Wednesday, October 21, 2009

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).

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?


Sandwichman said...

"Some economis[t]s actually believe this stuff."

Don't be naive, Michael. "This stuff" is the secret handshake of the economics profession. Whether or not anyone believes it, they all know that saying it is good for their careers. And just one step behind the brown-nosers to Wall Street are the cuckold progressives who can't bring themselves to admit that the swindle is "economic growth" itself. What GDP growth now measures is mostly the engorgement of the swindlers and the expansion of their vast retinue of servants and toadies.

Let the knitting begin!

Anonymous said...

"We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all"

Greater opportunity? He must have not read the papers or seen the news on TV when it was announced that social mobility in the UK had sunk to its lowest level since records began.

We are nearly as bad as the USA in terms of social mobility, to give you an idea how bad we have become thanks to Thatcherism.

As for greater prosperity, well, if you are part of the top 5% that is probably correct. For the rest, well, as in America the gains of economic growth have not trickled down...

what a surprise...

equally unsurprising is the fact he can assert nonsense like that and expect no one in the media to point out how wrong he is.

An Anarchist FAQ

Shag from Brookline said...

This reminds me of the group I have labeled as "Lottery Democrats" who, like the snakes at Boston's Franklin Park Zoo, don't have a pit to hiss in but object to high income and estate taxes because they someday hope to hit the lottery and don't want to have their winnings diluted.

Jack said...

Take a close look at who it is that sits on the various "advisory committees" of both public and private universities in this country. I had made reference to this point previously, either here or Angry Bear. I'm talking about advice concerning faculty issues, like quality and production. Of course this kind of "advice" is always described as being beneficial to the quality of the university. Here, as an example, is the description from Chicago Booth School of Business: "The Council on Chicago Booth advises Booth's leadership in their efforts to maintain faculty excellence and develop the highest quality management education programs in the world. We gratefully acknowledge the extraordinary contributions of Chicago Booth Council members."
Here is the link to the membership page for that Committee:
Not a lot of academics on that committee, are there? Big business appears to make faculty decisions for the famed UofChicago School of Business. So why would we expect that those vying for faculty positions wouold do anything other than cater to the ideologies of big business. UofChicago is not an exception to the rule.

Sandwichman said...

"So why would we expect that those vying for faculty positions would do anything other than cater to the ideologies of big business.[?]"


Anonymous said...

The greedy always argue that everybody is like them and they are just better at being greedy than we are.

But we're not all like them!