The members of the liberty discussion group sat down at Gaia Restaurant and Coffee Shop on 26th of May, 2017 to discuss on essay titled ‘Defending One Percent’ by Harvard economist N. Gregory Mankiw. In his essay, Mankiw talks about various dimensions of inequality. He is of the view that there exists trade-off between equality and efficiency. When the government redistributes wealth through progressive tax, it works as disincentive for the rich to work and invest. This impedes the size of the economy from growing and increases inefficiency. Additionally, entrepreneurs and innovators who have taken risks and put more effort onto their work deserve to be rewarded and they are rewarded by market. Furthermore, he discards the idea of Nobel Prize winning economist Joseph Stiglitz that rent is the main reason for rising inequality. He supports the view that technology and education are the main reasons that has resulted into unequal distribution of income.
The discussants, however, were not fully convinced by Mankiw’s view. Some participants asserted that the rich section of the society not only involves the entrepreneurs and innovators. A large number of rich people have earned their wealth without adding any value to the economy. The CEOs of large financial institutions, investment bankers, stock market giants have earned a large sum of money without creating any value. Through investment in the unproductive assets, they have been able to accumulate wealth. Some other discussants opposed this and claimed that there is nothing wrong with investing in the financial assets and other unproductive sectors. The market mechanism balances off everything.
Some supported the view that rent- which is the unearned income is the primary reason behind increasing inequality. Large corporations are able to bribe the government to make the policy which favors them the most. This helps these corporations to accrue more benefits from the market and hence they are able to accumulate more wealth. All the participants were of the view that political rent seeking is bad for the economy as it benefits a handful of people.
Participants also claimed inequality should not be viewed from purely economic perspectives. There are sociological perspectives to inequality as well. Rising inequality causes alienation between the rich and the poor, and may cause conflict in the society. Therefore, in order to prevent this, there has to be a mechanism for redistribution of income.