Last week Allan Meltzer had a column in the WSJ telling us that we should stop complaining about inequality and start loving it. His main point is that inequality is increasing everywhere, therefore there is nothing that we can do about it.Neither part of this story is especially true. As Paul Krugman, Mark Thoma and others have already noted, inequality has not increased anywhere to the same extent as in the United States and in many countries there has been little or no change in most measures of inequality. So clearly different national policies can make a big difference in the extent of inequality.
However even if inequality was increasing everywhere, it does not mean that policy is not a factor. The WSJ may not have heard, but there are international forums like the G-8 and institutions like the WTO where countries coordinate policy.
This means, for example that if they agree on a policy of strong anti-inflation measures that raise unemployment everywhere (as they did), then they have collectively agreed to implement policies that redistribute income upwards. Similarly, if they agree to have stronger patent and copyright protection (as they have), then they have also agreed to policies that redistribute income upward. Unless we think that policies that are decided in international forums should not be subject to political debate, the fact that the same policies of upward redistribution have been imposed in many countries (not just the United States) is hardly an argument that we should not be concerned about them.
The other part of Meltzer’s argument that is just wrong is that because Steve Jobs produced great products we should not be upset about inequality. Most economists are familiar with the concept of “economic rent.” Economic rents occur when people get paid more than is necessary to get them to do their work.
For example, if a firetruck showed up at a burning home with children trapped inside, the parents would gladly pay whatever money they had to have the firefighters rescue them. In Alan Meltzer’s world, if firefighters were making millions of dollars a year showing up at the burning homes of the wealthy we should not complain because saving children from burning buildings is a fantastic service and certainly we are all glad that the firefighters are there.
Of course, the reality is that firefighters are willing to do their work for much less money. They get a relatively good salary, but none of them are making millions of dollars a year.
Arguably the economy has been structured in a way that leads to large rents for those at the top. This is what those complaining about inequality are upset over. The fact that Steve Jobs might have actually made great contributions to society in exchange for his wealth has nothing to do with the time of day and Mr. Meltzer presumably knows this.
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