Tuesday, December 10, 2013

Not all inequalities are equal

Political pundit Timothy Carney, in a Washington Examiner article, looks at recent research that concludes that the level of inequality in a given country is not sufficient to determine whether it represents an immoral outcome nor whether it represents a drag on the country's economy.  What's important is the source of the inequality.  Here's an interesting excerpt:
When a country’s wealthiest people got their wealth as Pangestu and Fridman did [i.e. through cronyism -- MDS], inequality places a drag on the economy. When a country’s wealthiest got wealthy through market means, the resulting inequality has no negative effect on economic growth.

This jibes with what we know about free markets. If people can get rich by providing valuable things at good prices, then society will get more valuable things at good prices—and people across the income spectrum benefit. But if people get rich by pocketing subsidies and using the state to crush competitors, then they gained their wealth at the expense of everyone else.
In other words, the inequality that is the natural result of free-market processes is both a boon to the economy and morally derived.  The inequality that is both immoral and economically damaging is due to cronyism.