Gary Becker and Richard Posner examine the increasing gap between the rich and poor in terms of wealth and income. This gap was most recently highlighted in a report that “the richest 2% of adults in the world own more than half of global household wealth,” and the richest 1% hold 40% of wealth. The report was issued by the World Institute for Development Economics Research of the United Nations University (PDF).
Becker seems to accept that wealth inequality is essentially a problem, and seems at pains to show that “the inequality in wealth appropriately defined is not nearly as large as the report might suggest, and wealth inequality in the world has almost surely become smaller over time, not larger as some in the media reported.”
Posner acknowledges that income inequality is increasing in the developed world and in some rapidly developing nations, but seems less concerned. He raises three possible negative social consequences of “the existence of a stratum of exceedingly wealthy people.”
Of the three, the third I think is the most important and real: “Huge personal wealth may play a disproportionate role in political competition. Personal wealth confers an enormous advantage on a candidate, but also permits a person who does not want to be a candidate to exert an influence on candidates and policies.”
I don’t think income or wealth inequality in itself is necessarily negative, and so I tend to agree with Posner’s emphasis rather than Becker’s. The problem comes when the economic power of the wealthy is used to disproportionately skew policy in their favor at the expense of less economically powerful classes. But as a whole, I think the concern about wealth disparity is more due to its effect on subjective well-being, or happiness, and the resulting envy that is engendered.
But, as Ron Sider of Evangelicals for Social Action admitted in a recent debate with Rev. Sirico, the concern for policy-makers should not be primarily the happiness level or sense of subjective well-being of citizens, but rather how the poorest of the poor are doing, whether the objective floor of material well-being is being raised or not.
Sider has said that he would not be concerned with an increasing gap between rich and poor so long as the living standards of the poor were also increasing (so long as that increased concentration of economic power does not manifest itself in corruption of the political process, via rent-seeking, et al.)
People are much more likely to vote with regard to their subjective sense of well-being, however, so that politicians are easily manipulated into catering to their constituency’s sense of happiness rather than appealing to their objective betterment.