Richard Posner- “Inequality should be a non-issue in the United States—and to a considerable degree it is.”

January 30th, 2011

Read the entire post on the Posner-Becker blog, but here is the most important part:

If I am correct that inequality is not influencing public policy in the United States—is just not a political issue—then I don’t think there is an inequality “problem.” There is just the facts that in the United States a small fraction of the population has an enormous share of the nation’s income and wealth and, at the other end of the income distribution, there are many very poor people. Are the rich a “problem”? I don’t think so. All their money is either spent on consumption or invested, and either way it is economically productive; it’s not as if the rich hoarded their wealth in the form of gold bars. The rich influence elections by their campaign contributions, but they would have the same influence with much less money, because it is not the absolute level of a rich person’s campaign contributions that sways elections but the level relative to contributions by other rich persons supporting competing candidates.

Warren Buffett warns that without stiff inheritance taxes (which the United States does not have), we will find ourselves in the grip of an “entrenched plutocracy” (according to the Economist article that Becker cites). I don’t understand that concern. The heirs of the rich spend their money on consumption or investment, just like their parents; dissipate it rapidly, if they’re dumb; but in any event do not by virtue of having inherited a lot of money block the upward striving of others.

Poverty is a problem, but if the rich are not a problem, then the problem of poverty is not a problem of inequality. It looks like a problem of inequality only because the wealth of the wealthy seems an obvious source of money to alleviate poverty. But it is not that taxing the rich would alleviate poverty, but that taxing the rich and using the tax revenues to raise the incomes of the poor would alleviate poverty. Inequality should be a non-issue in the United States—and to a considerable degree it is.

More from Tyler Cowen on the inequality that matters.