I've added a link to this blog entry to the link collection at the upper-left of this page.

Immigration (which was noted by Posner) probably has more to do with rising income inequality than many people think.

It's not that immigration per se would do this; indeed an immigration policy intended to attract educated and skilled workers would decrease income inequality.

Illegal immigration in particular skews our immigrant population to be very low-skilled and uneducated. This is because educated or skilled workers are not willing to pay the costs of illegal status.

We have around 11-20 million illegal aliens in the US (6-10 million workers), most of which are employed in occupations like Construction and food service, jobs that millions of Americans depend on to support their families. This massive influx has undoubtedly lowered the wages in these occupations, and in some cases so low as to drive out certain low skilled workers, like high school dropouts, out of the labor market entirely (current unemployment rate among high school dropouts is 15% or so).

If I were to venture a guess on the biggest causes of the increasing income inequality it would be globalization and immigration, followed by the rise of the importance in technology (many workers have trouble adapting or feel intimidated by these changes).

The increasing demand for college educated workers is at least somewhat troubling. Many people are just not intelligent enough to complete college, and even if they do the utility of finishing is probably much lower. What happens to these individuals? It used to be that one could make a decent living working in a factory, meat-packing plant, or in construction. This reality is disappearing because of globalization and immigration. We can't send everybody to college, Mr. Becker, so the rise of a college education to necessity status should be troubling. The left of the bell curve needs to make a living and provide for their families, too. What does the future hold for them?

Three points:

1. I agree with your conclusions that rising inequality in income reflects increasing returns to human capital investments. I would add two related points.

2. Rising returns to human capital are not due to generic higher education per se but rather due to any form of specialized human capital investment. Such specialized human capital investments make a first world worker outsourcing-immune.

3. One factor explaining why more high school graduates are not opting for higher human capital investments could be that universities are not geared up to deal with the changing dynamic. I conjecture that a broader 'Summers effect' prevails across American universities. Additional �soft� demand for human capital investment in specialized sciences, applied mathematics, engineering and bio-medical fields exist. Hard supply of university education is not responding to this potential new university recruits; rather following Say's law supply (or over-supply) of liberal arts degrees creates its own demand. Two reforms are needed in university education. First, we need 3rd millennium universities that have professional schools at the core competing with 2nd millennium universities that have liberal arts schools at the core. Second, interest rates on financial aid should vary across degree programs based on past payment records of university graduates in that field.

One thing to sort out is how much of the return to education is merely signalling, as opposed to value added. I'm pretty sure my earnings potential increased because I attended a selective college, but I'm not sure I learned anything there that will make me a more productive worker. This doesn't mean Becker is wrong (employers increasingly need skills that can be identified with college admissions data), although we might think about ways to sort workers at a lower cost.

"This doesn't mean Becker is wrong (employers increasingly need skills that can be identified with college admissions data), although we might think about ways to sort workers at a lower cost."

I almost made this same point myself. Most individuals pursuing undergraduate education are not doing so because they believe they will learn valuable new skills and acquire special insights--they go to college because that's what employers are demanding of their employees.

And employees are not by and large believers in the value of education per se, they are believers in the value of education as a sorting mechanism (intelligence, initiative, discipline).

There are certain things that are really really bad for an economy, one of them is being micro-managed by a corrupt dictatorship. I would attribute China's economic growth less to an increased gap between the rich and poor and more to a decrease in corrupt dictatorship micro-management. In fact, it is possible that China's economy would be growing even faster if it was taxing the very rich heavily (while refraining from micro-management) and using the proceeds to provide infrastructure and education for the very poor.

If China's economy was much more efficient than the United States economy (eg. higher per capita GDP) and the only difference was a greater gap between the rich and the poor, then maybe the United States should be copying the Chinese economic model, but otherwise copying the Chinese economic model would be expected to make the United States economy less efficient.

In fact, it is interesting to note that the United States economy has done quite well over the last century and that most of that century saw very high progressive tax rates on the rich (often as high as 90%).

