The debate on inequality ran through discussions in the corridors and on stage at the International Economics Association congress held in Jordan 6-9 June 2014.
Inequality remains high on the agenda following the Occupy movement and the critical response to Piketty’s “Capital in the 21st Century.” Yet there is a lack of attention to such underlying questions as: What is the causal link between growth and inequality? Do current trade and technology patterns lead to greater within-country inequality? Does inequality of outcomes matter if inequality of opportunity is improving?
Such questions tend to be ignored in the rush to policy recommendations. Looking at the Middle East and North Africa, a frequently refrain is to reduce subsidies on energy and food for everyone, replacing them with more targeted cash transfers for the ‘poor’. Yet implementation invariable involves politics, such as the ‘rich’ imposing conditions on what such cash can be spent.
Some lessons from the North Atlantic financial crisis are becoming clear. Information asymmetries and human behaviour offer insights beyond models based solely on rational expectations. Markets require trust that agreements will be honoured, that borrowed money will be repaid, and that government will come to the rescue if needed. Central Banks fixate on keeping inflation low through short-term interest rates. Yet historically, states used various instruments of monetary policy, including savings and loans for housing, credit to key industries, and employment strategies.
There is a tension between development as grand design and as one-experiment-at-a-time. The post-2015 development agenda faces strong pressure to promise more than donors can deliver. Its vision aims to end extreme poverty by establishing a global social floor, yet leaves unanswered how to finance such a goal, and ignores the increasingly salient links between development and climate financing. Ultimately, it can be more fruitful to assess ongoing experiments, such as in Bangladesh where private financial institutions are lending to women entrepreneurs, share-croppers, and small enterprises.