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Can’t we understand the Layard “tax as truce” concept within a prisoner’s dilemma-type framework? IIRC, the key feature of the model isn’t that it is Zero-Sum, but rather that it is Negative Sum. That’s the arms-race analogy.

Suppose there are 2 choices: slack (S) or rat-race (R)
The payoff matrix is
S R
S 10, 10 6,12

R 12, 6 8, 8
Without a tax, the dominant strategy is to rat-race.

But then the government comes in and puts a tax on rat-racers, possibly redistributing the proceeds to slackers, or at least lowering the tax burden slackers would otherwise bear. So the payoff matrix becomes:
S R
S 10, 10 8,10
R 10, 8 6, 6
Now the dominant strategy is to slack.

It’s easy to write down a model where Layard’s policy recommendations are Pareto improving. I just did it in 5 minutes. Go me! But I can also write down a model which gives everyone negative infinite utility if they don’t give Layard the Nobel Prize.
As I think I read on Tyler Cowen’s site: “It’s easy to lie with statistics, but it’s a lot easier to lie without them.” (With theory, for example)

Can’t we understand the Layard “tax as truce” concept within a prisoner’s dilemma-type framework? IIRC, the key feature of the model isn’t that it is Zero-Sum, but rather that it is Negative Sum. That’s the arms-race analogy.

Suppose there are 2 choices: slack (S) or rat-race (R)
The payoff matrix is
S R
S 10, 10 6,12

R 12, 6 8, 8
Without a tax, the dominant strategy is to rat-race.

But then the government comes in and puts a tax on rat-racers, possibly redistributing the proceeds to slackers, or at least lowering the tax burden slackers would otherwise bear. So the payoff matrix becomes:
S R
S 10, 10 8,10
R 10, 8 6, 6
Now the dominant strategy is to slack.

It’s easy to write down a model where Layard’s policy recommendations are Pareto improving. I just did it in 5 minutes. Go me! But I can also write down a model which gives everyone negative infinite utility if they don’t give Layard the Nobel Prize.
As I think I read on Tyler Cowen’s site: “It’s easy to lie with statistics, but it’s a lot easier to lie without them.” (With theory, for example)

Can’t we understand the Layard “tax as truce” concept within a prisoner’s dilemma-type framework? IIRC, the key feature of the model isn’t that it is Zero-Sum, but rather that it is Negative Sum. That’s the arms-race analogy.

Suppose there are 2 choices: slack (S) or rat-race (R)
The payoff matrix is
S R
S 10, 10 6,12

R 12, 6 8, 8
Without a tax, the dominant strategy is to rat-race.

But then the government comes in and puts a tax on rat-racers, possibly redistributing the proceeds to slackers, or at least lowering the tax burden slackers would otherwise bear. So the payoff matrix becomes:
S R
S 10, 10 8,10
R 10, 8 6, 6
Now the dominant strategy is to slack.

It’s easy to write down a model where Layard’s policy recommendations are Pareto improving. I just did it in 5 minutes. Go me! But I can also write down a model which gives everyone negative infinite utility if they don’t give Layard the Nobel Prize.
As I think I read on Tyler Cowen’s site: “It’s easy to lie with statistics, but it’s a lot easier to lie without them.” (With theory, for example)

The very difficulty of coming up with the substitute may be reason to suspect it would be a truce of sorts. Let me put it the following way. When I gave up competing for relative wealth, I started competing for (hypothetically) intellectual debates or some such. Al Gore, when he lost the election, instead of relative wealth decided to compete with rugged outdoorsmanship, and after that decided to compete for top environmental advocate. You may compete along the dimension of how much you love liberty (“Give me liberty or give me death.” That is how much I love it!) or along the demention of best dressed in a philosophy department. Some may even suggest that you would try to have a better blog than others.

Now, money is an obvious competition, and physical stuff is sometimes, but note that people compete physically along different dimensions.

To this extent, we are not in the same sort of competition as with relative wealth. The problem with relative wealth is that too many people are competing on the same field so there are not enough winners. When we disperse and all compete for different things, our winning is not mutually exclusive. No matter how much better your blog is than Gore’s, he is a better environmental activist than you, and you can both be happy and prideful about it.

The very difficulty of coming up with the substitute may be reason to suspect it would be a truce of sorts. Let me put it the following way. When I gave up competing for relative wealth, I started competing for (hypothetically) intellectual debates or some such. Al Gore, when he lost the election, instead of relative wealth decided to compete with rugged outdoorsmanship, and after that decided to compete for top environmental advocate. You may compete along the dimension of how much you love liberty (“Give me liberty or give me death.” That is how much I love it!) or along the demention of best dressed in a philosophy department. Some may even suggest that you would try to have a better blog than others.

