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Defending Free Stuff

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One of the better Republican jokes aimed at Democrats is this: "I'm going to vote Democrat this year." "Why?&quo...

One of the better Republican jokes aimed at Democrats is this:

"I'm going to vote Democrat this year."

"Why?"

"Because I like getting free stuff."

The first time I heard it, I laughed even though I knew the joke covered up the truth. The implication of the joke is that people who receive benefits from the government do not deserve them. And it is this idea of deserving, who deserves what and who does not deserve what, that is fundamental to the differences between Republicans and Democrats, more specifically between, in the United States, conservatives and liberals.

It is difficult to characterize ideology. There are hundreds of different ideologies and to dump some into the conservative and some into the liberal categories is not always enlighten. But here I am referring to issues of government taxing and spending in the United States. The conservatives I'm talking about believe you only deserve the money you earned by working a job or inherit. There is logic to this and on the face of it, it seems reasonable enough. Liberals, alternatively, believe those who earn a lot of money, the rich, do not deserve all the money they earned; instead, less wealthy people, who do not earn as much, deserve some of the wealthy's income. That this might be true is a lot less obvious than the conservative belief.

The issue of freedom is related to this question. If we take away people's money and give it to other people, are we still a free society? These are related issues, but they are difficult to tackle in one article, so I'll deal with the issue of freedom in the next post. I'll just say for now there is no such thing as total freedom and trade-offs must be made in a society.

Do the wealthy deserve to keep all the money they make?

Capitalism allocates money by using a price system. Resources, including workers, that are in short supply and high demand are priced high. Resources, including workers, that are in high supply and short demand are priced low. This is the famous supply and demand curve. If supply does not change, but demand increases, price will go up. If demand does not change, but supply increases, prices will go down. It generally works just like you think it would.

So the owner or manager of a business that is selling something in high demand but low supply will make a lot of money. And because they make a lot of money, they are motivated to keep supplying their product. Not only that, other people seeing how much money is being made, will also try to supply the same product, which will increase the supply and lower the price, assuming the demand does not increase at the same time. The trend will be for lower prices and for production to equal the demand.

Is it fair that someone who starts a business that is in high demand but low supply should make so much money? As I've explained it so far, I think yes, it is fair. People who take risks should make more money. But the question is how much money and does the price system always allocate money fairly.

This brings up another question concerning what is fair and not fair and how do you decide. I'll be honest here and say I don't have the answers to that question. But I think there is no reason to assume the capitalist price system is always fair. The price system is, if it is allowed to work freely, a mechanical thing. More demand, higher prices. More supply, lower prices. Being fair and moral is not part of the equation.

But does the income of those at the top trickle down to those below them in a fair way? Here, the price of workers, their wages and income, works much like the price of any other resource. If there are many workers with the necessary skill for that business, they will earn less. If there are fewer workers with the necessary skills, they will earn more. In general, that is the way it works and if it ended here this would, I think, be fair.

But it does not end here. And economics is not the entire story. The other part of the story, and a big determinate of prices and wages, is political and economic power. Those who have power can force others to sell for less or buy for more. The owner or manager of a business does have more power than the workers. And that power can be used to slow down wage increases, or if businesses cooperate with each other, to prevent wage increases. This can be done by exercising political strength by giving money to politicians, by keeping wages secret so no one knows what others are making, and by preventing workers from organizing. A good, but somewhat extreme example, of the power a business can have over a worker are the cases of illegal aliens. If you are in a country illegal and the business knows you are illegal they can, and often will, pay you less because they know you need that job and you will be slow to go look elsewhere for work.

One reason to transfer funds from the wealthy to the less wealthy is to compensate for this disparity in power between the two groups. It is power I think which allowed the one percent to become the one percent, instead of being just the thirty percent.

Another reason to justify the transfer of wealth from the wealthy to the less wealthy are social rights. Basically, who owns the Earth's resources? This is an important question, and I would say no one does. At a deep level I would say no one owns anything. Yet, a capitalistic system, and yes I believe capitalism is the best system, is based on the concept of ownership. I would call this ownership with a small "o" not a big "O." We rent materials from the society we live in and we are given rights to them, but we never have an absolute right to them. No one does, not even the powerful.

In communism they talk about collective ownership, and they allocate resources with a meeting of a group of people who vote on what to produce and not to produce. That is one way to try to do it, but it is not an effect way bring about efficient allocation of resources. A better way is to use the capitalistic price system. No one deserves the control of a specific resource more than anyone else, but someone willing to take risks and is interested in using a resource to do something useful and has the funds to do so is probably a good choice to give those resources to.

The society is leasing the resource to a person who is willing to take a financial risk, but that person does not have absolute control of or right to that resource. Ultimately, all resources belong to everyone; it is only leased to individuals. So a society does have a right to protect itself with laws and regulations on how that resource is used and produced. It also, I believe, has a right to a percentage of the income earned from that resource.

How much of a percentage? Too much of a percentage and no one will want to develop the resource. Too little and the owners and managers will have almost all the wealth of a society, causing great inequality and a lopsided economy.

The idea if you make a lot of money in a business you deserve to keep it all, maybe giving up just a bit for law enforcement, is wrong. Everyone has a stake and right to the resources used by a business, so everyone should receive something in return.

If Exxon discovers a big oil field, do they own that oil and should they be able to keep all the funds they make from pumping, processing and distributing the oil. Absolutely not. The owners of Exxon would deserve a larger portion of the profits, but everyone owns that oil, not just Exxon. We all deserve some of the profits. That is why government is justified in taxing Exxon and then redistributing those taxes to people who need it.

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