The Redistribution of Income

The Redistribution of Income Roberto M. Rodriguez Copyright © 2011 Lulu Press. All rights reserved. No part of this book may be reproduced in any form, by mimeograph or any other means, without permission in writing from the publisher. IBSN: 978-1-105-17371-4

The Redistribution of Income One of the most prevalent characteristics of modern democracies in the developed world is the ability of the government to use the power of taxation to redistribute income among different sectors of the population. This power of the government greatly limits individual freedom because it allows the state to confiscate and redistribute wealth, but also has important ethical, economic, social and political implications. In this essay, those aspects will be briefly discussed and analyzed.

The Ethical Aspect of Redistribution All developed capitalist nations have instituted some kind of redistribution by taxing people and businesses, and then redirecting some of these funds to subsidize the incomes of other segments of the population, usually, but not necessarily, the poorest persons in society. This type of income redistribution from some people to others (because businesses are also owned by people) is what Bertrand de Jouvenel, the French philosopher, discussed in a small but important book.

According to de Jouvenel, there is no ethical reason for this redistribution to occur. The ethics of redistribution is that redistribution is unethical because it deprives people (taxpayers) of some of their wealth to give it to others just because the legislators have determined that this should be so. The redistribution of income not only reduces the incentive of to work in those who receive the transfer of income and causes tax evasion and avoidance by taxpayers, but also constitute a serious compromise to individual freedom by increasing the powers of the state. It is more a transfer of power to the state than a transfer of income from wealthy to poor individuals. Generally, the claim to help the poor is presented from an ethical and moral perspective. The major beneficiaries in society (the wealthier class) should help those that for whatever reason are left behind (the poor); and supposedly, an efficient way to do this is by taxing all who can afford to pay taxes to help the less fortunate. However, not only is this claim incorrect, but also the business of income redistribution has become one of the major activities of government, with its consequent encroachment on personal freedom. In the modern democratic societies, the poor are just a very small segment of the people affected by government redistribution, which operates not only as direct money subsidies to some state-defined beneficiaries, but also through numerous other ways. When the government establishes a tariff to limit foreign goods coming into the country to help a national industry, it is also redistributing money from the customers of such goods to the national producers of those goods. When the government pays farmers not to cultivate a portion of their farm to avoid reducing the prices of farm products below a certain level, or for other reasons such as to protect the environment, the government is 1

redistributing money from the potential consumers of those commodities to the unproductive farmers. Jouvenel demonstrated that the arguments advanced by the supporters of redistribution are indefensible and unworkable in a developed economy, and that the only consequence is a substantial limitation in personal freedom and a tremendous increase in the power of government.According to Jouvenel, what is happening is a transfer of income and power from the taxpayers to the hands of managers or public officials which have virtual immunity for their actions and who are empowered by law to take funds from taxpayers and redistribute them to the supposedly deserving populations. The redistribution is not only wealth from the rich to the poor, or from the middle class to the poor, but power from the citizens to the state. The state starts fulfilling needs that were previously satisfied through private charity and volunteer work. 1 The taxpayers are not only deprived of their income, but also of their right to spend their income in whatever way they want. The major beneficiaries of redistribution are the new class of state managers that become responsible for the redistribution of these funds. Sometime redistribution is justified on the premise that the poor person gains more satisfaction from an additional dollar than a rich person loses from the loss of a dollar. However, "satisfactions and dissatisfactions of different persons are not commensurable." 2 In addition, this attempt to income equalization discriminates against Matt Martin. (2005). Reconsidering the Redistribution of Wealth and Power. The Stanford Book Review. Vol. 3, May 7. Available from http://standfordreview/old_archives/Archive/Volume_XXXIV/Issue_7/conservatism/b.html [Accessed December 11, 2010], p. 1. 1

2

Bertrand de Jouvenal. (1951). The Ethics of Redistribution. Indianapolis, IN: Liberty Press, p. 2

groups with unique tastes or preferences. According to Jouvenel, this discrimination results in four consequences "personal hardship for individuals of original tastes... the loss to society of the special effort these people would make in order to satisfy their special needs... the loss to society of the variety in ways of life resulting from successful efforts to satisfy special wants...(and)... the loss to society of those activities which are supported by minority demands." 3 The proponents of income redistribution have always claimed that it is necessary to tax the "excessive wealth" of the rich to pay the poor, but what inevitably happens is that the transfers proposed always are bigger than the supposedly excessive wealth, and that even the middle classes are considered to have excessive wealth. In other words, "the maximum has to be lowered more and more into the lower brackets of the middle class to assure the minimum to be redistributed to the needy." 4 The detractors of Jouvenel have attempted not to refute his ideas with weak arguments, but also to bring to light selected portions of the life of the great philosopher to demonstrate his ideological bias, 5 but his ideas have survived all the attacks. His analysis of redistribution is logical, accurate and has endured the test of time just because of its intellectual and scholarly quality. 35. 3

Bertrand de Jouvenal, op. cit., p. 39.

