Killing the Golden Goose

by Herbert I. London
December 29, 2008 at 5:30 am

http://www.gatestoneinstitute.org/163/killing-the-golden-goose

From the founding of this nation to the present there has been an understandable tension between equality and individualism. Clearly we, as Americans, want both, assuming they are reasonably defined.

Equality presumes: equal before the law; equal, or roughly equal, opportunity; and even equal in the eyes of God. But it does not mean, or should not mean, equal in success and equal economic results.

Yet curiously the nation is moving from the safety net designed to assist those in peril to redistribution, or the attempt to equalize economic results, i.e. "spread the wealth around."

This condition I would describe as a rush toward the middle, a belief that has penetrated almost every aspect of American life. It is the egalitarian project launched by John Dewey in the 1920s and embraced by President-elect Barack Obama.

Take education as an example. Almost all recent funding in this arena is designed to assist those in the bottom of performance. Schools that are not performing well receive more funding than schools that meet state guidelines, based on the assumption that additional funding can influence performance. And in some cases, this has proven to be the case. The bottom moves closer to the middle of the pack. Yet totally ignored in this distribution scheme are those in the highest, those who might be described as excellent. The consequence, of course, is decline at the top of the achievement pyramid, some upward movement at the bottom and a bulge at the middle.

Assume a similar set of conditions in the tax structure where those who earn over $250,000 (or is it $150,000?) are taxed at a higher rate than those who earn less. As rebates will be given to those in the bottom of the income structure paid for by those at the top, it would appear that the new tax system is designed to promote a bulge at the middle: No one too rich and no one too poor.

The problem with this arrangement is that if you remove the incentive for wealth, those who have the capacity to attain it will be disincentivized. Why earn more if the government intends to take it away and give it to others?

The same situation is emerging in the financial and industrial areas. By offering to jump-start a faltering economy, Secretary of the Treasury Hank Paulson has advocated assisting some financial houses, but not others. The government assisted J.P. Morgan with the purchase of Bear Stearns, but let Lehman Brothers fail. Consideration is being given to a loan for the Big Three automakers, but not to computer manufacturers. Aside from the fact that government officials can play God and determine who stays in business and who doesn't, these bailouts are predicated on the proposition that those companies capable of generating profits and paying taxes will be obliged to assist companies that are failing and need a handout.

The danger is that at some point every company will be asking for assistance. In fact, this project will inevitably fail because it destroys the incentive to succeed. By homogenizing economic rewards, government is instituting mediocrity. This taxation suggests that positive results should not be sought, valued or rewarded.

Imagine a situation in which baseball players earning the highest salaries based on performance have to subsidize those who are ".200 hitters." What would baseball become? Who would bother attending games or even watching on TV?

Yet the movement for the bulge at the middle continues. Where it will lead is clear. Unfortunately, its devotees don't seem to mind.

Herbert London is president of Hudson Institute and professor emeritus of New York University. He is the author of Decade of Denial (Lanham, Maryland: Lexington Books, 2001) and America's Secular Challenge (Encounter Books).

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