Thursday, September 20, 2012

Redistribute This!

To no one’s surprise, but Barack Obama believes in redistributing wealth.  

He says that it’s really about giving everyone a fair shot, leveling the proverbial playing field.

Of course, if take points away from one team and give them to the other team, you have not given everyone fair shot. You have cheated one team at the expense of the other.

One might argue that America’s underprivileged would have a better shot at success if they were living in a better house in a better neighborhood.

Yet, when America tried to upgrade everyone’s home by relaxing lending standards the result was not a fair shot for the disadvantaged but a subprime mortgage crisis. As of now, many of those who took out subprime mortgages based on nothing have been left with less than nothing.

Since redistribution has failed everywhere it has ever been tried, it seems to have a special appeal for Obama.

This makes him more ideologue than pragmatist.

This morning Thomas Sowell does a masterful job of showing, as clearly as anyone I have read, why redistribution does not work.

In his words:

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler’s Holocaust in the 1940s.

How can that be? It is not complicated. You can confiscate only the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally have kept tending and feeding while raising them to maturity.

If the productive members of society are no longer working for themselves and their progeny they are going to be less productive. They have less incentive to produce when more of what they produce, or more of the profit, is going to be taxed or confiscated.

Besides, when you confiscate wealth people will resist and will spend more of their time and energy trying to keep what they have earned. This time and energy could be used for more productive activities.

Since wealth exists in assets whose value is determined in a market, a regime that confiscates assets will force the wealthy to liquidate their assets, thus lowering the value of everyone’s assets and making it far more difficult to attract investment capital.

Moreover, if the wealthy believe that their success is being unfairly punished, they might very well pick up and leave:

Among the most valuable assets in any nation are the knowledge, skills, and productive experience that economists call “human capital.” When successful people with much human capital leave the country, either voluntarily or because of hostile governments or hostile mobs whipped up by demagogues exploiting envy, lasting damage can be done to the economy they leave behind.

Fidel Castro’s confiscatory policies drove successful Cubans to flee to Florida, often leaving much of their physical wealth behind. But poverty-stricken refugees rose to prosperity again in Florida, while the wealth they left behind in Cuba did not prevent the people there from being poverty-stricken under Castro. The lasting wealth the refugees took with them was their human capital.

1 comment:

Dennis said...

Years ago, I remember reading a study where "human capital" was tested. The test started everybody out with the same financial assets. As the test went on it became apparent that the people who had the "human capital" before were gaining all the wealth. They were willing to forgo material acquisitions and spent far more time on building ways to succeed. By the end the rich were rich again and the poor were poor again. The difference was a longterm approach, hard work and interest in growing their business as opposed to short-term thinking, less desire to work hard and a desire for things.
The Air Force Social Action Office had a game that every enlisted person had to play. The "supposed" majority became the minority and vice versa. All of the events were stacked against the now minorities. It was an easy game to defeat because the minority only had to get one person moved up and he moved others until the minority controlled the game. The minority, if they wanted to win, had to think longterm. Something the developers did not add in.
I had a feminist professor who took all the males in the class and made them females who were supposed to talk about how difficult it was to be a female and vice versa. Not surprising the females who were males talked about their advantages as male, but we males started on the need to take responsibility and work hard and not see ourselves as victims. Some of the comments by the actual females in the class were, "We are just too busy for this or that to ......... I was happy that there were a few women who actually agreed with us. It was there that I saw that there were women who did not see themselves as a "victim" and would do very well for them selves. Needless to say the feminist professor made all the actual males pay. It was one of the few classes I got a C and I was not a lone among the males.
There is a lot of movement both up and down between the quintiles of rich and poor. Those who like redistribution today may become the ones who have their hard work taken from them. Redistribution is playing with a fire that can and will consume them. Instead of moving people up the ladder of success it moves everyone down the ladder.