Inequality Does Not Reduce Prosperity

By Scott Winship

Since the Great Recession, inequality has loomed large in policy debates in the United States and around the world. Losses from the recession and the slow pace of recovery since have fueled concerns that inequality is not simply unfair but harmful. It is now commonplace to see claims that high and rising inequality levels have held back or worsened living standards among the poor and the middle class, a theme of Thomas Piketty’s best-selling Capital in the Twenty-First Century.

Such concerns may nevertheless be misplaced. The prospect of vast economic returns might, for instance, incentivize more innovation and investment, producing stronger economic growth and higher incomes even among those who do not amass fortunes. By rewarding work and human capital investment, inequality between the upper middle class and the poor could also promote stronger earnings growth for everyone over time.

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