Now, money is an obvious competition, and physical stuff is sometimes, but note that people compete physically along different dimensions.

To this extent, we are not in the same sort of competition as with relative wealth. The problem with relative wealth is that too many people are competing on the same field so there are not enough winners. When we disperse and all compete for different things, our winning is not mutually exclusive. No matter how much better your blog is than Gore’s, he is a better environmental activist than you, and you can both be happy and prideful about it.

The very difficulty of coming up with the substitute may be reason to suspect it would be a truce of sorts. Let me put it the following way. When I gave up competing for relative wealth, I started competing for (hypothetically) intellectual debates or some such. Al Gore, when he lost the election, instead of relative wealth decided to compete with rugged outdoorsmanship, and after that decided to compete for top environmental advocate. You may compete along the dimension of how much you love liberty (“Give me liberty or give me death.” That is how much I love it!) or along the demention of best dressed in a philosophy department. Some may even suggest that you would try to have a better blog than others.

Now, money is an obvious competition, and physical stuff is sometimes, but note that people compete physically along different dimensions.

To this extent, we are not in the same sort of competition as with relative wealth. The problem with relative wealth is that too many people are competing on the same field so there are not enough winners. When we disperse and all compete for different things, our winning is not mutually exclusive. No matter how much better your blog is than Gore’s, he is a better environmental activist than you, and you can both be happy and prideful about it.

Layard seems to argue that (1) people have an extremely strong taste for relative position and (2) if you push them off the income/consumption race, the competition won’t just pop up on another, possibly more harmful, dimension. He implies the only alternative to income/consumption-oriented labor is leisure, and argues that people don’t race on the leisure dimension. Maybe. But that’s not the only relevant dimension. (1) implies that people won’t stop competing just because competition on one dimension has become too expensive. All the tax will have done is lower the relative cost of competing on another dimension. So, an argument for tax-as-truce that involves (1), requires an additional argument identifying the most likely substitute dimension, and showing that competition on this dimension will be more benign. An argument without (1) will have a hard time sustaining itself against “you can always just choose not to care about relative material position” least-cost avoider arguments.

Layard seems to argue that (1) people have an extremely strong taste for relative position and (2) if you push them off the income/consumption race, the competition won’t just pop up on another, possibly more harmful, dimension. He implies the only alternative to income/consumption-oriented labor is leisure, and argues that people don’t race on the leisure dimension. Maybe. But that’s not the only relevant dimension. (1) implies that people won’t stop competing just because competition on one dimension has become too expensive. All the tax will have done is lower the relative cost of competing on another dimension. So, an argument for tax-as-truce that involves (1), requires an additional argument identifying the most likely substitute dimension, and showing that competition on this dimension will be more benign. An argument without (1) will have a hard time sustaining itself against “you can always just choose not to care about relative material position” least-cost avoider arguments.

Layard seems to argue that (1) people have an extremely strong taste for relative position and (2) if you push them off the income/consumption race, the competition won’t just pop up on another, possibly more harmful, dimension. He implies the only alternative to income/consumption-oriented labor is leisure, and argues that people don’t race on the leisure dimension. Maybe. But that’s not the only relevant dimension. (1) implies that people won’t stop competing just because competition on one dimension has become too expensive. All the tax will have done is lower the relative cost of competing on another dimension. So, an argument for tax-as-truce that involves (1), requires an additional argument identifying the most likely substitute dimension, and showing that competition on this dimension will be more benign. An argument without (1) will have a hard time sustaining itself against “you can always just choose not to care about relative material position” least-cost avoider arguments.

The most intuitive way to think about it is simply as an externality: my consumption harms you by reducing your satisfaction with what you have; but I don’t take that cost into account when choosing how much to work and consume. The tax is a standard Pigouvian one, intended to internalise this externality.

The reason I think you’re ending up with a different intuition is essentially Glen’s: the utility function assumed by Layard, Frank etc. (and supported by the data) is one in which both absolute and relative income matter. On the other hand, you seem to be assuming that only rank matters (though to be honest, it’s a little difficult to tell exactly what you’re assuming. I think this is definitely a situation where the maths is useful in enforcing clarity). If it were the case that only rank mattered, there would be no externality at the margin – and the tax (which affects marginal incentives) wouldn’t necessarily have the desired effect. But that’s a rather implausible case to have to make.

The most intuitive way to think about it is simply as an externality: my consumption harms you by reducing your satisfaction with what you have; but I don’t take that cost into account when choosing how much to work and consume. The tax is a standard Pigouvian one, intended to internalise this externality.

