Why income redistribution doesn’t hurt growth, by Mark Thoma: Thomas Piketty’s book “Capital in the Twenty-First Century” documents the increase in inequality in recent decades, and it has rekindled an old debate about the effects of income redistribution on economic growth. Until recently, most economists believed there’s a trade-off between equity and efficiency and that the redistribution of income would lower economic growth. …
But as the recent paper “Redistribution, Inequality, and Growth” by Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides of the International Monetary Fund explains, there are also reasons to believe the redistribution of income can enhance economic growth in some cases. …
Let’s see.
We experience a time when income concentration at the top increases and find ourselves with a sick economy. Well ok. It’s might be coincidence. So nothing policy wise happens and the sick economy stays sick.
So, we decide to try moving some money into the hands of those below the top 1% via safety net programs, mortgage refinance, unions/labor laws, banking restrictions etc. This results in another period of redistribution of income. It’s in the opposite direction from that pre sick economy. And gee, the economy grew also, some say better and we were actually doing some kind of fun things like a moon shot.
But, for some reason people thought things were not so good and we reverse policy such that a 3rd round of redistribution starts. Again a reversal from what we had. Now redistribution is happen so that money moves to the top 1%. And we end up with another whopper of a sick economy. So, we decide to not do nothing, but not what we did the last time we had a whopper of a sick economy. We decide that the top needs more help and not the middle or bottom as we did with the first whopper sick economy.
And we decide this was the correct policy approach for this 2nd whopper sick economy because intentional income redistribution might harm the economy? That there might be a trade off between equity and efficiency?
Yeah, income redistribution can harm the economy! Idiots! Yeah there’s a trade off between equity and efficiency. That’s not the question or the issue. The issue is and the question is: define efficiency?
This is where economics fails. Thoma like too many others ask the question as it relates only to the data regarding money. Accounting. Try getting real, get your head out of the abstraction of numbers effects on numbers and ask the question as efficiency relating to society and the reduction of life’s risks.
There’s a difference in spending money to make money and spending money to reduce the risks of living. But both can be made to be highly efficient. Income redistribution’s results looks different from each position.
Bailout Mainstreet!