Does Redistribution Slow Economic Growth?

I disagree with what is apparently the thesis of a book reviewed at City Journal, that food stamps, unemployment benefits, and other federal, state, and local support programs have resulted in less economic activity than might otherwise have been the case:

But as University of Chicago professor Casey Mulligan’s shocking book, The Redistribution Recession, makes clear, going on food stamps is hardly unusual any more. With their loosened eligibility requirements and expanded benefits, food stamps and a host of other federal and state programs are undermining traditional incentive structures—and keeping the nation’s unemployment rate stubbornly high. A preeminent labor-market economist, Mulligan presents extensive research into these labor-market “distortions”—the way that policy interposes itself between prospective employers and employees—since 2008. Ordinarily, such heavily quantitative research is the province of economics journals. In this case, the findings deserve a broader audience.

That’s not to say that I don’t think that policy is producing distortions that reduce economic policy. We’re redistributing from young to old in the form of Social Security benefits and Medicare, from just about every other sector to the healthcare sector via Medicare, Medicaid, and other healthcare subsidies, from every other sector to the defense sector through defense spending, and from savers to borrowers (not to mention the banking industry) through the measures adopted during the financial crisis that sparked off the Great Recession. That’s just a few of the ways in which we’re redistributing and IMO their sheer volume dwarfs any economic distortions produced by food stamps.

Indeed, I see the history of our economy over the last several decades very, very differently from what’s being implied in the post. I think that what we’ve seen is that sectors that are subsidized or protected survive while sectors that aren’t similarly favored decline or stall. I don’t think that unemployment insurance is causing the percentage of people employed to shrink—just look at the large number of long-term unemployed, mostly ineligible for unemployment insurance payments at this point (although some of those have now gone on to Social Security Disability). I think that a slack job market is mostly the cause rather than the effect and that we’ve got a buyer’s market in employment due to trade, monetary, immigration, and social policy decisions that have been made over the period of the last forty years.

Those are some headwinds.

9 comments… add one
  • jimbino Link

    You should also consider that the elevated taxes on the singles and childfree have long been a serious disincentive to work. I am in that category and long ago realized that I “can’t afford to work.”

    There is no need for a single, childfree preson to work the 40-hr/week grind; if he does, he ends up working to support the matrimaniacs and breeders. In the 45 years since I started my professional career as rocket scientist/programmer, I have worked an average of only 13 weeks per year, except for intense home-improvement, which amounts to deferred income that is totally protected from taxes. Though I did sit in classrooms for some 27 years, mostly at gummint expense, the tax code has been responsible, at least in my case, of depriving the country of the services of a rocket scientist.

  • sam Link

    I dunno. The basic premise seems to me somewhat counter-intuitive. Drew goes to the market and buys one steak. I take a small portion of Drew’s income (I do understand the eristics of “a small portion”) and give it to 100 people. Those 100 people go to the market and each buys a steak. One steak bought vs. 100 steaks bought. How is that “less economic activity”?

  • What is seen and unseen. If Drew took that “small portion” and put it under his mattress, you’d be right. But he doesn’t. He invests it and his investments produce economic activity.

    I don’t know for sure whether it produces more or less economic activity than divvying that money up would. But it produces different economic activity.

    However, bringing your example closer to the real world we’re not taking money away from Drew and divvying it up among 100 people. We’re taking money away from Drew and divvying it up among a relative handful of physicians and other healthcare sector workers, some teachers, defense sector workers. The supply of physicians is more or less fixed so putting an increasing amount of money there just means they each make a bit more money.

    If we were actually taking the money and just divvying it up among 100 needy people, I’d be more in favor of that than what we’re doing now.

  • Red Barchetta Link

    “…I’m in the hi-fidelity
    First class traveling set
    And I think I need a Lear jet

    Money, it’s a crime
    Share it fairly
    But don’t take a slice of my pie

    Money, so they say
    Is the root of all evil

    But if you ask for a rise
    It’s no surprise that they’re
    Giving none away”

    Dave made most of the points I would in response to sam’s scary level of economic understanding.

    No, it goes to no mattress. A (large) portion is funneled through the capital markets into investment. In addition, that which is consumed is consumed the way I want – that’s called liberty – and I would posit in far better ways than govt types. Therefore, I conclude creating more economic activity than the sam’s of the world would with my money.

