Redistribution of Wealth-Will it Work?

I found this article in Newsweek magazine, written by Robert J. Samuelson.  You can go to Newsweek.com for the complete article.

Judgment Calls

As The Rich Gets Poorer

Making the rich poorer doesn't make everyone else richer

For years, we've debated rising economic inequality. On one side, liberals denounce it as unjust. Redistribute wealth to the poor and middle class, they say. On the other, conservatives minimize its importance. What matters most is overall economic growth, they retort. Well, the conjunction of the presidential campaign and the financial crisis is giving the debate a curious twist. Liberals have triumphed politically; soaking the rich has become more acceptable. But conservatives may have won the intellectual argument; making the rich poorer doesn't make everyone else richer.

If Barack Obama and John McCain agreed on anything, it was this: Greed is bad. They competed in denunciations of reckless investment bankers and avaricious CEOs. Obama proposed raising taxes on higher incomes (couples making more than $250,000); though McCain didn't, he suggested that much recent wealth accumulation was ill-gotten. Unintentionally, perhaps, he buttressed the moral case for more redistribution. Let's tap the gold mine of the rich.

Judged only by economic inequality, the financial crisis is a godsend. It will probably narrow the gap—though still vast—between the rich and everybody else. But what good will that do? Economic inequality also declined in the Great Depression. The country wasn't better off. By and large, the poor aren't poor because the rich are rich. They're usually poor for their own reasons: family breakdown, low skills, destructive personal habits and plain bad luck.

The presumption implicit in the criticism of growing economic inequality is that society's income is a given and, if the rich have less, others will have more.

Americans legitimately resent Wall Street types who profited from dubious investment strategies that aggravated today's crisis. And government properly redistributes income to reduce hardship and poverty. But that's different from attempting to deduce and engineer some optimal distribution of income. Government can't do that and shouldn't try. Scapegoating and punishing all of the rich won't do us any good if the resulting taxes dull investment and risk-taking, discouraging economic growth that benefits everyone.

But the redistributionist argument is at best a half-truth. The larger truth is that much of the income of the rich and well-to-do comes from what they do. If they stop doing it, then the income and wealth vanish. No one gets it. It can't be redistributed because it doesn't exist. Everyone's poorer.

To read the full story go to Newsweek.com