Must-Must-Read: Matthew Yglesias: Brookings Did a Symposium
“Brookings did a symposium on the 40th anniversary of Arthur Okun’s famous book…:
Equality and Efficiency: The big tradeoff. There’s some interesting stuff in the transcript and also in Brad DeLong’s commentary, but… the big story… people on the liberal side of the divide are… hesitant to go truly guns blazing after how fundamentally misguided the political economy thinking behind this tradeoff talk is.
Oligarchy isn’t efficient: All societies have some inequality. At times, the people on the ‘winning’ side of that inequality are able to influence the political process to further enrich the already rich. When people are in a position to do that, do they normally go about doing so by enacting ‘efficient’ growth-friendly policies that maximize GDP? Of course not. Hedge fund managers get their income taxed at a preferential rate. Pharmaceutical companies hijack the global trade process to push for stronger patent rights. Medical doctors stifle competition from immigrants and nurse practitioners. Big companies seek rents, and when they do so successfully their shareholders and executives are duly rewarded…. There are some policies that both increase growth and increase inequality. But there’s no reason to believe that such policies are typical or that this is the big tradeoff that exists in practical political economy.
Dire poverty isn’t efficient: Conversely, there’s very little reason to think that a society with better living standards at the bottom will be less growth-friendly. Imagine if everyone in America managed to afford a house in a safe neighborhood that was close to a good school and that featured convenient commuting to job opportunities. That would be a much more egalitarian society. But it would also be much more growth-friendly…. What if no kids suffered from lead poisoning or the developmental problems associated with the cortisone surged induced by poverty-relayed stress? What if every pregnant woman had great prenatal and neonatal health care?…
Communism isn’t egalitarian: Last but by no means least… in the Soviet Union or North Korea… actual outcomes are not at all egalitarian…. It’s oligarchy under the red flag….
The real issue in all cases is… who, in practice, is the policy process accountable to. If it’s accountable to a narrow band of rich people that is worse than if it is accountable to the interests of average people. If it’s accountable to an even narrower band of elite party members, that’s even worse. But effective, accountable government is good for both equality and growth.