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Monopoly taxation

Posted By Russ Roberts On August 18, 2010 @ 11:40 am In Taxes,Uncategorized | Comments Disabled

I was on Planet Money the other day [1] talking about the game of Monopoly. NPR had Dan Hamermesh and me play the game via webcam with two NPR reporters (Alex Blumberg [2] and Robert Smith [3]).

We trash-talked. We joked around. And the reporters kept pushing us to talk about whether the game was realistic, what economic lessons it taught (or failed to teach) and what rule changes might make the game a better tool for economic education.

I was invited because I had done a commentary [4] years back for Morning Edition where I talked about how much I hated Monopoly because of its poor relationship to the real economy–it teaches you that life is a zero-sum game, that financial outcomes are random–whether you prosper or go bankrupt depends on the roll of the dice, you’re forced to pay rent without your consent, there’s no competition to improve the lot of the people playing via innovation or lower prices and so on.

Now the truth is I don’t like Monopoly. But I don’t really think it’s a dangerous game for children to play. The commentary was a conceit, an excuse to talk about economics. I don’t like Monopoly because I think it’s boring. There’s not enough strategy.

The Planet Money session exploited the same conceit. Dan and I did talk about the game itself but it was an excuse to riff on economics. It was a lot of fun and we both had a great time.

At one point, we talked about different ways of improving the game. We were talking about taxes and we talked about adding some kind of income tax to the game. I said:

As a result of that, you could get kids to resent taxes at an even earlier age. In the current real world when your kid goes off and gets their first job and they see their FICA they say, “what’s this for.” Oh that’s so that your financially comfortable grandfather will get a check from you–partially financed by you–it’s called social security and you’ll be able to exploit young poeple when you get old.

The other way to phrase it would be–This is part of a social contract you’re going to be taking care of he elderly  and society will take care of you.

Then Dan was asked which of the two ways would be the way he’d talk to his kids. His respone:

I would say it a bit differently. As long as the money stays in the game, we tax the rich and give it to the poor. Then you have to ask yourself, yeah, the guy who gets taxed is not happy about it. On the other hand as someone who’s going to be a loser in this game at the rate things are going, if we get that far, I love the transfer. In that sense it’s not so clear it will teach what Russ wants to teach. It might teach just the opposite.

It was a nice point and I said shame on me for not allowing for the possibility that I might be a poor person in the game who received transfers. The weird part is that I hadn’t set up my tax lesson as an indictment of redistributive taxation but as an indictment of the way the tax system purports to fund public goods but often just redistributes money to special interest groups (the elderly, (rich or poor), Wall Street execs (really rich) and so on.

Why should my father who is financially comfortable get money from his grand-daughter as she starts her career, or worse, from a kid who drops out of school who’s on his first job and whose financial future isn’t so bright? That kid shouldn’t be contributing to my Dad’s retirement.

James Kwak heard the piece and has an interesting post [5] at Baseline Scenario:

A couple of weeks ago, Planet Money did a podcast based on a game of Monopoly. One of the participants was Russell Roberts, who professes to hate monopoly because it teaches the wrong lessons about business and the economy. At one point, Roberts said he would prefer the game if it had a progressive income tax with transfer payments to poor players. “As a result of that, you could get kids to resent taxes at an even earlier age.”
But Daniel Hamermesh, who likes Monopoly, called him on it. Hamermesh pointed out that if you had a transparent system of taxing the rich and transferring the money to the poor, players in the aggregate would be neutral, and might even understand the whole point of taxes and government spending.
Our national hatred of taxes is based on Roberts’s opinion times 300 million.

I’m not mad at Kwak for ignoring my point that a lot of redistribution goes from poor to rich. I ignored it myself when I was accused of assuming that I’d be taxed rather than receiving transfers. And the reporter had introduced my comment on taxation by talking about transfers from rich to poor rather than poor to rich.

But the real question is what government actually does. Kwak points out that a lot of us benefit from government spending:

Leaving aside poverty programs (since those do only affect a minority), they forget about Medicare (“keep the government away from my Medicare”), subsidized student loans, national security, police and fire services, public schools, roads, consumer product testing, clean water, parks, unemployment insurance (the middle class lose their jobs, too), the invasion of Iraq (which was wildly popular back in the day), bailouts of the financial system, and all the other things they get from the government. (If you count tax expenditures as spending, the list gets longer, and includes the mortgage interest tax deduction, the 401(k) deduction, and the employer health insurance exclusion–all of which disproportionately favor the wealthy.)

Notice that he presumes that the bailouts benefited all of us. My argument there is that past government decisions to bail out creditors [6] who made bad loans helped create the current mess. But look at Medicare. Why should everyone under the age of 65 pay for free health care for older people who are financially comfortable, a system that because marginal cost is close to zero, drives up the price of medical care for everyone else? And the system isn’t sustainable. It’s a Ponzi scheme that is running out of contributors. In what sense do the public schools produce benefits net of taxation? Does the government do a good job on consumer product testing or drug testing?

The essential tasks of government–the things that government can probably or certainly do more effectively than the private sector–would require a dramatically smaller tax burden than we currently bear.

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URLs in this post:

[1] on Planet Money the other day: http://www.npr.org/blogs/money/2010/08/06/129032101/the-friday-podcast

[2] Alex Blumberg: http://www.npr.org/templates/story/story.php?storyId=94077777

[3] Robert Smith: http://www.npr.org/templates/story/story.php?storyId=2101217

[4] done a commentary: http://www.invisibleheart.com/2006/01/the_lessons_of_monopoly.php

[5] an interesting post: http://baselinescenario.com/2010/08/17/monopoly-and-taxes

[6] past government decisions to bail out creditors: http://mercatus.org/publication/gambling-other-peoples-money

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