Sunday, March 30, 2014

When Economic Growth Is Not Good For Everyone

Paul Krugman provides a quote from Robert Lucas whose ideas came to dominate macroeconomic theory in the US.  Lucas argued that it is pointless for economists to worry about the problem of income distribution.  He claimed that economic growth would solve all of the distribution problems.  Krugman counters Lucas by arguing that we really aren't that smart about how to stimulate economic growth (even if that is not a good idea).  There are things that we can and should do about income distribution, however.  He gives the example of providing nutrition for poor children.  The nutrition of poor children seems to be unrelated to economic growth rates.

I would make a further point.  The US economy has been growing but median family income has been declining.  The growth in output has not improved the well being of most Americans.  Most of the growth in income has been filtered to the top of the income pyramid.  We have a very serious income distribution problem that many economists, like Lucas, have eliminated from the discipline of economics.

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