Sunday, August 13, 2017

Wealth Redistribution Is Not The Answer To Inequality

Redistribution Of Wealth Is Not the Answer
Dealing with inequality by redistributing wealth puts society on the slippery slope to socialism. More and more we are hearing things like a guaranteed annual minimum income for all individuals is the answer to achieving a society that is more fair and just. We are constantly being told that people deserve their "chicken done right" and how dignity and respect are key to our culture and the linchpins of a great society. The problem with all this is that at some point the rights of one individual begin to impact the rights of another. Simply taking the wealth from one person and giving it to another is theft and not a long term solution to what ails our economic system.

Socialism is a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole. Deny it as they might those advocating such a system are talking about "more government" when they are talking about the "greater good." A powerful central government controlling the economy for the "greater good" is the central driver of such systems and while the theory may sound appealing it has proven to be rather inefficient when put into practice. Economic systems tied to socialism tend to be unresponsive to changing supply and demand because they lack the proper incentives that cause people to excel and reach their potential.

Shifting global, political and economic tides tend to cause people to forget the failed states of the past as they focus on today and the future. Even communism a relative of socialism is currently looked on with less disdain than in previous decades. This is because the memories of the failed attempts of several countries to create what is often viewed as a fair or better way of distributing the fruits of our labor have faded over time. As inequality grows those clamoring for an answer as to how we might achieve a more just and fair society are again slipping into this trap. Getting something for nothing has a great allure and is a strong reason for many people to line up behind a politician like Bernie Sanders but the flaws of such systems are rapidly apparent in countries like Venezuela that has now fallen into chaos. 

By focusing on how the economic machinery in China has had the effect of improving the lives of hundreds of millions in the last several decades a case can be made that their system is not so bad. This argument ignores several facts and one of the most important is that China's economic growth has been made by and is a product of America. Ironically it was the shift of American jobs to that distant shore and other countries that are responsible for growing inequality here in America. It is baffling that many economists have chosen to ignore the ramifications of China's policies and how they affect the world. When all is said and done the financial missteps in China that have continued over the years will be recognized and the growth fueled by the Chinese government expanding the money supply will come to an abrupt end this has distorted markets across the world.

How We Tax, Key To Why Inequality Continues To Grow!
After a decade of central banks flooding the world with newly created money and super low-interest rates a series of what would have at one time been considered outlandish ideas has surfaced. These include a war on cash, forgiving debt through a debt jubilee, giving everyone a guaranteed income, and even injecting money into the economic system by dropping it from a helicopter. These ideas have all found their way into conversations as not only the best way to reset the economy but as answers to the problems before us. Easy answers such as these may give those suffering from inequality hope and extend their belief those in charge really care, however, this also creates the false illusion that the system is stable.

It should be immediately apparent that wealth redistribution can take many forms and has many faces. Any real attempt to address the issue of inequality must have true incentives to create new wealth and promote the kind of growth that is both sustainable and gives the average person opportunity or in a very short time the money will again flow back into the hands of a few. Taxation is and always has been a major tool for social engineering and that is why it is so important we do not underestimate how tax policies feed back into the economy. Of course, taxation can also be used to redistribute wealth but its main function should be to fund necessary parts of the government. Sadly, while almost everyone agrees the tax code is broken almost no one can agree on how to fix it. If you feel Washington failed miserably in addressing America's healthcare woes be prepared for more of the same when it comes to the issue of tax reform.

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