the impact of rising
inequality.
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There is an equivalent of a Laffer curve for inequality, but the variable of interest is economic growth rather than tax revenue. We know that a society with perfect equality does not grow at the fastest possible rate. When everyone gets an equal share of income, people lose the incentive to try and get ahead of others. We also know that a society where one person has almost everything while everyone else struggles to survive – the most unequal distribution of income imaginable – will not grow at the fastest possible rate either. Thus, the growth-maximizing level of inequality must lie somewhere between these two extremes.
We may be near or even past the level of inequality where growth begins falling. The evidence on this is highly uncertain, so it’s difficult to say. But a few more decades like the last few could make the difference, so why take a chance? I’d prefer to see policies implemented to reduce inequality – given the present, elevated level of inequality, a reduction is unlikely to have much of an impact on incentives. But at a minimum we should resist further increases. This will reduce the chance of crossing over the point where growth starts to diminish rapidly, and it also reduces the chance that we will surpass the point where inequality causes cracks in the social structure.
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Republicans want to destroy Americans' safety net, making the bogus argument that social programs are bringing the country down when it's actually greed that is killing opportunity and increasing poverty.