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.
The answer is always the same – confiscatory wealth taxation and expansion of the state. The question, the “problem” this answer is supposed to solve keeps changing. When an actual economic problem is adduced – excessive spending by the poor, inadequate spending by the rich, political instability — they don’t advocate the problem’s natural solution. These “problems” are being thought up afterwards to justify the desired answer. And amazing, novel and undocumented cause-and-effect assertions about public policy are dreamed up and passed around like internet cat videos.
n the end, most of these authors are pretty clear the real problem they see: money and politics. They worry that too much money is corrupting politics, and they want to take away the money to purify the politics.
That explains the obsessive focus on the income and wealth of the top 1%. Consumption may be flatter, but income and wealth buy political connections. And all of our concern about the status of the poor, the returns to skill, awful education, the effects of widespread incarceration, all this is irrelevant to the money and politics nexus.
Now, the critique of an increasingly rent-seeking society echoes from both the left and the libertarians. Rent-seeking is a big problem. Cronyism is a big problem. Stigler finds a lot to agree with in Stiglitz. As do Friedman, Buchanan, and so forth.
But now comes the most astounding lack of logic of all. If the central problem is rent-seeking, abuse of the power of the state, to deliver economic goods to the wealthy and politically powerful, how in the world is more government the answer?
If we increase the statutory maximum Federal income tax rate 70% , on top of state and local taxes, estate taxes, payroll taxes, corporate taxes, sales taxes and on and on — at a Becker conference, always add up all the taxes, not just the one you want to raise and pretend the others are zero -– will that not simply dramatically increase the demand for tax lawyers, lobbyists and loopholes?
If you believe cronyism is the problem, why is the first item on your agenda not to repeal the Dodd Frank act and Obamacare, surely two of the biggest invitations to cronyism of our lifetimes? And move on to the rotten energy section of the corporate tax code.
They don’t, and here I think lies the important and resolvable difference. Stiglitz wrote that “wealth is a main determinant of power.” Stigler might answer, no, power is a main determinant of wealth. To Stiglitz, if the state grabs all the wealth, even if that wealth is fairly won, then the state can ignore rent-seeking and benevolently exercise its power on behalf of the common man. Stigler would say that government power inevitably invites rent-seeking. His solution to cronyism is to limit the government’s ability to hand out goodies in the first place. We want a simple, transparent, fair, flat and low tax system.
Just as progressive ideology justifies any means including lies and abuse of power to justify the ends, their economic policies seek problems to justify their so called solutions. They are a solution in search of a problem.