The marginal utility trap

I think the idea of marginal utility of income is misused to inappropriately ignore property rights.

Using the Golden Rule, if you are concerned about someone taking dollars from you to give to those they believe have higher utility, then you should not advocate that it be done to others.

That should be enough to stop this bad idea from becoming policy and corrupting the incentives and feedbacks that happen to produce improving standards of living for everyone.

But it’s also worth knowing how it corrupts those incentives and feedbacks.

What marginal utility a third-party thinks another person has with one extra dollar isn’t nearly as important as what that person does to get the dollar.

If the person does nothing to get the dollar, their incentive to do something of value to earn it is subverted.

On occasion, the person’s dignity overrides and they refuse the handout. The typical response, it’s okay. You don’t understand. You see, I’m educated. Let me explain this to you. We’re not giving you the dollar just for you, Silly. See, you help the economy simply by spending that dollar. So, have at it.

Now dignity and shame are removed from the feedbacks that would typically encourage folks to want to do something in return. Now, good luck even getting a thank you card. Wouldn’t that be interesting? Require recipients of taxpayer money to write thank you cards to their fellow citizens.

I just read an article in Bicycling magazine about mountain bike racer, Heidi Swift’s, experience in a race in Haiti (I’ll post a link when it becomes available). Tired and pushing a bike up a steep road with big boulders as pavement (very tough to negotiate in cycling shoes), the author meets an 11-year-old boy who was eager to push for her. He dutifully sticks by her side until he’s sure she can handle it.

For his efforts he scores a Clif bar, a chocolate bar and some cash. Here’s here final words:

He turns to go, and as he does, he smiles at me again. It’s probably nothing more than a polite thanks for cash, and admittedly I am exhausted, but this smile seems to exist outside the bound of our transaction: proud, approving, satisfied and reliable — just kind of thing that could help a girl get to the top of an unclimbable mountain.

Yes. That’s the dignity and pride of someone who earned his keep by producing value. Many in our society have shamed ‘the transaction’ because they view it as a manifestation of greed. They forget the part where value was created for someone else and pride and dignity were also earned in doing the job well.

Contrast her experience in Haiti with the creep in this Judge Judy video that demonstrates that greed exists outside the bounds of mutually beneficial transactions (thanks to Mike M for the video):

We could use more of the ‘proud, approving, satisfied and reliable’ smile from someone who earns his keep and less of the snickering, entitled, disingenuous, scamming attitude that smart people think are helping the economy by spending other people’s money.

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One thought on “The marginal utility trap

  1. Sometime back we discussed the lack of appropriate shame felt by those today who are on the public dole and the problem that rather than feeling grateful and/or obliged to their fellow citizens – as people in earlier times felt – for lending a helping hand, they feel entitled to their fellow citizens earnings and are not inclined to become productive.

    Due to a “glitch” (more on that later) in the government’s computer systems, limits on EBT (welfare) cards changed to limitless for a few hours. Rather than recognizing that this “free” stuff really wasn’t theirs and that somebody else was paying for it, welfare recipients went hog wild and loaded up on “free” goods. Rather than being guided by a conscience and feeling shame, they were happy to steal what they could get away with. Indeed, I’m sure many were bragging to their buddies about how they had pulled a fast one on “the system”.

    http://themattwalshblog.com/2013/10/14/ebt-recipients-stole-food-this-weekend-and-every-other-weekend/

    Whatever your politics are, it should be evident that “we” have created an entitlement mentality among those “we” intended to help.

    This is on my reading list:

    http://doingbadbydoinggood.com

    Tom Sowell has been explaining this for years – “welfare systems pay people to fail..when they stop failing, we take the money away..” A big question to ponder – one that may help us understand why there is or isn’t hope – is why Obama is POTUS and Sowell isn’t.

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