Monday, October 9, 2017

Redistribution of Wealth and Predatory Capitalism

Robert Samuelson distinguishes between societies that produce wealth and those that redistribute it. 

We recall candidate Barack Obama declaring that it would be good to spread the wealth around, thus to redistribute it. Certainly, his administration did far more to redistribute wealth than to produce it. Government regulations and high taxes, coupled with increased welfare spells redistribution. The more government controls business—usually in the name of protecting the consumer or the citizen—the less wealth is produced.

Samuelson does not define the issue in political terms. And yet the ghost of Obama's Democratic Party hangs over his analysis:

The problem is that, as societies become richer, so does the temptation for people to advance their economic interests by grabbing someone else’s wealth, as opposed to creating wealth.

We see the resulting redistributive struggles all the time. They’re part of the social fabric: divorcing couples fighting over the marital assets; Congress debating who should — or shouldn’t — get tax cuts or subsidies (say, Social Security); lawyers launching “class action” suits to remedy alleged wrongs; patent “trolls” suing tech companies over possible infringement issues.

Regardless of where your sympathies lie — redistribution is both good and bad — what connects all these activities and many others is that they don’t result in the production of goods and services. Instead, they involve the shifting of money and wealth from one party or group to another. They recall the spirit of 19th-century politicians’ defense of patronage jobs: “To the victors belong the spoils.”

Redistribution is the enemy of production. It produces predatory capitalism:

In my spoils society, the economy splits into two parts: the producing sector, which creates and makes stuff; and the predatory sector, which redistributes income and wealth.

Might it not be the case that once a society adopts too many redistributionist policies, its business leaders become more predatory. They react to the threat against their wealth by accumulating excessively large quantities of it, winning the predatory game and making themselves so rich that the rest of the population has no hope of ever catching up.

1 comment:

Ares Olympus said...

Samuelson: People will fight over getting a bigger piece of the economic pie (which means someone else will get a smaller piece) rather than growing the pie so that everyone gets a bigger piece. The consequences could be dire. As Lindsey and Teles warn: “When life seems like a zero-sum struggle, gains by other groups are interpreted as losses by one’s own group.” This is a formula for resentment and discord.

I don't think anyone can disagree with this conclusion, but the question is how you distinguished between "redistribution" that helps expand the pie (perhaps like investing in education), and "redistribution" that merely exists to keep the have-nots from violent rebellion (maybe like welfare), and "redistribution" that perhaps seeks to limit intergenerational wealth transfer within families (maybe like estate taxes), and a dozen other motives perhaps.

For me the bigger picture isn't "How can we the wealth?" but "What is wealth?" And if wealth exists now by exploiting one-time natural resources (like Venezuela's oil economy), we can be very "generous" to the masses for a long while, but at a cost of future generations who will have to figure out how to make a living when the exploited resources deplete. So if most of our wealth comes from our temporary ability to extract one-time resources, we're not "expanding the pie" by doing more, but "draining the wealth" from the system, whether we're billionaires or cheap customers looking for the best deals to compete in a "whomever dies with the most toys wins" free for all.