Inequality and economic growth | The Business Standard
Skip to main content
  • Latest
  • Epaper
  • Economy
    • Banking
    • Stocks
    • Industry
    • Analysis
    • Bazaar
    • RMG
    • Corporates
    • Aviation
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
The Business Standard

Wednesday
June 18, 2025

Sign In
Subscribe
  • Latest
  • Epaper
  • Economy
    • Banking
    • Stocks
    • Industry
    • Analysis
    • Bazaar
    • RMG
    • Corporates
    • Aviation
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
WEDNESDAY, JUNE 18, 2025
Inequality and economic growth

Thoughts

Simon Johnson
31 January, 2020, 03:55 pm
Last modified: 31 January, 2020, 04:07 pm

Related News

  • Bangladesh's growth forecast unchanged: WB report
  • Bangladeshi cos expecting increased costs due to tariffs, yet extremely optimistic about int'l growth: HSBC survey
  • Ctg Custom House earns Tk63,000cr in 10 months, sees 13.14% growth
  • Banks see highest deposit growth in nine months as trust turns a corner
  • Renata posts 13% growth in revenue

Inequality and economic growth

Economic policymakers can no longer afford to view inequality as an issue separate from boosting employment and incomes. Addressing it through a wealth tax, combined with more effective antitrust policies and enforcement, has become essential to sustaining economic growth, including by encouraging the creation and growth of new business.

Simon Johnson
31 January, 2020, 03:55 pm
Last modified: 31 January, 2020, 04:07 pm
Inequality and economic growth

In previous eras, top economic decision-makers considered inequality to be distinct from the main concerns of macroeconomic policy. Since the Industrial Revolution, the general view has been that, on average, people want higher incomes and a larger number of good jobs – and that the best way to achieve these goals is through faster economic growth. Not surprisingly, therefore, much thought has been devoted to the question of how to design and run monetary and fiscal policies that can sustain higher aggregate growth rates.

Inequality was regarded as a separate issue, which could be addressed at the margin through making net taxes more or less progressive. Rich people would contribute a higher share of their total incomes to the public finances than would the middle class.

It is increasingly apparent that there are three main problems with this view of the world, at least as it applies to the modern United States. All three are made fully apparent in Heather Boushey's brilliant new book, Unbound: How Inequality Constricts Our Economy and What We Can Do About It.

The Business Standard Google News Keep updated, follow The Business Standard's Google news channel

First, the tax system has ceased to be progressive. Warren Buffett famously remarked in 2011 that his tax rate is lower than his assistant's – and this is not an isolated occurrence. Since the 1970s, effective taxes on income from capital (for Buffett) have fallen dramatically, while taxes have remained much steadier for wage earners such as assistants (including to billionaires, it turns out).

If we include health-care costs – insurance premiums, deductibles, and out-of-pocket expenses – then median take-home pay (available to spend on everything other than health care) has barely budged in recent decades. There is nowhere near as much redistribution as there was in the post-World War II decades. (In my book with Jon Gruber, Jump-Starting America, we examine the statistics and history in more detail.)

Second, the extent of inequality has increased, owing partly to barriers to market entry, which also undermine economic growth. It is easy to understand why Buffett likes investing in companies with "moats" – for example, in insurance, railways, and other sectors. Owning firms that are difficult for others to challenge is undoubtedly good for his profits. But economic policymakers' goal should not be to maximize profits for one sector, let alone one group of investors. Across the entire economy, more entrepreneurship and more market entry tend to erode incumbents' profits and thus mitigate inequality, because the entry of new firms into an industry will likely create more jobs, boost incomes, and lead to new products, better services, or both.

Third, inequality has become a driver of worsening outcomes in a broader political-economy sense. When rich people spend their money to influence political decisions, they do not typically seek to ensure freer entry for others into the sectors that generate their wealth, precisely because that would likely mean less for them. On the contrary, powerful incumbents want more protection from domestic and foreign competition. They also want more subsidies, whether through the tax code or otherwise. And their most cherished goal is to become too important to fail, so that they are likely to be bailed out in times of trouble.

Boushey connects these dots in a remarkable and refreshing manner. Even for people who have studied the issue, the links and specific policy issues she identifies are illuminating. This is not an argument against markets or against private enterprise, but it is an important cautionary tale: we get the inequality that we choose, regardless of whether we are aware that we are making a choice.

Unbound is not an explicitly partisan book, but it is easy to draw inferences for the current political season.

For starters, if the existing system is broken, the easiest and fairest way to fix it would be with a modest wealth tax. The specifics can be debated, but a tax on wealth over $50 million would impact only the richest 0.1% of all Americans.

