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Thursday, 28 November 2013

'Austerity increases income inequality' (c) IMF

The fanatically pro market Austrian School economist Ludwig von Mises famously stated that 'inequality of wealth is the cause of the masses' well being, not the cause of anybody's distress.' Once the province of right wing cranks, such thinking has become today's neo liberal orthodoxy. The December 2013 issue of the IMF's quarterly magazine "Finance & Development" has an article summarizing recent reports produced by the Fund's research department showing that austerity ("fiscal consolidation") and capital account liberalization policies increase income inequality:

So as not to contradict IMF practice, the article is careful to state: "These results do not imply that countries should not undertake capital account liberalization or fiscal consolidation. After all, such policy actions … reflect an assessment that they will benefit the economy."

However the article suggests that governments should consider actions to mitigate the distributional impact of "beneficial" austerity and liberalization programmes: "For instance, greater resort to progressive taxes and the protection of social benefits for vulnerable groups can help counter some of the effect of fiscal consolidation on inequality."