While debunking OECD and IMF research on inequality, I explained that it’s important to distinguish between income that is earned honestly and loot that is obtained thanks to government cronyism.
That’s also the message of this video from the Hoover Institution.
In the video, David Henderson contrasts how our lives are improved when an entrepreneur develops a new product.
The entrepreneur almost surely gets richer faster than we get richer, but we all wind up better off. Indeed, there’s a clear relationship between the share of rich people in a society and overall prosperity.
And that’s a good description of what has actually happened in market-oriented nations such as the United States.
Heck, it even happened to some degree in China when there was partial reform.
By contrast, government favoritism is a recipe for inefficiency and stagnation (and since LBJ was an awful president, I like that David used him for the example of corrupt cronyism).
In a column for CapX, Andrew Lilico correctly differentiates between moral inequality and immoral inequality.
The only legitimate questions about the distribution of wealth concern whether it is truly the property of those that possess it, as opposed to having stolen or extorted it. …Wealth is property. If it has been innocently acquired, people should be able to enjoy their property without censure or the (quite incorrect) suggestion that their flourishing causes others harm.
Not only is it incorrect to suggest that one person’s flourishing causes harm to others, it is completely wrong.
As pointed out in the video, Nobel Prize-winning economist William Nordhaus calculated that entrepreneurs only capture a tiny fraction (2.2 percent) of the wealth they create for society. That means 97.8 percent for the rest of us.
And other academic scholars have produced similar results.
The bottom line is that the recipe for growth and prosperity is the same recipe for helping the less fortunate.
P.S. As you can see from his Wikipedia page, Professor Nordhaus is not a libertarian or conservative, so it should be clear he wasn’t trying to come up with a number to justify capitalism.
P.P.S. I also recommend my four-part series (see here, here, here, and here) on why we should care about poverty reduction rather than pushing for coerced equality, as well as my two-part series (here and here) on how statist policies produce the immoral type of inequality.
