I am one of those people who thinks that extreme inequality is inconsistent with a healthy economy. I am not here claiming that extreme inequality is morally wrong or unjust (although it may be). I think that inequality is harmful under conventional macroeconomic criteria of sustainable GDP growth with moderate business cycles. Nick Rowe (whom I generally adore) is dead wrong when he writes, “Sure, there might be distribution effects, but distribution effects are the last refuge of a …. person who can’t think up a better argument.” Distributional questions are central to macroeconomics, and underemphasized for reasons that I think are ideological. A good economy must accommodate three coequal but contradictory concerns: incentives, distribution, and dynamism. Pick any two and what you end up with is crap.
Ceci n’est pas an actual blog post. I don’t mean to flesh out an argument here; I am just madly claiming things. But since it will come up, I do want to preempt the “what about China?” complaint. Inequality and strong growth are definitely consistent in open, export-oriented economies, which rely upon discriminating consumers elsewhere to augment domestic demand. But, except for very small economies, this strategy fails the sustainability test. As China is in the process of discovering, large economies can’t rely upon export-oriented growth indefinitely. Eventually they engender hostility and protection among the nations for which they produce and see the claims in which they are paid devalued. (Germany is discovering this as well, in ways that seem more subtle only because they are less widely discussed.)
Perhaps a more nuanced and defensible way to frame the question is this: Can growth and inequality coexist over time without positing continuous capital flows that never reverse (between countries, or between groups within a single country)? Can a “balanced” economy, in which gross credit/debt rises no faster than GDP, be unequal and grow? (Perhaps it is fair to ask whether a “balanced” economy can ever support growth?)
Anyway, that’s too much already. This not-post is intended just as a placeholder for links. I’ve read a bunch of good pieces on inequality and growth recently, but my brain is like a sieve, so I’ll use the “related” box below to maintain a list of bookmarks. Please let me know in the comments what I’ve missed (and accept an apology for the endless omissions). I’ll try to keep updating this for a while.
[Note: My choices regarding what links to include here are likely to be quirky and seem one-sided. Usually when I append links to a post, I try to be fair about including perspectives I disagree with. But the broad inequality debate is more than I want to cover here. I'm interested in the question of how inequality effects macroeconomic stability and growth. Most defenses of economic inequality that I know address different issues, or simply presume that a tension between equality and growth-enhancing incentives outweighs any other effect. So my collection is unbalanced. I want links on the question of whether inequality is destabilizing, or whether inequality suppresses demand, consumption, or market information in ways that impair growth. I am glad to post links on all sides of those questions. I'm aware, by the way, of the (inconclusive) academic literature that tries to relate growth to inequality measures, but I've not seen anything that examines 1) the possibility that effects reverse sign — i.e. moderate inequality might be growth supportive while extreme inequality growth destructive; 2) the role of capital flows and/or credit expansion; or 3) long-ish term stability and low frequency crises.
Related — elsewhere:
- Benign Brodwicz: Income inequality, debt, crisis and depressions
- Benign Brodwicz: Magical misdirection from the ruling class
- Benign Brodwicz: Tax cuts for the rich! Let the poor eat cake!
- Dalton Conley: Don’t Blame the Billionaires
- Chris Dillow: Inequality and innovation
- Kevin Drum: Is Rising Income Inequality a Problem?
- Kevin Drum: More on Bubbles
- Kevin Drum: Savings Glut, Investment Drought
- Kevin Drum: Quote of the Day: Plutocrats!
- Kevin Drum: The Vicious Cycle of Stagnant Wages
- Free Exchange / Ryan Avent: Rethinking the Great Moderation
- Humble Student of the Markets: The greatest threat to capitalism
- Ezra Klein: Do liberals have it wrong on inequality?
- Mike Konczal: Chicago After The Crisis
- Mike Konczal: Post-Fordism and Nostalgianomics
- Nick Krafft: The Inequality-Bubble Link
- Gaius Marius: the hazards of wealth concentration
- Steve Roth: Socialism and Prosperity: Does One Cause the Other?
- Steve Roth: Wealth Equality and Prosperity
- David Ruccio: Connecting the dots
- David Ruccio: Inequality and crisis
- Felix Salmon: Why the plutocrats will return
- Mark Thoma: Should Taxes be Progressive?
- Will Wilkinson: What Progressive Redistribution Is For?
- Matt Yglesias: Bubbles and Inequality
Related — here:
