Desert-Sacrifice-Utility Whack-a-Mole

Earlier, I explained the common argumentative strategy I call Capitalism Whack-a-Mole. People who utilize this strategy claim that they support capitalism for a specific normative reason (e.g. that it gives to each what they produce), but then, when you show that normative reason is actually inconsistent with capitalism, they shift to a totally new normative framework. For those who use the whack-a-mole, their preference for laissez-faire capitalism never changes, but their justification for it shifts rapidly from moment to moment.

Previously, I wrote about a whack-a-mole experience I had on Twitter with some fellow named Adam Blackstone. Here, I write about another whack-a-mole experience I had with on Twitter with a fellow named William Freeland. This twitter back-and-forth was very long, so I will just summarize it (you can try to work through it here though if you want).

Freeland starts off with a desert-like framework, objecting to people who get income without working (“freeloaders”). Naturally, I point out that this desert-like framework makes capital income illegitimate. Capital income does not come from the productivity of the person who receives it. It does not come from them working. It is precisely the kind of passive, unearned income that the desertist framework prohibits as unjustified.

In response to my now standard “what about capital income” retort, Freeland eventually says that the reason capitalists should receive income is because they undertake sacrifice in deferring consumption. On this view, it is not that you are paying them because they are being productive. Rather, you are paying them for the pain they undergo in saving the money instead of spending it on consumer goods.

As is my style, I accept this “paying for sacrifice” framework of distributive justice and then use it to generate a conclusion that is at odds with what I know Freeland wants to advocate. This is how you induce someone to shift their normative framework. Once you’ve shown their offered framework generates a conclusion they don’t like, they generally change to something else entirely.

In the case of the “paying for sacrifice” framework, I simply pointed out that markets do not distribute capital income according to the level of sacrifice undertaken by given individuals. Suppose a poor person with a $10,000 income invests $1,000 of that income. Suppose now that a rich person with a $100,000 income also invests $1,000 of income. The sacrifice undertaken by the poor person in this scenario is much greater than the sacrifice undertaken by the rich person. Due to the diminishing marginal utility of consumption, saving that $1,000 was just way easier for the rich person to do than the poor person.

Under a “paying for sacrifice” framework, it must be the case that the poor person will receive much more return on that $1,000 than the rich person. But that’s not how the market will handle it. Even if you supposed that the poor person had identical access to investments as the rich person (which isn’t usually the case), the poor person would still only receive an identical return on that $1,000 as the rich person. The “paying for sacrifice” framework would demand that the poor person receive more capital income than the rich person for sacrificing that $1,000 in consumption, but, at best, the poor person only receives the same amount as the rich person.

Consequently, the “paying for sacrifice” framework at minimum requires that we implement a progressive capital income tax in order to fund capital income subsidies for low-income investors. Since the market does not distribute capital income according to the relative sacrifice undertaken by investors, other institutions must be used to make that happen. And the progressive capital income tax is the obvious solution.

Freeland does not like any capital income taxes and certainly not progressive capital income taxes. He is some kind of libertarian, after all. So what does he do? After a long back-and-forth in which I hammer home that the sacrifice framework is going to require progressive capital income taxes on the rich, he finally shifts the normative framework:

And they [the rich] will invest less and we will all be poorer for it in 1000 ways.

This is a utilitarian argument. Because the “paying for sacrifice” framework requires tax-and-transfer institutions Freeland is opposed to, he abandons it in favor of utilitarianism in this case. In doing so, he concedes that market institutions do not distribute capital income according to the “paying for sacrifice” framework, but says that this must be tolerated because trying to actually follow such a framework will make everyone poorer, which is bad for utilitarian reasons.

Freeland start at desert, which is the idea that people should be compensated according to what they produce. I show that this means capital income is unjustified. Freeland then shifts to this “paying for sacrifice” framework, which says that capital income is justified insofar as it pays people for the sacrifice they undertake by saving. I show that this means we need progressive capital income taxes and capital income subsidies for the poor in order to ensure each investor actually gets a return commensurate with their subjective level of sacrifice. Freeland then shifts to utility, which says that we shouldn’t introduce such a tax because it will reduce investment and the amount of overall production in the economy. Desert. Sacrifice. Utility.

Of course, the framework that we left off on, utility, supports taxing and transferring for “distributive efficiency” reasons, though I’d guess Freeland wouldn’t follow the utilitarian framework to that conclusion, if he was pressed on it.