The statists are making a big issue out of income inequality, hoping to convince ordinary Americans that redistribution is their only hope for a better life.
I’ve explained with a pizza analogy that this is horribly misguided because it falsely assumes the economy is a fixed pie.
Simply stated, it doesn’t make sense – or help anybody – if inequality is reduced by policies that hurt everyone, but happen to hurt upper-income people more than lower-income people.
Moreover, redistribution tends to create a “poverty trap” as people get seduced by dependency.
That’s why I’ve argued that economic growth is the best way of helping the less fortunate.
But I have to admit that Margaret Thatcher does a much better job of eviscerating the left’s agenda on this issue.
While it’s inspiring to watch Thatcher in action, it’s also painful to realize that the current crop of GOP presidential candidates seems generally incapable of making similar arguments. Can you imagine, for instance, Mitt Romney making these remarks?
Last but not least, Thatcher’s remarks remind me about Churchill’s famous quote, which is very appropriate for this discussion.
The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.
And if you want real-world examples, look at this chart comparing North Korea and South Korea, or this chart comparing Chile, Argentina, and Venezuela. Now ask yourself a simple question: Which societies have generated more prosperity and higher living standards for ordinary people?
It’s interesting to see how much people liked her, even though they held opposite political and economic positions.
Or as Churchill put it: The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.
The problem is short term vs. long term effects. In the short term redistribution confers some (perhaps immoral) benefits to a significant number of voters. But sooner or later the relentless compounding of resulting slow growth drags nearly everyone down to sub-par prosperity levels.
This is the drama now unfolding in the once most prosperous Western World, with Europe ahead and the US fast following suit. There is no way around it. Productive people — especially productive people of all people — cannot be convinced to produce for others, tricked into producing for others through macroeconomic post-manipulation gimmicks, or ultimately be coerced to produce for the benefit of distant unknowns. Voters should leave them alone to keep their full rewards and thus the public should be content to benefit from the work done by exceptional people. It is the work done by exceptional people that is the main benefit to society, not the taxes that they pay. The progressive solidarity fantasy, whether voluntary through repeated appeals or changes to human DNA or, more traditionally, coerced by the power of the majority, is simply a pipe dream. A pipe dream that keeps been proven wrong. But the dream keeps living on, so western World decline continues.
The destructive effects of statist legislation enacted today (e.g. most notably ObamaCare) have barely begun to have an effect, but will over time compound into an ever deeper and irreversible decline over many years to come. In the short term there is the (partially justified for the simple minded) free lunch palliative illusion.
HopNChange: The road over which Western world lemmings race to their demise… must be comical to observe this predictable western suicide from an Emerging World vantage point.
As growth of the US pizza stagnates while, at the same time, the three billion people of the emerging world start having US sized pizzas, the drowning American Voter lemming will, true to form, drag his rescuer below water, and predictably vote for more and more redistribution.
The Euro-Grecian vicious cycle coming to a voter’s mind near you…
Income disparity is not remedied by higher tax rates, but actually causes income disparity. This can be demonstrated with the Laffer curve, and its reciprocal curve, the size of economy curve. This is the reciprocal curve derived from dividing the revenue amount by the tax rate. This gives a very high curve on the low tax side and diminishes as the tax rate approaches 100%.
This size of the economy curve can be a proxy for the number of jobs available in the economy. Superimpose a size of the work force line horizontally across the chart. Where the size of the work force exceeds the number of jobs, as under high tax rates, available jobs are scarce and the pay is low and the employer benefits because he can pay only a fraction of the value added by that employee. Where the number of jobs in the economy exceed the size of the workforce, jobs are plentiful and wages and salaries are high and constrained only by the value added by the employee.
When wages are high families are financially able to raise children with only one parent working outside the home. This would have a reinforcing effect of further shrinking the participating work force pushing wages still higher. And with employers being forced to pay close to the value created by the job, more capital goes to the workers, making it easier for them to start their own businesses. Income inequality is lowered, by lowering tax rates. Which is pretty much the opposite of what the high tax rate advocates will tell you.
With more people working fewer people are on unemployment compensation or collecting disability checks. Demands on social services are less so taxes needed are less and government is less of a factor in lives.
To recap, increasing tax rates shrinks the economy and the number of jobs available, this allows employers to pay small wages, and make high profits that are taxed at a high rate. Lowering tax rates increases the number of jobs and the size of the economy, this forces employers to pay high wages and their profits suffer, but their net after taxes may not be greatly different or less than under high tax rates.
Your embedded links invariably end up being “jimmyobama” not the links you indicate.
Are you copying and pasting?
Can we please retire the euphemism “redistribution”? It’s theft. It doesn’t matter how much verbiage you construct around it. When you take from productive Peter and give to unproductive Paul, it is theft. Social justice blah blah, paying their fair share, blah blah. Whatever you like your form of; we can take because we’re the State.
It’s theft. It doesn’t end well for societies that codify it into law.
[...] Dan Mitchell has the video: [...]
[...] Found the video at Daniel Mitchell’s blog [...]
[...] We are highly unlikely to see her like again, on either side of the Atlantic. As Dan Mitchell notes, “…it’s…painful to realize that the current crop of GOP presidential candidates [...]
[...] But as is often the case, the left’s answer is completely wrong. Class warfare and redistributionism are terribly misguided, as illustrated by this Walter Williams column and this Margaret Thatcher video. [...]
[...] inequality and here’s a debate I did on income mobility. Even better, here’s what Margaret Thatcher said about these topics. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike [...]