Thursday, March 13, 2014

More on inequality

As a follow-up to the last post consider this point by Chris Dillow:
Of course, this calculation only makes sense if we assume such redistribution could occur without reducing aggregate incomes. But such an assumption is at least plausible. The idea that massive pay for the 1% has improved economic performance is - to say the least - dubious. For example, in the last 20 years - a time of a rising share for the top 1% - real GDP growth has averaged 2.3% a year. That's indistinguishable from the 2.2% seen in the previous 20 years - a period which encompassed two oil shocks, three recessions, poisonous industrial relations, high inflation and macroeconomic mismanagement - and less than we had in the more egalitarian 50s and 60s.
It is not that there are no adverse consequences to redistribution.  Nor does it mean than any policy, taken to an extreme, will be as effect as it will on the margin when applied to current conditions.  But it is an even more compelling argument that inequality is not, in and of itself, self evidently a force for economic growth without some additional evidence. 

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