Wealth Inequality Doesn’t Mean More Poor People

Wealth Inequality Doesn’t Mean More Poor People
By Stephen Ewen (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

In an article titled “Why People Vote Against Their Own Interests,” Forbes, November 8, Bruce Lee, an Associate Professor of International Health at the Johns Hopkins Bloomberg School of Public Health, writes:

Voting seems pretty straightforward, right? Choose what is good for you and avoid what is not. Well, evidence has clearly shown that people (meaning you, unless you are a dog reading this) can be remarkably bad at selecting what is good for them. Indeed, in the end, you may be your own worst enemy. And many entering voting booths simply make the wrong choices for themselves.

Wealth Inequality

To someone like me who understands rational ignorance, this claim is not surprising or controversial.

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But then he continues:

Let’s look at a commonly cited example: the poorer working class. Logic dictates that the poor should favor people and policies that decrease the gap between the rich and the poor and oppose those that do not.

Logic doesn’t dictate that at all. What has Professor Lee done? He has assumed implicitly that if the gap between rich and poor falls, it’s because the poor are better off. He has failed to distinguish between inequality and poverty.

Reduced taxes on capital would both encourage capital accumulation and cause real wages to rise.

What if the poor could have voted to prevent Robert P. McCulloch from inventing and selling a light, one-person-operated chainsaw? Had McCulloch not invented it, he would not have become as wealthy as he did. So inequality, in income or wealth, would have been less. But some of those poor people would be worse off because some of them would have wanted to buy that relatively cheap chainsaw. By Professor Lee’s reasoning, that shouldn’t matter. By his argument, logic would dictate that the poor vote to prevent him from doing so, reducing wealth inequality and making themselves worse off.

My guess, indeed my hope, is that Professor Lee would have favored allowing Mr. McCulloch to invent his chainsaw. But then he should be consistent and favor at least some other policies that both make the poor better off and increase inequality.

What’s one such policy? Reduced taxes on capital. That would encourage capital accumulation. With a higher ratio of capital to labor, labor productivity would rise and real wages would rise. The poor working class would be better off.

Republished from EconLog.

David R. Henderson

David R. Henderson

David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

This article was originally published on FEE.org. Read the original article.

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