Market economies need a certain amount of inequality to function. But American inequality has become so extreme that it's inflicting a lot of economic damage. And this, in turn, implies that redistribution - that is, taxing the rich and helping the poor - may well raise, not lower, the economy's growth rate. There is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy. [This] view about inequality and growth got a boost from Standard & Poor's, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite. If you look systematically at the international evidence on inequality, redistribution, and growth - which is what researchers at the I.M.F. did - you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is robustly associated with higher and more durable growth." That is, there's no evidence that making the rich richer enriches the nation as a whole, but there's strong evidence of benefits from making the poor less poor. Incentives aren't the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
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