The supply of goods available for consumption does not increase, after all, when money is redistributed. On the other hand, the demand for certain goods by people who were formerly too poor to afford them is very likely to increase. Thus prices of those goods will probably rise.
This inflationary pressure will entail a corresponding reduction of consumption, perhaps not by the very rich--who will still have plenty of money with which to cope with the price increases--but by members of an intermediate class, who will be unable to maintain their accustomed level of consumption in the face of higher prices. The reduction of their standard of living will tend to offset the gain made by the formerly poor. This trade-off will mean that aggregate utility does not increase. The aggregate of utility cannot reliably be increased, then, by taking money from the rich and giving it to the poor. On Inequality, (Princeton University Press, 2015), pp. 19-20.
Thursday, November 5, 2015
Robbing Peter to Pay Paul Could Hurt Mary
Harry Frankfurt on the inflationary effect that is likely caused by the government taking money from the rich and redistributing it (only) to the poor: