David R. Henderson  

The Benefits of Wealth

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Tyler Cowen has a thoughtful answer to the question, "Does wealth equal power?" (Of course, the obvious answer is "Yes, it equals power over material things but no, it doesn't equal power over other things. It might give one power over other things, that doesn't mean it equals power." But I think everyone understands the questioner to mean, "Does wealth give power?")

There's little in his response that I would disagree with and one thing I strongly agree with and want to expand on. Tyler writes:

Wealth does protect you from the depredations of others, such as being treated very badly by the police or legal system. In this defensive sense wealth can give you a good deal of power.

Here's what I said in a 2003 episode of "Uncommon Knowledge" when I was arguing with Arianna Huffington:
Well, I think I actually have a better example for you [Arianna] of what you are saying, okay [I know, I know, I sound like some guy on The Simpsons], and that is the drug war. In the drug war, most of the people who go to prison for often very minor offenses are poor people because they can't afford to defend themselves. And if you look, the children of politicians and the children--like Al Gore's kids for example and Richard Shelby's kids from Alabama, his son who was caught smuggling cocaine--they get very light sentences, they don't even get sentences, they just get let off and other people go to prison for the rest of their life when they're twenty years old for doing the same thing. So I absolutely agree that there are just these huge inequalities in the way the rules are applied, but my solution is so different from yours. My solution is to get the government out of most of these things so that these won't be issues. Some person can have marijuana and use marijuana and not get thrown in prison because it's legal.

UPDATE: Commenter Lewis points out below that I was wrong about Senator Richard Shelby's son. He was caught with hashish, not cocaine. I won't change the quote from the TV show, of course, because that is what I said. But thanks, Lewis, for your correction. For other examples of politicians' kids getting off lightly, see here. If you go to that site, you'll notice that many of the examples are from one investigative journalist, James Bovard, who, in my opinion, is one of the best investigative journalists out there.

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COMMENTS (17 to date)
Randy writes:

I think its important to distinguish between political power and purchasing power. Having wealth certainly does give one purchasing power, but the exercise of that power doesn't hurt anyone. The exercise of political power, on the other hand, nearly always hurts someone, as political power is obtained, maintained, and exercised by the confiscation of wealth and/or liberty. The bottom line is that access to political power should be controlled, whether it is sought by purchase or by other means.

Foobarista writes:

As you indirectly point out, wealth equals ability to hire lawyers. Given that lawyers are a speed bump in the exercise of government power over an individual, the more legal representation you can access, the less government will "mess with you". It's a simple money equation: a prosecutor can lock up a poor kid on random drug miscellany, but try that with a rich kid and you'll face daddy's legal team. Even without other connections and influence, this is often enough to let the prosecutor take an easy plea or simply let the rich kid go.

So, the more laws, the more this system favors the rich.

Bryan Willman writes:

There are some collateral issues.

Often, the attributes that bring wealth (either in oneself or very close people like one's parents) are attributes that protect one. Control of emotion and behavoir. Knowlege of details of law. A reputation for doing good in the community. Discretion both with respect to public view and with respect to crossing various boundaries. Connections.

Joe Poor who shoots up in the corner of a vacant lot may upset the neighbors, but is in any case in plain view of the police who have no trouble collecting lots of evidence.

Willy Rich shoots up in a private room in a high price hotel. There are no upset neighbors, the police don't find him passed out with the needle still in his hand. Without luck they may never get probable cause to bring charges, let alone prove the case.

This is all before money for lawyers enters the discussion. Even with the same lawyer, Joe Poor was caught with so much evidence he's virtually convicted, and he upset the community. If Willy is somehow caught, the lawyer has a much better chance of spreading reasonable doubt.

I think drug use and prostitution are two areas where this effect is very strong. Spitzer got caught and that made the news in part because it was so weird and rare. And now he's a TV personality.

One could I suppose test this by seeing what the arrest and conviction rates are for people who are suddenly "granted money at random". Do lottery winners and their children (say), or people who win huge lawsuits due to accidents, get the same "protective" effects as growing up in wealthy self-made households?

