High Inequality Restrains Economic Growth

March 10, 2014

In his op-ed of March 9 in the New York Times (http://www.nytimes.com/2014/03/10/opinion/krugman-liberty-equality-efficiency.html?hp&rref=opinion), Paul Krugman provides a quick summary of the scholastic history of a key question: Whether high inequality restrains economic growth.

The Krugman article speaks well for itself, so I will only add a brief observation here, hoping you’ll look at the article itself.

Krugman is very reasonable in his position. He’s not proposing a huge redistribution from the wealthy. He’s not disputing the value of incenting everyone to excel by rewarding the successful with the fruits of their labor.

He’s simply saying that at very high levels of inequality, such as we are currently experiencing, there is a restraint to economic growth. Putting a little more income in the hands of the lesser privileged will result in spending, which will grow the economy.  This is good for everyone.

It simply does not appear that allowing the wealthy to continue to aggregate unlimited amounts of wealth is resulting in what the conservative economists and politicians of the Reagan era and beyond have been extolling–that the wealthy would invest it in production and this would result in jobs and “trickle down.”

In fact, as shown in previous posts here, there has only been a significant “trickle up” across the last 30 years.

More research needs to be done on Krugman’s last point in the article. Isn’t it possible such growth enhancement stimulated by a little redistribution actually results in more wealth for the wealthy also? Is it necessarily true that the efficiency of selective forms of gradual redistribution is such that the wealthy lose a little, as he acknowledges is possible? For example, if I get A% of B $ GDP now, maybe C% (a little lower) of D $GDP (a little higher) will be a larger number for me…?

But, even if this is not true, a very modest loss to the ultra wealthy is worth it for the common good of all, and also as prevention to the ultimate risk of revolt and revolution.  And, this is not a loss of existing wealth, only a little loss in the rate of future wealth growth.

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