It's about time. The International Monetary Fund, it seems, has opened its eyes and discovered that income inequality, the growing gap between rich and poor, is ruinous to modern economies.
IMF researchers Andrew Berg and Jonathon Ostry ask, "Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?
In a word, no."
No? Really? Equitable wealth and income distribution actually facilitate efficient production? Say it ain't so, Joe. Except that it is.
"...we discovered that when growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth."
"... the increase in U.S. income inequality in recent decades is strikingly similar to the increase that occurred in the 1920s. In both cases there was a boom in the financial sector, poor people borrowed a lot, and a huge financial crisis ensued (see “Leveraging Inequality,” F&D, December 2010 and “Inequality = Indebted” in this issue of F&D). The recent global economic crisis, with its roots in U.S. financial markets, may have resulted, in part at least, from the increase in inequality. With inequality growing in the United States and other important economies, the relationship between inequality and growth takes on more significance."
But it's not just economies that benefit from shrinking the wealth and income distribution gap. As revealed so clearly in books such as The Spirit Level, societies with the narrowest wealth gap also have better outcomes on such things as crime and imprisonment, health and longevity, mental health and substance abuse, even teen pregnancy and divorce rates. In other words, it's a no brainer.