Senator Bernie Sanders is, quite possibly, the most popular leftist politician right now, though that is not exactly a grand statement, since the current Democratic party is a tire fire that refuses to acknowledge itself as such.
However, as a student at a university, I encounter Sanders’s supporters on a daily basis. He resonates with young people. He runs on a platform of redistributing wealth, wants the rich to pay their “fair share”, believes unicorns are real, and generally advocates for socialization. The redistribution plans being the most important to his overall message, he has ushered in a new age of support for democratic socialism.
The idea of redistributing wealth sounds good at the shallowest possible level. If the problem is people don’t have money, then just give them some from the people who do. Sounds fair. With all the money that a lot of people now have, they can increase the velocity in a long sputtering marketplace, which fuels prosperity.
The issue is that it doesn’t work that way.
To understand this, the terms need to be defined. Capital is the actual currency that is being exchanged as a placeholder for the value of goods and services. It has no inherent value (nothing does). It just has a job as an accepted placeholder. Wealth, on the other hand, is more abstract. Wealth is the value of something, such as a good or service. To use an analogy, if you carve a figurine out of a block of wood, then that has been added value. The carver has increased his/her wealth. Wealth is created out of thin air. Bill Gates does not have billions of dollars under his bed. His wealth is mostly in stocks and other assets. If a person creates wealth, that increases his/her wealth. If a person is given capital without the creation of wealth, that increases his/her spending power. Now spending power, which I would define as an amount of capital, is only relatively desirable. A large increase in overall spending power can have a powerful, increasing effect on demand in an economy. Anybody who understands the supply and demand curve will know that an increase in demand will yield a higher price, which would make the higher spending power worthless. Thus, people only desire a higher spending power because of its relative magnitude.
It is important that capital be backed up by the creation of wealth, because it ensures that inflation does not get out of control. If it is backed up by creation of wealth, then the supply will level out with demand. If it is not, then demand will just continue growing, which raises prices.
So the term of “wealth redistribution” is already misleading. It simply means a distribution of capital. The supporters of Sanders are calling for an increase to their spending power. The issue lies in understanding how prices are set. The vast majority of this country does not hold as much spending power or wealth as the highest economic class. Subsequently, the majority of products are geared toward this economic demographic, and are priced accordingly. The “99%” set the prices in the economy. Sending capital down to this demographic increases their spending power. The result will be a predictable increase in prices as businesses try to level out to the increase in demand. An increase in prices would mean a decrease in spending power, since, through the influence of inflation, the capital loses value.
This, also, cannot easily be undone. The wealthy have lost their capital, which was backed up by the creation of wealth, and the middle and lower classes end up in the same predicament.
A liberal might suggest price controls at this point. This does not help either. The businesses that have to adhere to these controls are now discouraged from continuing their business. What’s the point of selling product if the prices cannot be competitive? What’s the point of creating wealth to acquire capital if the person’s relative spending power can never truly grow? At this point the quest for more capital becomes empty. This will have one of two results. Either the economy will slow the creation of wealth, bringing the advancement and innovation of society to a halt, or the currency will no longer be used since it has no real purpose.
The point is that the supply and distribution of capital is very delicate, and it cannot be assumed that a transfer of capital will be a transfer of wealth. The only real solution is to remove barriers that prevent those on the lower end of the economic hierarchy from creating wealth. This will ensure that an increase in the supply of capital will correspond with an increase in wealth. Certainly this is difficult, but it keeps the balance of capital in an economic system.
I can sympathize with the desire for a more equal economic arena, but a problem of inequality cannot be solved as if it were a problem of inequity.
