Catch 22

catch 22 “A New Report Argues Inequality Is Causing Slower Growth. Here’s Why It Matters.” This headline for an article in the NYTimes caught my attention. A report by S&P, the rating agency argues that

“Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening G.D.P. growth,” the S.&P. researchers write, “at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.”

Much of the rest of the article discusses differences in the types of economists that make predictions, but not the claim. S&P economists are

“what can broadly be called the business forecasting community. They wear nicer suits than the academics, and are better at offering a glib, confident analysis of the latest jobs numbers delivered on CNBC or in front of a room full of executives who are their clients.… They are trying to do the practical work of explaining to clients — companies trying to forecast future demand, investors trying to allocate assets — how the economy is likely to evolve. They’re not really driven by ideology, or by models that are rigorous enough in their theoretical underpinnings to pass academic peer review. Rather, their success or failure hinges on whether they’re successful at giving those clients an accurate picture of where the economy is heading.

Like all economists, their predictions of the future rest on the past. Here they have examined growth over a long time and tie the recent (50 years) creep (compared to the past) at least in part to the large inequality in wealth in the US. Their report comes on the heels of Thomas Piketty’s oeuvre on the same issue, inequality. He argues that capitalistic economics is the cause of inequality in the first place. Putting the two together, aggregate economic growth, at whatever speed, leads to inequality, which, in turn, slows, but fails to stop, growth. The rich still get richer, although more slowly, than the poor. Anything new here?

S&P economists are not “really driven by ideology,” the reporter writes, but they really are; their ideology is that growth is the driver of all that is good. If they did not believe that, they would not be economists in the first place. It takes freshly minted economists years to discover that the golden calf of growth may be just an idol, not a symbol for what is to come. In response to an inquiry by the reporter, her respondent, Beth Ann Bovino, the chief U.S. economist at S.&P., said, “We spend a lot of time trying to think about what’s the economic outlook and what to expect ahead,” she said. “What disturbs me about this recovery — which has been the weakest in 50 years…”

It seems to me that the use of “disturb” implies that some norm is being threatened. If she were really concerned about the state of the economy, she might be disturbed by the inequality, per se, not its effects on growth. Maybe she (and S&P) are, but I doubt that since their clients are the world that is always clapping their hands when growth takes its bows on the stage of economic performance. The article is neither kind to economist nor the poor, although I would guess that that was not the intention of the reporter.

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