VIEWPOINT | Three economic myths to put to rest this year

Op-ed by Veronique de Rugy

As a new year dawns, it’s customary to reflect on the past and set resolutions for the future. This year, let’s resolve to greet three widespread claims with healthy doses of skepticism.

The first dubious claim is that income inequality in the United States has inexorably risen since the 1960s. It’s a scary narrative heavily bolstered by the work of three French economists: Thomas Piketty, Emmanuel Saez and Gabriel Zucman. According to these researchers, the situation was fueled mostly by tax cuts for top income earners during the Reagan administration. Their proposed remedy, not surprisingly, is a sky-high, French-like level of taxation.

As appealing as that may be to the many fans of soak-the-rich policies, I advise against condemning the rich to the tax guillotine quite yet. We should also hold off on trying to tackle the alleged problem with more welfare spending. In the last few years, a series of peer-reviewed studies from very respectable economists have shown that the three Frenchmen’s claims of rising income inequality suffer from fatal flaws. For instance, some researchers argue that the rise in inequality is not as pronounced as suggested, pointing to better data sources or interpretations. Others highlight methodological issues, such as the questionable treatment of tax data and government transfers in calculating incomes.

Basically, the incessant narrative of ever-widening income inequality requires, at a minimum, serious skepticism. That leaves the case for further income redistribution weak, even if one admits that welfare spending has increased the income of some poverty-stricken Americans. Unfortunately, it’s done so at the cost of economy-wide productivity and sometimes to the detriment of welfare recipients themselves.