Thursday, June 02, 2005

The Irrelevance of Income Inequality

I'm with Don Boudreaux :
Never in my life have I worried in the least about a market-economy’s income "distribution." Perhaps this confession reveals my character to be flawed or my intellect to be feeble. Regardless – I tell you the truth.
Read any history of Reformation Europe and you’ll see that lots of people – prominent people, smart people, educated people, people of means and influence – pondered and sweated and roared over this issue. People were burned at the stake for taking the wrong position on it. And yet, and yet.... so what??? What a pointless debate! What a nothing, empty issue! All time and energy spent on this question is time and energy utterly, sadly wasted.
I think those 2 quotes should be enough to entice you to read the rest of his commentary. He offers a list of the top 5 reasons we shouldn't be concerned about recent reports that income inequality has been increasing in the United States. I agree with all 5. Here is the 5th:

Fifth, in America’s market economy the "distribution" of income is merely a summary statistic of one among gazillions of unintended consequences springing from a hugely complex and on-going decision-making process involving hundreds of millions of consumers and producers. Income isn’t "distributed," or even earned, according to some grand plan. Therefore, income "distribution" is not a policy variable subject to easy manipulation by politicians and social planners.
When I talk with students about distributive justice as a normative framework for defining the role and purpose of government, I have noted that this normative framework assumes that some decision maker chooses and therefore can determine what the distribution will be. But, as suggested by reason 5, the "distribution" of income is the result many independent individual decisions. It seems to me that efforts to manipulate economic activity to achieve some particular result with respect to income distribution will fall prey to millions of decision makers choosing to respond in ways unintended by policy makers.

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