Income distributions in unregulated capitalist economies tend toward a distribution where a few people are very rich and everyone else is very poor. There are two questions: 1. Does such an unequal distribution maximize the efficiency of the economy? 2. If not, is it possible to achieve a more efficient wealth distribution without imposing other inefficiencies that offset the gain from the more efficient wealth distribution.

In particular, does a highly progressive tax that achieves a more even wealth distribution result in a net increase or a net decrease in economic efficiency?

A related question is: for a given level of economic efficiency, what wealth distribution maximizes the general welfare and happiness of the society as a whole? For example, is a society better off when everyone makes $50,000 a year or when 99% of the people make $20,000 a year and 1% of the people make $3,020,000 a year?

Another issue is tax. I'm guessing that even in America most people don't pay tax anymore. The top 1% pays 80% of the taxes. So for the top to get any meaningful additional income, they will have to earn a lot more money. And such money isn't then available for the people with lower incomes, widening the gap.

It all comes back to the usual "unintended consequences".

How much of the income inequality is due to "human capital investments" and how much of it is due to hereditary capital (descendant of rich-person - a la Rockfeller, ...).

I don't have access to this kind of data and would be interested in your views.

I would assume that this lack of downward mobility in the heirs of the rich is still a justification for progressive taxation.

"increase in earnings inequality due primarily to higher rates of return on education and other skills"

A lawyerly question indeed, in which you assume the conclusion you wish to reach. Do you have any evidence that this is the PRIMARY cause for the increased disparity in income?

The Gordian Knot of social justice: how to decrease variance in wealth without also decreasing average/total wealth.

I was curious as to any of the negative externalities that are sometimes associated with rising income inequality. At the moment I am thinking of those pointed out by Chuck Collins and Bill Gates Sr. in their book, "Wealth and our Commonwealth: Why America Should Tax Accumulated Fortunes " especially, the correlation between poor health and income inequality. (I apologize, I can't quite remember the citation or page numbers, it was some time ago I read it.)

Dear Professor Becker:

I just wanted to make two minor points. One is regarding your analysis on rates of return to higher education. I once read an interesting essay by James Buchanan on how education, in addition to raising one's future stream of income, also has an effect on changing a person's tastes and even his self-identity. These intangibles of higher education seem like important 'nonpecuniary' forms of income that one should take into account.

The other point I wish to make is regarding your analysis of the high-school 'drop-out' rate. While I agree with you in principle that it would a good thing to reduce the drop-out rate, I would also argue that there exists an "optimal" drop-out rate, since many students are better off learning a trade or playing sports, than trying to read Shakespeare or learn geometry. Of course, in a perfect would, everyone would finish high school, go to college, be cultured, etc. etc., but that world is not the world we live in.

Tom Mortenson over at Postsecondary Education Opportunity has long been arguing that we're seeing increasing stratification both in access to higher education and in the returns accruing to graduates of different kinds of higher education institutions. (Both Gladwell and Krugman have picked up on some of this.) Any comment on Mortenson's points?

The question is not whether there should be a differential for educational attainment. The market should determine that. The question should be whether there are equal opportunities for people to obtain education.

interest rates on financial aid should vary across degree programs based on past payment records of university graduates in that field.

Just wanted to point out what a great idea this is.

This is a fascinating discussion...

First, as some of the previous posters have implied, I believe this is a primarily social, not economic issue. Other successful (Japan and Europe) (maybe not as much as USA) societies have much lower variance of wages (not sure about wealth). Also, some not very successful societies (Venezuela and other banana republics) have much higher variance of wealth (not sure about wages).

To me the biggest question is the equality of opportunity (to both rise AND fall), not results. I believe this historically fundamental trait of American society is becoming less abundant.

Look at ExxonMobil. I'm sure that Lee Raymond is a pretty skilled and intelligent person. But there is only 1 CEO. What is the marginal value of his skills to the company vs. most of the next few layers of management? Based on my experience, not very much and definitely not integer multiples. Not to mention the value of "the team." And also no CEO of a large public company takes real personal risk. Upside: deci- or centi- millionaire, downside: millionaire.

These questions of valuing marginal value of individual worth tend to vary over time. My fear is that our society, with less opportunity up, but particularly down, is producing a permanent upper class leading us to the aristocracy that we purposely shunned in the past.

