Inequality Hurts Economies

A new study points again to the idea that inequality isn't just bad for the poor, it is bad for everyone.

"Countries where income was more equally distributed tended to have longer growth spells," says economist Andrew Berg, whose study appears in the current issue of Finance & Development, the quarterly magazine of the International Monetary Fund. Comparing six major economic variables across the world's economies, Berg found that equality of incomes was the most important factor in preventing a major downturn. 

So how important is equality? According to the study, making an economy's income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.

The graph below shows the examined factors, and the effect each has on growth.

Of course, we have a nice long study going on this subject here in the U.S.A. It's the middle of the 20th century versus the last 30 years. It shows the same thing. People do better when society is more equal.