Video: Richard Epstein on US Inequality

New York University Law Professor Richard Epstein at the PBS Hour talks about "inequality"...

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

Here are some noteworthy quotes, (transcript here)

Inequality as drivers for innovation...

What's good about inequality is if, in fact, it turns out that inequality creates an incentive for people to produce and to create wealth, it's a wonderful force for innovation. So let's just go and take somebody like Bill Gates again or any entrepreneur.

Guy earns $50 billion, right? How much consumer welfare has he created by selling products? We can estimate the amount of gains to purchases, because everybody who buys one of his products or one of Steve Jobs' products, in effect, values it more than he receives.

The social gain from inequality to consumers of those goods probably dwarfs the entrepreneurial gain by a factor of 10-1 or 20-1.

Non-neutrality of tax policies.

You can tell the difference between a liberal and conservative by the following test. A liberal believes that changes in taxes have very little effect on production, but huge effects favorable on distribution.

Folks like myself believe it's exactly the opposite. Very high tax rates or even small changes in taxes have very adverse effects on production, and they do very little to produce redistribution, because the money gets dissipated and taken away through the political process in the ways that even the most ardent supporters of redistribution will not like.

Difference between then and now...

First of all, the highest marginal tax rates were also accompanied with tax shelters for everybody in those rates. The second thing is that the monies that were being spent in those days were being spent in much more intelligent ways. That is, if you go and you look at either state or federal budgets and see the amount of money that is spent on what we would call standard infrastructure improvements, and spent well, like the interstate highway program in 1956, that was very high.

The money that is spent today on infrastructure improvements of a good variety is a tiny fraction of what it was then. And the amount of money that is spent essentially on transfer payments has mushroomed enormously.

The fundamental truth is, the tax system is more redistributive than it was before, which will lead to a reduction in efforts, and the regulatory burden on the economy is vastly greater, and we would expect lower levels of growth.

How profits advance overall welfare...

It's the possibility of earning a high rate of return which does it.

And what happens is, if you let people go through voluntary transactions that produce mutual gain, you will increase overall welfare, you will improve the position of those on the bottom. But increased overall welfare will produce greater skews in income, because in a world with genuine opportunities, you will create billionaires.

In a world without it, the people at the bottom will remain where they were, there will be nobody at the top to subsidize them, so everybody will turn out to be worse off.