David R. Henderson  

Goodman on Wealth

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I think I can safely say that I have never met a person in an ordinary walk of life who complained about society's distribution of income. I've never heard a normal person say the world would be better off per se if Bill Gates and Warren Buffett earned less money. No waitress. No taxi driver. No deli operator. No one in the business world.

But there are a tiny, tiny number of people who do think that way. In fact, they are obsessed about it. If J.K. Rowling is a welfare mother, they would never think of calling her a leech on society who is not paying her own way. But if she writes Harry Potter books that give people pleasure and enables Hollywood to produce movies people enjoy and becomes one of the richest people in the world,.....well.....let's just say there is a small cadre of folks who go through the emotional equivalent of the St. Vitus dance. They write as if Rowling (and others like her) have committed some great wrong. As if she has taken more than her share of "society's income" and is somehow responsible for other people's poverty.


This is an excerpt from "Why I Want More People to be Rich," one of the best blog posts John Goodman has written. He does it beautifully. I can't say that the first paragraph reflects my experience. I can think of one main person who, whatever he actually thought, certainly talked as if he thought the world would be better off without such people. That was my father. In "Whose Income? Who's Distributing?", Chapter 9 of my book, The Joy of Freedom: An Economist's Odyssey, I tell how economics helped me get over my envy that I learned from him.


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CATEGORIES: Income Distribution



COMMENTS (11 to date)
Eric Tyndall writes:
We should instead tax Buffett’s consumption. Tax him on what he takes out of the system, not what he puts into it. Tax him when he is benefitting himself, not when he is benefitting you and me.

I agree, but not just for Warren Buffett. Imagine if the government levied a 200% tax on all consumption. Instead of carelessly taking out of the system, we'd all put into the system. The system would overflow with things put into it! But since we can't invest in consumer goods (which are really bad and just take out of the system), we must invest in ways to better invest. Just think of how prosperous we'd be!

Ivan writes:

Dear sir,
You have never heard it because you have never wanted to.
It actually could be pretty straightforward if you choose to listen to it.

Even Buffet admits he shouldn't be making as much as he is and that he should be taxed more.

Now, if you think about it. If total resources are concentrated among a chosen and an earned few, while a majority of the populace is in lacking, a new rich could actually be taking even more resources than would the lackers be getting out of this new wealth. If this is the norm power will be ever more concentrated.

I am not saying it is a bad thing nor that this is what is happening. What is happening is that the haves are becoming ever richer by going beyond borders and actually improving the lives of the most exploitable/needed, which happens to be foreigners while creating new wealth and prosperity but that risks being unsustainable for it erodes the future capacity of production.

This new reality means that the new American wealth is actually improving the life of foreigners at the time it is abandoning their traditional inputs.

But this need not be a problem. The world will grow faster if we improve the poorer people in Asia and Americans becomes poorer, which is what is actually happening. But this process need not be so traumatizing to unfavored Americans, after all vast amount of wealth are likely to remain there and reducing the costs of living, transportation, and healthcare should be more of a priority for these Americans. Otherwise they would have been left behind by their fellows in the per suit of maybe just profits for the world, but not for their countrymen

Pretty much lie Korea, Japan, Sngapore, Taiwan, and others, America needs affordable and control the costs of a good healthcare system. And not to assume that such a goal has to mean European socialism.

Pretty much like the said countries and China, America needs cheaper transportation With more high speed options and improved city mass transportation.

Pretty much like the said countries and scandinavian ones, America needs to take action into educating their own citizens, not only for their citizens own sake but because they you can't rely on buying and brain drain of the sharpest minds forever, and the population of ivy leagues is just a small fraction of the student body.

America need not loose it's relative status as the sole superpower while also abandoning its own citizens. Even while it is poised to loose its relative status as the sole superpower.

Hyena writes:

I have to agree with Ivan: he must not want to hear it or, at least, not associate with people who say it.

I will probably say it four or five times this week.

He also picks bad examples, people who are seen as deserving. Change it to hedge fund managers and the tune changes.

kebko writes:

Hyena,
How can you imply that hedge fund managers are not deserving, as a blanket statement? That makes no sense to me.

Kurbla writes:

Yes, it is strange that Goodman didn't seen people who believe that rich should be poorer. That idea is frequently expressed even on Econlog. The arguments for egalitarians distribution are simple and strong. Two most obvious are:

    Diminishing marginal utility of wealth. If you're poor, $5 daily means difference between life and death. If you're reach, it means nothing. Overall, we are better with more egalitarian distributions.

    Envy. We are born envious, on the same way, as we are born selfish; libertarian who treats envy as a private sin against harmony of the world - just because it doesn't fit in his favourite political system - is in the same situation as communist who treats selfishness on that way. First we must accept reality, then we'll see what to do with that.

There are strong arguments against egalitarianism as well, and one shouldn't necessarily take position in the middle, but he shouldn't ignore arguments of the other side either.

John Goodman writes:

I see the need to defend myself.

There are a lot of people who would like the government to tax others and give to them. They are definitely vocal -- they call into C-span every morning.

What I don't find very often is someone who wants people to not be rich per se. By that I mean, the kind of person who wants J K Rowling to write fewer books or Warren Buffett to take more vacations so they will produce less and therefore have less -- making them closer to the median in the income distribution.

This is the kind of person who is fixated on the distribution of income, and is bascially unconcerned with what causes it.

Devon Herrick writes:

Most economists agree that risk-taking by entrepreneurs is a recipe for economic growth. In additional, the decision to invest is a risk/reward calculation. If we tax entrepreneurs return on investment, it shifts the balance of the equation away from taking risks because the net reward is smaller. Thus, taxing capital and investment income will make everyone worse off -- not just the rich who pay most of the taxes.

Granted, when pollsters ask the public hypothetical questions about willingness to pay higher taxes for increased public services, those surveyed often give hypothetical answers -- which generally assume public services should increase and the rich should pay for it. But the comments are stated preferences based on inadequate information. When you ask the same people much more in taxes they are personally willing to pay to increase public services, they say "nothing" or state a willingness to pay an additional amount that is too little to actually do what they say should be done. Moreover, stated preferences are not the same as revealed preferences.

Catherine writes:

The Robin Hood mentality is alive and well. It sounds romantic and we loved the story and children. Unfortunately, the economic reality is quite different.

John Grazhdanin writes:

Class warfare, like corporate vitriol, only works in the aggregate. "Don't tax you, don't tax me, tax that guy behind the tree" doesn't work once you get to know the guy. And am I the only one making a connection between Buffet's "all of us need to pay more taxes" and the government windfall to railroads, including his investments, only a scant 6 to 8 months later? Was all of this arranged before his BNSF investment? Now there's a conspiracy, and even though only lightly believable, it's every bit as valid as most of the planks in the liberal platform.

Al Farragosa writes:

Mark Levin said it: "Goodman is a national treasure." This post proves why. It's the reason why former liberals like me become conservatives--once you begin to inquire about what really works to better the human condition, you must become conservative.

Hyena writes:

Mr./Ms. Kebko

It's not clear that the most profitable segments of the financial industry do much more than dupe investors or rely covertly on government support. See the rise of cheap ETFs tn contrast to the traditional hedge fund fee structure.

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