Richard M.Ebeing. (1980). Book Review. The Ethics of Redistribution by Bertrand de Jouvenel. Freedom Daily. The Future of Freedom Foundation. Available from http://www.fff.org/freedom/1290d.asp [Accessed December 11, 2010], p. 1. 4

De Juvenal supposedly was among a few French intellectuals who supported fascism. He began a paper called The Struggle of the Young while contributing to the right wing paper Gringoire. He became the editor in chief of National Emancipation, a journal that also supported fascism. 3 5

Of course, de Jouvenel has not been the only scholar who has thought about this problem. Robert Nozick has argued that redistribution in the form of compulsory taxation is "morally on par with forced labor," 6 and criticized the egalitarian principles of distributive justice on the grounds that they would require extensive redistributive transfers. 7 Others have advocated just the opposite, saying that society has a duty to help the poor because of the concept of distributive justice. Other arguments that have been expressed are that the rich exploit the poor and thus have an obligation to help them, or that by redistributing income the whole society benefits, because income inequality is a main cause of crime. Roland Benabou claims to have made a study and found that greater inequality and a lower redistribution decreases the likelihood that the lower class will register to vote, 8 which makes sense intuitively because, in that case, they may become apathetic to the system or may just think that no matter what they do that they will be unable to change the conditions in which they live.

The Economic Aspect of Redistribution For most of humanity's history, there have been segments of the population which have been very poor compared with the rest of society. Private charity has been the main support for those unfortunate individuals, but all governments have attempted Redistribution. (2004). Stanford Encyclopedia of Philosophy. Available from http://plato.stanford.edu/entries/redistribution [Accessed January 2, 2011], p. 2. 6

7

Redistribution, op. cit., p. 3.

Roland Benabou. (2000). Unequal Societies: Income Distribution and the Social Contract. The American Economic Review, Vol. 90, No. 1, March. Available from http://www.jstor.org/stable/117283 [Accessed November 15, 2010], p. 129. 8

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somehow to alleviate the plight of the poor within their territories, although not always with positive results. State relief for the poor existed in ancient Rome and in England since the time of Elizabeth I. 9 The Role of the Government Governments have always been concerned about the fate of the least fortunate members of society based on humanitarian and charitable grounds. A civilized society it has been claimed over and over - should help those who cannot help themselves because, by doing this, we improve the quality of life for all. It is not only help for the alleviation of our collective guilt, but is also a measure of society's humanity, reflected on how we treat the weaker members of society, such as the feeble-minded or insane, the blind, the totally disabled, the very old, the person who has fallen seriously ill or has been the victim of a serious accident, if those individuals are no longer able to support themselves and do not have any resources.10 In all those cases, most people tend to agree that the government should provide a minimum support for those individuals. In addition, most people also probably agree that there are certain situations created by a natural disaster (tornado, flood, earthquake) when the government also should provide a helping hand to the victims, and that those expenses should be paid by the taxpayers. Economists of all persuasions have analyzed this problem and come to the conclusion that some kind of government support is imperative and morally appropriate. Hayek pointed out that there was a need to reach an arrangement in which modern industrial society could help the community in need, and that by rending this service Henry Hazlitt. (1996). The Conquest of Poverty, FEE. Chapters 1 to 4, 11 and 14 to 20. Available from http://mises.org/books/conquest.pdf, p. 190. 9

10

Henry Hazlitt, op. cit., p. 192. 5

even the taxpayers who paid the bills received a benefit, because they avoided potential acts of desperation (or even potential aggression) by those people needing the help. 11 Stuart Mill acknowledged this need for the government to provide some help to the needy, and pointed out that leaving such relief to private charity entailed some risk and uncertainty, because private charity "lavish its bounty in one place, and leaves people to starve in another." 12 Mill further argued that if society was already taking care of the criminal poor while incarcerated, it did not made any sense not to do the same for the poor that was innocent, because otherwise society would be rewarding criminal behavior. 13 However, the main problem in helping the poor, however, is how to determine who are the beneficiaries (the individuals that will qualify for government aid), and by how much should society help those unfortunate people. After England instituted the poor laws, the long-term result was to depress the general condition of the poor. The poor population increased, but the food to support the growing population did not. Today, all developed nations subsidize poor mothers depending on the number of children that they have. 14 It does not matter if those children are legitimate or illegitimate. In the United States, every time that a woman in welfare has another child, her monthly allowance is increased proportionately. Some women have even adopted children they cannot afford to maintain properly in order to receive a higher monthly payment. 11

Henry Hazlitt, op. cit., p. 191.

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14

Henry Hazlitt, op. cit., p. 29-30. 6

Economists of the Austrian persuasion also believe that some kind of aid is necessary and that society as a whole, through a system of taxation, should bear the cost of those expenses. However, they recommended some limitations about how this aid should be provided. It should be of short duration, except for those individuals that are permanently disabled; it should be enough to cover the basic necessities of life but small enough not to reduce the recipient's motivation to work even in menial work; and it should be subject to a periodic analysis on the part of government officials who should verify that the conditions that led to the aid still existed. All are important limitations which appear justified. Modern governments, however, have ignored those suggestions and have embarked in massive aid programs, which have resulted in an unwarranted distribution of wealth from taxpayers to those segments of society characterized by the politicians and government bureaucrats as "poor" by some kind of statistic, such as yearly income. One problem with this policy is that, as the average income of the population goes up, the poverty level also is moved up, as in a treadmill situation. Regardless of how wealthy a nation is or could become, still there are going to be people living in the lower ten percentile. Poverty is a relative term, which depends on the average income of the population in a given country. The "poor" as described in government statistic in the United States and other developed countries are at the lower bottom of the income pyramid in those nations, but actually could receive much more income than middleclass people in many underdeveloped countries. Hazlitt makes the point, for example, that if the poverty level present in the United States were to be used to provide aid to the poor in India, that the majority of the 7

