by Don Boudreaux on November 19, 2011

in Inequality, Other People's Money, Scientism, Taxes, The Economy

Here’s a letter to Business Insider‘s Gus Lubin (HT Methinks1776):

Mr. Gus Lubin
Business Insider

Dear Mr. Lubin:

Saying that “the ‘99%’ do have a point,” you favorably quote Aneta Markowska’s allegation that today’s economic woes are caused partly by income inequality (“SocGen Explains How Income Inequality Is A Growth Killer,” Nov. 18).  Says Ms. Markowska: “As of 2008, 48% of national income accrued to 10% of the population.  The remaining 90% took in only 52% of income, which is insufficient to maintain mass consumption.”

Ms. Markowska’s claim that spending is now “insufficient to maintain mass consumption” is questionable.  Inflation-adjusted personal consumption expenditures are higher today than they were just before the current recession began.*  But even if her claim were true, caution is justified before accepting it as grounds for income redistribution.

Consider that an influential group of scholars, led by Cornell’s Robert Frank, argues for income redistribution on grounds opposite those suggested by Ms. Markowska.  Mr. Frank thinks that consumer spending is chronically excessive.  As he explained last year in the New York Times, “The rich have been spending more simply because they have so much extra money.  Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles.”  All this spending, by rich and poor alike, to keep up with the Joneses robs us of what Mr. Frank feels we really want more of: leisure, quality time with family and friends, and tax-funded public goods.  So he seeks to soak the rich not to stimulate consumer spending but to reduce it.

My point isn’t to endorse Mr. Frank’s ideas.  It’s instead to warn that it is tempting and easy to construct superficially ‘scientific’ justifications for taking other people’s money.

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

* See the U.S. Bureau of Economic Analysis’s National Income and Product Accounts, Table 2.1: “Personal Income and Its Disposition.”  (The figures there are in current dollars; I adjusted them for inflation by using the Minneapolis Fed‘s online inflation adjuster.)


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