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.
