« Redistribution and the Well-Being of the Poor-Becker | Main | Mexico’s Economic Reforms—Posner »

12/29/2013

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B Wilds

Society must find a better way to distribute labor and the rewards of labor. This would give more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined and increased productivity and at the same time eliminated many jobs. Big business is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy.

The benefits of efficiency sometimes have a huge hidden cost, in the 1993 movie Demolition Man, "everything is Taco Bell". How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much CEO's, those in management, and those that can't, or choose not to work, receive. While we have become far more efficient in producing goods, all people should in their lifetime contribute to the good of society and the economic pie. More about how all this dovetails with the need for government to step in, the effects on our culture, and the path to happy and fulfilling lives in the post below.

http://brucewilds.blogspot.com/2013/04/society-must-better-divide-labor.html

jan tomas owe

Most likely redistributing income from rich to poor will increase economic growth. As Posner explains the negative incentive effects from increasing taxes and transfers are probably much smaller than many seem to belive. More importantly any such negative incentive effects will be outweighed by the positive effect on aggregate demand when purchasing power is transferred to groups with a higher propensity to spend - rather than save - money.

Interestingly by increasing unemployment benefits and the lenght of entitlement one would also tilt the balance power slightly in favour of employees. More countervailing power on the part of employees should be expected to increase, rather than decrease, economic efficiency - even in our time and day.

"It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily... In all such disputes the masters can hold out much longer. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals."
(Smith 1776)

A more fair pre tax distribution would incentivize employers to save on labour costs by investing in more efficient machinery and methods of production. The increased demand for investment goods should in turn be expected to to boost long term growth by stimulating the development of new technology.

Many would probably argue that a higher propensity to consume automatically means less investment. But in the same way as individuals determination to increase their savings or pay off dept can depress the economy and reduce aggregate savings (cfr. The paradox of thrift), the opposite is also true. A higher consumption may well induce a higher level of investment.

So redistribution can be expected to increase economic efficiency and growth. It is not only fair!

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