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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.
Original Submission
(Score: 1, Insightful) by Anonymous Coward on Friday June 19 2015, @10:07PM
And the obvious problem with your model is that the pie isn't fixed in size. While "trickle down" may be bullshit, I don't see how obsessing over the size of each persons' piece of the pie will help that pie grow larger.
The pie is at any given moment a fixed size. It must grow in size because of population growth. That was my first point, responding to the OP's question about why growth is necessary at all.
The thing is, that growth will occur naturally in any event. It is only because of a compulsory need of some to possess more pie than strictly necessary that drives the scarcity of pie, but I digress.
Pie measurement does not need to come from some grand theory of pie envy. Rather, it is the recognition that literally ten percent of the population controls ninety percent of the pie. And that last ten percent that we ninety percent get to have left to us doesn't seem to be enough to feed everyone else. And yet there's enough pie for all. So yes, I feel entirely justified and entitled to look at that ten percent and demand they slice what we've got right now a little more equitably, because they have NOT historically, that's for damn sure.
Or the population will shrink. The problem is, it won't be that one or ten percent that's pruned.