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Inequality and growth

June 17, 2015

Increasing income inequality threatens economic growth, according to a report (pdf) recently released by the IMF:

If the income share of the top 20% increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% is associated with higher GDP growth.

So how should the upper 1% rationally view their own best interest, relative to policy? It depends, of course, on time frame. If they think in the short term, they will want to increase their edge vis-a-vis everyone else. If they think longer term, then their own wealth benefits from economic growth.

Are the elite short-term or long-term thinkers? If a recent Russell Sage poll is to be believed, they seem to think short term. (I’d prefer a reference directly to that poll, but am not finding such.) The really scary part of that poll isn’t that their economic interests are short-sighted, but that they also seem to think that their wealth will purchase them a natural environment separate from the rest of the world’s.

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