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Right Turn
Posted at 05:07 PM ET, 09/24/2012

The problem with ‘redistribution’

“Redistribution” is now a topic in the campaign. However, Mitt Romney hasn’t really explained the problem with it. After all, as I’ve been pointing out since the 1998 tape surfaced, we have a progressive income tax and other policies that do transfer wealth. There is an issue here, but we haven’t heard Romney himself tell us what it is.

Peter Wehner, however, is out with a blog post on the Romney campaign Web site — another sign that, on the Romney team, explaining is “in” and presuming the public is following every reference is “out”— that sheds some light on the topic. The problem with redistribution, of course, is that it doesn’t create wealth and, in fact, may inhibit it if carried to extremes. Wehner writes:

If the assumption is that we are stuck with a set amount of resources, then the way to address the fact that some people don’t have enough is to take some from others who have more than they absolutely need and so equalize things some. But if we believe that we’re not stuck with a set amount of resources, that the economy can grow, then the way to help those who do not have enough is to help the economy grow. That will inevitably be a more effective way to help people in every station in life, but most especially the poor. It’s a way that allows them to rise rather than just giving them a little more money where they are, and it does so without taking from others. (Some portion of the population can’t rise for a variety of reasons, and we owe them support and succor. But the great majority of people can, and if one takes redistribution to be the essence of our approach to the fact of poverty then you’re implicitly assuming that our economy is stagnant, which becomes a self-fulfilling prophecy.)
The alternative to a president who believes in more redistribution and in spreading the wealth around is economic growth, greater opportunity and social mobility, and the possibility of advancement for people at every stage of life.

This would be the entitlement society vs. the opportunity society, which Romney and Paul Ryan have been talking about for some time. The president wants bigger government, higher taxes and more centralized power in Washington, without acknowledging that these policies, as we have seen in Western Europe, clog up the economy, depress investment, steer capital to unproductive activities and drag down growth and job creation. Obama’s recovery is worse than the recession in many respects for a very good reason; his policies are counterproductive.

The hard economic evidence bears this out. The free-market think tank e21 has an interesting analysis showing the interplay between spending and growth:

At low debt levels, the government can essentially roll-over outstanding debt indefinitely and eventually grow its way out of the problem. When a government runs a balanced budget, its debt-to-GDP ratio declines at a rate that’s proportionate to the difference between the nominal GDP growth rate and the effective interest rate on its debt. For this reason, it is reasonable to think that a one-time deficit-financed infrastructure project in a country with little debt and low borrowing costs could generate a multiplier greater than 1.
However, once the debt level exceeds 60% of GDP, incremental additions to the debt stock may require future adjustments in the form of higher taxes or less spending than would have occurred otherwise. This leads to less private sector spending today

But our debt is well past 60 percent of GDP. And that’s a problem, e21 explains in a staff editorial, because “in an economy with a gross debt to GDP ratio of more than 100% and exponential expected increases in retirement and health care costs, the economic benefits of both additional tax cuts or government spending is likely to be marginal at best — and very well could be negative. This is why the key economic policy issue today is reducing the size of government over time through spending reductions that cause households and businesses to reduce the size of expected future tax increases.”

In other words, once you accumulate so much debt, private-sector activity grinds to a halt. There is, it turns out, a limit to how much you can borrow and grow government, at least if you want a functioning economy.

Romney’s case against Obama is intellectually sound, if not always articulated clearly. The more he and Ryan make the case that redistribution can’t replace growth but can stifle it, the better the voters will understand the choice between the two competing visions.

By  |  05:07 PM ET, 09/24/2012

Categories:  2012 campaign, Economy

 
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