Sunday, January 25, 2015
YOLO COUNTY NEWS
99 CENTS

We can have it all: Liberty, equality … efficiency

PaulKrugmanW

By
From page A10 | March 23, 2014 |

Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing, although a fair number of conservatives believe that the whole subject of income distribution should be banned from public discourse. (Rick Santorum, the former senator and presidential candidate, wants to ban the term “middle class,” which he says is “class-envy, leftist language.” Who knew?) But what can be done about it?

The standard answer in U.S. politics is, “Not much.” Almost 40 years ago Arthur Okun, chief economic adviser to President Lyndon Johnson, published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed: Liberals might argue that the efficiency costs of redistribution were small, while conservatives argued that they were large, but everybody knew that doing anything to reduce inequality would have at least some negative effect on gross domestic product.

But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.

Let’s start with the evidence.

It’s widely known that income inequality varies a great deal among advanced countries. In particular, disposable income in the United States and Britain is much more unequally distributed than it is in France, Germany or Scandinavia. It’s less well known that this difference is primarily the result of government policies. Data assembled by the Luxembourg Income Study (with which I will be associated starting this summer) show that primary income — income from wages, salaries, assets, and so on — is very unequally distributed in almost all countries. But taxes and transfers (aid in cash or kind) reduce this underlying inequality to varying degrees: some but not a lot in America, much more in many other countries.

So does reducing inequality through redistribution hurt economic growth? Not according to two landmark studies by economists at the International Monetary Fund, which is hardly a leftist organization. The first study looked at the historical relationship between inequality and growth, and found that nations with relatively low income inequality do better at achieving sustained economic growth as opposed to occasional “spurts.” The second, released last month, looked directly at the effect of income redistribution, and found that “redistribution appears generally benign in terms of its impact on growth.”

In short, Okun’s big trade-off doesn’t seem to be a trade-off at all. Nobody is proposing that we try to be Cuba, but moving U.S. policies part of the way toward European norms would probably increase, not reduce, economic efficiency.

At this point someone is sure to say, “But doesn’t the crisis in Europe show the destructive effects of the welfare state?” No, it doesn’t. Europe is paying a heavy price for creating monetary union without political union. But within the euro area, countries doing a lot of redistribution have, if anything, weathered the crisis better than those that do less.

But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.

Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?

In fact, low-income children are much less likely to complete college than their affluent counterparts, with the gap widening rapidly. And this isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.

Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class (sorry, Sen. Santorum).

In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.

Comments

comments

.

News

Bridges of Yolo County: Wear, tear … repair?

By Elizabeth Case | From Page: A1 | Gallery

 
Four days of unusual, adventuresome music

By Jeff Hudson | From Page: A1 | Gallery

 
Rockets kill 30 in Ukrainian city as rebels launch offensive

By The Associated Press | From Page: A2

Abe ‘speechless’ after video claims IS hostage dead

By The Associated Press | From Page: A2

 
GOP presses state bills limiting gay rights before ruling

By The Associated Press | From Page: A2

Abortion opponents express renewed hope at California rally

By The Associated Press | From Page: A2

 
Spanish police arrest 4 suspected members of a jihadi cell

By The Associated Press | From Page: A2

Fake schools draw federal scrutiny

By The Associated Press | From Page: A3 | Gallery

 
Winter produce available at Sutter market

By Special to The Enterprise | From Page: A3

Vote for your favorites in Readers’ Choice poll

By Enterprise staff | From Page: A3

 
Share your love (story) with us

By Enterprise staff | From Page: A3

 
Sip wines at St. James’ annual tasting

By Special to The Enterprise | From Page: A3

Donations to be distributed during homeless count

By Anne Ternus-Bellamy | From Page: A4

 
Speaker will share computer security tips

By Enterprise staff | From Page: A4

Logos Books celebrates 5 years, offers language groups

By Enterprise staff | From Page: A4

 
Australian olive oil company opens U.S. headquarters in Woodland

By Special to The Enterprise | From Page: A4

Explore at the YOLO Outdoor Expo

By Enterprise staff | From Page: A4

 
Pedal around Davis on weekly bike ride

By Enterprise staff | From Page: A4

 
Yolo animal shelter seeking rawhide donations

By Lauren Keene | From Page: A5

Woodland Healthcare employees take Great Kindness Challenge

By Special to The Enterprise | From Page: A5

 
At the Pond: Nest boxes give birds new homes

By Jean Jackman | From Page: A6 | Gallery

California ranks worst in nation for guidance counselors

By The Associated Press | From Page: A7

 
Davis, Woodland are saving water

By Elizabeth Case | From Page: A12

Words and Music Festival events

By Jeff Hudson | From Page: A12

 
.

Forum

 
Caring for the aging mouth

By Samer Alassaad | From Page: A8

 
Family isn’t keen on relationship

By Creators Syndicate | From Page: A8

Mayor’s Corner: Let’s renew Davis together

By Dan Wolk | From Page: A10

 
We have the right to choose

By Letters to the Editor | From Page: A10

We don’t have to suffer

By Letters to the Editor | From Page: A10

 
City helped immensely

By Letters to the Editor | From Page: A10

Rick McKee cartoon

By Debbie Davis | From Page: A10

 
Big utilities’ nightmare begins to play out

By Tom Elias | From Page: A10

When measles spreads from Disneyland, it’s a small world after all

By New York Times News Service | From Page: A11

 
From innovation parks to innovative buildings and planning

By Special to The Enterprise | From Page: A11

.

Sports

Loud crowd sees DHS boys win

By Spencer Ault | From Page: B1 | Gallery

 
Lady Devils hold off Pacers, stay perfect in league

By Enterprise staff | From Page: B1

Wildcats’ inaugural kids development league exceeds expectations

By Bruce Gallaudet | From Page: B1 | Gallery

 
Aggies get top 2015 gymnastics score, but fall short

By Bruce Gallaudet | From Page: B1 | Gallery

UCD men take two tennis matches

By Enterprise staff | From Page: B8

 
Watney in ninth at Humana Challenge

By Staff and wire reports | From Page: B8

.

Features

.

Arts

.

Business

Davis man focusing on cannabidiol business

By Will Bellamy | From Page: A9

 
Marrone Bio’s Regalia approved for new uses in Canada

By Special to The Enterprise | From Page: A9

 
UCD grad makes insurance ‘hot 100′ list

By Enterprise staff | From Page: A9

Yolo County real estate sales

By Zoe Juanitas | From Page: A9

 
.

Obituaries

.

Comics

Comics: Sunday, January 25, 2015

By Creator | From Page: B8