Liberals constantly fight for the cause of wealth redistribution. Obama called income inequality the greatest challenge of our generation. We’ve already discussed many of the problems with this line of thinking, but today we are going to talk specifically about the socialist mentality of redistributing wealth via taxes and government assistance. It isn’t just a bad idea; it actually exacerbates the problem.
A Little Math
This is going to sound technical, but it’s actually pretty easy. The first thing we’re going to discuss is Zipf’s Law. This is a mathematical law that demonstrates the natural arrangement of distributions. The fact that it is a mathematical law really undercuts any arguments against it, because it isn’t a matter of perspective.
It boils down to this: in any arrangement, random or otherwise, the most frequent occurrences account for the majority of instances. Here’s an easy example. In any language on Earth, roughly 125 words account for 50 percent of everything that is written or said. In economics, the top quintile own 50 percent of all wealth. These aren’t just coincidences; they are mathematical inevitability.
Let’s break it down to understand why, and it’s simpler than you think. If the economy grows by 10 percent, then it stands to reason everyone in the country will gain money. While that money won’t be evenly distributed, it is inevitable that the very wealthiest person in the country will have more money than before the growth happened.
The end result is that a productive, growing economy requires a larger sum of money to remain in the top percentile each year. The appearance is that the rich get richer, when in fact everyone is getting richer, so it requires a larger net wealth to be in any given percentile.
An easy analogy is to consider a dirt pile. If you throw more dirt on the top, the whole pile gets bigger, and while the grains on the top might shift, the highest grain will inevitably be higher than it was before. In even simpler terms — if you add, you have more. That’s it.
Now we’ll apply this to actual economics. The most important truth to come out of the models is that the rich and poor can get richer at the same time, and that is the essence and purpose of capitalism. With that in mind, let’s talk a little bit about the mechanics of wealth redistribution.
The concept is straightforward: tax the rich to pay for programs that help the poor. The problem is that taking money from one party and giving to another (besides sounding a lot like theft) doesn’t have a net impact on the economy. The total number of dollars in the system is unchanged.
More importantly, the redistributed wealth is typically spent on consumable goods rather than being invested in productive prospects. Even money in a basic savings account can earn interest, but when that money is redistributed, those gains stop, meaning that these taxes inevitably slow economic growth.
Even worse, social programs are essentially a subsidy for the labor force. When people are paid not to produce, they don’t, and there can be no economic returns on that money. This creates a feedback loop of dependence, because unproductive workers lose the power to change their income, and the money paying those “wages” is no longer creating jobs. It also leads to some very problematic issues in government.
The Effect on Poverty
All of these issues culminate in a major problem. We’ve discussed in the past how the poor are actually gaining wealth faster than any other demographic in the world, so we won’t revisit that now.
What we will look at is the history of wealth redistribution in the U.S. The “war on poverty” began in 1965, when the poverty rate was 17.3 percent. After so many decades of welfare programs, the rate today is 15 percent. That’s a pretty small gain for more than 50 years of work, and when you consider population growth, it shows that there are more impoverished Americans today than there were at the start.
For all that liberals will rail against the war on drugs, it effectively reduced violent crimes by more than an order of magnitude. Wealth redistribution has had zero statistical success.
Helping the poor is not an inherently bad idea, and there have been plenty of successful programs that have helped billions around the world. None of them include a forced redistribution of wealth. If you want to learn from history, the key to ending poverty is productive investment. Yes, it will make the rich richer. It’ll also make everyone else richer along the way.
~ Conservative Zone