Wednesday, April 26, 2006

On Just Deserts

Okay, Harvard students: As a group, you are smarter than average, more athletic than average, more musical than average, better looking than average, and taller than average. (I admit: I made some of that stuff up, but I bet it is all true.) You have a whole range of innate talents, which means, after you graduate, you will make more money than the average person. Do you deserve it?

Bryan Caplan (libertarian, econ prof, and blogger) says YES. He thinks people with more talent deserve the fruits of those talents.

By contrast, the standard approach to optimal taxation says NO. The same is true of Rawls’s approach to economic justice.

According to optimal tax theory, taxing income or consumption is a second-best solution. Those taxes distort incentives and cause deadweight losses. What we would really like to tax, the theory posits, is innate talent. We could then provide “social insurance” against the unfortunate outcome of being born with less talent in a way that does not distort incentives.

Behavioral geneticists tell us that a large fraction of the variation in life’s outcomes (50 percent or more) can be explained by the genes you have when you are born. Suppose that one day we could identify the high-IQ gene, the attractive symmetrical face gene, the tall gene, and so on. Optimal tax theory says that we should levy special taxes on the lucky people with those genes. After all, you don’t deserve the fruits of those genes.

Or do you? As an economist, rather than a moral philosopher, I have no idea about the answer.