Thomas Piketty's corner should throw in the towel. Following on the heels of Deirdre McCloskey's devastation of Inequalityland, come this from David Dollar, Tatjana Kleineberg and Aart Kraay;
For all of the social welfare functions we consider, social welfare, on
average, increases equiproportionately with increases in average
incomes. This reflects the fact that changes in the relevant inequality
measures are not systematically correlated with changes in average
incomes. For all but the most bottom-sensitive social welfare functions,
the relationship between growth in social welfare and growth in average
incomes is also very tight, in the sense that data points cluster
closely to the 45-degree line [in an accompanying graph]. This reflects the fact that changes in
inequality are small, meaning that variation across episodes in
inequality accounts for only a small fraction of the variation across
episodes in changes in social welfare. And this, in turn, implies that
the additional growth in average incomes required to ‘compensate’ – in
terms of social welfare growth – for a typical increase in inequality
is, on average, quite small.
The main policy message of our work is to underscore the importance of
overall economic growth for improvements in social welfare. Inequality
may be a ‘hot’ current topic, but inequality changes in most countries
over the past thirty years have been small, while differences in average
growth performance have been large.
Which means that Elizabeth Warren would be a disaster if she ever got any real power (not that Hillary Clinton would be much less destructive).
With growing pressure to ‘do something’ about inequality,
it is important that policymakers are careful to avoid undermining
growth in the quest for greater equality, as policies that raise
equality at the expense of lower growth may be self-defeating in the
sense of not improving social welfare.
Cutting off one's nose....
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