Redistribution and immigration

A student alerted me to this extraordinarily tight and well-argued post by Paul Krugman, entitled “Notes on the Political Economy of Redistribution.” Krugman:

Mitt Romney is getting beaten up, and rightly so, for claiming that redistribution is un-American. Of course we redistribute, and we’ve been doing it on a substantial scale for generations. Medicare, for example, is in effect a strongly redistributive program: it’s supported by a payroll tax (and other revenue) in which the amount you pay in depends on your income, but it supplies a benefit that depends only on your medical costs. From each according to his ability, to each according to his needs!

So no, Obama isn’t a radical for suggesting that we should continue to do what we’re already doing; the real radicals are the people on the right who want to declare much of what our government has been doing these past three generations illegitimate.

The real question – arguably the central question of political economy – is how much to redistribute. And it’s both interesting and important to try to understand how that decision gets made.

There’s a substantial literature (see, for example, the references here (pdf)) that makes use of something like the following model:

1. The government levies taxes on everyone – say, as a constant proportion of income
2. It uses that revenue to pay for a benefit that everyone receives
3. Voters choose parties based on which offers a tax/benefit program closest to the one that maximizes their own utility
4. The end result reflects the preferences of the median voter

This kind of model suggests that the median voter will in fact want redistribution as long as his or her income – median income – is less than average income, because in that case he’ll have more to gain than to lose from a bit of redistribution. And this condition is always met, because income distribution is skewed to the right (there are people with incomes $1 million above the median, but none with incomes $1 million below the median).

But in that case, won’t the median voter favor complete redistribution, with all income taxed away and then handed out as benefits? No, because of incentives: too high a tax rate will discourage effort and reduce overall incomes. So there’s a tradeoff that leads to some equilibrium level of redistribution…

In particular, imagine yourself as a hired gun for the right tail of the income distribution. What would you do in an effort to stop the median voter from realizing that she would benefit from a more European-style system? Well, you’d do everything you can to exaggerate the disincentive effects of higher taxes, while trying to convince middle-income voters that the benefits of government programs go to other people. And at the same time, you’d do everything you can to disenfranchise lower-income citizens, so that the median voter has a higher income than the median citizen.

So far, efforts along these lines have been remarkably successful. But operatives on the right are clearly worried that their three-decade run of success may be coming to an end. Indeed, the whole panic about the lucky duckies and all that can be seen as reflecting a great fear on the part of the right that any day now the median voter will realize where his true interests lie, and start supporting much more redistributionist policies.

Of course, I want to distance myself from the unchivalrous innuendos of the “hired gun” line. Needless to say, most advocates of small government and free markets are conscientious people who are if anything sacrificing personal gain to advocating what they think is right for the country as a whole. But that’s not the point I wanted to make. One might also object to Krugman’s assumption that taking other people’s wealth by force is morally unproblematic, but that’s not what I want to stress, either.

Since I started thinking about open borders at age 19 or so, the moral value that people attach to redistribution has become unintelligible to me. It’s obvious that the really poor do not live in America, but in India, Pakistan, Africa, Haiti, and so forth. Domestic redistribution is at best from the very-rich to the relatively-rich. I can see how democratic politics might cause that to happen; but what serious reason could anyone have to approve of it?

The best thing America could do for the poor is to open the borders. Nothing else comes close. Failing that, the next best thing America could do is just to grow the economy as fast as possible, boosting our demand for the rest of the world’s products and increasing the rate of innovation. That’s why I would reduce domestic redistribution to a minimum. Whether international redistribution is a good idea is an interesting question. There I can see a moral case on both sides. But to think there’s any moral upside to domestic redistribution seems to me a function of not having thought through the logic of open borders.

Final point: the crude median-voter model seems to underlie much of the opposition to immigration.

Nathan Smith

Nathan Smith is an assistant professor of economics at Fresno Pacific University. He did his Ph.D. in economics from George Mason University and has also worked for the World Bank. Smith proposed Don’t Restrict Immigration, Tax It, one of the more comprehensive keyhole solution proposals to address concerns surrounding open borders.

See also:

Page about Nathan Smith on Open Borders
All blog posts by Nathan Smith

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