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The Undue Alarmism over America’s Wealth Inequality ‘Crisis’
At least the fantastical Green New Deal attempts to address an actual problem: climate change. That’s less obviously the case with various new tax proposals meant to solve America’s “wealth inequality crisis.” Evidence that America’s ever-expanding stock of wealth has become concentrated in fewer hands isn’t itself evidence of a crisis. Nor does “tolerating extreme inequality mean accepting that it’s not a gross policy failure,” as inequality researchers Gabriel Zucman and Emmanuel Saez recently wrote.
In what way is it a policy failure if extraordinary wealth is derived from the rise of innovative companies (who invest as if their continued existence depends on it) that sell gadgets and services that we greatly value? (Which is more the case than it used to be. The opposite trend, one that favored inheritance or cronyism, is what would be alarming.) How is it, given this reality, that the more billionaires there are and the richer they are, the worse things are? More, please. (It’s also worth pointing out Zucman’s much-cited data shows wealth inequality has drifted lower the past few years. Likewise, income inequality has slowed markedly over the past decade.)
And what is that policy failure, exactly, when the story of wealth inequality is largely one of housing inequality? Is the solution legally suspect and administratively challenging wealth taxes or tackling land-use regulations that deter housebuilding and generate fat returns for homeowners? Granted, the latter provides much less cathartic punch for those in need of such emotional release.
Or maybe the real crisis is just around the corner. Data showing wealth inequality at the highest levels since just before the Great Depression (Zucman notes the top 0.1% wealth share peaked at close to 25% in 1929), has led to claims and concerns that another such economic crisis awaits. But it is certainly worth pointing to a 2012 paper “Does Inequality Lead to a Financial Crisis?” where Michael Bordo, Christopher Meissner find, “Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms.” (And while the decade after that peak was marked by depression, it also saw a massive productivity boom that formed the foundation of the postwar economic boom.)
Billionaires ruin everything? Really? China has a lot more billionaires than it used to, too, and with higher inequality has also come higher living standards. (The rise of the superrich, a 2018 Credit Suisse global wealth report notes, “is often seen as a sign of a country’s economic health and its ability to generate opportunities for wealth creation.”) And the much-praised egalitarian nations of Scandinavia have as many billionaires, relatively, as the US. As economists Deirdre McCloskey puts it, “What does help poor people, and has massively helped poor people in the long run, is the massive expansion of income.” Even if some people get more of that income and wealth than others.
Published in Economics
Climate Change (CAGW) is a hoax.
The inequality is a myopic perspective. A billion Asians have entered the middle class in the last generation. From a global perspective, inequality has never been better.
Zzzactly. I have friends who worry extravagantly over income inequality. I find it confusing. It seems to me that the one fact people 500 years from now will remember about this period is that this was the moment, for the first time, that the vast majority of people worldwide emerged from wretched poverty and entered the middle class.
Inequality is a GOOD thing. It offers an incentive for those with less earnings to improve themselves so they can EARN more and get more wealth. And I wonder how many of those raging against “income inequality” bother to count the value of all the transfer payments that we earners are taxed to distribute to them.
Of course Income Inequality, and Wealth Inequality are not real crisis. The real crisis is the masses that FEEL it is unfair. They will vote for people who will promise to avenge this critical and evil unfairness with Socialistic policies and crippling, confiscatory taxes. There is a zombie horde out there that is growing and might be the majority voting in 2020.
Jeff Bezos got rich by forcing people to take opioids and picking their pocket while they’re unconscious. He’s got it coming.
I have to disagree. We enrich too many folks who can capture political power. We don’t make them billionaires just folks who can extract more at others expense than before. There is no way to avoid some of this, but we must focus on corrections. These corrections aren’t wealth transfers but greater fluidity, lower taxes, smaller governments at all levels, more competition, in short more grounded in the original constitution . Wealth grows up from the bottom, we’re shifting too much to top down, which is what we, correctly, set out to avoid.
Pethokoukis always misses the point on this. There should be equality of opportunity and that what politics should be all about.
Everyone wants the best for their children and family and friends. You even take steps to get the best for your children, family and friends. Billionaires can do more than others to get the best for their children, family and friends thus creating inequalities in opportunity. This is part of the problem.
Billionaires have more money to spend on the political system to mold the landscape to their favor. Politics is greased by money. Since billionaires have more money they can do more greasing. It doesn’t always work out for them, but they may decide to do more greasing.
Then part of the problem has to do with intelligence. Something like 10-15% of the population is being left behind because they do not have the IQ to do the kinds of jobs that are available in an increasingly technologically advanced world. That’s a lot of people, 30-45 million in the case of the US. The left would simply hand out money. But it’s not simply about money. It’s about a sense of worth which a job helps bring. Illegal immigration exacerbates this problem.