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>while this report by the OECD found that “income inequality has a sizable and statistically significant negative impact on growth. Actually it doesn't do this

>while this report by the OECD found that “income inequality has a sizable and statistically significant negative impact on growth. Actually it doesn't do this. It shows that income inequality is associated with lower economic growth. Mixing correlation and causation.

lisper 11y ago
Except that the data support a particular theory: extreme income inequality limits growth because growth is ultimately driven by broad-based consumption. If there's a plausible theory purporting to explain how the causality could possibly be the other way around, I haven't heard it.
- solomatov 11y ago
  There might be other factor affecting both inequality and economic growth. For example, consider culture, natural resources, climate, etc. If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. P.S. My comment doesn't support one side or the other. I am just pointing to a logical mistake.
  - lisper 11y ago
    > If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. Indeed so. But the central principle of science is that at any time you (tentatively) accept the best available theory that is consistent with the evidence. Right now, AFAICT, that's the theory that concentrating wealth in a small minority reduces growth because it reduces demand.
- tdaltonc 11y ago
  Capital (and an executive elite) is more mobile then labor. When there's a local downturn, people who derive their income from labor suffer, but the capital class does not --> increased wealth inequality.

lisper 11y ago

Except that the data support a particular theory: extreme income inequality limits growth because growth is ultimately driven by broad-based consumption. If there's a plausible theory purporting to explain how the causality could possibly be the other way around, I haven't heard it.

solomatov 11y ago
There might be other factor affecting both inequality and economic growth. For example, consider culture, natural resources, climate, etc. If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. P.S. My comment doesn't support one side or the other. I am just pointing to a logical mistake.
- lisper 11y ago
  > If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. Indeed so. But the central principle of science is that at any time you (tentatively) accept the best available theory that is consistent with the evidence. Right now, AFAICT, that's the theory that concentrating wealth in a small minority reduces growth because it reduces demand.
tdaltonc 11y ago
Capital (and an executive elite) is more mobile then labor. When there's a local downturn, people who derive their income from labor suffer, but the capital class does not --> increased wealth inequality.