TRANSFERS, EQUALITY, AND THE LIMITS OF PUBLIC POLICY

The debate about the merits of the redistributive state generally focuses on the proper trade-offbetween more income equality and more total income. The questions are familiar. What is the optimal distribution of income? How much inequality should a just society accept? How much economic growth should we sacrifice in order to promote the welfare ofthe poor and disadvantaged? Of course, trans-fer programs go well beyond the poor. They are aimed variously at farmers whose crops have failed or whose crops “should ” sell for more, at governments of nations whose people are worthy of aid, at corporations that employ many workers and are in financial trouble, and at innumerable other entities. The proposition that transfer policies promote the welfare of tar-geted groups is generally accepted. Taxes, transfers, and regulatory policies are perceived to be adjustment levers available to fine-tune the economic machine that grinds out goods and services. If we do not like the allocation of economic benefits, corrective action can be undertaken by moving the levers via the political process. We believe this view of the transfer society is naive. Taxpayers and transfer recipients are human beings, not sheep who can be shorn at will, their wool automatically growing back for the next shearing season. People will adjust their actions for individual advantage, in response to governmental changes in the rules of the game. Similarly, since the political process, like the market, results from individual choices, it mayor may notyield its stated goals, Thus, it is not obvious that income transfers emanating from the political process will pro-mote economic equality or even help the targeted groups