For the "middle ground" between the homeless and CEOs who decide their own compensation, the spread of income is indeed a healthy incentive toward self betterment. A wide spread of incomes also makes cheap restaurants and lawn care possible, and enables the middle class to tip generously - generally accepted as a good thing for the involved parties.

The "outliers" are interestingly both populated with a high proportion of psychopaths.
Perhaps if we can do something to truncate the curve on both ends, we can clean up crime and reduce inefficient abuse of power (wealth).

It's interesting to note that China and America have the same Gini index (a measure of wealth distribution).

So America's income pie is growing, but educated people are getting an ever increasing slice.

At the same time, the world's income pie is growing, but America is getting an ever diminishing slice.

When was the last time America's GDP grew at a faster rate than the world's GDP?

Last year, the world's GDP grew 4.5%, America's GDP grew at 3.5%.

By this measure, America's highly-educated are grossly overpaid...but the less-educated paid the price.

Seems like we need more professionals from countries that are outgrowing the U.S. economically to come here and take over things...

Professors at China's top colleges make about $2000/year...seems like a great place to start.

Might even make a college degree more affordable.

I am largely in agreement with Prof. Becker's analysis that rising income inequality in the U.S. is driven by higher returns to education. However, I do not believe that this means that there is no problem.

The combination of globalization and high rates of unskilled immigration is clearly driving down
the wages of unskilled Americans. Some of these people can, and should persue additional education. But what do we do with the bottom 15-25% of the population? People who have little human capital beyond their raw labor, and who probably have a low return on education.

I don't think, as a society, we are willing to have their wages driven to the market clearing level of China, or Mexico for unskilled labor.

Furthermore, it seems as if globalization is beginning to impact "white collar" jobs, e.g. outsourcing radiology and investment research positions to India, more and more.

If this trend continues, it could be the bottom 50% of our population (by skill) that has it's wages driven to world market clearing levels. We clearly will not tolerate that degree of economic inequality.

This can only lead to more gov't intervention in the economy, more income redistribution, and more "socialist" economic policies.

As a generally free-market conservative I think that the U.S. would be much better off if we implemented reasonable tariffs on low wage countries (to offset at least their cost advantages due to environmental, safety and labor regulations) and reduced immigration, to shield our low skill workers from some of the wage competition.

This will be far less costly in the long run, than the redistributionist policies that will inevitably result from higher income inequality.

Thanks for the interesting topis,

Arthur Gandolif

I echo the observation of several posters that college is a sorting mechanism where students learn very little. Derek Bok, head of Harvard, admitted in a recent book that if you start with a student in the 50th percentile coming into college, he will only reach the 69th after 4 years of college.

The top 31 people are wasting their time going to college. They really be spend the next 4 years running their own business, or marketing themselves to employers. They have been brainwashed by Gary Becker and others in the educational establishment who accept government funds.

We need to separate school and state. For more info, see www.sepschool.org

A related question is: for a given level of economic efficiency, what wealth distribution maximizes the general welfare and happiness of the society as a whole? For example, is a society better off when everyone makes $50,000 a year or when 99% of the people make $20,000 a year and 1% of the people make $3,020,000 a year?

The relevant question is:

Which society is better off?

A) Every body makes $40,000.
B) 99% make $45,000 and 1% makes $1,000,000.

The impact of investment in education on inequality is the second step of the story. Here's the first: rising average productivity with diverse preferences for labor vs. consumption. Let everyone have equal productivity. If output per person = subsistence, then there is perfect equality. At output = 2 x subsistence, some people live at subsistence and spend 1/2 their time in leisure; others keep nose to grindstone and consume 2 x subsistence; and others are in the middle with somewhat more leisure and somewhat more consumption. That's a more unequal distribution of income. With productivity at 10 x subsistence, we have a ratio of 10:1 of top earners to lowest earners. As productivity grows, the ratio of top income to bottom income grows. Call this the pure productivity effect.

