Wednesday, February 20, 2013
- Richard Epstein (NYU), In Praise of Income Inequality:
What should we make of these numbers? One approach is to stress the increase in wealth inequality, deploring the gains of the top 1% while lamenting the decline in the income of the remainder of the population. But this approach is only half right. 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% 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% so long as the income of the top 1% 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. ...
Rather than focus on “equitable growth,” the President should focus on flattening the income tax and deregulating labor markets. Today’s constant emphasis on progressive taxation and government intervention in labor markets will continue to lead the country, especially the middle class, on a downward path.
(Hat Tip: Bill Turnier.)