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Redistribution for Efficiency

To achieve efficiency, some temporary inefficiency in the form of redistributive policies is necessary.

Written by johnleemk on 1:26:50 pm Jul 4, 2007.

One common criticism of government welfare and social net policies is that they are more concerned with redistributing wealth, rather than creating it.

In less kinder words — words which I might add are no less correct — these policies are comparable to theft, in that if I steal your car, I am redistributing wealth by taking something from someone else, rather than creating wealth (which is what honest people tend to do by working).

This is a problem which I think is worth looking at. Although I myself support government aid for the impoverished, I think that a lot of other supporters of this policy look at it from the wrong angle — that of redistribution.

I believe that government aid is necessary for efficiency, because it aids in the creation of wealth. In the past, I have considered the possibility of poverty caused by social immobility being a negative externality.

The key phrase here is "social immobility". The impoverished cannot create wealth if they cannot acquire the skills to create wealth — and government aid often helps to address these impediments, whether they are in the form of poor health or a lack of education.

If ours is a society where being born poor means you will likely remain poor, then it is simply not being efficient, because you are rewarded based largely on an accident of birth instead of your ability to create value.

To address this inefficiency, however, it is inevitable that some temporary inefficiency be introduced in the form of redistributive policies.

After all, if we want to help the poor, there ain't no such thing as a free lunch. The money to feed, clothe and educate them isn't going to appear out of nowhere.

There are unfortunately those who get caught up in the redistributive idea, when redistribution is nothing more than a means to an end — efficiency.