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In an election cycle virtually guaranteed to feature a record high number of Democrat presidential candidates, those candidates have two options: appeal to voters with ideas designed to make the nation better off in aggregate or appeal to our baser instincts and promise free stuff paid for with money confiscated from the “wealthy,” meaning those people with more money than the voters at which the appeals are aimed. From the early pronouncements of the candidates so far, it appears that some candidates will take the first road, while many will take the second.
A wealth tax, such as proposed by Senator Elizabeth Warren (D-MA), is an example of the second appeal. She hopes voters like the prospect of seizing private property, motivated simply by greed and the schadenfreude of seeing the wealthy suffer. Proposals for universal basic income, forgiving all college student loan debt, and reinstatement of a heavy estate tax starting at low levels of wealth are further examples of this type of approach to policy. These are purely redistributive policies, doing nothing to make the economic pie bigger, only to change the size of the piece each person enjoys.
On the other hand, Senator Cory Booker’s (D-NJ) opportunity accounts proposal is an excellent example of a policy designed to make the nation as a whole better off, to increase the size of the economic pie. While these accounts, meant to provide all American children with up to $50,000 (poorer children would accrue larger amounts) that could be used for college tuition, home down payments, even retirement, still involve redistribution from richer to poorer they do so with an aim that is not punitive; rather, the policy is meant to increase economic opportunity along with social and economic mobility. Whether they are an optimal policy or not can be debated, but the aim is to increase economic growth along with equality.
Arguments can be made that Medicare For All and more heavily subsidized college education are also policies that belong to the first category. Whether or not those arguments are correct is a matter of debate, but at least the policies are advanced with the goal of boosting national welfare by increasing the total economic capacity of the country— both paths leading to a boost in productivity, Medicare For All by improving health and more college education increasing human capital.
In contrast to such policies, those in the second category are much closer to pure income redistribution. While progressives may enjoy claiming that economic inequality slows economic growth, claiming it does not make it true. In fact, evidence suggests that in richer countries economic inequality is associated with faster economic growth (while in poorer countries inequality does slow down growth). Economic growth often causes economic inequality because growth comes from productivity advancements and the person or company whose innovations lead to that productivity growth captures economic rewards.
Increasing the minimum wage is another example of a redistributive policy that does not lead to economic growth. While Speaker Pelosi likes to claim giving more money to poorer families leads to economic growth, that is wrong, particularly when the money is first taken away from the owners and customers of the businesses where the minimum wage workers are employed. Who spends money doesn’t matter, and even if rich people save money, those savings are invested or lent out and spent by whoever ends up with the money. Such a policy is definitely in the second category.
A final policy in the first category is a job guarantee program. At first thought, giving people jobs for a “living wage” when their resulting productivity is unlikely to be worth that pay might not seem like it could grow the economy. However, if the job guarantee program replaced most or all welfare programs, its net cost would be considerably lower and the output produced by the newly employed workers might well exceed that cost and expand the economy.
The next two years will see dozens of Democrats running for president. Many of the policy proposals they advocate will appeal to voters’ envy and greed, promising to seize wealth from the (evil) rich and hand it out in the form of free goodies (higher minimum wage, basic income!). Such policies do not grow the economy, they just transfer money from one group of people to another. Some win, while others lose. If, however, voters support a candidate who pushes policies designed to improve the nation’s economic capacity, perhaps everyone can win.
