Yesterday, I gave talks to two classes at the Naval Postgraduate School. Both are classes taught by my good friend Ryan Sullivan. The talks were both titled “How Economists Helped End the Draft.” This has become an annual event in his class and one I look forward to.
As I always do, I drew an upward-sloping curve to show how, when the government institutes a draft and pays less, it causes people who have supply prices that are below the wage that would have been paid in a volunteer military, but above the wage paid in a military with a draft, not to volunteer. (I pointed out that when I looked at every one of the many bills proposed by someone in Congress in 1980 or 1981–I’ve forgotten which–I found that each of them reduced first-term pay, sometimes drastically.) This means that some of these people will be replaced by people with even higher supply prices, people who would not have volunteered even for a volunteer military.
I gave dramatic examples of people who likely had very high supply prices during the draft era, Exhibit A being Elvis Presley. Then I gave less-dramatic examples: someone who knew at age 18 that he wanted to be a doctor, someone who wanted to start a business or get a job, etc.
In Q&A, one student asked if keeping the volunteer military means that there is more income inequality than otherwise. I said no and that the opposite was the truth. I was thinking of all the relatively low-paid people who would still volunteer but would get regular military compensation (which includes room and board) that was 20% to 50% lower than they would have got if they had been in a volunteer military.
Afterwards, the student came up to explain his point. He was thinking about the Elvis Presley’s of the world and of the less dramatic examples of people who had high supply prices because they had high opportunity costs. Their pay would be cut. I was thinking of the 70% of first termers (my guess) who would volunteer at the draft-era wage but would have earned more under an an all-volunteer wage.
I hadn’t thought of his point and readily admitted it: it means, combined with my point, that the effects on income inequality are ambiguous.
But there’s a reason I didn’t think of his point. I keep thinking that many good-willed people who worry about income inequality are really worried about relatively low-income people. This example reminds me that many people who worry about income inequality really are focusing on income inequality and don’t care whether certain steps taken to reduce it hurt both high-income and low-income people. I’m not saying that this student is in that category. He may not have thought of my point.
This is yet another example of the perversity of focusing on reducing income inequality.
READER COMMENTS
Peter
Feb 15 2024 at 12:30pm
Just a personal observation but it’s been my experience most people whom advocate for reducing income inequality, even if just a casually held belief, fall under the latter group hence the forever gut popularity of communism, democracy, etc. Its not about merit, it’s about “fairness” as in an inherent, possibly correctly at a moral, though not economic, level a hour of anyone’s life spent on honest toil is equal to anyone else hour spent on honest toil as they are both toiling, the output doesn’t matter as to the moral worth of that person, i.e. they are both people and equal before God.
I tend to teach my kid that as well though more as anti-deference, i.e. “just because your boss makes more than you or a doctor went to school longer than you doesn’t mean they are better than you nor have magical insights, they just simply are doing a different job that society finds more valuable hence the pay difference but never think they are superior, mor inferior, other you”.
People don’t want to see Musk knocked down out of spite generally, they just see him making millions a hour for doing less toil than them and it bothers them as they see him making it off their backs after denying a $0.15/hr annual pay raise which he can obviously afford without even the slightest impact to his life. It just doesn’t feel right to most to your latter point.
steve
Feb 15 2024 at 4:02pm
Meh. it’s a big country. A lot fo people have not well formed ideas about income inequality. However, that doesnt mean that there are no downsides to extreme income inequality. It seems like some people want to suppress discussion of the negative aspects.
Steve
David Henderson
Feb 15 2024 at 5:33pm
And how does this relate to the very specific point I made in my post?
steve
Feb 15 2024 at 7:31pm
“This is yet another example of the perversity of focusing on reducing income inequality.”
But for this last sentence I dont think it does very much. However, given that there are in fact downsides and as you note effects are sometimes ambiguous I think it’s a bad idea to ignore the downsides. I think its pretty clear that some inequality is positive but that doesnt mean it remains positive at all levels so its not perverse to at least think about reducing it.
Steve
David Henderson
Feb 15 2024 at 8:35pm
You wrote:
I’m not sure how carefully your read my post. The effects on inequality in this case are ambiguous. The effects of moving to a draft, on both low-income and high-income people, are negative. It shouldn’t be a hard choice.
Dylan
Feb 16 2024 at 8:13am
I think the idea is that it is at least theoretically possible for there to be circumstances where making everyone materially worse off, at least in the short run, can lead to better societal outcomes. Take the draft, maybe without it we lose WWII and America becomes a Nazi state. It could perhaps be worth it to make the people subject to the draft worse off, for the long term protection of our society.
Of course, in that example the income inequality reduction is incidental. However, I can imagine a scenario where you reduce income inequality by making everyone worse off and in turn strengthen social cohesion. Humans are very status conscious, so it wouldn’t completely surprise me that folks are happier in a more egalitarian society in which everyone is poorer.
johnson85
Feb 16 2024 at 12:18pm
I don’t think there are a lot of people that want to suppress discussion of the negatives of wealth or income inequality. It’s just there aren’t a lot of people that want to talk about wealth or income inequality more than superficially because either they are coming from a position of envy, and don’t want to shine a light on that, or they aren’t really interested in it beyond the thought of “it’d be nice if people had closer to the same amounts of money”.
Certainly there are exceptions, but it seems like most people that want to talk about the harms of wealth or income inequality don’t want to talk about the want to talk about the harms at all. They either want to talk about things that could be done if different people had more money or some hypothetical future where people turn to violence because wealth and/or income inequality has gotten so bad, with no consideration of how inequality would cause the conditions they describe to come to pass.
jj
Feb 16 2024 at 12:08am
So under a draft, the rich get poorer, and the poor get poorer as well. And it’s an open question who gets hurt more. (But not really, ask CCR)
Matthias
Feb 16 2024 at 12:26am
The wages paid to soldiers don’t appear out if thin air.
