It would seem that a new four letter word has been added to the political lexicon. That word is "socialist." It's hard for me to understand why this is seen as an automatic insult. Like all systems, it has its merits and its faults. Or perhaps after living in Norway, one of those Scandinavian varieties of "socialist" countries, I am a bit more willing to accept some of its tenets as viable options.
The most recent discussion/controversy revolves around the idea of "spreading the wealth," a notion that is anathema to many. While I think there are many arguments to be made from a social justice and fairness standpoint in favor of a progressive tax structure that "spreads the wealth," this is not the strongest argument.
Moreover, I think the simplest point to be made is that "spreading the wealth" is something that happens irregardless of whatever approach a government takes. The question is really, how will wealth be spread about?
I think its fair to consider regressive and progressive tax policies, in their various extremes, as opposite poles on a spectrum of wealth re/distribution. Flat taxes are for all intents and purposes regressive. While on paper everyone may pay the same percentage, that percentage is a much larger chunk of a lower income than a higher one. In any case, my basic premise is that regressive policies simply spread the wealth upwards while progressive tax policies help to spread the wealth downwards. I might also add that the lower the tax rate the more wealth stays distributed on the top end while higher tax rates are dependent upon what the government decides to do with it.
One might argue that there is no such thing as spreading the wealth upward. By definition a tax is taking money away from one group for the government to spend for either the benefit of the whole or a more specific group. If one ignores the reality of market conditions, this might be true. However, in any competitive market there will be winners and losers. The winners will continue to earn and the losers, well they lost. We currently have the largest income disparity since the 1920s with the richest 10 percent earning an average of $93,000 a year and the poorest 10 percent earning only $5,800 a year*. If such a trend continues the end result gets closer and closer to a monopoly with a few oligarchs perched high above the rest. Clearly such a situation promotes the accumulation of wealth at the top.
Furthermore, I would argue that the market for many laborers, especially the unskilled, is imperfect. This means that supply and demand models simply do not hold for such a group. They do not have the luxury to reject certain jobs and force competition to raise their wages. In fact, competition nearly always favors businesses and pushes their wages down. This is in part because the opportunity costs for the poor are always higher, often exponentially higher than they are for the wealthy.
Consider the value of $150 in forgone income to a family making $800 a month compared to a family making $3,000. For the poor family, losing $150 could mean eviction or not being able to put food on the table. For the wealthier family, it probably only means putting off a luxury purchase of some type until next month. As such, retraining or additional education are often simply not an option for families struggling to put food on the table. This further limits their opportunity for any type of real economic growth along with any meaningful accumulation of wealth.
As I said above, while there are strong social justice arguments to be made for a "fair" system of re/distribution of wealth, the strongest argument revolves around the health of the economy. While I am no expert on this topic, I think a balance needs to be kept between moving wealth up and down to help benefit as many as possible and ultimately, to maintain the healthy competition that allows the invisible hand to work.
On the one hand, spreading the wealth up (tax cuts to businesses, etc.) does help promote economic growth through the creation of new jobs. This can be good provided those jobs actually improve the lives of people. It is problematic if those jobs don't really improve people's lives and they might as well be called a hand-out to big business. We've witnessed this in the last 10+ years. While GDP has grown and executive salaries have risen, the majority of Americans have not seen any real growth in their standard of living.
On the other hand, consumer spending also has the potential to drive the economy and indeed has in recent years. You can have all the jobs you want, but if people can't afford your goods and services it doesn't matter. Moreover, helping those out at the bottom helps to lower their opportunity costs and begin to accumulate meaningful wealth (probably the biggest reason the poor stay poor and the rich stay rich).
Thus, this is not an either or issue. The major reason I think government should be actively involved in spreading the wealth is to keep the free market working. Every game needs a referee to maintain fair competition and the free market is no different. Without competition the indivisible hand starts throwing rights and lefts. With competition it helps out, maybe even gives a nice back rub. When those at the top start earning disproportionately, they effectively limit the opportunities of those below.
What we need to understand is that wealth re/distribution does not and should not mean the extreme of the government making everyone equal. That is indeed anathema to our freedoms and basic rights. However, it does mean that we need to promote fair and continual competition. There will still be winners and losers. Yet it doesn't help anyone if we don't find a way to help those who have fallen to get back in the game. You can call it wealth redistribution if you like, I'd simply prefer to call it pragmatic economic policy.
* Spreading the wealth? US already does it
Also see Spreading the wealth
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