I think that diverse attitudes about current consumption versus future consumption (which is the investment in human capital issue) would work with the pure productivity effect in a multiplicative way. Think of a matrix with the leisure-consumption preference on one axis, and time preference on the other. Of the people at the far end of the distribution for preferring consumption over leisure, some of them would also have a low rate of time preference. These people get lots of education and work very long hours, earning a lot. At the other extreme would be some people who happen to have both a high preference for leisure and a high rate of time preference. These people stay right around subsistence. The ratio of high income to low income is far greater than without educational opportunity. Rising productivity with increased returns to education really accentuates the inequality of earnings.

One more complication. Suppose that we throw in inherited wealth, and assume that it is well above subsistence for those who have it. Then rising productivity initially reduces inequality, by bringing at least some workers up to the income level of heirs. Eventually, rising productivity overwhelms the inheritance effect (Bill Gates is richer than any Rockefeller now alive) and inequality rises as discussed above. We would thus see a U shaped path for inequality as productivity grows.

Bill

Your analysis implicitly explains my prior point, which is that income inequality does not necessarily mean inequality. Even in a country where all opportunity is equal, including equal initial wealth (yay estate taxes!), fair access to education, and even equal physical and mental abilities, there will be income inequality because people have different preferences when it comes to consumption and leisure. Thus, two entirely identical people may end up having incomes tens or hundreds of thousands apart because one prefers consumption while another prefers leisure. This is simply a further reason that income inequality is not as big a problem as the numbers would imply, since some of the disparity may be caused by different preferences.

Posters have raised the social aspect of income inequality, and that is not one to be neglected. Even though the poor of today are much better off than the poor of 50 years ago (better goods, safer cars, internet, health care, etc), the social aspect of inequality never changes. Jealousy on one end and condescension on the other always contribute to class tensions, though these are certainly less pronounced in the US than they have been elsewhere. The absence of an ancient aristocracy, which Judge Posner feels is helpful, is actually probably exacerbating the problems of unequal access to education and opportunity. This is because those near the top of the income group feel that their position there is justified, that they have earned to be there. A previous poster used the example of a Harvard and a U of Alabama graduate. While it is probably true that the former Crimson looks down on the latter, many would agree with them because there is a widespread impression that there is sufficient equality of opportunity, and that those who did not make it to Harvard simply didn't work hard enough. I admit this is an oversimplification, but I believe that most people would say that there is sufficient equality and that income inequality is the result of people's individual efforts and talents.

This impression is highly erroneous, however. Studies have shown that socioeconomic status is very strongly correlated with abilities needed for a successful education. One study I recall showed that the very poor have half the reading skills of the middle class even before they are in first grade. Having much of one's future success essentially determined before one even encounters education is certainly not equality of opportunity. The perception that there is such equality, however, prevents real reforms because the voting public, which is ultimately responsible for bringing about such changes, is under the impression that no such reforms are needed.

A few commentors discussed the ideal of equality of opportunity. However, I doubt that they mean literally that they support an equality of opportunity, but instead support some type of "opportunity floor" under which no American should exist. "Equality of opportunity" is often contrasted with "equality of outcomes", a concept that seems relegated to the margins of civil discourse. Equality of opportunity, on the other hand, seems to mean something other than equality. It makes me wonder to what extent the virtue of equality continues to matter in America.

Judge Posner and Professor Becker both ignore the strongest case for why rising income inequality ought to be an issue in the United States: the question of justice. Both Posner and Becker write about an ideal market that distributes its rewards based on merit alone. While both scholars note that merit is largely the result of life's natural lottery - Posner cites "differences in IQ, energy, health, social skills, character, ambition, physical attractiveness, talent, and luck" - neither takes up the case for why life's natural lottery is the most just distributor of wealth in this country. It is the contention that the natural lottery does not provide distributive justice that I was most hoping Judge Posner and Professor Becker would rebut.

michael phillips wrote:
It is the contention that the natural lottery does not provide distributive justice that I was most hoping Judge Posner and Professor Becker would rebut.

-------------------------------
Sometimes we complain that the Nature or God or whatever is so unfair. Some people even are trying to correct what the nature has imposed on our human beings.
Being aware of the lessons of China 40 years ago, I can tell you for sure that that kind of experiments can only show you to what an extent manmade disasters can be. I believe you can still be suprised though you had been familiar with Concentration Camps in WWII.

