Chris Crawford penned this thoughtful response to my recent post on economic inequality. I reprinted it here unedited.
1. The Economist just published an article about inheritance as a growing factor in the increase in the Gini Index (a measure of inequality).
2. I have long felt that inheritance taxes are an ideal solution to the problem. They work slowly, but are minimally invasive of property rights.
3. Wealth taxes, on the other hand, are all but unworkable. There are just too many ways to store wealth, and too many vagaries in its specification. A strong wealth tax would merely spawn a gigantic new industry for specialists in evading such taxation.
4. The median income of CEOs of Fortune 500 companies is 268 times greater than the median income of their employees. It is argued that CEOs deserve their greater income because they are responsible for billions of dollars of increased valuation of their companies. The flaw in this thinking is that the valuation of companies can increase due to factors outside the control of the CEO. For example, the valuation of Nvidia is $2.8 trillion, but this is due to the success of the computer scientists in developing LLM AI systems, not to anything that Nvidia did.
Moreover, CEOs do not pay stockholders when their companies lose billions of dollars of valuation. If they deserve to be rewarded for their successes, then they deserve to be punished for their failures.
Another argument is that executives work longer, and smarter than their employees. This is true, but the it does not justify the ratio of compensation. No executive works 268 times longer or smarter than their employees. Sure, most executives work longer, but there are only so many hours in a day; given the requirements to eat and sleep, I’d hazard the guess that most executives work at most only twice as long as their employees. And, while executives are often smarter than their employees, nobody has an IQ of 10,000. Executives are grossly overpaid in the US. In many countries, executives are not paid anywhere near as highly as in the US.
5. Will Durant wrote:
“Since practical ability differs from person to person, the majority of such abilities in nearly all societies, is gathered in a minority of men. The concentration of wealth is a natural result of this concentration of ability, and regularly recurs in history. The rate of concentration varies (other factors being equal) with the economic freedom permitted by morals and the laws. Despotism may for a time retard the concentration; democracy, allowing the most liberty, accelerates it… In progressive societies the concentration may reach a point where the strength in number of the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or revolution redistributing poverty.”
6. Lastly, I offer incontrovertible proof that resentment of unequal treatment is burned right into our genes:
