Asymmetrical Information

From the desk of Mindles H. Dreck:

Wealth Redistribution - The Easy Way

The vast majority of the political spectrum believes that it is appropriate for the government to relieve the suffering of citizens at the lowest end of the income distribution. Even those who feel it is not truly an appropriate function of government can often be convinced that having government perform that function may reduce the costs to society as a whole. In addition, most believe, as I do, that continuous, sustainable improvement in the living conditions and opportunities of all is the noblest of all purposes. Where I part company with so many of my friends and correspondents is how best to achieve such growth.

It is an entirely different and tenuous argument that an aim of government should be to deprive those at the high end of the economic distribution of their wealth. That this in and of itself is a net plus for society, or that it is simply morally right to disallow extreme wealth, is highly problematic. As Arnold Kling points out, this is basically the path Krugman is taking with his recent anti-plutocracy columns.

Similarly, I find it odd that most limousine socialists, upon the very sight of rich people getting wealthier, assume that this has happened at the expense of the poor. Zero sum reasoning that is - "you have a dollar because I don't", or vice versa. Strangely, people who have money are often more susceptible to this argument. This is guilt, perhaps, or stems from the relative wealth reference in Prospect Theory (I digress, but where would this post be without a reference to a Nobel Prize winner?).

One argument against redistribution for the sake of reducing wealth boils down to simple axiomatic beliefs: The individual has a sacrosanct right to his property (like life and liberty) and government cannot deprive him of it in order to re-engineer society in some bureaucrat's vision. Property must be exchanged for value, and not by force. These happen to be my beliefs, but there is little point in arguing this because people tend to place a particular subjective value on the right to property that cannot be argued productively.

There are, however, several arguments against purposeful redistribution that suggest it would be harmful to the greater public good.

The first is that free market economies require clear and stable rules supporting private ownership of property and clear control over one's assets' disposition in order for the economy to be productive with its capital. This can only be suggested by observed correlation, but the work of economists like Hernando de Soto has made a compelling case for property rights. Adding one's own subjective qualifiers as to what constitutes "too much" property is merely a soft way to dilute those rights. Those who point at Sweden need to consider how much more extreme Sweden's concentration of wealth is at the high end - i.e. two families and a handful of pension funds controlling most of the private sector and the government representing nearly half of the economy. Incidentally, this is true of many quasi-socialist economies - wealth is in fact concentrated in...well...the "Eurotrash" and/or a few government bureaucrats.

Another argument is that the opportunity to amass wealth increases behavioral incentives for productive economic activity. This is both true and largely undisputed. The argument becomes a lot more contentious at the margins, however. How much of a disincentive is a particular marginal tax rate or transaction cost? While generally agreeing that lower taxation is an economic stimulus on the margin, economists argue derisively with each other about whether different forms and quantities of tax reductions can be more or less of a stimulus, whether any resulting budget/debt impact will offset or even overwhelm the tax stimulus, and whether today's marginal tax rates provide much opportunity for increased incentives. Nonetheless, if we are talking about confiscating wealth for social purposes, we have to quantify the benefit to society in order to justify the marginal cost, however small or large.

Personally, I'm disgusted at the ease with which statists can actually rationalize their insufferable sense of moral superiority by advocating taking private property. Just the other night I heard one on NPR talking about raising taxes to balance the budget (and rolling out the hoary and unproven deficit-interest rate argument!). It was as if the current spending side of the budget was written and delivered with the Ten Commandments. I have the same problem with the abortion argument. I am pro choice myself, but I'm appalled at the way pro-choice activists deny that an abortion, all else being equal, is a HORRIBLE thing. We can only try to justify it using utilitarian arguments balancing the rights of the mother and the future well-being of mother, child and society against the destruction of an unborn child. But I digress again...(and invite hateful mail).

It has been suggested, with little evidence, that these very few wealthy control politics, and the benefit of better immediate wealth distribution is effectively to re-democratize. Can we prove that, for instance, Bill Gates is controlling the political process? Does Larry Ellison control the legislative or executive branch? Do the massive perpetual foundations set up by the Rockefellers, Fords, Guggenheims etc. "control" government?

The latter is much more likely.* It seems that these family foundations are much more active in government. The first generation filthy rich are too busy buying ski-in ski-out Vail mansions with attached helipads. Since these dynastic foundations are, in large part, a creation of the supposedly wealth redistributing estate tax, what does that say about the wealth concentration argument?

Absent government-imposed distortions, a fool and his money are soon parted. I say let the rich give it all to their kids. It'll be back in the economy in no time. Anti-plutocrats' ends, as well as those of us with a more laissez-faire bent, will both be served.

* Actually, one might argue it is getting to the point where unions, corporations and associations such as the trial lawyers exert a disproportionate influence on government. I'm not sure how that observation relates to the plutocracy argument and tax rates on individuals. Unions and associations pay no taxes, and corporations of size are all in the same tax bracket.

Posted by Mindles H. Dreck at November 2, 2002 9:23 AM | TrackBack | Technorati inbound links