Don Boudreau’x letter below, responding to the claim that we don’t have enough consumer spending to keep the economy going because there are too many rich people, is excellent.
18 November 2011
Mr. Gus Lubin
Business Insider
Dear Mr. Lubin:
Saying that "the '99%' do have a point," you favorably quote Aneta Markowska's
allegation that today's economic woes are caused partly by income inequality
("SocGen Explains How Income Inequality Is A Growth Killer," Nov. 18). Says Ms.
Markowska: "As of 2008, 48% of national income accrued to 10% of the population.
The remaining 90% took in only 52% of income, which is insufficient to maintain
mass consumption."
Ms. Markowska's claim that spending is now "insufficient to maintain mass
consumption" is questionable. Inflation-adjusted personal consumption
expenditures are HIGHER today than they were just before the current recession
began. But even if her claim were true, caution is justified before accepting
it as a case for income redistribution.
Consider that an influential group of scholars, led by Cornell's Robert Frank,
argues for income redistribution on grounds opposite those suggested by Ms.
Markowska. Mr. Frank thinks that consumer spending is chronically excessive.
As he explained last year in the New York Times, "The rich have been spending
more simply because they have so much extra money. Their spending shifts the
frame of reference that shapes the demands of those just below them, who travel
in overlapping social circles." All this spending, by rich and poor alike, to
keep up with the Joneses robs ups of what Mr. Frank feels we really want more
of: leisure, quality time with family and friends, and tax-funded public goods.
So he seeks to soak the rich not to stimulate consumer spending but to reduce
it.
My point isn't to endorse Mr. Frank's ideas. It is instead to show how tempting
and easy it is to construct superficially 'scientific' justifications for taking
other people's money.
Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
