Here’s a letter to the Wall Street Journal.
Editor:
You asked five prominent economists to offer ideas “for reducing income inequality” (“Five Ideas for Reducing Income Inequality,” June 5). Of the five, only John Cochrane dared come close to challenging your question’s faulty premise – namely, that large income differences in a market economy are a problem that demands government attention. In markets, incomes are produced and earned, and they rise with the size of the contributions income earners make to the material welfare of their fellow human beings. There is no ‘problem’ here over which to wring our hands.
What does warrant hand-wringing is the economic misunderstanding of too many prominent economists. Emmanuel Saez, for example, in unimaginatively proposing to soak the rich, is apparently unaware that such soaking will – in addition to discouraging entrepreneurial innovation – deplete the stock of capital, thus reducing worker productivity and, in turn, lower real wages. Glenn Hubbard, in pinning the blame for the growth in income difference on globalization and technology, too readily accepts the claim – first peddled by progressives and now also by MAGA conservatives – that many ordinary Americans haven’t prospered over the past few decades. This claim has been thoroughly debunked by careful researchers, including Jeremy Horpedahl, Michael Strain, and Phil Gramm, Bob Ekelund, and John Early.
Also baseless is Heather Boushey’s allegation that the decline of labor unions resulted in workers having too little bargaining power. Another careful researcher, Scott Winship, finds that, although the percentage of workers who are members of unions has been falling since 1955, inflation-adjusted worker pay since then has not only been rising, but has kept pace with rising worker productivity – proof as solid as proof gets that labor-market competition continues to ensure that workers aren’t underpaid.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
