We have seen the future, and it sucks.

In Praise of Income Inequality

23rd February 2013

Richard Epstein point out some inconvenient truth.

We should be uneasy about any and all income declines, period. But, by the same token, we should collectively be pleased by increases in income at the top, so long as they were not caused by taking, whether through taxation or regulation, from individuals at the bottom.

This conclusion rests on the notion of a Pareto improvement, which favors any changes in overall utility or wealth that make at least one person better off without making anyone else worse off. By that measure, there would be an unambiguous social improvement if the income of the wealthy went up by 100 percent so long as the income of those at the bottom end did not, as a consequence, go down. That same measure would, of course, applaud gains in the income of the 99 percent so long as the income of the top 1 percent did not fall either.

This line of thought is quite alien to thinkers like Saez, who view the excessive concentration of income as a harm even if it results from a Pareto improvement. Any center for “equitable growth” has to pay as much attention to the first constraint as it does to the second. Under Saez’s view of equity, it is better to narrow the gap between the top and the bottom than to increase the overall wealth.

In other words, the Berkeley Professor’s program is based on ideology, not science. My, what a surprise! Aren’t you surprised? I’m sure surprised.

The real motivation is the undoubted fact that any scheme of ‘take from the rich, give to the poor’ has the invisible but very real third clause ‘let government employees wet their beaks’. As in class action suits where the lawyers get millions while the alleged beneficiaries get a coupon for some cheap stuff, government income redistribution programs benefit plan administrators a lot and ‘the poor’ very little — aside from the rampant fraud and abuse that always occurs.

The blunt truth remains that any government-mandated leveling in society will be a leveling down. There is no sustainable way to make the poor richer by making the rich poorer. But increased regulation and taxation will make both groups poorer. Negative growth hardly becomes equitable if a larger fraction of the decline is concentrated at the top earners.


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