OKLAHOMA LAW REVIEW
impact of government regulation. We simply do not start from some theoretical Hobbesian state of nature, only to have government add a regulatory framework to it. Rather, governments define and limit the realms of market competition. These activities both enhance the ability of markets to create wealth and influence the ultimate distribution of that wealth.
For example, government grants of patents not only encourage the creation of tradable property rights in new technologies, but also concentrate the resulting wealth in the hands of the patent owners. Governments also grant monopolies to utilities, broadcasters, and liquor stores. All in all, it is clear that government regulation significantly affects the distribution of economic resources, but it is difficult to measure that effect.
On the other hand, we can get a very good idea about the influence of taxes and government spending on the distribution of economic resources.7 The light gray bars in Figure 1 show the U.S. Census Bureau’s estimate of the free market’s initial distribution of household income in 2004. Before taxes and transfers, the richest 20% of American households received 53% of household income, while the poorest 20% got just 1.5% of household income.
Needless to say, that’s a rather unequal distribution of income. In fact, the richest 20% of families had thirty-six times as much income as the poorest 20%.
7. See infra fig.1.