Robert Frank's Reply

Robert Frank emailed me his reply to my post, with the explanation that it was too long for the blog software to accept as a comment. I am posting it here with his permission, and will be posting my re-response later.

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My column that provoked David’s comment also provoked a lot of angry mail from other readers who identified themselves as libertarians. None of them, however, made David’s good-faith effort to respond to my argument on its own terms. So I’m pleased that such a respected and able member of the libertarian community has responded to it with care. I will attempt to address his criticisms in a similar manner.

Yet there remain several ways in which we seem to be talking past one another. Most important, we disagree about the very nature of concerns about relative position. In my piece, for example, I claimed that high social rank has substantial instrumental value, observing that the highest-ranking members of society “know they will be able to send their children to the best schools and have access to the best health care. Low-ranking members enjoy no such confidence.” David disagrees, saying that this passage demonstrates my failure “to distinguish between absolute and relative values”: "Getting good health care,” he writes, “is very important to me, but its value does not depend, so far as I can judge by introspection, on other people having worse health care."

As I’ll argue in a moment, the failure to grasp the relevant distinction is his, not mine. He is correct, though, that demands for health and safety are among the least positional of all demands. Suppose, for example, that you ask someone to choose between two hypothetical worlds: World A, in which he has a 5 in 10,000 probability of dying on the job each year while the corresponding probability for other workers is 10 in 10,000; or World B, in which his annual probability of dying is 2 in 10,000 and the corresponding probability for others is 1 in 10,000. Almost everyone picks World B, the absolutely safe but relatively unsafe one.

But that fact has absolutely no bearing on my claim that persons of high social rank have greater access to the best health care. Resources are finite. The most renowned practitioners cannot provide the most costly medical treatments to every seriously ill patient. Indeed, as things now stand in the United States, not everyone has access to even minimal basic care. (We are first among industrial nations in “preventable deaths” per capita—deaths that would not have occurred if the afflicted person had received competent and prompt medical attention for the ailment that later caused his death.) When there’s not enough for everyone, can there be any doubt that society’s lowest-ranked members are least likely to get the best care?

The importance of social rank for education is even clearer. We care about the absolute quality of education, to be sure. Even so, a “good” school in every society is an inescapably relative concept. It’s one that compares favorably with other schools. Such schools are almost always located in neighborhoods with relatively expensive houses. This is hardly surprising, since most parents want to send their children to good schools, and it’s relative income that predicts which parents will be able to outbid others for houses in the better neighborhoods that surround those schools. In contrast, if all we knew was a family’s absolute income, we’d have no idea whether it would be able to send its children to good schools.

David also believes that a society in which people were concerned about relative position would oppose policies aimed at reducing poverty. Thus, he writes,

"Back when Lyndon Johnson was pushing the War on Poverty, his claim was that it would eliminate poverty, result in poor people no longer being poor. If Frank is correct, that claim should have been a death sentence for the program. On his argument, after all, I benefit by other people being poor, since it raises my relative status, and so would be worse off if they stopped being poor. The great majority of voters, then and now, are not poor, so if he is right the great majority should have viewed what Johnson claimed to be doing as hurting them, and voted against it. That isn't what happened. For Barack Obama to center his proposals for health care on making it available to the small minority of uninsured individuals should have been political suicide if Frank is right. But the bill passed."

He goes on to suggest that my argument implies that “the rich ought to be in favor of grinding down the poor…” These remarks betray a curiously dark conception of human nature. Being concerned about relative position surely does not imply taking pleasure in the knowledge that others are poor. If it did, middle-income people would spend long hours observing people in poor neighborhoods, thereby to boost their own self-esteem. That they don’t choose to spend their time this way doesn’t mean they don’t care about relative position.

