Friday, July 11, 2014

Piketty's Cure for Income Inequality Hurts the Poor

Well, there is no "income inequality" problem. SEE: This Is What Those Who Are Concerned About Inequality Fail to Grasp, but attempting to solve this non-problem, only makes a further mess of things.

Diana Furchtgott-Roth writes:

Thomas Piketty’s best-selling “Capital in the Twenty-First Century” has given policy makers and pundits a renewed excuse to call for the redistribution of wealth and higher taxes.
But it is time for the French economist to move out of the limelight. Two eminent economics professors, Carnegie Mellon’s Allan Meltzer and the Wharton School’s Scott Richard, are challenging his conclusions with a new model and different data. Contrary to popular wisdom, they find that government redistribution increases inequality rather than reducing it.
In their July 4 working paper, titled “A Rational Theory of the Growth of Government and the Distribution of Income,” Meltzer and Richard show that using redistribution to ameliorate income inequality is not only ineffective, but worsens the problem that policy makers seek to cure.
Central to the Meltzer-Richard model is the assumption that technological progress happens through “learning by doing.” Since workers’ productivity levels increase with the more they produce, and because higher taxes create disincentives to working, taxes lead to lower economic growth...

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