Redistribution goes back a long time. The first undocumented case of redistribution was back in caveman times when a particularly disciplined and skilled hunter, let's call him Grok, managed to kill more food than he and his family could immediately consume. In stepped the tribal leaders who, realizing that others in the tribe were hungry and somewhat envious, confiscated the bulk of Grok’s food and redistributed it to the others. Of course, in a tradition that would be forever etched in stone, the tribal leaders took a huge chunk for themselves. Redistribution, in one form or another, has gone on unabated ever since.
Naturally, in the wake of this redistribution, Grok decided to spend less time hunting and more time on his hobby, which was etching pictures on cave walls. His family was soon as hungry as the rest of the tribe, and as history has shown, such is the fate of an artist’s family.
When tribal leaders redistributed Grok’s food, they were doing more than just redistributing his wealth. They were redistributing his power, responsibility, and rights too. Grok’s power to provide for his family's future was taken from him as was his right to his own work. Meanwhile, the responsibility to feed others was redistributed to Grok. Anything can be redistributed, and is in modern societies. Life, Liberty, and the Pursuit of Happiness included. Redistribution can be any coerced transfer of wealth, power, or rights from individuals or groups, for the explicit purpose of benefiting other individuals or groups.
Neither Karl Marx, Vlad Lenin, Mao Zedong, or even Barack Obama are innovators in redistribution. They just took it to relatively new levels in their societies. Every society, from the most democratic to the most autocratic, does some kind of redistribution. No politician, particularly in a democracy, can afford to oppose redistribution in its entirety, even though many are philosophically opposed to coercing one person to give to another. Blame it on the collective will. Universally, the people allow and desire some redistribution to satisfy needs and envy within the society.
Yet, redistribution is our nemesis too. It is the opiate of the people. Free stuff paid for by others. Rights granted by denying others theirs. Costs passed to the unborn. It has led to deficits unprecedented in human history. It has ruined societies right in our lifetime. It kills incentive. It was the primary cause of our recent financial collapse, which was precipitated by a giant redistribution scheme that gave easy money to marginal homebuyers. And yet, neither party has satisfactorily figured out exactly where to draw the line. Both parties played roles, albeit to varying degrees, in the recent crisis. Amidst this confusion, the default position of the voters has been: redistribute more, and redistribute it to me!
In the US, the two political parties are not far enough apart on redistribution. It is safe to say that one party advocates progressively more redistribution than we have at any given time, while one party advocates less. But, that puts them both firmly in the redistribution camp, only with varying degrees. This results in an arbitrary and nebulous difference between the parties. Hence, the claim by some that there’s not a “dimes worth of difference.” As one party just found out, this can result in voter apathy. History has proven it also leads to runaway deficits regardless of which party resides at 1600 Pennsylvania Avenue.
What I propose is a policy that will create a bold distinction for politicians, win elections for them, and insure that redistribution is done responsibly, all the while acknowledging the undeniable human instinct to redistribute. This can be done by opposing all redistribution at the federal level, and at the same time recognizing that redistribution is essential at the state level. This is not a contradiction. In fact, the Founders showed us how. The problem is not redistribution per se. The problem is only federal redistribution. State and local governments must be free to redistribute as they please.
But states are not able to print money, and thus market signals will ensure redistribution is done with discipline. This is essentially what the constitution prescribes. By articulating this distinction, responsible politicians can both side with voters, who want redistribution, and be 180 degrees opposed to the irresponsible redistributors who want to continue doing it the unsustainable way we have been doing it.
I believe separating redistribution from the federal sphere is the system we were given in 1789. For one, the constitution limits the power of the federal government to a few things and redistribution is not one of them. For two, one of the things the constitution does grant to the federal government is the power to create, borrow, and manage money. Redistribution combined with the power to control money is a formula for disaster. This sets up a massive conflict of interest for politicians who can use redistribution to endlessly buy votes with borrowed and printed money.
Politicians who run nationally and vow to redistribute less are seen as party-poopers who want to remove the punch bowl. The austerity approach has been, and will continue to be, a losing one. Nor has it been an effective one at stopping the problem. Fiscal conservatives (few though they are) have only been able to slow the acceleration of the fiscal train wreck, but the train has continued to accelerate. I don’t see voters voluntarily removing the punch bowl either. They like the punch. It makes them feel good. They are not going to stop drinking because they have been shielded from the hangover.
I have heard the argument that the constitution twice mentions the term “general welfare” and thus the founders wanted the federal government to be the provider of “welfare”, or redistribution. This is a canard. Both mentions of “general welfare” in the constitution refer to the federal government, not to “the people”. Thus the phrase is not about redistribution, but rather about having roofs over government buildings, paying government workers salaries, arming soldiers, providing adequate courthouses, and the like. It is about running the government properly and seeing to its general welfare. General welfare was never intended to mean satisfying the needs of individuals in society.
The constitution however, does enumerate the powers of printing, borrowing, and managing money to the federal government. As the world’s current lone superpower and issuer of the world’s main reserve currency, we are in a unique position to print and borrow money at little or no present cost. But that’s just how it appears in the present. As Milton Friedman was fond of saying, “There is no such thing as a free lunch”. Someday, the real cost of borrowing $20 trillion and printing trillions more will rear its ugly head.
