About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Tuesday, July 12, 2011

Why Taxing The Rich And Subsidizing The Poor Always Backfires

This Marxist siren song of wealth redistribution has seduced otherwise reasonable men for centuries. When I was young and naive, I heard the song and was drawn to it. At the time I was employed as a menial worker. As I faithfully labored for my boss, I wondered why he made so much more than I did. He didn’t seem smarter than me or a harder worker. Every time I passed street people pushing shopping carts, I wondered at the unfairness of it all. My boss was rich. Others were poor. I wondered why we as a nation didn’t do something about it, i.e., spread the wealth around.
When candidate Barack Obama met Joe the Plumber on the campaign trail, Obama thought spreading the wealth around makes good sense. Here’s what he said:
“My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. If you’ve got a plumbing business, you’re gonna be better off if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody.”
How exactly do you “spread the wealth around?” You empower politicians like Obama – compassionate and well-meaning people – to take from those who have more and give to those who have less. Rich guys aren’t going to go hungry if they’re taxed a few more thousands of dollars each year. After all, as President Obama reminds us: “… at a certain point you’ve made enough money.”
Why not authorize the Washington brain trust to figure out just what that “certain point” is? Let them raise taxes to that “certain point.” Let them take the tax money they collect from the “haves” and spread it around to the “have nots.” We’d all be better off, right?
Well, not really. When I got older and wiser I realized that the world didn’t work the way I thought when I was young. Human beings don’t keep working at the same pace regardless of how much money the government takes from them or gives to them.  Individuals are thinking, acting human beings. They are always evaluating what they have, how they got it and how they will spend their time.
A wise man said once that work is called “work” for a reason. In other words, we’d all rather goof off than go to work. By “goof off” I mean spend time doing what we want regardless of whether or not “doing what we want” has value in the marketplace. To some goofing off means eating, drinking and being merry. To others, it means laboring in their garden or remodeling their house or refurbishing old cars. Yes, goofing off sometimes is harder than “work,” but the point is it’s not work. It’s time spent satisfying no one but ourselves.
Now some might object that they love their job, that they’d do it for free. But this is the exception rather than the rule. Even the person who gets paid for goofing off knows what the difference is between work and goofing off.
For most of us work is unpleasant. It’s doing what needs to be done. It’s doing not what we want but what others want and will pay for in the marketplace. We focus on the marketplace because our modern exchange society is not the subsistence living of a century or two ago where individuals worked by themselves 24-7 just to survive. Today we work to produce goods and services that others are willing to buy. We trade them in the marketplace at a profit, which makes our much desired goof off time possible and affordable.
Why is our modern exchange economy so much more productive than a subsistence economy? Our  exchange economy rests on the principle economists call the “Division of Labor.” We all specialize in work that we’re especially good at. When you’re good at something you produce more of it. When each of us works at what we’re good at, production of goods and services is maximized. We are all better off because we benefit from the skills, talents and productive ability of others.
What’s more, we get to have and enjoy things we don’t have the skill, talent and ability to produce on our own, like brain surgery and smart phones. The bottom line is, thanks to our creative workaholic neighbors, we all become richer than we could possibly be by working on our own.
Of course in such a system these workaholics become richer than the rest of us. Why? Isn’t it obvious? They’re smarter, more talented, more ambitious, more creative and more productive than the rest of us. They’re the risk-takers, the movers and shakers.
Politicians regard this as a problem. They decry the “gap” between them and us (the “rich” and the “poor”). But, as I’ve just shown, in our modern exchange economy it is those very risk-taking, productive workaholics who enable the rest of us to be richer and better off than we would otherwise be.
Still, for some reason – either because of economic ignorance or an obsession with the siren song of “fairness” – Washington politicians never learn this truth. They continue to meddle with the exchange economy, taking from the productive and giving to the unproductive. By doing so they believe they are growing “the economy” from the “bottom up,” which, as candidate Obama told Joe the Plumber, is “gonna be good for everybody.”
But, as it turns out, taking from these productive and creative risk-takers only encourages these individuals to recalculate their ratio of work time to goof off time. As a result, they change their behavior. They decide to work less and goof off more. Why? Because they’re not fools. Why work as hard to earn less?
Those among us – the less productive – who are given what the government takes from the more productive and creative workaholics, also recalculate our ratio of work time to goof off time. As a result, we change our behavior too. We decide to work less and goof off more. Why? Because we’re not fools either. Why work as hard when the government will give us more for doing less?
The truth is the meddling of Marxist politicians always backfires. Even though they’re “spreading the wealth around,” the very act of spreading the wealth causes there to be less total wealth. People work less and goof off more. Less goods and services are produced. In the parlance of the politicians, even though they divide the pie equally among us, the very act of dividing the pie causes the pie to shrink – drastically . What was “gonna be good for everybody” ends up being worse than we had it before.
Still, politicians like Obama keep on meddling. They never learn the lesson we all learned as we grew older. Maybe it’s because a politician’s heart is as big as his head is hard.
Or maybe it’s because politicians just never grow up.

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