David R. Henderson writes:

Good point. As my Hoover anti-drug-war colleague and former San Jose police chief Joe McNamara put it in talk in Monterey a few years ago, “If the police started going after people in Pebble Beach and Carmel with the same ferocity with which they go after people in Seaside, the drug war would end tomorrow.” Exaggerated, I’m sure, but he makes a good point.

ajb writes:

What an odd example. You can (and do) argue that the drug war is counterproductive but that doesn't change the fact that things that would be illegal in almost any society (robbery, murder, rape) are usually treated differently when dealing with rich and poor defendants. Perhaps not to the same degree, but Al Gore's son can get away with a youthful murder or rape more easily than a poor person. Legalization only solves one instance, it doesn't deal with the lack of neutral application of the law.

Of course, a prominent defendant might also be subject to harassment just as a result of being prominent. See: Dominique Strauss Kahn.

David R. Henderson writes:

Odd? It’s not odd. If I see a problem and I can solve 20% of it by getting rid of a law that is counterproductive, I have not only increased productivity but also solved 20% of the problem. It’s a thinking-on-the-margin thing.

david writes:

Incidentally, purchasing power is capable of harming third parties - see, "pecuniary externalities". A perfect market idealization implies that employees are, at the margin, indifferent to being fired by any individual employer; obviously this is not the case. It is just that, as a society, we have decided that these harms do not generally deserve direct compensation (instead having other mechanisms that impose costs onto assorted taxpayers instead of the causative agent).

Ted Levy writes:

Regarding the obviously correct point about wealth protecting the rich from the depredations of the government judicial system and other methods of political extortion, I am reminded of the following joke:

Guy comes into a Hollywood agent's office, trying to get on the Ed Sullivan show [this is an old joke...]. Says he's got a great act. Agent wants to see it. Guy demurs. Agent insists. Guy acquiesces; he proceeds to swallow a pound of gun powder, a quart of kerosine, and then lights and swallows a match. Huge explosion. The man can no longer be seen with all the expanding smoke in the room, but the agent is covered with bits of skin, intestine, blood. Coughing from the smoke and wiping his face clean, the agent says, "That's an incredible act!" An angelic voice from above says, "The only problem is I can just do it once..."

The government is very powerful. They can get all but the richest of the rich. It just takes longer. Michael Milken served time, as did Martha Stewart.

Randy writes:


I don't accept the idea that the ending of an employment relationship (or any transactional relationship) is a harm or an externality. There was a benefit to both during the period of the transaction, but when its over its just over.

And... consider that if we do accept that a transactional relationship is permanent once entered into, then we must also accept that it works both ways. That is, I can't be fired, but neither can I quit. The producer must continue to produce as before, but I must continue to buy from that producer. And now we really are talking about harm.

Lewis writes:

One correction: I'm pretty sure that Richard Shelby's son had hashish, not cocaine.

david writes:


Regardless of whether you believe it justifies compensation, it (i.e., market power) is an ability on the part of one individual to unilaterally affect the material welfare of another individual. Coasean bargaining over it is limited because of the principal-agent problem. Therefore, externality :)

The neoclassical solution is to invoke complete markets where every transactional relationship with a possibility of termination can be bet against - no need to make every transactational relationship irreversible - but obviously nobody's going to sell you perfect unemployment insurance; the moral hazard problem is too severe.

Mark writes:

One of the more egregious examples of the rich manipulating the legal system and being treated totally differently than would have a poor person (other than O.J. Simpson) is Suzanne Cummings.

Here is her story in the Washington Post: http://wapo.st/uiDIkq

Here is her Wikipedia page: http://bit.ly/tL1su6

I wonder what the poor black females facing years of prison for minor drug offenses were thinking when they were moved from the prison cells to other facilities so that Miss Cummings could serve her harsh 60-day sentence in privacy?

CC writes:

Sorry, what's the Simpsons's reference? (I don't think I've ever had to ask that before! I thought I was an expert.)

David R. Henderson writes:

@Ted Levy,
Good joke and really good point you make with the joke. As I know you know, but possibly other readers don’t, I didn’t mean to imply that the rich don’t get screwed over by the legal system either. They do.
I watch The Simpsons only occasionally but isn’t there a teacher who says “Ok” after every clause?

David R. Henderson writes:

Right you are. Thanks for your correction. See my update above.

Ted Levy writes:


Are you perhaps thinking of South Park, not The Simpsons?

David R. Henderson writes:

@Ted Levy,
Oops. Yes, I am. Thanks.

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