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Monday, October 24, 2016

IMF: Want To Fix The Economy? Tackle Income Inequality.

To solve our economic woes, it turns out the government should focus less on free trade and debt and more on alleviating income inequality: A new study — by the IMF, no less — found that countries with more equally distributed income tended to have longer growth spells. This information, in light of a rapidly expanding gap between rich and poor in the United States, could explain the country’s slow economic recovery. Even so, politicians wary of “class warfare” and “socialism” slurs will still probably ignore income inequality as they search for quick economic fixes.

The study appeared in Finance & Development, the quarterly magazine of the International Monetary Fund — not exactly the most progressive institution out there. Even so, the findings supported the radical idea that governments should tackle income inequality first if they want to have longer periods of economic growth. Mother Jones reports:

Comparing six major economic variables across the world’s economies, [study author Andrew] Berg found that equality of incomes was the most important factor in preventing a major downturn.

In their study, Berg and coauthor Jonathan Ostry were less interested in looking at how to spark economic growth than how to sustain it. “Getting growth going is not that difficult; it’s keeping it going that is hard,” Berg explains. For example, the bailouts and stimulus pulled the US economy out of recession but haven’t been enough to fuel a steady recovery. Berg’s research suggests that sky-high income inequality in the United States could be partly to blame.

So how important is equality? According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.

So Obama has been facing unsubstantiated accusations of “class warfare” lately, but it turns out maybe tackling inequality is exactly what the country needs to fix the economy. Somehow, it’s hard to see conservative politicians jumping on this data as they develop economic recovery plans.

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  • Shaun Costello

    Before the Republicans shut down our government again, in their preposterous attempt to turn back the clock to the good old days, when men were men, and women ruled the kitchen, and homosexuality did not yet exist, and you could pack a six shooter when you strolled down Main Street, and if you wanted a negro, you could buy one – before we deal with all of that…….sing along with me………………………………………………….

  • edwinlee58

    The growth in income inequality in this nation correlates with the growth of free trade. Wealthy people, nations with regulated economic borders and large, well funded international corporations benefit the most from free trade and increase their wealth, control of jobs and political power at above average rates. These pools of wealth are largely stagnant and rarely risked, thus a corresponding slow down in economic growth.

    The article implies we should work on wealth distribution directly. That will help a little. However, a more effective approach would be to re-institute tarriffs (at least 20%) on all imports and to tax money earned in other countries or exported to other countries.

    Our nation lacks regulated economic borders. Large multinationals, wealthy individuals and China have well regulated economic borders… therefore wealth, technological expertise and political power are collecting in these pools administered for selfish ends by fewer and fewer people.

    Our nation, and its economies are systems. Every healthy system, like people, aircraft, living cells and corporations have well regulated borders that manage the flows of resources and wastes into and out of them. Our nation is unhealthy in part because it lacks economic borders.

    I’m detailing more of this thesis on my blog at

  • kurt.lorentzen

    Free trade is bad for Americans in the long run. Not because there’s anything intrinsically wrong with it, but because Americans enjoy a standard of living not enjoyed by 90% of the rest of the world. You could argue that economic policies of both parties (and European politicians) constitute conspiracys to globalize the economy so as to bring about a common currency that no longer requires exchanges and is unaffected by the economic state of any individual country. I agree that tarriffs on imported goods (including finished products and components produced offshore by US companies) would make it more atractive for US businesses to stay at home. But that comes with a price – literally! Wal-Mart closes. Low income Americans move to the poor house, and middle-income earners move to the status of current lower-income folks. The Chinese would want their money back. The only reason they keep loaning us more is so we can keep consuming their products, so you better get ready for a balanced budget – higher taxes, the end of medicare. The up side is that there would be much less unemployment and US products would be created en masse. I would favor this approach because I believe an adjustement on our own terms would be much better than just waiting in silence for the economic collapse to unfold.

  • calhar

    This is the most common sence article I have read on the economy.There is just so much money in any nations economy and when that is distributed to billions around the world with the haves with the majority it just doesn’t come out right on the balance sheet.

  • renwhitney

    I have been saying most of these things for a long tome. That lower income earners and middle income earners spend their money more freely than the very rich. The very rich tend to hoard their earnings and just take out of the system. Instead fo this they and the major corporations should be putting back a percentage of their earnings to grow the bottm line and by creating new jobs and adding cash flow to the economy with middle income earners and lower income earners making a good enough income so they can strengthen the buying of corporate made merchandise thus keeping the economy engine running. This is the backbone of keeping businesses going. Just common sense. If you keep taking out and not putting anything back your company (DIES).

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