While there is a relationship between “Stories” and “Confidence”—stories we hear from people around us, from media, as well as our own past experiences can potentially build up our confidence (or lack thereof) which later drives our economic decisions, fairness is worth observing as another “spirit” that ties to human behaviors. This post is a good opportunity for me to share a story that happened unexpectedly, almost 24 hours after the second class when we discussed the topics on GDP and animal spirits. I would give this story the same title as that of the blog post: “I don’t mind waiting a little longer”.
I went into a restaurant and got seated myself. Not for long, the server promptly took my order. Almost ten minutes or so later, he came near where I sat and started cleaning up the table in front of me after the previous customers had left. I then casually looked up from my phone to see what was going on, and caught his eye. He suddenly stopped what he was working on and said “Oh, sorry”. I now realized, and so did he. He went back in the kitchen, came back out and continued cleaning the table where he left off. He told me “two minutes” while giving me a hand gesture with his two fingers that resembled the “victory” sign. Slightly less than two minutes later, I ended up getting a larger chunk of meat than what I used to get compared to the last time I visited. I couldn’t tell for certain if I actually had more meat, but I felt I did. I was stuffed more than usual after that night’s dinner. The incident reminded me of the chapter “Fairness” in “Animal Spirits”.
Talking about fairness, I recently found an article online by Time discussing progressive and regressive taxes. The article begins with a title that catches attention: “You’ll never guess which state has the nation’s most unfair taxes.”
Referring to the analysis, it shows that some states such as this one, the poorest 20% of the people pay more of their income (nearly 17%) than the richest 1% (2.4%), while middle-income earners pay around 10%. On the contrary, Oregon for example, as one of the least regressive, does not impose sales tax on people, but on income tax instead. As an international student who has been there, and perhaps almost everybody else, it makes me go wow.
The article indirectly gives the definitions of progressive and regressive taxes, but does explain how regressive taxes in particular, favor the richer and have more impacts on lower income earners. While income tax is normally progressive (except for Pennsylvania that levies income tax of 3.07% on everyone), sales tax, however, is regressive even when people pay the same percentage. It sounds fair because of the word “same” on a superficial level, but to the majority of people, the regressive tax policy is indeed unfair because by paying the same percentage, it only takes a smaller portion of the rich’s earnings, but a greater portion from the poor’s.
Regressive tax may be unfair, but it is certainly fair when everybody pays taxes either directly (income tax) or indirectly (sales tax). I take income tax as “direct” taxpaying because if we live in a state that requires us pay income tax, it is obligatory. As opposed to income tax, sales tax is said to be “indirect” because it is voluntary. Though we can’t avoid “not paying at all”), the more we buy, the more sales tax we pay. It is therefore, about decision making. The question about what tax system(s) would be appropriate can also be controversial.
According to the article, one of the solutions to a fairer tax system is to apply “earned income tax credits”/negative tax bills that help alleviate the low incomes tax burden.
Back to the article’s question, the answer is, to my surprise, the Washington state, one of the states relying hugely on sales tax and excise taxes—where we live in.
I would like to wrap up with another scenario. I don’t shop for new clothes very often, but when I do, I try to look for the best bargain. Do you feel frustrated when you are forced to buy extra what you don’t really need? I do. Imagine you were looking for a pair of jeans and found the right one, but the condition was that you would have to buy more than one pair in order to get the discount price. After you do the math, you would question; “can I just buy one pair at the sale price?” Well, you know the answer. You either have to make a decision whether to go for one or two pairs, or walk away from that right pair of jeans. It would be fair to you if you intend to buy two pairs in the first place and pay less, but not if you only need one. You might have to refrain from buying a t-shirt at the next store because you have already spent money on the second pair of jeans. There is an opportunity cost. Are you willing to fall into this trap of marketing strategy and convince yourself that the decision you have just made—regardless of how many you buy at the end, is fair and acceptable to you? Otherwise you would have to console yourself later because of “I should’ve bought two instead.” The five chapters on animal spirits, after all, make us become more observant of our own behaviors.