The real discussion about redistribution

Published on Tuesday, 24 June 2014 22:03 - Written by

If you listen, the real thread of the conversation becomes clear — and with it, the intentions of many of the world’s economic “planners” and policy makers.

Three ideas are gaining currency in the world of opinion journalism and public policy. The first is that of “privilege,” whether it’s referred to as “white privilege” or otherwise. The second is French economist Thomas Piketty’s contention that wealth — not just income — should be taxed. And the third is clear in a New York Times op-ed that ran on Monday. That piece asks “What’s wrong with inherited wealth?”

Together, these ideas amount to a carefully constructed case for massive wealth redistribution. The goal is an equality of outcomes, not an equality of opportunity.

“Privilege” is a term that has come out of academia, but it has shown up in politics, in instances such as President Barack Obama’s “you didn’t build that” speech.

As the journal Inside Higher Ed explains, “White privilege is about the way white people are treated, generally favorably, regardless of what is in their hearts and minds.”

Privilege is something that must be “checked” by students, they’re told, before they can engage in discussion or debate.

Piketty’s proposal to tax wealth is also gaining ground. Piketty’s book remains a New York Times bestseller, despite being an awfully dull book about economics. That’s largely because the left likes what he’s saying.

His most fundamental point is that rate of return for investing existing wealth (“r”) is greater than overall economic growth (“g”). To put this into Occupy lingo, it means that the rich get richer. To “fix” this outcome, Piketty says wealth — not income — should be taxed.

His “r > g” formula, however, doesn’t prove that at the same time, the poor get poorer. And it ignores the fact that investment of existing wealth results in the very economic growth he wants more of.

The problem here is obvious. When income is taxed, it reduces the earner’s spending power. But it doesn’t directly reduce income. When wealth is taxed, wealth goes away. It’s not there any longer to be taxed.

Look at it like this: A man with a flock of chickens will last a lot longer if he sells eggs rather than drumsticks.

Then there’s inherited wealth. In many ways it’s “unearned,” and in the U.S. we tax it heavily above a certain level. Again, Thomas Piketty’s book is driving much of the discussion. And again, that discussion is progressing along the lines of “what is fair” and “what is just.”

“In an era where spending cuts are most deeply threatening the part of the budget that supports the least well-off, and evermore accumulated wealth has increasing political influence, a moderate increase in the estate tax, as proposed in the president’s budget, is thus smart policy both in fairness and fiscal terms,” writes economist Jared Bernstein.

Taken together, these ideas have a common thread — policies that result in unequal outcomes are bad.

And that’s the real discussion that’s going on. Listen for it — it’s important.