What have we done with all those trillions? We used it to redistribute wealth from future individuals to present ones, with the express purpose of obtaining votes in the present. This is the “fatal deceit”, to paraphrase a term, of our deadly mixture of federal redistribution and federal borrowing and money printing. We must separate these functions and eliminate the conflict of interest if we hope to have a sustainable future.
No, we did not spend 20 trillion dollars on “unfunded wars”. No war in history was ever fought without being financed. In other words, no wars are “funded” with current receipts. Our debt and printing issues are the demographic result of the above conflict of interest. Politicians can only boost revenues temporarily to keep up with our runaway redistribution. But revenues always fall back to the average of 18% of GDP while the redistribution climbs ever upward. Even in the 90s, when many people claim the budget was balanced, unfunded liabilities were never included and it was in the 90s when the seeds were sown for the recent financial crisis. The high revenues in the 90s were short-lived and based on bubbles in technology, housing, and lowering of the capital gains rate.
Why is it that the party of less redistribution is more successful at the state level (they currently hold 30 out of 50 governorships and 27 legislatures to the other party’s 17), yet they have struggled at the national level? I would argue the key difference is the seemingly unlimited ability of the federal government to print and borrow money and thus obscure the true costs of its redistribution. States must function in the real world of finance where choices have consequences and redistribution must be paid for.
One argument would be, “Well, what about California, Illinois, and New York, etc.? States aren’t so good when it comes to managing their own finances! Why should we have them run all the redistribution programs too?” To that I would say, yes some states are a mess, but others are in good shape. It’s about 33% bad and 67% good for states. The federal government is a 100% mess! The states are way better overall, and the ones in trouble are about to have to reckon with their spending because they are bleeding population, businesses, high earners, and cash. The market is giving them signals, signals that do not exist at the federal level.
One reason a third of the states are a mess is that they currently have a limited stake in managing their own redistribution. That’s because, although states manage many of their own redistribution programs, one third of the money comes from the federal government. The incentive for state politicians is to be as generous as possible, kiss up to the federal government, and tap federal taxpayers somewhere else to pay for their largesse. But there are limits, which is why a majority of states get it right. Every state has some form of balanced budget law except tiny Vermont, which is small enough to have a bake sale to make-up any shortfall!
Look at the European example: The Euro has only been in existence for 12 years, yet thanks to the inability of the PIIGS (Portugal, Italy, Ireland, Greece, Spain) and Cyprus to revert to the printing press, market signals have exposed their bad habits. Discipline is sweeping the Euro zone, not without some pain, but the result should be a sustainable future. We in the US currently have no such market signals warning us of our trajectory.
Again, I’m only talking about eliminating federal redistribution. Politicians at the national level should not oppose redistribution at the state or local level. They should be consistent with the constitution and the constitution leaves this up to the states and the people. Societies want a safety net. That much is axiomatic. Voters want a certain amount of welfare, food stamps, subsidized healthcare, free contraception, subsidized mortgages, etc. Politicians at the national level must defer to the states and support the will of the people. States and individuals must decide the proper level of welfare and redistribution they desire. But this can be done much better by the states, with correct feedback signals, than it can at the federal level without them. State taxpayers will have to make the hard choices and decide the proper level of the safety net they are willing to fund. No magic money involved. They also will be in a better position to eliminate fraud and abuse. (Did you know that the states administer Medicaid, but the money comes from the federal government? Neither party has an interest in stopping Medicaid fraud: the state because it costs them nothing, and the Feds because it’s not theirs to administer!)
Of course, taking this stand will require transitional details. How do we turn Social Security, Medicare, ObamaCare, and Medicaid, over to the states? In fact, any federally coerced transfer from individuals for the explicit purpose of benefiting other individuals would have to be turned over to the states along with the revenue stream which funds it. Federal taxes and spending would go way down, while state taxes and spending would go up by a commensurate amount.
We would also need to address the backdoor redistribution schemes. This is the type that got us into the financial crisis in 2008. The federal government mandated that banks lend money to anyone, regardless of ability to make payments. My Labradoodle could have gotten a mortgage. Then the feds bought up many of the bad mortgages through government-sponsored creations like Fannie Mae and Freddie Mac (FNMA & FHMLC). No one's taxes went up. No wealth was redistributed initially. It was all done through the backdoor in the form of a "redistribution of risk". All of the explicit redistribution, as well as this backdoor type must go to the states.
The actual details of the transition are beyond the scope of this proposal. I’m proposing this as a policy stance for politicians and voters who agree that: a) Our current debt path is unsustainable. b) Austerity is not a politically viable solution. c) The root cause of our unsustainable path is a conflict of interest. d) The conflict is the result of redistribution combined with our ability to print and borrow money with little or no present cost. e) Voters and most politicians have little incentive to fix this because it benefits them. f) There is, however, a passionate group of politicians and voters who want to fix this. g) The above proposal is a viable strategy to fix it. Those that agree and know the system best can work out the details.
By standing against all federal redistribution, and simultaneously standing for the rights of states to redistribute as they choose, politicians can draw a clear ideological contrast with their opponents and still be aligned with voters. The only reason politicians will oppose this is because it will interfere with their ability to buy votes. Smart politicians will smoke them out, and put us on a sustainable fiscal course.