If the government manages to pay soldiers less, that’s a win for the general tax payer. (Or if they don’t tax less, it’s a win for the people who get the extra government budget spent on them.)
You can also see a draft as a tax on (mostly) young men. They get taxed the difference between the draft wages and whatever their reservation price for soldiering would have been.
Generally people like their taxes to be progressive, or at least not regressive, with income or wealth. A draft ain’t that kind of tax.
Knut P. Heen
Feb 16 2024 at 9:19am
It seems to me that many people think of society like a family. The parents know what is best. The parents give $10 of pocket money to each child each week an so on. The end product of this line of thinking is the Nanny state and the constant worry about unfair distribution of pocket money. They don’t realize that preferences vary much more between families than within families because their friends’ families are similar to themselves (due to selection of friends). The idea that the parents would produce less because they have to give pocket money to their own children is, of course, completely absurd.
Jose Pablo
Feb 16 2024 at 7:28pm
This is yet another example of the perversity of focusing on reducing income inequality.
“Income inequality” is a meaningless metric (like using “speed inequality” to report the outcome of a race).
Focusing on reducing a meaningless metric is like focusing on increasing a meaningless metric.
If what you want is to increase the income of low-income people, then the metric you should be focusing on is, well, the “income level of the low-income people”.
Using a meaningless metric is not only a waste of valuable time, it can also be detrimental. For instance, focusing on reducing income inequality as a means to increase the income of low-income people, will lead to missing all the opportunities of increasing the income of low-income people that cause, at the same time, income inequality to increase. And there are plenty of those (as per your example).
Dylan
Feb 17 2024 at 7:47am
But what if people in general are less concerned with absolute well-being and instead are primarily concerned with relative well-being?
One of the criticisms of communists is that they ignore human nature, that we work harder and smarter if we’re able to benefit ourselves and our loved ones through our efforts. But I think libertarians tend to have a blindside of how much issues of perceived fairness and egalitarianism matter to most people too.
Jose Pablo
Feb 17 2024 at 9:27am
perceived fairness and egalitarianism matter to most people too.
I don’t know what “fairness” means in this context. And certainly “perceived” doesn’t help. It is very difficult to see how an income distribution can be, at the same time, “fair” and “egalitarian”. It can be “fair” or “egalitarian” but not both at the same time.
Libertarianism provides ample opportunities for you to satisfy your desire for “egalitarianism”. No other system provides a better opportunity to improve your lot if you are at the bottom of the distribution scale (you have to provide something of value to get that, but that seems certainly “fair”). And libertarianism has nothing against you donating all your wealth to achieve more “egalitarianism” if you are on the other side of the income scale.
What I don’t see is the government seizing your assets to force more “egalitarianism” upon you. After all, being robbed just to satisfy the subjective personal desires of others, matters to most people too.
And why stopping at economic egalitarianism?. What I can’t stand is other people being more handsome, or more witty or more brilliant than me. Should we start to measure and worry about “beauty inequality”? Or should David be dispossessed of, at least, half his economic acumen and have that knowledge “redistributed” to me?
Mike
Feb 18 2024 at 9:13am
I think you have a very interesting perspective and I appreciate your post. Many people do seem to have a negative emotional reaction to the idea of wealth inequality and an aversion to thinking about it very deeply. The majority might even be “happier” with less overall wealth provided they feel the wealth is better distributed, though I doubt many would be ready to write a check if this concept could be quantified and billed out. People generally want economic equity at the expense of someone else.
The problem I see, even if we’re going to pretend that money is a proxy for happiness, is that a negative emotional reaction to inequality leads to calls for action – taxing people, breaking up businesses, dictating wage and benefit levels and so forth. In other words, there’s no way to “solve” wealth inequality without a coercive political process that is likely to inflame public sentiments more than the wealth-envy which contributes to public unhappiness in the first place.
As you say, collectivists and libertarians may each ignore human nature in imagining their utopias, but at some point there’s a problem in implementation. Only one of these philosophies seeks to increase the power of a few to regulate the many. That’s a more frightening inequality to me. History tells us that path isn’t going to make anyone happy.
Mike Burnson
Feb 16 2024 at 10:00pm
I agree with Jose, above, that “income inequality” is meaningless. Where is a measure for personal initiative, which is vastly more important? Where is the measure for the disincentive of welfare, also a virulent cause for inequality. Once upon a time, no less than Larry Summers described in detail the negative consequences of welfare and unemployment compensation (generally understood as excessive, as during Covid). Unfortunately, once Obama dangled another government sinecure before him, Summers denounced his own valid perspective.
Thomas L Hutcheson
Feb 17 2024 at 6:36am
I’m not highly focused on reducing consumption of high-consumption people, but as a matter of fact I cannot see us reducing transfers enough to close the budget deficit, so I think we need a lot more revenue (including to eliminate taxes on business income) and some of this needs to come from a progressive consumption tax, although some should also come from a tax on net CO2 emissions and some from a VAT that replaces the wage tax.
Jose Pablo
Feb 17 2024 at 10:35am
Why do you think “more taxes” are better than “more deficit”?
I do prefer to incur “more debt” and, in exchange, to keep control of my assets. The assets I wouldn’t have control over, if I have to pay (more) taxes.
Why should your preference for less debt AND less individually controlled assets be imposed upon me?
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