Moreover, if barriers to market entry are becoming a problem, then we should change the focus of antitrust activity to reduce those barriers in a reasonable and timely manner. If traditional criteria, developed in and for the pre-Internet era, prove cumbersome or ineffective, then we should update them.

And if wealthy people are buying political access, with the result that the economy is becoming more distorted and less fair, then we should change the campaign-finance and lobbying rules. In the US, a higher rate of tax on wealth over $1 billion (or a similar very high level) would affect only about 600 people, but it would send a powerful signal that their outsize influence will be addressed.

Inequality at modern levels is not an accident. It is the result of policy choices that were influenced or swayed by relatively rich people (again, Unbound has the details). The pendulum can – and should – swing back in the other direction.

Economic policymakers can no longer afford to view inequality as an issue separate from boosting employment and incomes. Addressing it through a wealth tax, combined with more effective antitrust policies and enforcement, has become essential to sustaining economic growth, including by encouraging the creation and growth of new business.

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan and an informal adviser to US Senator Elizabeth Warren's presidential campaign.

Top News

inequality / Economic / growth

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Donald Trump speaks to members of the media on the South Lawn at the White House in Washington, DC, 18 June 2025. Photo: Reuters
    'I may do it, I may not': Trump on US joining Israeli strikes on Iran
  • Evacuation of Bangladeshis: Where do they go next from conflict-ridden Iran?
    Evacuation of Bangladeshis: Where do they go next from conflict-ridden Iran?
  • Iran's Supreme Leader Ayatollah Ali Khamenei speaks during a meeting with the members of the Expediency Discernment Council in Tehran, Iran October 12, 2022. File Photo: Office of the Iranian Supreme Leader/WANA (West Asia News Agency)/Handout via REUTERS
    Khamenei says any US strikes will have serious consequences, rejects Trump's call for surrender

MOST VIEWED

  • Infograph: TBS
    Govt to ease loan rules to help foreign firms expand in Bangladesh
  • Google Pay. Photo: Collected
    Google Pay coming to Bangladesh next week
  • Logo of Beximco Group. Photo: Collected
    Beximco defaults on €33m in Germany, Deshbandhu owes Czech bank €4m
  • Global map showing nuclear weapon inventories by country as of January 2025, including deployed, stored, and retired warheads. Source: SIPRI
    How Israel's secret nuclear arsenal comes under spotlight amid attacks on Iran
  • The Kallyanpur Canal is burdened with more than 600,000 kilograms of waste every month. Photo: Courtesy
    Kallyanpur canal project shows how to combat plastic pollution in Dhaka
  • The India-Bangladesh integrated checkpost in Fulbari. Photo: Passang Yolmo via Telegraph India
    Import of boulders from Bhutan to Bangladesh stopped by Indian transporters in Fulbari

Related News

  • Bangladesh's growth forecast unchanged: WB report
  • Bangladeshi cos expecting increased costs due to tariffs, yet extremely optimistic about int'l growth: HSBC survey
  • Ctg Custom House earns Tk63,000cr in 10 months, sees 13.14% growth
  • Banks see highest deposit growth in nine months as trust turns a corner
  • Renata posts 13% growth in revenue

Features

Evacuation of Bangladeshis: Where do they go next from conflict-ridden Iran?

Evacuation of Bangladeshis: Where do they go next from conflict-ridden Iran?

35m | Panorama
The Kallyanpur Canal is burdened with more than 600,000 kilograms of waste every month. Photo: Courtesy

Kallyanpur canal project shows how to combat plastic pollution in Dhaka

1d | Panorama
The GLS600 overall has a curvaceous nature, with seamless blends across every panel. PHOTO: Arfin Kazi

Mercedes Maybach GLS600: Definitive Luxury

2d | Wheels
Renowned authors Imdadul Haque Milon, Mohit Kamal, and poet–children’s writer Rashed Rouf seen at Current Book Centre, alongside the store's proprietor, Shahin. Photo: Collected

From ‘Screen and Culture’ to ‘Current Book House’: Chattogram’s oldest surviving bookstore

3d | Panorama

More Videos from TBS

What's going on in Netanyahu's head behind the regime change story?

What's going on in Netanyahu's head behind the regime change story?

35m | TBS World
The type of bomb the US could use if Trump attacks Iran

The type of bomb the US could use if Trump attacks Iran

1h | TBS World
Why is Fordow Nuclear Facility at the Center of Trump’s Deliberations?

Why is Fordow Nuclear Facility at the Center of Trump’s Deliberations?

3h | TBS World
AI will replace jobs at tech giant: Amazon CEO

AI will replace jobs at tech giant: Amazon CEO

4h | Others
EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Advertisement
  • Privacy Policy
  • Comment Policy
Copyright © 2025
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net