Saturday, August 25, 2012

“Re”distribution? No, Just Distribution

One way that conservatives have positioned themselves to win the ideological debate is by successfully defining progressive taxation and social programs as “RE-distribution.”   Allow me to summarize the argument here (this is my own synopsis, not a direct quote of anyone):

Markets, if left undisturbed by government action, automatically establish an equilibrium between supply and demand through the mechanism of competition, and this rewards hard work, intelligence, talent, and ingenuity, thereby remunerating individuals in proportion to the value that they’ve added to the economy.  This is not only socially beneficial, but natural and ineluctable: competitive market forces, rooted in “natural” human self-interest, will always drive things toward the market distribution even when government futilely attempts to create a different distribution.  So, for example, when government raises taxes on corporations to fund social programs, business owners will simply pass those tax costs onto customers in the form of higher prices, causing inflation.  Furthermore, the money has been redistributed away from those who rightly earned it, entrepreneurs who would have invested it, and to those who, by virtue of receiving welfare, didn’t work for it and will probably spend it wastefully.  Thus the capitalist distribution is the natural one and always reasserts itself; any attempt to “redistribute” away from it only causes distortions in the economy and creates disincentives for work and investment and incentives for shiftlessness and free riding.

There are many problems with this argument (see below), but the very first thing to note is that it completely ignores that, in capitalism, there is already a massive redistribution, at the point of the paycheck, away from the workers who create value with the labor of their hands and minds, towards the capitalists whose contribution to creating value is much smaller than the rewards they claim.  CEOs simply do not personally contribute enough value to justify annual salaries in the millions, tens of millions, or hundreds of millions.  And investors who live on their stock earnings don’t contribute any contribution through work, although they do redirect capital investment, which could be better done anyway by worker-controlled cooperative banks that don’t demand outrageous premiums just for moving numbers around on spreadsheets.  I made this argument some months ago and it’s worth repeating here: 

What follows is an argument that I think the Left should be making all the time, and if they did, and followed it up with the right actions, it could so change people’s mindsets that significant political and economic change would follow...

What about profits? They come out of your check also. See, people go to work and create a certain amount of monetary value on the job, whether someone makes trucks or fries burgers or does accounting or whatever. Out of the value added by the worker comes 1) overhead to pay for the company's investments/depreciation in machines, buildings, the power and phone bill, administrative costs, etc. 2) Then we pay taxes. What then? Out of the value you create then comes 3) your pay and benefits, and then 4) the salaries for the executives and the profits for shareholders. But why should they get a huge chunk? They didn't do the real work: a CEO is just an administrator, basically, and there's no CEO in America who personally creates enough value to justify a salary in the tens or hundreds of millions. If you promoted people from within the company and paid them modest salaries to act as executives they could easily do the job, and not at the cost of millions; so the workers could keep all those millions and divide them amongst themselves, making life better for them and their families. Some might say, "Well, investors paid to invest in the company so it could have equipment and facilities," but we've already covered those costs in 1). So the top people are just skimming off the value that the working people create. And then they call themselves "job creators!" But it robs you of more of your potential income than taxes do.

Any basic economic textbook will point out that most of the value created in a production process is a product of the cooperation of people working together, rather than of individual effort: where one person can make ten happy meals in an hour, two people can make 25 - more than simply doubling the individual gains. Three people could make 40, and five people 70, and so on (until you reach a point of diminishing returns when the kitchen is too crowded). This is due to the division of labor and the gains of cooperation: people can divide up tasks and focus on them exclusively, learning how to do something well and working out efficient chains of production. The same holds for nearly all human activities, with the exception of some creative processes like philosophy and art - but even these rely on the wider social division of labor. Here’s the key point for liberals and progressives: because you can’t attribute the extra surplus to any individual, but only to the fact that they’ve cooperated, the only rational way to divide it, the only just and fair way, is by equal shares for everyone.

If there’s any principle of distribution that’s natural or inherently fair, it’s not the capitalist one, which always seems to favor those who are already wealthy.  rather, the most natural and just principle, it can be argued, is that people should be rewarded in proportion to the contribution that they make through their labor, and that any surplus due to the effects of cooperation should be divided equally -- rather than skimmed by the elite as unearned profits.  

Of course, there are also standards other than added value that are legitimate for distributing income, wealth, and other benefits.  The capitalist/market distribution is not “natural” but is a result of the arrangement of social, political, and economic institutions, and this means that there are potentially many standards for distribution that can make legitimate claims. Need is an obvious standard of distribution that is legitimate, although today’s conservatives tend not to think so because on the whole they are have become callous and cruel.  But elderly people and children may not add value to the economy directly through producing goods and services, but they certainly have needs that must be met; the same holds for some disabled people.  It is entirely legitimate, even in the American tradition, to provide an income to those who cannot provide for themselves through no fault of their own -- which includes the disabled, the young, and the old.  Another legitimate standard for distribution, although it is almost now dead in our political culture, is equality, both economic and political.  It would take another essay to address even the most common conservative mistakes on the issue of quality, but let me say this: too much wealth inequality degrades democracy and ultimately threatens its very existence; political philosophers and historians for millennia have observed how inequality eventually and inexorably overthrows republics and democracies.  For this reason alone -- that inequality produces tyranny -- brute government measures to enforce equality, such as a maximum income, limits on the size of assets, ad progressive wealth and income taxes, are 100% justified in any and all societies.  Political justice always trumps any economic argument or imperative. 

There are also other problems with the conservative argument that I laid out above: businesses are not always so easily able to pass tax increases onto customers, for example; in technical economic terms it depends on the elasticity of demand, and furthermore if the government required completely open books for commercial enterprises, outlawed passing such costs on to customers, and effectively enforced the law, it wouldn’t occur much.  Additionally the claim that businesses will productively invest all their available capital is belied by the hoarding behavior of large corporations since the 2008 economic crisis, and the idea that beneficiaries of social programs don’t contribute to the economy is simply false, given that consumption makes business activity possible in the first place.

Given the importance that Americans put on a just reward for work, however, I do think that it is critically important whenever some conservative or libertarian pulls out the “government redistribution” canard to reply using the value-added argument I laid out above: capitalists already redistribute most value away from workers in the form of profits before government is even involved, and so when government does “redistribute,” it is only attempting to restore the fair distribution that was already distorted by capitalists before government even acted.  You will face a lot of resistance and even hostility from die-hard conservatives when you make this argument, because they know that its true and they can’t really beat it.  But you will also find that it rings true with working people, and I know that if this argument is made often enough and loudly enough in the public sphere, at the water cooler, and amongst your friends, that it will gain traction over time and win out in a few short years.  

If it did become a widely held idea, it would make it a heck of a lot easier to protect, restore, and proliferate progressive social programs: rather than being “redistributive,” they would be restoring to common people benefits that they’ve already earned through their work.  It’s not redistribution, its just a fair distribution that benefits everyone, not only the rich.  

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