The Government Intervention

Gary Becker inequality encourages people to invest in their education. Redistribution, in contrast, brings inefficiencies as higher taxes and government handouts deter hard work. The bigger the state, the greater the distortion of private incentives. In China and India it has been freedom and better incentives that have been integral to economic growth, however some of the inequality that is apparent today is inefficient rather that growth promoting. The Economist came up with various reasons: 1. Countries with the biggest income gaps, increasing inequality is partly a function of rigidities and rent-seekingbe it labour laws in India, the hukou system and state monopolies in China or too-big-to-fail finance in America. Such distortions reduce economies efficiency. 2. Rising inequality has not, by and large, been accompanied by a smaller (and hence less distortive) state. In many rich countries government spending has risen since the 1970s. The composition has changed, with more money spent on the health care of older, richer folk, and relatively less invested in poorer kids. Modern transfers are both less progressive and less growthpromoting. 3. Recent experience from China to America suggests that high and growing levels of income inequality can translate into growing inequality of opportunity for the next generation and hence declining social mobility. That link seems strongest in countries with low levels of public services and decentralised funding of education. Bigger gaps in opportunity, in turn, mean fewer people with skills and hence slower growth in the future. The area of inequality and social mobility showed that the USAs GDP growth was inversely correlated with their inequality of opportunity, but not with o verall inequality. Known as the Great Gatsby Curve (see below) this suggests that countries with higher Gini coefficients tend to have lower inter-generational social mobility.

If we are concerned, as I hope we are, about fairness, justice and those on the very lowest rungs on our society's economic ladder, there are far better ways to redistribute resources and tilt our playing fields toward the disadvantaged than by pushing legislation that costs us inefficiency without making any dents in the underlying equity problemand through unintended consequences can actually harm those most in need of assistance. The fact that proponents of the usual set of policy prescriptionsminimum-wage laws, living-wage ordinances, rent control, and so forthremain adamantly opposed to any means-testing for recipients suggests that their agenda is much more finding ways to punish corporations and tilt playing fields in their selfish favor rather than to help the poor. In addition, these laws and public policy restrictions can have deleterious effects on our economy as a whole as well as foster and re-enforce economic nonsense. There are far better ways to address serious equity concerns in our society than are usually touted on bumper stickers and protest posters.

"Far too many of our public policies are one-sided or asymmetric in nature and are based on the assumption, in the face of very little evidence, that one allegedly poorly informed, weak party needs protection from a powerful, unscrupulous economic adversary."