On one of the mailing lists I’m on, some smart-ass leftist recently aired his belief that the supposed higher marginal utility of money for the poor justifies redistributing it from the rich via taxes. I’m sure other people have written on the topic but I’ll give my short take on the topic anyway.
The first quite obvious thing to note is that the poor are usually poor because they handle money badly. For example I was once living with a few poor people in a shared house and they wasted easily more than three times as much money on junk food than I and then they of course had no money to pay utility bills. Now that’s something I call irresponsible and stupid – and these people even had at least about the average IQ. And it illustrates that smart and more wealthy people often have higher marginal utility for their “extra” money than the poor contrary to naive analysis. The second thing is that redistributing money is in reality quite expensive. Politicians and bureaucrats are more than happy to take their share of the taxes and they don’t usually work for peanuts in reality however much they say they do. So for every euro that is taxed in order to redistribute it, maybe only less than half actually goes to some “needy” person, who likely doesn’t know how to use if efficiently, while the richer person might very well be able to invest it efficiently to create even more wealth and also opportunities for others.
Still, the previous considerations miss maybe the most important thing. If that marginal utility argument would be so great, wouldn’t people want to apply it to other areas of life. For example, imagine that a man has a sexy young wife who he makes love to every day once or twice. Now suppose that some thugs oh-so-cleverly observe that surely they would get higher marginal utility by gang-banging his wife
than he does because he’s grown used to it. Suppose they propose his wife should be
shared 50-50 with all the thugs who don’t get laid so often. If the man would object,
should one celebrate the great “ethical choice” made by the thugs if they take her by force like redistributionists celebrate taxing the richer people? Frankly, I don’t think so. Of course in this case also the wife wouldn’t probably enjoy having her services redistributed forcefully but who’s to say her discomfort would be higher than the pleasure gained by the thugs? I say this example should illustrate very clearly to any decent personthat there are higher moral principles than marginal utility which make the argument for redistribution based on it invalid. Higher marginal utility isn’t enough to justify coercion at least in most cases I’m quite sure.
Still, I think in some cases, the rich may decide voluntarily giving money to others is a good thing based on marginal utility estimation especially if it happens with as few middle-men as possible only to people who the philantrope thinks are worthy.