February 21, 2020

Redistribution Won't Solve Inequality

“Economics has trouble predicting the effects of big changes. Most of the events economists can observe and study are limited, incremental changes — a modest increase in the minimum wage, or a small decrease in immigration. This is as it should be, because governments are (rightfully) cautious about undertaking huge economic experiments. But when people are contemplating truly transformative changes — reparations for the descendants of slaves, for example, or wealth taxation — economists have fewer recent examples to look at. That’s one reason economic history is important — by looking at times of great upheaval, economic historians can shed light on the likely consequences of dramatic policy changes in the present day.

One such enlightening study is a recent paper by economists Philipp Ager, Leah Platt Boustan and Katherine Eriksson, entitled “The Intergenerational Effects of a Large Wealth Shock: White Southerners After the Civil War.” Using detailed Census records, Ager et al. measure the effect of the war on the wealth of slaveholders and their sons. This is an interesting question, because it asks: When the government takes away some of your wealth, how quickly can you bounce back?”

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