Bryan Caplan  

How Redistribution Really Works

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Inflationary Disagreement... Simply Wonderful...

From Olaf Gersemann's Cowboy Capitalism:

In the United States 41.4 percent of the cash transfers go to the poorest 30 percent of the population.
Typical American indifference to the fate of the poor, right? Well, if that's American indifference, then what's the word for policy in Germany and Italy? In Germany, the poorest 30% get 31.7% of the cash transfers. In Italy, they get only 20.5%!

Above all, these numbers are just a reminder that, all around the world, the main recipients of government money are the old, not the poor. (And even the poor in First World countries are of course merely relatively poor, but never mind that for now). But Gersemann draws an interesting secondary lesson:

[C]ountries with small governments tend to spend their revenue more efficiently.

Bottom line: Even the United States could double its spending on the poorest 30%, and cut taxes to boot. So why are libertarians practically the only people who find these facts worth mentioning?


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COMMENTS (8 to date)
Wisdom of Cowards writes:

If libertarians advocated that program perhaps people would start taking notice. Doubling spending on the poor is off-message.

Richard Pointer writes:

What about the "grant" idea? Instead of the government giving out special programs it would give every citizen a large grant every year. But hey, every time I tell some liberal this they react with "people will just spend it on drugs or booze." It's not like people to be responsible with government handouts!

John Thacker writes:

If libertarians advocated that program perhaps people would start taking notice.

Some have. A typical response I've heard a lot from thoughtful (if cynical) center-left types is that "the American people wouldn't support government programs like Social Security and Medicare if they only helped the poor, so we need big middle-class transfers to keep buy-in."

Incidentally, the President right now is advocating increased means testing for Medicare; doesn't seem like it'll get anywhere. Previously he suggested lower Social Security benefits for the upper-middle class. Again, rejected.

Dain writes:

I've heard it said that welfare is primarily a transfer of wealth FROM the middle class TO the middle class. Is this true? Judging from the figure above this MIGHT be true. But perhaps the the next 30% (70% total) goes to the bottom 40% percent. In this case the bulk of welfare would be to the poorer half of the citizenry.

And let's not forget that these transfers go primarily to the intermediaries - the beuaracracy - before they trickle down to the final recipients. That could be what people mean by middle class to middle class welfare; i.e., the middle class administrators of state programs.

Sigve Indregard writes:

Uh, the proof of those statistics depend pretty heavily on how large the total transfers are. They are, after all, transfers.

I'd rather be poor in a country where 30 % of 10 billion is transferred to the poor than a country where 40 % of 1 billion is transferred.

Disappointing blogging.

flix writes:

I love this subject and I hardly ever see anything written on how redistribution does not benefit the poor as much as it does those with political influence.

Having worked in the public sector I have some personal experience on how the priorities of welfare bureaucrats are never set by the wants of their supposed beneficiaries and only indirectly by their needs.

However I have not seen much research on this. I beg the authors of this blog to dig out any data they have on the subject. Proving (or disproving) the lies behind the welfare state's "compassion" should be a top intellectual priority, and not just for libertarians.

Buzzcut writes:

If all benefits were taxable, it would go a long way towards eliminating this problem.

After all, the truly poor, even with welfare benefits, are still poor, and would be in the 0%, or maybe 10% tax bracket.

But the rich guy getting Socialist Insecurity would be in a much higher tax bracket. If 100% of his benefits were taxable, it would be an automatic way of means testing.

Ditto for Medicare. What if your Medicare benefits were taxable?

If you combined these tax changes with an elimination of the home mortgage interest deductibility, elimination of the state and local taxes deductibility, and by making all health care benefits taxable, you could increase the tax base and eliminate the defecit in short order. Perhaps we could eliminate some of the higher tax brackets in the process, get back to, say, 10%, 15%, and 28%.

Bill Kruse writes:

Above all, these numbers are just a reminder that, all around the world, the main recipients of government money are the old, not the poor.
As the US ages with the retirement of boomers, then the percentage of transfers received by the poor is likely to go waaaay down. In fact, since Gersemann's book came out a few years ago, today's percentage of transfers received by the poorest 30 percent is probably already below 40% and on the way down to German and Italian levels.

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