Morning Must-Read: Mark Thoma (2011): Income Redistribution: The Key to Economic Growth?

Mark Thoma (2011): Income Redistribution: The Key to Economic Growth?: “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…. We also know that a society where one person has almost everything while everyone else struggles to survive… will not grow at the fastest possible rate either…. We may be near or even past the level of inequality where growth begins falling…. But… 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…. 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…. 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…. We’ve given the market economy 40 years to solve the problem of growing inequality, and the result has been even more inequality…. If we want to preserve a growing and socially healthy economy, and avoid moving to lower growth points on the inequality curve, then we will need to do much more redistribution of income than we have done over the last several decades…”