IMF Survey : Inequality Seriously Damages Growth, IMF Seminar Hears

IMF News, April 12, 2014

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Growth and inequality are described as "mutually incompatible" by participants at a high level seminar held during the IMF-World Bank meetings.
A "growing consensus" about inequality's damaging effects is creating an "unprecedented opportunity to act on reducing inequality."
Income inequality has risen throughout the world; according to Oxfam, the top 85 richest people now own half the world’s wealth.

Inequality is "not only bad for growth, and a threat to democracy, but it is also 'morally wrong'." (Winnie Byanyima, Oxfam)
Jeffrey Sachs identified multiple types of inequality: inequality of income, wealth, power, and well being, and argued that growing inequality can allow the richest to hijack the political process.
Inequality can be intergenerational: the rich can make higher "investments in human capital" such as education and health, which exacerbates inequality across generations. (Jeffrey Sachs)
The distribution of income affects aggregate consumption: "if income is concentrated in a small group of people it will change consumption because the capacity for consumption is different at different income levels." (Min Zhu, IMF)

Over the last year, the IMF has published two major papers on inequality explaining its effect on growth, and how tax and spending policies can be designed to help achieve redistribution at a minimal cost to economic efficiency.
The recognition that "macroeconomic policies matter" for inequality is "now routinely integrated into the Fund’s work." (Min Zhu)
Policy advice in IMF country work now routinely "put[s] jobs, and growth, and employment into policy formation." (Min Zhu)

Targeted public spending: health and education spending are highlighted as remedies.
More progressive taxation is proposed as part of redistribution strategies.
Specific proposals mentioned by participants:
- Encourage immigration. (Tyler Cowen)
- Use conditional cash transfers. (Tyler Cowen)
- Invest in public health and agriculture. (Tyler Cowen)
- Tackle tax evasion and illicit financial flows by corporations to free resources for public services. (Winnie Byanyima)
Emphasis on practical, local measures: focus on "the middle" and "what’s happening right here, right now, at the guy on the street" to put money back in people’s pockets. (Guy Ryder)

Addressing inequality is framed not as a conflict between fairness and growth but as a way to "put the two together" by using taxation to enable opportunity for all. (Jeffrey Sachs)
Tyler Cowen characterized inequality as "a symptom of an underlying problem which is not enough opportunities" and advocated a "problem-solving mentality" focused on creating openings for poor people.

IMF Survey, April 12, 2014