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Are Equality & Productivity Incompatible?

By Peter Brown

It's time to acknowledge that a strong economy in which everyone shares equally probably isn't possible in an era of globalization.

The latest evidence comes from Japan, where the end to its 15-year economic downturn is good news for the world's second largest economy, and everyone who trades with the merchants of the Rising Sun.

But, as incomes, property values and the stock market rise, and unemployment drops, there is a familiar wail from those who see the increasing gap between rich and not so rich as a terrible price to pay for prosperity.

Of course, that has been the complaint in the United States; the economic miracle that has been the U.S. economy in the past quarter century has produced uneven rewards.

There are those who see this as a fatal flaw, though it is hard to believe they yearn for the days of double-digit inflation and unemployment.

Yet they refuse to see the incompatibility of the two. They somehow believe they can repeal the laws of human nature by getting people to produce more, even if those folks aren't going to get any more out of it.

And, if you think the global economy is burying egalitarianism, just wait a few years.

When China and India become the consumer-driven, middle-class societies to which they aspire, inevitably there will be hundreds of millions of people left out.

Those societies in most have been equally poor can decide whether they like their much higher standard of living enough to tolerate the fact that not everyone is sharing equally.

Wanna bet they opt for inequality?

Globalization, and the price competition it brings with it, dictates the choice is between economic systems that worry more about how to divide the wealth, and those that focus more on increasing overall wealth, regardless of how it is the distributed.

Of course, the politically correct answer is that we can do both.

But the evidence is overwhelmingly to the contrary. After all, we have now, and will in the future, unlimited human wants and limited resources.

Human beings produce more when they are rewarded for it. Inevitably such incentives create a society in which some do better than others.

It is not all a matter of taxes, but it is human nature that the more you tax someone's earnings, the greater the disincentive for their productivity.

This is all worth remembering as another tax deadline goes by and we ask ourselves exactly what should be our tax system's purpose, if any, other than raising sufficient revenue?

Should, or perhaps more realistically, how much should the tax code be used to produce desired social goals? And, how much should the laws foster a vibrant economy without regard to those concerns?

Most importantly, what is the acceptable trade-off?

The issue once again raises its head as another study tells us something we already knew - that the Bush investment tax cuts that went into effect three years ago primarily benefited the wealthiest Americans.

This is not news, although the statistics that can be used by those trying to push U.S. economic policy in a different direction

The past 25 years, measured by the traditional unemployment, inflation and economic growth numbers have been very, very good by historical standards.

Those who want to find fault can point to growing trade and budget deficits, declining individual savings rates and rising debt totals. Those data are worth worrying about because they are real measures of economic health and might lead one to conclude that the economic status quo is not all it cracked up to be.

But data that the rich are getting richer requires us to ask: Why is that necessarily a bad thing as long as the vast majority of us are also benefiting?

That is how capitalism works. Some people do better than others -- a few much, much better.

In case you haven't noticed, a number of countries - China, Russia, India, much of the rest of Asia and Eastern Europe -- that used to be more focused on the idea of making sure everyone is treated the same have changed their tune.

They haven't fallen in love with inequality, but have come to realize that in the real world, incentives spur productivity, which creates wealth that is shared unevenly.

The alternative is equality in poverty, or at least in a lower standard of living.

Welcome to economics 101.

Peter A. Brown is assistant director of the Quinnipiac University Polling Institute. He can be reached at peter.brown@quinnipiac.edu

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