August 25, 2014 Print

In a challenge to Peter Hummelgaard, parliamentary candidate representing the Social Democratic party in Denmark, Martin Agerup, executive director of Atlas Network partner and Danish think tank CEPOS, recently penned a rebuttal to pro-redistributionists who tout the oversimplified claim that income inequality harms growth.

In an article published by news source Jyllands-Posten (in Danish), Agerup argues Hummelgaard recently made this claim based on sources that, in fact, tell a more complicated story. For example, Agerup points out the International Monetary Fund study Hummelgaard references promotes the opposite conclusion redistributionists would like us to reach. From the executive summary, IMF analysts write, “Even if inequality is bad for growth, taxes and transfers may be precisely the wrong remedy.”

Hummelgaard’s second source, a report from the rating agency Standard and Poor’s, only further underscores the challenge of crafting the right policy response to inequality, according to Agerup. A key passage from the report concedes, “Income inequality can contribute to economic growth,” and then offers this warning about efforts to narrow the gap: “[T]oo much of the focus in the debate about inequality has been on the top earners, rather than on how to lift a significant portion of the population out of poverty--which would be a good thing for the economy. And though extreme inequality can impair economic growth, badly designed and implemented efforts to reverse this trend could also undermine growth, hurting the very people such policies are meant to help.”

This line of reasoning bolsters Agerup’s principal message. He writes, “It is shocking to see how the focus of the inequality debate in recent years has moved from a sympathetic desire to raise the lowest incomes to an obsession to reduce the highest.” The smarter policy path, he argues, is growth and prosperity for everyone with a focus on improving the standard of living for the poorest among us.