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The Rich Are Different. So What?

September 23, 2013 by Ike Brannon

Americans seem agreed that inequality is a terrible problem that government policies must address. At least that’s what the New York Times and other mainstream publications keep telling us.

It’s true that the distribution of income has become more unequal over the last 30 years, for reasons no one can definitively state. Several factors have been blamed to some degree or another: worsening public schools, the expansion of the financial sector, a more global economy, the decline of unionization, and the IT revolution along with the concomitant premium it creates.

But inequality is an imprecise way of measuring what we really ought to care about — the income gains of those at the bottom of the income distribution.

In the most recent issue of New York Magazine, Mayor Michael Bloomberg captured the incongruity that can exist between the two when said he would welcome having a few more Russian billionaires in the city, a comment for which he was widely reviled. Such a thing would, of course, increase income inequality.

The vitriol that comment triggered presents an interesting question: Do the wealthy present negative or positive externalities for the rest of us? 

Maybe in certain streets in the Upper East Side the free spending of the wealthy might create problems, but in the rest of the world their presence can be a salve. The religious high school I attended in Peoria survived the lean years of the 1980s recession, when I matriculated, in no small part due to financial help from two of the town’s wealthiest citizens whose children were attending the school. Thanks to the philanthropy of those same families — and a few other wealthy folks — the town also has an opera company, an outdoor theater series, a first-rate zoo, a high-quality children’s hospital, and museums that would not exist — and that the hoi polloi could never afford — if it weren’t for the largesse of these wealthy families.

What are the downsides to having a cadre of wealthy people in a community? I’m hard-pressed to come up with anything that passes the laugh test. There are a couple of small neighborhoods in the area where houses cost above and beyond what makes sense, but the rest of Peoria abounds with affordable housing, much of which is in good school districts. The seats behind the bench at the Bradley Basketball games are pricey but there are 12,000 other affordable seats, some of which are as cheap as $8, and the team rarely sells out these days.

Growing up, the rich in Peoria were indeed different from you and me. I remember attending the championship of the city tennis tournament — one of the few authentic upper-crust public events in town — and seeing people who were skinnier, better dressed, and who possessed better cars than anyone we regularly encountered. But no one in town (save for the editor of the paper) ever resented them — quite the opposite. Making them poor — or chasing them out of town — would have benefited no one.

Two distinct forces increase inequality: the poor getting poorer and the rich getting richer. The former amounts to a serious problem for society and is worthy of hand-wringing. The latter is not a problem at all — and simply erasing those gains doesn’t solve anything.

Perhaps we need to change our focus when we want to discuss the plight of low-income households, and take the wealthy out of it altogether.


Author

Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

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