Can inequality, as it is called, be sometimes a good thing?
Authors weigh in on the question, which is agreed amongst all
economists that there are circumstances where economic growth raises
inequality. The question however remains is this a stable
situation as the growth spurt stabilizes or it is a permanent shift?
They write:
If the American economy were like the Indian caste
system, where there is no social mobility, those worried about
inequality would have a point. But in America, income inequality simply
means that for those who work hard, there is a way out of poverty.
If the American economy were like the Indian caste system, where
there is no social mobility, those worried about inequality would have a
point. But in America, income inequality simply means that for those who
work hard, there is a way out of poverty.
Results suggest that in the short and medium term, an increase in a
country’s level of income inequality has a significant positive
relationship with subsequent economic growth. This relationship is
highly robust across samples, variable definitions, and model
specifications.
For a highly dynamic economy it can be argues that
the income distribution will also be dynamic in its mobility and
its distribution.
Jackson Hole where I live has a lot of wealthy people. Their incomes
have been hit pretty hard since the 2008 meltdown, and many have had to
sell homes and readjust life styles. As a result, income inequality has
been reduced.
The Wall Street Occupiers and their sympathizers—including
President Obama in a campaign speech in Kansas on Monday—tell us that
income equality is a good thing.
But while the incomes of the wealthy in
Jackson and Teton County have decreased, so has the number of jobs.
According to some accounts, 3,000 people are out of work. Because when
the rich get poorer, so do the poor.
Margaret Thatcher, in her last
speech from the House of Commons floor as British Prime Minister, zeroed
in on the true view of those who complain about income inequality: “So
long as the [income] gap is smaller, they would rather have the poor
poorer.” She understood that those concerned about “income inequality”
are preoccupied with an envy of the rich rather than a desire for the
poor to be less poor.
If the American economy were like the Indian caste
system, where there is no social mobility, those worried about
inequality would have a point. But in America, income inequality simply
means that for those who work hard, there is a way out of poverty.
The
Ruling Political Elite would prefer more income equality, where the
likes of Steve Jobs could never have risen to the top to generate wealth
for themselves and others—and where everyone has to rely on government
handouts rather than self-enterprise.
These "narrow the gap" advocates
present a chart with an escalating line illustrating the rich getting
richer and a second flat line below it postulating that the poor have
stayed constantly poor.
But the people in that lower group are
constantly changing! In 1964, when I came out of the Army with basic
assets of $800 of accumulated leave pay, I was in that bottom group. Steve Jobs was in that group, receiving free food from the Hare
Krishna folks. But we worked our way out of it!
This ability to
succeed is the mainspring of the American dream. Those who have lost
their jobs in Jackson Hole would be better off if the income of some in
Jackson suddenly soared to higher levels. With more wealth (and, yes,
even a wider income disparity), there would be more money for
everyone—retailers, plumbers, carpenters, waitresses, ski
instructors—because wealth creates jobs.
My hard-working parents focused
on sustaining our family rather than worrying about the "income gap." My
dad bought and sold cattle, and my mom, who dropped out of school in
eighth grade to pick cotton to help her single mom and eight siblings,
canned fruit, froze vegetables, and butchered chickens in our basement
so we wouldn't have to pay "those expensive store-bought" prices." Franklin Delanor Roosevelt, in a 1933 radio address, said, "We cannot
read the history of our rise and development as a Nation, without
reckoning with the place the Bible has occupied in shaping the advances
of the Republic....Where we have been truest and most consistent in
obeying its precepts we have attained the greatest measure of
contentment and prosperity."
So in that "pre-entitlement" era, before
the Woodstock crowd launched its drug and sexual revolution and became
the "Me" generation, all of us knew that these centuries old Jewish
scriptures taught that envy was a sin.
With our wealth we are to "be our
brother's keeper," meet the needs of the poor, and to be a blessing to
all those God puts in our path. The Good Book exhorts us to share in
people's sorrows as well as joys. In those days we honored the
productive, the successful, and, yes, the rich. And we believed that, in
America, anyone who worked hard could become one of the rich. Merry
Christmas, Happy New Year, and go bust your butt to widen the gap!!
A Reassessment of the Relationship Between Inequality and Growth
Link By KRISTIN J. FORBES*
Results suggest that in the short and medium term, an increase in a
country’s level of income inequality has a significant positive
relationship with subsequent economic growth. This relationship is
highly robust across samples, variable definitions, and model
specifications.
Margaret Thatcher said: “So long as the [income] gap is smaller, they would rather have the poor poorer.”