Government is not a perfect Robin Hood

Robin Hood

If someone offers you half of pie #1 or all of pie #2, the  first thing you should ask is, “How big are the pies?”

I don’t know when it started, but many Americans have forgotten to ask this question when they look at income inequality and the  redistribution of wealth.

The conventional wisdom is perhaps correct that wealth is now more concentrated, but that is relatively unimportant because the amount of wealth is not fixed. It is entirely possible for wealth to become more concentrated and for EVERYONE to be better off.

Real GDP per capita in 2010 was about 40 times the same figure in 1790. Since 1945 that measure of individual wealth has nearly tripled.

Wealth has recently fallen to just below 2005 levels, but it remains 30 percent higher than it was in 1990 and six percent higher than the end of the dot com boom in 2000.

Stick with me. We will get to health soon.

One of the major divides in American politics today – if not the biggest – is whether government should care more about the size of the pie as a whole or the size of the piece each individual gets. We can’t have our pie and eat it too because these goals are counterproductive, at least in part.

It would be one thing if government operated as a perfect Robin Hood, stealing from the rich and giving to the poor. I can assure you government is neither perfect nor Robin Hood.

In the process of transferring money from the rich to the poor, government takes a cut. Politicians, special interests, bureaucrats and other government employees all get something. If there is any left it goes to the poor.

But wait. It goes to the poor in the form chosen by the politicians, special interests and bureaucrats. That’s why $10 of help to the poor often does not feel like $10 to the person receiving it.

It feels like much less.

So money is taken from the rich, put through a black box in Hartford or Washington and some money comes out to help the poor, but not in the most helpful way.

Case and point: Gov. Daniel Malloy just signed a law giving $291 million in subsidies for the Jackson Laboratory, a Maine nonprofit, to open a genetics laboratory in Farmington. This money will subsidize the laboratory’s hiring to the tune of $42,000 per job per year over the next 20 years.

If you can’t think of a better way to spend $300 million to improve the state’s health or economy, your imagination could use a tune-up.

And this brings me to my larger point: health and the economy are intertwined. More wealth, more health.

When the government spends money – either borrowed money like Jackson (interest costs: more than $100 million) or taxes – it has to come from somewhere.

Borrowed money is really just spending future taxes today, so that leaves us with taxes, today or tomorrow.

A tax dollar spent by the government would have had another use if it was not spent by the government. When people talk about stimulating the economy, economic development or increasing health care spending, they often forget that.

In order for government spending to be worth it, it has to exceed the value of what that dollar would otherwise be spent on.

Of course that is impossible to know in each case. Certainly, some government uses of money exceed the value of some non-government uses.

But let’s remember the black box of government isn’t a perfect Robin Hood. Instead, government is tragically human.

People respond to incentives. The private sector is full of incentives (prices), while the government often obscures true costs with false prices.

Wealthy Americans have the resources to give their CPA the go-ahead when he says, “Pay me 90 cents and I’ll save you a dollar in taxes.”

This kind of labor by CPAs is not productive (although it may be more productive than the alternative, giving the money to the government).

Manipulating taxes, a problem that increases as tax rates rise, does not add to the overall wealth of Americans as much as other uses of the same resource.

Playing games with taxes is just one very small example of government creating incentives for spending money in unproductive ways.

It is possible to spend $1 and get less than a dollar for it. The government does this on a regular basis.

My fellow contributor C. Brandon Ogbunu writes that wealthy Americans “could pay a fairer share (by percentage) of their income and suffer (literally) no lifestyle consequences.”

True, taking money from the rich doesn’t hurt them much.

But how much does it hurt the rest of society?

In order for taxing “the rich” to be worthwhile, the government has to spend money on purchases more beneficial than what “the rich” would have done with the money.

I support lower tax rates and less government spending, not because it helps rich people, but because it helps all people.

Ogbunu continues, “America is simply not ready for elaborate bill packages and major structural overhauls that would guarantee health equity for all.”

Sadly, no such bill exists. If it did, I would vote for it.

The physics of human nature say it can’t.

Legislation that claims to guarantee “health equity for all” is nothing more than an exercise in good-feeling by politicians.

These laws only give politicians an excuse to ignore problems that persist, despite their legislation of good intentions. I can hear her say, “I already passed a bill to solve that problem.”

Again, we have spending without solutions.

When the government takes more money than it can spend effectively, it hurts growth and the pie stops growing.

Maybe that’s why people are so concerned about how much pie is on their plate.

People get healthier because of the innovation, wealth and freedom that accompany economic growth. The greatest source of increased health is greater prosperity.