Making people richer at differential rates

Richard Epstein has put together an article, In Praise of Income Inequality, which scissors to ribbons the notion that making people richer at differential rates is somehow contrary to our social good. Here is the core of the issue:

Consider two hypothetical scenarios. In the first, 99 percent of the population has an average income of $10 and the top 1 percent has an income of $100. In the second, we increase the income gap. Now, the 99 percent earn $12 and the top 1 percent earns $130. Which scenario is better?

This hypothetical comparison captures several key points. First, everyone is better off with the second distribution of wealth than with the first—a clear Pareto improvement. Second, the gap between the rich and the poor in the second distribution is greater in both absolute and relative terms.

The stark challenge to ardent egalitarians is explaining why anyone should prefer the first distribution to the second. Many will argue for some intermediate solution. But how much wealth are they prepared to sacrifice for the sake of equality? Beyond that, they will have a hard time finding a political mechanism that could achieve a greater measure of equality and a program of equitable growth. The public choice problems, which arise from self-interested intrigue in the political arena, are hard to crack.

The reality is that people do make inter-personal comparisons. And not only that, there are some people who really would prefer that others were made worse off even if it would mean they were made worse off themselves. Envy is the single largest driver in economic and social relations. But we should recognise it, not by succumbing to the desires of some to crash the whole apparatus because they hate the success of others. We should instead call them out on it and make them justify ruining the prospects of us all so that they can indulge in their vicious attitudes towards success.

The large problem is that those who harbour these anti-social beliefs, but who are also in a position to infuse those attitudes in policy, are doing all right for themselves since if they are able to influence policy they have, by definition, achieved a position of power. It is a problem for everyone that someone can make a really good living by representing the envious and worm eaten by pretending they are really in favour of equality and fair dealing. They never seem to think they themselves should suffer the reduction in living standards they impose on others. No good ever comes of having these people in power but how to fight them off remains a perennial problem.

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