Sunday, December 18, 2011

A great line from David Henderson

At a talk he gave at Occupy Monterery:

"There's a common view that when markets are free, the rich get richer and the poor get poorer. It's not a total myth: it's half true. The rich get richer, the poor get richer, and pretty much everyone else gets richer."

A clever OWS-Monterey attendant that thinks in terms of rates of growth and convergence and divergence might have realized this dodges the inequality point somewhat. But I still like the line and it is still, of course, 100% true even if it leaves more to be discussed.


  1. I think the use of the word 'free' is the problem. 'Competitive' would be a better way to put it.

  2. Thanks, Daniel.
    I was ready to discuss inequality in Q&A, but what I have found is that almost invariably, when non-economists complain about income inequality, they equate that to the rich getting richer and the poor getting poorer.
    P.S. How is grad school?

  3. Yes, the economic gains from trade outweigh the losses, but the winners rarely write checks to the losers. And the losers often lose badly. What consolation is it to a Maine shoe worker that trade with Vietnam will make the country as a whole richer? He’s poorer and probably always will be. I’ve gotten those emails too.”

    Invisible Backhand

  4. David R. Henderson:

    Income inequality is a sufficient condition for the rich getting richer and the poor getting poorer, so the equation is quite understandable! The rich do not necessarily retain their wealth when there is an income inequality, and author Robert Frank examines that in his book "High-Beta Rich." Reckless spending by the "high-beta rich" contributes to market instability and distorts preferences: i.e. when the market is going great, the super rich (even if, individually, they often soon fall back out of the category) can sustain luxury markets; when the "high-beta" are doing badly, these markets (and the jobs they create) are disproportionately hit. Quoting myself from a letter:

    "They are not a reliable source of income. They're not even reliable governors of their own money - since 1982, according to Frank, they've done 2 to 3 times better than the average American in boom times - and 2 to 3 times worse in busts. More startlingly, the top income earners only tended to hit the list for one year - out of twenty years of following the top income earners."

    The flip side of all this - what happens to the rich when income inequality is lessened? - might be illustrated by Chester Bowles' 1946 classic "Tomorrow Without Fear." Rortybomb reproduces the illustration from that book. Further quoting myself:

    "The caption for the wealthiest segment reads 'A Thinner Slice [for the wealthy] of a Thinner Pie Still Means More Pie.' Even with the lower and middle economic strata muscling aside the wealthy at the dessert table and reducing the wealthy's share of the pie to 50% from 60 or 67%, in a larger economy the wealthy still are getting richer. Just as importantly, the lower and middle strata are dependable, too. The blog author writes "Everyone else get a larger pie than they did in the Gilded Age," but actually everyone gets a larger pie, period - to make sure Mr. O'Rourke [author of a terrible op-ed for NPR; this is from a response letter - Ed] would not miss his own point, it is not a "zero-sum" game."


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