population would qualify as poor. 15 He expanded on the difficulty of ascertaining where the poverty level should be by citing the statistics of the poorest county in the United States during the relatively prosperous year of 1929. In that year, Tunica County, in Mississippi, had income levels under $ 3,000, which meant that 8 out of every 10 families qualified as poor; however, in this poor population "32 percent owned television sets, 46 percent owned automobiles and 37 percent owned washing machines." 16 The government can put the poverty line anywhere it wants by simply changing the definition of what means to be poor, and obviously, what has been done is to increase year after year this "base," 17disregarding the fact that the poor in the United States may qualify as middle income class in many underdeveloped countries. The overwhelming majority of Americans today enjoy running water, central heating, automobiles, telephones, refrigerators, washing machines, radios, television sets, amenities that even kings did not have a few generations ago, 18 and which most people in the underdeveloped world still do not have. An example of a program that has been abused considerably is the Aid to Families with Dependent Children (AFDC) in the United States. Hazlitt mentions that this program has encouraged more cheating than all the other programs put together. 19 In this program, women with children receive a monthly stipend, as well as food stamp for 15


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herself and her minor children up to 18 years of age. The payment amount depends on the number of children, which means that the more children a woman has, the larger her monthly check. Hazlitt argues that if the government is going to give money to those individuals, that it should make sure that the moneys are being used for the intended purpose. The food stamp program at least guarantees that the stamps are used to purchase food for the recipients, but there is no way to know if the cash given to those beneficiaries are used for the necessities of life. Hazlitt mentions that "the worse thing one can give a spendthrift, a drunkard, a drug addict, or a compulsive gambler is cash." 20 However, probably the purchases most likely to offend the intent of the program are liquor and cigarettes. Unfortunately, the redistribution of income by the government is not only to provide the poor with necessities. Most modern governments in the Western developed countries, throughout the years, have implemented redistribution schemes to favor segments of the population (veterans' allowances, farm subsidies, rent subsidies, relief payments, social security benefits, food stamps, Medicare, Medicaid, old-age assistance, unemployment insurance 21 and others), and all the beneficiaries believe that this is something that they deserve. Those programs not only have a clientele that supports such redistribution but also a bureaucracy that gets its power by managing those programs. It is going to be very difficult for the government to go back to a position where the present redistribution no longer exists, because it is unlikely that any of those groups would give up their benefits without making their frustration known. 20


21


Alberto Alesina, an Italian economist, argued that the Italian practice of concentrating public sector jobs in the poorer regions of Southern Italy was "redistributive" because it was adopted with the purpose of creating a more egalitarian distribution of economic opportunities between Northern and Southern Italy. 22

The Role of the Markets

The markets have a role to play in the reduction and potential elimination of poverty. As long as the government lets the market operate freely, the tendency will be to provide work to those willing to work according to their working skills. Then, as the economy grows, the status of the poor also will raise together with everyone else. The problem of poverty is not lack of adequate distribution or redistribution, but lack of productivity and production. History proves that capitalist economies can increase production and considerably raise the standard of living of the populations. The underdeveloped countries of Malaysia, South Korea, Singapore, Taiwan and Hong Kong have tremendously increased production and their GNP, increasing the standard of living of their poor, as well as their rich and middle class populations. These countries adopted an exportorientation model and maintained exceptional growth from the 1960s to the 1990s, with the last four considered today advanced high-income economies.23 The same experiments can be done anywhere else. The underdeveloped nations are full of market 22

Redistribution, op. cit., p. 5.

Ezra F. Vogel. (1991). The Four Little Dragons: The Spread of Industrialization in East Asia. Cambridge, MA: Harvard University Press. 23

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opportunities just expecting for somebody to come and develop them. These opportunities are not exploited because the capital to start those ventures simply does not exist in those nations. 24

The Social Aspect of Redistribution The social aspect of redistribution has a lot to do with modern capitalism's fears of Marxism and communism. Popper recognized that the great injustice that Karl Marx described and analyzed could not be tolerated in a modern society. He wrote that "the injustice and inhumanity of the unrestrained capitalist system described by Marx cannot be questioned." 25 He understood the idea that hungry workers could not negotiate the value of their own work if they had a family to feed. Popper also wrote that "nobody need to enter into an inequitable arrangement out of fear of starvation or economic ruin." 26 In other words, capitalism had to be constrained to make it more just and humane. However, after making these preliminary concessions, Popper acknowledged the deep changes that had occurred to the capitalist system and reminded us that the rough type of capitalism that Marx knew no longer exists anywhere in the Earth. Popper wrote "the economic system described and criticized by Marx has everywhere ceased to exist." 27 In addition, he believed that the government in all modern democracies had enacted laws making sure that all individuals had access to employment. This probably 24


25

Karl Popper. (1945). The Open Society and Its Enemies. London: Routledge, p. 8.

