The arguments basically come down to something like, “The value of the marginal dollar declines, but people irrationally keep working to get dollars, which they really want less than lots of stuff they could have, therefore. . . a single-payer national heatlh care system (or whatever one would like to see the government do.) Now, I take the premises seriously, and really don't think there is any good reason to believe that people always know what is in our interest, or always behave rationally. However, the conclusions to Schwartz/Frank-style arguments remain shining examples of the bowel-loosening non sequitur.
The first response to the S/F arguments ought to be that they've really missed the hard nugget of wisdom at the heart of the theory of public choice. The nugget is not that people are rational utility maximizers, which is certainly false, or that politicians are vote maximizers, or that bureacrats are budget maximizers, or whatever. The hard nugget is that the nature of human behavior is general, and that a theory that applies to market behavior is going to apply to political behavior, too. I call this, pithily enough, the principle of behavioral uniformity. The blatently ideological and sub-scientific character of this kind of research is manifest in the failure to apply a general theory generally and to question the ability of voters to know what is in their interests and to make rational and not self-defeating choices in the voting booth. Why don't Frank and Schwartz discuss the likelihood that politicians and policymakers will stay apprised of psychological research about well-being, or will be motivated to act in accordance with their compendious understanding of the mainsprings of happiness?
Nothing follows about policy from the fact that people make sub-optimal choices, and it's an intellectual fraud to pretend that it does.
In his NRO essay, Schwartz writes:
The point is simply that we now know there is some significant subset of people likely to be made better off through heavier taxation, and that these people reside at the top end of the wealth distribution. Given that a concern for people's welfare has traditionally been one of the chief moral objections to taxing wealth (at least among those sympathetic to redistribution in principle), a policy of heavier taxation for the very wealthy may be the only moral course of action.
The point is simply that we don't know this. To say that people would be happier if they had fewer choices is not to say that they will be happier if they are stripped of choices. We know that people are very very loss averse, and so increased taxation may well be a deep source of grievance, anxiety, and agitation, even if things would have gone better for the poor rich sods if they'd never gotten that rich in the first place. If people are in general happier with fewer than four children, you do not make them better off by stripping them of excess offspring and shipping Jan, Bobby, and Marcia off to the homes of sad, childless couples.
The flailing Kierkegaardian leap to state solutions when faced with problems of choice in a culture of plenitude is evidence of not only sloppy thinking (for there is no reason to think state action will improve upon private action) but of badly retarded imagination. The future belongs to those who seize what is in effect a huge entrepreneurial opportunity.