Monday, April 21, 2014

The Economy Viewed as a Lottery

Imagine that economic outcomes were the result of simple chance.  If you ended up rich, it was because you drew the right card out of a randomly shuffled deck of cards and if you ended up poor, it was a result of drawing the "wrong" card.

If the economy was really a simple lottery, so that where one ended up in the income and wealth distribution was simply a matter of chance, then redistribution schemes would make a lot of sense.  It is hard to see why anyone would be opposed to redistributing the wealth and income generated by a lottery to achieve an outcome of complete equality.

But, things don't work that way in a real economy.

In a real economy, chance plays a role -- no question about that.  You can get lucky and you can get unlucky.  That's true.  But, that is only a small part of the story.

Some folks take advantage of their luck and others squander it.  Some folks overcome their bad luck and some sink into the quagmire of defeat and disappointment.  Luck is not distributed fairly, but taking advantage of good luck and overcoming the effects of bad luck is where work ethic, talent, and skill enter the picture.

Simply ignoring work ethic, skill and talent, which is what redistribution schemes presuppose, means that these things aren't valued.  Policies of redistribution are essentially assigning little or no value to effort and skill.  In time, folks see this.  Having a strong work ethic and developing skills puts one in a position to take advantage of good luck and in a position to overcome bad luck.

But, if redistribution policies assign no value at all to effort and skill, then, in time, large numbers of people will quit trying.  Many Americans already have.

Once your society decides that economic outcomes arise in the same manner as the outcomes in a lottery, then work ethic and skill development gradually lose their grip.  This means lower or even non-existent economic growth.

The western economies seem to have been moving inexorably in this direction over the past few decades.  But, in truth, economic outcomes bear very little resemblance to a lottery.  Work ethic and skill development do matter.  You often make your own luck or, at the very least, put yourself in the position to take advantage of luck when it comes your way.

Redistribution policies and excessive regulation gradually throttle work ethic and skill development eliminating the prospect of a strong, growing economy.

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