26

Karl Popper, op. cit., p. 9.

27

Karl Popper, op. cit.,. p. 9. 11

meant laws which avoided discrimination against certain minority groups and which granted all individuals the same rights under the law. Still, poverty subsisted in capitalist nations. After more than 180 years of democracy, the United States still experienced substantial and blatant discrimination against African-Americans, to name just only one minority. President Johnson passed the Civil Rights Act of 1964 with the objective of banning discrimination in employment, public accommodations and labor unions; and the Voting Rights Act of 1965 expanded federal authority over states to ensure black political participation through the protection of voter registration and elections.28 In 1966, the AFDC program, which had been instituted as part of the "New Deal" added the words "with families" to the program because of concern that the program discouraged marriage.29 Since its inception, but especially during the 1960s, the program was severely criticized because it tended to encourage childbirth especially among the less productive members of society, particularly African Americans, who many people at the time, including Nobel Prize physicist William Shockley, considered genetically inferior to whites, causing a reverse evolution effect. 30 The strengthening of social programs to help the poor, and mostly the disadvantaged members of society such as African Americans and Native Americans, came as a result not only of a challenge to the political establishment by radical members of those minorities, but also because of what was perceived at the time as a tremendous 28

Matt Martin, op. cit., p. 3.

29

Matt Martin, op. cit., p. 4.

Wolfgang Saxon. (1989). William B. Shockley, 79, Creator of Transistor and Theory on Race. Available from http://www.nytimes.com/learning/general/onthisday/bday/0213.html [Accessed December 31, 2010], p. 1. 30

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difference between the income of whites and the disadvantaged minorities. Of course, there were also white people who were poor and who qualified for government aid, but African Americans not only had lower incomes as a group but also were discriminated in employment, in education, in health care and practically in all social aspects of modern life. To improve their status in society, and to avoid potential clashes with radical groups such as the Black Panthers, the governments of Johnson first, and Kennedy later, spent extraordinary resources not only in raising the monetary contribution that poor people received regardless of their race, but also by making sure that the disadvantaged groups could partake of the benefits of living in modern America. Redistribution was strengthened in an attempt to correct present and past discrimination and ensure the political participation of the affected minorities in the political process. Professor Richard Layard has mentioned that "in societies where income differences between the rich and the poor are smaller, the statistics show not only that community life is stronger and people are much more likely to trust each other, but also there is less violence - including substantially lower homicide rates, health is better and life expectancy several years longer, prison populations are smaller; birth rates among teenagers are lower, levels of educational attainment among school children tend to be higher; and there is more social mobility. In all cases, where income differences are narrower, outcomes are better." 31 However, most government redistribution is not from the rich to the poor but government takes from relatively unorganized groups and transfers to relatively Robert Higgs. (1994). Nineteen Neglected Consequences of Income Redistribution. The Independent Institute. Available from http://www.independent.org/newsroom/article.asp?id=1155 [Accessed January 2, 2011], p. 8. 31

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organized groups, such as the elderly and the farmers. The most important factor in determining redistribution is not need but is political power. Of the more than $ 500 billion a year that is spent on public assistance and social security programs, only about one quarter is allocated through means-tested programs, with the other three-quarters (more than $ 400 billion a year) being redistributed regardless of need.32 Just social security payments transfers approximately $ 270 billion of income a year to the elderly regardless of their wealth even when the net worth of the elderly is about twice the net worth of the general population; and because qualifying for Medicare requires only that the person is 65 years of age or older, most of the $ 100 billion in annual Medicare expenses is received by populations that are not poor. 33 Government restrictions on agricultural production transfers billions of dollars to farmers every year and most of those transfers go to a few relatively large farms whose owners are by far wealthier than the average taxpayer or consumer or even the average farmer. 34 Import restrictions also redistribute income and not to the poor. Economist Arthur Denzau estimated that the distributional effect of the restrictions imposed on steel in 1884 had the effect of saving 16,900 highly-paid steel production jobs in the United States while losing 52,400 low-paying jobs, representing a net loss to the economy of 35,000 jobs which earned about 40% less than the jobs that were saved. 35

Dwight R. Lee. (2002). Redistribution of Income. Library of Economics and Liberty. Available from http://www.econlib.org/cgi-bin/printarticle.pl [Accessed January 1, 2011], p. 1. 32

33

Dwight R. Lee, op. cit., p. 2.

