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Megan McArdle

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist. More

Megan was born and raised on the Upper West Side of Manhattan, and yes, she does enjoy her lattes, as well as the occasional extra-dry skim-milk cappuccino. Her checkered work history includes three start-ups, four years as a technology project manager for a boutique consulting firm, a summer as an associate at an investment bank, and a year spent as sort of an executive copy girl for one of the disaster-recovery firms at Ground Zero … all before the age of 30.

While working at Ground Zero, Megan started Live From the WTC, a blog focused on economics, business, and cooking. She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of the set. From there it was but a few steps down the slippery slope to freelance journalism. She has worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She has also maintained her own blog, Asymmetrical Information, which moved to The Atlantic, along with its owner, in August 2007.

Megan holds a bachelor's degree in English literature from the University of Pennsylvania and an M.B.A. from the University of Chicago. After a lifetime as a New Yorker, she now resides in northwest Washington, D.C., where she is still trying to figure out what one does with an apartment larger than 400 square feet.

Much obliged

By Megan McArdle
Feb 25 2008, 11:20 AM ET Comment

One of the many interesting thing about the debate on collective action problems is that while liberals usually claim (with some justification) that it is the libertarians advancing simplistic models that bear no resemblance to the real world, in this case a lot of liberals were making arguments that rest, I think, on a fundamental mischaracterization of how the American government actually works.

The collective action problem is a very elegant idea, and easy to state simply, which is why it has become sort of the liberal equivalent of the tragedy of the commons. The basic idea is that there are certain equilibria which are better for everyone, but because every individual can make himself better off by cheating, the group can't get there. The solution usually proposed is a tax or regulation, but it doesn't have to be; you can, for example, sign an agreement that only kicks in if a sufficient number of people comply--much like what was done with Kyoto.

This is the basic premise of Mark Kleiman's response to me about collective action problems: Mr Kleiman is, he says, willing to give up $300 in tax money if you take, say, $20 million from a bunch of other taxpayers and add it to his $300 to fund scientific research. He is willing to purchase $20,000,300 of science with his $300, but not $300.

Now, in a simple model where there are 2,000 of us deciding whether to purchase a swathe of land in order to turn it into a fur-bearing trout refuge, this may be a moderately accurate description of how this all works. But in the real world, this just doesn't track legislative reality.

For starters, for this model to work you have to assume that the other people providing your $20 million are made better off by the new research. They might not think so. At that point, you have not a collective action problem, but a simple form of rent-seeking: Mr Kleiman using the power of the state to take money from people and spend it on things he values.

The bigger problem is, though, that tax revenues just don't track programs this way. You don't raise everyone's taxes by $300 in order to boost funding for the NIH. Taxes aren't earmarked. Even if you raised taxes this way year one, by year two economic and legislative variation would have erased the connection between the tax increase and the spending program.

But in fact, this doesn't even work year one. You get your taxes raised (or cut) by some politically desireable amount, and then in a very separate process, enormous bundles of programs--some of which you like, some of which you don't--are jumbled together and haphazardly kind-of-sort-of matched to the amount of expected revenue. Consider the three biggest fiscal actions of the Bush administration: the tax cuts, the war in Iraq, and the Medicare prescription drug benefit. In what way do these match up to the model proposed by Mr. Kleiman? Nor are Democrats better. All of the Democratic candidates have proposed, essentially, to raise taxes as much as they can on as many people as they can--which turns out to be repealing the Bush tax cuts only for the wealthiest recipients. The spending prescriptions are then vaguely tailored to the revenue, in the sense that everyone lies and says that their programs will cost just about what the tax increases will raise, though not in the sense of being actually in any way related to the tax revenue that purports to pay for them. This is pretty far from Mr Kleiman's suggestion.

This makes a big difference. If you could actually say "I only want to pay more taxes if I can use them to buy more scientific research", and everyone wanted scientific research, then this would be a valid example of a collective action problem that imposes no moral obligation on you to spend more now. But if what you are saying is "The government should provide a lot more stuff" then, well, you can purchase more of the stuff it already produces, such as early childhood education, roads, and so forth, right now. And no voter in America almost ever has the opportunity to peg their taxes to the services they receive in turn.

Moreover, whatever the protestations of some of my more sheltered commenters, there are a lot of people in this country who complain that rich peoples' taxes are too low, full stop. There are a lot of people who view the tax code as not only a vehicle for purchasing services, but an instrument of income redistribution. To the extent that you think "George Bush cut taxes on the rich" is a fact with some moral valence, then you are not merely concerned with getting the money to pay for necessary services. Nor am I--I favor a progressive income tax. But if you think that having a fair amount money imposes some sort of obligation to share with those less fortunate, then it seems to me that the correct moral response is to take whatever money you think you should pay in higher taxes and give it a good charity. You cannot seriously argue that there is nowhere in the country that could deploy, say, $5,000 on some more worthy cause than a kitchen renovation or a new car.

If you do not include yourself in the class of people who should pay higher taxes, then obviously you have no such moral obligation. But then we are back to my initial argument: most people mostly worry about raising taxes on other people.



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