Friday, July 8, 2011

An Optimistic Economist

Here is an optimistic assessment of the future by a Harvard economist, Ken Rogoff, in an article published by Project Syndicate. Here are the key bits:
Until now, the relentless march of technology and globalization has played out hugely in favor of high-skilled labor, helping to fuel record-high levels of income and wealth inequality around the world. Will the endgame be renewed class warfare, with populist governments coming to power, stretching the limits of income redistribution, and asserting greater state control over economic life?


The next generation of technological advances could also promote greater income equality by leveling the playing field in education. Currently, educational resources – particularly tertiary educational resources (university) – in many poorer countries are severely limited relative to wealthy countries, and, so far, the Internet and computers have exacerbated the differences.

But it does not have to be that way. Surely, higher education will eventually be hit by the same kind of sweeping wave of technology that has flattened the automobile and media industries, among others. If the commoditization of education eventually extends to at least lower-level college courses, the impact on income inequality could be profound.

Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance.

I disagree. Yes, we need genuinely progressive tax systems, respect for workers’ rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.
I'm not as optimistic as Rogoff because I think he has misidentified the problem. The real problem is money & power. The rich have bought off the politicians and got themselves in the catbird seat paying effectively less in taxes than the poor and having politicians constantly fighting to "reduce taxes to unleash entrepreneurial power" despite 30 years of evidence that it doesn't. The best economic growth was under Clinton who raised taxes. From Wikipedia:

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