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35

Dwight R. Lee, op. cit., p. 3. 14

In addition, the transfer mechanism to the poor is quite inefficient, with a substantial amount going to pay the bureaucracy that implements and manages the programs. Arthur Okun, the chief economist during the administration of President Johnson and a strong advocate of government transfers to the poor, compared such transfers to a leaky bucket to describe the fact that the increase in recipient income was much less than the amounts being transferred. 36

The Political Aspect of Redistribution The political aspect is important because redistribution constitutes an attack on the very essence of democracy and the democratic institutions. Modern democracies have weakened because of the negative effects of redistribution. In most modern democracies, the rule of law has been eroded to the point that a simple majority can force upon the totality of the population laws that affect everybody. The term majority rule has become synonymous with the desires and aspirations of the whole population, forgetting that it is only by limiting the role of government that freedom can exist and prosper. Hayek mentions that for the doctrinaire democrat, those who think that the only limit of government should be what the majority decides at the moment, anything that the majority wants must be good. 37 However, what is obvious is that any majority is going to make laws which benefit itself at the expense of the minorities, and that under this scheme, any group which can achieve a majority could potentially do whatever it 36


Friedrich A. Hayek. (1960). The Constitution of Liberty. Chicago, Ill: The University of Chicago Press, p. 104. 37

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wants to the remaining groups because the rights of the minorities are not considered. There is no constitutional limit about what the government can or cannot do. The majority, in this manner, can eliminate the personal rights of the minorities, or they can confiscate the wealth of the minority through taxation in order to redistribute it among other segments of the population. Hayek professes to have a profound respect for the convention that society should be ruled by the decision of the majority,

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but points out

the tremendous danger that can be done to society unless there is a limitation about what types of laws the government can pass and on its power to tax some individuals to benefit other individuals. Representative democracy is the predominant type of government that exists in Europe and the United States and that has expanded to many other countries. However, representation is "a very dubious process even to those experts on politics who would not go so far as to say with Schumpeter that representative democracy today is a sham." 39 Joseph Schumpeter was an Austrian economist and political scientist. The problem with representative democracy is not that the representatives are not accountable to the electorate after they get elected, but that the scope of their activities is not constrained by an enforceable constitution which limits what they can and cannot do. Redistributive policies have affected all modern elections in the United States. On October 12, 2008, presidential candidate Barack Obama engaged in a five minute televised conversation with Joe Wurzelbacher "the Plumber", with the

38

Hayek, op. cit., p. 109.

39

Bruno Leoni, op. cit, p. 19. 16

presidential candidate expressing "I think when you spread the wealth around, it's good for everybody". 40 Hayek explained that the power of the government to legislate is a relatively recent phenomenon which started during the Middle Ages, because before this point in time the law was whatever the king or ruled said it to be. The idea that laws could be legislated emerged in England when Parliament evolved into a law-creating organization. 41 Then came ideas about how to make this system work better, as it was perfectly understood that whoever or whatever organization had the ability to create laws also had the ability to misuse the laws for their own benefits. Locke had the intuition to foresee the potential problems that a government with absolute powers could have on society and suggested the separation of powers as the main practical safeguard against the abuse of authority.42 Later, William Paley further refined this idea by mentioning that "the first maxim of a free state is that the laws (should) be made by one set of men and administered by another." 43 This idea was the idea behind the American Constitution which has served as a sample for many other countries. However, although the separation of powers still makes possible the avoidance of abuse of authority, the system has been modified, revised and amended through amendments to the Constitution, legislation and the interpretation of those laws.

ABC News. (2008). Available from http://blogs.abcnews.com/politicalpunch/2008/spread-thewealth-html [Accessed January 2, 2011], p. 1.

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43

Hayek, op. cit., p. 173. 17

The American Founding Fathers, at least some of them, expressed opposition to a system of redistribution of income. Samuel Adams expressed: "The utopian schemes of leveling redistribution of wealth, and a community of goods, are as visionary and impracticable as those that vest all property in the Crown. These ideas are arbitrary, despotic and in our government, unconstitutional." 44 James Madison wrote "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents." 45 The American Constitution, in Article I section VIII, provides that "The Congress shall have Power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States." However, this proved insufficient for the goals of the legislators. President Grover Cleveland vetoed an expenditure that would have provided $ 10,000 in aid to drought-stricken Texas farmers because he could not see in the Constitution any powers to make this transfer of income. 46 However, the government powers were expanded by the Michael I. Norton & Dan Ariely. (2010).Building a Better America - One Wealth Quintile at a Time. Perspectives in Psychological Science. Available from http://www.hoffingtonpost.com/2010/09/23/americans-support-wealthredistribution_n_736132.html [Accessed January 2, 2011], p. 3. 44

Robert Plottnick. (1986). An Interest Group Model of Direct Income Redistribution. The Review of Economics and Statistics, Vol. 68 No. 4, p. 594.

45

In his explanation to Congress justifying his veto, President Cleveland expressed: "I can find no warrant for such an appropriation in the Constitution; and I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. A prevalent tendency to disregard the limited mission of this power and duty should, I think, be steadily resisted, to the end that the lesson should be constantly enforced that, though the people support the Government, the Government should not support the people... The friendliness and charity of our fellow countrymen c an always be relied on to relieve their fellow citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the 18 46

enactment of the 16th Amendment, which removed any need for Congress to apportion the income tax according to the population of each state. In other words, after the enactment of the 16th amendment, Congress could tax income at the same rates across the country, instead of having to tax less the people in rural states. By expanding Congress' powers, it also could determine that different individuals, depending on how much they earned, could pay different amounts of tax to the national treasury. The essential link between personal liberty and the rule of law had been broken and the power of government to tax and redistribute income would become the essence of the modern American government. In the United Kingdom, a similar process resulted with the proliferation of government agencies and the increase in their powers. 47 The same situation occurred in all Western countries. It was Bastiat who once remarked that "the state is that great fiction by which everyone tries to live at the expense of everyone else. 48 He mentioned that there were a number of ways in which the government could exercise this legal plunder on the taxpayers to empower itself with the objective of redistribution. He mentioned that "legal plunder can be committed in an infinite number of ways... tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free expectation of paternal care on the part of the Government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood." Lawrence W. Reed. (2005). Government Should Not Support the People. Mackinac Center for Public Policy. http://www.mackinac.org/article.aspx?ID=7440 [Accessed January 2, 2011], p. 3. 47


