Income is earned, not distributed

President Obama has made statements that indicate that he is more interested in redistributing the incomes of Americans rather than creating circumstances under which they can earn more income.

Many Americans, like 44-year-old Donna Lee Clarelli of New Smyrna Beach, recognize this is not a great idea: “If I thought some of the money might end up with me I might be for it. However, I realize that I would not benefit from such a program.”

What Clarelli realizes intuitively is that income is earned not distributed.

In general, the more people earn the more they have to produce to earn it. The ugly truth is that for the most part, the people who make the big bucks have earned them. One of the ironies of the system is that the more you earn the, better you have to serve the needs of other people. Obviously there are some exceptions to this rule, but for the most part, it is true.

Trying to redistribute wealth is not only wrong, but it is hard to do and can be extremely bad for the economy and the people who are supposed to be the beneficiaries of the redistribution.

Several things happen to make redistribution both difficult and unattractive. First the big earners take legal steps to avoid taxation. If legal won’t work then they go underground or leave the country. Worst of all they may quit earning completely if they can’t avoid the “redistribution” process.

None of this is good for the economy. The irony is that it is the people who are supposed to benefit from the “redistribution” who are usually hurt the most.

Carmen Moliter, writing in the May 2008 German Reader’s Digest, estimated that about one half of the German work force holds jobs that are off the books or underground. In many cases the black market jobs are second jobs. He went on to say that only about 10 percent of American workers hold jobs on the black market. The reason for this disparity is that German taxes and regulations are much worse than ours.

What Moliter didn’t say was that the way to eliminate the black market is to lighten up on the taxes and regulations until there is no economic advantage to going underground.

The harder you try to even out the income the less income you have to even out and the more uneven it becomes. If incomes are forced to all be equal no matter how much or little you produce, people will find it to their advantage to produce as little as possible in the official market.

The former USSR and their Eastern Block countries illustrated what happens when incomes are officially leveled. A very big part of production was done on the black markets. Incomes were very unevenly distributed with most people being very poor except for a small elite class at the top of the pyramid.. Actually the pyramid looked more like a thumb tack.

The ultimate irony is that under “evil” capitalism the incomes are distributed much more evenly than under “virtuous” socialism where the incomes are supposed to be fairly distributed.

If our economy is allowed to remain mostly capitalist, it is possible for almost every American to become financially independent. However, this can only happen by following the successful ideas of the free market capitalists rather than the failed communist ideas of Karl Marx.