Robin Hood stole from the greedy rich to give to the needy poor. I’ve always struggled with this notion. My brain says that taking from the rich reduces their incentives to be the most productive in society; while my heart feels that we are obligated to help out those who are less fortunate—especially in a country as rich as ours. What to do?
Maybe we should first attempt to explain Robin Hood’s logic. Giving a poor man money will bring him more happiness than would giving to a wealthy man (i.e. diminishing returns on income). If Robin Hood wants to create the most happiness in society, it would be a good goal to figure out a way to take a hundred bucks from that rich man (reducing his happiness by say 1%) and disbursing it to the poor fellow (increasing his happiness by say 3%). Overall, we have a 2% gain in happiness. Not too shabby.*
As individuals, we behave in ways that make us happy, or the happiest we can be in any given situation. (The economist would say that we maximize utility). I think it’s safe to assume that both the rich and the poor similarly try and maximize their happiness. This is to say that the rich man would not be willing to reduce the happiness provided by his income unless he receives other such happiness to make up for the shortfall. Bill Gates has so much money that he receives more happiness spending through philanthropic undertakings than through increased consumption. The warm and fuzzy feelings the rich man purchases with his altruism are worth more to him than that money.
Charity is just like any other good: The happiness I received from the cup of coffee I purchased this morning was worth more to me than the $1.86 I spent on it. No matter how the rich man spends his money he is still trying to maximize his overall happiness, even if he gives it away. When Robin Hood steals from him, he no longer has the intrinsic motivation to purchase charity on his own because Robin Hood took care of it for him--and decided which poor man will get it.
To pose a question (in a manner that suggests my evident bias): Is it right for Robin Hood to take from the rich and give to the poor? Or would it be better for the rich to willingly give to the poor based on their preferences?
*An illustration of the above example: How redistribution can increase aggregate happiness:
The rich man starts at r1 until he is robbed $100 dollars. His happiness is reduced by 1% to r2. If the $100 were given to the poor man at p1 he would move to p2 and his happiness would increase by 3%. Overall happiness in society increases by 2%.
Maybe we should first attempt to explain Robin Hood’s logic. Giving a poor man money will bring him more happiness than would giving to a wealthy man (i.e. diminishing returns on income). If Robin Hood wants to create the most happiness in society, it would be a good goal to figure out a way to take a hundred bucks from that rich man (reducing his happiness by say 1%) and disbursing it to the poor fellow (increasing his happiness by say 3%). Overall, we have a 2% gain in happiness. Not too shabby.*
As individuals, we behave in ways that make us happy, or the happiest we can be in any given situation. (The economist would say that we maximize utility). I think it’s safe to assume that both the rich and the poor similarly try and maximize their happiness. This is to say that the rich man would not be willing to reduce the happiness provided by his income unless he receives other such happiness to make up for the shortfall. Bill Gates has so much money that he receives more happiness spending through philanthropic undertakings than through increased consumption. The warm and fuzzy feelings the rich man purchases with his altruism are worth more to him than that money.
Charity is just like any other good: The happiness I received from the cup of coffee I purchased this morning was worth more to me than the $1.86 I spent on it. No matter how the rich man spends his money he is still trying to maximize his overall happiness, even if he gives it away. When Robin Hood steals from him, he no longer has the intrinsic motivation to purchase charity on his own because Robin Hood took care of it for him--and decided which poor man will get it.
To pose a question (in a manner that suggests my evident bias): Is it right for Robin Hood to take from the rich and give to the poor? Or would it be better for the rich to willingly give to the poor based on their preferences?
*An illustration of the above example: How redistribution can increase aggregate happiness:
The rich man starts at r1 until he is robbed $100 dollars. His happiness is reduced by 1% to r2. If the $100 were given to the poor man at p1 he would move to p2 and his happiness would increase by 3%. Overall happiness in society increases by 2%.
Robin Hood is from a time where people can't escape what they have been born into. I think it is hard to relate his practices to a time like this, where it is possible to live out the 'American Dream'. RH never had to consider stealing from the middle class, those who work hard for their money vs the Lords and Ladies he stole from. Either way, the moral question of is it right to steal in any case, comes into play. I say sure why not. They can only eat so much swine and drink so much mead.
ReplyDelete& Measuring happiness is pretty bad ass.