Frederick Bastiat. (1998). The Law. Foundation for Economic Education. 2nd Edition. Translated from the French by Dean Russell. Irvington-on-Hudson, New York, p. 77.

48

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credit, and so on, and so on." 49 He advocated a small government but his advice did not reach the ears of the politicians. Walter E. Williams, in his foreword to The Law, the book written by Bastiat, mentioned that if Bastiat were alive today, he would be disappointed with our failure to keep the law within its proper domain, and that over the course of a century and a half politicians have created more than 50,000 laws. 50 However, Bastiat realized that it was unlikely that the politicians would limit themselves in what they could do. At the end of his short book about the law, Bastiat cries out almost in desperation: "Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves?" 51 Leoni also has complained about the large number of laws in existence. He wrote: "In my country, the legislative process now means about 2000 new statutes every year and each of them may consist of several articles... quite frequently one statute conflicts with another." 52 While he was writing about Italy, probably in the late 1950s because his book was published in 1961, his description fits all modern developed democracies on both sides of the Atlantic. When the government decides to redistribute income, it is using the politicians' value judgment to the detriment of the other members of society. 53 In addition, by increasing 49

Frederick Bastiat, op. cit., p. 18.

Walter E. Williams. (1998). Foreword to The Law, Foundation for Economic Education. 2nd Edition. Translated from the French by Dean Russell. Irvington-on-Hudson, New York, p. v. 50

51

Frederick Bastiat, op. cit., p. 56 (footnote).

52

Bruno Leoni. (1992). Freedom and the Law. Indianapolis, IN: Liberty Fund, p. 74.

Jorg Guido Hulsman. (2003). Secession and the Production of Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. Hans-Hermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute, p. 296. 53

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its role in society, the government disrupts the normal mechanisms of the market. Hummel pointed out that there is an inverse relationship between the extent of government and the rate of economic growth,54 which means that the growth of government is harmful, not only because it reduces personal freedoms but also because it slows economic growth. The government has tremendous powers, but this power is not always used in the best interests of the electorate. In the book 'Death by Government' Rudolph Rummen estimates some 170 million government-caused deaths just in the 20th century alone, and that government must be considered the greatest threat to human security. 55 The United States commands a defense budget of

$ 400 billion a year, a sum which is

equal to the combined annual defense budgets of the next 24 largest government spenders. 56 The US administrators expropriate more than 40 percent of the incomes of the private producers every year, the population is constantly robbed through currency depreciation, and the government debt has increased without interruption, increasing the need for future expropriations. 57 Today, the US debt is over $ 13.5 trillion and Jeffrey Rogers Hummel. (2003). The Will to Be Free: The Role of Ideology in national Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. Hans-Hermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute, p. 297. 54

55

Hans-Herman Hoppe, 2003a, op. cit., p. 4.

Hans-Herman Hoppe. (2003a). Government and the Private Production of Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. HansHermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute, p. 2. 56

Hans-Herman Hoppe. (2003b). Government and the Private Production of Defense. . In: The Myth of National Defense: Essays on the Theory and History of Security Production. HansHermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute. p. 340. 57

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growing, 58 with the expectation that the debt will continue growing rapidly while the economy will continue to stagnate. Freedom provides an environment where humans can conduct their affairs and work toward the fulfillment of their aspirations unhindered by others or by the government, as long as some minimum rules of conduct are mutually agreed and established. Freedom certainly involves some constraints, because an individual will not be able to pursue affairs that will encroach on the freedoms of other people, but those areas will be small. Freedom also is not the same for everybody, because there are different meanings of freedom.59 Leoni approvingly cited Lord Acton at the beginning of his History of Freedom when he said "By freedom I mean assurance that every man shall be protected in doing what he believes to be his duty against the influence of authority and majorities, custom and opinion." 60 Leoni believed that to be free from something meant to be without something that is not good for us. 61 It seems that Leoni's concept of freedom is not very different from Frederick Bastiat's in "The Law" which was published over one hundred years earlier. Both authors agreed that freedom is not compatible with the present system we have in the democracies of the developed world. The reason is that legislation has become some kind of "diktat" that the winning majorities in the legislative assemblies impose upon the minorities, because legislation involves "a kind of coercion GNP Forecast. (2010). Available from http://www.forecast.chart.com/chart-us-gnp.html [Accessed December 29, 2010], p. 1. 58

59

Bruno Leoni., op. cit., p. 45.

60

Bruno Leoni, op. cit., p. 26.

