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Yet another weird SF fan
 

Tuesday, April 17, 2007

Is There an Inequality Budget?

According to Randall Parker, societies have an “inequality budget”:

I see a lesson here that is applicable to the immigration debate: Human societies have a limit to the amount of inequality that people will tolerate. Given that many of the forces that generate inequality do so by incentivizing the most productive to generate wealth we should ask whether we should avoid other policies that generate inequality without generating much wealth.

To put it another way: Think of societies as having inequality budgets. A society has a fixed amount of inequality to spend. In my view it is better to spend that inequality on policies that cause economies to generate the most wealth per person and the most new technology and science. Policies that generate a lot of inequality with little increase in productivity of wealth creators (e.g. immigration of people who have low skills and low earnings power) essentially waste inequality that would be better spent on incentive systems for those with the most potential to generate wealth.

Beyond some level of inequality the masses will demand taxes and other measures to limit the extent of inequality. The masses probably wont' show fairness or wisdom when they demand such taxes and other restrictions on the power of wealth. But by supporting such policies they are catering to their own very deeply felt needs for higher relative status and a reduction in the feeling that wealthier people control their lives.

I find that hard to believe. In the United States, we make much less of an effort at smoothing inequalities than more homogeneous nations. Come to think of it, the United States was most energetically egalitarian when immigration was restricted. We became less egalitarian after we started importing inequality again.

I suspect that, to the extent there is an urge to redistribute, it's more likely to be prominent in a society with a bimodal income distribution, even if the modes are close together. If there is a large middle class, even if the rich and poor are far apart, the majority will resist income redistribution and only the very bottom will support it.

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