[OPE] Does Inequality Get a Bad Rap?

"A Goldman Sachs International adviser defended compensation in the
finance industry as his company plans a near-record year for pay, saying
the spending will help boost the economy. “We have to tolerate the
inequality as a way to achieve greater prosperity and opportunity for
all,” Brian Griffiths, who was a special adviser to former British Prime
Minister Margaret Thatcher, said yesterday."

from: Binham, Caroline. 2009. "Goldman Sachs’s Griffiths Says Inequality
Helps All." Bloomberg (21 October).
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8upOpH5Q3Tw

Some economiss actually believe this stuff. I wrote about this theory
in The Confiscation of American Prosperity:

According to this theory, markets appropriately reward the rich and
powerful because of their superior productivity. Consequently, they
deserve every bit of what they earn. Supposedly, the best cure for
poverty is to allow natural economic forces to follow their course.
These economists are unapologetic about their stance. For example, when
Finis Welch, who gave his prestigious Richard T. Ely lecture at the 1999
meeting of the American Economic Association, he provocatively titled
his talk, "In Defense of Inequality." There, Welch proclaimed:

                I believe inequality is an economic "good" that has received too much
bad press .... Wages play many roles in our economy; along with time
worked, they determine labor income, but they also signal relative
scarcity and abundance, and with malleable skills, wages provide
incentives to render the services that are most highly valued ....
Increasing dispersion can offer increased opportunities for
specialization and increased opportunities to mesh skills and
activities. [Welch 1999, pp. 1 and 15]

Ludwig von Mises, an Austrian economist and one of the leading icons of
libertarian economics, went even further than Welch, proclaiming:
"Inequality of wealth and incomes is the cause of the masses'
well‑being, not the cause of anybody's distress. Where there is a
'lower degree of inequality', there is necessarily a lower standard of
living of the masses" (von Mises 1955).

        Does inequality really get too much bad press, as Finis Welch suggests?

-- 
Michael Perelman
Economics Department
California State University
Chico, CA
95929
530 898 5321
fax 530 898 5901
http://michaelperelman.wordpress.com
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