Nineteen overlooked effects of income redistribution. Part Two

7. As a result of the previous two consequences, society as a whole becomes more divided and hostile. It begins to resemble less and less a true community. Instead, society divides into aggressively minded groups, with some groups viewing others as oppressors. People lose their sense of belonging to a community with collective interests and shared responsibilities. On the contrary, they treat their fellow citizens as parasites or users and show hostility towards those who appear to be net beneficiaries of the system. Sometimes they even demonstrate genuine hostility towards the supposed users. An example of this is the obvious hatred of consumers waiting in line at the grocery store to pay in cash while someone in front of them uses a food voucher. [1]

8. Among the recipients of transfers, there are no organizations whose purpose is to help people help themselves and voluntarily. In the past, care for individuals who are not part of the family was provided mainly by friends and neighbors acting together through institutions such as churches, lodges, unions, clubs, and other similar voluntary organizations. When individuals can receive help directly from the government, competing private organizations fade away and gradually disappear (or at least their functions as help structures wither away). When they are eliminated, people who need help have no one to turn to but the government. This is tragic for many reasons, because the state is not really the same as the centers that existed before. It is significantly less effective, especially in the long run, when private associations are much more successful in helping people to start taking care of themselves again after they have overcome a problem or temporary disability.

One witness described the situation after the devastating Los Angeles earthquake: “Thousands of miserable, atomized individuals did nothing but wait for a centralized savior—the federal government. America has become a system of forced compassion that seeks to eliminate genuine communities so that altruism can remain in the hands of experts.” [2]

9. Just as the needy cease to organize voluntary mutual aid institutions, so do the charitable foundations established by the better-off. When government agencies begin to work on every conceivable problem in society, people whose emotions impel them to help the less fortunate have less reason to do so. It is easy to say, “I pay my taxes, and I pay a lot of them. Let the government take care of the problem.” If someone donates voluntarily, it seems as if he is paying twice to achieve the same goal. Thus government transfers eliminate private giving. Coercion, in the form of the tax system, replaces voluntary assistance, and private charitable institutions disappear.

10. As citizens abandon voluntary participation in charitable institutions and mutual aid organizations, allowing government to take over these functions, they become less interested in and more receptive to all other government activities. So when someone suggests that government begin to do something that was previously provided exclusively by the private sector, people are not surprised; they do not even doubt the government’s ability to cope with the task. After all, governments today deal with a huge number of things—from socializing preschool children to feeding the poor to providing medical care for the elderly. So what if they shoulder yet another responsibility? Thus, the once prevalent suspicion of the growth of government powers is transformed into a rejection of or surrender to their continued expansion into more and more areas of life.

In the 19th century, opponents of new government programs often objected and declared flatly, “The government shouldn’t do that!” Today, we rarely, if ever, hear anyone oppose government action in this way. The idea that there is a private sphere that government should never intrude on has become an almost extinct way of thinking as government has extended its programs and activities—not to mention the regulation of “private” life—to nearly every aspect of human life.

11. That is why people do not mobilize political opposition as readily when new government programs are proposed. Given the weaker opposition, those who support the government’s new plans have a better chance of achieving their desired goal. New government programs are expanding more rapidly, limited to some extent only by the size of the budget, but not by fundamental ideological objections. According to a recent Wall Street Journal /NBC survey, “when Americans are asked whether the ‘obligations’ [of the government] should be reduced to reduce the deficit, 61 percent of respondents say yes. When asked whether programs such as national security, Medicare, Medicaid and farm subsidies should be cut, however, 66 percent of respondents say no.” [3] Apparently, most people do not want to pay for the programs, but they do not mind them themselves.

12. Income redistribution is not limited to T, who pays, and R, who receives. In between stands B, the bureaucracy that determines who is entitled to benefits, writes the checks, keeps the records, and does a great deal more, sometimes intruding into the private lives of its “clients.” The intermediary bureaucracy consumes enormous amounts of labor and capital, which constitute a large part of the gross cost of the government transfer system. In order for the government to pass on a dollar to R, it is never enough to simply take a dollar from T. In addition, a considerable “commission” must be paid to B, since he must support himself. From the perspective of society, one must recognize that the labor and capital used by bureaucracies cannot be used to produce the goods and services valued by consumers. Again, society is poorer than it would be without bureaucracy.

13. Once a bureaucracy is established, its staff becomes a powerful political interest group, ideally placed to defend its budget and justify expanding its powers. After all, who knows best the pressing need to inflate the resources of a government agency and hire more and more people to do its work? Bureaucrats invariably possess the important data and presumed expertise on any subject they deal with. Therefore, they have valuable advantages in the political process when they want to increase resources for their department. Experts in agencies will simply point out that “outsiders have no idea how big the problem is.”

The agency is often one side of a political “iron triangle,” which is linked to organized client groups, which constitute the second side, and congressional committees performing legislative and regulatory functions, which constitute the third. When an agency becomes politically entangled in this way, which is almost always the case, the impoverishment of society can continue indefinitely without serious political consequences for the bureaucracy.

