Back to Overview
Review Question


Government Redistribution II

Most people who argue for government transfers see them as a way of increasing fairness, even if it may decrease economic efficiency. However, the economic theory of government of the public choice school suggests that transfers may be a way in which the politically powerful use government to enrich themselves at the expense of the politically weak. One implication of the economic theory is that the poor will not be especially successful in obtaining money from government transfers. In a democracy, transfers will tend to go to those who are organized, vote, and are articulate. The poor are none of these.

When government becomes involved in redistribution, organized interests will be at an advantage for obtaining the fruits of that redistribution. They will be able to develop a reason why they need funds, present that case to the government and the public, and keep their members informed about how the government treats their proposals. However, not all interest groups organize. Individuals who share an interest may not be able to pull together and organize because they can face a free rider problem. For each individual, the costs of joining a group are noticeable, whereas his effect on the success or failure of the group is not because each is such a small part of the entire group. These unorganized people who share an interest will be less effective in persuading elected officials to aid them.

This organization problem can be overcome if someone finds a good or service to offer that makes membership attractive. For some occupational and business groups, a key to organization is information that will be useful for increasing profits. Other groups form around special marketing services or insurance. Once these groups get established, they often find that their members will benefit if they also engage in political action. The United States has hundreds of special interest groups that lobby the congress for tax breaks and programs to funnel government spending and grants to them. Except for groups with small memberships that are sometimes easy to organize, few of these special interest groups began with lobbying as their major purpose.

Government tends to give money to those who vote and are articulate. For example, consider the large amount of support that governments give colleges and universities in the United States. State governments often fund more than three-fourths of the cost of tuition at state schools, and the federal government also spends substantial amounts in support of higher education. Only about one-fourth of young people receive a college degree, and they will form the bulk of those who in the future will earn high incomes. Further, most of these young people come from families that presently have incomes that are above average. In rich suburbs virtually all students finish high school and often about 90% continue on to college. In poor inner-city areas, sometimes only half of the students finish high school and only a small percent go on to college. College education represents a case in which those who benefit from state subsidies are, on the average, richer than the taxpayer who funds that activity. State support of higher education takes from the poor and gives to the rich.

Proposals to cut state support of higher education are politically unpopular and not often enacted. Parents of college students and parents who expect their children to be college students are much more likely to vote than parents of children who will never go to college are. College teachers make up one of the most articulate groups in the country and can present persuasive reasons why government should increase support for higher education and make cuts somewhere else.1

Finally, the private interest view of government suggests that societies with considerable social mobility will be rare. In a society with a lot of social mobility, poor and unknown people can rise up the social ladder and become rich and famous, whereas the rich and famous can fall down the ladder and become poor and forgotten. Social mobility looks good for those on the bottom, and it is desirable from the equal opportunity view of income distribution discussed in the previous section.

Social mobility does not look so attractive for those who are at the top of the social ladder. A rich and famous person wants to stay that way, and he wants his children to be rich and famous too. This desire creates an incentive to try to prevent social mobility. Though this desire most easily results in action in nondemocratic societies, it may also limit what one can expect from redistribution policies in democratic societies.

Aristocratic societies, which divide people into commoners and aristocrats, have been historically common and severely limit social mobility. The caste system of India and the apartheid system of South Africa are other structures that have developed to protect those at the top. The Soviet Union, which had equality as its official doctrine, gradually formed class divisions, and these divisions seemed to be getting more rigid before the collapse of communism. Those who held power, the nomenklatura, were identifiable by the privileges that they had, such as the opportunity to shop in special stores that were off-limits to ordinary citizens. The desire of the nomenklatura for their children to stay at the top made moving up increasingly difficult for ordinary citizens.

It is hard to make a case that a market system distributes income so that only the most worthy goals and needs are met. The market mostly distributes income on the basis of people's contributions to production, and people have widely varying abilities to contribute. There is little reason to believe that ability is related to need. On the other hand, there is not much reason to believe that the government will redistribute on the basis of need. It is naive to view the government as a benevolent dictator that always works in the interests of its citizens. The incentives that guide government actions are as real and as important as the incentives that guide business and consumer actions.

Back to OverviewReview QuestionNext

1 Because the reader of the previous paragraphs is probably a college student who believes that the government should support his efforts to get a college education, a couple of reminders are in order. First, people who receive subsidies are almost never able to take an objective view of them. Second, it is possible to get too much of a good thing. One can look at subsidized education in the same framework as subsidized bread. Third, the argument that tuition should be kept low so that poor students can afford to go to college does not stand up under scrutiny. A more efficient way to help the poor (who are taxpayers as well as college students) is to charge high tuitions but have a generous scholarship program based on need. Finally, one can argue that there are "external benefits" that can justify large subsidies to education. This argument maintains that a society with a large number of college-educated people is a better place to live in, even for those who do not go to college, than one with only a small number of college-educated people. Some people believe this argument and others do not. However, this argument is built on economic efficiency, not on fairness.

Copyright Robert Schenk