The X Factor of Economics – People – NYTimes.com
October 17, 2010 § Leave a comment
Which gets to another great variable: personal values. In his textbook “Principles of Economics,” N. Gregory Mankiw, a Harvard professor, proposed this thought experiment: A town must maintain a well. Peter, who earns $100,000, is taxed $10,000, or 10 percent of his income, while Paula, who earns $20,000, hands over $4,000, or 20 percent of her income.
“Is this policy fair?” Mr. Mankiw asks in “Principles.” “Does it matter whether Paula’s low income is due to a medical disability or to her decision to pursue an acting career? Does it matter whether Peter’s high income is due to a large inheritance or to his willingness to work long hours at a dreary job?”
Economics, Mr. Mankiw concludes, won’t tell us, definitively, whether Peter or Paula is paying too much, because an answer inevitably leads to matters of values, which inevitably leads to different answers.
This pointing to what we want, consideration of the human. But the examples have to be good. In this case, the implications of the contributions to the well need to be calculated out. For the town, for the participants, as a tax pol;icy, what Paula might have done differently with the 4k, etc. The problem with most economics is not the value s question, but the failure to run the model out to consequences, such as income distribution and its consequences.