Hats off to John Mauldin for publishing retired economics professor (North Carolina State University) Dr. John Seater’s rebuttal of the Cynamon and Fazzari article on Income Inequality from last week’s newsletter:
A big whopper, for example, is their assertion that a shift in income from the poor to the rich will reduce total spending. Complete nonsense. What it may do is shift the composition of spending away from consumption a little toward investment. The permanent income/life cycle theory of consumption, developed independently by Modigliani and Friedman in the 1950s questions even that conclusion.
Second, John says most academics accept the view that inequality hinders growth. I don’t know how he knows that. I certainly don’t know that to be true. I am an academic economist, and I am unaware of any such consensus. I also know for sure that few and probably no economists who actually study economic growth (which happens to be my own current field of research) believe such a thing.
Read more at
Income Inequality and Social Mobility | John Mauldin.
Maybe he’s right; maybe he’s wrong. He’s a respected economist, so he should know! (just like he knew the GFC was coming). Oh such certainty these jokers have.
This is a tricky one.
I can find good examples of countries that support Dr Seaters assertion, and just as many that refute it. Countries with high GINI coeffiecnets, and very low growth, (refute) and some with high growth (support)
I think it is much more complicated than most realise.
I agree that in general, economists have at best, a limited understanding of whats really happening.
I lean towards inequality hindering growth.
The original paper presented inequality >> lower growth as an open-and-shut-case. Dr Seaters’ rebuttal shows it’s far from it.
The only way I can see to increase consumption without reducing investment is to increase debt. That has already been tried — with disastrous consequences.
Inequality conjures up all kinds of stereotypes, but if we take Warren Buffett, who invests far more than he consumes, does that hinder growth?
This is long coffee material… perhaps next time I’m in SE QLD… 🙂 On the other side Colin, Income Inequality is strongly linked to corruption, and the associated serious, mal investment….
Strongly linked to corruption? Ukraine and Afghanistan have two of the lowest GINI coefficients — similar to Denmark and Sweden.
Sure. Anytime you’re in QLD….
….and USA has a similar GINI coefficient to China, but vastly different growth rates.