Tuesday, March 8, 2011

Two Things at Incidental Economist

Two posts caught my eye today at the Incidental Economist. The first is a post on how well the Medicare Physician Fee Schedule works which I pass on without comment. I want to study the post and graphs a bit more.

The second is Austin's post on the issue of whether the main point of the Affordable Care Act is to redistribute income, which is related to a past exchange he had with Greg Mankiw on this topic.

It is common that individuals criticize policies they don't like by invoking redistribution of income. Progressives and Liberals for example might say 'the Bush tax cuts redistribute income toward the rich from the status quo' while conservatives might say 'the insurance subsidies in the ACA redistribute income to persons between 133% to 400% of poverty', again, as compared to the status quo. Both groups are correct--as compared to baseline, the two policies noted above would advantage certain groups, which has the effect of redistribution, as compared to the status quo.

I think there is a bit of sloppiness for both Liberals/Progressives and Conservatives in assuming that redistribution makes it self evident that the policy is bad. Because both groups support policies that have the effect of redistribution.

I cannot think of anything that government does, or could do that does not have the effect of redistribution. For something done by government to not redistribute income would require a tax that would have to be collected and then returned in the same exact same amount to those who paid it. Anything else (which is everything else) and there is redistribution.

This is not the same as saying that government is appropriately engaging in an activity. For example, Article 1, sec 8 of the Constitution clearly notes that the federal government is charged with common defense (Military). However, in levying taxes and funding the military, income is redistributed. If you think not, you should visit my hometown (Goldsboro, N.C., home of Seymour Johnson Air Force Base) if there is ever another round of base closings and see what folks there think about what would happen if the base were closed.

I think everything government does has the effect of redistribution. Do I have this wrong?

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