Wednesday, April 26, 2006
Income inequality widened, particularly between urban and rural households after China began its rapid rate of economic development in 1980....I make this observation in reaction to the great concern expressed by politicians and many others in the United States over the rather substantial increase during the past 25 years in earnings inequality among Americans. The China and India examples illustrate that whether rising inequality is considered good or bad depends on how it came about. I believe that the foundation of the growth in earnings inequality of Americans has mainly been beneficial and desirable.
Becker explains the rising income inequality in the United States persuasively; I would add only that as society becomes more competitive and more meritocratic, income inequality is likely to rise simply as a consequence of the underlying inequality--which is very great--between people that is due to differences in IQ, energy, health, social skills, character, ambition, physical attractiveness, talent, and luck. Public policies designed to reduce income inequality, such as highly progressive income taxation and middle-class subsidies, are likely to reduce the aggregate wealth of society, and therefore should not be adopted unless rising income inequality is a social problem.