What’s the fundamental problem with redistributionist economic policy?
As a libertarian, I would answer with a philosophical argument against coercion. I think it is immoral for vote-seeking politicians, using the threat of imprisonment, to rob Peter to subsidize Paul.
But as an economist, the problem is incentives. Simply stated, redistribution from Peter to Paul undermines the incentive of either to produce. And the greater the level of plunder, as we see from extreme examples such as Venezuela and North Korea, the greater the damage.
This is a lesson that we should have learned from the earliest days of American history.
In a column for the Foundation for Economic Education, Richard Ebeling explains a very important lesson about incentives and human behavior. He begins by pointing out how the Pilgrims initially created a collectivist economic system.
The English Puritans…wanted to turn their backs on what they viewed as the…
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