There is no trade-off between equality and efficiency

11 Sep, 2012 at 10:49 | Posted in Economics | 5 Comments

Neoclassical economists often maintain that there is a trade-off between equality and efficiency. That this is a false contention is shown forcefully by research conducted for example by Andrew Berg and Jonathan Ostry. In an interesting  article in Finance & Development they conclude:

When growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth … Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth … At the level of simple correlation, more inequality seems associated with less sustained growth.

I think it’s high time for textbook writers in economics – and not only Greg Mankiw – to sit down and revise their texts for forthcoming new editions …

5 Comments

  1. Lars, thanks for the link to the article. I incorporated it into my latest polemic

    http://www.correlationmatrix.ca/2012/09/growth-falters-and-inequality-grows-as.html

    Comment by Arijit Banik— 13 Sep, 2012 #

    • Happy to be of any help!

      Comment by Lars P Syll— 13 Sep, 2012 #

  2. Hi Lars,

    I thought this might interest you, Allocation and Equality – http://mikenormaneconomics.blogspot.se/2011/08/guest-post-by-shaun-hingston-allocation.html . Tom Hickey invited me to expand, in his words a provocative comment. 🙂 BTW, I hope you’re aware that your blog contains ads. Your blog has ads depending on which country I’m viewing from..

    Best Regards, Shaun Hingston

    Comment by lowerleftlimit— 11 Sep, 2012 #

    • Thanks for the link. I’ll have a look at it.
      Sorry to hear that my blog contains ads when opened up from some countries (although I don’t quite understand how that is possible, since I certainly don’t like ads cluttering up blogs)!

      Comment by Lars P Syll— 11 Sep, 2012 #


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