Production vs. redistribution

Production vs. redistribution October 1, 2013

Economics columnist Robert Samuelson is worried that we are moving from an affluent society (based on economic growth that benefits everyone) to a “spoils” society (an economic mindset based on taking money from other people).

From Robert J. Samuelson: Here comes the spoils society – The Washington Post:

There are two ways to become richer. One is to provide more goods and services; that’s economic growth. The other is to snatch someone else’s wealth or income; that’s the spoils society. In a spoils society, economic success increasingly depends on who wins countless distributional contests — not who creates wealth but who controls it. This can be contentious. Winners celebrate; losers fume.

Of course, the two systems have long coexisted — and always will. All modern societies chase growth; all redistribute income and wealth. Some shuffling is visible and popular. Until now, that’s been the case with America’s largest transfer, which is from workers to retirees through Social Security and Medicare. In 2012, this exceeded $1 trillion. Still, for the nation, the relevant question is whether productive behavior (generating economic growth) is losing ground to predatory behavior (grabbing existing wealth and income). There are good reasons to think it is.

Since 1950, the U.S. economy has grown slightly more than 3 percent annually. But projections for the future are just above 2 percent. The slowdown mostly reflects an aging population, which translates into less expansion of the workforce. Indeed, overall growth of 2 percent may be unattainable if, as some economists argue, the pace of innovation is slackening. All this suggests diminishing economic gains in the productive sector.

The smaller the gains, the more people will fight over existing income and wealth, because — as has been said — that’s where the money is. The United States’ annual income (gross domestic product) now exceeds $16 trillion; the value of all fixed assets owned by businesses and individuals is roughly $50 trillion. Diverting even a small sliver of these sums can be hugely enriching. Distributional battles involve attacking and defending bastions of wealth and income. Consider three examples:

● The oil giant BP and plaintiff lawyers are fighting over how it provides compensation for damages from the 2010 Deepwater Horizon oil spill. The process has been so perverted, says BP, that it’s paying “hundreds of millions of dollars — soon likely to be billions — for fictitious and inflated ‘losses.’ ” Naturally, the plaintiffs’ lawyers disagree.

● “Patent trolls” are firms that amass huge patent portfolios and then harass and sue high-tech companies for alleged infringements. Companies often pay up rather than face a threat to their products. Extortion, they say. A legitimate return, retort the patent companies.

● CEOs are routinely accused of padding their pay by using friendly compensation consultants. Naturally, CEOs contend they’re being rewarded for performance, not plundering their own companies.

Larger distributional contests loom. Growing income inequality has intensified pressure to raise taxes on the rich and near-rich, however defined, to support the middle class and poor. The massive transfers from workers to retirees are starting to sow a backlash among the young, who wonder whether all the elderly’s benefits are justified.

Most Americans seem indifferent as to how they get ahead, whether by wealth creation or redistribution. The choice seems abstract. Fair enough. But for the country, the choice matters enormously. The appeal of the affluent society was that one group’s gains didn’t have to come at the expense of others’. The promise of economic growth was oversold, but it had the healthy effect of encouraging an expansive and inclusive vision of America.

What’s emerging today is more self-interested and self-destructive. The dilemma of a rich society is that its prospects can be undermined by its very abundance. Countries preoccupied with distributional wars are distracted from production. The ambitions of many of its most talented members can be satisfied not by adding to the total output but simply by subtracting from someone else’s. They are merely rearranging economic assets among themselves. If taken too far, this promises more political division and economic decline.


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