John Merline takes note at Investor’s Business Daily of an interesting new study.
[A] new study finds that we are measuring inequality all wrong, and that as a result, imposing still more wealth-transfer laws probably won’t do anything to help.
The study, by economists Laurence Kotlikoff and Alan Auerbach, says that typical measures of inequality ignore one vital factor — people’s spending power. “The right measure is not how much wealth or income people have or receive but their spending power” after government taxes and benefits.
So the authors set about to calculate a measure of “lifetime spending inequality.” What they found is that spending inequality is actually far smaller.
As an example, they look at 40- to 49-year-olds. While the top 1% of this age group has 18.9% of wealth, they account for only 9.2% of spending. Those in the bottom 20%, in contrast, have only 2.1% of wealth but account for 6.9% of total spending.
“The fact that spending inequality is dramatically smaller than wealth inequality results from our highly progressive fiscal system,” they explain.
So why not just impose still more of the same spread-the-wealth-around policies? The authors note that doing so will likely increase the already large disincentives to work the current system creates, since at the bottom end people lose benefits as their income goes up and at the top they can spend only a fraction of what they earn.
“Raising taxes and benefits as Democrats advocate will,” they find, “come at the cost of even larger work disincentives.” At the same time, they say, cutting taxes and benefits — as Republicans propose — would improve work incentives but could “exacerbate spending inequality unless the benefit cuts disproportionately hit the rich.”
