The fallacy of wealth redistribution: Progressive perversion of Jeffersonian thought

Thomas Jefferson noted in a letter to James Madison on 18 October 1785 the condition of the poor in France. He had remarked about the king’s autumn retreat for hunting which was attended by foreign diplomats in order to possibly curry favor, but he did not have the personal means to attend and was therefore required to stay in Paris, some 40 miles away. During his stay in Paris while the king was at his retreat, he had occasion to walk with a member of the working poor in France and inquired about her condition. She told him how much it costs to live and how much she makes, and he noted the disparity between her income and cost of living (by today’s standards would be in the area of $700-$1000 per month), adding that she had no money to buy bread.

Mr. Jefferson noted that the majority of land suitable for food production in the area surrounding Paris had been reserved for the upper class for various uses, particularly leisure, and observed what he called inequality in the distribution of land had the effect of rendering large portions of the population unable to achieve basic subsistence.  He ventured that a remedy for such inequality could be a tax on property on a sliding scale depending on the quantity of land held to provide a disincentive for hording and an incentive to allow cultivation of the land by lower classes that would then have a better opportunity at self-subsistence.

While ideas of wealth redistribution have some root in this Jeffersonian line of thought, and there has been considerable changes that have occurred in society since his observations in Paris in 1785, he offered practical solutions to social issues of the day based on observations of finite resource utilization. In addition, he did not advocate direct confiscation and distribution of resources by government, only incentives to produce the desired effect of enabling each human being the ability to provide for one’s family when conditions demand it.

It is one matter to provide disincentive for hording of land in a country where starvation is rampant and an entirely different one concerning attempts at equal distribution of infinite resources such as income, which is the very essence of prosperity. Suppose that GDP is the consequence of incentive to produce, to improve one’s lot in life, and is a measurement of production of national prosperity as a result of that incentive.  This measure can either expand or contract depending upon the success of the national production of wealth in any given year; and creation of wealth out of raw materials is limited only by dynamic elements such as the availability of resources, desire to succeed, market conditions, and productivity technology.

As in Jefferson’s recommendation to incentivize more practical use of land and discourage wanton accumulation of it, government views the distribution of income nearly as much a problem and levies a tax on income or production, not wealth, in a attempt to discourage hording despite the obvious fallacy of hording money in the pursuit of one’s self-interest. As a consequence, it discourages production of prosperity beyond which is necessary for subsistence by those who have the desire to produce, and negatively impacts all possible production of national income, measured in GDP. We tax incentive to produce not some finite tangible object. The more products of production the government gobbles up, the smaller the pie becomes by dampening the incentive to produce.

This is an oversimplification of the effects of government attempts at more equal distribution of national income, as the application of well meaning policy to effect this end has been perverted in all manners of ways so that the intended end is no longer visible with immeasurable impact on potential national income due to depressed incentive to produce.  The reality of the application of these schemes has been the accumulation or expected accumulation of confiscated income in the coffers of government to dispose of as it pleases on any object of political necessity or largess. In addition, government, recognizing the fallacy of income redistribution, has provided backdoor provisions in the tax code that allow for the blunting of the effect of confiscation if the producer engages in activities government determines beneficial to society, any other elements of daily life government wishes to influence, or in the case of malfeasance (which appears to be rampant), to pass out favors to connected individuals by customizing tax incentives. This is the very purpose of high marginal income tax rates for individuals and corporations with deductions piled on, to provide government with the power to control the behavior of society by controlling the fate of national income.

Recently, President Obama has given talks and speeches about the disparity of income distribution as if there were some things, such as increased taxation, that can be done about it. Given the statistics regarding the distribution of tax burden, the top 10% pay 70% of all taxes collected, it would seem reasonable that if there were some magical formula government could employ for closing any perceived gap (another fallacy that will require another diary to explain), it certainly should have been on the way to being well compensated by now. Yet with every new generation of politicians, like Obama, over spans of decades, the complaint persists because not only is it impossible to redistribute infinite resources that arise from basic human desire for success without dragging down the prosperity of the entire nation, government fails to employ the proceeds it collects to appropriately meet that end. It is all smoke and mirrors. If government were a private charity with its efficiency rate of ~30% in social programs, it would have been dragged through the court of public opinion, tarred and feathered, flogged, with severe market discipline employed to clean up the problem. Yet many sit in awe as the president spews his demagogy based on fallacy, failing to be held accountable for the sorry condition of affairs; and they accept the same excuses that the current level of confiscation is simply not enough.