Saturday, July 30, 2011

Redistribute Consumption Not Income

Scott Sumner makes an excellent point: progressives focus on redistributing income, when they really want to redistribute consumption:

Income really is the Achilles heel of the progressive movement.  The income statistics simply don’t mean what progressives think they mean–something like “resources available for redistribution.”  If you want something closer to resources available, you’d use consumption, or wage income.  If you combine wage and capital income in the same aggregate, you are counting the same resources twice.  This is deeply counter-intuitive …

… You can redistribute consumption from the top 1% and give it to average Americans working in a car factory, or a Walmart.  But it’s an illusion to think you can redistribute investment from the top 1%, so that average Americans can have a higher living standard.  Where do people think the car factory comes from?  Or the Walmart building?  BTW, this has nothing to do with trickle-down economics, a theory I reject.  This is simple accounting.  Money put into investment projects isn’t available to boost living standards for the lower classes, unless you don’t do those investment projects.

Of course, this points to the core issue for redistributionists: they have to redistribute income rather than consumption because there just isn’t as much of the latter.

Via Arnold Kling at EconLog.

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