the most important thing to know

Suppose there are ten houses in a town, arranged in a row.  The house on one end is at the beach.  It's nicer than the others, with a beautiful ocean view.

The house at the other end is downtown, between the railroad tracks and the bus station.  It's smaller, and more run-down than any of the others.

The people who live in these homes all have jobs of different skill levels.  Not surprisingly, the man at the beach owns a business that employs several of the other men, while the man by the train tracks performs menial labor.

Now suppose a noble idea begins to form among many of the men:  What if we could use our collective power to take some money from the man on the beach, and then give it to our brother in the shanty, so that we might all live more equally?

Maybe every house in town gets painted regularly.  Most people paint their homes every year, but the man living downtown can only afford to paint his every other year.  Meanwhile, the man at the beach paints his house every six months.  The resulting stark contrast, in the appearances of the two homes, is one of the "injustices" that the majority want to remedy.  We shall impose a tax on the rich man, sufficient to cover the price of painting the poor man's home.  Thus, the rich man will skip a coat of paint each year, and the poor man will now be able to paint his home equally often.

Society views this as the redistribution of wealth -- one man of ability is made insignificantly poorer, while a man in true need is made far less needy.  Experts even speculate how much more utility a poor man can get from a couple of hundred dollars that the rich man might just as well set afire to light his cigars.

And while we see, the next year, that both a transfer of money and a transfer of wealth have occurred, it turns out that the results are not quite what was expected.  There are unintended consequences.

First, we find that although the poor man now paints his house annually, the rich man is not skipping any paint himself.  Even with higher taxes, he continues to spend as much as he wants.  As Robert Reich said, "That's what it means to be rich."

The people have ensured that the poor man now gets an equal share of paint, and even though he is buying the paint with the rich man's money, he is not buying the rich man's share of paint.

Instead, the price of paint has gone up, in the face of unprecedented demand.  And by definition, the rich man can afford this price increase better than all other men.  So, we find that although the poor man is using the rich man's money, he is using it to bid for a bigger share of the middle class's paint.  In the end, it is the middle class who cannot afford the higher price of paint, and it is the middle class who buys less paint, who paints less often, and who ultimately provides the additional paint the poor man could not afford before he had some of the rich man's money.

Of course, if the rich man were simply buying an additional can of paint every year, then whether he gave it to the poor man or simply indulged himself with yet a third coat for his own house, the effect on the overall paint supply would be exactly the same -- less paint and higher prices for those in the middle.  Accordingly, we shouldn't be surprised to find these consequences when the government imposes the transfer.

Now, I'm not saying the rich man hasn't given up some wealth just like everyone else.  Perhaps he had to lay off one of the other men as a result of the tax.  He does feel the tax, but not in the same way everyone else does -- primarily because he doesn't do the same things with his money that everyone else does (again, the very definition of being rich).

But I want to point out to you this very real difference, between money and wealth.  The distribution of money does shape the creation and distribution of wealth, but money and wealth are not the same thing.  When we allow money to flow to the places where everyone finds it most profitable to freely direct it, we get the greatest actual wealth.  Tinkering with this flow always reduces wealth, and even if you're not one of the people wealthy enough to fall under the tax, you still get to feel its effect.

And the reason I explain this is not just because most people don't already understand it.  What makes this idea -- that of being able to distinguish wealth from money -- what makes it so vitally important, is that many politicians realize that you cannot do it.  And as a result, they exploit your ignorance with populist laws that comically shift money, tragically erode wealth, and cynically expand their own power.

You don't need to be smarter than them to beat this -- you only have to be smart enough.  Just smarter than a liberal.

That's the John Galt Line.

Comments

[F. Paul Johnston]

Following this hypothetical thread, though, any action leads to further imposition on the middle class guys.

If the poor guy gets no help, he continues to not maintain his home as well as the others, thereby lowering the value of the middle class homes.

If the Rich Man were a Just Man, and voluntarily helped the poor man - either by painting the poor man's house, providing paint, etc, following your thread, still imposes upon the middle class guys.

So, logically, the middle class guys are getting the shaft regardless: Whether Nothing is done, whether the rich guy helps voluntarily, or whether the society imposes and makes the rich guy help the poor man.

[John Galt]

That the poor guy's inferior home might lower the value of the middle class homes is not part of the hypothesis. You introduced that part. Besides, doesn't the rich guy's exceptionally nice house cancel out the poor guy's house?

Anyway, for purposes of this exercise, and in keeping with what usually drives these policies in real life, let's say the majority simply "feel sorry" for the poor man.

But in either case, what's the harm in knowing that such consequences are part of any action? The way I see it, the problem with most policies is that such dynamic consequences are clearly not accounted for when, for example, the CBO provides its static score.

Even if you believe government is an appropriate remedy here, don't you at least want it administered in the form of honest policies that conscientiously consider the full and true incentives they actually create, instead of just the "good intentions" of policy-makers and their constituents?

[Ragnar]

Market Fact:
"...less paint and higher prices for those in the middle..."

Gov't logic:
Directive 314-15926 will address this by mandating the diversification of paint colors, no house within 3 houses may be the same color.

Problem solved.

[Eddie Willers]

What so many of those who would wish redistribute Wealth (and only manage to redistribute money) neglect to mention is: Nothing -- nothing -- comes for free. To give the one gallon of paint to the 'poor' fellow at the other end of the street via Government program requires Government Bureaucracy. If we measured the transaction purely in paint, the 'poor' fellow would wind up with either only a half-gallon or the program would require the Beach-Dweller to give MORE than one gallon to cover the costs of administration. But alas, that is NOT how a liberal would have the program work. For after all -- 1-1/2 gallons going in and only one gallon coming out is too easy a calculation for average man to both identify and understand. No, their program would be actually placed in "Trust" and one gallon going in today would allow one gallon going out today -- where the gallon going to today would be against future gallons and any increased need for paint today could be drawn against that trust. Later times when the economy is ‘less lean’ would theoretically place more gallons into trust. Obviously “later times” never come, so the Trust owners print more money to buy more paint and the cost of paint now further increases due to inflation; further eroding wealth of the middle class.

[RBrown]

With all this redistribution of paint, makes me simply want to install brick and be done with the bureaucracy.