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Guillotina horizontal

The Immense Danger of the Horizontal Guillotine

Differences in income and wealth are a direct consequence of what people do in the supermarket.

[Leer en español]

The mania for egalitarianism has become more acute in our midst, but it is not an original tendency, since it is unfortunately observed in many different countries, even in some of those that have had a tradition of reciprocal respect and have abandoned it in favor of the horizontal guillotine. It is of great importance to emphasize equality before the law (equality of rights); yet, the pretended equality of results inevitably impoverishes everyone, especially the most vulnerable.

Differences in income and wealth are the direct consequence of what people do in the supermarket. That is why it is so counterproductive when governments proceed to redistribute income, since it inexorably means contradicting the wishes and preferences of the people who peacefully and voluntarily distributed their resources, in order to impose by force other directions of the always scarce factors of production. Even Thomas Sowell – senior research fellow at the Hoover Institution – advises against using the expression “income distribution, since income is not distributed, it is earned.”

Even if we depart from Sowell’s advice, production and distribution are two sides of the same process: those who produce receive their income in return. That is why the assertion, surely well-intentioned, that “first we must produce and then we will see how it is distributed” is so absurd, without understanding that there will never be production if it is in arbitrary hands to distribute in a different sense from those who produce.

This same line of argument insists on the atrabiliary concept of “social justice.” This entelechy can only have two meanings: on the one hand, a gross redundancy, since justice cannot be mineral, vegetable or animal, it is only social, and on the other hand, the more generalized meaning of taking from some what belongs to them to give to others what does not belong to them, a situation that contradicts the classic definition of “giving to each his own,” and “his own” refers to the right to property, which is in this case contradicted. That is why Nobel Prize winner Friedrich Hayek has written that every noun followed by the adjective “social” becomes its antonym: social constitutionalism, social rights, social democracy and, of course, social justice.

As Harvard professor Robert T. Barro teaches us, “the most important determinant of poverty reduction is raising the weighted average income of a country, not reducing the degree of inequality,” and another Nobel laureate in economics, James M. Buchanan, states: “As long as exchanges are kept open and as long as force and fraud are excluded, what is agreed upon is, by definition, what can be classified as efficient.”

Anthony de Jasay, a famous Oxford professor, shows how the sports metaphor is self-defeating when it is said that it is reasonable for everyone to start on an equal footing in the race for life and that it is unfair for some to have advantages over others because of patrimonial differences. But soon after, it is perceived that in this scheme, the first to reach the finish line will realize that he has made a useless effort, since at the start of the next race he will be leveled again and, therefore, in this sporting correlation with income differences, he will not be able to transmit the result of his energy to his descendants.

The central point in this analysis is that, in an open society, those who best serve the needs of their fellow man make a profit and those who err incur a loss. And it is not that in the process of social cooperation one proceeds in this way for philanthropic reasons, it is that one is obliged to act in this way if one wants one’s own betterment. And what is important is that these gains mean higher capitalization rates, which is the only cause of wage increases in real terms. This is the difference between rich and poor countries and, in turn, these higher investments are the result of institutional frameworks that establish reciprocal respect.

As we have pointed out elsewhere, today, to a large extent, what Ray Bradbury described in his novel Fahrenheit 451 is happening with governments: firemen who set fire, i.e., rulers who, instead of guaranteeing rights, violate them.

One of the most frequent channels aiming at the application of the horizontal guillotine is the progressive tax. As is well known, such taxation means that the rate increases as the taxable object increases, unlike proportional taxation, which, as its name indicates, implies uniformity in the rate. Progressivity produces three central harmful effects.

In the first place, it alters the relative wealth positions, i.e., people distribute income through their purchases and refrains from purchasing, with the result that different relative income positions arise among the recipients. Well, progressivity changes these directives, thus modifying the allocation of resources, contradicting the aforementioned indications, which translates into waste, which in turn affects wages.

Secondly, it blocks much-needed social mobility, as it hinders the ascent and descent in the wealth pyramid. And finally, progressivity is in fact regressivity, since for the reasons mentioned above, by reducing investment due to the higher progressive payments of de jure taxpayers, the income of marginal taxpayers decreases and they become de facto taxpayers.

To resort to the terminology of game theory, it is pertinent to emphasize that in every free and voluntary transaction both parties win, which is another way of saying that they are positive-sum, as opposed to what is known as the “Montaigne Dogma”, where it is assumed that the winner is the one who receives the monetary sum and the one who delivers it in the transaction loses. This is the result of being obsessed with the monetary side of the exchange without paying attention to the fact that the money is given to receive a good or a service that the interested party values more.

This perspective extends to international trade, where value is mistakenly attributed to exports and the weight of imports is underestimated, when we export precisely to be able to import, just as we sell our services to be able to acquire what we need.

Finally, we mention an idea that, prima facie, appears attractive and reasonable, but hides a fundamental problem. It is “equality of opportunity.” The free society offers better opportunities, but not equal ones; the mentioned equality is before the law, not by means of it; opportunities are not at the cost of taking the fruit of other people’s labor.

If an tennis amateur were given equal opportunities to play with a professional, it would be necessary, for example, to force him to use his weaker arm, thus infringing his right. Egalitarianism nullifies the beneficial effects of freeing creative energies, especially for those most in need.

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