Let’s say we have two countries, A and B. They start out at equal levels of wealth, with residents making on average $100,000 a year.
A chooses a more capitalist system, and B chooses social democracy. Let’s say that, because of this, a poor person in B is better off.
At the tenth percentile of income, assume a person in A makes 35% of the average, or $35,000 a year. In Country B, because it engages in more redistribution, the person at the tenth percentile makes 45% of the average income, so $45,000. This is unrealistically high for the difference between relatively unequal and relatively equal rich countries, as the gap between the US and Sweden is much smaller than this. But let’s just go with it.
Let’s also assume that because A is more capitalist, it has faster growth. A grows at 2% a year, compared to 1% a year for B. In per capita, PPP-adjusted terms, America has grown about an extra 1% a year compared to Italy over the last three decades, so this is not unrealistic.
Here’s what happens in each country to average income and income at the tenth percentile over the next fifty years, assuming the ratio between the two doesn’t change.
By year 26, the poor person in A ($58.6K) ends up wealthier than their counterpart in B ($58.3K). From there, the gap grows. In 50 years, the poor person in A is at $94K, compared to $74K in B. That’s ignoring what has happened to the average, which is now $269K in A and $164K in B, and of course we’re ignoring everyone doing better than average too.
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I completely agree that prioritizing growth over equality is correct, but I don’t think redistribution is the most important contrast with Europe. In some ways the US tax system is more progressive in terms of distribution than Europe, which funds its more expansive welfare states with broad regressive taxes like the VAT, while the US is more reliant on progressive income taxes. It’s true that in some countries like France the top income tax bracket is so onerous that this discourages work but this is not universally true. In fact some countries in Europe even have flat income taxes !
The main drags on European growth (labor market regulations, precautionary principle type regulations on certain technologies) are not really related to redistribution and I think higher inequality in the US is largely exogenous to the tax system so I don’t think growth vs. redistribution is the most important trade off. I would say growth/dynamism/disruption vs safetyism/stability/stagnation is the more important difference.
Of course, but you're ignoring the envy and social disruption that can occur when inequality increases. It's not always about the money you have, it's where you sit in the distribution.