Income distribution or redistribution as some call it takes place when money is taken away from someone and given to someone else. Most of the time it is taken away from someone who has earned it and given to someone who has not. Why does this happen and when did it begin? What are the benefits and what are the unintended consequences? I will try to answer these questions and give another option in the next few paragraphs. ?The beginning of social safety nets began, in the United States, during the New Deal . It began with the introduction of Social Security.
The Social Security Act of 1935 provided the first needs based program for providing cash payments to families with needy children. (tiki-toki). From there we have added; a national school lunch program, food stamps, Medicaid, Women, Infants, and Children (WIC), SSI, EITC, energy assistance programs, and the affordable health care act just to name a few (tiki-toki). All of theses programs need funding in order to succeed. Workers pay into social security for the retirement benefits but the money paid in today is used to pay the benefits of those that have already retired.
In my opinion this is a redistribution of income as well. ?Is there a single cause of income inequality? Probably not. In the free market inequality is caused by the inefficient distribution of resources. There are several possible reasons for this and I will briefly touch on them here. Monopolies have the power to set their own prices for products and because they are usually the only one selling the product, consumers are required to pay the price if they want the product. How is this related to redistribution? It is a redistribution of income from the consumer to the owners of the monopoly.
It would or could be an unfair distribution of power also (Pettinger). If a company has the power to set wage rates they would be able to pay wages below the competitive market or equilibrium. What does that mean? It means companies could pay their workers at a price lower than the marginal revenue product of labor and that would lead to the redistribution of income away from the workers. (Pettinger). Diminishing marginal utility is defined as the more of a product you consume, the less satisfaction you receive from each additional unit of that good.
If we use income as our product, it can be argues that as a person’s income rises they will begin to see less satisfaction. Foe example if you are super rich, then a gain of $20,000. 00 would probably not mean much to you. You may be able to buy a more fancy car or remodel you kitchen. If we were to redistribute that same amount to someone making say $15,000. 00, the extra income would have a higher utility for that person. How? That extra income could mean better shelter, food, clothing, and health care to the recipients family. The utility or satisfaction of the new money is much higher for this family than the super rich family.
We have looked at some of the problems with income inequality but are there any pros of inequality? People willing to take chances and open businesses built America. These chances brought us the airplane, the automobile, skyscrapers, and advanced military machines and weapons. Should we limit the amount of income earned by theses great entrepreneurs? As with patents these people have invested all the time and money to develop and produce their product and should be able to reap the benefits of such. We should not force them to give money to anyone who has not put in the effort.
It is not a market failure for hard work to equal higher wages. (Pettinger). Having an inequality of income and not redistributing it will lead to more innovation and discoveries because people will see that as the only way to improve their situation. If I could make the same amount of money doing nothing I would probably be inclined to do so. That does not mean that there are not times when people need help. We are a rich country and should provide help to those who need it. What does that look like? There are a number of safety net programs to help keep people out of poverty.
We touched on some earlier such as WIC, food stamps and school free lunch program. These are all great programs but they are not free and must be paid for by someone. The government collects taxes and uses these taxes to run the programs. This is a redistribution of income as the people making the most money, pay a higher percentage of their of tax on their income. The government has decided that this class of people does not need to keep as much of their money and therefore should give it back to those that did not work as hard or have the same skills.
As stated above, these programs are designed to keep families above the poverty line. The poverty threshold is based on family size and in 2013 it was from 11,888 for a single person to 23,834 for a family of four. (federalsafetynet. com). This number is set at three times the cost of the Department of Agriculture’s minimum food budget. (Case Page 376). Is this fair and could we accomplish this in a different way? I believe the answer is yes to both. We have a very wealthy and rich country. No one should go without food, shelter and minimum medical care.
By minimum medical care I mean all immunizations, regular check ups, and screenings for disease. All of these things need to be paid for by someone. Federalsafetynet. com says in fiscal year 2014 the United States $362 billion on 13 welfare programs. It also reported that it would have cost only $190 billion to move all Americans out of poverty. (federalsafetynet. com). That means we spent $172 billion to administer programs to try to get people out of poverty which is just $18 billion less than what was needed to get all Americans out of poverty.
Also it is $172 billion less that needs to be redistributed. In conclusion, I believe we should not hinder people from earning as much income as they can. If we continue to take from the wealthy to fund programs for people will not work then we are destroying our country. I also believe that those that are fortunate to have more should give to the ones less fortunate. This will only make our country better. I also believe that if the government wants to help those lee fortunate people it should and can by finding them jobs.
There are some that are unable to work and we as a society should provide for their basic needs, but those that can work should be forced to in order to receive assistance. This would give these people a purpose and hopefully get them moving toward a self-sufficient life. One final thought, our country has moved away from God and that is because there are so many different religions, but if we were to leave charity to the churches I think we could get rid of most of the welfare programs we now service. Just a thought.
