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.