Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don't immediately understand why, then you haven't been reading BTP enough.

Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they're worth it). The same applies to Pfizer and Merck. These companies' drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.

There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.

The response to Governor Romney's now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.

This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.

The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public's focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.

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