A new study (abstract and free PDF available) authored by several economists at the IMF (International Monetary Fund) reveal an inverse relation between increases in inequality and GDP growth. In what could also be considered a heavy blow to trickle-down economic theory, data analyses show (page 7) that increases of income share on the fifth quintile actually hurt growth, while increases in any other quintile favours growth with the lowest quintile showing the strongest push.
From the abstract:
We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class.
(Score: 5, Touché) by Immerman on Friday June 19 2015, @04:52PM
> If someone is productive, but sees the results of their hard work taken away and given to others, then the motivation to work is going to evaporate.
Exactly. If we all bust our asses steadily increasing our productivity, and see our real wages fall while the executives pocket all the profits without contributing any more than they did before getting a 20-fold raise over the last few decades, where's our motive to continue striving?
It's not like the only solution to income inequality is wealth redistribution, it can also be eliminating radical income disparities. This country was doing great back in the days when the difference between the highest and lowest paid employees (CEO and janitors) was typically only a factor of 30, rather than the 600+ that is common today. Why should we allow a select few to pocket all the wealth generated by the rest of us?
(Score: 1) by khallow on Friday June 19 2015, @07:27PM
If we all bust our asses steadily increasing our productivity, and see our real wages fall while the executives pocket all the profits without contributing any more than they did before getting a 20-fold raise over the last few decades, where's our motive to continue striving?
A: It would be even worse, if you didn't strive for what you want. Now, I would think that a decline in effective wages would result in people entertaining other wants than merely working more.
(Score: 3, Insightful) by tathra on Friday June 19 2015, @10:28PM
exactly. wealth redistribution will happen if inequality gets pushed so high the system breaks, except it'll be driven by guillotines and gunpowder rather than governmental intervention. we need to stem inequality before any kind of forced redistribution occurs, be it by the government or mob. taking corporate taxation back to historical levels (pre-reagan) and incentivizing the creation of cooperatives would go a long way to restoring the middle class and preventing the need for forced redistribution. if things continue on as they are, our options will become more and more limited, leaving us with few options, like executing the unemployed (or otherwise letting them starve and die because "its not my problem" and plenty of victim blaming) or implementing a basic income. if cooperatives become the standard, they could probably continue forcing the perverse "work or die" concept on everyone because there would be a healthy enough distribution of capital for there to be enough work for everyone; if capital continues to concentrate and stay hoarded and locked away, corporations will just wither and die because there will be no demand for goods (because already too may people can barely afford the bare necessities), and a market where even established corporations can't survive is certainly not one where new ones can grow.
(Score: 2) by Phoenix666 on Saturday June 20 2015, @09:54AM
I sense "guillotines and gunpowder" is already in motion. it may accrete, or a trigger could cause an eruption. the TPP could be the trigger, or it could be the collapse of the student loan debt bubble. but it's coming. stock up and stay safe, everyone.
Washington DC delenda est.
(Score: 3, Insightful) by Pav on Saturday June 20 2015, @02:38AM
Thomas Piketty has compiled a huge volume of data [wikipedia.org] that strongly suggests that what we call "developed economies" grow slowly because a powerful elite suppresses the rest of the economy. Low growth alone proves these elites don't deserve this wealth/power - if they did GDP wouldn't be sluggish, and society as-a-whole wouldn't be condemned to such stagnant growth and the many other negative consequences [wikipedia.org]. We shouldn't blame them though - if the game is rigged it's human nature to attribute success to inate ability... there's plenty of research [pbs.org] showing such cognitive mistakes are part of all of us. Game theory even has a model showing with mathematical rigour how economic negotiation in an unequal environment works (ie. positive-sum economics in a coercive environment [wikipedia.org]). Interestingly in perpetually poor countries with a well established elite the same low growth model holds true - it's most often countries where elite power isn't strong eg. postwar high-tax USA, recent China, Russia (for a time until Moscow began reasserting control), Lulas Brazil etc... which get to enjoy high growth and a dynamic economy.