Issues of income inequality and wealth distribution vex social scientists (not to mention the poor themselves). In an interesting coincidence I attended a book discussion last night in which we debated Hayek's The Constitution of Liberty. Hayek correctly pointed out that the poor owe a great deal to the rich - it is the wealthy who provide savings that supports investment and thus roundabout production and the wealthy provide the market for new products which are initially luxuries and then evolve into necessities (think cell phones, mp3 players, TVs - all owned by the "poor" in the US).
ReplyDeleteSo the wealthy should act upon their own set of preferences without coercion and in so acting reflect what Adam Smith observed in the Wealth of Nations.
Hayek writes:
"Economic activity provides the material means for all our ends. At the same time, most of our individual efforts are directed to providing means for the ends of others in order that they, in turn, may provide us with the means for our ends. It is only because we are free in the choice of our means that we are also free in the choice of our ends."
http://www.thefreemanonline.org/featured/the-moral-element-in-free-enterprise/
I think we have a pareto optimal issue here. Taking from one to give to another is another form of distribution yet not PO because one party is made worse off to benefit the other. This could be considered a tax or forced redistribution.
ReplyDeleteYet in the case of Gates or Buffet PO is achieved because by giving to the poor voluntarily, this seemingly makes both parties better off.
On a side note I just finished Buffets newest Biography and he points out that when he was younger he thought his best contribution to society was his ability to compound money so when he died there would be lots to go around.
He felt in the end the rich were allowed to be rich by others and there was a debt to the global society. (Note: Buffet is Democrat!)
He also seperately pointed out that he paid less taxes on his income than his secretary because his income came from capital gains verses hers was a salary... he made several attempts to change this without success and other rich people called him a traitor. Ironic.
Mark,
ReplyDeleteIt is interesting to note that even a very inequitable distribution of income can be a Pareto optimal. Even if all resources are owned by one individual it would not be a Pareto improvement to redistribute unless it somehow benefits him (i.e. charity).
So, if some Robin Hood figure attempts to equalize the distribution of wealth it appears that this would bar Pareto improvements by ruining any intrinsic value of giving.
Jimmy here, you guys said you'd be interested in my psychology input.
ReplyDeleteMost studies have shown that there is not a correlation between income and happiness. Some have shown a decrease in happiness beyond the point of being able to provide for basic necessities. The graph of happiness versus income starts very low, (a starving person isn't very happy) peaks just past basic necessity, and steadily decreases as income increases. Obviously there are exceptions to this as with every social-science plot.
Individuals tend to over-estimate the effect of positive (or negative, for that matter) events on their long-term happiness. While a raise or winning the lottery will almost without exception increase happiness in the short term, as time passes this gain will disappear and happiness will return to its previous level.
The reason for this is that happiness is very much based on adaptation level. Our perception of our situations comes from our prior experience. As an individual adapts upward, yesterday's luxury becomes today's necessity, and happiness balances out.
Another major influence on happiness is the relative deprivation principle. Individuals are happier when they compare themselves to others and find themselves better off. In this way, the income loss suffered by the more affluent individual could cause a permanent decrease in happiness if that person fails to adjust their expectations. Fortunately for us, especially here in America, its easy to find somebody somewhere who is less fortunate than we are. Only an extremely stubborn affluent individual would find their happiness permanently decreased by this loss of income.
Hope you guys found this helpful.
Con corazon,
Jimmy
Jimmy,
ReplyDeleteYour psychology point of view is much appreciated. I'm taken by the notion that two social sciences have come to such opposing conclusions. The relationship between income and utility that I explore in this post is a general economic consensus--not something that I was necessarily attempting to derive creatively.
I couldn't agree more wit the relative deprivation principle. Such is the basis of our competitive mindset the drives the continuous progression of mankind. No matter how much man has, he always wants more. This is why we will never reach a steady state.
Come think with us some time on Sundays.
Thanks,
Niko
"He became a justification for every mediocrity who, unable to make his own living, has demanded the power to dispose of the property of his betters, by proclaiming his willingness to devote his life to his inferiors at the price of robbing his superiors. It is the foulest of creatures--the double-parasite who lives on the sores of poor and the blood of the rich--whom men have come to regard as a moral ideal. ... Until men learn that of all human symbols, Robin Hood is the most immoral and the most contemptible, there will be no justice on earth and no way for mankind to survive." -Rand
ReplyDelete