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Redistribution fallacy

December 15, 2010

In the mind of most people govt redistribution takes wealth and resources from the few and gives it to the many. In fact most social scientists have the exact opposite model of redistribution: it’s called “diffuse costs and concentrated benefits”.

It explains political dynamics pretty well. If you take a little bit from many people (diffuse costs) no one will be overly damaged and even if some would want to complain they would have to band together with other dispersed individuals, pool resources and go petition Washington, but all that is expensive. Concentrating benefits on the other hand has immediate benefits to the politicians themselves: they get to feel in control, they get to let groups compete for “their” generosity. But it doesn’t end there. Giving resources to few specific interest groups is highly “visible”. It can be easily publicized and, as it turns out, majorities usually approve of these actions. A majority of US citizens approve of agricultural subsidies, even though they mostly end up in lining the pockets of a very tiny number of farmers (and, actually, the very richest). So redistributing to the right special interests can bring a lot of popular approval.

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