In order to discuss more fully the question of distributive justice I attempted to discuss infra, here are some initial thoughts.

Interesting post, michael.

I think most Americans realize that some people will get a head start in the economic "game" and can live with that fact.

It's the people who cheat to "win" the game, whether it's Barry Bonds and his steroids or Dick Cheney giving his old company billions of dollars worth of no-bid contracts, that cause resentment...

How many high-income Americans deserve an asterisk by their salary?

...neither takes up the case for why life's natural lottery is the most just distributor of wealth in this country.

That's an excellent point.

My view is that it's more about practical considerations than anything else. In order to consume, society must produce. If people who produce more are allowed to consume more then that creates an incentive to produce.

While a capitalist system that ties consumption to production is good at motivating people to work, theories that capitalism is optimal in other respects seem to me to be mostly wishful overgeneralization on the part of proponents of capitalism.

In particular, it is not clear that the distribution of wealth that results from a purely capitalist system is optimal either in terms of maximizing happiness or even in terms of optimizing total economic output.

OK let's see if I can do this without writing a novel...I don't care about income all that much, I simply care about a rough level of social equality. I don't care if some people get rich and others stay poor. I don't care if people, in their free time, choose to associate with people who are carbon copies of themselves. What I care about is the rising inequality in access to health care. I care that poor rural communities are dealing with meth labs in their midst and poor urban communities are dealing with crack dealers and dangerous gangs. I care that educational opportunities are not truly equal. If we could have a basic level of shared responsibility and opportunity, then I wouldn't have a problem with people's natural abilities and preferences sorting everyone into all sorts of differing social and class groups.

The conservative line of attack against affirmative action is that in America, we assure equality of opportunity, not equality of outcomes. A better argument I cannot imagine. But does anyone think that we truly have equality of opportunity? Do children in the ghetto whose parents cannot provide them with quality health maintenance over the long run, and who have to worry about drive-by shootings and a sub-par school system really have the same opportunity that upper-middle class kids in relatively posh Chicago suburbs have with their publicly funded schools and safe streets? These margins are getting closer together as lower-middle and working class folks are exposed to the problems already mentioned.

Take a gander at this book by Mickey Kaus; his big-picture ideas are solid. Like the review on Amazon says, there is plenty to disagree with as far as the details of how to attain this social equality. I'm a little less ambitious than he is about the restructuring of policy, but can we at least distinguish between income on the one hand, and on the other what are more intangible things like equal opportunity and sacrifice, which could lead to social equality even in the midst of rising income inequality?

http://www.amazon.com/gp/product/0465098290/102-6282809-4408912?v=glance&n=283155

http://lilt.ilstu.edu/gmklass/pos334/archive/kaus.html

OK, so I took a break from studying for law exams and read all this and now I have to write a response.

First, I support equality of outcomes, state sponsored redistribution through taxation of top earners and estates, as well as other social welfare transfer payments. I am a white male, I grew up poor, then I was briefly rich, now I am poor again.

Becker wants to rest his case on the fact that women and minority representation gaps have shrunk. To paraphrase Malcolm X: "you stick a knife in my back 9 inches, you pull it out 6 inches, and expect me to smile about it?" Representation is only a means to an end (equality). Income inequality is a social justice issue. It is about relating inputs to outputs, labor to profits, risk to return. And I don't mean rich people gambling bigger sums because they were born with it and don't care, I mean poor people who work hard, risk their health and their family life, and see their share drop.

Who died and made "productivity" god? Oh wait, I forgot the Hayekian mythology about socialism being debunked. OK, so, pretend someone besides the radical left thinks that talking about the economy in totality is a mask and an excuse for ignoring personalized localized need.

I think all this is a giant capitalism apology-fest. It is extremely good and doctrinally certified window-dressing. The grand new-liberalism justification for American corporate hegemony!

What would Cornel West say?

"The conservative project of supply-side economics and military Keynesianism of the 1980s yielded not simply a larger gap between the haves and the have-nots, but also a debt-financed public sphere and a more corporate-dominated economy-all in the name of 'free-enterprise'"

I think maybe we can all agree that that happened. The question is can we now justify income disparity by pointing to educational disparity, or is that just another more subtle version of blame-the-victim or get-a-job.

