Production vs. Predation

by Don Boudreaux on November 23, 2010

in Complexity & Emergence, Inequality, Seen and Unseen

I agree with much of Will Wilkinson’s response to my earlier post on his essay on income inequality.  (Also, some commenters to this earlier post of mine made points similar to the one raised by Will.)  The matter, as Will recognizes, is an empirical one: how much of the personal wealth in the United States is the result of market production to satisfy consumer demands and how much of this wealth is the result of special privileges and other forms of predation?

One thing’s for certain: the proportion of personal wealth that is today the result of unjustified government-granted privileges is a great deal higher than it was before the 1930s – and even before 2008.  (I avoid here a discussion of intellectual property; I find that issue to be perplexing – so perplexing that I have, at least of yet, little of any merit to say about it.)

Still, my sense (for that is all it is at the moment) is that the overwhelming amount of personal wealth in the U.S. is indeed still the result of creative, entrepreurial, risking-taking industry played out in competitive markets.

One reason for my sense that this is true is that the U.S. remains remarkably rich.  Ordinary Americans – even poor Americans, and even in these especially difficult times – enjoy a standard of living that is historically off-the-charts high.  This level of widespread wealth cannot have been produced, and produced for so many years, if a substantial portion of wealth-getting activity was predatory rather than genuinely productive.  (What, however, is “a substantial portion”?!)

Another reason is that I sense that the stories of bankers and giant corporations getting bailed out with taxpayer money tend to distort our perception of wealth-getting.  The typical rich American – and, I suspect, even the typical super-rich American – is largely unknown outside of his or her relatively small circles.  His or her productive activity – as valuable and and as profitable as it is – is but a relatively tiny drop of prosperity in the great prosperity pool.  So it goes unnoticed.

Reasonable people can (and do) argue over what is the ideal set of institutions for wealth creation, and about how that set of institutions is ideally created and maintained.  However any particular person answers these questions, it seems true that, whatever set of institutions America has had at least up until a year or two ago, these institutions promoted the creation of a huge amount of widespread wealth.


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