Several recent studies of economic inequality have confirmed that 1% of the U.S. population holds roughly 38% of the nations asset wealth. In addition, 1% of U.S. households earn roughly 17% of all pre-tax income. And although these inequality findings are hardly new information for most economists, whether the inequality gaps have been widening or whether they hamper economic growth is still controversial.
There is some evidence that the wealth and household income gaps may have widened in recent years, but the long-run trend is unclear. Data from 1917 to 2012 demonstrate that wealth and income disparities rise and fall over time. More importantly, there seems to be no obvious correlation or cause-and-effect relationship between widening inequality and, say, periods of sluggish economic growth. In short, the U.S. economy has done well with wealth and income inequalities that both expand and shrink.
Interestingly, most of the current concern over wealth inequality relates not to economic matters per se, but instead to matters of so-called social justice. That concern is expressed as a kind of moral outrage that some (few) individuals and households are very wealthy (and growing more so) while those at the bottom of the wealth rung (the many) are far less well off. Indeed, even Pope Francis has recently expressed the belief that this extreme wealth disparity is morally unacceptable and that a so-called legitimate redistribution in the name of social justice could be justified.
This, of course, raises the question as to what is legitimate wealth accumulation in the first place, and what, then, would constitute a legitimate redistribution. I maintain, contrary to current critics, that legitimately acquired wealth is any wealth obtained through voluntary, non-fraudulent trade and/or through inheritance. I also maintain that the owners of this wealth then have a legitimate property right to it and can legitimately redistribute it in accordance with their own preferences. They can spend it, save it, invest it, or simply give it away as they choose.
Clearly, however, this is not what social critics have in mind concerning wealth redistribution! Almost universally, they are of the belief (a) that owners of wealth are not necessarily entitled to keep all of it and (b) that it is legitimate for government to make the distribution of wealth more equal through, say, sharply increased taxes on the assets of the wealthy.
These claims might hold some validity if wealth is acquired by political and economic advantages obtained from government. But here the solution is not to attack wealth per se, but to eliminate the governmental process that generates political or economic advantages. These claims might also hold some validity if the initial wealth distribution was itself obtained through theft or fraud. In the infamous Bernie Madoff case, his wealth was stolen from trusting clients; he had no right to keep it, and a judicial process of returning resources to rightful owners is, in fact, an accurate definition of social justice.
But the vast majority of income and wealth in a free market is obtained through selling or renting resources legitimately owned or acquired. And importantly, the value of those resources (and the resulting incomes) are determined by consumers or buyers who stand in for consumers. It is the Yankee baseball organization and ultimately the fans that value talent, after all, that have made Derek Jeter and other ballplayers part of the 1% minority. Thus, any governmental expropriation of that wealth violates property rights and is wrong.The final argument by critics is that asset and income expropriations are morally justified, since the beneficiaries of the redistribution (those with low incomes) would benefit. Nonsense to all of that. A thief who gives away some of his stolen loot is still a thief; moreover, those who receive stolen property and knowingly benefit from it are just as morally bankrupt as the thief. If stealing and welfare handouts are morally legitimate, then the gangster Al Capone and his Chicago soup kitchens should serve as an ethical gold standard for social justice.
We expect ambitious politicians to engage in such dishonest rhetoric. But Pope Francis should know better.