All available evidence suggests that positional concerns are extremely local in nature. As Bertrand Russell once put it, beggars don’t envy millionaires, they envy other beggars who are doing a little better. If we adopt a Darwinian perspective on the forces that shaped human motivation, this is as we would expect, because similarly-situated others are the rivals that really matter in the struggle for survival. The non-poor simply have no reason to view the poor as rivals. They don’t compete for the same jobs, the same mates, or houses in the same school districts. Because the local comparisons that matter most for the non-poor would be largely unaffected by anti-poverty programs, it makes no sense to say that positional concerns provide a motive for opposing those programs.

Nor are positional concerns the only ones that motivate people. With the exception of sociopaths, people typically experience displeasure from the knowledge that others are in distress. Such feelings predict support for anti-poverty programs. Or perhaps the simple fact that life is unpredictable leads many to favor a generous social safety net as a hedge against the possibility that they themselves might become poor some day. In short, the fact that many voters favor anti-poverty programs does not mean they don’t value favored positions in the social hierarchy.

Rank is a reciprocal phenomenon. High-ranked positions cannot exist in the absence of low-ranked positions. In virtually every private work group, the pay schemes we observe embody an implicit progressive tax that transfers substantial income from the most productive workers to the least productive. On my argument, work groups with mixed productivity levels would quickly dissolve except for this transfer, which creates an implicit market for local rank.

Those who particularly value high local rank can purchase it by transferring some of their pay to their less productive co-workers, without whose presence they would not be able to enjoy high rank. Everyone wins under this arrangement. The least productive workers get a pay premium larger than necessary to compensate them for the burdens of low rank; and the most productive workers take a wage cut that is smaller than the value they assign to high rank.

This arrangement provokes no complaint from libertarians because it is completely voluntary. Someone who doesn’t wish to purchase high local rank doesn’t have to. Instead, he can join a group in which he would be one of the least productive members and be paid more than the value of what he produces.

There would be no similar escape hatch for society’s most productive workers under a society-wide redistributive tax scheme. Even those who insisted they did not value high social rank would face mandatory tax payments to finance transfers to their lower-ranked fellow citizens. From the libertarian perspective, that’s an objectionable feature of redistributive taxation, to be sure.

But is there an alternative that would be as good or better? If societies could form and dissolve as readily as private work groups can, an implicit market for social rank would emerge like the one we see in the labor market. Someone who didn’t want to be a net contributor under a society’s progressive tax scheme could simply persuade more productive others to form a new society in which he would have low social rank and be a net recipient transfer payments.

But transaction costs rule out that option. For the most part, we’re stuck in the societies we’re born into. The upshot is that social institutions cannot be fine-tuned to suit every individual preference. We must choose rules that work as well as possible for people with highly divergent talents and interests.

High social rank, as noted, has substantial instrumental value, and low social rank entails substantial concrete costs, irrespective of whether people care about rank per se. Forcing a productive person to buy more social rank than he wants is objectionable, but the alternative is to give all of society’s most productive members a valuable asset free of charge. That asset would command a high price in the libertarian’s ideal world in which purely voluntary societies could form and dissolve at will. And since its value is a direct consequence of the substantial costs associated with low social rank, a society without redistributive taxation should strike libertarians as even more objectionable.

Ronald Coase argued that when transaction costs make private negotiation an impractical way to limit damage from externalities, collective action should try to mimic as closely as possible the solutions people would have adopted if transaction costs had been zero. When the externalities in question are distributional in nature, the clearest indications we have about what those solutions would look like are the pay schemes we observe in private firms. In virtually every instance, those schemes embody a steeply progressive implicit tax. In my view, those observations make redistributive taxation defensible, even within the libertarian framework.

Almost without exception, however, my libertarian friends belief that redistributive taxation is morally indefensible. This belief implies that society’s most productive members should be entitled to their valuable positions free of charge just because transaction costs make it impractical to negotiate private solutions to distributional externalities at the society level. That claim, I believe, is squarely at odds with libertarian principles.

I know better than to expect this argument to change many libertarian minds. Those who react at all are more likely to follow David’s strategy of searching out flaws in my argument. If you find some, I’d be grateful to hear from you.