61

Bruno Leoni, op. cit., p. 47. 22

and unavoidable constraint of the individuals who are subject to it." 62 The legislators conceal from the electorate that they have the power to interfere in every aspect of human life. The function of the legislation is to impose on all the population the will of other people - the legislators. 63 Legislation, therefore, should be used in a constrained manner, to establish the rules of conduct that people should observe in society. Legislators are quick to implement remedies without understanding the working of the markets that they are interfering with.

Concluding Comments Today, income redistribution is a reality in most democratic nations, mostly through a system of income-adjusted taxes such as progressive income taxes, which depends on the taxpayer's income, some of which is used to fund programs to aid the poor. The government needs to provide some services to society, but the more the government attempts to do, the less inefficient it will perform the services that it provides. In addition, the more areas taken over by the government, the greater the potential abuse by those in power because power begets power. 64 The solution of poverty lies with increasing the employment and productivity of the poor. 65 The government should establish a framework where individuals can work freely and where private property is protected. The government should ensure the enforcement of 62


63


64


65


contracts and other rules of good behavior, but the essential role of government is just to "formalize the bottom-up reality of social norms that respect liberty, which carry most of the weight in enforcing the rules." 66 Mill listed other functions that the government should exercise, such as enacting the laws of inheritance, defining the question of succession in the absence of a will; defining property, establishing tribunals; and keeping the registers of births, deaths, marriages, wills and deeds. 67 Intervention in the workings of the market, either by attempting to regulate prices (with the objective of security cheap housing to the poor), by establishing a minimum wage (with the objective of securing a reasonable income to those who lack skills to earn more), or by any other way, produces results that generally are contrary to the intended outcomes. Any intent to influence the market will backfire, because it will disorganize the system and produce results that are contrary to those expected. Ravier mentioned that "as long as the market process is allowed to operate freely, it will coordinate the use of resources in the most efficient way." 68 The principle of having the government forcibly transfer moneys from the taxpayers, the people who work, to other able-bodied people, whether they accept work or not, is clearly wrong. 69 The redistribution of income by the government to favor the poor, or any other segment of the population, puts the government in the role of a Robin Hood kind of thief who steals William Easterly. (2008). Hayek versus Development Experts. Available from http://www.manhattan-institute.org/html/hayek2008.htm, p. 4. 66

67

Henry Hazlitt, op. cit., p. 188-189.

Adrian Ravier. (2009). Globalization and Peace: A Hayekian Perspective. Libertarian Papers 1, 10. Available at http://libertarianpapers.org/articles/2009/p-1-10.pdf, p. 13. 68

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an individual to benefit another, and in the process, benefits itself because it is the power of the government which greatly increases with all those redistributive schemes.

REFERENCES ABC News. (2008). Available from http://blogs.abcnews.com/politicalpunch/2008/spread-the-wealth-html [Accessed January 2, 2011]. Bastiat, Frederick. (1998). The Law. Foundation for Economic Education. 2nd Edition. Translated from the French by Dean Russell. Irvington-on-Hudson, New York. Benabou, Roland. (2000). Unequal Societies: Income Distribution and the Social Contract. The American Economic Review, Vol. 90, No. 1, March. Available from http://www.jstor.org/stable/117283 [Accessed November 15, 2010]. De Jouvenel, Bertrand. (1951). The Ethics of Redistribution. Indianapolis, IN: Liberty Press. Easterly, William. (2008). Hayek versus Development Experts. Available from http://www.manhattan-institute.org/html/hayek2008.htm Ebeing, Richard M. (1980). Book Review. The Ethics of Redistribution by Bertrand de Jouvenel. Freedom Daily. The Future of Freedom Foundation. Available from http://www.fff.org/freedom/1290d.asp [Accessed December 11, 2010]. GNP Forecast. (2010). Available from http://www.forecast.chart.com/chart-us-gnp.html [Accessed December 29, 2010]. Hayek, Friedrich A. (1960). The Constitution of Liberty. Chicago, Ill: The University of Chicago Press. Hazlitt, Henry. (1996). The Conquest of Poverty, FEE. Chapters 1 to 4, 11 and 14 to 20. Available from http://mises.org/books/conquest.pdf Higgs, Robert. (1994). Nineteen Neglected Consequences of Income Redistribution. The Independent Institute. Available from http://www.independent.org/newsroom/article.asp?id=1155 [Accessed January 2, 2011], p. 8.