The reason I think you’re ending up with a different intuition is essentially Glen’s: the utility function assumed by Layard, Frank etc. (and supported by the data) is one in which both absolute and relative income matter. On the other hand, you seem to be assuming that only rank matters (though to be honest, it’s a little difficult to tell exactly what you’re assuming. I think this is definitely a situation where the maths is useful in enforcing clarity). If it were the case that only rank mattered, there would be no externality at the margin – and the tax (which affects marginal incentives) wouldn’t necessarily have the desired effect. But that’s a rather implausible case to have to make.

The most intuitive way to think about it is simply as an externality: my consumption harms you by reducing your satisfaction with what you have; but I don’t take that cost into account when choosing how much to work and consume. The tax is a standard Pigouvian one, intended to internalise this externality.

The reason I think you’re ending up with a different intuition is essentially Glen’s: the utility function assumed by Layard, Frank etc. (and supported by the data) is one in which both absolute and relative income matter. On the other hand, you seem to be assuming that only rank matters (though to be honest, it’s a little difficult to tell exactly what you’re assuming. I think this is definitely a situation where the maths is useful in enforcing clarity). If it were the case that only rank mattered, there would be no externality at the margin – and the tax (which affects marginal incentives) wouldn’t necessarily have the desired effect. But that’s a rather implausible case to have to make.

Noting that, let me lay out some thoughts and about the tax and creating a disincentive to relative position competition. I’m on a time limit so I will write another comment later, but here is a start.

1) People are motivated by combinations of preferences for absolute wealth, working less and relative wealth.
2) People will exchange work for absolute wealth and/or relative wealth in the proper amounts, but not for amounts which are too small.
3) Through taxation, you can decrease the amount of absolute wealth that is gain from work exchanges.
4) Therefore, People will have less incentive to work. If the problem is needless production, this may reduce it. We assume that generally the more necessary things will still be purchased and therefore produced, and less necessary things will not be.

This leaves us with the following problem: although work/production will be down, there may still be the same amount of production due to desire for relative position.

If relative and absolute wealth are seen as linked however, this may change the level of desire for relative wealth. Let me clarify.

I desire to be the richest person in the world. Why? Because I saw a show which talked about all the stuff he has. I also read some statistics about all the stuff that people in the top 10% of income holders have. It is a lot of stuff! This makes me totally want to be in that class of people.

To the extent that absolute wealth is decreased at the top, being at the top is less desirable. I will not claim that this applies in all cases. For example students for example compete with test scores even at levels where the score will not affect their end grade and no one will ever notice outside or after the class. But there are a lot of marginal cases, and often when the difference between top and bottom is minimized, people just don’t care (as much) where they fall.

I’ll suggest that this applies particularly to progressive taxation, as it makes it that much harder to have increadable differences in wealth. I will consider further my thought that people don’t just want to have some more than others, it is often wanting to have ‘significant’ amounts more than others. I want to make 50 times as much as you, not $50 more than you. I would only do so much to get that though, so the harder it is for me to be many times richer than you, the less likely I am to think that it is worth doing.

Just some thoughts to start with while I work out others.

Noting that, let me lay out some thoughts and about the tax and creating a disincentive to relative position competition. I’m on a time limit so I will write another comment later, but here is a start.

1) People are motivated by combinations of preferences for absolute wealth, working less and relative wealth.
2) People will exchange work for absolute wealth and/or relative wealth in the proper amounts, but not for amounts which are too small.
3) Through taxation, you can decrease the amount of absolute wealth that is gain from work exchanges.
4) Therefore, People will have less incentive to work. If the problem is needless production, this may reduce it. We assume that generally the more necessary things will still be purchased and therefore produced, and less necessary things will not be.

This leaves us with the following problem: although work/production will be down, there may still be the same amount of production due to desire for relative position.

If relative and absolute wealth are seen as linked however, this may change the level of desire for relative wealth. Let me clarify.

I desire to be the richest person in the world. Why? Because I saw a show which talked about all the stuff he has. I also read some statistics about all the stuff that people in the top 10% of income holders have. It is a lot of stuff! This makes me totally want to be in that class of people.

To the extent that absolute wealth is decreased at the top, being at the top is less desirable. I will not claim that this applies in all cases. For example students for example compete with test scores even at levels where the score will not affect their end grade and no one will ever notice outside or after the class. But there are a lot of marginal cases, and often when the difference between top and bottom is minimized, people just don’t care (as much) where they fall.

I’ll suggest that this applies particularly to progressive taxation, as it makes it that much harder to have increadable differences in wealth. I will consider further my thought that people don’t just want to have some more than others, it is often wanting to have ‘significant’ amounts more than others. I want to make 50 times as much as you, not $50 more than you. I would only do so much to get that though, so the harder it is for me to be many times richer than you, the less likely I am to think that it is worth doing.

Just some thoughts to start with while I work out others.