"Why have not more high school graduates gone on for college education when the benefits are so apparent?"

No, it isn't the breakdown of the family. it isn't "their" fault in any way. It was very easy for me to go to college, both times. I am sure it was easy for Becker and Posner too. The fact is, our society is still discriminatory, in very real, very de facto ways that our law has simply chosen to not see. The more the income gap widens, the more going to college is not just about seeing the apparent benefits.

I do agree however that education has become more important. Interesting then how the focus has become so keen on "standards" and test scores and "objective criteria". Isn't distributing educational benefits according to tests on which everyone admits there is a racial performance gap really suspicious and retrograde?

Everyone can't go to college. There is a completely separate argument about access to education and minority representation and culturally biased tests but no matter how that comes out, everyone can't go to college. If education is the only route to a fair share of our society's wealth, then there will always be an underclass.

Maybe we should talk about how we have 1 million lawyers in this society and how the vast majority of them work for one side of the capital v. labor, rich v. poor debate. With 1 million lawyers on the side of corporations, no wonder management has been seeing a rise in dividends.

Suppose an investor buys up a beach and charges 100 people a day $5 each to use the beach and then sells the beach after a year for the same price he bought it. The investor will be roughly $180,000 richer and the people will be roughly $180,000 poorer but they will have been able to use the beach.

Now, suppose instead that the beach is a public beach (and not for sale) so instead the investor takes the money that he would have "invested" in the beach and pays some workers to build him a bakery. Then suppose the investor sells apple pies to 100 people a day at a $5 profit and finally at the end of the year sells the bakery to the workers for the amount he had payed them in wages. The investor is $180,000 richer and the people are $180,000 poorer but they got to use the beach and now they also got to consume $180,000 worth of apple pies. Also, the workers gave up their free time but they now own a bakery.

Finally, suppose the beach is public and the people build themselves a bakery and use it to bake themselves $180,000 worth of apple pies. Over the course of the year, the people get to go to the beach and they get to consume $180,000 worth of apple pies and they now own a bakery and they aren't any poorer but they did give up the free time necessary to build the bakery.

In these examples, the investor is unnecessary and, in fact, the investor gets rich without actually contributing anything to the society.

Comparing these examples, public ownership of the beach is best. If, however, wealth was distributed equally, each person would own a little piece of the beach and they wouldn't have to pay to use their own little piece of the beach - this is not as good as a public beach but at least no one is getting rich doing nothing.

These examples identify one of the problems with unequal wealth distribution: it leads to rent seeking and the problems identified by Georgism.

Your characterization of the investor getting rich without doing anything. In the first scenario, the investor presumably paid the purchase price to someone (let's say the public), thus providing the public with funds at the beginning of the year. If the public invests those funds into, say, infrastructure, tax rebates, or anything else, by the end of the year they would have received benefits of the purchase price plus any return that yielded. If you believe in the effectiveness of the political process [I don't], then the public presumably felt that they would yield more benefits from having the up-front purchase price plus the return and a private beach than from a publicly owned beach and no up-front payment.

Additionally, all empirical evidence shows that public ownership leads to very low quality of management, so a privately owned beach is very likely to be better-managed than a publicly owned beach. The above arguments similarly undermine the other two scenarios.

In fact, public ownership would encourage rent-seeking far more than private ownership. You can just see campaign contributors "asking" for the government contract to maintain the beach using less than kosher methods. Meanwhile, a private investor would certainly use contractor who would do the best job at the lowest price and not waste taxpayer money.

The benefits of public ownership are limited to pure public goods like national defense. In the scenarios described above, private ownership would probably be better, even though the benefits are more concentrated. Of course, it is not necessarily fair or just that an investor who inherits money he never earned gets to use it to make even more. Then again, he is assuming the risks of failure in this case. The ultimate questions of fairness and justice and problems of distribution are beyold the scope of this post, but the answer certainly doesn't lie in public ownership.

In the first scenario, the investor presumably paid the purchase price to someone (let's say the public),...

