The rich are stealing from us!

This is a popular sentiment. One I’ve heard more often in Germany than I did in India. Maybe because more of my friends here lean towards the economic left. Maybe the average liberal person that I’d call a friend leans more left in the last few years.

In this context, it’s good to define left and right. The original phrase comes from the French revolution where representatives for, or against the monarchy sat on opposite sides.

In today’s context, people on the economic left would argue for

1. Higher government spending on welfare programmes that house, clothe, feed, treat and employ the poor
2. Higher tax rates for the rich to fund such efforts
3. Active government role in setting regulations on firms and people

People more on the right would argue:

1. Lower welfare programme spending
2. Flat or lower tax rates
3. Sparse regulations

Before arguing my case, I should disclose my bias that I’m far into the right camp in this debate. However, I didn’t magically end up there one night. For a couple of decades, I was on the left and gradually moved so I hope I can defend both arguments well.

Let’s start with the government spending on welfare programmes. For this debate, I will assume that the programs are rooted in amazing intent. It’s the job of a civilized society to care for the poor.

However, this entire premise is based on $1 being spent by a government being the same as $1 spent by an NGO or an individual. We have enough evidence from across the world ¹ that when a government spends, around 60% is inefficient. In the US, $2.65 spent by the government is actually equal to $1. In India, it is worse at $3 government spend resulting in a $1 impact. In effect, 3 people get taxed to pay for the 1 person getting the desired impact.

A simplistic argument on the right thus becomes, why not just reduce taxes on things poor people consume? It helps the limited money go to better use. One downside is, the rich also pay lower for their milk, bread and eggs. The upside is, there is a poor farmer or a cooperative selling these goods. More goods sold helps that person.

Regulation is an interesting case since it comes in many forms to address market failure ². Without addressing every single kind of market failure, let’s go with a question… If money was not a constraint, would you want your child to study in a government school or a private one? Fortunately, India has a right to education since 2009 and enough data to comprehensively answer this ³.

This is not to argue that the government has no role in regulation. Quite the opposite. The government should just regulate, not get into service delivery by itself. Sticking to education, the government should regulate how standardized exams work for both students and teachers and how parents get school vouchers. The actual school can be capably run by someone at their home. We can assume that parents won’t pay a poorly run school with their vouchers instead of the government hiring teachers and running schools.

One final note directly addressing the argument in the tweet. Unless the people earning high salaries are engaged in activities that harm society e.g., selling drugs or extortion, the only way to get rich is to make something people want. How does Amul or Nike or Starbucks or Flipkart or Jio make money? There’s no stealing or putting a gun to anyone’s head involved. People are happy to pay for the product or service they used. If not, they buy the product from a competitor.