A view on wealth redistribution

Economics Political Theory
1

Suppose there’s a “Society” and a “State” and suppose that this State does only one thing to that Society: it redistributes people’s income.

It takes half of everyone’s income and divide it equally between everyone.

So in the end each individual keeps half of what he makes, and also gets back from government half of the average income earned in that Society.

Suppose the bureacratic costs of enforcing this scheme are neggligeable as the number of actual bureacrats.

There are no parties and no political activity.

And suppose all industries are privately owned and operated with no intervention by the government, in a free market.

That is, everything happens just like in the anarcho-capitalism, except for this arbitrary 50% income tax which pools the earnings and then share them.

Let’s say that neither the people nor the bureaucrats are too much corrupt, and that there’s little fraud.

Maybe because the tax scheme is simple and easy to survey by the press, it doesn’t matter.

So, the question is: how big is the “government” with respect to the “national income”?

Is it 50%, like the total sum of taxation?

Or is it negligeable, like the actual costs of bureacrats?

Or is it something else?

Or does the question makes no sense?

2

I’d say it’s 50%.

I’d like to be the first to point out that this scheme would immediately cause the end of the world to come. Jussayin.

3

Doesn’t really matter how big it is. It is unethical to steal 50% of someone’s wealth, even if your intent is to later give it back to them. It is also unethical to steal 1%. It is the stealing we object to, not the size of the government! (Well, the size is objectionable too! But my point is, our ideal government size is 0%.)

There have been banks which cheated like so: they would let intra-bank checks clear maybe a day or two later than normal. The result was a multi-million dollar slush fund that always had millions of dollar flowing in and out of it.

They were then earning interest on this money and stealing that value from their customers. They were caught and dealt with.

4

I’d say government size is the same as the amount of wealth they expropriate in this situation, regardless of how they actually spend the wealth.

5

Fair enough guys. Just to make it clear, on the example above, it’s only income that is being taxed, not net worth or any of that. Income may be a very small fraction of total wealth.

But now let’s think of another country.

Its income tax is very low. Let’s say its somewhere around 5%.
And there are no other direct taxes. People in this country generally dislike taxes and they would not allow them to rise.

This income, however, is not redistributed to the population though. Instead it is used to do the things politicians want to be done.

And say there are few practical limitations regarding how this money can be used by political machines once it is their hands.

So political machines have a wide range of strategical options they can choose to promote their interest. They can enforce laws and regulations, they can spend money on works and direct subsidies to political allies, they can launch wars on enemies. Nothing is out of the table.

As a result, politics in this country is a very large industry. Not only for government officials alone.
There are all kinds of lobbies directing a lot of wealth trying to influence political decisions.
There’s also the media, with journalists, pundits and mouthpieces with vested interests in promoting political agitation.
There are many corporate lawyers, accountants and many other professionals that help wealth creators navigate and survive the bureaucratic complexities resulting from intense political activity.

Let that sink in for a second. Now think of the practical implications of all these things. And compare to our first example.

Would you really consider the government of this country 10 times smaller than the government of the first country, based on the amonts of income it seizes directly?

Or government size has much more to do with rule of law and actual power commanded by political organizations, inside and outside public offices?

Another way to think about it is: which environment provides better incentives to the peaceful creation and exchange of wealth, and which provides incentives to parasytic and predatorial strategies.

6

this State does only one thing to that Society: it redistributes people’s income.

Does it redistribute in kind? I mean, there is no fiat currency, right? How are transactions valuated? How is income estimated?

7

I understand your point of view and I don’t oppose it.

However, it’s still completely unrelated to what was proposed.
And if it were a test in college you would get an F for not understanding the main theme.

Not every discussion about govenrment nature and effects is a discussion of what are the best ethical ideals about government.

The case I presented suggest a simplified view of a government doing just one precise thing with 50% of everyone’s income. (And, again, income is not wealth).

The intention was to make an exaggeration that illustrate a principle that happens in the real world.

Some governments have a very heavy component of welfare state, like in Canada, Switzerland and the Northern European countries.

However this countries have a relatively stable rule of law. Politicians and bureaucrats there have not many options, and it’s fair to say that government there is not that big of an issue as it would look if one took only taxes into account.

In the United States, things are different. Taxes are somewhat lower, but politicians control much more effective power, and can use that power to leverage the relatively small taxes they collect.

And things are even worse in third world countries. Some of them don’t even have income taxes, or have high levels of tax evasion.
That doesn’t really matter because political organizations have other ways of monetizing their operations since there’s practically no rule of law.

8

more taxation => bigger gov

more regulation => bigger gov

It’s not ‘either, or’. This is not rocket surgery.

9

Those are all excellent technical questions.

Since government does not impose any fiat currency as sole legal tender, people would have incentives to avoid getting payments in any kind of money that would be used to calculate their taxable incomes.

And that would happen to a certain extent, but not entirely. It would happen only to the point where the costs of concealing income using alternative forms of payment were smaller than the costs of having your income taxed.

As it happens in real life. For some people it pays big time to have their wealth increases concealed as capital gains, treasure bonds yield and other forms of income subjected to lower than norm taxes.

Usually, these schemes are available only to the wealthier people who are able to afford the all the fixed costs of setting them up and getting them to work.

But that’s a mere technicality, whose practical effects would depend on a host of circumstantial conditions. And considering them serioulsy would complicate things too much and would take us far from our main concerns here, which were to contrast the condition I call “rule of law” and other conceptions of government constraint.

For our example, let’s just say that these loopholes are not too much exploitable. People usually make their payments using a given set of currencies, and those are all subjected to our federal income tax law of 50%.

Anyway, I’m glad somebody brought those interesting issues up. The very question of how to estimate income is much more important and nontrivial than its usually assumed.

