Ritchie on the IMF paper

This will, of course, be a complete shock to neoliberal economists. The whole logic of their approach is that without the differential of inequality then there is no incentive for growth. This study shows that is not just not true, but that the reverse is true.

Actually, to anyone with an understanding of both human nature and economic reality (neither apparently possessed by neoliberal economists and so absent from the assumptions which automatically lead to the conclusions of their work) this finding is glaringly obvious.

Wondrous. He takes a paper that says that modest action to remove glaring inequality is a pretty good idea and then uses it to insist that therefore we should reduce all inequality.

It’s worth noting that the database used in the paper does not include the Soviet block, either the USSR in the 1920s or Eastern Europe post WWII. You know, when very strong efforts were made to reduce inequality and these had something of an impact upon growth?

It gets better though:

Let’s deal with the economics first. Reduced inequality inevitably means a broader base of ownership for capital. That means more people have access to opportunity to create businesses and unsurprisingly increased growth will follow.

The IMF paper is a study of income inequality, not wealth inequality. Thus access to capital has nothing to do with it at all.

11 thoughts on “Ritchie on the IMF paper”

  1. how can this be? I am a neoliberal economist, according to the Murphy definition, yet I am not remotely surprised by the finding that redistribution doesn’t seem to have a large impact on growth.

    one of us is confused.

  2. You’ll note that he avoids this statement from p23:

    Turning to redistribution, we find (also in column 1 of Table 5) that when redistribution is already high (above the 75th percentile), there is evidence that further redistribution is indeed harmful to growth, as the Okun “big trade-off” hypothesis would suggest.

    And this from the blog article and page 26:

    We know from history and first principles that after some point redistribution will be destructive to growth, and that beyond some point extreme equality also cannot be conducive to growth.

    These also from p26:

    We have emphasized the uncertainty caused by the scarcity of reliable data, particularly about redistribution.

    Even given these results about average effects, it remains important to try to make redistribution as efficient as possible.

    And, for some reason, he doesn’t see fit to credit the third author, Tsangarides*.

    So, actually, as usual, Ritchie skims reads a paper, extracts from context everything (however little) that agrees with his prejudices, and embraces and extends that to an absurd extent. And, therefore, claims therefore that “person of importance” agrees with him.

    * My suspicion is that Ritchie has only read the blog, not the paper. Tsangarides isn’t one of the authors of the blog article.

  3. When everyone has wealth and income equality, who exactly is going to be making the investments that lead to growth, and who exactly will be doing the required employing?

    Oh yes, the Curajus Stayte

  4. “When everyone has wealth and income equality, who exactly is going to be making the investments that lead to growth”

    A little cynical of you. The man who is being pilloried here for his views about growth, Richard Murphy, is/was a serial entrepreneur (self-designated). As an example of this I recall his most notable business venture was to import Trivial Pursuit games into the UK from Eire for sale, so you can’t say Murphy does not have a track record for game-changing ideas.

  5. It’s worth nothing that Thomas Sowell demonstrated quite simply that, even in the presence of income and consumption equality you still get wealth inequality. The only way to get wealth equality is to prohibit saving (which IIRC Venezuela tried by paying rural people in rapidly-depreciating local scrip instead of money)

  6. That means more people have access to opportunity to create businesses and unsurprisingly increased growth will follow.

    But unless everyone takes that opportunity, it will lead to more inequality, so the growth will be taken away again from those who do take the chance, rinse and repeat.

  7. @ Luis

    “I am a neoliberal economist, according to the Murphy definition”

    According to the Murphy definition, Marx was a neoliberal economist.

  8. “You know, when very strong efforts were made to reduce inequality ”
    As a result of which Brezhnev’s Russia had greater income and wealth inequality than Thatcher’s Britain

Leave a Reply

Your email address will not be published. Required fields are marked *