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Wealth, Inequality, and Europe January 15, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, Political Philosophy, politics.
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American political writers constantly claim that Europe, although a nice place to visit, doesn’t really produce enough wealth to make it livable. This column by Ross Douthat is the most recent of the genre. This belief is part of the narrative that social democracies, because they devote lots of resources to public goods and a social safety net, are less efficient than full-blown capitalist economies.

Matt Yglesias has the right response to this argument.

There are three main differences in living standards between the United States and Europe. One is that the US has long been somewhat wealthier than the biggest European countries, dating back to the 19th century. Two is that the US is much less egalitarian than Europe—a bigger share of European output is in the hands of the poor and the middle class, and a smaller share in the hands of the rich. The third is that Americans work more than most western Europeans…

These last two show us what I think is the real meaning of social democracy for a developed country—you get more equality and more vacation, with no real impact on the rate of growth. There’s a case to be made that less vacation and better televisions are a better deal than more vacation and worse televisions (the two things I like to do on vacation are go to Europe and watch TV, so I have mixed feelings about this) and there’s a tradition of philosophical argument which holds that the failure of modern mixed economies to be sufficiently solicitous of the interests of the wealthy is a major source of injustice. But though some level of income inequality would seem to be necessary to achieve economic growth, within the range that actual developed countries exist at there’s no evidence that inegalitarian policies boost growth.

This article by Lane Kenworthy contains a primer on the correlation between inequality and growth—it turns out there isn’t any. Here is one of his charts:

doesmoreequality-figure1-test

Aside from the outlier, Ireland, it is hard to see a correlation between growth rate and inequality.

This is another right-wing talking point that needs to be scrapped.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

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