How redistribution of wealth kills the entrepreneurial spirit

There is a perception, especially on the left, but also on the “big government” right, that the federal government should be responsible for redressing every inequality that occurs in society. This is true whether the person brings misfortune on themselves or whether it is accidental. The problem with this wealth redistribution is revealed when you think about the incentives this introduces to the producers and the victims.

  1. Government does not transfer wisdom, skill or responsibility from producers to victims
  2. Government transfers money from producers to victims
  3. Being productive involves risk and hard work on the part of producers
  4. Receiving money involves ingratitude and rationalization on the part of victims
  5. If the government confiscates a large enough portion of the earnings of the producers, they stop producing
  6. Every dollar taken from producers is a dollar less they have for engaging in their productive plans, (e.g. –  running a business or raising a family in a responsible way)
  7. The more money is that transferred to victims, the more the frequency of bad behavior increases – because being a victim is easier
  8. If you subsidize being a victim, you get more of it
  9. If you tax production, you get less of it

“Going Galt” is named after the character John Galt in Ayn Rand’s novel Atlas Shrugs. Galt is an industrialist who withdraws from the economy when faced by punitive tax rates and burdensome regulations. Going Galt refers to slowing down or ceasing production, because the risks and effort involved in producing are not worth the portion of the earnings that producers keep after taxes are redistributed to the victims.

The idea was first brought up afresh by Dr. Helen Reynolds in October 2008 on her blog Ask Dr. Helen. A more recent discussion of the phenomenon is here at the Washington Independent web site.

Excerpt:

“Just this weekend,” said Rep. John Campbell (R-Calif.) on Wednesday in an interview with TWI, “I had a guy come up to me in my district and tell me that he was losing his interest in the business he’d run for years because the president wanted to punish him for his success. I think people are reading ‘Atlas Shrugged’ again because they’re trying to understand what happens to people of accomplishment, and people of talent and energy, when a government turns against them. That’s what appears to be happening right now.”

The plot of Rand’s novel is simple, despite its length — 1,088 pages in the current paperback edition. The United States is governed by bureaucrats, “looters” and “moochers,” who penalize and demonize creative people. The country is in decline because creative people are disappearing — they have followed the innovative John Galt to a mountain enclave, “Galt’s Gulch,” where they watch society crumble. Creativity has gone on strike (the working title of the novel was “The Strike”), and the engine of capitalism cannot run without it.

For Campbell, this is a powerful and relevant story. The congressman calls “Atlas Shrugged” an “instruction manual,” and inscribes the copies that he gives to interns. Rep. Paul Ryan (R-Wis.), the ranking member of the House Budget Committee, also gives copies of the novel as gifts and refers to it to make the case against President Obama’s policies. “It’s an audacious scheme,” said Ryan in his speech to the Conservative Political Action Conference last week. “Set off a series of regulatory blunders and congressional meddling, blame the free market for the financial crisis that follows — then use this excuse to impose a more intrusive state. Sounds like something right out of an Ayn Rand novel.”

Michelle Malkin is posting a lot of messages on her blog from people who are suggesting other ways to Go Galt.

Excerpt from one of the producer’s letters:

It is now fashionable and politically expedient to extend blame for the current financial crisis on greedy businesses and predatory lenders. The reality is that individuals and poorly managed businesses were responsible for the bulk of the problems. Government also played a role – and it was both parties – that encouraged and supported unsound business practices. Now the Government “must” step in to “save” these poor people from losing their homes, and “save” these “too big to fail” financial institutions. What about those of us, and those businesses, that chose to act responsibly? Who chose to live within their means? Who chose sound financial decisions over high risk behavior?

Enough is Enough. Let them all fail. It is not too late. I don’t care about the homeowner that borrowed more than they could afford and now find themselves potentially without a home and bankrupt. I don’t care about the businesses that overlooked sound financial decisions in the name of short term profits. We all make choices in life and it is time to let those that made the bad choices live with their decisions and finally reward those that chose to act responsibly. It has come down to this – either we let those that made the bad decisions fail, or we end up sacrificing our nation, our national identity and our very way of life.

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