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Hoppe, Hans-Herman. (2003a). Government and the Private Production of Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. Hans-Hermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute, p. 2. Hoppe, Hans-Herman. (2003b). Government and the Private Production of Defense. . In: The Myth of National Defense: Essays on the Theory and History of Security Production. Hans-Hermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute. Hulsman, Jorg Guido. (2003). Secession and the Production of Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. HansHermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute. Hummel, Jeffrey Rogers. (2003). The Will to Be Free: The Role of Ideology in national Defense. In: The Myth of National Defense: Essays on the Theory and History of Security Production. Hans-Hermann Hoppe (Ed.). Auburn, AL: Ludwig von Mises Institute, p. 297. Lee, Dwight R. (2002). Redistribution of Income. Library of Economics and Liberty. Available from http://www.econlib.org/cgi-bin/printarticle.pl [Accessed January 1, 2011]. Leoni, Bruno. (1992). Freedom and the Law. Indianapolis, IN: Liberty Fund, p. 45. Martin, Matt. (2005). Reconsidering the Redistribution of Wealth and Power. The Stanford Book Review. Vol. 3, May 7. Available from http://standfordreview/old_archives/Archive/Volume_XXXIV/Issue_7/conservatism/b.htm l [Accessed December 11, 2010]. Norton, Michael I. & Dan Ariely. (2010).Building a Better America - One Wealth Quintile at a Time. Perspectives in Psychological Science. Available from http://www.hoffingtonpost.com/2010/09/23/americans-support-wealthredistribution_n_736132.html [Accessed January 2, 2011]. Plottnick, Robert. (1986). An Interest Group Model of Direct Income Redistribution. The Review of Economics and Statistics, Vol. 68 No. 4, p. 594. Popper, Karl. (1945). The Open Society and Its Enemies. London: Routledge, p. 8. Ravier, Adrian. (2009). Globalization and Peace: A Hayekian Perspective. Libertarian Papers 1, 10. Available at http://libertarianpapers.org/articles/2009/p-1-10.pdf Redistribution. (2004). Stanford Encyclopedia of Philosophy. Available from http://plato.stanford.edu/entries/redistribution [Accessed January 2, 2011].

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Reed, Lawrence W. (2005). Government Should Not Support the People. Mackinac Center for Public Policy. http://www.mackinac.org/article.aspx?ID=7440 [Accessed January 2, 2011], p. 3. Saxon, Wolfgang. (1989). William B. Shockley, 79, Creator of Transistor and Theory on Race. Available from http://www.nytimes.com/learning/general/onthisday/bday/0213.html [Accessed December 31, 2010], p. 1. Vogel, Ezra F. . (1991). The Four Little Dragons: The Spread of Industrialization in East Asia. Cambridge, MA: Harvard University Press. Williams, Walter E. (1998).; Foreword to The Law, Foundation for Economic Education. 2nd Edition. Translated from the French by Dean Russell. Irvington-on-Hudson, New York, p. v.

ABOUT THE AUTHOR

Biographical Sketch Roberto Miguel Rodriguez Roberto M. Rodriguez is President of Proton Investments Incorporated, located in Minnesota. Previously, he held managerial posts at Tennant Company, Palm Beach Beauty Products, CTC Incorporated, and Conwed Plastics, all in Minnesota. Presently, he is also Professor of International Relations at Euclid University and Professor of Mediation, Arbitration and Negotiation at Novus University. Also, he was Cuban Ambassador in Cairo, Egypt. 27

He holds a Ph D in Educational Policy and Administration from the University of Minnesota (1998), and a Juris Doctor (2006) and Doctor of Juridical Sciences (2008) from Northwestern California University School of Law. He also holds Master degrees from all of the following institutions: University of Minnesota (Business Administration, 1981; Business Taxation, 1992; Public Health, 1993; Education, 1994; Arts: Educational Policy and Administration, 1995; Liberal Arts, 1997; Agriculture, 2005); the University of Saint Thomas (Software Systems, 2002); Iowa State University of Science and Technology (Professional Agriculture, 2002); Americus (Economics, 2003); the University of the State of New York (Liberal Studies, 2003); California State University Dominguez Hills (Humanities, 2004; Negotiation, Conflict Resolution and Peacebuilding, 2009); Athabasca University in Canada (Integrated Studies, 2004; Distance Education, 2009); Texas Christian University (Liberal Arts, 2006), Central Michigan University (Science in Administration, 2007); the University of Alabama (Human Environmental Sciences – Interactive Technology, 2007); Novus Law School (Legal Letters, 2007); American Military University (Political Sciences, 2008; International Relations, 2009; Intelligence Studies, 2009; National Security Studies, 2010; Space Studies, 2011); Troy University (Science in International Relations, 2008); University of Malta (Contemporary Diplomacy, 2010); Charles Stuart University (Australia) (Sustainable Agriculture, 2011). He is currently pursuing a Doctorate in Political Science at SMC University (Switzerland) and a Master of Laws in International Business Law at the University of Liverpool (United Kingdom). He speaks Spanish, French, Portuguese, and Russian. He is a member of Golden Key International Honor Society, the Alpha Epsilon Lambda of the University of Alabama, the National Scholars Honor Society, The Honor Society of Agriculture Gamma Sigma Delta, and others. He is listed in the Wall of Tolerance in Montgomery, Alabama, “honoring those who are taking a personal, public stand against hate, injustice and intolerance, and who are leading the way toward a more just America.” He received the Capps Capozzolo Award for Academic Excellence from the University of Southern Colorado, the American Medal of Honor from the American Biographical Institute; the International Peace Prize from the United Cultural Convention in Washington, DC, and the Medal of Honor for Intellectual and Vocational Excellence from the International Biographical Center in Great Britain. He is listed in Marquis’ Who’s Who in America, the International Biographical Center in Great Britain, Strathmore’s Who’s Who Registry, Cambridge’s Who’s Who, and the American Registry of Outstanding Professionals. He can be reached at [email protected] or [email protected] or [email protected]

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