By theu9139|2017-07-06T20:22:23+00:00July 5th, 2017|ACCOUNTING|Comments Off on Utilitarianism view on wealth redistribution
Utilitarianism view on wealth redistribution
Redistribution of wealth from a utilitarian perspective is based on the idea of taking from the rich to give the poor. However, the standard in this case is that what is taken from the rich to give to the poor must add more satisfaction to the poor than the satisfaction taken from the rich. Practically, this means that taking a $100 from a rich person and giving it to a poor person will provide more utility to the poor person compared to the utility lost by the rich person. The utilitarian argument for redistribution of wealth is based upon three hypotheses. The first hypothesis states that each person’s utility or well-being depends on his or her income, but that this relation is governed by the diminished rate principle. This means that the less one’s income is, the more utility he or she will get from a given amount of money. The second hypothesis proposes that the total income in society, which is the sum of all incomes of the population has a fixed value. Finally, the last hypothesis states that all individuals have the same utility function, which means that equal incomes will create equal utilities or states of well-being.
From this standpoint, utilitarians argue that redistribution of wealth in society should be such that all individuals in society will share equal wealth and incomes, which inevitably means that they will share equal utilities and states of well-being. With the use of taxes, the state can help redistribute wealth, by levying a certain percentage of tax to efficiently obtain necessary funds for the well-being of the poor without making the rich worse-off. Accordingly, the utilitarian theory expects a great deal of governmental interference in the economy to rearrange and redistribute wealth in society. In fact, it is not a matter of expectation, but rather an obligatory matter. If the government does not function as a means of redistributing wealth, voluntary private transfers of funds from the rich to the poor will be too little and consequently inefficient to help in creating equality of utility in society.
The most prominent utilitarian economist and social thinker was John Mill who opposed the classicists on the base that they did not provide fairness in society when they asked for diminishing the role of the state in economy. Mill’s major concern in redistribution of wealth was to give the underprivileged the opportunity to start on equal grounds as the privileged. Taxes and government policies to control the market and regulate social welfare were the tools which Mill believed would provide for equality through a fair redistribution of wealth.
Mill classified three categories of taxes necessary for the redistribution of wealth in society. The first the income tax which Mill believed was necessary to motivate people to work and be productive, especially that those receiving the minimal levels of income were to be exempted from income taxes. This way, the poor will not be taxed, whereas the rich are mildly taxed so that these taxes would be used for social welfare programs, which will in the end alleviate poverty from society.
The second category that Mill proposed was Inheritance taxes. Because inheritance was not earned money, Mill believed that it should be subjected to higher taxes which also increase as income increased. The last category of taxes included sumptuary restrictions, such as using higher taxes with snob goods. The reason for this was to redistribute income by indirectly taxing the rich for their excises. This, Mill thought, would create more opportunities of equality for the poor who are not able to afford such snobbery.
The Keynesian theory on the other hand regards this problem from the price-employment perspective. Keynes believed that in any given society, under-consumption, which is a negative economic trend, is caused by unequal distribution of wealth. Redistribution of wealth is consequently dependent upon wages and the way they are managed in the community. Hence, Keynes set full employment as the goal of his policy, without much regard to value of products.
In other words, Keynes did not see welfare as a correct means for redistributing wealth. Rather, he believed that the best way to redistribute wealth in a society was in increasing the spending and consumption abilities of the people, and this can only be attained through full employment schemes. The government, Keynes, thus argued, should enhance and encourage investments because these will enlarge the demand for labor and consequently lead to higher employment rates in the nation, which is the ultimate method through which redistribution of wealth in society can be achieved. Keynes further argued that the government should also avoid heavy government spending and instead concentrate on policies that encourage private and capital spending which in turn encourage investment and employment growth.
The contractarian theory :
The contractarian theory is one of the economic perspectives which considers redistribution of wealth as a necessity in society. Most of the views of this theory are reflected by John Rawls who argued that all people in society are willing to have wealth redistributed, though to certain amounts in order to remove the burden of inequality off the poor. Rawls believed that the government plays the most important role in arranging the redistribution of wealth in society. However, defining redistribution of wealth according to contractarians is practically impossible, because the proposal is very theoretical as it argues that people should put themselves in the positions of others before they decide. Evidently, this objectivity is not possible, especially when it comes to the types, mechanisms and levels of distribution desired by society.
