Policies that boost economic growth don't necessarily accelerate income inequality -- they can actually reduce it, a group of economists from developed nations suggested on Monday.
A new report from the Paris-based Organization for Economic Cooperation and Development recommends that cash-strapped governments choose "win-win" tax and spending reforms that simultaneously spur growth and shrink income disparities.
“Rising inequality is one of the major risks to our future prosperity and security,” OECD chief economist Pier Carlo Padoan said in a statement. “The main challenge facing governments today is implementing reforms that get growth back on track, put people to work and reduce the widening income gap.”
The report's authors found that compared to other developed nations, the United States ranks as the most unequal in two categories: the distribution of earnings among full-time workers, and the share of total income earned by the top 1 percent.
According to the report, a top priority should be the reduction or elimination of tax breaks that primarily benefit the well-off. That would allow for a "growth-friendly" reduction in marginal tax rates while at the same time increasing the equitable distribution of income, the OECD said.
The group also recommended reducing the gap in employment protection between temporary workers and those on permanent contracts; providing more affordable child care; and improving educational outcomes, particularly for immigrants and the poor.
Economists at such places as the OECD, the World Bank and the International Monetary Fund are rarely adventurous, generally sticking to platitudes about austerity and deficits. But plummeting growth combined with growing inequality have found them increasingly taking a stand against austerity and in favor of policies that, in the current political climate in the U.S., would be labeled left-wing.
“The mainstream policy consensus is shifting," Simon Johnson, a former chief economist of the International Monetary Fund turned progressive blogger, wrote in an email to The Huffington Post. "Even relatively middle-of-the-road organizations like the OECD start to worry about increasing inequality and where that will lead.
"How this will impact policy and politics, however, remains uncertain.”
Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an email, bookmark his page; subscribe to his RSS feed, follow him on Twitter or on Facebook, and/or become a fan and get email alerts when he writes.