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Monday, November 30, 2015

'Is Balanced Growth Really the Answer?'

Jared Bernstein:

Is balanced growth really the answer?: A recent must-read article by journalist Alec MacGillis documents a phenomenon that he suggests must “give Democrats the willies:” the increasing political opposition to safety net programs, even among those who’ve been helped by them. ...
MacGillis argues that this outcome is in part driven by resentments of those who believe they’ve pulled themselves up by their bootstraps (even if the government helped them pull) against those they view as milking public support without trying to improve their lot. Such sentiments are amped up by prominent conservatives like House Speaker Paul D. Ryan...
It’s an argument as old as poverty itself (see, e.g., English Poor Laws of 1601). I recall similar polemics during the welfare reform debate of the 1990s...
MacGillis believes that shared growth would go a long way toward altering these political dynamics in favor of a necessary role for policy in the list of areas just noted:
“The best way to reduce resentment … would be to bring about true economic growth in the areas where the use of government benefits is on the rise … if fewer people need the safety net to get by, the stigma will fade, and low-income citizens will be more likely to re-engage in their communities — not least by turning out to vote.”
By “true economic growth,” he means growth that reaches far beyond Wall Street, and even Main Street, to the hollows of Appalachia; growth that would fill the growing black hole in heart of coal country, where opportunity is fading and downward mobility is upon the land. ...

I'm not sure I agree. Growth of this type would be good, but is the problem production or distribution? If the problem is distribution, for example unequal bargaining power leading to low, stagnant wages that do not respond to increased productivity -- instead those gains flow upward -- then more growth will simply lead to even more inequality. So I don't think growth alone will necessarily be enough, we also need to change the institutions and economic incentives that determine how income is divided up within firms.

This is a way of avoiding calls for "redistribution," which implies taking something one person has earned and giving it to someone who has not. But as I've said many times, if the distribution of income is determined by something other than productivity, as it appears to be -- if income that was not earned through higher productivity flows to those at the top of firms due to unequal bargaining power or other forces -- then returning that income to those who did earn it is not taking something unjustly (taking the normative position that people should earn their contribution to national output), instead it is restoring justice. The trick is to get people to understand that.

Anyway, I think it's necessary to think about distribution, not just growth, if we want to solve the inequality problem.

There is this, I suppose:

...there’s some evidence that more growth reaching more people would lead to greater support for progressive policies. Political science provides cross-country evidence that voter turnout falls as inequality rises (though the correlation for the U.S. is weak) and today’s non-voters support notably more progressive agendas than voters. And it does seem that especially given the rising share of non-whites, unmarried women and millennials — the so-called Rising American Electorate — favorable outcomes for Democrats are increasingly dependent on robust turnout. ...

Which reinforces the need to think about changes beyond just growth (I'm sure Jared gets this, just want to reinforce the point).

    Posted by on Monday, November 30, 2015 at 10:28 AM in Economics, Income Distribution | Permalink  Comments (46)


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