For the past several decades, much American lawmaking has been animated by a concern for economic efficiency. At the same time, broad concerns over wealth and income inequality have roiled American politics, and still loom over lawmakers. It can be reasonably argued that a tension exists between efficiency and equality, but that argument has had too much purchase over the past few decades of lawmaking. What has been overlooked is that inequality itself can be allocatively inefficient when it gives rise to collectively inefficient behavior. Worse still, some lawmaking only masquerades as being efficiency-promoting; upon closer inspection, some of this supposedly efficiency-driven legislation is only naked rent-seeking, enriching a small minority at the expense of social welfare. In pursuit of efficiency, injudicious lawmaking has created inefficient laws and institutions.
This Article lays out several ways in which inequality can be allocatively inefficient. This Article also lays out a simple normative principle, focusing on broad economic effects, by which efficiency rationales for lawmaking might be more rigorously considered. Importantly, while it is lawmaking and not economic policymaking that is the focus of this article, it is essential that lawmaking be adequately informed by serious economic analysis, and not the intellectually casual, ideologically-driven economics that has opened the door to rent-seeking over the past several decades. The resulting lawmaking creates inequality but does not even produce the promised efficiencies. Better lawmaking must be informed by better economics. After all, if inequality is objectionable because it is inefficient, then measures to reduce inequality should themselves be efficient.
Shi-Ling Hsu, Inefficient Inequality, 5 Ind. J.L. & Soc. Equality 1 (2016).