Washington, D.C. – The Center for American Progress today released a series of reports demonstrating that income inequality does not produce sustained economic growth. In fact, according to the reports, inequality may actually dampen economic growth. Released on the same day as an address by President Barack Obama sponsored by CAP about growing economic inequality and shrinking economic mobility, the CAP-commissioned papers ultimately prove false a core tenant of the trickle-down theory, which erroneously vouches for the necessity of extreme inequality to generate growth.
“For too long, conservatives have ignored, excused, or even embraced rising levels of income inequality by claiming it was needed for strong economic growth,” said Neera Tanden, President of the Center for American Progress. “Today, we are releasing compelling new evidence that high levels of inequality do not lead to more growth, and in fact are holding our economy back.”
The series of papers released today offer convincing new evidence undermining the trickle-down theory’s assertion that inequality is a necessary condition of growth. Instead, the papers illustrate that our nation’s rising levels of inequality may be holding back our economic potential and should be addressed to improve our prosperity.
In the first paper, David Howell details America’s growing income inequality and compares the United States with other high-income countries. In doing so, he shows that America’s extreme inequality of the past three decades has not produced exceptional economic performance; that across countries, higher inequality has, if anything, been associated with slower growth; and that the United States has the worst record in the rich world for sharing its productivity growth with workers. In other words, higher inequality is not necessary for economic growth and may actually be harmful to it.
The second paper, by Jared Bernstein, develops human capital and political economy models that demonstrate the possible mechanisms through which income inequality can slow down growth rates.
The final paper in the series, authored by Adriana Kugler, analyzes how economic policy and social services can contribute to a healthy labor market. She demonstrates that these policies that are designed to fight inequality also lead to a more productive use of human capital, which we know from previous research lead us to a stronger economy.
Read a summary of the reports: Trickle-Down Economics and Broken Promises: How Inequality Is Holding Back Our Economy by Ben Olinsky and Asher Mayerson
Read the reports:
- The Impact of Redistributive Tax and Transfer Programs on Risk-Taking Behavior and Labor Mobility by Adriana Kugler
- The Great Laissez-Faire Experiment: American Inequality and Growth from an International Perspective by David R. Howell
- The Impact of Inequality on Growth by Jared Bernstein
Livestream: Watch a livestream feed of the President’s Address at 11:00 AM Eastern here.
To speak with an expert on this topic, contact Katie Peters at gro.ssergorpnacirema@sretepk or 202.741.6285.