Tags: Krugman | inequality | US | Europe

Krugman: US Would Grow if We Redistributed Wealth Like Europe Does

By Michelle Smith   |   Tuesday, 11 Mar 2014 10:08 AM

If the nation addresses income inequality, we're likely to witness economic growth, argues Nobel Prize winning economist Paul Krugman in his New York Times column.

A number of conservatives want to ban talk about income distribution. But most people know, and will admit, income inequality is a bad thing, Krugman writes.

For decades it was widely believed that redistributing wealth from rich to poor would have a negative impact on GDP. But it appears that's not true, he contends.

Editor’s Note:
38 Trades That Could Turn $1,000 Into $49,000

Krugman notes that research from the International Monetary Fund (IMF) found nations with low income inequality do better at sustaining economic growth as opposed to experiencing growth "spurts."

And last month another IMF study concluded, "Redistribution appears generally benign in terms of its impact on growth."

Most countries have income inequality. However, data from the Luxembourg Income Study show taxes and transfers, such as cash aid, reduce the inequality to varying degrees. This happens much more in other countries than in the United States, Krugman notes.

If the United States were to overhaul its policies, taking cues from European norms, he says, the nation would likely see an increase in economic efficiency.

Attempting to counter criticism, Krugman argues that Europe's recent problems are not the result of it being a welfare state, but instead the eurozone crisis is "a heavy price for creating monetary union without political union," he writes.

In fact, according to Krugman, European nations that have done a lot of wealth redistribution weathered the crisis better than their peers.

If the United States follows suit, and addresses income inequality, it will not offer rewards for everyone. "The very affluent would lose more from higher taxes than they gained from better economic growth," Krugman admits.

"But what's good for the 1 percent isn't good for America," he adds.

Sen. Elizabeth Warren, D-Mass., also appears extremely focused on income equality. She believes raising the minimum wage is a key step to resolving the issue.

Critics are bound to argue that broad-based pay hikes are giveaways, much like Krugman's proposals.

But on a conference call hosted by Democracy for America, Warren explained in a recorded a message that Americans have been cut short of their fair share.

She says workers should be earning a minimum wage triple the current rate, The Washington Post reports.

"If the minimum wage had kept pace with productivity over the last several years, the minimum wage today would be $22 an hour," Warren noted. "Productivity went up, but wages didn't."

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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