Conventional opinion says that there are 2 main camps in American politics, when it comes to wealth redistribution.
You have one camp that is opposed to wealth redistribution as a principle. They believe that economic policy should be designed to generate as much aggregate wealth as possible. And when it comes to distribution, let the chips fall where they may. “A rising tide lifts all boats” and “it’s never ok to rob Peter to pay Paul”, would be their most common slogans.
Needless to say, this group has been soundly defeated in the past few years. The proposals they have long championed, such as free trade and welcoming high-skill immigrant workers, have taken a drubbing at the hands of the current administration. American voters, tired of stagnating wages and “rust belt” type regional declines, have handed a resounding endorsement to economic policies that will redistribute wealth to the downtrodden. Even if it is at the expense of the overall economy.
It is tempting then to declare victory for those in favor of wealth redistribution. But this would be premature. For even within this camp, there are 2 major factions, which have a visceral animosity towards each other.
You have the one faction that believes in achieving wealth redistribution directly, as an official goal, using broadly crafted policies. The faction best epitomized by Bernie Sanders and his 2016 supporters. A faction that believes in Medicare for all. Free college tuition. Better unemployment benefits. Higher minimum wages. And universal income or guaranteed employment. All of which are paid for by closing loopholes and increasing tax rates on corporations and the wealthy.
A faction that was defeated not just in the primaries, but also in the 2016 general election.
And then you have the other faction that favors wealth redistribution, but refuses to admit it. The side that wants wealth redistribution, but only by other names, and benefiting very specific constituencies.
A faction that favors wealth redistribution in favor of workers in specific industries such as steel, via trade protections that limit imports from other nations. Even if such measures raise the cost of consumer goods, harm exports in other industries due to retaliatory tariffs, and hurt the national economy – a price borne by every other American.
To quote the Congressional Budget Office’s analysis of recent trade tariffs:
The empirical approaches by the Congressional Budget Office and the Federal Reserve Board of Governors … find net losses from changes in trade policy … of roughly $500 to $1700 per year in 2020, averaged across households.
And to quote expert analysis on recent Steel tariffs:
U.S. consumers and businesses are paying more than $900,000 a year for every job saved or created by Trump steel tariffs, according to calculations by experts at the Peterson Institute for International Economics. The cost is more than 13 times the typical salary of a steelworker, according to Labor Department data, and it is similar to other economists’ estimates that Trump’s tariffs on washing machines are costing consumers $815,000 per job created.
And to quote expert analysis on Obama era tire tariffs:
In response to a petition from the union that represents tire manufacturing workers, the Obama administration imposed punitive tariffs on tires imported from China… Our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs… The cost per job manufacturing saved was at least $900,000 in that year.
The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are off set against gains in tire manufacturing
A faction that favors wealth redistribution from the richer coastal states to the heartland, by eliminating tax deductions that disproportionately benefit the residents of the former (usually liberal) states. Even if they are the ones who are already subsidizing the heartland.
To quote the NYTimes describing the latest tax bill’s redistribution of wealth from Blue states to Red:
While the Republican tax overhaul would add up to an overall tax cut for individual taxpayers … millions could still immediately receive a tax increase… particularly those in Democratic areas
And to quote the AP fact checkers describing how this is doubling down on the wealth redistribution already underway:
High-tax, traditionally Democratic states, subsidize low-tax, traditionally Republican states in a big way… most high-tax states send more money to Washington than they get back in federal spending. Most low-tax states make a profit from the federal government’s system of taxing and spending.
Connecticut residents paid an average of $15,643 per person in federal taxes… Massachusetts paid $13,582 per person, New Jersey paid $13,137 and New York paid $12,820. At the other end, Mississippi residents paid an average of $5,740 per person, while West Virginia paid $6,349, Kentucky paid $6,626 and South Carolina paid $6,665.
Low-tax red states also fare better when you take into account federal spending. Mississippi received $2.13 for every tax dollar the state sent to Washington. West Virginia received $2.07, Kentucky got $1.90 and South Carolina got $1.71. Meanwhile, New Jersey received 74 cents in federal spending for tax every dollar the state sent to Washington. New York received 81 cents, Connecticut received 82 cents and Massachusetts received 83 cents.
