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Poverty: How should we help those in need? | Chapter 10

Setting the Record Straight on Wealth Inequality

Though many believe that wealth inequality is getting worse, the data point to a sharp decline in inequality in recent years. These changes can be attributed to better, growth-enhancing economic policy. We see this trend clearly by comparing the patterns of wealth growth during the coronavirus pandemic and the Great Recession.

The Inequality We Should Worry About

Both good and bad income inequality exist. Good inequality comes from entrepreneurial innovation that improves the lives of consumers, even if the inventor gets wealthy. On the other hand, using political muscle to get rich leads to bad inequality, as it comes at the expense of consumers. It is vital to have government policies that can distinguish between good and bad inequality to increase innovation, strengthen the economy, and ultimately give people more incentive to innovate.

Edward Lazear On How To Reduce Income Inequality

Tax policy and redistribution do not solve the underlying structural problem of income inequality. Redistribution and tax policy are only temporary fixes. For a permanent solution, we need to focus on reducing the skills gap by increasing the skills of individuals at the bottom of the income distribution.

The Challenge of Inequality

Whether rising income inequality is good or bad depends on why it's rising. We should worry more about whether people have a chance to get ahead and worry less that some get ahead faster than others. In particular, we should help Americans at the bottom get the opportunity to flourish.