The Oligarchy Fallacy

Many fear that the rise in income inequality stems from the growing role of money in politics, with the rich persuading governments to adopt policies that favor them as a class. But pursuing the anti-oligarchy argument is not the best way to reduce inequality.

CAMBRIDGE – Income inequality has received a lot of attention lately, particularly in two arenas where it previously received little: American public debate and the International Monetary Fund. A major reason is concern in the United States that income inequality has returned to Gilded Age extremes; but inequality has increased in many other parts of the world as well, and remains high in Latin America.

What have we learned so far? Perhaps what is most interesting about the current discussion is that much of the focus has been on the consequences of inequality beyond its adverse effect on the welfare of the poor.

One such avenue of debate starts from the hypothesis that inequality is bad for overall economic growth. Another begins with the view that inequality leads to volatility and instability. Did inequality cause, for example, the subprime mortgage crisis of 2007 and hence the global financial crisis of 2008?

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