Re: Taxing Intelligence/Talent (was: 'Waterhole' and land rents)

On Tue, 23 Jan 2007 02:06:53 -0000, "Andy F." <never.mind@xxxxxxxxx>
wrote:


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
news:7t18r21t35v5lu7qt2g5pt80efslrnu8up@xxxxxxxxxx
On Sun, 21 Jan 2007 14:08:48 GMT, "Dan in Philly" <djr8@xxxxxxx>
wrote:

"Dan in Philly" wrote in message

That's why a tax on intelligence/talent may be unworkable. I don't see
any
way to separate earnings due to intelligence from earnings due to
effort.

Self-correction: effort is easy to measure (just add up hours worked).

Hmmm... You don't know the difference between working hard and
punch-clocking a lot of hours with your feet up on a desk?

The real problem is this: some jobs are cushy whereas some are
dirty/difficult/dangerous. So we need some measure of how yucky a job is
before we can tax the 'rent.'

Not at all, you are forgetting what "rent" is: "payment made to a
factor of production in excess of what is required to elicit the
supply of that factor".

So the measure of the rent to the labor of a worker is simple: It's
the amount he is actually paid minus the minimum pay he would accept
to do the same work.

Determining the amount of that rent is simple too: Just keep telling
him "You're fired unless you take pay cut of $X". As long as he says
"OK, then I'll take it", then you say it again. When he says "Damn,
that's too little, I quit", you give him back the minimum pay he
accepted.

Now you've identified the former rent to his labor and have taken it
away from him.

Whether the job is cushy or dirty/difficult/dangerous has nothing to
do with it.

The whole procedure is simple and accurate.

Though I'm not sure it is a practical way to run a business or
administer tax policy.

In that case there's hardly any labor rent, since a rational employer will
only pay the minimum they have to. There would only be 'rent' if the
employer made a mistake or was unusually generous.

Not at all -- there's plenty of such rent collecting all over the
place.

You are assuming that it isn't rational for an employer to pay a high
price that includes a huge amount of rent -- but it can be entirely
rational, profit maximizing and unavoidable.

Keep the definition in mind: "payment made to a
factor of production in excess of what is required to elicit the
supply of that factor".

Consider the water well in the desert town again. The well can produce
exactly so much, and *will* produce that much, for a very minimal
marginal cost, say $0.01 per liter. But due to the limited supply of
water in the town, the fair market price of water by supply-and-demand
might be $1 per liter.

The extra $0.99 that the well owner receives per liter -- a huge 99x
marginal production cost! -- is rent, as it elicits zero extra
production compared to a price of only $0.01.

Yet it is also a true fair market price, and nobody is being stupid or
generous to pay it. In fact, the market price of the water had
*better* be the full fair market price -- if it is cost-controlled
downward as a matter of "fairness" due to its low production cost,
there are going to be shortages, misallocation problems, and a black
market for it.

It's all the same with labor.

A MLB backup utility infielder might happily play pro ball for $100k
or less a year just as his kind did for generations before -- but to a
team like the Yankees, the *one* game he might win (or lose) for them
over a season could be worth literally millions of dollars if it makes
the difference between making the playoffs or not, or winning in the
playoffs or not. So if he's the best utility infielder available, it
can be entirely rational for the Yankees to pay him a couple million
dollars, as the result of rational bidding for his services against
other teams like the Red Sox to whom that game is worth almost as
much.

That near $2 million extra the player gets won't increase the amount
or quality of his play by a single iota -- and since the excess
payment will result in no more production, it is rent to the player --
but that doesn't mean it isn't rational and even smart for the Yankees
to pay it.

Consider newsreaders like Katie Couric, actors like Brad Pitt, it's
hard to think that if they had careers in their lines of work earning
a steady $200k a year, putting them well into the top 1% of income
earners, they wouldn't think of themselves as "successes" and work
very hard to stay that way. But then some producer comes along and
offers them 70x (!) as much -- entirely rationally, because the
producer doesn't see anyone else *quite* as fitting for a job that
could generate *hundreds of millions* of potential revenue. Do they
work 70x more as a result? I doubt it. To the extent they don't, they
are collecting rent -- being paid more without producing more.

These are all free-market cases -- they are dramatic, but not really
huge in number. But then there are also many, many cases where "rent
seeking behavior" by labor secures above market wages through
politicial influence.

Take governmental unions -- in NYC the municipal trash collectors get
paid 2 1/2 times what private carters doing the same job are paid.
City teachers just signed a contract that pays them over $100,000 for
8 1/2 months work (plus ironclad job-protecting tenure regardless of
performance) --*way, way* more than the teachers in even the most
expensive fancy private schools are paid.

The difference between pay levels for the same jobs is rent to the
union workers, bought with their expeditures of political influence.
But I don't mean to beat on union workers -- it's an extremely common
phenomenon, everybody does it who can get away with it. Businesses,
professional groups, non-profits, you name 'em.

E.g., it's behind 80% of "public interest safety licensing".
Cosmeticians -- even hair braiders -- are famous for getting municipal
governments to enact complex costly licensing procedures for *new*
entrants in the business, on "public safety" grounds.

Are regulating the painting of fingernails and braiding of hair really
issues of "public safety"? Well, no, and the giveaway is that when
these rules come in they invariably only apply to *new* entrants in
the field. Those already working in it, who persuade the politicians
to adopt the new regulations, are grandfathered in as presumed-safe
providers of the service on the rationale that, after all, they are
already providing it and haven't killed anyone. So the new rules serve
only to deter new entrants -- and thus reduce the amount of
competition -- and so *increase price* compared to a free market.

If you are an employer hiring a cosmetician or a customer seeking one
in a locality with such regulations, you aren't being stupid or
generous by paying an above-market price for the work you receive --
you have no choice! They are collecting rent from you, it's classic
sucessful "rent seeking behavior".

These cases are exactly analgous to the local citizenry getting their
local politicians to enact zoning and other restrictions preventing
new development -- *they* are already there in their homes, running
their businesses, leasing their buildings. New development will only
increase supply and competition -- so blocking that development will
keep the value of their homes and businesses up, and increase the
lease rates they collect, compared to a free market. And these local
incumbents aren't going to provide any more for the higher amounts
they collect -- they often are trying to become able to provide
*less*. The politicians who cater to these incumbents become heroic
"defenders of the community" and are rewarded with re-election every
time. It's all classic "rent seeking behavior".

So there are plenty of rents being collected all about by labor and
many others -- with the amounts of the rents paid all being perfectly
rational to the payers, under the circumstances, not stupid or
generous at all.
.

Relevant Pages

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    ... factor of production in excess of what is required to elicit the ... So the measure of the rent to the labor of a worker is simple: ... him "You're fired unless you take pay cut of $X". ... the fair market price of water by supply-and-demand ...
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