What would the income distribution look like with no redistribution?

[Integral]

I don't have an answer, but would love to get some discussion rolling.

Currently some 43% of Federal government spending is in the form of "transfers" -- Medicaid, Medicare, Social Security, UI, and other expenditures that directly transfer income from one individual to another. Furthermore, the overall Federal tax system is progressive and tends to dampen the income distribution.

What would the income distribution look like without these measures? How important is government redistribution in alleviating poverty?

To avoid too much talk of numbers, I'd also like to open it up to normative questions. Is the current level of redistribution just? Would more redistribution be just, and if so, is there a limit?

(Somewhat inspired by the "beer and taxes" thread in the other OT.)

 

[luiz]

I think Mankiw's Introduction to Economics has a table with exactly that information for the US and some other countries. I'll check when I have time.

 

[Terxpahseyton]

It would be very interesting to see this for Germany as well. My 2 cents on the normative angle: I think it is pretty pointless to make use of any other normative angle other than people having a good life. Everything else should follow from there. Which btw doesn't automatically translate into a universal welfare state. If that actually worked towards this goal, we probably would be doing it.
Having said that, some kind of transfer action seems to be beneficial to people having a good life. The actual details are beyond general norms (or should be).

 

[BasketCase]

The income distribution would look exactly the same as it does now.

Wealth transfer only moves dollars; it doesn't move the ability to produce dollars for oneself. So, you take money away from a rich person and hand it to a poor person; the poor person spends the money on something; and the money is gone. At which point the poor person remains just as poor as he or she always was.

The only way to alleviate poverty is for poor people to produce wealth for themselves without relying on anybody else for it. Because, clearly, they can't depend on the charity of the rich or the belevolence of politicians, both of whom have failed the poor repeatedly throughout history. In fact, the Democratic Party in the United States has a vested interest in seeing the poor remain poor so that they keep voting for Democrats.

 

[Arwon]

Uh, no. Income redistribution changes income distribution. Kinda by definition, dude. You tax people, you pay pensions (or disability support, unemployment benefits, veterans benefits, and the like), then you're changing the relative income distribution from what it would be if there were no taxes or pensions (or disability, unemployment or veteran support).

You're mixing up (among other things), wealth and income. And really I'm not sure what the Democratic and Republican parties have to do with anything here.

Also, a large portion of transfers are not even in the form of direct cash transfers. Health coverage being the largest of these.

 

[AlpsStranger]

I believe one of Ayn Rand's various religious scriptures states that wealth is a living extension of its owner's hard-as-steel alpha male coc... I mean will.

 

[rugbyLEAGUEfan]

Initially quite cool , I would buy 3 yachts . Then uncool when , 1. I realise I could not care less about having 3 yachts and 2. the huge resultant underclass kicks my ass and takes the lot , and rightly so .

 

[Terxpahseyton]

I believe one of Ayn Rand's various religious scriptures states that wealth is a living extension of its owner's hard-as-steel alpha male coc... I mean will.

That made me laugh out loud
@Basketcase
Your post makes me feel vicariously embarrassed We all know this teach a man to fish and you will feed him for his lifetime stuff. And in deed also economically speaking, that is the superior, the ideal choice for individuals, than gifting fish. However, I am sure you can understand that in the real world ideal scenarios are not always ideal options. You may want to just have everyone feed him or herself all by them self, fine. But then you have the actual state of the economy and it is time to look at what actually is and what you can actually do to improve the situation. Then you should realize "Whoops, thinks aren't that easy". And when you realize this, the next step is to realize that normative dogmas like "everyone shall feed them-selfs" are challenged a lot by reality when the ultimate aim remains the actual well-being of people.

 

[Gatsby]

What would the income distribution look like without these measures? How important is government redistribution in alleviating poverty?

Both very good questions. Imo markets in their purer form seem to be success-to-the-successful phenomena: unless you assume a perfectly level playing field for everyone from the start, those who started out with any kind of economic advantage would most likely build on those advantages and the overall effect would be a concentration of wealth in the hands of a tiny minority. This process would contain the seeds to its own end because the rest of the economy would become so depleted that the wealthy minority could no longer extract significant wealth from it, and/or the poor majority would rebel and topple the existing order. Measures such as those you mentioned tend to dampen out this cycle of wealth concentration-and-dispersal. However this is just a simple speculation; in order to get anything like an accurate answer you'd need to account for a huge array of variables and pre-existing factors.

To avoid too much talk of numbers, I'd also like to open it up to normative questions. Is the current level of redistribution just? Would more redistribution be just, and if so, is there a limit?

