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jasonfurman's review against another edition
5.0
A nice, readable presentation of the important empirical work that the three International Monetary Fund (IMF) authors of this book (and their many co-authors) have done over the last decade on rethinking the impacts of inequality on growth and of various policies on inequality. The conclusions represent a radical change for the IMF in many respects, although at points the authors do not appear to take their policy recommendations as far as their empirical evidence would suggest.
I had read many of the papers underlying this book but had missed a number of them so appreciated that the ideas were all brought together. The authors make the reasonable choice to keep their results readable so they mostly present empirical conclusions while showing very little of the data or models that led them to those conclusions. As a result, most economists will want to read the Appendices as well (if not the papers). And most non-economists should not have much problem reading it, although occasionally too much IMF jargon and acronyms still manage to slip through the otherwise relatively clear prose.
On the substance, the book finds that, on average, inequality results in less sustainable growth and lower growth. Redistribution has no direct adverse impact on growth and by reducing inequality actually helps it. Structural reforms (like deregulation) generally increase growth and inequality. Fiscal austerity hurts both growth and especially inequality, with the authors suggesting that it does not generally pass a cost-benefit test because the benefits of less debt are outweighed by the cost of getting to less debt. Monetary expansion reduces inequality.
The book falls in to the genre of "summarizing our research" rather than "surveying the field." As such, it does not present a two-handed perspective but a clear and forceful articulation of a very consistent set of empirical results. That is generally reasonable, but would treat this as one perspective on the question. In particular, all of the evidence is from panel studies of macroeconomic data which is one useful perspective but certainly not the only one. And it is hardly a definitive randomized trial or even as credibly identified as modern micro studies. So a fuller perspective would have to take this as one input together with other macro perspectives, micro evidence and the like.
The authors largely present their work as finding that there is no tradeoff between inequality and growth. But there is some tension between that conclusion and their chapter on structural reforms which finds that almost all of these types of policies boost growth and increase inequality. They never exactly explain how they square that with their overall macroeconomic results.
Also, ultimately we do not care about growth by itself or inequality by itself by how people are doing--the median person, the bottom 90 percent, the mean of log income, or some other fancier social welfare function. The authors, however, consistently present growth and inequality separately without any discussion of how to judge the integration of the two together. When there is no tradeoff that does not matter--if growth goes up and inequality goes down, for example. But what about policies that raise growth and increase inequality? Are they good or bad? Judging this requires combining the two and applying some sort of social welfare function (or prioritization of the different parts of the income distribution), something the authors never do.
Finally, the policy conclusions are radical. The reducing inequality is actually less radical than it looks because the international institutions have actually been pushing that for a while. And the authors shrink from the full conclusion, saying we need market reforms regardless of the empirical results they find for them. Perhaps the most consequential shifts are about fiscal austerity and open capital flows, two areas that the IMF has made some consequential changes in recent years, many of them in part because of the research done by the authors of this book.
I had read many of the papers underlying this book but had missed a number of them so appreciated that the ideas were all brought together. The authors make the reasonable choice to keep their results readable so they mostly present empirical conclusions while showing very little of the data or models that led them to those conclusions. As a result, most economists will want to read the Appendices as well (if not the papers). And most non-economists should not have much problem reading it, although occasionally too much IMF jargon and acronyms still manage to slip through the otherwise relatively clear prose.
On the substance, the book finds that, on average, inequality results in less sustainable growth and lower growth. Redistribution has no direct adverse impact on growth and by reducing inequality actually helps it. Structural reforms (like deregulation) generally increase growth and inequality. Fiscal austerity hurts both growth and especially inequality, with the authors suggesting that it does not generally pass a cost-benefit test because the benefits of less debt are outweighed by the cost of getting to less debt. Monetary expansion reduces inequality.
The book falls in to the genre of "summarizing our research" rather than "surveying the field." As such, it does not present a two-handed perspective but a clear and forceful articulation of a very consistent set of empirical results. That is generally reasonable, but would treat this as one perspective on the question. In particular, all of the evidence is from panel studies of macroeconomic data which is one useful perspective but certainly not the only one. And it is hardly a definitive randomized trial or even as credibly identified as modern micro studies. So a fuller perspective would have to take this as one input together with other macro perspectives, micro evidence and the like.
The authors largely present their work as finding that there is no tradeoff between inequality and growth. But there is some tension between that conclusion and their chapter on structural reforms which finds that almost all of these types of policies boost growth and increase inequality. They never exactly explain how they square that with their overall macroeconomic results.
Also, ultimately we do not care about growth by itself or inequality by itself by how people are doing--the median person, the bottom 90 percent, the mean of log income, or some other fancier social welfare function. The authors, however, consistently present growth and inequality separately without any discussion of how to judge the integration of the two together. When there is no tradeoff that does not matter--if growth goes up and inequality goes down, for example. But what about policies that raise growth and increase inequality? Are they good or bad? Judging this requires combining the two and applying some sort of social welfare function (or prioritization of the different parts of the income distribution), something the authors never do.
Finally, the policy conclusions are radical. The reducing inequality is actually less radical than it looks because the international institutions have actually been pushing that for a while. And the authors shrink from the full conclusion, saying we need market reforms regardless of the empirical results they find for them. Perhaps the most consequential shifts are about fiscal austerity and open capital flows, two areas that the IMF has made some consequential changes in recent years, many of them in part because of the research done by the authors of this book.
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