Saturday, November 8, 2008

A Story of Childlike Innocence and Wealth Redistribution

Why Can't We Just Spread the Wealth Around?


Gracie and her dad liked hiking. They enjoyed the beautiful scenery and the energizing exercise. But most of all, they enjoyed the time together. It gave them time to talk and be themselves. They never referred to it as hiking; it was always “going on an adventure” for they would seek to find something new every time – even if it was the same trail they had been on many times before.

While Gracie was only seven, she was an excellent hiker. She was also very inquisitive. She would ask her dad about all sorts of things she had heard at school, on TV or at home. For such a small child, her questions were thought provoking. Her dad always was impressed with her questions for they taught him to look at life through a child’s eyes. Her innate sense of justice was pleasing to him. But just like many adults, her prescription for correcting an injustice was not always well reasoned.

On this particular Saturday, Gracie had questions about some things she had heard on the news. (Now her parents don’t normally allow her to listen to the news because it is often filled with pictures and words of an ugly world that they wanted to shelter her from for at least a few more years, but sometimes she overheard things.) It turns out that she had overheard a news story where a presidential candidate had said that the rich weren’t paying their fair share of taxes and how he was going to spread the wealth around. That there are rich people when others are poor simply didn’t sound right to a seven year old.

Her father asked, “What would you have someone do?”

She said, “I would tell the rich to pay more taxes. Why can't we just spread the wealth around?”

Her father replied, “That sounds good, but it might lead to unintended consequences.”

“Unintended consequences? What’s that?” exclaimed Gracie.

With a little bit of shame, Gracie’s dad explained, “Sometimes when we do something – even with the best of intentions – we make the situation worse. Like when I helped you build an Indian dwelling for your history project but I did most of the work. I meant well, but by doing all the work, you didn’t really learn what your teacher wanted you to learn about Indian life. I cheated you. The unintended consequence was that you were not able to explain how you had constructed the dwelling in front of your class.”

“It’s okay Dad, next time I will do my own work. But what unintended consequences might result from making the rich pay more taxes?” Gracie asked.

“Well,” her father answered, “it might lead to fewer jobs and more poor people.”

“Why is that?” Gracie asked.

Her dad attempted to explain, “Owning a business is risky. Many business owners fail many times before they succeed. By taxing successful people more, you would be reducing the incentive someone has to succeed.

“Here is an example that might help you to understand better. Suppose some parents didn’t feel it fair that some children in your class get C’s and D’s. There should be more A’s and B’s given regardless if the children did the work. So the teacher takes some of the points from the successful students and gives them to the poor performing students.”

Gracie interrupted, “But that wouldn’t be fair for Ricky Johnson to get some of my points – he doesn’t even try. Why should I be punished for doing well?”

“That’s right,” her father continued, “likewise progressive taxation isn’t fair either. If a successful businessman is asked to pay more taxes because others have less money, then he is punished for doing well . . . just like you.”

“But some kids do try and still don’t make all A’s and B’s,” Gracie said.

“Under the system of grade distribution, these children would be punished the most,” Gracie’s dad said.

“Why is that?” asked Gracie.

“Those kids that worked hard but still couldn’t make the A or B honor roll before will soon realize that with grade distribution they could get points added by doing less work, but might actually give up points in a few subjects if they continued to work hard.” Gracie’s dad said.

“What have I always told about hard work?” Gracie’s dad asked.

“You say that you would rather have a child that works hard than a smart child that didn’t have to work hard because he might become bored or lazy.” Gracie replied.

“There will always be a reward for hard work as long as the envious don’t use the government to punish hard work. When hard work is punished, like through tax policy, then even hard workers will become reluctant to work hard. When that happens there will be no one to take money from and we all will be poor.” Gracie’s dad said sadly.

So Gracie and her dad walked along the path saying nothing for a few minutes while she took in the lesson her dad was trying to teach her. Then she asked, “Why would a presidential candidate support a policy that is so unfair?”

Her dad said that many people confuse fairness with outcomes and not process. “What does that mean?” Gracie asked. “Well, some people think fairness means everyone gets the same grade, for example, regardless of effort. But fairness doesn’t mean that at all. In fact, it means just the opposite. Fairness dictates that your teacher not show favoritism and grades be awarded based on merit.”

“So the teacher’s pet shouldn’t get special treatment?” Gracie asked.

Her dad smiled for he knew that Gracie was the teacher’s pet and responded, “I didn’t say that . . . maybe special treatment is a reward for being a good student that works hard and obeys the rules? But the teacher should grade your paper, uh, I mean, the teacher’s pet’s work just like she would any other kid.”

“Oh, she does!” Gracie exclaimed.

As they headed back home up a big hill Gracie and her dad held hands and enjoyed the beautiful day. Gracie asked, “Dad is it fair that we get to enjoy this beautiful day and my sister can’t?” Gracie’s sister was born with a birth defect that prevented her from enjoying these long walks. “No.” Her dad said somberly. “It isn’t fair. But she enjoys it when we go on shorter walks and I give her a piggy-back ride. And she doesn’t feel sorry for herself. She finds enjoyment in other things that her disability doesn’t prevent her from doing, like writing and music.”

“Would it be okay if the government helped her?” Gracie asked softly.

Her dad did not answer at first. He thought of how nice it would be if the government could buy his younger daughter a motorized wheelchair that could go off-road so the three of them could hike together. But then he answered Gracie, “No it would not. A possible unintended consequence of the government spending $25,000 to buy all disabled children a special off-road wheelchair might be that research dollars were diverted from helping find a cure for your sister’s birth defect. You see, government taxation to fund such programs soaks up private savings at the expense of private investment, including investment in research. Or more likely, the increased taxes needed to buy these expensive wheelchairs forced other families to make cuts in their budget so that their children couldn’t take a vacation to see their grandparents this summer. The bottom line is your sister is our responsibility. If we look to the government to take care of her then we will become dependent upon others to provide for her. Your mother and I will not always be here. She will need to learn to provide for herself. If a person was born short then it wouldn’t make sense for that person to dream of playing professional basketball, would it? Abilities have not been distributed evenly. Some are smarter, some are prettier, and some are more athletic. We must develop those abilities that we have been given.”

Gracie added, “Maybe if she wasn’t limited by her inability to get about, she would not have become such a wonderful writer and pianist?”

Her dad smiled. His child had impressed him once again. And made him proud.

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