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How Rising Inequality is Stalling Economies by Crippling Demand

By Stephen Bell ~ The Conversation

Rising inequality is a concern across the developed economies, including Australia where top earners’ pay has soared to a 17-year high while ordinary workers’ wage growth has been the lowest on record. And that’s ultimately bad news for economic growth. This is longer than the usual Conversation article, so allow some time to read and enjoy.
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In the last decade or more, economic growth has slowed across the Western world, although a belated though weak recovery has been under way since around 2017. In the US, for example, growth in gross output per capita averages around 1% a year this century. That’s about half the average rate during the second half of the 20th century.
American economist Arthur Okun famously argued there was a trade-off between equality and economic efficiency, implying little chance of high inequality and sluggish economic growth occurring together. Yet this is exactly what is happening in the US. What has gone wrong?
In The Captured Economy, Brink Lindsey and Steven Teles explore US economic sectors such as finance, land use, occupational licensing and intellectual property rights. They argue powerful interests have captured these sectors and are using the state to distort markets to their advantage. This kind of rent-seeking is weakening growth and driving up inequality.

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