The Fallacy of Wealth Redistribution

In these times of bailouts and corporate corruption and growing inequality of wealth we hear a lot from the left about wealth redistribution, laws to set ratios between the salaries of workers and CEOs and other ideas to try to force an economic egalitarianism on the free market as the expression of a socialistic ideal of economic class warfare.

It is assumed on the left that the welfare of the people as a whole is threatened by growing wealth inequality, that the rich increase their wealth at the expense of the rest of society, and that our current unstable economic times have created opportunities for unscrupulous businessmen to enrich themselves while driving down the economy for everyone else. This is the fallacy of inelastic wealth, which mistakenly assumes that increase of wealth in one sector comes from the other sectors of the economy rather than primarily from that part of the economy which is growing.

This theory is fundamentally untrue, but it is the basis for what Edmund Burke described as the desire to “cut the throats of the rich” for the benefit of society. Just as there was more than 200 years ago, there is an element of the political left today which is absolutely convinced that if you just took away the earnings of the wealthy class and redistributed them, you’d be able to make everyone equal and solve all the problems of poverty.

Burke summed up this economic dynamic, which the equalizers don’t understand, succinctly when he wrote to Prime Minister Pitt advising against such a policy:

“The laboring people are only poor because they are numerous. Numbers in their nature imply poverty. In a fair distribution among a vast multitude none can have much. That class of dependent pensioners called the rich is so extremely small, that, if all their throats were cut, and a distribution made of all they consume in a year, it would not give a bit of bread and cheese for one night’s supper to those who labor, and who in reality feed both the pensioners and themselves.”

That basic criticism of the flawed mathematical reasoning behind wealth redistribution remains as true today as it was in 1795 and today we have hard statistics with which to illustrate the point.

Consider what would happen if H. Lee Scott, the CEO of WalMart, were to give up his salary of $1.24 million a year and divide it among the 180,000 WalMart employees. It would raise the salary of each of those workers by the grand total of 68 cents a year. If he were to give up his entire compensation package including stock options, which totals $10.46 million a year, it would raise the average salary of WalMart workers by a sumptuous $5.81 per year.

Don’t think that WalMart is an exception. The same mathematical relationship applies throughout the economy. If you took away the salaries of the CEOs of the top Five Hundred corporations in the US and divided all $5.4 billion in compensation between the oppressed workers of America, each of them would gain a staggering $18 a year. That’s barely an hour’s wages for the average worker — enough to take the family out for a meal at MacDonalds.

So the grand victory of the proletariat in cutting the throats of the capital class and bleeding out their ill-gotten wealth would be utterly meaningless in bettering the lives of the working class or anyone else.

I realize that ideas like wealth redistribution appeal to the moral conscience of many well intentioned people who have a genuine desire to help the disadvantaged, but as is so often the case, this is an argument based solely on emotion and totally unsupported by mathematical reality. At best it is pure ignorance and at worst it is conscious demagoguery and class warfare for no legitimate purpose. It is socialistic buffoonery and if you run into someone who thinks it makes sense, wake them up with some facts.

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About Dave 536 Articles
Dave Nalle has worked as a magazine editor, a freelance writer, a capitol hill staffer, a game designer and taught college history for many years. He now designs fonts for a living and lives with his family in a small town just outside Austin where he is ex-president of the local Lions Club. He is on the board of the Republican Liberty Caucus and Politics Editor of Blogcritics Magazine. You can find his writings about fonts, art and graphic design at The Scriptorium. He also runs a conspiracy debunking site at IdiotWars.com.

3 Comments

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