    It is a fact of life that a modern society must take a portion of income for collective purposes. But its 2 dollars for every 1 of utility. Further, and to Dave’s last point, I think its evidence we are taking too much when we observe that the supposed support of the poor, needy, sick, disabled etc is just a fraction of what is taken. The truth is that for the vast majority on the left invoking the poor is just a straw man trying to shame people into accepting “tax, tax, tax” so that they can do with your money what they want, not what the owner of it wants. As I’ve noted before, ask the man on the street what the max govt tax take should be and you will again find the vast majority come up with a number less than current reality. All but the hard left, who’s answer is invariably “more.”

    Like my dear aunt, who has never worked a day in her life. Well, yeah.

  • sam Link

    “Therefore, I conclude creating more economic activity than the sam’s of the world would with my money.”

    You’re waving your arms.

  • Ben Wolf Link

    What part of Domitrovik’s article is not “workers are all lazy slob’s” type bullshit? That review tells me absolutely nothing about the book. The writer just list a series of welfare programs and then concludes that’s why the economy sucks. It’s fact-free and heavy on moral scolding. Conservatives always assume the problem with poverty is the poor, just like liberals do and is exactly why efforts to eliminate poverty have repeatedly failed.

    This is exactly the failed reasoning Minsky identified in the sixties when he stated that Johnson’s Great Society would be unsuccessful. You know what’s shocking? How little economists and self-appointed critics of working peoples’ virtue don’t know about the past. This country exists in a permanent state of amnesia on almost everything. The quantity of dollars in Drew’s accounts is utterly irrelevant to economic performance because it is a stock. Flows are what matter when pursing growth and employment which means taxes simply are not and never will be the answer.

  • steve Link

    “The truth is that for the vast majority on the left invoking the poor is just a straw man trying to shame people into accepting “tax, tax, tax” so that they can do with your money what they want”

    And what they want to spend it on is ” support of the poor, needy, sick, disabled etc”.


  • jan Link

    Pervocative perspective, Ben.

  • jan Link

    Whenever the words prudent and money are revealed in a person’s value system, it seems to be put into a social progressive context implicating a negative — someone who is greedy and/or heartless. The same thing happens when a person’s lifestyle revolves around saving money, watching and weighting both discretionary and non-discretionary expenditures, and/or ambitiously working long hours or 2-3 jobs rather than being beholding or taking a government check for endless amounts of time. In fact any vestiges of an actively engaged work ethic, coupled with pride in what one produces, augmented by personally imposed self discipline, is oftentimes jeered, on one hand, as being too bourgeois, or, on the other hand, as exercising futile behavior to get over one’s fiscal hurdles in life.

    IMO, we have evolved into becoming more than just a society of haves and have-nots, but one where darker traits are now revered: where envy is lauded; coveting others success is excused; where charisma trumps integrity; where goals of seeking prosperity for the whole country has been narrowed and replaced by the ‘fairness doctrine,’ interpreting an equal division of spoils as a means to becoming a virtuous society — in other words monetary redistribution of wealth.

    Such ‘fairness,’ though, does not necessarily take into account the parity of individual labor in producing these spoils. Instead it uses ideological weights and balances to assess, and with political correctness, define what is right and wrong. Unfortunately, more often than not, this subjective process leads to nullified excesses on both the top and bottom economic rungs of society. It means the slavish poor are kept down, satisfied with the charitable crumbs government feeds them, as there is little to no attached strings of accountability. This in turn, though, does little to jeopardize the uber rich’s lopsided wealth. These liberal icons continue on, in a kind of liberal ‘safe zone,’ to be overlooked and forgiven for any lavish bonuses/proceeds, legal privileges, outrageous, guilt-free extravaganzas, if they merely commit themselves to the left, tithing allegiance to their political philosophies and campaigns. There are so many well-heeled, well-connected liberal wall street guys, entertainment/athletic celebrities and synthetic, man-made heroes, Silicon Valley mogul types, as well as old established foundations funneling money to the left. These public figures are so cool, PC and applauded by the little people, giving them the cover to live over-the-moon, gold-plated lives, fairly free of scrutiny or criticism, as they hypocritically chide and put thumb’s down on smaller business entrepreneurs — those who oppose killer regulations and fiscal policies of the left — in their less-than-glamorous attempts to provide means and incentives to stay alive and perhaps grow.

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