Government's dominant role: redistributing wealth
Oct 29, 2014

Government's dominant role: redistributing wealth

The dominant effect of government on society is to redistribute wealth from the richer members of society to the poorer. One can support or oppose this idea, but as a simply descriptive point about what the effect of governments are, this is by far the dominant one. We live in a capitalist society that has a lot of forces which create inequality (which, again, one can support or oppose) and governments act as a partially countervailing measure, reducing the degree of inequality but hardly eliminating it.

There are two major sides: taxation and spending. From a taxation perspective the point is obvious; we have a progressive tax system that has a disproportionate share of government revenue coming from the wealth portion of the population. However, almost all major government spending programs also result in great equalizers. There are obvious things like social assistance programs for the poor, the elderly, the disabled and so forth. But everything from education and healthcare to minor aspects like government parks are predicated on a system that dispenses the value largely equally (everyone gets K-12 education regardless of income, everyone gets to enjoy government parks) despite being pair for rather unequally by the rich.

Healthcare: the great equalizer:
In a country like Canada, healthcare is one of the biggest equalizers of all. I have cancer (well had, it's all good now), which was unfortunate for me. I lost the lottery, if you will, and on this particular aspect of my life was less lucky than my noncancerous friends. However, despite being unlucky in this sense I was not put in any further financial inconvenience, and I only had to suffer through my surgeries and that was it. The excellent healthcare I received was, in effect, paid for by those who remain healthy and didn't need it yet are still taxed for it.

This is a good thing. If we had to choose a society under the veil of ignorance (ie we don't know what place we are going to have, such as whether we do or do not get cancer), we would want a society where the consequences are minimized when one is unlucky enough to get cancer. It smooths out the costs so that it is only the medical consequences, however daunting, and not added financial costs paying for healthcare, that affect an individual.

A point not always stated:
This point is fairly obvious, I think, but doesn't always get stated. It is perhaps one of those 'can't see the forest for all the trees' situations. In different ways, both the left and the right tend to downplay this basic reality.

People on the right tend to rail against the very idea of wealth retribution (Obama's infamous "spread the wealth" gaffe to Joe the Plumber is a prime example) despite offering only incremental tweaks to a system predicated on just that. Rhetoric from some parts of the left may give the idea that our government system is one that privileges the rich and the corporations on the backs of the common folks when in fact the government system is a massive distribution of wealth downwards.

An equalizer, but we are still unequal:
Despite the fact that we have this massive wealth distribution machine at the centre of our economy that taxes progressively more from wealthier people but spends either equally or more towards poorer people, our society is nonetheless still strikingly unequal. This is a function of having a capitalist society, as I will expand on more in a further post.

What the exact degree of inequality we ought to have is probably unknowable, there are certainly arguments that the status quo is still too unequal. On this blog I tend to argue that we should have more government action that results in reducing the level of inequality in our society. I advocate for a more progressive taxation system, a more robust social safety net, and stronger institutions that benefit wide swathes of the population, all of which works to reduce the degree of inequality in our society. One can agree or disagree on this normative point of what we ought to do, but I think the framing is nonetheless important. Those that advocate cutting of such programs and adding flat or regressive elements into the tax code should own the fact that they are reducing this equalizer and risking a more unequal society.

Unequal most where governments don't act:
Consider some of the most egregious places where inequality occurs, such as the contrast between the first and third world or the concentration of wealth in the top, say, 1000 people in the planet. It is in these most egregious examples where the great equalizer of government is either not present or isn't functioning meaningfully.

Take inequality between first and third world countries. Because governments largely operate at a national or smaller level, the act as equalizers within countries, but not between countries. Instead, the third world rely on only a small (often 1% or less of GNI) in charitable transfer from the first world. We don't have a global government structure that counteracts the global inequalities in the way that we have a national government structure that counteracts inequalities without our country.

For inequality at the very top, our progressive tax structures tend to max out in the hundreds of thousands in income. Indeed, there are various tricks whether capital gains taxes in the US or using offshore tax shelters and the like where the richest end up managing to game the system to pay an amount that ends up being rather far from progressive.

Social equality:
Governments have long had a role not just in this more economic transfer of wealth, but in various forms of social inequality. A lot of the inequality comes based on differences in race, gender, sexual orientation and the like. Before government action, society adopted structures that perpetuated this inequality. While it is perhaps minor in comparison to the big earlier wins in, say, the civil rights era, simple and obvious issues of equality today like marriage equality mean that gay people receive the same kind of equality that others do. 

In many ways inequality is one of the defining issue of our times. We can disagree on what we think is the best way to combat it, or to what degree it even needs to be combated. But to even start that conversation, we must understand how one of the biggest forces affecting the balance is the government. It is it's defining role.





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