Blog Post

AEIdeas

Princeton University economist and new Nobel laureate Angus Deaton says the political left and right are missing different bits of the inequality story.

Via the WSJ:

Inequality is partly a marker of success. If someone thinks of something, some new innovation that benefits us all, and the market works properly, they get richly rewarded for that and that’s just terrific and that creates inequality. So some of the greatest inequalities in the world have come from the greatest successes—from the industrial revolution 250 years ago to innovation and new inventions and new things today. … [But what] I worry about is that some of the enormous riches we’re seeing in the United States today are coming from activities that are in social doubt. So some of the activities that are going on in Wall Street that are occupying some of our smartest young minds—it’s not clear society wants them to be doing that as opposed to be innovating in the private sector or curing cancer or doing all the various things smart people could do.

I would put it slightly differently: Great wealth coming from the production of consumer-relevant value is one thing, great wealth from the manipulation of government another. Competitive capitalism vs. crony capitalism is another way to frame it.

Oh, and while we are on the subject on inequality, let me re-up this Economist piece pointing out the under-appreciated role of housing in driving wealth inequality and offering this advice to policymakers: “… deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.”