Social Policy in Ontario

Making the economy fairer may also make it richer

Posted on August 10, 2014 in Equality Debates

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TheStar.com – Opinion/Commentary – There’s growing evidence that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.
Aug 08 2014.   Paul Krugman

The following is an excerpt from a column in the New York Times this week by Paul Krugman:

For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.

Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower GDP to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.

But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.

How is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfil their potential.

Think about it. Do talented children in low-income U.S. families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.

And government programs that reduce inequality can make the nation as a whole richer by reducing that waste.

Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.

< http://www.thestar.com/opinion/commentary/2014/08/08/making_the_economy_fairer_may_also_make_it_richer.html >

Tags: budget, economy, featured, ideology, poverty, tax

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