Taxing Alcohol: Frank’s Callousness

According to Frank, 5% of all drinkers consume more than 40% of all alcohol consumed. A tax on alcohol would barely affect the vast majority who drink responsibly, because alcohol for them is like salt: “People often ignore increases in the prices of goods that account for only a small share of their total expenditures. If the price of salt were to double, for example, most people would consume the same amount of it as before.” (186)

So, people who drink rarely wouldn’t feel any pain; alcoholism and its consequent ills like traffic accidents would be discouraged without anything resembling the Prohibition; the government would enjoy some extra cash which it might spend even on lowering income taxes, thereby benefitting the great majority of moderate and light drinkers.

The only people who will lose are those heavy drinkers who will refuse to quit in the face of the higher prices. They’ll both be harming themselves and paying more. The alcohol tax then commences an income transfer from these stubborn drunkards to the rest of the populace. What justifies this? I think for Frank and those who agree with him, to imitate Godfather, “They’re animals anyway, so let them lose their [money].”

Slippery Slopes for “Nudgings”

If the premise that the government ought to save people from themselves is admitted, then I have no objections to Frank’s proposal to tax alcohol, tobacco, riding bikes without a helmet, even one of “the most controversial proposals,” namely, to tax soft drinks.

When apprised of the slippery slope here, and our author quotes economist Greg Mankiw, “Taxing soda may encourage better nutrition and benefit our future selves. But so could taxing candy, ice cream, and fried foods. Subsidizing broccoli, gym memberships, and dental floss comes next. Taxing mindless television shows and subsidizing serious literature cannot be far behind,” Frank counters that it’s a “concern we can set to one side until we have traveled further down this particular slope.” (193)

I’m afraid this won’t do at all. The meaning of “slippery slope” is that once you start sliding, it is difficult to stop actually, because it is impossible to stop intellectually. But Frank is an intellectual. He of all people should have an especially deep appreciation of the danger.

Now once we have slid down to an extent, presumably, we’ll need to open a discussion whether to keep at it. But this will be worth doing only if in addition to the general argument that the people are ignorant and stupid, always hurting themselves, there is a particular argument stating the reasons for going this far and no farther. If it turns out that there is no such argument, then we must either slide down all the way or go back up. But going down is generally much easier than stopping in midstream, condemning the previous direction, and reversing course and going back up. It is more efficient to decide whether to slide and if so, then how far, and to record the exact reasons for both decisions beforehand.

Review: Darwin Economy: Conclusion

In sum, Robert H. Frank is stuck in the pre-capitalistic feudal age, where there is no such thing as mass production, and practically all goods beyond a few essentials are luxuries, accessible only to people high up in the social hierarchy.

With the coming of capitalism, things have turned 180°, and now almost no goods are permanent luxuries.

Not only love but also the market can level ranks, “and therefore…”

Even there, he would not be making much sense, because the hierarchy in those bygone days was much more stable than it is today, when mobility, both upward and downward, is the order of the day. Dukes would marry duchesses; and peasant boys, peasant girls. The caste or class one was born into was destiny. Hence, arms races were contained even under feudalism.

It may even be that the whole reason for rigid social hierarchies is to defuse arms races. But we have invented a way to channel human competitiveness into socially beneficial outlets. Frank’s exceptions to this rule are too insignificant seriously to challenge modern economic thought.

I might recommend The Darwin Economy to a medieval scholar who wanted to know the causes of famines, pestilences, and wars; but it is a mere curiosity in the modern age.

“Darwinian” Ultimatum Game

Ok, another quick article based on Frank’s description of a game in which

the experimenter gives one subject some money — say, $100 — and then tells him to propose a division of that sum between himself and a second subject. If the second accepts, each walks away with the amount proposed.

For instance, if the first proposes “$60 for me and $40 for you” and the second accepts, the first gets $60 and the second gets $40.

But here’s the twist: if the second subject rejects the proposal, the $100 reverts to the experimenter, and each subject receives nothing.

Standard rational choice models predict that the first subject will make a one-sided proposal — such as $99 for himself and $1 for the second subject — since he knows that it would be in the second subject’s interest to accept rather than get nothing.

But such offers are rarely proposed, and when they are, they are almost invariably rejected. (x)

Let’s postulate first of all that the two subjects are equally “rational” or not as the case may be. If the first subject’s name is Smith, then he is pretty much playing against himself, his alter ego; let’s call him for convenience Jones. Call this assumption E.

Now let me modify the game a little, such that Jones can also make his wishes relative to the splitting of the loot known. And suppose he says “unequivocally” (or just pretends to be so obstinate) that he will reject any offer below $99. Then it is Smith who is in trouble. In order to get anything, he now has to be content with a mere $1.

Now imagine that both are, according to assumption E, equally bullheaded. Then no matter how often the game is played, no one gets anything. Even if the minimum amount each would accept is lowered to $51, still no fun is had by anyone.

The only division that results in both players’ having anything over repeated games, retaining each player’s narrow self-interest, is 50/50. Notice that no allusion to fairness or justice is made at all. The “just” distribution is entirely in the selfish interest of both Smith and Jones.

The “rational choice model” takes people who have lived in society all their lives and are therefore used to repeat — numerous times — mutual ultimatums, in which even splits are commonplace, and places them in an artificial game that renders useless their long-standing ingrained habits. Then it wonders why people behave “irrationally.”

Are you kidding me, get real!