Barro on Marginal Utility and Wealth Transfers
By David Henderson
In an otherwise good article defending Tyler Cowen, Josh Barro states the following:
There is declining marginal utility of money: A person who makes $10,000 gets more value out of an extra dollar than a person who makes $100,000 does. So, transferring wealth from rich people to poor people makes the public better off in the aggregate.
Tyler writes that Josh “is completely correct.” Actually, Tyler and Josh are wrong. I went on Tyler’s site to say why but for some reason it didn’t accept my comment and when I tried again, it suggested that I was commenting too frequently.
Then it occurred to me that this would be a good “teachable moment,” as Barack Obama likes to say. So find the flaw in the above quoted statement from Josh. HINT: It has nothing to do with ideology; it’s straight mainstream economics.