Remember Bob Frank's argument that wage compression in private firms implies some (possibly libertarian) case for progressive taxation? Here is Frank's original column. Here is David Friedman's critique. Here is Frank's reply. (Angus, by the way, offers another critique.) So many issues are at stake, here is one of them:
He [Friedman] goes on to suggest that my argument implies that “the rich ought to be in favor of grinding down the poor…” These remarks betray a curiously dark conception of human nature. Being concerned about relative position surely does not imply taking pleasure in the knowledge that others are poor. If it did, middle-income people would spend long hours observing people in poor neighborhoods, thereby to boost their own self-esteem. That they don’t choose to spend their time this way doesn’t mean they don’t care about relative position.
What do people spend their time doing? To the extent I care about relative position, what do I do? I take actions to raise my preoccupation with areas I am good at, which is my version of spending long hours observing people in poor neighborhoods, yet without having to feel I am deliberately slumming, which would lower my self-esteem.
In this sense I think Frank should accept Friedman's attempted reductio. That said, I don't accept Friedman's claim that Frank's theory predicts that "the rich ought to be in favor of grinding down the poor." Subtle self-deception about one's own merits is, at least in today's America, a more effective recipe for generating utility. So I believe in the ubiquity of status-seeking, though I see the process as more positive-sum than Frank does. I can think my area of expertise is really important and you can think the same, without it being zero-sum.
That all said, what exactly is the problem with redistributive taxation? Why can't we, for Benthamite reasons, have two rates of twenty and thirty percent instead of one rate of twenty-five percent? Status-seeking or not?
I read this paragraph as best summarizing Frank's point of view:
High social rank, as noted, has substantial instrumental value, and low social rank entails substantial concrete costs, irrespective of whether people care about rank per se. Forcing a productive person to buy more social rank than he wants is objectionable, but the alternative is to give all of society’s most productive members a valuable asset free of charge. That asset would command a high price in the libertarian’s ideal world in which purely voluntary societies could form and dissolve at will. And since its value is a direct consequence of the substantial costs associated with low social rank, a society without redistributive taxation should strike libertarians as even more objectionable.
Here is David Friedman's final response.
Addendum: David Henderson comments.