Posner's Response to Several Weeks of Comments

I have been terribly remiss in responding to comments these past few weeks. Let me try to make limited amend:

National Cultures: One comment helps to dispel the mystery of French productivity, by pointing out that regulation has shrunk the service sector in France relative to the rest of the economy, and service sectors tend to have the lowest productivity because they are so labor-intensive.

Lobbying: Three good comments bearing on the puzzle that the expenditures on lobbying seem very small relative to the potential gains. One, which help to solve the puzzle, is that huge contributions would be too conspicuous, and thus boomerang--it would be obvious to the politicians' constituents that some group or industry was trying to buy favorable legislation. Another comment, which also helps to solve the puzzle, is that much less than the entire federal budget is in play in any given year: quite apart from entitlements, which consume a large part of the federal budget but are not subject to fundamental change from year to year, much of the federal budget is committed and cannot be altered by lobbying. Lobbyists work at the margin. The third comment, which cuts the other way, is that there are huge potential rents from legislative changes that do not affect the federal budget, such as a law making environmental regulations more or less stringent.

Tax Simplification: Taxes must not be viewed as mere revenue generators. They are also means of regulation, for example of externalities. I would like to see heavy taxes on carbon dioxide emissions. But regulatory taxes are generally not part of income tax, where the tax-preparation expenses that were the focus of Becker's and my posts are mainly incurred.

Equality: I had emphasized product improvements as a source of real though not pecuniary increases in income that have helped to reconcile people to the fact that, for many of them, their money incomes have not risen in recent years. One comment points out insightfully that if income is defined in terms of the services that are yielded by the products (and services) that we buy, it is much more equal than if it is defined in money terms. The comment compares a Camry to a Lexus. The Lexus is a better car, but it costs three times as much and is it three times better? No. The 18-year-old Macallan (a single-malt Scotch) costs about twice as much as the 12-year-old, but the difference in taste is very slight. This seems a general characteristic of luxury goods. This is the sense in which people of widely different incomes can all consider themselves middle-class without being delusional.