In opposition to the Keynesians, Utiliterians, and Contracterians, the classical theory shows no enthusiasm for any governmental role in society that would lead to the redistribution of wealth. Classicism is even radical to the extent that it denies the government the right to print money in order to intervene to support welfare programs or even war. Classicism extremely believed in the laissez passé laissez faire principle which shaped the government as a mere tool of observation but not intervention in the economy.
By reducing or even abolishing taxes, and by keeping the hands of the state off the economy, classicists believed that the economy can regulate itself, creating equal opportunity for all. But with the state’s influence subsidized, what happened in reality was that classicism was favoring those who were more capable of benefiting from the market, which eventually eradicated the principle of equal opportunities for all.
In the light of all these arguments provided at hand, it becomes evident that the general trend in economics is towards involving the state to a certain degree in the redistribution of wealth through its various policies and tools.
I believe that the state has to play an important role in redistributing wealth in economy for a number of reasons. First of all, I don’t believe that the total income in society is constant, since new discoveries in technology, probabilities of improving productivity by raising the quality of resources such as labor, and other factors, all make it possible to increase income continuously in a given economy. At the same time, I do not believe that all rich people are willing to contribute to relieving the economic burdens of poverty off the poor. This means that the process of reducing poverty in society should be done and regulated by a third party, namely the state which has the resources and capacity of regulating such an enormous responsibility.
However, there is one very important element that has to be always in mind, namely efficiency. The goal of any economy is to manage resources efficiently, and even the funds and money that are redistributed to relieve the poor should be done efficiently, otherwise, the economy becomes flawed and the process of redistribution of wealth is run at loss.
Governments redistribute wealth by levying taxes on the rich to support the poor. Hence, the process of taxation is one means through which the government redistributes wealth in society. However, to levy, collect and invest taxes, the government needs a lot of qualified personnel, various managerial departments, and above all projects to make services for the poor cheaper. Usually such a process is very costly and consequently inefficient. Some of the factors that make such a process inefficient include the bureaucratic structure of government departments, which double costs for any process that is taken; the fact that redistribution of wealth by the government requires a lot of government expenditures which adds to the deficit and hinders economic development in the economy, which in turn makes progress difficult for both the poor and the rich; and the fact that the investment of taxes by the government is usually used to serve the overall society, not only the poor.
Economically, I believe that keeping government expenditures low is better for the progress of the economy. I also believe that redistribution of wealth should be a process in which the private sector should be more involved for several reasons. First of all, departments, organizations and processes run by the private sector are usually more efficient because of incentives and flexibility, both which are lacking in bureaucratic systems. Second, involvement of the private sector will create more jobs and reduce unemployment, which in turn is a reduction of poverty, because unemployment is one form of poverty which necessitates the redistribution of wealth. And third, I believe that when redistribution of wealth is moved from the hands of government to the hands of the private sector, the funds that are taken from the rich to help the poor are going to be circulated in the economy at higher and faster rates, which increases economic growth, employment, prosperity, and makes the process less costly and more efficient.
The forms that I am thinking of include privately run pension funds, social security, and similar services, but of course under close regulation and monitoring by the government. I believe that these institutions are more efficient that most of the taxation policies used in most economies. First of all, pension funds are collected from organizations that are privately owned, and for the sake of creating reliable future compensation for employees, without taxing them. Furthermore, pension funds are privately owned, hence creating jobs for more people, reducing unemployment in society and adding to general economic welfare. Moreover, as pension funds are run privately, they provide incentives for their employees to work more efficiently, and their flexibility creates opportunities for their employees to be more creative in management, which leads to further efficiency, unlike what happens in publicly run organizations.
Hospitalization should be regulated by the state. Business owners should offer their employees free insurance to cover their hospitalization. This way, private insurance companies will be responsible covering hospitalization costs of employees, and not the government. This way, new jobs will be created in the insurance industry, and at the same time, the government will play an important but less costly role in redistribution of wealth, namely through regulating this process, to make sure that every employee is insured. It is also important to point out that the government should concentrate its efforts on raising the educational level of society, because lack of education, and consequently, lack of labor skills, is the major cause of poverty in society.
In conclusion, the role of the state is mandatory in the redistribution of wealth by establishing policies that will help the private sector grow, hence increasing employment, and by obliging businesses to meet basic needs of their employees through pension funds and insurance policies. What is noticeable here is that the government should reduce its direct financial involvement in these policies, giving the private sector the opportunity to play a more efficient and effective role. On the other hand, the government should be deeply committed to and responsible for developing free education in society.
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