How rising inequality is stalling economies by crippling demand
- Written by Stephen Bell, Professor of Political Economy, The University of Queensland
Rising inequality is a concern across the developed economies, including Australia where top earners’ pay has soared to a 17-year high while ordinary workers’ wage growth has been the lowest on record. And that’s ultimately bad news for economic growth. This is longer than the usual Conversation article, so allow some time to read and enjoy.
In the last decade or more, economic growth has slowed across the Western world, although a belated though weak recovery has been under way since around 2017. In the US, for example, growth in gross output per capita averages around 1% a year[1] this century. That’s about half the average rate during the second half of the 20th century.

American economist Arthur Okun famously argued there was a trade-off[3] between equality and economic efficiency, implying little chance of high inequality and sluggish economic growth occurring together. Yet this is exactly what is happening in the US. What has gone wrong?
In The Captured Economy[4], Brink Lindsey and Steven Teles explore US economic sectors such as finance, land use, occupational licensing and intellectual property rights. They argue powerful interests have captured these sectors and are using the state to distort markets to their advantage. This kind of rent-seeking[5] is weakening growth and driving up inequality. As the authors put it:
Across a number of sectors, the US economy has become less open to competition and more clogged by insider-protecting deals … Those deals make our economy less dynamic and innovative, leading to slower economic growth … At the same time, they redistribute income and wealth upwards to elites in a position to exploit the political system to their favour.
Read more: Why businesses want the ear of government and are willing to pay for it[6]
This special dealing is but one facet of a much wider problem of competing claims for economic resources increasingly damaging Western economies. The arguments by Lindsey and Teles concern dysfunctions on the supply side of the economy.
In our recent book, Fair Share: Competing Claims and Australia’s Economic Future[7], Michael Keating and I argue that even bigger competing claims and distributional problems are now affecting the demand side of Western economies. These problems are also producing weak economic growth and rising inequality.
Read more: Politics podcast: Michael Keating on a Fair Share[8]
Time to pay attention to demand


References
- ^ gross output per capita averages around 1% a year (data.worldbank.org)
- ^ OUP (global.oup.com)
- ^ argued there was a trade-off (www.brookings.edu)
- ^ The Captured Economy (global.oup.com)
- ^ rent-seeking (www.investopedia.com)
- ^ Why businesses want the ear of government and are willing to pay for it (theconversation.com)
- ^ Fair Share: Competing Claims and Australia’s Economic Future (www.mup.com.au)
- ^ Politics podcast: Michael Keating on a Fair Share (theconversation.com)
- ^ MUP (www.mup.com.au)
- ^ aggregate demand (www.investopedia.com)
- ^ Lawrence Summers to argue (www.piketty.pse.ens.fr)
- ^ increased inequality since the 1980s (wir2018.wid.world)
- ^ Wage shares (en.wikipedia.org)
- ^ fallen (www.abs.gov.au)
- ^ stagflation (www.investopedia.com)
- ^ gameofmates.com (gameofmates.com)
- ^ Cameron Murray (theconversation.com)
- ^ Paul Frijters (theconversation.com)
- ^ Games of Mates (gameofmates.com)
- ^ Speaking with: Cameron Murray on grey corruption and the 'Game of Mates' (theconversation.com)
- ^ Thomas Piketty concluded (www.hup.harvard.edu)
- ^ significant analysis of inequality (www.economist.com)
- ^ the crises of democratic capitalism (newleftreview.org)
- ^ longest expansions in capitalist history (theconversation.com)
- ^ wage share (en.wikipedia.org)
- ^ efficient redistributive system (theconversation.com)
- ^ Accord (theconversation.com)
- ^ Who gets what? Who pays for it? How incomes, taxes and benefits work out for Australians (theconversation.com)
- ^ wages are stagnating (theconversation.com)
- ^ household debt levels are now very high (www.abc.net.au)
Authors: Stephen Bell, Professor of Political Economy, The University of Queensland
Read more http://theconversation.com/how-rising-inequality-is-stalling-economies-by-crippling-demand-99075