GROWTH AND/OR EQUALITY?
The connection, if any, between economic growth and economic inequality has fascinated economists for generations. It is probably fair to say that most have agreed with Dalton (1935:21) that absolute economic equality would impede economic growth. However, as he notes, "The rejection of crude egalitarianism does not take us far, though there are some who seem to think that, when they have disposed of the argument for absolute equality, they have disposed also of all arguments for reducing existing inequalities." The more important question, since all societies are to some degree, by some definition, "unequal," is whether more unequal societies will grow more quickly or, to pose the issue somewhat differently, whether efforts to produce a more equal society will also produce lower rates of growth of average incomes. Several recent writers (e.g., Okun, 1975) have argued that society faces a "trade‐ off" between growth and equality—Taubman (1978:5), for example, puts the point unambiguously: "Policies to redistribute the economic pie as measured by market production also cause the pie to be reduced."
A major theme of Chapters 2 and 3 was, however, that what one means by "the economic pie" and how one measures the inequality of its division is not in general an unambiguously obvious issue. Even if one is considering only inequalities of economic outcome and not those of economic opportunity, it matters a good deal which variable one selects for examination (e.g., annual money income, annual "full" income, lifetime income, wealth, etc.) and how one measures its dispersion (e.g., Gini ratio, Theil index, etc.). "Growth" and "efficiency" are also terms which need to be defined carefully. Broad assertions that a trade-off exists between "equality" and "growth" may therefore reflect accurately a certain attitude of mind but they are difficult to evaluate dispassionately until the terms involved are carefully defined. More usually, they are very vaguely defined and the "trade-off" is asserted as virtually a self-evident proposition.