I recommend that you read Amity Schlaes’s lengthy history of economic growth and inequality at City Journal. In it Ms. Schlaes’s thesis is, basically, that growing economies tend to become more equal:
The geeky Gini metric fails to capture the American economic dynamic: in our country, innovative bursts lead to great wealth, which then moves to the rest of the population. Equality campaigns don’t lead automatically to prosperity; instead, prosperity leads to a higher standard of living and, eventually, in democracies, to greater equality. The late Simon Kuznets, who posited that societies that grow economically eventually become more equal, was right: growth cannot be assumed. Prioritizing equality over markets and growth hurts markets and growth and, most important, the low earners for whom social-justice advocates claim to fight. Government debt matters as well. Those who ring the equality theme so loudly deprive their own constituents, whose goals are usually much more concrete: educational opportunity, homes, better electronics, and, most of all, jobs. Translated into policy, the equality impulse takes our future hostage.
Consequently, the objective of policy should be growth rather than equality. So far, so good.
What made me uncomfortable about the piece is that Ms. Schlaes doesn’t seem to appreciate how different conditions are now than they were in the 1890s or the 1920s, other periods of great income inequality. Back in the day the federal government comprised a very small proportion of GDP—about 3%. Now it’s almost 25%. Then the CEOs of big companies didn’t rely on government muscle and support. Now they do. Big banks in particular know with a confidence based in experience that they won’t be allowed to fail. John D. Rockefeller, war profiteer that he was, didn’t really rely on the federal government for his wealth. He was an entrepeneur, as were Henry Ford, Gardner Hubbard, and Tom Edison. Nowadays a dominant business model is seeking government grants, cf. Elon Musk, or to become just successful enough to be acquired by a company that relies on the government for its wealth and power.
I would counter Ms. Schlaes that the objectives of policy should neither be economic growth nor income equality but social equality and freedom.
“Nowadays a dominant business model is seeking government grants, cf. Elon Musk,…….”
Very visible, but I dont think dominant. The high end golf community I live in is full of wealthy people. Given housing and carrying costs it’s hard for me to imagine any family with a net worth less than $10mm. Try $15 -$75. Mostly former business owners, with a healthy representation of CEOs and surgeons and the like. Even some sports stars. On the business side, only one, the founder of a large retail chain you would recognize possibly benefitted as you describe. Most were/are widget makers or sellers. Medical professionals? You tell me. Many traffic in restraint of trade if you ask me. But any way you count it, the Elon Musks, Jamie Diamonds or, say, ag barons are really a decided minority.
I think you correctly note the larger reach of government today
Vs the past. From my perspective some of the biggest systemic beneficiaries of government grants, regulatory capture, monopoly etc are the trial lawyers, academia, a certain W Buffet, or just about any heavy political contributor – think corn. Is there a fairly common thread among those types? I think so.
60-70% of health care is paid for by the government. Health care is about a sixth of the economy now and that’s obviously backstopped by the government. Banks, owners of patents and copyrights, and other government franchisees. I don’t think that reckoning that a majority of the economy is presently backstopped by the government is off the mark.
It has been awhile. Perhaps last summer. I commented on it here, but don’t think I linked it. I saw a study on income distribution in many countries. It was broad – N an S America, Europe, Asia, the ME. The striking thing was that all the distribution curves showed a distinct, if small, tail of the very wealthy. They are everywhere no matter the tax, societal or government environment. And they all had the poor. What was striking was that the US, unlike almost all the other curves, showed a much smaller declining slope as the curve moved from middle class to wealthy. It was skewed. And it represents what we call the upper middle class, but it’s middle class.
Readers can reach their own conclusions. Mine are that erasing or dramatically decreasing income inequality is folly. It’s everywhere because it derives from human nature, on both ends of the spectrum. Second is that, per Schlaes, it’s better to set the conditions for general growth rather than focusing on redistribution from the very few really wealthy. They will generally figure out how to preserve theirs, and you will get a more robust middle and upper middle class.
It might be worthwhile to routinely come at this subject. It probably would draw out data and plenty of opinions. I don’t agree with you. I think you overstate the issue, it’s not my experience, and I am familiar with quite a few wealthy people. It’s a far cry from citing patent protection or the backstoping of medical payments through the public sector to a dominant business model.
I think that most wealthy people don’t realize they’re backstopped by the government. That they don’t think of themselves that way doesn’t mean it’s not true.
I also think that the more very wealthy people are backstopped by the government the harder it makes it for the rest. Physicians and lawyers rarely think of themselves as being supported by the government but that doesn’t mean it isn’t so. I think that’s one of the reasons for the decline in entrepeneurship.
You’ve mentioned ag. The big accounting firms are supported by government, too via the requirement for publicly held companies to be independently audited. The home mortgage deduction subsidizes home construction companies (so does an open border with Mexico). Interstates subsidize trucking companies. Intellectual property laws subsidize pharmaceutical firms, Microsoft, Apple, and Oracle. The sales tax rules subsidize Amazon (less than they used to because Amazon has a larger footprint now). Aerospace. Auto companies.
I would see all your examples………and raise you. There is plenty of that stuff. Hence my dislike of the size of government, which is always bent towards the most talented, or vile, among us.
My issue is in the numbers. I grant all your examples, but my experience with simply so, so many wealthy people, indicates to me that those examples are dominated by those who really are not government beneficiaries. (and please, let’s not get into the silliness of who benefits the most from a road or defense). I deal with these people every day, for 25 years. Elon Musk, or Warren Buffet, or Morgan and Morgan “for the people” (snicker) are visible, but not the majority of the population.