Why US should spread the wealth
10/14/2011 7:17 PM ET.
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By Mark Thoma, The Fiscal Times
America sacrificed equity for the false promise of efficiency and growth, and society is now more unequal than at any time since the early part of the last century.
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Many economists worry that making societies more equal through income redistribution or other means reduces economic growth.
This big trade-off between equality and efficiency, which is supported by comparisons of capitalist and socialist countries, implies that there's a limit to how much redistribution a society should pursue. At some point, the trade-off of more equality for less output -- which worsens as we push toward more and more equality -- becomes intolerable.
However, while the trade-off is quite unfavorable as we push to extremes, recent experience suggests there is a wide region where the trade-off is hard to detect. Thus, worries about this trade-off appear to be overblown.
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For example, the Bush tax cuts were justified, in part, by the assertion that equity had overshadowed efficiency in tax policy. Taxes on the wealthy, and the inefficiencies that come with them, were much too high, it was argued, and lowering taxes would cause output to go up enough to lift all boats substantially.
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