Thursday, March 06, 2014

New column day

Here, featuring my take on the IMF's recent report (PDF) on the relationship between equality, redistribution and growth.

I've already linked to other responses to the report from the Guardian and the Economist. But the column raises a point left largely unaddressed in those pieces - and which seems particularly important given some of the advice regularly dispensed to Canadian progressives.

I'll sum up that advice as being "don't worry about market inequality - instead, address poverty and inequality through taxation and redistribution". Which makes for a neat enough recommendation on its face - and has led me to see a guaranteed annual income as the single policy with the greatest potential to ensure broad equality and security.

But Ostry, Berg and Tsangarides find that while an equal initial distribution of income doesn't harm an economy's growth (and indeed contributes a small positive effect), particularly high levels of after-market redistribution give rise to some negative effect on growth. And those naturally arise only where pre-market distributions are so unequal to give rise to a need for exceptionally high transfers.

In other words, the study shows no drag on growth arising out of policies which encourage pre-market equality (though I'll note that it doesn't break down the policies and social factors supporting those more equal market distributions). But it does identify some perceptible drag on growth arising out of policies which settle for redistribution after the fact - which suggests to me that we should be focusing relatively more attention on the former than the latter.

Naturally, I'll invite any questions or comments about that line of reasoning. And I certainly don't see it as ruling out transfers as an important means of ensuring equality. But it does seem to me to suggest that a singular focus on after-market redistribution may have harmful economic effects (in addition to being politically implausible) - which confirming that broadly-shared high wages and effective worker bargaining power are necessary elements of a fair and prosperous economy.


  1. Anonymous12:31 PM

    "Poverty is the worst form of violence."

    -Mahatma Gandhi

    Guaranteed Annual Income? Yes. Let's end the violence. It's within our grasp.

  2. Interestingly the IMF changed it's stance on another long-held belief though this one has been far less publicized. Debt is now good:

    “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

    Their report on inequality sounds great until you realize that they're also advocating what essentially amounts to infinite debt to maintain "growth". Real production just doesn't simply cut it anymore but don't worry about that folks because their report on redistribution of wealth will solve the other problem to their new outlook on debt: insufficient sources of revenue to service it.

    As with anything to come out of the IMF you never take it at it's word, it is always policy designed to service a small elite that likely won't be taxed at all unlike the "rich".

  3. You're probably already aware of this but just in case ...

    A Town Without Poverty?
    Canada's only experiment in guaranteed income

    I haven't been able to find a final report on it.