An Economics 101 Lecture Is Cast Upon The Ash Heap of History

Alan Blinder has written an interesting and highly informative commentary in a recent edition of the NY Times about the relationship between economic growth - a. k. a. dynamic efficiency - and politics. The main point of his article is that Republicans have always presided over lower growth rates than Democrats since the end of WWII.

This is the obvious point to be made from the data and Wonks Anonymous scorns the obvious point. Also Professor Blinder has made already made the point far better than Wonks Anonymous could. What intrigues Wonks Anonymous most is Professor Blinder's second point:

All Republican Administrations have been characterized by increasing income inequality and decreasing growth.

In all of Wonks Anonymous' learning and teaching of economics he has always seen and taught the idea that there is a trade-off between income equality and growth. Programs that increase equality generally tax the rich and give benefits to the poor. The rich would, naturally, want to work less while the poor would, to some extent be encouraged to be more idle. Growth would go down.

It all seems so logical except that experiments conducted over more than half a century have shown it to be untrue. For the US economy - and I suspect for most major industrial nations and quite a few poor nations - increased income equality promotes stronger growth. Or maybe the gods just find Republicans personally irritating.

Now Wonks Anonymous still believes that the trade-off between income and equality is a theoretical possibility in some economies. He thinks, for example, that Raul Castro might make significant gains by allowing peasants to own their land and sell their produce on the market - despite the fact that this would significantly increase income inequality in Cuba. Nevertheless, if he ever teaches economics again, he promise to treat the alleged trade-off between growth and equality as a mere intellectual curiosity.

 

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