inequality is a negative for growth. And it firmly says Something Must Be Done:
The evidence of the economic damage from inequality suggests that policymakers should be more open to redistribution than they are. Of course, apart from redistribution, policies could be designed to mitigate some of the impacts in advance—for instance, through increased spending on education and training, which expands equality of opportunity (so-called predistribution policies). And fiscal consolidation strategies—when they are needed—could be designed to minimize the adverse impact on low-income groups. But in some cases, the untoward distributional consequences will have to be remedied after they occur by using taxes and government spending to redistribute income. Fortunately, the fear that such policies will themselves necessarily hurt growth is unfounded.
In some ways, the fact that this article was written at all, and that it is apparently fomenting debate in policy circles is more important than the details of its argument, since it does not break new ground. Instead,
it takes some of the findings and analysis of heterodox and forward-thinking development economists and distills them nicely.
The publication of this IMF paper is a sign that the zeitgeist is, years after the crisis, finally shifting. It is becoming too hard to maintain the pretense that the policies that produced the global financial crisis, which are almost entirely still intact, are working. And the elites and their economic alchemists may also recognize that if they don’t change course pretty soon, they risk the loss of not just legitimacy but control.
With Trump and Le Pen at the barricades, the IMF wake-up call may be too late.
Weird to see right wingers like Donald Trump and Marine Le Pen showcased as reasons for economic elites to change course on their prevailing policies of austerity and inequality.
It is gratifying to see the IMF itself recognize that hyper capital mobility and austerity aggravate inequality which is bad, even from an elites' perspective, for growth itself. Perhaps Christine Legarde's past experience as an anti-trust and labor lawyer is causing the IMF to take a different view.
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