You make a good point. If the beach was originally owned by the public then you would have both the public and the investor getting richer but if the beach was originally owned by another investor then you merely have two investors getting richer. Essentially, whoever has wealth becomes more wealthy at the expense of whoever doesn't have wealth.

If all the wealth is owned by private individuals then this is an unstable system. As the gap between the rich and the poor widens, the widening of the gap accelerates. Eventually, the rich own everything and you end up with something like the feudal system that existed in Medieval Europe.

The only way to keep this instability in check is to either aggressively tax the wealthy or to have wealth owned collectively so that wealth increases uniformly.

Of course, it is not necessarily fair or just that an investor who inherits money he never earned gets to use it to make even more. Then again, he is assuming the risks of failure in this case.

It is not clear that owning a beach is a great risk, however, if society wanted to reward risk it could simply pay people to play in traffic. What society really wants to reward is behavior that makes society more productive. This means directing wealth toward machines and technology that make production more efficient rather than having wealth tied up in something like a beach that does not increase the efficiency of production.

Additionally, all empirical evidence shows that public ownership leads to very low quality of management, so a privately owned beach is very likely to be better-managed than a publicly owned beach.

Privately owned beaches are typically restricted to rich people who pay large amounts of money to not have to associate with poor people. Whether you consider that to be higher quality of management depends on whether you can afford to not associate with poor people.

Public ownership of land and natural resources would go a long way to helping with the inequality of wealth distribution but, from a practical point of view, it is the same as having high taxes on land and natural resources that then result in more equally distributed private ownership of land and natural resources.

Apologies ahead for time for the long post.

if society wanted to reward risk it could simply pay people to play in traffic.

This is not the type of risk I'm talking about, and I'm pretty sure no economist is ever talking about this kind of risk. I'll pass on the question of how your hypothetical "investor" you resent so much got his money to begin with. Maybe he borrowed it from members of his neo-Nazi group. Maybe he sold his huge collection of child pornography. Maybe he robbed a nursing home. But let's just say that at some point, the investor or his ancestors did something productive and saved some money which they thought to invest. It doesn't matter if he bought the beach from the public or another investor. That other investor or one before him must have bought the beach at some point from the public. And even if you go back to a time when no one owned the beach, the first investor at some point discovered the beach, cleaned up the seaweed, built a parking lot and an access road, and then hoped that people would want to pay $5 to use the beach. And this happened several times in the whole world, in a good number of cases, no one came, and the investor took a loss. But those that succeeded did become wealthy. That is the kind of risk that society rewards. That's the kind of risk that leads to investment in R&D to find the technology

Privately owned beaches are typically restricted to rich people who pay large amounts of money to not have to associate with poor people. Whether you consider that to be higher quality of management depends on whether you can afford to not associate with poor people.

I would pay money not to associate with any people at all, but I can't quite afford my own beach yet. And by quality of management I mean that someone whose income depends on visitors willing to pay to use his beach has every incentive to keep it clean, safe, and otherwise attractive so that it can fetch a high price. Public beaches usually lag badly behind private beaches in quality because without profits, there is no incentive to provide a high quality product.

The only way to keep this instability in check is to either aggressively tax the wealthy or to have wealth owned collectively so that wealth increases uniformly.

Collective ownership of wealth generally leads to a reduction of wealth because the incentives to produce don't exist. Only the most altruistic would work hard to increase wealth when that wealth is shared and those who don't work hard also benefit. See generally the entire Eastern European experience since 1945. Not to mention the tragedy of the commons: publicly owned resources get overused and exploited. This is not to say that private entities don't exploit land - they do, and frequently with terrible results. The worldwide rise in deforestation is the best example of private entities exploiting land for their own short-term benefit. But the tragedy of the commons problem explains why public ownership of resources might solve wealth inequality and "instability" but the stable state will be at a low level of wealth.

Education does not add as much value as its owners are compensated for. It is an arbitrary modern proxy that assists in establishing the income and status gradients that are characteristic of human societies?

Many people are concerned about their social status and are comforted to have people of a lower class and lower pay grade to look down upon. Some societies institutionalize such positions (i.e. the lower castes of India). Other societies, such as the United States, have historically imported their lowest classes.

