If you had just one hour to learn essential, basic economics, listening to this talk would be the way to do it. The core topic is the reasons for income variation across people and over time. It is organized around refuting the claim that rich people need to keep poor people down. Along the way, he takes on (although not by name) the four main biases that Bryan [Caplan] has found among non-economists: anti-foreign bias, make-work bias, anti-market bias, and pessimistic bias.”
On that note, it’s time I quote one of my favorite passages from Thomas Sowell’s The Vision of the Anointed (pp.211-213).
Despite the voluminous and often fervent literature on ‘income distribution,’ the cold fact is that most income is not distributed; It is earned. People paying each other for goods and services generate income….
To say that ‘wealth is so unfairly distributed in America,’ as Ronald Dworkin does, is grossly misleading when most wealth in the United States is not distributed at all. People create it, earn it, save it, and spend it.
If one believes that income and wealth should not originate as they do now, but should instead be distributed as largess from some central point, then that argument should be made openly, plainly, and honestly. But to talk as if we currently have a certain distribution result A which should be changed to distribution result B is to misstate the issue and disguise a radical institutional change as simple adjustment of preferences. The word ‘distribution’ can of course be used in more than one sense….
Those who criticize the existing ‘distribution’ of income in the United States are criticizing the statistical results of systemic processes….for the economic positions of given individuals vary greatly within a relatively few years. What is really being said is that numbers don’t look right to the anointed–and that this is what matters, that all the myriad purposes of the millions of human beings who are transacting with one another in the marketplace must be subordinated to the goal of presenting a certain statistical tableau to anointed observers.
To question the ‘fairness’ or other index of validity of the existing statistics growing out of voluntary economic transactions is to question whether those who spent their own money to buy what they wanted from other people have a right to do so. To say that a shoe shine boy earns ‘too little’ or a surgeon ‘too much’ is to say that third parties should have the right to preempt the decisions of those who elected to spend their money on shoe shines or surgery. To say that ‘society’ should decide how much it values various goods and services is to say that individual decisions on these matters should be superseded by collective decisions made by political surrogates. But to say this openly would require some persuasive reasons why collective decisions are better than individual decisions and why third parties are better judges than those who are making their own trade-offs at their own expense.
“Again, no one would seriously entertain such an arrogant and presumptuous goal, if presented openly, plainly, and honestly….
(Excerpts are available here.)
Update, Sept. 2010:
See also Sowell’s article “Income Confusion.” It begins:
Anyone who follows the media has probably heard many times that the rich are getting richer, the poor are getting poorer, and incomes of the population in general are stagnating. Moreover, those who say such things can produce many statistics, including data from the Census Bureau, which seem to indicate that.
On the other hand, income tax data recently released by the Internal Revenue Service seem to show the exact opposite: People in the bottom fifth of income-tax filers in 1996 had their incomes increase by 91 percent by 2005.
The top one percent — “the rich” who are supposed to be monopolizing the money, according to the left — saw their incomes decline by a whopping 26 percent.
Meanwhile, the average taxpayers’ real income increased by 24 percent between 1996 and 2005.
Sowell goes into more detail in his books Economics Facts and Fallacies and Intellectuals and Society.