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Date: Tue, 4 Sep 2007 11:12:29 -0400 (EDT)
To: Daniel Reeves <dreeves &AElig umich.edu>
cc: James W Mickens <jmickens &AElig eecs.umich.edu>, Dave Morris <thecat &AElig umich.edu>,         improvetheworld &AElig umich.edu, reeves-hayos &AElig umich.edu,         reeves-kalkman &AElig umich.edu
From: Kevin Lochner <klochner &AElig eecs.umich.edu>
Subject: Re: mind the gap

We may be partly confusing money with wealth here.  If a dollar is 
created, it does directly reduce the wealth of all other dollar holders. 
If a dollar of wealth is created (i turn some air into a dollar's worth 
of food), it *likely* doesn't have any strongly measurable negative 
effects on other people.

Let me also maybe clarify what james is saying - more real wealth to 
billionaires doesn't directly decrease the wealth of poor people, but the 
law of diminishing returns says that giving some of that wealth to poor 
people would increase net total welfare.

*but*, that's consistent with a capitalist system with transfer payments. 
The question is whether you want to give the transfer payments to the 
government to spend on behalf of the less-fortunate, or you want to make 
those transfer payments directly so that said poor people can decide for 
themselves what they want.  I would argue that in the majority of cases, 
the latter will generate higher total welfare.

I've been mulling over the anti-diarrheal/viagra example for a bit now and 
don't think it's clear what the best policy would be - maybe there are 
enough people that so obviously need life-saving drugs that it would 
ultimately provide cost savings to make the decision on their behalf.  My 
personal belief is that it's better to err on the side of *not* deciding 
for people what they should spend their money on, both from an economic 
efficiency standpoint and from a philosophical standpoint.

- kevin


On Tue, 4 Sep 2007, Daniel Reeves wrote:

> Oy, either we're terribly miscommunicating or you're falling for the Daddy 
> Model hook, line, and sinker.  Are you imagining that when a rich person 
> makes an extra dollar that that's one less dollar for some poor person?
>
>
>> I am not in agreement ;-). I believe that skewed wealth distributions can 
>> be *directly* harmful to poor people. I think that as an individual 
>> accumulates wealth, the utility accrued from every additional dollar 
>> decreases. For example, the additional utility that a billionaire gets from 
>> buying her fifth yacht is much smaller than the additional utility that a 
>> poor person gets from having medicine to cure malaria. Thus, skewed wealth 
>> distributions can have a pernicious impact on net utility. As I mentioned 
>> in my previous post, some amount of skewedness may be necessary to 
>> encourage the talented or the industrious to work for the benefit us of 
>> all. However, there reaches a tipping point at which this inequality starts 
>> to generate negative aggregate utility. This phenomenon is causal, not 
>> correlational---the accumulation of negative aggregate utility is a direct 
>> consequence of the diminishing utility return for wealth accumulation.
>
> -- 
> http://ai.eecs.umich.edu/people/dreeves  - -  search://"Daniel Reeves"
>
> You know what they say about dogs dogged by other dogs?
> The dogged dogs dog the dogging dogs back.
> Said more clearly:  Dogs dogs dog dog dogs.
>