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Why “income redistribution” is bad.

September 19th, 2012 · No Comments

– Robert Light

We all acknowledge, across the political spectrum, that one of the roles of government is to protect the sick and the elderly from poverty – in no just society should those who cannot fend for themselves be left to live a life of deprivation and hunger. I am not discussing about whether government has a role in helping those who can’t help themselves – of course it does.

The focus here is on the concept that the role of government is to “redistribute income” from the wealthy segments of society to the lower income segments of society. This concept has been the undercurrent of political discussion since Obama expressed his “spread the wealth around” comment when talking with “Joe the Plumber” during the 2008 campaign. It appears now that Obama has held that “redistribution” was an important tool of government for a very long time to “make sure that everyone has a shot”.

The question of “income redistribution” should be answered on two fronts – First: does it work? and Second: is it good for society?

The first question (Does it work?) can be answered by understanding that a person’s standard of living is only determined by his ability to do for others something that other people value. The size of their bank account is a “buffer” – it means that the person can do nothing for a period of time and still live comfortably – but ultimately his standard of living will depend on his ability to do something for others which is “valuable” – this could be a service or it could be making a product. Income redistribution takes from the one group’s bank accounts and deposits it in another group’s bank account….and as such, reduces the rich person’s “buffer” and increases the poorer person’s “buffer”. Yes, the poorer person can now purchase a nicer TV or nicer furniture – but in doing so, the money goes right back into the economy and ultimately a goodly portion of that money ends up in the rich person’s bank account again. So the answer to the first question is – “sort of”… income redistribution provides a “boost” to the poorer person for a period of time but you simply have not changed the ability of the poorer person to actually earn his income and thus permanently improve his standard of living – you’ve just subsidized his bank account for a period of time. Worse yet, the cost of those taxes are ultimately borne by higher prices for the products purchased by the redistributed income – so ultimately, that money is lost to the segment of society to which it was targeted.

The answer to the second question – “Is it good for society” seals the case against “income redistribution”.

The ultimate fallacy to “income redistribution” is that it rots the very core of the society. To understand this, you have to understand that any feeling human being must feel a level of “guilt” or “shame” when receiving something that they did not earn.

When presented with a gift, or charity, the receiver fixes this “guilt” by a very, very simple gesture – showing appreciation to the giver.

When money just appears in their bank accounts via some mysterious deposit “from the government”…the receiver cannot express his appreciation to anyone – and is left with his “guilt”…and worse…can only assuage this guilt by feeling “entitled to the payment”…I was owed this money and I got it.

On the other side of the transaction, the giver does not feel good about providing money for the poor – because the money was forcibly taken from him – by taxes. Worse yet, he sees the government waste huge amounts of what was taken from him in the form of taxes and feels like the money he provided that was supposed to go to poor people was siphoned off to pay for fancy business meetings in Vegas or Hawaii….corporate jets for the political class etc…

In short… “income redistribution” rots the society at its core – and because of that, the economy sours and the poor are the ultimate loosers – without jobs, without hope – living with their hands extended to a government which is less and less able to provide. The interview with a person waiting in line for “Obama cash” in Detroit by Detroit’s WJR illustrates this point best.

….this is what is happening today in America and while the poor may get “handouts” they will not get “jobs” and ultimately they will turn into entitled “takers”…. the “makers” will go elsewhere where their money can be put to use by people who want to work and where governments are restrained enough to let the “makers” do what they do best – build things.

Tags: Political · Taxation

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