Is Forced Sharing a Panacea? D. Bechara

Dennis Bechara Is Forced Sharing a Panacea? DETRACTORS of the free market pro claim that most social problems may be solved through the political pro cess of coercive income redistribu tion. It is often pointed out, for ex ample, that if the government had additional powers to redistribute in come, many existing social problems would disappear. This criticism of the workings of the market order rests on a vast oversimplification. Social problems have a number of causes, many of which are the result of previous government interfer ence. For example, unemployment is, in large part, a result of the labor laws and minimum wage structure. It is naive to think that government spending will eliminate unemploy ment while the laws that created the Mr. Bechara is an attorney in Mayaguez, Puerto Rico. 470 unemployment in the first place are left in effect. The result would be a misallocation of resources in the economy, not a higher productivity from redistributive policies.

This does not mean that govern ment is powerless to eliminate un employment, only that the pro grams generally followed have been erroneous. So it is with the majority of the other social problems common in the world today. Most of these problems-usually a shortage or a surplus of goods and services caused by price controls-would be elimi nated if the controls were with drawn. However, by advocating a spending program, the politicians give the impression of doing some thing positive to eliminate the prob lem-and loyalties are inevitably created. There is a self-interest on IS FORCED SHARING A PANACEA? 471 the part of the politicians to con tinue the "spend and spend, tax and tax, elect and elect" practices. It is imperative to address the res olution of social ills with an analysis of both the pre-existing structural barriers as well as· the proposed re distributive solutions. Many of to day's economic ills may be traced to diverse governmental interferences in the workings of the market. But it may be more instructive to visu alize some of the effects that redis tribution or spending policies have on the economy.

It is customary for economists to analyze the market sector by sector. However, all sectors of the market are inter:related. Specifically, con sumer behavior affects the avail ability of consumer goods, the allo cation of the factors of production, and individual income. When the government interferes in anyone of those areas by engaging in redistri butive policies, it inevitably sets off disturbances in the other two. Transfer of Factors of Production When a demand exists for a par ticular consumer good, entrepre neurs are quick to transfer some fac tors of production toward this more profitable use. For instance, if de mand increases for furniture, entre preneurs will invest capital in those areas which provide the natural re sources for the production of furni ture as well as in the manufacturing process. The demand for the factors of production is therefore derivative of the demand for consumer goods.

Similarly, income is generated when entrepreneurs are able to suc cessfully serve consumers. The greater the popularity of goods and services provided, the higher the in come earned. High profits in an in dustry signal competitors that the business is attractive. Cost-saving measures are brought about by the profit incentive, all to the benefit of consumers. But what happens when these market relationships are sev ered by the political process of in come redistribution? When income is expropriated and redistributed, consumer choices are inevitably frustrated. The severity of the consequences depends on the magnitude of the confiscation and the universality of the measures. If cer tain areas of production are more heavily taxed than others, profit margins will decrease accordingly, and there will be less incentive for outsiders to enter the field and com pete. If taxes are levied against con sumer goods, the public will tend to readjust its demand. Consumers may substitute other goods, or they may curtail their demand for other things in order to purchase the goods which are more costly due to the tax. Or, marginal producers may withdraw from the field as demand slackens.

The range of adjustment is as var ied as the forms of governmental 472 THE FREEMAN August taxation. Subsidies playa signifi cant role in the behavior of con sumers. Goods that would not oth erwise have been produced in the quantities that the .governmental authorities deem necessary are de manded because of the attraction of the subsidies or because of the pro tection of a tariff. These devices dis tort communications between con sumers and producers at the expense of the taxpayer. The Impact Upon Society of Market Interventions Society in general is affected by interventions in the market place. Goods that consumers want are not being produced because of the gov ernmental measures taken to alter production. Factors of production are misallocated, and their further sup ply becomes dependent upon the governmental program that gener ated the shift in demand. Therefore, political forces are created that lobby for the maintenance and expansion of these programs. If the govern ment eliminates a subsidy or a tariff for a particular product line, the voters are reminded that many fam ilies will be affected with the certain loss of jobs that a shift in demand would create.

The true issue, however, will be muddled by these arguments. The question is whether one respects consumer freedom of choice, or sub stitutes governmental controls. Invariably, the groups most adversely affected by a change in governmen tal policy will lobby for the retention of measures that benefit them. This acti vity, however, does not detract from the real issues; it only serves to bring some of the ugly conse quences of intervention into focus. Thus, we see that redistribution of income can take the form not just of taxing Peter to give to Paul, but of subsidizing goods and services, con trolling prices, and engaging in countless other interventionist poli cies. One of the most common exam ples of government intervention is in response to the charge that capi talism fosters bad literature. The frequent solution to this supposed problem lies in government promo tion of the fine arts. The argument is that the economic system does not accurately reflect the wishes of the people. The free market economy tends to produce that which is de manded by consumers. What the critics are really saying is that they disagree with the public's choice.

Their solution is to persuade the public that the fine arts are prefer able to whatever is being produced. Capitalism as a system is at fault in the same sense as a mirror is at fault: it reflects a reality. The viewer may wish the mirror to portray a more handsome face, but it can only reflect that which is in front of it. The free market produces that which 1983 IS FORCED SHARING A PANACEA? 473 the public demands. If the govern ment intervenes to change the ex tent. of production, it only succeeds in substituting goods that are less desirable to the public than those that would have been produced. Far from eliminating social ills, the pol icies of redistribution exacerbate new ones by misallocating scarce re sources. Schemes that redistribute the wealth affect not only the victims of the programs but also the public at large. Measures taken to foster some special behavior may very well bring forth unforeseen consequences. AdRedistributing the Wealth ditionally, the idea that income may be divorced from the rest of the mar ket forces is based on the false as sumption that income will always be generated as if from a machine run ning on an inexhaustible supply of fuel. Yet, the reality is that the in centive to obtain a profit is the fuel that generates income. Income re distribution policies only serve to deplete the efforts aimed at the pro duction of wealth. Instead of amelio rating social evils, redistributive policies lower productivity, misallo cate resources, and create new vic tims of the political process. i IDEAS ON LIBERTY WHAT'Swrong with redistributing the wealth? Actually, there's nothing wrong with sharing wealth as long as it is done voluntarily. In a free economy, wealth is redistributed myriads of times daily. It is the forced and compulsive redistribution which is wrong-the element of coercion.

When tax laws are imposed not to raise revenue but to redistribute wealth, such laws are wrong. Why redistribute wealth anyway? What would be the purpose of such an act? If the purpose were to destroy initiative and incentive to work, that purpose would surely be fulfilled. Under continuous equalization of wealth, there would be no will to work. If anybody created more wealth, it would automatically be taken and redistributed to maintain the state of equality. With no incentive to create-and indeed a penalty in the form of confiscation-the total to be divided among all the people would steadily go down, as would everybody's equal share. As food supplies were eaten and as clothing and tools and machinery wore out, we would soon reduce ourselves to a state of equal poverty. EDWARD A. ROSSIT Charles Dykes Is There a MoralBasis for Capitalism? THE contemporary indictment of capitalism usually takes two basic forms. First, there is the economic indictment. Those who make the at tack from this perspective argue that capitalism is not viable because it is afflicted with insurmountable con tradictions which result in a per manent state of crisis, or problems which can only be temporarily re solved by palliatives. Second, there is the moral indictment. Capitalism, according to this view, is the exploi tation of man by man, the profit mo tive and the rule of money supreme, with an inevitable cruel injustice everywhere manifest.