More inequality concerns

Kenneth Rogoff, a professor of economics at Harvard and former chief economist at the International Monetary Fund, expressed concern about inequality in an article in yesterday’s Financial Times. Although the article focused on the possibility of a Chinese economic slowdown its points on inequality were much broader. He argues that:

“Protectionism is another growing risk. With income and wealth inequality rising throughout the developed world, politicians may start lashing out at China with trade sanctions on automobile parts, steel, paper products and, of course, textiles. China’s explosive export growth has made it far more vulnerable to a fall in exports than it was during the 2001 global recession.

“Perhaps the greatest threat to China’s expansion, however, comes from pressures created by its own exploding inequality levels. According to World Bank statistics, income inequality in China has leapfrogged that of the US and Russia, which is no small feat. Rising inequality is placing enormous strains on the political system, as is evident from a recent sequence of ill-considered policies that have been aimed at mitigating the problem. The government’s recent attempt to fight food inflation by using price controls is a highly conspicuous example.”

Later on Rogoff argues for welfare reforms as the best way of dealing with inequality:

“Rather than try to deal with inequality by labour market fiat, the government would do better to improve the social safety net through provision of more and better healthcare and pensions.”

Soon I hope to write a critique of these limited views of inequality.