Haves and Have Less—Why Inequality Throws Us Off Balance

IMF Blog, September 14, 2011

Source details

Author: Jeremy Clift
Date: September 14, 2011
Core premise: Research shows that in many countries inequality is on the rise and the gap between the rich and the poor is widening, particularly over the past quarter-century.
Historical view challenged: The long-held belief that overall economic growth would pull everyone up is questioned — while the rich might be getting richer, everyone would not necessarily see higher living standards.

Overall growth vs. distribution:
- The world has seen an unprecedented era of economic growth over the past decades, which has made people better off on average.
- However, overall the rich have done much better than the poor.
Social and political effects:
- According to the Organization for Economic Cooperation and Development (OECD), growing inequality breeds social resentment and generates political instability.
- It also fuels populist, protectionist, and anti-globalization sentiments.
- Quotation: “People will no longer support open trade and free markets if they feel that they are losing out while a small group of winners is getting richer and richer,” says Angel Gurría, the OECD Secretary-General.
Crisis-era dynamics:
- Taxpayers footing the bill for troubles in the financial industry in advanced economies during the global economic crisis heightens perceptions of unfairness among wage-earners who have seen pay stagnate or worse.

Global inequality changes:
- Branko Milanovic (lead economist at the World Bank) argues that the global economic crisis may have narrowed global inequality somewhat between people around the world because most emerging and developing economies continued to maintain strong growth.
- Milanovic’s analysis was the cover article for the September 2011 issue of Finance & Development (F&D).
Fiscal adjustment risks:
- Laurence Ball, Daniel Leigh, and Prakash Loungani find that “slamming on the budget brakes too quickly will hurt incomes and job prospects.”
- This finding has drawn attention from commentators including Paul Krugman, the Washington Post, and Huffington Post.
Inequality and growth:
- IMF economists Andrew Berg and Jonathan Ostry argue that inequality is counterproductive; a more equal society has a greater likelihood of sustaining longer-term growth.
Empirical snapshots:
- F&D’s regular Picture This section draws on results from the World Top Incomes database to provide a snapshot of patterns of inequality over the past century.

Finance & Development (F&D) is a quarterly magazine of the IMF, publishing analysis of issues related to the international financial system, monetary policy, economic development, poverty reduction, and other world economic issues.
The print and web editions are published quarterly in English, Arabic, Chinese, French, Russian, and Spanish.

IMF blog page: Haves and Have Less—Why Inequality Throws Us Off Balance (Jeremy Clift, September 14, 2011).

More or Less – Finance & Development – September 2011 – Branko Milanovic
- More or Less – Finance & Development – September 2011 – Branko Milanovic (Markdown version)
- More or Less – Finance & Development – September 2011 – Branko Milanovic (PDF)