I wonder if chronic lack of understanding of basic economic principles is a requirement to be a supporter of the left. In this case, a conversation about welfare and my argument that is immoral. I will state the definition of morality so that everything is clear:

moral: concerned with principles of right and wrong or conforming to standards of behavior and character based on those principles

My argument for it’s immorality comes from the fact that people are coerced into subsidizing the living of other people, basically violating the rights of the said individuals(rights of property, enjoying the fruits of your labor). Of course, it is also wrong for the government to force you to work for them for around half an year. Many people don’t see it as such, but that’s what the government does when they tax half of your earnings – you pretty much work for them for half an year.

Anyway, in this debate Obama Jr – I have no idea how the guy is named, but he shares the same lack of knowledge about economic principles with Obama – sustained that welfare and wealth redistribution is moral because it creates economic growth. Baffled, I asked him to explain and he only said four words: law of diminishing returns. I asked him to explain and he said that welfare creates economic growth because it maximizes total utility in a certain economy. So I went on to explain to him that the law of diminishing returns refers to the fact that the contribution of a mean of production decreases as more of it is added. Here is this law:

In economics, diminishing returns (also called diminishing marginal returns) refers to how the marginal contribution of a factor of production usually decreases as more of the factor is used. According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), beyond some point, each additional unit of the variable input yields smaller and smaller increases in output. Conversely, producing one more unit of output costs more and more in variable inputs.

So pretty much he was referring to something that is irrelevant to his point and probably wanted to appeal to the law of diminishing marginal utility, which states that as a person increases consumption of a product – while keeping consumption of other products constant – there is a decline in the marginal utility that person derives from consuming each additional unit of that product. First of all, utility is a subjective thing and varries from person to person, but even ignoring this money isn’t a product and it has alternative uses. For example, if I want to start a factory and I need 10 000$ more, the money probably has a smaller utility to someone who just wants to buy a car, even though that person is poorer. But I will make yet another concession and say that he is right on this, even though he is obviously wrong. Let’s just agree for a moment – pretend we’re idiotic – and believe that welfare maximizes the total utility in a country. That won’t create any economic growth though since the goods will be the same. On the long run actually, the country will experience negative economic growth and here is why.

1. Let’s suppose that in my country there are only ten people and the only good produced and consumed is bread. If there are 100 breads produced and we divide them equally – completely ignoring that utility is subjective ala I weigh 120lbs and I eat less than an obese person for who the utility of food is probably higher – the total utility for the economy will be maximized. Let’s say that each bread has 100 utili(the conventional measurement unit for utility) and it decreases with one point for each bread consumed by one person according to the law of diminishing marginal utility. This will lead to each person having 955 utili and the whole economy 9550 utili. If only one person would eat them all, the economy would have only 5050 utili. Now, the problem with this whole argument is that economic growth isn’t fueled by utility, but by production. Basically, if you redistribute the breads in any way you want, you will have zero economic growth. However, if you produce one more bread, you will have a 1% economic growth, hence you produced and consumed 101 breads. And this leads to the second part of my argument.
2. What happens when you take 10 000$ from me, the entrepreneur and give it to someone who will just buy a car? Well, I won’t be able to open my factory, which will produce things and actually create positive economic growth and employment. Not only this, but the utility of the things I would produce would create a bigger total utility than the redistribution of the goods by force, hence I will need both consumers and employees and if I pay my employees badly, nobody will be able to buy my goods if they’re expensive. Hence, it’s in my best interest to produce affordable goods. Just ask Henry Ford about it.

As a conclusion, taxation in order to fund wealth redistribution schemes is an immoral coercive method that also destroys wealth due to the fact that it decreases the amount of investments in the economy, which are the factors that create economic growth and job opportunities. Things destroyed by welfarism. QED.