A faction that favors protectionist job measures to help the few unemployed engineers and computer programmers, by restricting avenues for high skill immigration. Even if it hinders the vibrancy of our nation’s technology sector, overall economy, and allows other countries to surpass us in technology innovation and entrepreneurship.
To quote the NYTimes describing the current administration’s philosophy on immigration:
Stephen Miller … the architect of Mr. Trump’s immigration policy, has pushed for years to limit or eliminate the worker visas, arguing that they harm employment prospects for Americans
And to quote the NYTimes describing the role immigrants have played in America’s economy:
immigrants start companies at twice the rate of native Americans. Almost half the companies in the Fortune 500 were started by immigrants or their children, and without them, jobs are likely to be scarcer in the future.
Laws of the 1920s were designed to block the entry of immigrants from Southern and Eastern Europe and from Asia in order to preserve the ethnic “character” of the United States… those quotas seriously curtailed immigration of scientists and inventors of specific ethnicities… the quotas didn’t protect domestic scientists and inventors. It hurt them, and it decimated their work. And, over time, fewer American-born people became scientists and inventors at all. The net effect was a substantial reduction in invention in the United States. The essence of knowledge work is building on others’ ideas, and having fewer creative people from different backgrounds in the United States undermined the entire enterprise.
The common thread that ties together all of the above, is the redistribution of wealth, at the cost of overall economic prosperity. Something that can also be said of the Sanders’ tax-the-rich endorsers.
The difference between the two factions though, is the nature of the redistribution. The Sanders faction favors direct interventions, such as higher Minimum Wages or Earned Income Tax Credits. Whereas the Trump faction favors indirect intervention where the beneficiaries don’t “feel” as though they are benefiting from government handouts. Where the beneficiaries can still pretend to be entirely self-made, while simultaneously owing their livelihoods to government intervention.
The Republican steel worker whose job is saved via protectionist policies, still feels as though he has “rightfully earned” his wage – even though most of it is coming out of the pockets of every other American household. Despite clamoring for and benefiting from redistributive policies, he still holds onto his moral superiority over the “moochers” who are taking handouts from the government.
The other difference is in who benefits from the wealth redistribution. The Sanders faction favors policies that benefit wide swaths of the middle and lower-middle class. For example, a higher minimum wage would help 40 million workers, across all demographics and geographic locations.
Whereas the Trump faction favors policies that provide life-changing amounts of help to small and targeted constituencies – such as steel workers in the rust belt, farmers in the heartland, and unemployed programmers in a booming industry. Constituencies that hold tremendous sway in the Trump political base, and so, are able to successfully demand special favors.
Ultimately though, these nuances amount to little more than political theater. Wealth redistribution is wealth redistribution, regardless of the manner in which it is undertaken, or the specific constituencies it helps.
An unbiased observer would recommend that any redistribution, if it does exist, should benefit those who need it most, and as many people as possible. Policies such as Universal Healthcare, Free College Tuition, a higher Minimum Wage, or Guaranteed Jobs. Measures that the average Republican rejects as being too “socialist” and too coddling of “welfare queens”… while simultaneously supporting trade protectionism and immigration restrictions. It’s hard to make the case that steel workers in the rust belt are deserving of special government help, but minimum wage workers in suburban restaurants aren’t. And yet, that is the policy objective of the current administration.
It is wealth redistribution in all but name, but at least it doesn’t feel like it. And it’s helping the right people. For many, that makes all the difference.
Aug-2022 Update: Wealth redistribution has been a hot topic lately, with the recent announcement by the Biden White House that the vast majority of college graduates with student loans, will see $10,000 of their loan forgiven. As expected, Republicans have been quick to pounce on the unfairness of this policy, since it redistributes wealth from everyone else towards a very specific and traditionally liberal constituency – young college graduates. Only to be reminded that the people complaining were the same people who saw vastly larger loans forgiven via an earlier policy that essentially handed out money to business owners.
Wealth redistribution towards targeted constituencies is a pandora’s box that once opened, is almost impossible to put back again. It would have been far better if both policies were scrapped in favor of broadly-targeted policies that directly put cash in the pockets of the vast majority of Americans. But given the horse trading that is required for political success, this is looking increasingly unlikely.
Outlook Zen 