Matt Zeitlin

I’m in Harvey Dent mode today. The social democrat in me wants to get fired up about new income statistics that show the wealthiest 1% has 21 percent of the nation’s income, while the bottom 50 earned 12.8%, a slight decrease from four years ago. Ezra Klein, the Social Democratic angel on one shoulder tells me to get angry:

To think of this a bit more concretely, if you took a representative 100 Americans and split $5 of income between them, here’s how it would look: One guy would get $1.06, forcing the other 99 to split the remaining $3.94, while the bottom 50 would split 64 cents among themselves. The leftover $3.30 would be divvied up among the remaining 49 folks.

That’s a remarkable level of inequality. If income really was apportioned in such a public way, the guy taking that $1.06 would get lynched. But, in fact, it turns out that he’s doing nothing wrong. He’s just got a whole lot more education and skills than everyone else in society.

Will Wilkinson, the free market devil on the other shoulder, calms my redistributionist instincts and reminds me that looking at income distribution this way is ridiculous for two reasons. He tells me that there is no such thing as “shares” of the “national income” – people earn income, not portions of the population or the population as a whole. Also, assuming that our income distribution is made up of millions of mutually agreeable transactions between individuals, morally, there isn’t much to be worried about:

From the classical liberal perspective, if today’s pattern is less equal than yesterday’s, but both patterns emerged from billions of individual transactions, each one of which took place on terms agreeable to the parties involved, then there is really nothing left over to evaluate morally. The relevant questions about the distribution of the gains from trade have already been settled in both cases.

Additionally, once we notice that many of these billions of transactions take place between parties of different nationalities — Americans trading with Canadians trading with Chinese, etc. — it becomes obvious that it is extra arbitrary to focus on national patterns of income, as if the nation were a giant factory with profits in need of equitable distribution. Many liberals, even extremely gifted professional liberal economists like Paul Krugman, seem congenitally incapable of thinking carefully about why nation-level equality matters, partly due to the blithe assumption of a fundamentally fallacious economic nationalism that afflicts both popular politics and academic economics.

I’m so conflicted! What to do? My head are heart are torn! Well, Matt Yglesias comes sauntering and tells me simply that the marginal utility of transferring income from the rich to the less rich is less than the marginal cost of that transfer. Will and Ezra, angel and devil, disappear. More income redistribution! I have a feeling I’ll change my mind about this in a few hours or days, but for now, the dilemma is over.