Reducing inequality "would probably increase, not reduce, economic growth":
Liberty, Equality, Efficiency, by Paul Krugman, Commentary, NY Times: Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing... But what can be done about it?
The standard answer in American politics is, “Not much.” Almost 40 years ago Arthur Okun ... published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed: liberals might argue that the efficiency costs of redistribution were small, while conservatives argued that they were large, but everybody knew that doing anything to reduce inequality would have at least some negative impact on G.D.P.
But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.
Let’s start with the evidence..., does reducing inequality through redistribution hurt economic growth? Not according to two landmark studies by economists at the International Monetary Fund...
In short, Okun’s big trade-off doesn’t seem to be a trade-off at all. ...
At this point someone is sure to say ... that we should seek equality of opportunity, not equality of outcomes. That may sound good...; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?
In fact, low-income children are much less likely to complete college than their affluent counterparts, with the gap widening rapidly. And this isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.
Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class...
In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.