10

I understand you are used to see people here preaching on how things should or would be, ideally, in a perfect society where some abstract ethical principle hold strong.

And then you see me proposing these two theoretical social arrangements and you interpret my proposition as if it were a matter of choice between one or another.

That’s far from my intention. I could not bear the intellectual responsibilities that such a proposal would invest on me.

My far humbler attempt was just to suggest a way to get insight on some political patterns observed in the real world through a thought experiment device that exaggerates them.

One is a society of almost perfect rule of law, yet with a heavy legal device of income redistribution.

The other is a society with almost zero direct taxation and no legal device of “distributive justice”, but with highly profitable industry of political violence, subjected to insignificant legal constraint.

These considerations may help undo the confused perception that leads so many people to suggest the civil unrest in Somalia as an example of stateless society and to see civilized and law abbiding Denmark as a socialist country.

When you identify what is generally perceived as State with the general conditions of a given economic environment that allow certain forms of political violence to be mobilized with a profit by real organizations operating on the ground, the question becomes a no-brainer.

11

You confuse yourself unnecessarily with language. Initiation of aggression can take many forms, only one of which is taxation (theft). Say, Ruler 1 taxed income at 0% but imposed laws which allowed himself to bed with any female and to order anyone to give him massage whenever he saw fit. Ruler 2 taxed income at 50% and pretty much left everyone well alone beyond that. What’s the point of polling which of the two may be “bigger gov”? If you were a guy without hands (unable to give massages), a wife, or a daughter, Ruler 1 may as well be “almost perfect rule of law” to you. If you were a pretty girl, not so much.

12

TA - there are two answers to your question.

First off, you can’t quantify the size of government. If I tried to before, then I was wrong. There are several dimensions to government, as you have shown. The Heritage index tries doing this, but even then it’s not “the” answer.

Rather than just looking at taxes, you have shown that regulation and other interventions are also important.

To get a better understanding of the size of government (and not an actual number, as you have shown), you ought to look at the amount of property that the government has control over. That is why regulations and interventions also increase the size of the government.

Unfortunately, control cannot be quantified, so we can’t pin a number on government. Perhaps I will write on the VR about this.

13

All government is wrong, all tax is theft, yada yada yada. I get it.

That’s not the point.

The point is getting a deeper understanding of the economic patterns of political violence that happens in the real world, and not entering in a theological discussion about the indistinct vicious nature of all sins.

More precisely, the point is to show how something that on paper would look like as a very heavy tax on income could exist within a very light environment of coersion, and how very little taxation doesn’t necessarily means anything.

What is called “State” is nothing but the real world market regime of coersion and compulsion. Political violence can take several different patterns, but that doesn’t mean they are not comparable or mutually intelligible.

It just means we need to work harder in order to understand them.

14

How does the word “market” even relate to it? What is being exchanged?

15

That’s the point.

A “market” is the pattern of strategic employment of economic resources.

And violence that can be used as coercive power is an economic resource. It is has multiple ends that its finite supply cannot entirely satisfy. So it is a scarce resource, that is sought after and economized. Probably one of the oldest of all resources to be mobilized rationally by an animal species.

The fact that “prices” for the different kinds of coercive violence are not always quoted and known by the public does not make it less of a market.

This is due to the typical strategies for the use of violence, which are usually more effective when the violence itself remains somewhat concealed or implicit, so not to generate blowback effects.

So violent bargains usually take place in the dark pools of black political markets. And this is not a metaphor.

Even the “political arena” in democratic countries is a black market, since political transactions are seldom publicly known.

The free market you guys talk about all the time is just an idealized marketplace where violence is no longer an exchangeble nor useful resource, or one whose costs are too high, hence not an economic scarce resource anymore.

16

^ Nonsense. According to your definition a market is indistinguishable from everything which renders the term (market) meaningless and unnecessary.

An acting human has two choices when interacting with other humans toward achieving his/her subjectively valued ends: Voluntary Action (VA) or Initiation of Aggression (IA). A market refers strictly to the VA realm which is how it differs from everything (i.e. all action; VA + IA).

Your last post has made whatever point you are trying to make even more elusive.

17

No, not everything is an economic resource that has to be economized.

One simple example is atmospheric air. In most situations it is not strategically economized because it is plentiful. However it can become an economic resource once local pollution becomes an issue, or a crowd is locked in a non ventilated room. In these situations, a market for air emerges, and violence becomes usually the chief means of exchange used to settle the bargains.

18

The free market you guys talk about all the time is just an idealized marketplace where violence is no longer an exchangeble nor useful resource, or one whose costs are too high, hence not an economic scarce resource anymore.

Fair enough. So what?

19

It’s not a matter of “wouldn’t it be nice”.

the point is simple: since violence can be mobilized by organization to accomplish goals of these organizations, it will be done.

What you call State is only the current technological trend of an ancient industry.

And it won’t stop because somebody realized that it is “bad for the whole society” to have violent bargains.

20

The majority of humans already understand and enjoy the superiority of voluntary action (VA) vs. initiation of aggression (IA). If that wasn’t so, humanity would have gone extinct a long time ago, much less be able to communicate thoughts like these over a communication network today. The problem through history has always been a small parasitic and aggressive minority which has managed to find ways of convincing the productive majority (through memes such as god-ordained kings, mafia, “democratic” government, etc.) that initiation of aggression is inevitable and essential for humanity’s existence. You’ve swallowed that story hook line and sinker.

The majority of productive humans is perfectly capable of defending itself from this parasitic minority by organizing itself through voluntary (inter)action. Not only that is IA not necessary for protection from IA, but the very suggestion is so self-contradicting that it hurts the mind.

EDIT: And violent “bargains”? “Market” in violence? Please.