All of this may be an unattractive but efficient process. Thermodynamics teaches us that a steeper temperature gradient increases the productivity of a heat engine. A steep status gradient may help maximize economic productivity by providing psychological incentives to increase one's status and disincentives to it's reduction. If people didn't care about what other people think of them, society would come unglued.

An interesting essay by Paul Krugman touches on the issue of status and earnings inequality.

Public beaches usually lag badly behind private beaches in quality because without profits, there is no incentive to provide a high quality product.

Beaches don't need an incentive to produce. The value of a beach (that a person can go there and relax and recreate) accrues simply because the beach is there. A beach is not produced and a beach is not consumed - if I sit on a beach today someone else can still go sit there tomorrow.

Comparing a state like Michigan where the beaches are mostly privately owned with a state like Florida where the beaches are publicly owned, I definitely like Florida's system better. In Michigan, huge swaths of beaches sit empty most of the year because the owners either don't allow access to the general public at all (private residences) or they only allow access for exorbitant fees (luxury beachfront hotels).

Campgrounds in the midwest are, however, a counter-example to beaches. In this case, the land is relatively worthless and the main value comes from someone producing a service (telling people where to camp and providing bathrooms and custodial services).

In this case, I actually prefer the private campgrounds to the public campgrounds. Incidentally, however, this is because the private campgrounds are less well maintained than the public campgrounds.

With a private campground - maybe the bathroom hasn't been cleaned in weeks and maybe the customers are basically just pitching tents on an old farm field but you can show up at 9pm and for $5 they'll squeeze you in somewhere and let you use the bathroom.

With a public campground, on the other hand, the facilities may be well maintained and the campground manager may be dressed in a spiffy looking uniform but, unless you filled out all the right forms two months ago, you are out of luck. Even if you can get a camping space, the public campgrounds is still likely to be more expensive than the private campground.

Collective ownership of wealth generally leads to a reduction of wealth because the incentives to produce don't exist.

Owners of wealth get wealthier without working (producing) regardless of whether the wealth is owned collectively or individually. Only when wealth is concentrated in the hands of a few individuals, however, is enough income derived from wealth (without production) to dissuade the wealth owners from working. More concretely, a person doesn't stop going to work because he owns 1/3,000,000th of a public beach somewhere (although some people might leave work a little early on a Friday afternoon to go to the beach).

Essentially, the ideal, and most productive, economic system has public ownership of wealth (or at least equal distributionof wealth) but private production of goods and services (eg. wages are earned based on individual productivity).

Never minding the fact that beaches need to be maintained to be attractive (trash cleanup on beaches alone is a service that the public has to pay for, whether through taxes for a public beach or through fees to a private owner), I will focus on the latter part of your argument, namely

the ideal, and most productive, economic system has public ownership of wealth (or at least equal distributionof wealth) but private production of goods and services (eg. wages are earned based on individual productivity)

How, exactly, would that work? If one receives wages based on one's productivity, the most productive citizens would make more money and in most cases, accumulate savings. These savings are wealth that they privately own and want to invest somewhere. If that somewhere is a copper mine, or, to use a rarer but vital resource, a bauxite mine, you think they will want to face the up-front costs of investment for such an undertaking when the benefits will be distributed to everyone? If the public owns the "wealth" that is contained in the bauxite, it would never be able to utilize it because no one would want to give up their savings for the common good. [People suck.] While no one would stop working because he owns part of a beach, he also owns parts of all beaches, all mines, and all other natural wealth. That's plenty to stop working, or at least enough to not work as hard or invest in one's education.

Progressive taxation, rather than public ownership, would accomplish your goals with much less social cost.

If a private investor can decide to accumulate capital for a mine, a public employee empowered to do so can as well. Corporations started as public interest sub-contracts to perform government functions. There are many other ways to organize and administer capital.

Clearly the idea of the public trust is dead, if the majority of people here can't conceptualize a beach as anything but a product to be consumed. The beach example is supposed to evoke spiritual notions of nature and the limits of human strivings, not speculation about the most efficient commodification of a scarce resource. Ugh.