Authors: Piero BENAZZO
Comments: 10 Pages. Published in Tidningen Kulturen on 25 March 2013
In 1943 in Bengal, inequality together with the inelasticity of supply led to an increase of entitlements for some citizens that generated inflation in the subsistence sector and decreased entitlements for others. These latter experienced tragic famine. This shows that distribution matters. A subdivision of the economy between subsistence sector and wealth sector brings such arguments in the whole economy. The analysis specifies aggregates of variables and conditions whereby these dynamics currently remain hidden behind aggregation. For example, a decoupling between demand side, which originates locally, and supply side, which may be delocalised, shuffles rankings hiding dynamics. Increase in inequality would generate an inequality trap inflating the subsistence sector in relation to the wealth sector, generating recession in this latter. This would eventually overtake increasing efficiency. Some policy options are discussed.
Category: Economics and Finance