Income Redistribution: The Key to Economic Growth?

[ProSense]

Income Redistribution: The Key to Economic Growth?

By MARK THOMA, The Fiscal Times

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There is an equivalent of a Laffer curve for inequality, but the variable of interest is economic growth rather than tax revenue. We know that a society with perfect equality does not grow at the fastest possible rate. When everyone gets an equal share of income, people lose the incentive to try and get ahead of others. We also know that a society where one person has almost everything while everyone else struggles to survive – the most unequal distribution of income imaginable – will not grow at the fastest possible rate either. Thus, the growth-maximizing level of inequality must lie somewhere between these two extremes.

We may be near or even past the level of inequality where growth begins falling. The evidence on this is highly uncertain, so it’s difficult to say. But a few more decades like the last few could make the difference, so why take a chance? I’d prefer to see policies implemented to reduce inequality – given the present, elevated level of inequality, a reduction is unlikely to have much of an impact on incentives. But at a minimum we should resist further increases. This will reduce the chance of crossing over the point where growth starts to diminish rapidly, and it also reduces the chance that we will surpass the point where inequality causes cracks in the social structure.

I’ve never favored redistributive policies, except to correct distortions in the distribution of income resulting from market failure, political power, bequests and other impediments to fair competition and equal opportunity. I’ve always believed that the best approach is to level the playing field so that everyone has an equal chance. If we can do that – an ideal we are far from presently – then we should accept the outcome as fair. Furthermore, under this approach, people are rewarded according to their contributions, and economic growth is likely to be highest.

But increasingly I am of the view that even if we could level the domestic playing field, it still won’t solve our wage stagnation and inequality problems. Redistribution of income appears to be the only answer.

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On edit: Best place to start is to increase the minimum wage.

[applegrove]

1. The USA is beside Russian and Mexico on the UN equality scale.

[rocktivity]

2. It's certainly to key to our economic destruction

What do you think the Bush tax cuts were REALLY about?

:headbang:
rocktivity

[eridani]

3. Looks like he's starting to remember playing Monopoly as a kid

When one person gets all the assets, the game is over. If you want to keep playing, you have to redistribute.

[TBF]

4. Agree with raising the minimum wage, also need to tax the wealthy. nt

[ItNerd4life]

5. Not redistrubution, but fairness. Tie Executive compesation to workers compensation.

Executive pay/compensation has increased drastically over the last 20 years where worker pay/compensation hasn't. Make them linked so if Executive pay goes up, so must the workers pay.
It's solve all kinds of problems.

[quaker bill]

9. That is redistribution

just another form of it. Telling people how they must spend their money is the same as taking it and spending it for them.

[ItNerd4life]

20. It's not redistribution, it's a framework.

Redistribution is the government taking it then giving it to whomever they want.

This is setting a framework that all businesses have to work within, just like pollution laws, etc.

[Citizen Worker]

6. How about a maximum wage? And index the minimum wage to a legitimate cost of living index.

[ProSense]

7. What would the maximum wage be? n/t

[paulk]

8. the best place to start would have been ending the tax cuts

for the richest Americans.

[ProSense]

11. Good thing to do, but not the best place to start in the context of addressing income inequity

While eliminating tax cuts for the rich is the right thing to do, it has no immediate impact on low-income Americans. For immediate relief, the best thing to do would be to raise the minimum wage.

Eliminating the tax cuts for the rich will increase government revenues. Increasing the income cap for payroll taxes will strengthen Social Security. Both good things, but immediate relief would be increasing wages.

[paulk]

12. those revenues could have then been used for some sort of

jobs program...

Income inequity is the #1 problem facing our economy, imo, and the fact that the Obama administration and most of the Democratic Party did not hold the line on rescinding Bush's tax cuts for the wealthy shows that they are not serious about addressing it.

They have accepted an 8% plus unemployment rate (and we all know the real rate is much higher) as the norm for the new economy...


ps - increasing wages doesn't help if you don't have a job.

[ProSense]

13. "used for some sort of jobs program"

The article isn't about unemployment, it's about income inequity.

"increasing wages doesn't help if you don't have a job."

Increasing wages helps those who are working and those who aspire to work. Do you think a person facing the prospect of getting a job is going to be happier if that job is likely to pay $7 per hour or $10 to $15 per hour?

Addressing unemployment is extremely important, but in terms of incomes it does nothing to level the playing field.

[paulk]

17. unemployment and income inequity aren't related?

or are you the sole arbiter for the terms of this debate?

[ProSense]

18. No. Let me ask:

Does improving the unemployment situation change income inequity? What if all the jobs created are low paying jobs?

Was income inequity not a problem in the 1990s?

[badtoworse]

14. Income inequality is not the biggest problem we are facing

It's a big problem to be sure, but the biggest problem is the shrinking pie. We have been hemorrhaging jobs to countries like China and India for years and if we don't fix that, we will be redistributing crumbs. We need to make the country more competitive in a world economy so businesses have an incentive to manufacture here.

[paulk]

15. how do we make this country more competitve

in the world economy?

Lower wages?

[ProSense]

16. Yes, but this

"We have been hemorrhaging jobs to countries like China and India for years and if we don't fix that, we will be redistributing crumbs. We need to make the country more competitive in a world economy so businesses have an incentive to manufacture here."

...is not going to happen overnight, and it still doesn't address inequity. From the OP:

We also know that a society where one person has almost everything while everyone else struggles to survive – the most unequal distribution of income imaginable – will not grow at the fastest possible rate either. Thus, the growth-maximizing level of inequality must lie somewhere between these two extremes.

We may be near or even past the level of inequality where growth begins falling....

Yes, the jobs problem has to be addressed, but inequality is also a tremendous burden on the economy.

In the context of the current jobs market, getting unemployment down doesn't address the implications of hemorrhaging jobs.

Maybe do both: raise the minimum wage for an immediate impact and address the availability of jobs and America's competitiveness.

[badtoworse]

19. Sounds like Goolsbee and Obama agree with growing the pie

He talked about increasing exports which is exactly what I was talking about. In the discussion, however, he didn't give any ideas about how to do it. I've got my own ideas about that, but I'd like to hear what you and others think.

We talked about Galbraith's ideas on another thread, so there's no need to rehash that. BTW. I'm still interested to hear your thoughts retirement planning.

[StarsInHerHair]

10. I've always seen it as "leveling the playing field".............

nt