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


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
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On Tue, 23 Jan 2007 02:06:53 -0000, "Andy F." <never.mind@xxxxxxxxx>
wrote:


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
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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.

But then your method of finding out the rent wouldn't work. If you offer the
Yankees player a pay cut, he refuses and goes to work for the Red Sox.

That near $2 million extra the player gets won't increase the amount
or quality of his play by a single iota --

No, it almost certainly does improve his play. There are many thousands of
talented players working hard at their game in the hope that they might hit
the big time and become millionnaires. If the big money wasn't there, there
would be less competition and the top players wouldn't have to work as hard.

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.



.

Relevant Pages

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