Why Does Income Inequality Matter?

David Weinberger / March 11, 2011

This is part one in a debate with liberal blogger Tim Mitchell on whether income inequality is a problem. In this post I lay out why income inequality isn’t a problem. For part one from Mr. Mitchell, click here. 

When it comes to income inequality, the left argues that since 1979 the top ten percent of taxpayers are making an unfairly large portion of total U.S. income. This narrative is advanced by the widely accepted work of Thomas Piketty and Emanual Saez, showing that “the top 1 percent of Americans now receive 15 percent of all income, up from about 8 percent in the 1960s and 70s.”

It’s also illustrated by this graph, from their research. While there are legitimate reasons to believe these figures by Piketty and Saez are overstated, the more fundamental question is, if all income levels are gaining, why does income inequality matter?

Alan Reynolds’s research exposes some of the reasons the Piketty-Saez numbers are likely overstated. There’s not room to explain them all, but a few of his arguments are worth summarizing (see page 3 of his study for all of them) (more…)