The Concise Encyclopedia of Economics
FEATURED TOPIC

Redistribution

Dwight R. Lee

The federal government has increasingly assumed responsibility for reducing poverty in America. Its primary approach is to expand programs that transfer wealth, supposedly from the better off to the poor. In 1962, federal transfers to individuals (not counting payments for goods and services provided or interest for money loaned) amounted to 5.2 percent of gross domestic product, or 27 percent of federal spending (Stein and Foss 1995, p. 212). By 2000, federal transfers had increased to 10.9 percent of GDP, or approximately 60 percent of federal spending; GDP was $9.82 trillion and federal spending was $1.79 trillion. These transfers are commonly referred to as government redistribution programs, presumably from the wealthy to the poor. The unstated implication is that income was originally distributed by someone. But no one distributes income. Rather, incomes are determined in the marketplace by millions of people providing and purchasing services through voluntary exchanges, and government transfers necessarily limit these exchanges. That explains the quotation marks around the term "redistribution."...

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ALSO OF INTEREST

Douglass C. North

Biography.

Frank H. Knight

Biography.

Entrepreneurship

Russell S. Sobel

Public Choice

William F. Shughart II

Immigration

George J. Borjas

Creative Destruction

W. Michael Cox and Richard Alm

Energy

Jerry Taylor and Peter Van Doren

Health Care

Michael A. Morrisey

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FEATURED BIOGRAPHY

Amartya Sen

(1933-)

In 1998, Amartya Sen received the Nobel Prize "for his contributions to welfare economics." Much of Sen's early work was on issues raised by Kenneth Arrow's "impossibility theorem." Arrow had shown, much more generally than Condorcet had in 1785, that majority rules often lead to intransitivities. A majority may prefer a to b and b to c, but it does not follow, as it does for an individual, that the majority prefers a to c. If the majority prefers c to a, then there is an intransitivity. With coauthor Prasanta Pattanaik, Sen specified certain conditions that eliminate intransitivities. He did later work on his own that resulted in a 1970 book that added to Arrow's initial insights. One major theme was his skepticism about utilitarianism. The Nobel committee cited this work in awarding the prize.

Sen also pointed out that the standard measure of poverty in a society, the proportion of people who are below a poverty line, leaves out an important datum: the degree of poverty among the poor. He came up with a more complicated index to measure not only poverty but also its degree.

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