Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 18

Relative Price Changes, Income Redistribution, and the Politics of Envy

Abstract

A stagnant world or a slow growing world economy is an environment that propitiates the politics of special interest groups. The reason for this is that as the economy slows down, income redistribution may be the only option that certain groups will have to increase their standard of living. If these people do not care about other groups, we could fall into a vicious cycle where the politics of envy lead to redistribution policies and these, in turn, destroy incentives and produce slower growth. The slower growth further propitiates the politics of the special interest groups and redistribution that leads to a second round of lower growth, hence the vicious ...