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January 25, 2014

'We Can’t Afford to Leave Inequality to the Economists'

Justin Fox on inequality:
We Can’t Afford to Leave Inequality to the Economists, by Justin Fox: ... Something really dramatic is going on up there in the top 5%, the top 1%, the top 0.01%. But while economists know some things about the impact of increasing overall income inequality, they still don’t know all that much about what this 1% stuff means... 
It is one of the most dramatic economic developments of the past quarter century. And it seems like it might be bad thing. But conclusive economic evidence for its badness is hard to find.
Yes, there are theories: All that wealth sloshing around in the top 1% leads to more bubbles and crashes. Extreme wealth corrupts the political process. Income inequality may be slowing overall economic growth. And, as my colleague Walter Frick put it in an email when I brought this up, “given the diminishing marginal utility of income, it’s hugely wasteful for the super rich to have so much income.”
I happen to believe there’s some truth to all four of those. But there are also lots of counterarguments and some counterevidence, and big economic studies like the new one by Chetty & Co. don’t seem to be doing much to resolve the debate.
Which leads me to another theory: I think we’re eventually going to have to figure out what if anything to do about exploding high-end incomes without clear guidance from the economists. This is a discussion where political and moral considerations may end up predominating. And as Harvard’s Greg Mankiw made clear in his maddeningly inconclusive Journal of Economic Perspectives essay on inequality last summer, these are areas in which economists possess no comparative advantage.

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