Abstract
Conventional analysis treats income inequality as a microeconomic artefact, the outcome of a diverse set of semi-autonomous market processes, without economic consequences in its own right. Global evidence contradicts this view, establishing that movements of inequality within countries are largely rooted in transnational and especially financial forces, transmitted in part through exchange rate movements, and thus inequalities should be treated as part of a general macroeconomic process at the global scale. Economic structures and institutions govern the ability of individual countries to maintain their autonomy in the face of these forces. Overall, economic inequality is a useful indicator of the potential for economic, social, and political instabilities, and policies that control inequalities have useful stabilizing properties, promoting productivity growth and fuller employment. To adopt this approach rigorously, to understand that distributive outcomes stem from macroeconomic processes, is to vitiate a large part of conventional microeconomic theory and practice, calling into question some of the most basic elements of economic orthodoxy.
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Galbraith, J.K. (2020). Inequality and Instability. In: Vernengo, M., Caldentey, E., Rosser Jr, B. (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_3092-1
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