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More evidence for the limited-government argument

October 3, 2015

When government doesn’t have the power to "pick winners", it can’t practice cronyism. To use a recent example, how about Solyndra?

Why some billionaires are bad for growth, and others aren’t
Not all inequality is created equal

Over the past few decades, wealth has become more concentrated in the hands of a few global elite. Billionaires like Microsoft founder Bill Gates, Mexican business magnate Carlos Slim Helú and investing phenomenon Warren Buffett play an outsized role in the global economy.

But what does that mean for everyone else? Is the concentration of wealth in the hands of a select group a good thing or a bad thing for the rest of us?

You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.

Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.

A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.

Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not. […]

(My emphasis.)

I think we should to be a lot more jealous of our Constitutional prerogatives. How about enforcing the Tenth Amendment:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

To put perhaps-too-fine a point on it: constitutionally, the US government has no business concerning itself with funding basic scientific research, or with wealth inequality, or with any number of other things it does when those aren’t directly related to its role has protector and defender of the people.

And it shouldn’t matter what the policy wonks or special interests might think the government ought to be doing.

Via the always readable Coyote blog

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