<p>It depends upon how and why the inequality exists.  Equality can also be bad for growth.</p>

<p>In the old Soviet system, most people were approximately equal and this was done by the use of police power.  It did permit rapid industrialization but then stagnated.  Not all innovation was good either.  Look at the Trabant.  An amazing vehicle.  Watch <a href="https://www.youtube.com/watch?v=No1-4GsQa-g" rel="nofollow noreferrer">https://www.youtube.com/watch?v=No1-4GsQa-g</a></p>

<p>The US used to be very flexible.  That was good for growth.  If you were born poor, then you could become rich.  If you were born rich, then you could become poor.</p>

<p>Some income inequality is due to changes in technology and required education.  Some are due to legal changes that transfer resources from ordinary people to the rich.  It is now very difficult to become poor if you are rich and to become rich if you are poor.  That damages the incentives to build a business to grow the system.</p>

<p>Inequality is neither good nor bad, by itself.  It is a consequence of something else.  It is smoke; it is not fire.</p>

<p>There are several papers by Peter Temin that are very good on the topic, but he has quite a few and I don't know exactly what you are searching for or have already read.  </p>

CC BY-SA 3.0
2017-11-29T22:21:59.370Z
2017-11-29T22:21:59.370Z
Dave Harris
<p>I was reading about the debate about income inequality and I would like to know your opinion on the matter. </p>

<p>Basically, the positions are two: the classical one, which states that inequality is good for growth because it fosters innovation and investments and the most recent one, the one of IMF and OECD, which states that inequality causes a decrease in human capital investment among lower-income households, which prevent them to become earners or consumers in the future. </p>

<p>I read that both are supported by empirical evidence but there is skepticism about them (e.g. <a href="https://www.ft.com/content/94a7b252-45a1-11e5-b3b2-1672f710807b" rel="nofollow noreferrer">Chris Giles on FT</a>). </p>

<p>What's your idea on the topic? Do you have any suggestion about literature/articles I can read about it?</p>

<economic-growth><inequality>
Is inequality good for growth?
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# Is inequality good for growth?

(Asked by: username_0 on 2017-11-29)

I was reading about the debate about income inequality and I would like to know your opinion on the matter.

Basically, the positions are two: the classical one, which states that inequality is good for growth because it fosters innovation and investments and the most recent one, the one of IMF and OECD, which states that inequality causes a decrease in human capital investment among lower-income households, which prevent them to become earners or consumers in the future.

I read that both are supported by empirical evidence but there is skepticism about them (e.g. [Chris Giles on FT](https://www.ft.com/content/94a7b252-45a1-11e5-b3b2-1672f710807b)).

What's your idea on the topic? Do you have any suggestion about literature/articles I can read about it?

**Tags:** economic-growth, inequality

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## 1 answers

### Answer by username_1 on 2017-11-29. Score: 1

It depends upon how and why the inequality exists. Equality can also be bad for growth.

In the old Soviet system, most people were approximately equal and this was done by the use of police power. It did permit rapid industrialization but then stagnated. Not all innovation was good either. Look at the Trabant. An amazing vehicle. Watch <https://www.youtube.com/watch?v=No1-4GsQa-g>

The US used to be very flexible. That was good for growth. If you were born poor, then you could become rich. If you were born rich, then you could become poor.

Some income inequality is due to changes in technology and required education. Some are due to legal changes that transfer resources from ordinary people to the rich. It is now very difficult to become poor if you are rich and to become rich if you are poor. That damages the incentives to build a business to grow the system.

Inequality is neither good nor bad, by itself. It is a consequence of something else. It is smoke; it is not fire.

There are several papers by Peter Temin that are very good on the topic, but he has quite a few and I don't know exactly what you are searching for or have already read.


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