Reducing Income Inequality by Making People Worse Off – Econlib

Yesterday, I gave talks to 2 lessons on the Naval Postgraduate College. Each are lessons taught by my good pal Ryan Sullivan. The talks have been each titled “How Economists Helped Finish the Draft.” This has develop into an annual occasion in his class and one I stay up for.

As I at all times do, I drew an upward-sloping curve to indicate how, when the federal government institutes a draft and pays much less, it causes individuals who have provide costs which are beneath the wage that might have been paid in a volunteer army, however above the wage paid in a army with a draft, to not volunteer. (I identified that after I checked out each one of many many payments proposed by somebody in Congress in 1980 or 1981–I’ve forgotten which–I discovered that every of them decreased first-term pay, generally drastically.) Because of this a few of these individuals will likely be changed by individuals with even greater provide costs, individuals who wouldn’t have volunteered even for a volunteer army.

I gave dramatic examples of people that seemingly had very excessive provide costs in the course of the draft period, Exhibit A being Elvis Presley. Then I gave less-dramatic examples: somebody who knew at age 18 that he wished to be a health care provider, somebody who wished to start out a enterprise or get a job, and so forth.

In Q&A, one scholar requested if preserving the volunteer army means that there’s extra revenue inequality than in any other case. I stated no and that the other was the reality. I used to be pondering of all of the comparatively low-paid individuals who would nonetheless volunteer however would get common army compensation (which incorporates room and board) that was 20% to 50% decrease than they might have gotten if they’d been in a volunteer army.

Afterwards, the scholar got here as much as clarify his level. He was serious about the Elvis Presleys of the world and of the much less dramatic examples of people that had excessive provide costs as a result of they’d excessive alternative prices. Their pay could be reduce. I used to be pondering of the 70% of first termers (my guess) who would volunteer on the draft-era wage however would have earned extra beneath an an all-volunteer wage.

I hadn’t considered his level and readily admitted it: it means, mixed with my level, that the results on revenue inequality are ambiguous.

However there’s a motive I didn’t consider his level. I hold pondering that many good-willed individuals who fear about revenue inequality are actually apprehensive about comparatively low-income individuals. This instance jogs my memory that many individuals who fear about revenue inequality actually are specializing in revenue inequality and don’t care whether or not sure steps taken to scale back it damage each high-income and low-income individuals. I’m not saying that this scholar is in that class. He could not have considered my level.

That is one more instance of the perversity of specializing in decreasing revenue inequality.