Okun’s Bucket

leakybucket

The election of Trump (regardless of his character) and a Republican controlled house and senate have significantly increased the wealth of my clients (and also the wealth of those much richer). The reason is because there is substantially much less political risk now of aggressive wealth redistribution public policy, for the next four years anyway.  We do not need to have as much wealth in reserve to self-insure against government taxation, regulation and market interference (see my 10/13/15 explaining Charles Murray’s view that Government is an insurable hazard).

 

Wealth redistribution efforts not only work against our financial interests, they shrink everyone’s wealth. The more equal you try and force a society to be, the poorer it gets.  Economist Arthur Okun (1928-1980), in his book Equity and Efficiency: The Big Tradeoff (1975), documented this economic phenomenon, which has become known as “Okun’s Bucket”.  He likens wealth redistribution to moving money from one person to another in a leaky bucket.  You manage to get some money transferred from one person to another, but along the way a lot leaks out and is lost forever.

 

Some thinkers justify wealth redistribution by pointing to the marginal value (usefulness) of wealth to a poor person compared to a rich person.  $100,000 to a very wealthy person wouldn’t impact them but would be life-changing to a poor person.  The argument is that the poor value each additional dollar much more than the rich, so wealth redistribution must be pursued to increase the total overall well-being of the human species.  Even if you buy the morality of that argument, it runs up against Okun’s Bucket and the economic inefficiency of attacking the wealthy.  Let the philosophers and politicians argue morality and justice.  Our wealth is efficiently and safely tucked away in an Estate Planning War Chest.

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