Patrick Brennan writes in The National Review, The Equality Fetish, 6/22/12.

Excerpts:

There are two elements of the ubiquitous thesis: Increased inequality generally slows economic growth, and it contributes to financial crises such as our current one. But there’s never been much good evidence to support either assertion. The best evidence for a causal link between inequality and economic growth, alluded to in the president’s cryptic claim above, is an IMF paper that suggests economic booms last longer and are steadier in countries with less income inequality. But this link relies on countries such as Cameroon and Colombia (two of the cases examined) — dysfunctional nations with extreme inequality that often leads to pervasive rent-seeking or political instability, causing uneven economic growth. For the question of inequality in the U.S., the most relevant study on the topic, which considers industrialized nations over the course of the 20th century, finds no meaningful link between inequality and income growth.

There is also almost no evidence that economic inequality causes financial crises. As a recent paper by Michael Bordo and Christopher Meissner argues, there is no “general relationship” between inequality and credit booms and crises — it isn’t hard to find a correlation between the two, but these two dynamics are also correlated with a huge number of other economic factors. Mark Thoma, a liberal professor of economics at the University of Oregon, has admitted, “I am not saying that the evidence stacks up against the idea that inequality contributed to the recession, it could very well be true . . . [but] the evidence I’m aware of doesn’t tell us much one way or the other.”

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