That first question is really tough, and the answer depends on the perspective of the person asked. As to the second question, imo the overall goal of redistribution is to reach a happy medium where no one is forced to live in poverty (especially on the street) and everyone has their basic human rights protected, yet people are encouraged to be economically productive and are rewarded for hard work and skillful entrepreneurship. Many neoconservative types tend to think that poor people are poor because they are wicked or lazy: instead of denouncing them for such an attitude, I would rather have a situation in which this was actually true (at least for the lazy part) and you could only end up in poverty if you clearly couldn't be bothered making an effort despite having the opportunities and support to do so.

 

[Mise]

The ONS has pretty solid statistics on this: http://www.ons.gov.uk/ons/rel/house...fits-on-household-income/2009-2010/index.html

Looks pretty good to me.

 

[BasketCase]

Uh, no. Income redistribution changes income distribution.

No, it does not. We can see that it does not. We have been observing, ever since the earliest forms of wealth redistribution, that wealth redistribution does not work. It doesn't make the rich poorer, and it doesn't lift the poor out of poverty. Progressives can argue all they want that it should work, but reality has always been proving that it doesn't work.

@Basketcase
Your post makes me feel vicariously embarrassed We all know this teach a man to fish and you will feed him for his lifetime stuff. And in deed also economically speaking, that is the superior, the ideal choice for individuals, than gifting fish. However, I am sure you can understand that in the real world ideal scenarios are not always ideal options.

There are no ideal scenarios and no ideal solutions here. Teaching men to fish is simply the closest we can get. It's certainly not perfect, by any means; there are some people in this world who are simply incapable of learning to fish, and so the solution won't work all the time. But everything else the human race has tried, has failed completely.

Mexico makes a perfect example: they send their citizens up here to the U.S. to make money and send it home. Then the money is spent, and it's gone. And the labor of Mexican citizens is wasted as well, because that labor is performed IN THE UNITED STATES. Meaning nothing gets built in Mexico (in fact, since the workers produce stuff outside Mexico, when they send the money home, the people receiving the money have to spend it outside Mexico because the stuff they need was produced outside Mexico--their attempt at redistribution is self-defeating). That's why Mexico is stagnating. The wealth has been transferred, yet Mexico remains as poor as always. The only way Mexico can get out of its poverty hole is to produce stuff IN MEXICO.

Redistribution doesn't work.

 

[MagisterCultuum]

How broadly are we defining income redistribution?

Does it include minimum wage laws, which prevents those whose labor is not considered worth more than the price floor from gaining any (legal) employment, and transfers their earnings to employees whose labor is worth a bit more already? Does it include private property protections that allow landlords to charge rent without having to hire private armies to keep out squatters? Does it include police and courts in general? Does it include the benefit to those businesses that profit from tax-funded roads? Farm subsidies? Military contracts? Protective tariffs? Quotas? Immigration restrictions?

 

[Tahuti]

There are no ideal scenarios and no ideal solutions here. Teaching men to fish is simply the closest we can get. It's certainly not perfect, by any means; there are some people in this world who are simply incapable of learning to fish, and so the solution won't work all the time. But everything else the human race has tried, has failed completely.

What Sill is trying to say is that while it better to teach a man to fish, one also must make sure the man is properly fed until he has properly learned to fish.

Mexico makes a perfect example: they send their citizens up here to the U.S. to make money and send it home. Then the money is spent, and it's gone. And the labor of Mexican citizens is wasted as well, because that labor is performed IN THE UNITED STATES. Meaning nothing gets built in Mexico (in fact, since the workers produce stuff outside Mexico, when they send the money home, the people receiving the money have to spend it outside Mexico because the stuff they need was produced outside Mexico--their attempt at redistribution is self-defeating). That's why Mexico is stagnating. The wealth has been transferred, yet Mexico remains as poor as always. The only way Mexico can get out of its poverty hole is to produce stuff IN MEXICO.

Mexico doesn't subsidise its citizens to leave (in fact I'm pretty sure the Mexican government is pretty pissed off about this). Mexican people do this because they are incentivized by the wealth of the US, so in a way, the US government is subsidising Mexican immigration by its sheer economic prowess.

However, economic emigrants often benefit the country they are leaving, as they usually send remittances to family who stay, thus leading to more demand in their home country (Mexico in this case) and thus incentivizing production in Mexico as well.

 

[Mise]

Yeah, immigration is often best modelled as an export for the country people are emigrating from, and an import to the country they are emigrating to. Not because of the people physically moving from one place to another (which would be a one time trade), but because a good chunk of their wages end up flowing back to their country of origin (which means the trade is ongoing).

