Friday, December 18, 2015

Arrow on inequality of consumption

Kenneth Arrow, reviewing Thomas Piketty, raises the idea of focusing our economic policy on consumption, rather than income or wealth:
Taking consumption seriously has important implications for measurement. If we are truly concerned with inequality, we should be most concerned with the distribution of consumption. The measurements we should look to are measurements of inequality in consumption, since it is differences in consumption that we really ought to care about. 
This also has implications for policy: for example, if what we care about is differences in consumption, we might consider a progressive tax on total consumption of an individual. This would have to be done on an annual basis, like the current income tax, not at point of sale. Such a tax was long ago proposed by John Stuart Mill and later by Irving Fisher and Nicholas Kaldor. Piketty refers to Kaldor’s work but does little to refute it, saying only that no such tax exists. This is true, but of course the progressive wealth tax favored by Piketty is equally untried in practice.
Arrow is a Nobel laureate and a titan, along with Amartya Sen, in the fascinating field of social choice theory.

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