If we try to leapfrog each other we work harder and

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Unformatted text preview: he race for status comes with certain opportunity costs, one of which is lost leisure. If we try to leapfrog each other, we work harder and Page 379 longer to achieve a status position we could all achieve at lower cost. Another opportunity cost of the race for status may be that society has to do without certain goods that it wants. For example, suppose society wants the government to spend more money on medical research, education, and infrastructure. Currently, three individuals—A, B, and C—are locked into a race for status with the other two. A is richer than B, and B is richer than C, so A can buy more status goods (big houses, fancy cars, etc.) than B, who can buy more status goods than C. Suppose the government proposes that it increase taxes on each of the individuals by 10 percent. A, B, and C argue against the higher tax rate because it reduces their ability to buy status goods. They fail to realize, however, that even though higher tax rates may make it less likely that each individual can buy as many status goods, their relative positions in the race for status will not change. After the higher taxes are paid, A will still have a higher after-tax income than B, who will have a higher after-tax income than C. Higher taxes will not stop the race for status, nor will higher taxes prevent anyone from showing off. The higher taxes simply reduce the amount of money that the individuals can spend in their race to show off. Are any benefits derived from the higher taxes? According to some economists, the additional tax revenue can finance more medical research, education, and infrastructure. In other words, some benefits may come from using higher taxes to slow down the race for status. One criticism of this reasoning is that the additional tax funds may not be used in the way people want them to be used. The funds may go for “public conspicuous consumption,” such as expensive federal buildings, and other similar things. The critics also point out that higher taxes dampen people’s incentives to produce, which may lead to less economic growth and wealth in the future. Finally, the critics point out that if the race for status is hobbled by higher taxes, the race will not slow down; it will simply take a different form. Instead of competing for status in terms of goods, people will compete for status in terms of power over others. In the end, the critics argue, it may be better to have people compete for status by buying goods than by trying to control others. THINK ABOUT IT Do people in your high school try to achieve status by purchasing certain goods? If so, what goods? Section 2 The Budget: Deficits and Debt 379 14 (364-389) EMC Chap 14 11/18/05 10:59 AM Page 380 t the Congressional Budget Office (www.emcp.net/budget) you will find a host of budgetary data (data on tax revenues, government spending, etc.). Go to the site. Once there, click on “Current Budget Projections.” Next, scroll down the page and find the following: (1) Projected individual income tax revenue in 2010; (2) Indi...
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This document was uploaded on 01/16/2014.

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