I am less and less convinced about inequality as the result of markets producing “unfair” results. I am more and more conviced that governments have a lot more to do with rising inequalities. I got this idea from left-wing economist James K. Galbraith at the University of Texas who pointed out that there was a positive relationship between defence spending and inequality. This lends some backup to the libertarians who favour strategic disengagement in order to reduce defence spending (I am one of those who actually thinks that US spending levels on defence lead to substantial crowding-out) since one of the benefits of controlling defence spending would be a reduction in inequality. Similar results have also been found in the case of Turkey, where the army is itself an interest group lobbying for power. In another country where the army has a lot to say about policy, Iran, the same result has also been observed.
If some of you don’t see the public choice argument I am making, here it is in simple words: where politicians stand to gain from posturing about defence, they will do so and will promise gains to industries that are politically connected. The result? More income inequality…
Again, this takes me back to my critique of Miles Corak argument that “outcomes influence process”. True, inequality begets more inequality, especially if the inequality is the result of government decisions to allocate public funds to a given set of politically connected individuals. But the answer in that case is not more redistribution but less intervention, period.
Vincent Geloso 