Shoe Money Tonight

Occasional ramblings by an anesthesiologist/mother (and sometimes her husband).

Friday, October 17, 2008

"Spreading the Wealth"

It amazes me how many in this country are ignorant of basic economics.

I can understand it amongst college students. College students are heavy on idealism and emotion, while still being fairly short on actual knowledge. Experimenting with socialism is to be expected from those types of people.

One would think, however, that after some basic economics education, they would know better. Instead, you have large portions of the population who think that it's the government's job to redistribute income.

Marxism was tried in a number of nations during the 20th century. The result was was a ton of economic misery, and approximately 100 million dead, dwarfing the number murdered even by the Nazis.

There is also the moral issue. As economist Walter Williams never tires of pointing out, taking money from one person to give to another is nothing short of legalized theft. Charity is giving your own money to the needy. Giving someone else's is theft.

Next, we have a legal issue. Nowhere in the United States Constitution is the federal government granted the power to redistribute income. Therefore, by the 10th Amendment, the government is prohibited from doing it. The same is true about education and several other hot-button issues, but that is an argument for another day. And don't get me started on those legal nimrods who think the absence of the word "expressly" in that amendment means the government can do whatever it wants.

More than anything, however, we have the practical issue. Consider, for a moment, the example of a person who makes a lot of money. What will the person do with this money?

Will they simply put it in a box under their pillow? In that case, the money is wasted and not helping anyone.

Suppose the person puts it in the bank. That gives the bank more money to lend to people to buy homes, start businesses, or whatever else they need to do. Their wealth is helping people.

Suppose they invest it. This money is invested in businesses that provide goods and services and create jobs. Again, their wealth is helping people.

Suppose instead, however, the wealthy person decides to spend it on themselves. They could buy a yacht. People need to build that yacht. People need to maintain it. People need to fuel it. If it's big enough, there will be a need for a crew. It will need all manner of supplies and furnishings. This provides a large number of opportunities for other people to get their hands on that wealthy person's money.

The best thing about each of those scenarios is that people get their hands on the wealthy person's money by doing something productive. They provide material goods or services. Those who provide these goods and services well have the opportunity to become wealthy themselves. And the wealthy person receives a benefit themselves from investing in this manner. This provides incentive for the person to continue to earn money so that they can continue to receive benefits. All this is completely leaving aside any jobs or benefits provided by the wealthy person's livelihood in the first place.

The socialist model, however, is to simply take the money earned by the wealthy person. The first problem is that this person receives no benefit from the earned money. Why bother working hard if you have no benefit? This is one of the primary reasons communism doesn't work.

Now, lets look at what happens to this money. The government provides a bureaucracy to handle this money. This costs a large amount of the money. Then the government hands it out to people who haven't earned it. Some are facing temporary hard times. Others have squandered opportunities handed to them. The government sets up a system in which the benefits of staying on the dole are significantly higher than anything they could hope to see in their first few years off the dole. This provides a severe disincentive to ever improve oneself.

A large amount of this money, however, goes to people who don't need it. Even the yeoman's work done by Citizens Against Government Waste only tells part of the story. The number of people who are employed by the government simply to handle the consequences of the byzantine bureaucracy is one that is probably impossible to measure. How many office workers are needed to handle pork barrel projects? How many field the phone calls or handle the paperwork? How many offices need to be staffed and supported by maintenance crews to handle this crap?

As a general rule of thumb, any time anything is done by the government instead of the private sector you can expect it to cost twice as much and provide half the benefits, with no place else to go if it doesn't work out.

Certainly, this system does "share the wealth." It does so, however, by taking money from those who are productive, and gives it to those who are not. It removes the incentive for people to work hard and provide jobs to benefit people. The money taken from business would have been used to make the businesses more productive. It's used to purchase equipment, which someone else would then get paid to make. It's used to hire people, who then have jobs. If it's taken by the government, it pretty much goes to waste.

Especially in tough economic times it is completely insane to punish people for being successful. High taxes and tariffs were what caused the United States to face a Great Depression, while the rest of the world didn't fare nearly as badly. If you want to get things going, let people do what they do best. The Constitution set up government to handle certain tasks that needed to be centralized: national defense, regulating interstate commerce, etc. For the rest, however, the best thing that government can do is get out of the way.

If it were to do so, everything would be cheaper and easier to do. Those who are hurting would have less of a hurdle to get over. Those who can help them would have many more resources with which to do so. Our worst shape areas right now, health care, housing, etc., are in bad shape for a large part because of government meddling making it impossible to properly do business. The solution is not more government, it is less.

If you want to spread the wealth around, let the people who own it do that themselves. Even if they just let it sit in the bank, it's still being shared with people who are actually productive.

Edited 9:41 AM to fix a typo

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