Robert Lucas on the unimportance of inequality

3 June, 2014 at 13:34 | Posted in Economics | 3 Comments

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. greedThe resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor.

Robert Lucas

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  1. I’m not a conspiracy theorist, but its hard not to feel sympathy for those movements when you read stuff like this.

  2. “But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor.”

    Well, no. Time-wise people have been most well off during the three decades after WWII and location-wise they have been most well off in Scandinavian countries. The reason for this were demand management and the welfare state. The latter clearly implies downward redistribution of income.

  3. “The reason for this were demand management and the welfare state.”

    And demand management achieved probably as close you can come to full employment. That shift bargain power in the labor market to the many. A very strong redistribution mechanism. Probably much more important than any progressive taxes. The state controlled demand management by fiscal and monetary policies, inspired by Keynes advancements in macro economy.
    Then there was a power shift and the few came in control of what economic policy’s should be. And they used Keynes knowledge in macroeconomics to steer a bit above the actual NAIRU level, with the same fiscal and monetary instruments regulating aggregate demand. With fairly impressive precision.
    It’s all about power.


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