 

[Terxpahseyton]

What Sill is trying to say is that while it better to teach a man to fish, one also must make sure the man is properly fed until he has properly learned to fish.

Well, also, yes. As it is, feeding men can be an important factor in itself to enable as many men as possible to feed them self later on. Poverty cycle, inheritance of poverty and all. But it is more than just that. It is the fundamental insight that the forces of the free market don't all by them self spread wealth in a way that is remotely ideal. And every god damn nation in the world has measures in place to correct that. BasketCase acts as if the exact opposite were the case, which is so crazy that I can only assume he somewhere misunderstood something.
Now BasketCase I must say, I am terribly tired of arguing with you, because it just never ends with you. So many people have already invested time and effort to demonstrate to you that the ways in which you think are often fundamentally flawed and that hence your confidence in your thoughts is grossly misplaced. The underlying hope is, that this will teach you some humbleness and self knowledge, so your intellect may prosper and grow from there. But for some reason, you seem absolutely incapable or at least unwilling to do so, and as long that is so, I feel you to be not more than a burden on this community.

@Mise
nice

 

[luiz]

The ONS has pretty solid statistics on this: http://www.ons.gov.uk/ons/rel/house...fits-on-household-income/2009-2010/index.html

Looks pretty good to me.

That's exactly what I was thinking about.

But a thought occurred to me: taxes and transfers affect even pre-tax income, through incentives. If the marginal rate is very high, top earners will work less than they otherwise would (or hide their income some way), thus decreasing pre-tax inequality. This effect is probably very limited in most places. OTOH, generous welfare transfers might encourage low earners to not earn at all (or to earn below a certain threshold that entitles them to help), thus increasing pre-tax inequality. This effect is probably real in many countries. So it's hard to tell what the pre-tax distribution would look like if people did not expect taxes and transfers.

 

[JollyRoger]

With the payroll tax, I do not think these many of these items are properly classified as redistribution. It would be like asking what would an insurance company's income look like if it didn't have to pay out.

 

[Zelig]

The income distribution would look exactly the same as it does now.

The only way you can arrive at this conclusion is by arguing semantics that show that you don't understand the question or the problem.

 

[Mise]

That's exactly what I was thinking about.

But a thought occurred to me: taxes and transfers affect even pre-tax income, through incentives. If the marginal rate is very high, top earners will work less than they otherwise would (or hide their income some way), thus decreasing pre-tax inequality. This effect is probably very limited in most places. OTOH, generous welfare transfers might encourage low earners to not earn at all (or to earn below a certain threshold that entitles them to help), thus increasing pre-tax inequality. This effect is probably real in many countries. So it's hard to tell what the pre-tax distribution would look like if people did not expect taxes and transfers.

You could look at the the Marginal Effective Tax Rate (METR), which the Institute of Fiscal Studies (IFS) has looked at fairly extensively, and make some assumptions about the marginal value of earning an extra £1 when your income is £X, to calculate that. I'm not sure there are any studies on the marginal value of money in the UK. I suppose you could also look at the increase in tax revenues assuming no behavioural change vs actual recorded increase, when tax rates have risen throughout history. From memory, the METR is incredibly high for lower quintiles due to the withdrawal of benefits as you move up the income scale, but whether much of that is actually calculated when people decide to take a higher paying job or work more hours in their current job I don't know.

 

[Cutlass]

That's exactly what I was thinking about.

But a thought occurred to me: taxes and transfers affect even pre-tax income, through incentives. If the marginal rate is very high, top earners will work less than they otherwise would (or hide their income some way), thus decreasing pre-tax inequality. This effect is probably very limited in most places. OTOH, generous welfare transfers might encourage low earners to not earn at all (or to earn below a certain threshold that entitles them to help), thus increasing pre-tax inequality. This effect is probably real in many countries. So it's hard to tell what the pre-tax distribution would look like if people did not expect taxes and transfers.

The thing is that welfare transfers are always so skimpy that in virtually no cases do they make people better off not working than they would be working. However what they do do is set a floor beneath which employers cannot pay without people not bothering to show up. So welfare should be expected to raise the income of the low income non-welfare recipients, not lower it. Ultimately welfare should be generous enough, and far easier to get, so that wages are bid up to attract workers. As is, in the US anyways, welfare is very difficult to get, and the benefits are extremely low. And so they do not provide much incentive to employers to raise wages and productivity.



To the OP question, the income distribution would be very great, like in kleptcratic LDCs. Income distribution depends on the economic and political power distribution, and a desperate workforce has no power to demand rising wages. Or to resist wages decreases.