be in the shitter faster than you could blink. We would be in this no-holds-bars free-market soup of robots (sorry, economicus's). People would suffer, but dang-nabit we'd have a more optimal size of the pie (GDP). I've mentioned before that economists that push economics as a more powerful voice than other fields are not doing anyone a favor. That is why I believe in a greater separation of economics and politics. Economics should be used as a piece to the puzzle, but when it is used for more than that, we are all in trouble.

Second, more to the point of height taxation, it is obviously ridiculous because taxation is in and of itself NOT just an economic idea. Taxation certainly affects the economics of the taxed area, but taxation also directly effects the psychology and sociology of the masses. When we tax on income, people think that (while they may not like the level of taxation) that is valid because that is a fairly direct way of redistributing resources from the haves, and giving it to the havenots. It's not efficient, but it is an easier psychological pill to swallow. THAT is the trade off. Mankiw loves to talk about trade offs within economics, yet he simultaneously ignores trade offs between the disciplines. Taxing height hearkens, psychologically, to some sort of fascist mentality. People don't think, "well, height is correlated to income, so I guess it's ok." They think: "I am being discriminated against based on an innate trait. My government is fascist. "

So the NY Times I think is partially right, but they were sloppy in their analysis - they too failed to focus on the bigger picture of what exactly taxing height means. One can summarily reject Mankiw's ridiculous height tax, AND still support economic theory of taxation by simply understanding that economic theory is meant to illuminate a part of the picture. But the best policy is one that has a million flashlights shining on it. Otherwise.....






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