Income Inequality Dwight Lee (2002)

Income Inequality

Dwight Lee (2002) argues that income redistribution in the United States has generally been inefficient, and may possibly even be ineffective as well. His argument neither supports nor refutes the idea of income redistribution from the wealthy to the poor, but he does question the value of this redistribution to the poor, given the ways in which the redistributions have taken place of late.

I agree that income redistribution is a necessary component of a civilized society, not because I believe that the poor have inherent rights to the income earned by others, but because it makes the society stronger. With more money, the poor can have better educations and better health care, allowing them to fulfill their potential. This is especially true over the course of multiple generations, where the benefits of redistribution compound. In the developing world, there is usually little redistribution, and those countries remain lousy markets for goods and services, with economic activity far below potential. The positive effects of income redistribution are that society becomes stronger and more competitive, and a positive feedback loop begins. Over time, a nation will be more competitive the more people in that nation are producing to their full potential.

Lee cited a number of policies that are ineffective. While some of these are supported for non-economic reasons. Agricultural policies are tied to food security and the steel policies criticized by Lee are essential for maintaining national security, which is very much tied to the ability to produce steel domestically. However, other redistribution policies are less useful. Non-means-tested Medicare and Social Security are two programs that should be subject to considerable overhaul. Not only are these programs a threat to the budget, but to redistribute wealth to a generation that had opportunity served to it on a silver platter and that has immense wealth tied up in their housing and investment stock is patently absurd. It is grossly inefficient not to means-test Social Security and Medicare. I would fix these programs by making them both means-tested. This would result in more efficient transfers to seniors who actually need the money, rather than giving money to seniors who do not need it. This would free up more money to other Americans -- even if just the average taxpayer by way of allowing for a balanced budget.