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Why You Shouldn’t Worry Too Much About US Wealth Inequality [1]
['Julia Cataneo', 'James Pethokoukis']
Date: 2024-04-22 21:01:24+00:00
A familiar Hollywood trope: a technologically advanced, futuristic society riven by inequality. There’s the superelite sliver who enjoys the fruits of progress—and then there’s everybody else, as seen in films such as Blade Runner and Elysium. When I write about the need for faster tech progress and economic growth, as in my 2023 book The Conservative Futurist: How to Create the Sci-Fi World We Were Promised, skeptics often seem to imagine the sort of dystopian future these films portray. Only the super-rich would have access to medical miracles and the luxurious off-world colonies. The rest of us would have to make do in a world ravaged by climate change and whatever tech crumbs fall to us.
But the cinematic trope depicts a reality divergent from the historical record. The wealthy’s consumption habits, from cars and planes to smartphones, eventually become available to all. Elon Musk doesn’t have access to a superior COVID-19 vaccine compared to the average person. Nor is his smartphone more capable. (SpaceX exemplifies this by reducing space launch costs, making space travel and living a realistic possibility for ordinary people, not just the ultra-rich.)
Not only might the future be better than what these pessimists think, but the present is probably better, too. Many of us are probably familiar with studies—and the mainstream media reports about them—that show a massive surge in US wealth inequality over recent decades. But you might not have heard about this: Including the value of Social Security benefits significantly changes the level and trend of wealth inequality in the United States.
According to the authors of the 2023 analysis “Social Security and Trends in Wealth Inequality,” top wealth shares have not changed much over the last three decades when Social Security is properly accounted for. This is because Social Security wealth increased substantially from $7 trillion in 1989 to $39 trillion in 2019 and now represents 49 percent of the wealth of the bottom 90 percent of the wealth distribution. The value of Social Security has grown faster than traditional wealth, such as financial assets, due to expanded earnings coverage, an aging population, and falling interest rates, which disproportionately benefits the bottom 90 percent.
Rather than wishing for a world without billionaires, as some radical thinkers do, we might want to think about the immense value that uber-successful entrepreneurs provide. Nobel Prize-winning economist William D. Nordhaus, in a 2004 study, found that innovators capture a mere two percent of the total social benefits from what they invent. Consumers reap the vast majority of these rewards. Billionaires such as Jeff Bezos and Musk have helped create trillions in value for the rest of us. Markets and capitalism don’t always produce what some might consider to be ideal societal outcomes, especially regarding income and wealth. And while tax and transfer payments aim to correct such imperfections, it’s crucial to encourage and reward innovation and wealth creation. Without the possibility of amassing significant wealth, we wouldn’t have benefited from the contributions of entrepreneurs like Bezos and Bill Gates.
Before pushing for wealth taxes in hopes of reducing inequality, we should consider how such taxes could lead to scenarios where innovative companies struggle or fail because their founders are forced to sell shares to pay the tax. This, in turn, could stifle the development of groundbreaking products and services that benefit society as a whole. As University of Chicago economist Steven Kaplan has calculated:
If a wealth tax had been in place, Musk might not have had enough money to keep SpaceX and Tesla afloat during their critical early stages.
A wealth tax could have forced Steve Jobs to sell Pixar, which nearly went bankrupt before becoming successful.
Under a proposed wealth tax plan, Bezos would have had to sell a large portion of his Amazon shares in 2000, potentially hurting the company’s stock price and growth.
Bottom line: Do we want a future where innovation is slowed or suppressed, and amazing new inventions are never realized? Or do we want a future where the next Musk, Bezos, or Jobs has the opportunity to push boundaries, create immense value for society, and make the seemingly impossible, possible? Would we see an emerging Age of AI in the sort of world that wealth worries are promoting? We shouldn’t let personal envy or doomer films (no matter how entertaining) nudge us to make the wrong decisions.
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[1] Url:
https://www.aei.org/economics/why-you-shouldnt-worry-too-much-about-us-wealth-inequality/
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