University of Chicago economist John Cochrane has written one of the most unique and insightful perspectives on inequality in his blog, The Grumpy Economist. Read Why and how we care about inequality in its entirety. It is about 6 pages long.
Finally, why is “inequality” so strongly on the political agenda right now? Here I am not referring to academics. Kevin has been studying the skill premium for 30 years. Emmanuel likewise has devoted his career to important measurement questions, and will do so whether or not the New York Times editorial page cheers. All of economics has been studying various poverty traps for a generation, as represented well by the other authors at this conference. Why is there a big political debate just now? Why is the Administration and its allies in the punditry, such as Paul Krugman and Joe Stiglitz, all a-twitter about “inequality?” Why are otherwise generally sensible institutions like the IMF, the S&P, and even the IPCC jumping on the “inequality” bandwagon?
That answer seems pretty clear. Because they don’t want to talk about Obamacare, Dodd-Frank, bailouts, debt, the stimulus, the rotten cronyism of energy policy, denial of education to poor and minorities, the abject failure of their policies to help poor and middle class people, and especially sclerotic growth. Restarting a centuries-old fight about “inequality” and “tax the rich,” class envy resurrected from a Huey Long speech in the 1930s, is like throwing a puppy into a third grade math class that isn’t going well. You know you will make it to the bell.
That observation, together with the obvious incoherence of ideas the political inequality writers bring us leads me to a happy thought that this too will pass, and once a new set of talking points emerges we can go on to something else.
But if that is our circumstance, clearly we should not fall for the trap. Don’t surrender the agenda. State our own agenda. We care about prosperity. We care about fixing the real, serious, economic problems our country faces and especially that people on the bottom of society face. Globally, we care about the billion on $2 a day, that no amount of tax and transfer will help.
The “solutions,” the secrets of prosperity, are simple and old-fashioned: property rights, rule of law, honest government, economic and political freedom. A decent government, yes, providing decent roads, schools, and laws necessary for the common good. Confiscatory taxation and extensive government direction of economic activity are simply not on the list.