The economics behind the redistribution debate.
The discussion between Matt Bruenig and Adam Ozimek, while very interesting from a social and philosophical perspective, is contributing very little to the underlying political dilemma, and is economically inappropriate as well. Matt Bruenig assumes a blank slate with no distribution in place, which is handy, and leads him, correctly, to believe that redistribution doesn’t exist, as no distribution exists in his argument from which one could redistribute, but such an argument doesn’t lead to any useful conclusion (apart from the obvious one that private property is a social construct and not a god given right), as it doesn’t conform with reality. Such a historical study may be philosophically interesting, but is of no consequence to the current political policies, which seem to have fuelled the dispute in the first place.
Bruenig states that: ‘the word “redistribution” implies that there is a distribution that is default, and that we redistribute when we modify the distribution away from it.’ But in reality (as opposed to the hypothetical blank state) it does no such thing. Both Bruenig and Ozimek are operating on the absolute and ahistorical level, while the complex and chaotic nature of socio-economic systems hints that it can only be seriously analysed in relative terms, as every part of the system depends on most if not all other of its components, rendering the system highly interconnected and volatile. Hence economics as a science is hierarchical, relative and dynamic.
I agree that in absolute, ahistorical terms Bruenig is right that ‘there is no such thing as redistribution, just different distributions.’ But in relative and historical terms at any given time we find a certain distribution to be in place (whether it’s fair or not is largely irrelevant to the policies as we can’t move back in time). This is the base to which we compare any future actions and policies and decide whether they lead to redistribution or not. Admittedly the volatile nature of economic systems means that the distribution of wealth will most likely not be stable, and therefore practically every action will be changing the distribution. We can assume that redistribution is in place only when the change is material however. This agrees with the the definition of redistribution used by economists (‘an unrequited transfer of resources from one person to another’), which is ignored by both Bruenig and Ozimek. Such a definition is of course very broad and means much more than what is usually meant by redistribution in the political discourse, but we can make it more precise by agreeing that we mean only transfers between different classes or income groups, and not by regions and so on.
Matt Bruenig is right when he says that ‘a multiplicity of possible distributions, none of which is more natural, or less interventionist, or whatever than any other.’ We do stumble upon a distribution that is in place due to historical reasons, which does not mean that it’s a more natural state than any other which may have been in its place. In this sense, again, we fall back to using a relative comparisons between the actual state and all conceivable states and decide which kind of redistribution is desirable, if any. Assuming blank state doesn’t seem to be advancing the argument in any way. I would argue that such assumption doesn’t make analysing which distribution is better for society any easier from doing so in a more realistic perspective, and while mainstream methodology of science would not disallow using unrealistic assumptions, it is hardly desirable to do so when there is no obvious gain to be had.
When we let go of the assumption of the blank state of nature we are left with a simple conclusion that redistribution does exist. I do agree with the historical school of economics, which insists that all economic truths are relative to time and place and hence assume that whether an action is redistributive is a relative, not absolute, distinction. An action is not redistributive once and for all, it may cease to be so as time passes. The opposite is also true, an action that is not redistributive may start being one. The demarcation is historical, it depends upon the evolution of the system over time.
A version of Alchian thesis – that natural selection produces profit-maximising firms – can be constructed, where natural selection produces a society where the wealth is distributed to maximise the well-being of all. But as Alchian rejected his thesis, I shall reject this one also. It is irrelevant whether private property is a government construct or a social construct. Whatever the case it is indeed government’s job to supervise the distribution of wealth to try and bring the well-being of all citizens as close to the maximum (in Paretian sense) as possible, since it is not naturally the case. If this job is not done, as is currently the case, it may lead to the collapse of the whole system, as noted by Freud in when he wrote that ‘a civilisation which leaves so large a number of its participants unsatisfied and drives them into revolt neither has nor deserves the prospect of a lasting existence.’
That leaves us with the practical side of the story. Mitt Romney is using redistribution as a tool to scare people into voting for him, using their ignorance about what redistribution actually means. This problem isn’t, incidentally, eased by the philosophical disputes between Matt Bruenig and Adam Ozimek, or this piece of writing, for that matter. What could help is a serious discussion about the current distribution of wealth and its fairness. Economic fairness is also a relative term, and there is no absolute way of deciding which distribution is fair, since economic wealth is distributed by sentient beings which agree upon the economic processes in a quasi-rational way. Though obviously some distributions are maximising the well-being of the general population better than others, so discussion and some conclusions are possible to obtain. A much needed serious discussion about the topic between the politicians, especially the presidential candidates, is unlikely to happen however, as it would potentially be more dangerous than profitable to both Romney and Obama.
Interestingly, if we define redistribution as policies changing the current distribution of wealth then we find that both Obama and Romney are supporters of redistribution, the difference is in the detail: Obama is supporting the redistribution in the traditional sense, and Mitt Romney is supporting what economists call inverse redistribution, that is shifting money from the poor to the rich. As Robert Hunziker reports Mitt Romney ‘claims his tax rate of 14% on investment income of $20 million is “fair”,’ and since this rate is smaller than what the middle class pays it clearly shows Romney’s support for inverse redistribution. We are left to conclude that not only there is such a thing as redistribution but also that we have no way of avoiding it, we may only choose one that we find more attractive or indeed less repulsive.