Sunday, April 7, 2019

So did Kuznets say it, or not?

Shekhar Aiyar and Christian Ebeke at VOX:
Despite the firm consensus that income inequality is intrinsically undesirable, its impact on economic growth is much disputed. Simon Kuznets famously argued that inequality is beneficial for economic growth at an early stage of development, since a moneyed capitalist class can undertake more investment, but is harmful at a later stage. Others have pointed to inequality as a necessary, even desirable outcome of rewards to innovation and risk-taking...
Granted, it's their opening paragraph. They're setting the stage for what they really want to say. But to me it is objectionable to speak, even in passing, to speak about inequality being "beneficial" or "harmful" or "necessary" or "desirable" without at least acknowledging that numbers or percentages or relative levels matter. There will always be income inequality, but surely there are differences between a little, a lot, and a lotta lot.

What's interesting in their quote is Kuznets's different evaluations of inequality in "early stage" and "later stage" economies. This has Cycle of Civilization implications.


Simon Kuznets famously argued that inequality is beneficial for economic growth at an early stage of development ... but is harmful at a later stage.
I had to go looking. Where does Kuznets say this? He's not listed among the VOX article references. What I've found so far is not promising:
  1. The Political Economy of the Kuznets Curve by Daron Acemoglu and James A. Robinson:
    One of the major stylized facts about long-run processes of economic development is the Kuznets curve—the inverse-U shaped pattern of inequality. In a seminal paper, Kuznets (1955) argued that as countries developed, income inequality first increased, peaked, and then decreased, and documented this using both cross-country and time-series data.
    According to this source, Kuznets said inequality changes. I don't find him saying the benefit/harm from inequality changes.

  2. How does income inequality affect our lives? from the OECD iLibrary:
    It’s also possible to look at the relationship between inequality and growth from the opposite direction: Does inequality affect growth and, if so, how? The Harvard economist Richard B. Freeman is one of those who believe it does. He argues that inequality is good for growth – up to a point. But after that point, rising inequality means falling growth...
    So okay, somebody said it. But I find Richard Freeman saying it, not Simon Kuznets.

  3. I went to Aiyar and Ebeke's own paper, the one listed among their VOX article references: "Inequality of Opportunity, Inequality of Income and Economic Growth", IMF Working Paper WP/19/34. 23 pages. I searched for Kuznets. No matches were found. WTF.


I'd like to add the Kuznets and the variable benefit of inequality argument to my arsenal of evidence on the Cycle of Civilization. Unfortunately, I can't do that.

If you have a link to Kuznets making the argument, I'm interested.

1 comment:

The Arthurian said...

My request for links, at Economist's View.

https://economistsview.typepad.com/economistsview/2019/04/links-4519.html#comment-6a00d83451b33869e20240a44ff03c200c