Inequality and the Economy

To some extent, I think that income inequality as such is a smaller moral problem than a lot of liberals conventionally say. At the same time, I suspect that these musings from Davos (!) reported by Justin Fox about the practical problems with a high-inequality economy are real:

It certainly left an impression on Sorrell. “Wealthy people invest in financial assets; they create asset bubbles,” he said this morning. When wealth is distributed more equally, he went on, you get more sustainable growth.

Sorrell is a wealthy man, and he said all this while at the front of the room at one of the opening events of the World Economic Forum’s annual meeting in Davos, one of the world’s great gatherings of those near the top of the wealth pyramid. It seemed like a significant moment.

Jim Turley, the CEO of Ernst & Young, immediately went and ruined it by changing the subject to the decline in business-bashing in the U.S. But then Zhu Min, a top IMF official and former central banker in China, brought it up again: “Increasing inequality is the biggest challenge the economy faces for the whole world — not just advanced economies,” he said. “We cannot let the income disparities increase further.”

Zhu is clearly overstating this. In a global context absolute poverty remains an extremely severe problem in a way that dwarfs any conceivable worry about inequality. But especially in the developed world, we’re not doing a good job of meeting real human needs.