Dumbisa Moya writes:\u00a0Over the past decade, income inequality has come to be ranked alongside terrorism, climate change, pandemics, and economic stagnation as one of the most urgent issues on the international policy agenda. And yet, despite all the attention, few potentially effective solutions have been proposed. Identifying the best policies for reducing inequality remains a puzzle.<\/p>\n
To understand why the problem confounds policymakers, it is helpful to compare the world\u2019s two largest economies. The United States is a liberal democracy with a market-based economy, in which the factors of production are privately owned. China, by contrast, is governed by a political class that holds democracy in contempt. Its economy \u2013 despite decades of pro-market reforms \u2013 continues to be defined by heavy state intervention.<\/p>\n
But despite their radically different political and economic systems, the two countries have roughly the same level of income inequality. Each country\u2019s\u00a0Gini coefficient\u00a0\u2013 the most commonly used measure of income equality \u2013 is roughly 0.47.<\/p>\n
In one important way, however, their situations are very different. In the US, inequality is rapidly worsening. During the same period, inequality in China\u00a0has been declining.<\/p>\n
This poses a challenge for policymakers. Free market capitalism has proved itself to be the best system for driving income growth and creating a large economic surplus. And yet, when it comes to the distribution of income, it performs far less well.<\/p>\n
Most democratic societies have attempted to address the problem through left-leaning redistributive policies or right-leaning supply-side approaches.<\/p>\n
Adding to the challenges of the policy debate are assertions that inequality is unimportant. If a rising tide is lifting all boats, the thinking goes, it doesn\u2019t matter that some may be rising more slowly than others.<\/p>\n
Those who argue for de-emphasizing income inequality maintain that public policy should seek to ensure that all citizens enjoy basic living standards \u2013 nutritious food, adequate shelter, quality health care, and modern infrastructure \u2013 rather than aiming to narrow the gap between rich and poor. Indeed, some contend that income inequality drives economic growth and that redistributive transfers weaken the incentive to work, in turn depressing productivity, reducing investment, and ultimately harming the wider community.<\/p>\n
But societies do not flourish on economic growth alone. They suffer when the poor are unable to see a path toward betterment. Social mobility in the US (and elsewhere) has been declining, undermining faith in the \u201cAmerican Dream.\u201d<\/p>\n
Over the past 50 years, as countries such as China and India posted double-digit economic growth, the global Gini coefficient\u00a0dropped<\/u>\u00a0from 0.65 to 0.55. But further headway is unlikely \u2013 at least for the foreseeable future.<\/p>\n
Economic growth in most emerging economies has slowed below 7%, the threshold needed to double\u00a0per capita<\/i>\u00a0income in a single generation. In many countries, the rate has fallen below the point at which it is likely to make a significant dent in poverty.<\/p>\n
This bleak economic outlook has serious consequences. Widening inequality provides fodder for political unrest, as citizens watch their prospects decline.<\/p>\n
Globally, the slowdown in economic convergence has similar implications, as richer countries maintain their outsize influence around the world \u2013 leading to disaffection and radicalization among the poor. As difficult a puzzle as income inequality may seem today, failing to solve it could lead to far more severe challenges.<\/p>\n
Dumbisa Moya writes:\u00a0Over the past decade, income inequality has come to be ranked alongside terrorism, climate change, pandemics, and economic stagnation as one of the most urgent issues on the international policy agenda. And yet, despite all the attention, few … Continue reading ![\"Inequality\"](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/10\/Inequality1.jpg\")
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