Income Inequality due to Rent Seeking and Privileges Acquired from Government is Widely Loathed

Income Inequality due to Rent Seeking and Privileges Acquired from Government is Widely Loathed, by Adam Creighton.

Credit Suisse’s annual wealth report shows the share of the world’s wealth owned by the top 1 per cent of households increased from 44 per cent in 2008 to just more than half last year. The number of millionaires (in US dollars) in Australia is poised to rise from 1.2 million this year to 1.7 million by 2022, the biggest percentage jump among 23 countries in the report. You can bet much of that arises from increases in asset prices, rather than effort or innovation. …

The public is not angry about inequality per se; people are concerned by an economic system that appears to be allocating increasingly extreme rewards to a small group that bear little relationship with their intrinsic contributions. Senator Pauline Hanson was right, for instance, to question the salary of the ABC managing director, which is more than $890,000.

But that’s just one example of a phenomenon that extends throughout the public sector, where eye-popping salaries are the norm.

Author Nassim Taleb explains in his recent book, Skin in the Game, the sort of inequality people loathe, where the subject “appears to be just a person like you, except that he has been playing the system, and getting himself into rent-seeking, acquiring privileges that are not warranted, and although he has something you would not mind having (maybe a Russian girlfriend), you cannot possibly become a fan. This category includes bankers, bureaucrats who get rich, former senators shilling for (evil firms) and clean-shaven chief executives who wear ties.”

In the past decade, this sort of inequality has become more common. The quickest way to wealth in Australia is to join the swollen ranks of the political and financial class.

If the Right of politics hopes to remain electorally appealing, it must shed some of its simplistic arguments about the superiority of “the private sector”, where competition isn’t functioning. It must recognise a lot of what it championed before the crisis in the finance sector was rent-seeking and subsidised gambling. …

The risk is voters blame free markets or capitalism for recent developments from which they instinctively recoil: the GFC itself, the royal commission findings or gouging by privatised airports and electricity providers.

The Right also needs to embrace utilitarianism. One barely hears the term today. For Adam Smith, and practically all economists who followed him, one dollar of income was worth more in the hands of someone earning $60,000 a year than it was for someone on $600,000.

Indeed, he expressly rejected the sort of “flat taxes” many on the Right today dream about. “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion,” he wrote in his 1776 Wealth of Nations. …

More than 175,000 jobs are being advertised around Australia, yet 710,000 Australians are officially unemployed and a further 1.2 million don’t have a job but say they would like one.