14. Taxpayers do not simply pay the government transfers without resistance. Many of them spend time, effort, and money to minimize their taxable income or to avoid taxes altogether. They hire financial advisors, lawyers, and accountants. From time to time, taxpayers also organize political movements to lobby for tax breaks, a la California Proposition 13. [4] All the labor and capital used to exempt people from taxes is no longer available to individuals to produce goods and services valued by consumers. Society is poorer and will remain poorer as long as people continue to devote resources to fighting taxes. (But to the extent that resistance to taxes can reduce or eliminate tax rates below what they would otherwise be without them, society is richer in the long run.)

15. Ultimately, many people will pay their taxes and finance the transfer payments. Even if no one tries to oppose taxes or focuses on providing labor and capital, the cost to taxpayers will be more than $1 for every dollar taken from the government, because even paying taxes takes resources. Taxpayers have to keep records of their income, keep track of tax laws, fill out forms, and so on. These activities require time and effort that cannot be put to useful alternative uses. Many people who simply want to comply with the law hire accountants and tax experts—the tax rules are so complicated that mere mortals cannot follow them. Using resources to comply with tax laws makes society poorer.

According to research by James Payne, private payments for taxpayer expertise and tax office expenses alone create losses to the economy amounting to $270 million for every $1 billion spent by the government. [5]

16. Just as taxpayers do not remain passive as governments attempt to seize their income through taxes, recipients (and potential recipients) of transfer payments do not passively wait for a lucky star to shine on them. They also act politically. Recipients form organizations, hold meetings, hire media and lobbyists, and campaign for political candidates who support their demands. All the labor and capital used in the recipients’ activities cannot be used to produce the goods and services that consumers value. Society becomes poorer and will remain so until people stop spending resources to increase the amount of government transfer payments they receive.

17. Just as taxpayers must use resources to cope with tax laws, recipients of transfer payments must expend resources to create and maintain the legitimacy of their entitlement to these payments. For example, recipients of unemployment benefits must visit employment offices and wait in long lines to verify that they are truly unemployed. Sometimes they must go from company to company to apply for jobs they have no intention of taking, simply to show that they are “seeking employment.” Recipients of disability benefits must visit doctors and other experts to obtain the necessary documents proving that these people are truly disabled. In either case, too many resources are being taken from society and it is becoming significantly poorer.

18. By creating programs to redistribute large amounts of income, people ensure that the state will become increasingly powerful and expansive in other areas of life. Since government itself is the most feared interest group in society, no good can come of its expansion, but it can lead to much evil. As James Madison noted more than two centuries ago, “legislative intervention is the first link in a long chain of repetitions, and each subsequent intervention is naturally produced by the effects of the previous one.” [6] When the government created Medicare and Medicaid in 1965, for example, it set in motion a series of events that led to the subsequent “crisis” of rising health care costs and thus to the situation in which the government apparatus today must deal with this artificial crisis.

19. The creation of a more powerful and expansive government means that citizens’ freedoms will diminish. Rights that people had in the past are disappearing. For a long time, American citizens have had exclusive negative rights—the right to be left alone by the state or by other individuals. Everyone has had this right at one time. With the creation and rise of the transfer payment society, American citizens have moved away from the orbit of negative rights and into that of positive rights, also known as “welfare rights,” [7] which entitle some to benefit from the forcibly seized resources of others. The granting of a “right to welfare” to one individual implies the obligation of another to provide the means necessary to satisfy that right. Therefore, as the number of positive rights increases, negative rights inevitably disappear.

Climax

Ironically, in a society of massive government transfers, in which the state is committed to distributing funds through hundreds of different programs, hardly anyone is better off than before. Those who receive something from the system often pour much more into it in the form of taxes. Moreover, since many of the effects of government distribution share the common characteristic of making society poorer.

Even those who receive more than they lose in taxes eat from a smaller pie than they would have without taxation. Only the ruling class, i.e. the government, can safely expect to benefit, as each new program increases the number of bureaucrats and the budget of the departments.

The vast majority in transfer societies are not only poorer, but they are also more dissatisfied, less independent, more hostile, and more politicized. Individuals participate less in voluntary community activities, but they are increasingly active in fierce political contests. Real (real?) communities cannot breathe in the poisonous atmosphere of transfer policies. More importantly, a society that allows its government to distribute a large portion of its income on a large scale inevitably sacrifices much of its freedom.

Finally, we must recognize that while some may view it as an institutionalization of compassion, government transfer societies are destroying real virtues. The distribution of income through government violence is a form of robbery. Its advocates try to disguise its true nature by claiming that democratic procedures legitimize it, but this defense is deceptive. Theft is theft, whether committed by one robber or by 100 million thieves acting simultaneously. And it is impossible to create a good society on the basis of institutionalized theft.

Translation: Daniel Vassilev

You can read the original text in English here.

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