Monday, February 28, 2005

Eating the rich? Or just soaking them?

This is adapted from a reply I made on Jackie Passey's blog. Someone said he "would in fact like to eat the rich."

I was 16 when Bill Clinton became the Democratic nominee for President. His "It's time for the rich to pay their fair share" line showed me that class warfare, this socialist-propagated mythos of rich versus poor, is alive and well. The first problem with "soak the rich" philosophies is that they ignore that money really does "trickle down" to those of lower incomes. And just because government can redistribute wealth doesn't mean it's efficient, let alone morally right to do so.

Donald Trump's wedding reception was in a ballroom that he had remodeled for $42 million. Who built that ballroom, especially the thousands of square feet of marble? Who sews fur coats, crafts jewelry, or builds luxury cars and boats? Not the rich. When they go out to dinner, who waits their tables? Who mows their lawns? All that labor is done by people of far lower incomes, whose jobs are made possible because the "rich" spend their wealth. My job (currently in operations at a Morgan Stanley retail branch) wouldn't exist were it not for wealthy investors.

Consider when someone borrows money for a loan: where did those funds come from? The bank doesn't create the money out of thin air. What you're borrowing, of course, is what others have saved; and by definition the bulk of savings are from "rich" people. Whether you borrow $200,000 for a home mortgage or $10,000 for a car, it's more likely the money came from a "rich" person than someone of your income level. Those savings could also be lent to businesses (owned by entrepreneurs of any income level), which can mean jobs. So whether a "rich person" spends money freely or saves it, the money still flows around the economy.

Don't get me wrong. I'm not saying people of lower incomes should kiss every "rich" person's foot in gratitude, but we should recognize that other people's wealth does help those of lower incomes. When government taxes a wealthy person $1 more, that's $1 less that flows to a lower-income person, whether to support a job or provide a loan. You might think it's great when the government plays Robin Hood, taking a dollar from the rich and giving it to the poor, but the nature of the state is inefficiency, if not corruption. Friedrich Hayek wrote a great deal on "the knowledge problem," explaining that state bureaucrats necessarily function on imperfect knowledge. So between poor decision-making (that is, relative to the rest of society) and bureaucratic costs, a taxed dollar is greatly depleted by the time it's given the lower-income person. It would have been better had the rich person been allowed to spend or save the dollar as he saw fit, so that the lower-income person could have received the full dollar in labor, or borrowed the full dollar.

In What Is Seen and What Is Not Seen, Bastiat discussed something very similar, using the example of taxing farmers, then spending the money on parties in Paris, which gives jobs to cooks and the like. It's no different than had the farmers spent the money, c'est vrai? Mais non! "Do you not see that it is only a simple transfer of consumption and of labor? A cabinet minister has his table more lavishly set, it is true; but a farmer has his field less well drained, and this is just as true. A Parisian caterer has gained a hundred sous, I grant you; but grant me that a provincial ditchdigger has lost five francs. All that one can say is that the official dish and the satisfied caterer are what is seen; the swampy field and the excavator out of work are what is not seen." This is even assuming a fully transparent transfer of money by government.

Jobs are, in fact, created from pork barrel projects like Senator Byrd's proposed atomic clock from 1993. However, even the Navy said it was wholly unnecessary, there were valid criticisms that the cushy administrative jobs were going to Byrd's friends, and it would deprive taxpayers of $7 million that were needed elsewhere. Going back to Hayek, knowledge dispersed among a free market will find a better use for resources (not just money) than the imperfect knowledge of a few government bureaucrats. (In my original reply, I was in error. Byrd retracted his proposal, thank God, after ABC's World News Tonight and other news organizations brought it to national attention. But that's chicken feed compared to Byrd's $75 million telescope and all the other pork he's inserted into other Senate bills. He's not the only one to waste taxpayers' money, either.)

Dr. Walter Williams made perhaps the most concise and simply terrific moral argument against government-induced redistribution of wealth: "What's *just* has been debated for centuries but let me offer you my definition of social justice: I keep what I earn and you keep what you earn. Do you disagree? Well then tell me how much of what I earn *belongs* to you – and why?"

Labels: , , ,

Open the champagne!

Here we go, the big debut. My aim is to present defenses of true personal liberty, free markets and free trade between willing participants, and the necessity of low taxes and minimal government. I'll discuss politics, history, and economics – including the historical revisionism and bad economics so prevalent today.

Let's start off with two great quotes:

"You are not to inquire how your trade may be increased, nor how you are to become a great and powerful people, but how your liberties can be secured; for liberty ought to be the direct end of your government." – Patrick Henry, 1788, addressing the Virginia legislature as to why he did not support ratifying the Constitution

"The quantitative treatment of economic problems must not be confused with the quantitative methods applied in dealing with the problems of the external universe of physical and chemical events. The distinctive mark of economic calculation is that it is neither based upon nor related to anything which could be characterized as measurement." – Ludwig von Mises, Human Action, chapter 11, part 4