Income Inequality

Perhaps I should be focusing on executive compensation, a more limited version of the topic.  But I don’t know enough about either to know how much overlap there is between the two concepts. Part of that fault is likely my own, as I have not inquired closely.  Yet I wonder if the lack of clarity lies at least partly with the explainers rather than the listeners. 

I also cannot tell if people are worried about inequality primarily because it is an inefficiency – an overall drain on the economy, because increased concentration of wealth dangerously enhances the power of the few over the many, or because it just seems morally wrong – undemocratic, unchristian, something. All three seem plausible. Picketty’s book assumes it is bad, so I am told.  The whole concept of hearkening to GINI scores suggests that we’re supposed to just know that it’s unhealthy.

You know my suspicions already.  Whenever there is lack of clarity in the discussion, I ask whether there is lack of clarity in the thinking, and suspect that there is some large unacknowledged emotional reason that is a real driver of the discussion.  Do we actually know that inequality harms the economy?  How much?  In what way? Who measures this?  Is the idea that it decreases competition and innovation at all but the highest level, that it is a 1% frictional drag on all levels that is a large problem in aggregate?  Tell me how.  Is the moral shortcoming something that can be expressed as a generalised Christian or democratic truth that applies to many situations, or is this one of those things that just feels unchristian or unfair after a certain point?  What is that point?

I can find possible explanations off the top of my head that might apply.  Corrupt 3^rd-world economies often have extreme concentrations of wealth in the hands of a few.  Maybe there’s cause and effect.  A lot of people secretly believe that there’s a (mostly) fixed amount of money in a place and if Jack gains a dollar, Jake loses one.  It’s not true, but I can understand the feeling. Other folks believe that because the Bible warns against greed and Jesus had some specific criticisms of the rich that we should pass laws to keep wealth in check.  Because some people clearly get rich by illegal or immoral methods, there is a spillover that suggests that all of the rich are under suspicion.  Or, executives who are hugely compensated might be encouraged to extract the most they can, or care little about the long term and reinvestment. Too great a separation may reduce esprit de corps enough that production ebbs. These reasons and more, I think I understand.

It’s just that I don’t recall the evidences for any of these being laid out very systematically that these bad things always happen, or even mostly happen because of inequality.  I imagine there is at least some evidence for some of them.  Readers who wish to direct me to links, or even longer treatments, are welcomed.