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Does Capitalism shrink inequality?
April 12, 2017
In today’s Bloomberg View column, I debate Noah Smith over one of his previous columns in which he claims that capitalism shrinks inequality. I don’t think the facts are on his side:
Debating Whether Capitalism Shrinks Inequality
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mathbabe 
Supplemental Question: Given the assumption that inequality has bad aspects, is it OK nonetheless to ask if one should also assume that the resources available are fixed?
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Re: Venezuela — Does making everyone poorer count as “success” in terms of increasing economic equality?
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If the richest people get poorer more than the poorest, yes.
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The flaw in the debate is that in communism reducing income inequality is a desired outcome. It was so successful in the Soviet Union and in my native Hungary that people had to stand in line for rations, not to speak of Venezuela. Of course while all were equal, some were more equal than others. Under capitalism income stratification is a positive factor and is a major driving force for innovation and growth. In the real world, even under capitalism, if the inequality becomes too large, some of the masses try to impose communism not realizing that they will actually be worse off, so some socialist measures are taken.
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it looks like there is a very big conflation going on between introduction of capitalism to preindustrial countries vs capitalisms nature in its postindustrial form. yes capitalism maybe has a dramatic levelling effect in preindustrial systems but seems to have a very long term NONlevelling effect in terms of inequality at “late stage” industrial systems. anyway there are a lot of degrees of capitalism from laissez faire to moderately managed.
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Yes, I noticed this too — huge difference between highly-advanced *corporate* capitalism, and the other underlying organizational forms being discussed. Charles Perrow (Yale) has published on this, Organizing America.
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ok read the articles in more detail & didnt realize smiths nuanced position, and the inherent ideas about various stages of capitalism in developed/ undeveloped world, and his position that “socialism/ redistribution is compatible with capitalism”. but think noah smiths big elephant in the room is trying to explain the massive increase in inequality for ~½ century since world war II in US; its wild that he says ZILCH about it. or maybe it is strong evidence that the US is now too far/ heavy on the NON redistributionist policy? (a trend that seems to be going for decades, think maybe closely mirroring top tax bracket rates… & btw suspect those are one of the strongest barriers to inequality increase, and yet nearly unrecognized as such by anyone….)
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You got an American financial columnist to say that socialism is good? The world really is changing.
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My grandfather used to say that socialism is the best system for mankind, but mankind wasn’t (and will never be) ready for it.
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https://www.ft.com/content/3349ef84-268c-11e7-a34a-538b4cb30025
Rana Foroohar’s perhaps wishful thinking of a popular backlash against Silicon Valleyers
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Thanks so much for publishing this exchange. This is phenomenal. The most striking part about it was the early part where you defined terms. The fact that Noah quickly clarified that what he was reporting on wasn’t a version of capitalism that was on the opposite end of the spectrum from socialism but merely the idea of free markets–this was key. It’s so important because without this exchange (and sadly for probably thousands of people who read Noah’s original article but not this follow-up), they’ll walk away with what they think is ammunition against wealth redistribution. For most of the people who are proponents of free market capitalism, the boggyman is socialism. As much as I admire his willingness to engage and clarify publicly with you, Cathy, it’s a sad comment on Noah’s journalism that he allowed his work to be framed as incompatible with redistribution policies. It reminds me of what I recently read in “Economism: Bad Economics and the Rise of Inequality” by James Kwak.
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