Friday, March 10, 2006

Wealth Inequality

Don Boudreaux writes on inequality:
"(By the way, I put “distribution” in quotation marks because, as David Henderson once reminded me, income and wealth in market economies aren’t “distributed” in any meaningful sense of that term; income and wealth are created and initially owned by those who create it. Wealth isn’t created and then distributed. The pattern of wealth's possession is determined by the process of its creation. Therefore, what we call “redistribution” of wealth is really distribution of goods confiscated mostly from their creators.)"
This is a very interesting point, and one I've pointed to before. Income and wealth are not distributed. When we speak as though it makes sense to say wealth and income are distributed, we can easily develop analysis that makes little real sense. Income and wealth "distribution" is what it is because of the choices of everyone in the economy. If such a "distribution" is to be something other than it is, then force and coercion are going to have to be used against the voluntary choices that result in the "distribution."

Here is another interesting observation:
"But within any industrial society – especially a dynamic, entrepreneurial one – a good case can be made that the greatest inequality is that which separates one generation from the next. The “distribution” of material resources consistently favors younger generations. I’m materially better off than my parents, who are materially better off than were their parents, who were materially better off than were their parents. This pattern probably holds true for about the past 200 years.

[ . . . . ]

Does this intergenerational inequality matter? Not to me. I neither fret about it nor believe it to be the consequence of any ethical breach or failure of the economy. I feel no guilt or shame for being wealthier than my parents, and I feel nothing but delight knowing that my son, over the course of his life, will almost surely be wealthier than I’ve been over the course of my life.

Americans born in 2000 generally will enjoy greater wealth over their lifetimes than will Americans born in 1960. The greater good fortune of this younger generation has nothing to do with greater merit of the younger generation. They’re simply luckier than their parents. So, does this luck differential justify “redistribution” from our kids to us?

Some such “redistribution” does take place today – largely in the form of Social Security transfers and as a consequence of government deficit spending. But even with this “redistribution,” future generations will likely be wealthier than we are for no reason other than the fact that they’re younger than us and the economy in which they will spend their lives will feature a deeper division of labor and more technological knowledge than now exists.

Now I suspect that very few people get hot’n’bothered by the unequal “distribution” of wealth across generations. If my suspicion is correct, then it’s likely true that the reason many more people are bothered by unequal “distribution” across persons at each point in time is due not to philosophical considerations of the sort offered by John Rawls but, instead, because … because…. why, exactly? The answer (to me, at least) isn’t obvious."
One of the ideas I note here is that Don Boudreaux delights in the idea that his son will experience greater wealth than he has. I join him in that delight. I venture to bet that he even delights in believing all those who come after him can be expected to experience greater wealth than he has. He asks why there are people who are bothered by unequal "distribution" today, but suggests the answer is not obvious. Could envy be something we should explore as at least some part of an answer to his question?

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