Tax Payers and Entitlement Receivers

by Elaine Schwartz    •    Sep 16, 2010    •    522 Views

I wonder if we should be concerned.

Lecture 32 of “Thinking About Capitalism” from the Teaching Company looks at John Stuart Mill (1806-1873), James M. Buchanan (1919-  ), and Mancur Olson (1932-1998). Concerned with the impact of democracy on capitalism, these economic thinkers focused on self-interested voters and politicians. Although their perspectives differed, they shared the view that self-interested politicians could favor voters who contributed little to economic growth. As a result, to perpetuate their power, politicians would support legislation that harmed the economy.

Fast forward to September 15, 2010. A front page Wall Street Journal article, “Obstacle to Deficit Cutting: A Nation on Entitlements,” explains that an estimated 45% of American households will not pay 2010 federal income taxes. Why? Because they do not earn enough or their credits and deductions eliminate their tax liability. Meanwhile though, close to 50% of all American households receive federal benefits. The article concludes that an increasingly smaller proportion of the American population is paying for the entitlements received by an increasingly larger number of Americans.

Will politicans be influenced more by those who pay or those who receive?

The Economic Lesson

Considered a liberal 19th century economist who firmly believed in individual freedom, Mill thought that those who were more educated should have greater voting power than the working classes who might outnumber them.

James M. Buchanan won the 1986 Nobel Prize in Economics for his work on “public choice theory“. Stated very briefly, his focus has been the importance of fixed political rules to thwart politicians’ self-interest.

Mancur Olson, in The Logic of Collective Action, explains that small groups can be more powerful than huge numbers of unorganized individuals who disagree with them. 


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