The Deadly Focus on Income and Wealth Inequality

Wealth Inequality, Sylvia Nasar, Jeff Bezos, Elon Musk, Bernard Madoff, LBJ

By David R Henderson. 

"Readers under age fifty-five might not realize this, but economic inequality was not a large issue in American political discussions until 1992. After that year, discussions of the issue ebbed and flowed. So much of what has been said by opponents of inequality is simple assertion. What has been missing in the statements of those who want government to reduce inequality is much information about why it exists and any sense of why some kinds of inequality are good.

Unfortunately, a single-minded focus on reducing inequality will lead to bad outcomes, even death. That conclusion follows from standard economic reasoning about the causes of economic growth. Reducing inequality by lopping off wealth from the wealthiest would lead to less economic growth; lower economic growth makes death rates higher than otherwise.

You might think that the focus on wealth inequality has come about because of the huge growth in wealth of the 100 or so wealthiest people in the world, many of whom live in the United States. While that surely has made the issue more prominent, the upset about inequality began well before that. I date it at 1992. In 1992, Jeff Bezos, whose wealth is close to $300 billion, had not yet even started Amazon, the source of his wealth. He and his then-wife MacKenzie Scott started Amazon two years later, in a rented garage. In 1992, Elon Musk, now the world’s wealthiest man, was a twenty-one-year-old undergraduate at Queen’s University in Kingston, Ontario, who was about to transfer to the University of Pennsylvania.

So, if not the wealth of Bezos and Musk, what did lead to the focus on economic inequality? Two key factors were an article in the New York Times and a politician running for the Democratic nomination for president who picked up on that article.

The New York Times article was reporter Sylvia Nasar’s “The 1980’s: A Very Good Time for the Very Rich,” March 5, 1992. In that article, Nasar reported data from the Congressional Budget Office on income gains at various percentiles of the income distribution. She quoted Paul Krugman’s exaggerated statement that “it [the additional income from a growing economy] all went to the very top.” As a good reporter, she also gave balance. She quoted Lawrence Lindsey, who, in his book The Growth Experiment, had noted that the early 1980s drop in the top federal income tax rate from 70 percent to 50 percent encouraged high-income people to use fewer tax loopholes and thus show more taxable income on their tax forms. One important example, which Nasar didn’t mention, was municipal bonds. Interest on those bonds was exempt from the federal income tax and so that interest income was not reported on tax forms. But when the top rate fell to 50 percent, high-income people shifted much of their investment away from tax-exempt municipals to other investments whose income was subject to the federal tax. The income from those investments showed up on their tax forms, making it look as if their income had risen substantially; in many cases, it hadn’t.

These are the opening paragraphs of my latest Hoover article, “The Deadly Focus on Income and Wealth Inequality,” Defining Ideas, August 6, 2026.

And:

The other main myth is that the rich don’t deserve their wealth. It’s true that a small percent of them didn’t or don’t deserve their wealth. If they obtained their wealth through fraud or by using the political system to get special treatment, then they are undeserving. Exhibit A for someone who got his wealth through fraud is Bernard Madoff, who ran a Ponzi scheme to take wealth from strangers and even from friends.

Exhibit A of someone who got his wealth as an insider in the political system is Lyndon B. Johnson. In the 1940s, after he had defended the budget of the Federal Communications Commission, an official at the FCC suggested that the Texas congressman’s wife buy a license to operate a radio station in the Austin market. She did so and only a few weeks later, applied for a better part of the spectrum and for longer hours of operation. Both requests were granted within weeks. The FCC also was slow to grant licenses for other radio stations to compete in the lucrative Austin market. By the time LBJ ran for president in 1964, the market value of his and his wife’s net worth was between $9 million and $15 million, over half of which was the value of their media holdings. To put that in perspective, $14 million in 1964, when adjusted for inflation, would be $151 million today."